During my recent hiatus from blogging, I have been pondering an important paper presented in June at the History of Economics Society meeting in Toronto, “The Standard Narrative on History of Macroeconomics: Central Banks and DSGE Models” by Francesco Sergi of the University of Bristol, which was selected by the History of Economics Society as the best conference paper by a young scholar in 2017....
Sergi’s paper is too long and too rich in content to easily summarize in this post, so what I will do is reproduce and comment on some of the many quotations provided by Sergi, taken mostly from central-bank reports, but also from some leading macroeconomic textbooks and historical survey papers, about the “progress” of modern macroeconomics, and especially about the critical role played by “microfoundations” in achieving that progress....
I will focus on two other sections of Sergi’s paper “the five steps of theoretical progress” and “microfoundations as theoretical progress.”...Uneasy Money
The Standard Narrative on the History of Macroeconomics: An Exercise in Self-Serving Apologetics
David Glasner
Economics: stories, narratives, and disinformation
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Keynes has to be credited for realizing that the economics of Jevons/Walras/Menger/ Marshall was false at its core and that nothing less than a paradigm shift was needed: “The [neo-]classical theorists resemble Euclidean geometers in a non-Euclidean world who, discovering that in experience straight lines apparently parallel often meet, rebuke the lines for not keeping straight ― as the only remedy for the unfortunate collisions which are occurring. Yet, in truth, there is no remedy except to throw over the axiom of parallels and to work out a non-Euclidean geometry. Something similar is required to-day in economics.”
After Keynes, every economist who still does not see the necessity of a paradigm shift is simply scientifically incompetent. One spokesperson of this prevailing majority is Krugman who debunks himself with: “… most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point.”
Fact is that maximization-and-equilibrium economics has already been dead in the cradle 140+ years ago.
Keynes, though, messed up the shift from microfoundations to macrofoundations. His lethal blunder can be exactly located in the GT: “Income = value of output = consumption + investment. Saving = income - consumption. Therefore saving = investment.” (p. 63) This two-liner is conceptually and logically defective because Keynes never came to grips with profit. (Tómasson et al.)
Because profit is ill-defined, the whole analytical superstructure of Keynesianism is false.#1 Yet one of the outstanding characteristics of the cargo cult science economics is that refutation is persistently ignored: “In economics we should strive to proceed, wherever we can, exactly according to the standards of the other, more advanced, sciences, where it is not possible, once an issue has been decided, to continue to write about it as if nothing had happened.” (Morgenstern)
As a result of the continuous violation of scientific standards, the history of economic thought boils down to a narrative of incompetence, self-deception, and lame excuses.#2 What we have today is the pluralism of provably false theories.
After-Keynesians never realized Keynes’ foundational blunder and thereby became part of the abysmal failure of what was meant as a paradigm shift.#3, #4 Neither DSGEers nor Post Keynesians up to MMT can define macroeconomic profit until this very day.
Science is indeed the search for invariances (Nozick) a.k.a. laws. In economics, though, the invariances are NOT in Human Nature/motives/behavior/action but in the properties of the economic system. Because of this, economics has to move from subjective-behavioral microfoundations to objective-systemic macrofoundations.#5 Nothing less than a paradigm shift will do and it is overdue since 140+ years. It holds: If it isn’t macro-axiomatized, it isn’t economics.
Egmont Kakarot-Handtke
#1 How Keynes got macro wrong and Allais got it right
https://axecorg.blogspot.de/2016/09/how-keynes-got-macro-wrong-and-allais.html
#2 Failed economics: The losers’ long list of lame excuses
https://axecorg.blogspot.de/2017/01/failed-economics-losers-long-list-of.html
#3 Why Post Keynesianism Is Not Yet a Science
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1966438
#4 Heterodoxy, too, is scientific junk
http://axecorg.blogspot.de/2015/09/heterodoxy-too-is-scientific-junk_85.html
#5 Ten steps to leave cargo cult economics behind for good
https://axecorg.blogspot.de/2017/09/ten-steps-to-leave-cargo-cult-economics.html