May 25, 2017

Productivity and the zombie apocalypse

Comment on Sandwichman on ‘Fighting Zombies with Zombies’

Blog-Reference

You quote: “The conclusion is inevitable: there is no mechanism within the framework of rational economic analysis that, in any situation, would secure the full absorption of displaced workers and render ‘permanent’ technological unemployment in any sense impossible.”

This sentence is only true insofar as the ‘frameworks of rational economic analysis’ is defective. The elementary version of the CORRECT objective, systemic, behavior-free, macrofounded employment equation is shown on Wikimedia.

From this equation follows:
(i) An increase of the expenditure ratio rhoE leads to higher employment L (the Greek letter rho stands for ratio). An expenditure ratio rhoE greater than 1 indicates credit expansion, a ratio rhoE less than 1 indicates credit contraction.
(ii) Increasing investment expenditures I exert a positive influence on employment.
(iii) An increase of the factor cost ratio rhoF=W/PR leads to higher employment.

From this follows that if rhoF is kept constant employment is kept constant. In other words, if the wage rate rises with the same rate as productivity employment is kept constant no matter what the rate of technical progress is. Alternatively, the price must fall, otherwise employment declines.

Unfortunately, the price mechanism DESTABILIZES the economy. The sequence is as follows: productivity up - rhoF down - employment down - wage rate down - rhoF down - employment down - and so on. In other words, the market economy is inherently unstable. The core claim of equilibrium economics is provable false. Standard employment theory is false since 200+ years.

Egmont Kakarot-Handtke

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REPLY to Barkley Rosser on May 26

You say: “I have not made too big of a deal about this, although I have mentioned it, but in fact your claim that all those schools of economic thought accept the axioms you say are false and use equilibrium analysis is simply false.”

Your attention span seems to be shorter than that of a fruit fly. What I said is this (and you can google it):

(i) The four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the pivotal economic concept profit wrong.

(ii) The WALRASIAN axiom set is given by: “HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states.” (Weintraub) Or, as Krugman put it: “most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point”.

(iii) Every model/theory that applies just one of the axioms HC1 to HC5 is false.

(iv) The other approaches are built on OTHER foundational propositions. These alternative approaches are also PROVABLE false albeit for OTHER specific reasons.

(v) The Keynesian and Post Keynesian axioms = macrofoundations are false. The proof has been given elsewhere.*

Conclusion: The four main approaches are built on DIFFERENT sets of foundational propositions. Walrasianism is defined by microfoundations, Keynesianism is defined by macrofoundations. Not only these two approaches, but ALL four approaches are axiomatically false. The COMMON defect of Walrasianism, Keynesianism, Marxianism, Austrianism is that profit is ill-defined. Economics is a failed science.

The question of equilibrium is a sub-issue because it figures prominently in the Walrasian set as axiom HC5. HC5 is a petitio principii, i.e. a methodologically inadmissible axiom.

Because equilibrium is a NONENTITY, ALL equilibrium models fly out of the window, no matter whether they are Walrasian or Keynesian equilibrium models. From the fact that equilibrium is a NONENTITY follows logically that disequilibrium, too, is a NONENTITY. Because of this, all disequilibrium models, too, fly out of the window. The economy is an evolving system and neither the concept of equilibrium nor disequilibrium is applicable.

It is obvious from your posts that you never had a proper understanding of what axiomatization, equilibrium, or profit is all about and in this all-inclusive scientific incompetence you are the very personification of the representative economist.

* See ‘Keynes’s Missing Axioms’ and ‘Why Post Keynesianism Is Not Yet a Science’ and ‘How Keynes got macro wrong and Allais got it right

Immediately following 'What is the fuss with New Economic Thinking all about?'