Wednesday, April 24, 2019

Lars P. Syll — Noah Smith’s new MMT critique — more nonsense on stilts

Noah Smith assumes that the methodological question has been decided in favor of formalism.

Lars P. Syll’s Blog
Noah Smith’s new MMT critique — more nonsense on stilts
Lars P. Syll | Professor, Malmo University


Magpie said...

Smith writes:

This kind of research is not dramatic, headline-grabbing stuff. It doesn’t give instant answers to the big questions of macroeconomics — how to minimize the risk of recessions, how to fight recessions when they occur, how to avoid inflation, and so on. It doesn’t easily lend itself to investment ideas for asset managers. It can’t easily be adopted in a political platform.

In other words, that kind of empirical research mainstream economists have just discovered may be as honest and scientific as Smith claims it to be. Researchers may have a very good time conducting it. They may earn a fairly decent living doing that kind of exercise. It may be useful to fill a resumé or justify a promotion.

As things are, it's otherwise useless. And when we strip Smith's verbiage, that's pretty much what the dumb fuck says.


Chess certainly requires intellectual effort. Keen chess players, no doubt, have a very good time playing it. Some extremely talented ones, on top of enjoying the game, manage to make a living out of it. Once upon a time they would make headlines. That doesn't make of chess useful to manage society.

In fact, that pretty much applies to all sorts of hobbies: collecting stamps, playing soccer or flute, painting, cooking.


In fact, the proof of the pudding is in the tasting. And although Smith claims that economists -- by which he means both mainstream micro- and macroeconomists -- are trying really hard to do empirical research in economics,

Sadly, though, applying these methods to macroeconomics is almost impossible. When you’re dealing with the movements of the whole economy, everything is related to everything else, and history only happens once. That makes it very hard to test macroeconomic theories.

So, why on Earth should we buy the useless, untested pudding mainstream macroeconomists cook? Because someday, perhaps, with some luck, they will be capable of providing something better? What about now?

That's the difference between mainstream economists, on the one hand, and chess players and sundry hobbyists, on the other: the latter never claimed they should be put in charge of society.

AXEC / E.K-H said...

Macroeconomics: Economists are too stupid for science
Comment on Noah Smith on ‘Beware of Economic Theories Claiming to Explain Everything’*

“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)

The goal of science is the true theory. The true theory is the humanly best mental representation of reality. Science is for 2000+ years defined by material and formal consistency. Logical consistency is secured by applying the axiomatic-deductive method and empirical consistency is secured by applying state-of-art testing.

According to the criteria of material/formal consistency, economics is a failed science. Economists do not possess the true theory. The fact of the matter is that the established approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the pivotal concept of the subject matter ― profit ― wrong.

Non-science is the swamp between true and false where ‘nothing is clear and everything is possible’ (Keynes). This corresponds approximately to Noah Smith’s mistaken idea of science: “What it [orthodox macroeconomics] is, is science. Not the clean, idealized lab science of physics or chemistry, or the simple, convincing studies of microeconomics. But as messy and limited as it is, empirical macro represents a real, honest, ongoing attempt by dedicated researchers to explore the ins and outs of a hideously complex and hard-to-measure system. Someday, thanks to their modest, diligent efforts, we will probably understand the phenomena of booms and busts much better than we do now.”

Noah Smith thinks that Orthodoxy has a communication problem: “But elected politicians looking for a bold policy program and asset managers looking for a bold investment thesis are frequently tempted by heterodox economic theories claiming to have simple, sweeping solutions. Two examples are Austrian economics and modern monetary theory.” And: “The boldness and confidence of these predictions — and the comparative lack of math — makes these theories much more attractive to politicians and investors compared to the turgid scribblings of professors.”

No, communication is neither the problem of Orthodox nor of Heterodoxy. Scientific content is the problem. Both Orthodoxy and Heterodoxy is proto-scientific garbage. Both, orthodox and heterodox economists are scientifically incompetent. By consequence, Noah Smith’s conclusion misses the point: “In other words, both policy makers and politicians should be reluctant to embrace the sweeping claims of unconventional theorists. Instead, a cautious approach, relying on judgment, data and an eclectic mix of theories, seems best.”

There is no way around it: economics does NOT need an “eclectic mix” of provably false theories but the true theory. After 200+ years, economics has to get out of the swamp of what Feynman called cargo cult science. In methodological parlance, economics has to abandon false Walrasian microfoundations#1 and false Keynesian macrofoundations#2 and to move to true macrofoundations.#3 Economics needs a Paradigm Shift. The materially/formally inconsistent orthodox and heterodox models have to be buried at the Flat-Earth-Cemetery. All orthodox and heterodox economists have to be expelled from the scientific community.

See part 2

AXEC / E.K-H said...

Part 2

To this day, the axiomatic foundations of economics are provably false. This holds for Walrasianism, Keynesianism, Marxianism, Austrianism and also for MMT.#4 MMT has the methodological advantage that it is based on a clearly defined sectoral balances equation. This enables the straightforward application of the scientific method. Accordingly, the question is which of the two foundational macroeconomic equations is true, i.e. materially and formally consistent:

• the MMT sectoral balances equation: (I−S)+(G−T)+(X−M)=0 or
• the axiom based equation: (I−S)+(G−T)+(X−M)−(Q−Yd)=0.

Both equations consist of measurable variables and are testable with the precision of two decimal places. This is a clear-cut true/false question which can be unambiguously decided according to well-established scientific criteria.

The MMT equation is logically/mathematically false. Economists are too stupid for the elementary mathematics that underlies macroeconomics.#5 Because of this, the whole analytical superstructure of MMT is false. Because the theory is false MMT policy guidance has NO sound scientific foundations ― just like Walrasianism, Keynesianism, Marxianism, Austrianism.

Right policy depends on true theory. To this day, economists do NOT have the true theory. There is no escape: false theory becomes political fraud#6 and incompetent scientists become useful political idiots. This is the state of present-day economics.

Egmont Kakarot-Handtke

* BloombergOpinion

#1 Microfoundations are given with this axiom set: “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) To accept these axioms has always been a reliable indicator of idiocy.

#2 How Keynes got macro wrong and Allais got it right

#3 True macrofoundations are given with this axiom set: (A0) The most elementary configuration of the economy consists of the household and the business sector which in turn consists initially of one giant fully integrated firm. (A1) Yw=WL wage income Yw is equal to wage rate W times working hours. L, (A2) O=RL output O is equal to productivity R times working hours L, (A3) C=PX consumption expenditure C is equal to price P times quantity bought/sold X.

#4 Hooray! The formalization issue is finally settled

#5 Wikipedia and the promotion of economists’ idiotism (II)

#6 MMT: How mathematical incompetence helps the Kelton-Fraud