Eiteman and Guthrie conclude their paper with this statement: “If the beliefs of businessmen in general coincide with those included in this sample, it is obvious that short-run marginal price theory should be revised in the light of reality.” That was in 1952….Another thing conventional economics reverses and gets backwards. "Reality is a bitch."
My paper is a survey of the huge amount of solid empirical evidence against the utility maximization hypothesis that is at the core of all microeconomics currently being taught today in Economics textbooks at universities all over the world. It is obviously important, because if what it says is true, the entire field of microeconomics needs to be re-constructed from scratch. Nonetheless, it was summarily rejected by a large number of top journals, before being eventually published by Jack Reardon as: ” The Empirical Evidence Against Neoclassical Utility Theory: A Review of the Literature,” in International Journal of Pluralism and Economics Education, Vol. 3, No. 4, 2012, pp. 366-414. Speaking metaphorically, my paper documents the solid evidence that the earth is a round sphere in world where educational institutions teach the widely held belief that the earth is flat. Readers of RWER blog will recall that when challenged on the failure of macroeconomics after the Global Financial Crisis, economists retreated to the position that while macro theory may be in a bad shape, at least Microeconomics is solidly grounded. My paper blows this claim out of the water. As a result, nothing is left of Micro and Micro, and of economics as whole. This supports my earlier claim that a Radical Paradigm Shift is required to make progress — patching up existing theories cannot work...
The central question remains of what is to be done. A complex response which requires coordination on multiple fronts is required. The first step has to be the development of a coherent alternative. I have developed a two semester micro coursewhich starts with the Anti-Textbook of Hill & Myatt, and follows up by using two main tools OPPOSED to maximization and equilbrium. Maximization is replaced by behavioral heuristics, which allow operation in environments with genuine uncertainty. Maximization is actually IMPOSSIBLE in uncertain environments. If I have to choose between actions a and b but the outcome to me depends on unknown state of natures and unknown acts of other agents then maximization is not possible. I cannot calculate which of the two actions will yield greater utility because the outcome depends on many thing I do not know, and cannot learn. SIMILARLY, if we equip all agents with heuristic behavior and try to compute what will happen, this can only be done within an Agent Based Model using computer simulations — which will generally lead to disequilibrium outcomes. Using these two tools to replace the central micro tools, one can go quite far in replacing standard micro with sensible alternatives....WEA Pedagogy Blog
The journalist Adam Davidson has written an interesting article about economics and Bernie Sanders. As an economic adviser to Bernie I found his take on Keynesian and institutional economics of considerable interest. Institutional economics, contrary to Davidson’s take on it, is thriving and the University of Missouri at Kansas City has long been a center of institutional economics. (I am one of the scholars at UMKC that works largely in this field.) Davidson treats institutional economics, which overwhelmingly studies microeconomics and the “micro foundations” of the economy as having been rendered obsolete by the transformation that Keynes’ insights sparked in the study of macroeconomics.…
Davidson’s thesis is unsupportable as a matter of logic, history, and macroeconomic theory.…Bill hits another one out of the park.
For me three economists stand out historically as having been the most effective at building resistance to the dominance of scientism in economics. Keynes of course is one, and the other two are Bernard Guerrien and Tony Lawson, Guerrien because he was the intellectual and moral force behind Autisme Economie which, among other things, gave rise to the RWER; and Lawson because his papers, books and seminars have inspired, joined and intellectually fortified thousands.RWER Blog
It is notable that all three of these economists were or were on their way to becoming professional mathematicians before switching to economics. When still in his twenties, Keynes’ mathematical genius was already publicly celebrated, most notably by Whitehead and Russell, and he had already published what was to become for his first discipline a classic work. Guerrien’s first PhD was in mathematics, and Lawson was doing a PhD in mathematics at Cambridge when its economics department lured him over in an attempt to boost its mathematical competence.
The significance for me of Keynes, Guerrien and Lawson being mathematicians first and economists second is that it meant that they were not even for an hour taken in or intimidated by the aggressive scientism of neoclassical economists, and this has enabled them to write analytically about the dominant scientism with a quiet straightforwardness that is beyond the reach of most of us.
"Eric Zuesse has written a provocative and challenging volume, though in my opinion he sometimes goes too far in his criticisms and claims. This book proposes two new postulates to replace existing ones that are at the foundation of microeconomic theory. It cites the existing body of empirical findings in economics as being the reasons for them, and it presents a strong empirical case for each of its two new postulates as being true and the one that it is replacing as being false. I regard his book as the work of a serious, committed scholar whose views deserve to be taken seriously."— Geoffrey Harcourt
Published 9 Mar 2015 by WEA Books, 288 pages, $10.00
This book is available to download in PDF, EPUB (for iPad etc.) and MOBI (for Kindle etc.)From the WEA Books page:
The WEA is pleased to announce the launch of WEA Books.
All our e-books are priced at $10.00. But if you join the WEA and pay a voluntary annual membership fee of $25, $50 or $150 you will, in the year following payment, be entitled to 3, 7, or 22 free e-books.
Most books are available to download in PDF, EPUB (iPad) and MOBI (Kindle) formats.Real-World Economics Review Blog
Utility is not visible, nor can imputations of it be validated in any conceivable way. It can be contradicted (and is) by measured subjective well-being, but this just means that MSWB is not the same as utility. Utility has the same scientific stature as the soul.EconoSpeak
As part of the preparation for the new course I’m teaching at the University of Manchester this autumn, Economics for Public Policy, I’ve been looking again at Microeconomics: Behavior, Institutions and Evolution by Sam Bowles. It’s a decade old now but still pretty unique in its approach, which is rooted in social interactions and institutions rather than the atomised individuals of the standard micro course. In other words, it’s about economies, and not ‘economics’.The Enlightened Economist
It is, apparently, not odd to attend classes in a business school and learn all about modern microeconomic theory. The lessons hammer away at efficiency and marginal pricing. They drill home the arguments about efficient markets, especially those that relate to capital. And they go on about the great laws of supply and demand that operate in the timeless vacuum of a market uncluttered by human frailties.Peter Radford asks,
Then off go the students to be drilled into how to make those very frailties into weapons for profit. These other lessons are about how to impede the free market by rigging the game, and by building ‘barriers to entry’, by enforcing patents and copyrights, by eliminating competition, and by interfering in the labor markets to reduce wage bills.
What is learned in a business school education is almost exactly a negation of what is taught to economics students. Both sets of students are taught the wonders of market magic, but then the business school students are taught a myriad tricks to defeat that magic in order to produce long term profits and rents unsustainable under a true market magic regime. Only the economics students, cut off from reality as they are, continue on blissfully unaware that their magical world is being riddled with holes dug by their business school peers.
Should society be indifferent to profit levels but scandalized by higher wages? Does a rise in the minimum wage undermine employment the way the economists preach? If so, does not high profit?
Smith certainly seemed to know the answer. I will leave it to you to think about. I know what I think.
I have been reading about the Great Depression lately and comparing the sort of pressures that governments were placed under during that time to cut deficits which were rising on the back of a collapse in economic activity to what is going on today. There are many interesting parallels and déjà vu experiences. That research took me into some literature on the way the governments bow to industry demands as aggregate demand collapses. In turn, that led me to the way the military-industrial complex operates. Which took me into another literature on the role of the military-industrial complex in creating wars to provide markets for their goods – the merchants of death. And so it goes. That is the nature of research – it just takes one on a journey and usually to destinations previously not imagined. But this journey also clarifies some issues that readers regularly write to me about. The relationship between Modern Monetary Theory (MMT) as a macroeconomic framework and issues that issues that lie below the aggregate level – such as distributional issues. There are links clearly (for example, income distribution affects aggregate demand) but in other ways what is “good” at the macro level may well be downright disastrous at the micro level. But in dealing with the disaster at the micro level, we always have to be mindful of the way dealing with that disaster impacts on the aggregates. This is particularly important in considering issues relating to trade. The military-industrial complex is an excellent case study of these challenges. Here are some early thoughts.Read it at Bill Mitchell | billy blog
