Thursday, January 4, 2018

Lars P. Syll — Modern economics – an intellectual game without practical relevance

I stand with Paul Feyerabend in taking an "anarchistic" approach to the philosophy of science. There is no "scientific method" that is the final arbiter of doing science. Or, as Mao famously said but did not follow through one, "Let a hundred flowers bloom." The cream will rise to the top.

Science is what scientists do, and free inquiry requires that they be free to pursue their curiosity. Exploration of options and alternatives is basic to evolutionary theory. Those that don't adapt to changing conditions go the way of the dodo.

The actual problem is that conventional economics has become a cult that excludes (Marxism) or marginalizes (heterodox economics) the unconventional on the grounds that "the methodological debate" is over. The field is stuck.

This situation has been recognized and criticized as the dogmatic approach to knowledge that was supposedly supplanted by the rise of science. It is anti-scientific. But it persists owing not to results but to power.

The problem arises from equating "real science" with mathematical formalism and Platonic intuitionism as the basis for model construction.

There is nothing inherently wrong with this approach as one approach, especially if models are compared with what is modeled using adequate data.

Problems arise, however, when it is taken to be the only "really scientific" approach, especially when models are not adequately substantiated with evidence, or  are contradicted by events.

The field needs to be opened up. This requires some people giving up their considerable investment in the status quo.

 The solution is similar to that of economic policy.  Inequality can only be addressed by addressing rents that lead to it and that involves addressing maldistribution. This disrupts the status quo and powerful interest oppose it.

The fault also lies with universities that support the dogmatic approach rather than a scientific inquiry.

These are political issues involving power relationships that stand in the way of free inquiry, which is the basis of both science and liberalism.

However, there is also merit to the challenge of those who propose abandoning the conventional approach to show that another or other approaches are superior. 

That is a valid response. Let the debate begin.

However, the debate actually began some time ago, and it was partially resolved. Business schools turned away from conventional economics toward the case study approach, since the practical results of economic modeling were insufficient for business purposes. So practical economics is being done under another roof.

Lars P. Syll’s Blog
Modern economics — an intellectual game without practical relevance
Lars P. Syll | Professor, Malmo University


AXEC / E.K-H said...

Heterodoxy, too, is scientific junk
Comment on Lars Syll on ‘Modern economics – an intellectual game without practical relevance’

Science is defined by material and formal consistency. If a theory/model fails on one criterion it is scientifically worthless. With regard to formal consistency there is no way around “… he who contradicts himself proves nothing” (Klant, 1988, p. 113). But formal consistency alone also proves nothing.

The actual state of economics is this: Orthodoxy has failed on both counts. Therefore, all hopes rest on Heterodoxy. The crucial question is, does Heterodoxy satisfy the indispensable methodological criteria? Let us have a look at profit theory.

The profit theories of Keynes, Kalecki, Minsky, Keen are different (Marx and Mises/Hayek could be added). They cannot all be correct at the same time. As there is only one Law of the Lever, there can be only one objective Profit Law for the economy as a whole. This is NOT the case.

(i) Keynes: “His Collected Writings show that he wrestled to solve the Profit Puzzle up till the semi-final versions of his GT but in the end he gave up and discarded the draft chapter dealing with it.” (Tómasson and Bezemer, 2010, pp. 12-13, 16)

(ii) “Kalecki derived this relationship in an extremely concise, elegant and intuitive way. He starts by making simplifications which he later progressively eliminates. These assumptions are:
• Divide the whole economy into two groups: workers, who earn only wages and capitalists, who earn only profits.
• Workers do not save.
• The economy is closed (there is no international trade) and there is no public sector.

With these assumptions Kalecki derives the following accounting identity:

where P is the volume of gross profits (profits plus depreciation), W is the volume of total wages, Cp is capitalists consumption, Cw is workers consumption and I is the gross investment that has been made in the economy. Since we have supposed workers who do not save (that is, to say in the preceding equation), we can simplify the two terms and arrive at:

This is the famous profits equation, which says that profits are equal to the sum of investment and capitalist’s consumption.” (Wiki, 2015)

(iii) Minsky: “The simple equation “profit equals investment” is the fundamental relation for a macroeconomics that aims to determine the behavior through time of a capitalist economy with a sophisticated, complex financial structure.” (Minsky, 2008, p. 161)

(iv) Keen: “Total income = Wages plus Profits” (2011, pp. 366, 146) and “… national income resolves itself into wages and profits” (2010, p. 12).

It is quite obvious that heterodox economists, like their orthodox counterparts, have NO idea of what profit is (2014). Hence, they fail to capture the essence of the market economy. Because of this, economists have nothing to offer in the way of a scientifically founded advice.

“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, 1991, p. 30)

The true theory satisfies the criteria of material/formal consistency. All that Orthodoxy and Heterodoxy have currently to offer are contradicting opinions; neither came ever to grips with science, with profit and with the working of the economy we happen to live in.

Egmont Kakarot-Handtke


Neil Wilson said...

The approach, I think, is simply to determine that economics is a defunct discipline like alchemy.

There is little in economics that wouldn't be better dealt with as a sub-discipline of systems design and management studies. There is a reason economics departments are closing.

AXEC / E.K-H said...

Neil Wilson

You say: “The approach, I think, is simply to determine that economics is a defunct discipline like alchemy.”

The problem with incompetent folks and mainstream basher like Lars Syll and you is that traditional Heterodoxy has failed since 140+ years to develop a suitable alternative to the maximization-and-equilibrium phantasm: “... we may say that ... the omnipresence of a certain point of view is not a sign of excellence or an indication that the truth or part of the truth has at last been found. It is, rather, the indication of a failure of reason to find suitable alternatives which might be used to transcend an accidental intermediate stage of our knowledge.” (Feyerabend)

As Nell put it “As will become evident, there is more agreement on the defects of orthodox theory than there is on what theory is to replace it: but all agreed that the point of the criticism is to clear the ground for construction.”

Neither Lars Syll nor you have ever constructed anything of scientific value.#1, #2, #3

Egmont Kakarot-Handtke

#1 Say hello to Lars Syll, Keynes’ last parrot

#2 Don Lars and the axiomatic windmill

#3 The stupidity of Heterodoxy is the life insurance of Orthodoxy