Monday, May 7, 2018

Sylvia Mercler — Did Economics Fail?

Most still clueless?

Did Economics Fail?
Sylvia Mercler

See also

I haven't read Phil's book yet but it looks interesting. He explored a lot of the issues at his blog, Fixing the Economists, which has been inactive for some time.
The Reformation in Economics is a book written by the Irish economist Philip Pilkington. It is a book that aims to deconstruct contemporary neoclassical economic theory in order to determine to what extent it is scientific and to what extent it is ideological. The book is divided into three sections: Ideology and Methodology, Stripped-Down Macroeconomics and Approaching the Real World. The first section of the book engages in a deconstruction of economic theory that seeks to weed out the ideological elements of economic theory while introducing a coherent methodology that allows for the reconstruction that follows. The second section lays out a theory of the macroeconomy that builds on the methodology described in the first section and tackles: money, prices, profits, income distribution, income determination, investment and finance. The final section sketches out how such a theory should be applied to real-world empirical data, with a particular emphasis on the fact that working economists are faced with fundamental uncertainty and so applying their theories is not as simple or straightforward as applying theories in the hard sciences, like physics.…
Pilkington argues that economics and any disciplines that deal with historical data rather than repeatable controlled experiments deal with material that is fundamentally uncertain. Such material can never be assumed to adhere to fixed laws in the way that, say, chemistry and physics can be thought to adhere to fixed laws. Neoclassical economists and econometricians evade this by claiming that economic and historical processes are characterised by known probability distributions. But Pilkington shows that this is impossible because economic and historical processes are open, not closed systems and so rather than dealing with a series of bounded probabilities we in fact deal with a series of unbounded possibilities.
The author lays out some guidelines for how such material should and should not be dealt with in both theory and in practice. He highlights the British economist Wynne Godley's approach which he refers to as the "unsustainable processes" approach as a novel and robust way to deal with uncertain, open systems material. This methodology seeks to locate economic processes that are unsustainable so that the economist can make a prediction that they will come to an end. Such an approach is not forecasting, as no exact date is given and no attempt at predicting specific variables is undertaken. Pilkington argues that this is the best approach to such open systems material.

In addition to these broad themes, a good deal of the book is concerned with laying out an alternative, "stripped-down" theory of the macroeconomy. This theory rests of the kaleidostatics approach of the British economist G.L.S. Shackle. Pilkington formulates much of this theory in mathematical terms but does so in such a way that it remains an open systems approach. The theory that results is closely linked to the Post-Keynesian school of economic thought.
Economics should be approached in the same vein as military strategy and business planning, taking contingency as foundational and distinguishing among known knowns, unknown knowns (implicit knowledge), known unknowns and unknown unknowns. This requires learning and adjusting based on feedback — reflexivity, adaptability and agility in response to emergence.

Conventional economic theory largely presumes the first but not on the basis of data but rather intuition and introspection. Policy makers proceed on the basis of ideology rather than knowledge, which is a recipe for defeat in military strategy and failure in business planning.

The Reformation in Economics


Bob Roddis said...

I thought we buried Pilkington long ago.

As you guys endlessly note, WE LIVE IN A BRAVE NEW WORLD OF MODERN MONEY. That "modern" system is the object of total scorn by Hayek who won the "Nobel Prize" for his work demonstrating that Keyensian-style policy is the CAUSE of the problems, not the solution. To then blame the current system on Hayek is preposterous. It's at the level of the Russiagate hoax in being baseless while its promoters refuse to engage the truth. MMTers react to criticism in a manner similar to the responses of how the Russiagate hoaxters react to the truth.

AXEC / E.K-H said...

Did economics fail? No! Yes, and everybody knows it!
Comment on Sylvia Mercler’s ‘Did Economics Fail?’

Sylvia Mercler reports: “The debate about rethinking economics keeps rambling.” True. And the wonderful thing is that we have heard all arguments multiple times.

The Pavlovian answer to the question Did Economics Fail? goes as follows: “Economics is a strange sort of discipline. The booby traps I mentioned often make it sound as it is all just a matter of opinion. That is not so. Economics is not a Science with a capital S. It lacks the experimental method as a way of testing hypotheses. . . . There are always differences of opinion at the cutting edge of a science, . . . . But they last longer in economics . . . and there are reasons for that. As already mentioned, rival theories cannot be put to an experimental test. All there is to observe is history, and history does not conduct experiments: too many things are always happening at once. The inferences that can be made from history are always uncertain, always disputable, . . . You can’t even count on a long and undisturbed run of history, because the ‘laws’ of behavior change and evolve. Excuses, excuses. But the point is not to provide excuses.” (Solow, 1998)#1

Fact is: “… suppose they [the economists] did reject all theories that were empirically falsified … Nothing would be left standing; there would be no economics.” (Hands, 2001)

Fact is: the main approaches and their variants and derivatives ― Walrasianism, DSGE, Keynesianism, Post-Keynesianism, New Keynesianism, MMT, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the foundational economic concept profit wrong.#2 What we actually have is the pluralism of provably false theories.#3

There is 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 are observed.

Theoretical economics (= science) had been hijacked from the very beginning by political economists (= agenda pushers). Political economics has produced NOTHING of scientific value in the last 200+ years.#4 And this means, in turn, that economic policy guidance has NO sound scientific foundations since Adam Smith/Karl Marx. The gigantic intellectual battle about Capitalism and Socialism has never been more than a pygmy wrestling show.#5

Fact is that economists bear the intellectual responsibility for all economic crises and the resulting social devastation. This is known since Napoleon: “Late in life … he claimed that he had always believed that if an empire were made of granite the ideas of economists, if listened to, would suffice to reduce it to dust.” (Viner)

What failed economics needs is NOT another pointless critique, or one more silly discussions between scientifically incompetent orthodox and heterodox economists, or just another cosmetic reformation or breakthrough ― but a paradigm shift.

Needless to emphasize that the paradigm shift will NOT come from people who swallowed supply-demand-equilibrium hook line and sinker and never realized that what they are doing is cargo cult science.

Egmont Kakarot-Handtke

For references see

Ryan Harris said...

I thought we were supposed to play nice and not make blanket criticism of economists.