Wednesday, July 12, 2017

Brian Romanchuk — Book Review: The Reformation In Economics

Philip Pilkington published "The Reformation in Economics: A Deconstruction and Reconstruction of Economic Theory" in 2016. It is an ambitious book, outlining the structural flaws of mainstream economic theory. He discusses the potential replacement theory, but this reconstruction is somewhat overshadowed by the deconstruction.
Bond Economics
Book Review: The Reformation In Economics
Brian Romanchuk

See also

Occasional Links & Commentary
Economics as religion?
David F. Ruccio | Professor of Economics, University of Notre Dame

Lars P. Syll’s Blog
Economics as a religion
Lars P. Syll | Professor, Malmo University


AXEC / E.K-H said...

Economics is not a science, not a religion, but proto-scientific rubbish
Comment on John Rapley on ‘How economics became a religion’

Economists tell the world each year in no uncertain terms that economics is a science by awarding this prize “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel”. The claim is provable false. So, is it true that economics is some kind of worldly religion with economists as a priesthood, as John Rapley claims? No, economics is neither a science nor a religion but a cargo cult science. Failed scientists are something different from priests. What they have in common, though, is that they are both story tellers in the Circus Maximus.

Since Adam Smith/Karl Marx economists are in the state of incorrigible self deception: “They’re doing everything right. The form is perfect. ... But it doesn’t work. ... So I call these things cargo cult science, because they follow all the apparent precepts and forms of scientific investigation, but they’re missing something essential.” (Feynman)#1

Fact is, there is no such thing as economics. There are TWO economixes: political economics and theoretical economics. The main differences are: (i) The goal of political economics is to successfully push an agenda, the goal of theoretical economics is to successfully explain how the actual economy works. (ii) In political economics anything goes; in theoretical economics the scientific standards of material and formal consistency have to be strictly adhered to.

Theoretical economics consists currently of four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― which are mutually contradictory, axiomatically false, materially/formally inconsistent, and which got the foundational economic concept profit wrong. What we actually have is the pluralism of provable false theories. This means that economic policy guidance since the iconic story tellers Adam Smith/Karl Marx never had a sound scientific foundation.

Theoretical economics is scientifically unacceptable. But this does not matter much as long as it is politically usable. And this is always the case, because economics is a rummage table of opinions.

Fact is that economists simply do not know how the economy works. This is not a big issue as long as the economy keeps random-walking on the broad green carpet of acceptable or tolerable performance. It becomes an issue once the economy has landed in the ditch.

This, then, is the favorable moment to reposition economics. The claim to be a science goes first of all down the drain: “The hubris in economics came not from a moral failing among economists, but from a false conviction: the belief that theirs was a science. It neither is nor can be one, and has always operated more like a church. You just have to look at its history to realise that.” (Rapley)

See part 2

AXEC / E.K-H said...

Part 2

Suddenly, after 140+ years, everybody becomes aware that the whole analytical superstructure of economics had been built upon false premises: “For starters, it rests on a set of premises about the world not as it is, but as economists would like it to be. Just as any religious service includes a profession of faith, membership in the priesthood of economics entails certain core convictions about human nature.” (Rapley)

What, then, are these premises? Orthodox economics is based upon the Walrasian axiom set = microfoundations: “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)

Obviously, this axiom set contains THREE NONENTITIES: (i) constrained optimization (HC2), (ii) rational expectations (HC4), (iii) equilibrium (HC5). Every theory/model that contains a nonentity is A PRIORI false. However, this is the authoritative definition of economics: “It is a touchstone of accepted economics that all explanations must run in terms of the actions and reactions of individuals. Our behavior in judging economic research, in peer review of papers and research, and in promotions, includes the criterion that in principle the behavior we explain and the policies we propose are explicable in terms of individuals, …” (Arrow)

The first thing to notice is that economics is ill-defined. Economics is not at all about Human Nature/motives/behavior/action ― this is the subject matter of psychology, sociology, anthropology and so on ― but about the nature/behavior of the economic system.#2 Methodologically, behavioral economics is the wrong approach because NO way leads from the understanding of human behavior to the understanding of how the actual economy works.

The four main approaches are axiomatically false and materially/formally inconsistent. What we actually have is the pluralism of false theories/models. Needless to emphasize that the pluralism of provable false theories is scientifically unacceptable.

Economics is NOT a science and neither orthodox nor heterodox economists are scientists. They have never been anything else than substandard thinkers, story tellers, and agenda pushers. Because the axiomatic foundations of both microeconomics and macroeconomics are false, all modern economics textbooks are false. This has nothing to do with religion or an economics priesthood but with manifest scientific incompetence.

Egmont Kakarot-Handtke

#1 See also ‘What is so great about cargo cult science? or, How economists learned to stop worrying about failure’

#2 See also ‘If it isn’t macro-axiomatized, it isn’t economics’