The 2007-9 financial crisis challenged macroeconomics, and in key ways macroeconomics failed the test. It is impossible to know what would have happened differently if the ideas and methods with which macroeconomists approached the crisis as it developed and then assessed potential reactions to it once it broke—not just the concrete models they had in their toolkit, but the underlying assumptions that shaped their intuition—had been different. Contemplating the possibilities points the way to what may be the most useful avenues for new research in the field. Without assumptions there is no theory, and without theory there is no analysis. Whether macroeconomists will be willing to find new assumptions on which to base their ideas, leaving behind the ones that straight-jacketed their thinking during the crisis, will largely determine whether the discipline will regain the usefulness it once seemed to have.
Democracy — A Journal of Ideas
The Search for New Assumptions
Benjamin Friedman | William Joseph Maier Professor of Political Economy at Harvard University
The Search for New Assumptions
Benjamin Friedman | William Joseph Maier Professor of Political Economy at Harvard University
ht Mark Thoma at Economist's View
2 comments:
In search of new economists
Comment on Benjamin Friedman on ‘The Search for New Assumptions’
Economics is a failed science. But economists were not only unable in the past 200+ years to figure out how the market economy works they are also unable to realize that the only thing that they can do for the progress of economics and the welfare of humanity is to retire.
The utter self-delusion of economists consists in the idea of New Economic Thinking. This is absurd. People who have proven their scientific incompetence by clinging to assumptions that were already dead in the cradle 140+ years ago and who cannot even get the elementary mathematics of accounting right lack the capacity of thinking altogether.#1 Joan Robinson called them the ‘throng of superfluous economists’. To suggest New Thinking to the representative economist is like suggesting pole-jumping to someone who cannot make two steps in a straight line.
Fact is that the four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent and that ALL got the pivotal economic concept profit wrong.#2
The only thing that works fine in economics is the survival strategy. Confronted with an economic crisis and the obvious failure of standard economics, economists readily admit/justify everything and enthusiastically promise New Thinking.#3 New thinking, though, consists only in a repacking of the old junk.
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.” More specifically, the 140+ years old starting point consists of this set of hard core propositions a.k.a. axioms: “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)
It should be pretty obvious that the axiomatic core of Orthodoxy 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. Fact is that the dimwitted Krugmen have not realized this until this very day. The chances that they will understand anything better in the future are zero.
Benjamin Friedman sums up: “Without assumptions there is no theory, and without theory there is no analysis. Whether macroeconomists will be willing to find new assumptions on which to base their ideas, leaving behind the ones that straight-jacketed their thinking during the crisis, will largely determine whether the discipline will regain the usefulness it once seemed to have.”
Benjamin Friedman, too, is a proto-scientific wish-washer. Translated into proper methodological terms, this is the case: Without true axioms there is no true theory and without true theory economists have NOTHING WORTHWHILE to say: “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)
See part 2
Part 2
Scientific truth is since 2000+ years well-defined by material and formal consistency: “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.” (Aristotle)
Economics does not need ‘new assumptions’ but a paradigm shift from false Walrasian microfoundations and false Keynesian macrofoundations to the true macrofoundations. Nothing less will do.#4
Economics is a science without scientists. The present generation of economists has disqualified themselves and cannot make a significant contribution to the discussion about how the actual economy works. Their chances of New Economic Thinking have been wasted long ago.
Egmont Kakarot-Handtke
#1 Fact of life: your econ prof is scientifically incompetent
https://axecorg.blogspot.de/2017/08/fact-of-life-your-econ-prof-is.html
#2 How the intelligent non-economist can refute every economist hands down
http://axecorg.blogspot.de/2015/12/how-intelligent-non-economist-can.html
#3 Failed economics: The losers’ long list of lame excuses
https://axecorg.blogspot.de/2017/01/failed-economics-losers-long-list-of.html
#4 First Lecture in New Economic Thinking
http://axecorg.blogspot.de/2017/05/first-lecture-in-new-economic-thinking.html
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