Friday, December 2, 2016

James Kwak — Economics 101, Economism, and Our New Gilded Age

In policy debates and public relations campaigns, however, what you are more likely to hear is that a minimum wage must increase unemployment—because that’s what the model says. This conviction that the world must behave the way it does on the blackboard is what I call economism. This style of thinking is influential because it is clear and logical, reducing complex issues to simple, pseudo-mathematical axioms. But it is not simply an innocent mistake made by inattentive undergraduates. Economism is Economics 101 transformed into an ideology—an ideology that is particularly persuasive because it poses as a neutral means of understanding the world.
Overextension of the scope of the model. The scope is determined by the assumptions, and the more restrictive the assumptions, the more limited the and the less realistic the model.

Economism is a logical fallacy used rhetorically to persuade through mathiness. It's not science but persuasion that amounts to sophistry. Intelligent economists know this. Those who don't realize it are unintelligent. So take you pick between liar and moron.

Baseline Scenario
Economics 101, Economism, and Our New Gilded Age
James Kwak | Associate Professor of Law at the University of Connecticut School of Law

6 comments:

AXEC / E.K-H said...

The disutility of debunking Econ 101
Comment on James Kwak on ‘Economics 101, Economism, and Our New Gilded Age’

All are agreed: Econ 101 is rubbish.#1 However, there is not much use to debunk it over and over again. What is needed is the true theory: “In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum)

The true theory of the market economy is neither to be found in Econ 101 nor in the textbooks#2 nor in the newspapers nor in the history books.

Because standard employment theory is false, standard economic policy guidance regularly worsens the situation, that is, economists bear the intellectual responsibility for unemployment, deflation, depression, stagnation.#3

In order to get rid of Econ 101 a paradigm shift is needed: “The moral of the story is simply this: it takes a new theory, and not just the destructive exposure of assumptions or the collection of new facts, to beat an old theory.” (Blaug)

This is the current state of economics: Walrasian microfoundations are false since 140 years and Keynesian macrofoundations are false since 80 years. What is urgently needed are the true macrofoundations and the true employment theory#4 and NOT just another debunking exercise.

The sooner Econ 101 is forgotten, the better. The sooner the blathering ‘throng of superfluous economists’ (Joan Robinson) is fired, the better.

Egmont Kakarot-Handtke

#1 For details see cross-references Econ 101
http://axecorg.blogspot.de/2015/11/cross-references-econ-101.html

#2 See ‘The father of modern economics and his imbecile kids’
http://axecorg.blogspot.de/2016/11/the-father-of-modern-economics-and-his.html

#3 See ‘How economists murdered the economy and got away with it’
http://axecorg.blogspot.de/2016/11/how-economists-murdered-economy-and-got.html

#4 For details see cross-references Employment
http://axecorg.blogspot.de/2015/08/employmentphillips-curve-cross.html

Bob said...

The only true theories in economics are those that justify inequality. Academics who refuse to obey this commandment are sentenced to obscurity.

Economics for the few at the expense of the many is the only acceptable state of affairs.

A theory of inequality is usually given philosophical and ideological support. For example, a meritocratic outcome is a just outcome.

The full equation can be summarized as follows:
Economics of inequality + Meritocracy + Use of force = Theory of Power

AXEC / E.K-H said...

Bob

James Kwak gives everybody a choice: “Economism is a logical fallacy used rhetorically to persuade through mathiness. It’s not science but persuasion that amounts to sophistry. Intelligent economists know this. Those who don’t realize it are unintelligent. So take you pick between liar and moron.” (See intro)

This resonates with my estimate of standard economics.#1

It seems that you have made your pick. This is your solution of the distribution problem: “The full equation can be summarized as follows: Economics of inequality + Meritocracy + Use of force = Theory of Power.”

That sounds like good old folk sociology. Take notice that (i) economics is different from sociology/psychology, and (ii), that the Profit Law for the investment economy reads Qm=Yd+I-Sm. Legend Qm: monetary profit, Yd: distributed profit, Sm: monetary saving, I: investment expenditures. The correct profit equation gets longer when government and foreign trade is included; it contains only MEASURABLE variables.

Obviously, the correct profit equation explodes the marginal theory of distribution and the familiar Keynesian alternatives and the rest of Econ 101 and, last but not least, your moronic folk-sociological wish-wash.#2

Egmont Kakarot-Handtke

#1 See post ‘Pseudo-voodoo-moron-proto-mumbonomics’
http://axecorg.blogspot.de/2015/11/pseudo-voodoo-moron-proto-mumbonomics.html

#2 See paper ‘The Profit Theory is False Since Adam Smith. What About the True Distribution Theory?’
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2511741

Bob said...

What distribution problem? Everyone gets their just desserts.

Economics is a creation of policy, not science. It gets changed through the political process. How many fields of science get changed through politics?

How many stakeholders are there in economics? in astronomy?
Even astronomy has to contend with orthodoxy.

Tell the most powerful stakeholders what they want to hear and you may be rewarded with a Nobel Prize. Meanwhile, the need for an alternative will come from the streets. Conditions have to deteriorate to the point where large numbers of people begin to revolt against the status quo.

AXEC / E.K-H said...

The economist’s pick: liar, moron or what?
Comment on Bob on James Kwak on ‘Economics 101, Economism, and Our New Gilded Age’

James Kwak gives every economist a choice: “Economism is a logical fallacy used rhetorically to persuade through mathiness. It’s not science but persuasion that amounts to sophistry. Intelligent economists know this. Those who don’t realize it are unintelligent. So take you pick between liar and moron.” (See intro)

Economics claims since Adam Smith/Karl Marx to be a science, explicitly with “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel”. Yet, everybody who looks closer into the matter comes to the conclusion that economics is a failed science. Economics consists of four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― which are mutually contradictory and axiomatically false. More specifically, all four approaches miss the scientific criteria of material and formal consistency.

So, on the surface James Kwak is right, the representative economist is either a liar or a moron. The two questions of real interest, though, are (i) how did economics become the honeypot of liars and morons, and (ii), how do we get out of the swamp?

The first thing to notice is that neither Adam Smith nor Karl Marx were scientists ― they were storytellers. As Schumpeter noticed: “But he [A. Smith] had no such ambitions; in fact he disliked whatever went beyond plain common sense. He never moved above the heads of even the dullest readers. He led them on gently, encouraging them by trivialities and homely observations, making them feel comfortable all along.”

The story Smith told was that that capitalists look like the bad guys but are unintentionally the good guys because the Invisible Hand somehow manages that the market system works to the benefit of all. The story Marx told was that capitalists are indeed the bad guys and that the market system will eventually break down. In more than 200 years economics has not risen above the level of proto-scientific storytelling.

In order to understand the failure of economics one has first of all to realize that there is political economics and theoretical economics. The founding fathers called themselves political economists, that is, they left no doubt that their main business was agenda pushing. Economists never got out of political economics. In other words, theoretical economics (= science) ultimately could not emancipate itself from political economics (= agenda pushing).

Political economics is fake science. And all agenda pushers from Smith, Ricardo, Marx to Keynes, Hayek, Friedman and onward to Krugman and Varoufakis are fake scientists.

This brings us to the real question: how to get out of the swamp of political economics? The very first thing to do is to accurately inform the general public about the present state of economics by deleting the word Sciences from the Bank of Sweden Prize. The second step is to implement the strict separation of politics and science in economics and to throw out all agenda pushers, liars and morons. The third step is to do the paradigm shift and to make economics a science. How this is done is known since Aristotle: “When the premises are certain, true, and primary, and the conclusion formally follows from them, this is demonstration, and produces scientific knowledge of a thing.”

Neither the premises of microeconomics nor the premises of macroeconomics are certain, true, and primary and because of this economics is one of the most embarrasing failures in the history of sciences.

Egmont Kakarot-Handtke

Bob said...

The first step is being done to a modest degree. The Nobel Prizes are losing their prestige, albeit for reasons unrelated to economics (e.g. awarding the peace prize to Obama).

The second step involves confronting corrupt institutions and individuals, from academia to government. This may require a scorched earth approach. I'm not hopeful.