Friday, February 3, 2017

Lars P. Syll — RBC models — nonsense on stilts

I don’t think that there is a way to write down any model which at one hand respects the possible diversity of agents in taste, circumstances, and so on, and at the other hand also grounds behavior rigorously in utility maximization and which has any substantive content to it. — James Tobin
Determining causality is a bitch in social science since many factors generally contribute to causality involving social behavior. Studying a single individual and making assumptions about future behavior based on habits and revealed preferences might hold but transferring this to groups of individuals involves the fallacy of composition. This makes the assumption of methodological individualism and microfoundations problematic.

Assuming methodological individualism ignores that regularity in social behavior is more likely induced by stable institutional arrangements than individual factors involving assumptions of homogeneity that rather obviously do not hold in the real world.

Choosing a single variable or a few variables as causal factors operating universally and timelessly to produce regular results is seldom realistic. This is clearly done for convenience, to make the math tractable, rather than as a matter of induction based on empirical data or abduction based on reasoning to the best explanation. 

In many cases the process of identifying assumptions in conventional economics seem to be driven by ideology, with conclusions supported by authority, which is justification by power and gatekeepers rather than either reasoning or evidence.

In addition to the problem identifying assumptions, there is also the issue of assuming ergodicity (time average of a same is equal to the ensemble average) in processes that are conditioned historically and dynamically.

Moreover, the greater the scope the less accurate the solution is likely to be. This is a reason that social sciences have tended to focus on case studies rather than general theories.

Lars P. Syll’s Blog
RBC models — nonsense on stilts
Lars P. Syll | Professor, Malmo University


AXEC / E.K-H said...

Economists and their silly excuses
Comment on Lars Syll on ‘RBC models — nonsense on stilts’

Economics is a failed science. Walrasianism, Keynesianism, Marxianism, Austrianism is mutually contradictory and provable false, i.e. materially and formally inconsistent.#1

Economists cannot explain how the economy works but they can explain why economics does not work. Here is the comprehensive list of excuses: “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)#2

With this silly excuses economists unwittingly kick themselves out of science because science consists of two essential elements: “Research is in fact a continuous discussion of the consistency of theories: formal consistency insofar as the discussion relates to the logical cohesion of what is asserted in joint theories; material consistency insofar as the agreement of observations with theories is concerned.” (Klant)

If empirical consistency cannot be established in economics then it is a priori out of science and in the same category with religion, philosophy, storytelling and sitcom gossip. This, though, contradicts the claim of economics which is upheld since Adam Smith and Karl Marx and encapsulated in the title “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel”.

An economists who claims that economics is a science that unfortunately lacks the experimental method simply does not understand what science is all about.

Accordingly, the current state of economics is that of a fake science or what Feynman famously called cargo cult science. This intolerable state is due to the scientific incompetence of economists and NOT to the alleged fact that there are not testable economics laws. These laws, though, refer to the economy as a SYSTEM and NOT to human behavior. A theory that is built upon axioms like constrained optimization, rational expectations, equilibrium and other NONENTITIES is NOT testable just like the hypothesis that seven angels can dance on a pinpoint is NOT testable.

The failure of economics has been programmed with the false definition of the subject matter: “It is a touchstone of accepted economics that all explanations must run in terms of the actions and reactions of individuals.” (Arrow)

In order to get out of the cul-de-sac economics has to be redefined by switching from behavioral axioms to systemic axioms, that is, from microfoundations to macrofoundations: “Economics is the science which studies how the monetary economy works.” and NOT “Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses.” The study of human behavior is the subject matter of psychology, sociology, history, biology/evolution, political science, anthropology, etcetera.

See part 2

AXEC / E.K-H said...

Part 2

The paradigm shift from false Walrasian microfoundations and false Keynesian macrofoundations to true systemic macrofoundation yields testable propositions which have the same status as physical laws.#3

Economics is not trapped at the proto-scientific level because it lacks “the experimental method as a way of testing hypotheses” but because economists are too stupid to formulate logically consistent and testable propositions. This incompetence persists since more than 200 years and it holds for Walrasians, Keynesians, Marxians, Austrians in equal measure.

There should not be the slightest doubt that these four approaches will never make it into the history of scientific thought except perhaps as a cautionary example for the idiocy of fake scientists and the persistence of evident intellectual junk.

Egmont Kakarot-Handtke

#1 For details see ‘Economists and politics: Will you kindly shut up!’
#2 See also ‘Failed economics: The losers’ long list of lame excuses’
#3 For details see ‘The one stone that kills orthodox and heterodox employment theory’