Some philosophy of economics, or foundations of economics, if you prefer.
The object of philosophy is the logical clarification of thoughts.
Philosophy is not a theory but an activity.
A philosophical work consists essentially of elucidations.
The result of philosophy is not a number of “philosophical propositions”, but to make propositions clear.
Philosophy should make clear and delimit sharply the thoughts which otherwise are, as it were, opaque and blurred.
— Ludwig Wittgenstein, Tractatus Logico-Philosophicus, 4.112
It is not as though the deficiencies of conventional economic models are unknown or even even to be further elaborated. Nor it is a matter of creating another theory of the same type, that is, one that is based on "microfoundations," involving the fallacy of composition, or is designed to be mathematically tractable by ignoring significant causal factors, or oversimplifies complexity by ignoring uncertainty, or does not define key terms operationally, etc.
Heterodox economists and even some conventional economists, Paul Romer, for instance, have elucidated many reasons that such approaches to economic modeling are insufficient.
A more realistic approach needs to be adopted, which means one that is more practical in its methodological assumptions, more comprehensive in its substantive assumptions and more modest in its aims.
At minimum, this means adopting an institution and accounting-based approach instead of a strictly axiomatic one. For starters, a stock-flow consistent approach such as advanced by Wynne Godley based on accounting.
Does it — really — take a model to beat a model? No!
Lars P. Syll | Professor, Malmo University
At minimum, this means adopting an institution and accounting-based approach instead of a strictly axiomatic one.
ReplyDeleteExcept the liabilities of banks toward the non-bank private sector are largely a sham anyway since, for example, the non-bank private sector may not even USE fiat except for mere coins and paper Central Bank Notes.
Do economists finally wake up from their methodological delirium?
ReplyDeleteComment on Lars Syll on ‘Does it — really — take a model to beat a model? No!’
Lars Syll maintains: “A more realistic approach needs to be adopted, which means one that is more practical in its methodological assumptions, more comprehensive in its substantive assumptions and more modest in its aims. At minimum, this means adopting an institution and accounting-based approach instead of a strictly axiomatic one. For starters, a stock-flow consistent approach such as advanced by Wynne Godley based on accounting.”
Right. Macroeconomic accounting is the objective-systemic core of economics and NOT some silly behavioral assumption. Methodological rule #1: If it isn't macro-axiomatized it isn't economics.
Economics is a failed science because the major approaches, Walrasianism, Keynesianism, Marxianism, Austrianism, MMT, are provably false. This includes Godley’s and Lavoie’s approach. More precisely, Godley’s and Lavoie’s program ― the integrated approach to credit, money, income, production, and wealth ― is basically correct but at some point, an inconsistency slipped in and that happened exactly in Section 8.2, p. 262, eq. 8.25 (Godley et al., 2007).#1-#5 This blunder carries over to MMT and also invalidates it.
Lars Syll is a bit slow. The Paradigm Shift from false Walrasian microfoundations and false Keynesian macrofoundations to true macrofoundations is an accomplished fact.#6
Egmont Kakarot-Handtke
#1 Godley, W., and Lavoie, M. (2007). Monetary Economics. An Integrated Approach to Credit, Money, Income and Wealth. Houndmills, Basingstoke, New York, NY: Palgrave Macmillan.
#2 The Common Error of Common Sense: An Essential Rectification of the Accounting Approach
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2124415
#3 Micro and macro inconsistency
https://axecorg.blogspot.de/2016/09/micro-and-macro-inconsistency.html
#4 MMT-Refutation for Dummies
https://axecorg.blogspot.com/2019/03/mmt-refutation-for-dummies.html
#5 MMT: Time to say goodbye
https://axecorg.blogspot.com/2018/12/mmt-time-to-say-goodbye.html
#6 The Paradigm Shift is an accomplished fact
https://axecorg.blogspot.com/2020/10/the-paradigm-shift-is-accomplished-fact.html
Thanks. Can you briefly elaborate on Godley's inconsistency?
ReplyDeleteThe problem arises owing to the incorrect assumption of conventional economists about the effect of changes in the money supply, i.e., "monetarism." Here it is specifically about the effect of changes in the money supply on interest rates. If the assumption is accepted, then the outcome of the model is found to be generally false. If it is corrected, then the explanation it is supposed to provide fails. It's another criticism of the monetarist foundations of conventional economics.
ReplyDeleteAn Important Inconsistency at the Heart of the Standard Macroeconomic Model, Wynne Godley and Anwar Shaikh