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January 19, 2016

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Luis Enrique

Further to Sam, equilibrium doesn't always mean no shortage or surplus, it is a way of getting at a state a system may fall into and not depart from unless disturbed, and needn't be static, can be a pattern of behaviour. You can have shortages or surpluses in equilibrium if model contains right ingredients (i.e equilibrium unemployment). Also transition dynamics can be very protracted (decades). Also maybe worth knowing that question of how decentralised market starting out of equilibrium would reach the equilibrium chosen by walrasian engineer has been answered by computable agent based models (see work by Herb Gintis), although of course in that setting equilibrium isn't right word, it's an attractor. A nice example of how a highly stylised model serves as a good simplification of complexity.

Egmont Kakarot-Handtke

Time to come up to speed
Comment on UnlearningEcon of Jan 23 on ‘Against anti-economics’

Economists do not understand how the market system works (2015). Every interested non-economist with a modicum of scientific instinct or background in the genuine sciences gets this after reading one of the popular textbooks: “What is now taught as standard economic theory will eventually disappear, no trace of it will remain in the universities or boardrooms because it simply doesn’t work: were it engineering, the bridge would collapse.” (McCauley, 2006, p. 17)*

Because of this, every thinking economist finds himself by default in the heterodox camp. But here only one obvious fact is agreed upon, the rest is blank “As will become evident, there is more agreement on the defects of orthodox theory than there is on what theory is to replace it: but all agreed that the point of the criticism is to clear the ground for construction.” (Nell, 1980, p. 1)

Construction never happened. Since Veblen kicked off heterodox economics with the question “Why is Economics Not an Evolutionary Science?” Heterodoxy never rose above naive empirical/historical/partial/sociological commonsense analysis and never formulated anything in the way of a general theory of how the monetary economy works.

So, there is nothing to chose. Economics is a failed science. Heterodoxy offers no hope. For lack of an alternative, Orthodoxy vegetates as a scientific zombie (Quiggin, 2010). There is only one way out “... to formulate a completely new research program and conceptual approach. As we have seen, this is often spoken of, but there is st ill no indication of what it might mean.” (Ingrao et al., 1990, p. 362)

UnlearningEcon concludes “I think this is a sad state of affairs.” What she/he overlooks is that this applies as well to Heterodoxy. Critique of the secular stagnation of Orthodoxy is justified but not enough; in the longer run it even becomes self-defeating “... we may say that ... the omnipresence of a certain point of view is not a sign of excellence or an indication that the truth or part of the truth has at last been found. It is, rather, the indication of a failure of reason to find suitable alternatives which might be used to transcend an accidental intermediate stage of our knowledge.” (Feyerabend, 2004, p. 72)

What is common to Orthodoxy and Heterodoxy is “a failure of reason to find suitable alternatives.” Because all are agreed “that the point of the criticism is to clear the ground for construction” traditional Heterodoxy has now to get on its feet and become constructive Heterodoxy.

Egmont Kakarot-Handtke

References
Feyerabend, P. K. (2004). Problems of Empiricism. Cambridge: Cambridge University Press.
Ingrao, B., and Israel, G. (1990). The Invisible Hand. Economic Equilibrium in the History of Science. Cambridge, MA, London: MIT Press.
Kakarot-Handtke, E. (2015). Major Defects of the Market Economy. SSRN Working Paper Series, 2624350: 1–40. URL http://papers.ssrn.com/sol3/papers.cfm?
abstract_id=2624350.
McCauley, J. L. (2006). Response to "Worrying Trends in EconoPhysics". EconoPhysics Forum, 0601001: 1–26. URL http://www.unifr.ch/econophysics/paper/
show/id/doc_0601001.
Nell, E. J. (1980). Growth, Profits, and Property, chapter Cracks in the Neoclassical
Mirror: On the Break-Up of a Vision, pages 1–16. Cambridge, New York, NY,
Melbourne: Cambridge University Press.
Quiggin, J. (2010). Zombie Economics. How Dead Ideas Still Walk Among Us. Princeton, NJ, Oxford: Princeton University Press.

* See also ‘How the intelligent non-economist can refute every economist hands
down’
http://axecorg.blogspot.de/2015/12/how-intelligent-non-economist-can.html

Egmont Kakarot-Handtke

Time to come up to speed
Comment on UnlearningEcon of Jan 23 on ‘Against anti-economics’

Economists do not understand how the market system works (2015). Every interested non-economist with a modicum of scientific instinct or background in the genuine sciences gets this after reading one of the popular textbooks: “What is now taught as standard economic theory will eventually disappear, no trace of it will remain in the universities or boardrooms because it simply doesn’t work: were it engineering, the bridge would collapse.” (McCauley, 2006, p. 17)*

Because of this, every thinking economist finds himself by default in the heterodox camp. But here only one obvious fact is agreed upon, the rest is blank “As will become evident, there is more agreement on the defects of orthodox theory than there is on what theory is to replace it: but all agreed that the point of the criticism is to clear the ground for construction.” (Nell, 1980, p. 1)

Construction never happened. Since Veblen kicked off heterodox economics with the question “Why is Economics Not an Evolutionary Science?” Heterodoxy never rose above naive empirical/historical/partial/sociological commonsense analysis and never formulated anything in the way of a general theory of how the monetary economy works.

So, there is nothing to chose. Economics is a failed science. Heterodoxy offers no hope. For lack of an alternative, Orthodoxy vegetates as a scientific zombie (Quiggin, 2010). There is only one way out “... to formulate a completely new research program and conceptual approach. As we have seen, this is often spoken of, but there is st ill no indication of what it might mean.” (Ingrao et al., 1990, p. 362)

UnlearningEcon concludes “I think this is a sad state of affairs.” What she/he overlooks is that this applies as well to Heterodoxy. Critique of the secular stagnation of Orthodoxy is justified but not enough; in the longer run it even becomes self-defeating “... we may say that ... the omnipresence of a certain point of view is not a sign of excellence or an indication that the truth or part of the truth has at last been found. It is, rather, the indication of a failure of reason to find suitable alternatives which might be used to transcend an accidental intermediate stage of our knowledge.” (Feyerabend, 2004, p. 72)

What is common to Orthodoxy and Heterodoxy is “a failure of reason to find suitable alternatives.” Because all are agreed “that the point of the criticism is to clear the ground for construction” traditional Heterodoxy has now to get on its feet and become constructive Heterodoxy.

Egmont Kakarot-Handtke

References
Feyerabend, P. K. (2004). Problems of Empiricism. Cambridge: Cambridge University Press.
Ingrao, B., and Israel, G. (1990). The Invisible Hand. Economic Equilibrium in the
History of Science. Cambridge, MA, London: MIT Press.
Kakarot-Handtke, E. (2015). Major Defects of the Market Economy. SSRN Working Paper Series, 2624350: 1–40. URL http://papers.ssrn.com/sol3/papers.cfm?
abstract_id=2624350.
McCauley, J. L. (2006). Response to "Worrying Trends in EconoPhysics". Econo-
Physics Forum, 0601001: 1–26. URL http://www.unifr.ch/econophysics/paper/
show/id/doc_0601001.
Nell, E. J. (1980). Growth, Profits, and Property, chapter Cracks in the Neoclassical
Mirror: On the Break-Up of a Vision, pages 1–16. Cambridge, New York, NY, Melbourne: Cambridge University Press.
Quiggin, J. (2010). Zombie Economics. How Dead Ideas Still Walk Among Us. Princeton, NJ, Oxford: Princeton University Press.

* See also ‘How the intelligent non-economist can refute every economist hands down’
http://axecorg.blogspot.de/2015/12/how-intelligent-non-economist-can.html

reason

sam
"If you don't believe equilibrium is a useful modeling tool, go find some large persistent shortages or surpluses."

How about the US Trade deficit => a persistent large deficit of US dollars in the world. Or unemployment (you must have heard of that one). Or the zero lower bound (i.e. a persistent excess of the supply of loanable funds above the demand for loans driving nominal interest rates to zero, from where they cannot go lower).

What puzzles me, is not that these things exist, but you haven't noticed them. Besides which this still doesn't imply that equilibrium itself is a good modelling assumption. There are processes which act to restore equilibrium, often by creating other disequilibriums (for instance an excess supply of housing resulting in a building stop, resulting in unemployment). It could be that modelling these disequilibrium processes makes more sense for understanding the things that we care about, than modelling the equilibrium would.

Egmont Kakarot-Handtke

Nonentity modeling
Comment on sam on ‘Against anti-economics’

You correctly argue that “...this doesn’t imply that equilibrium itself is a good modeling assumption.”

Equilibrium does not exist in the economy. It is a nonentity like the Easter Bunny. By consequence nonequilibrium does not exist either.

Because of this, equilibrium cannot be put into the premises of a theory/model. This is not a question of modeling strategy. It is a methodological blunder of the worst sort to take a nonentity into the axiom set.

This, though, is exactly, was Krugman does, that is, “most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point ...”.

All theories/models that are based on maximization-and-equilibrium are false and forever unacceptable. Not to realize this is scientific incompetence.

Egmont Kakarot-Handtke

Luis Enrique

reason,

come on, of course economists "notice" these things, and have very many models, which use equilibrium solution concepts, to explain them. See my comment above - equilibrium approach does *not* imply no persistent deficits etc. Also transition dynamics (which is what I think you might mean by "disequilibrium processes" also done.

UE

if you gave economists any credit, you might realise that they have every reason to produce empirical support for their theories to the best of their abilities (although there are some theorists which scant interest in real world, which is fine too - division of labour and all that) plus the real action happens, if a model makes any sort of impact, when *other* economists start looking for ways to test it, facets of the data which are inconsistent with it.

the point about renting capital was merely that the idea mainstream profit max approaches ignore investment costs, is *really* daft. I'd like to see, stripped of complications like uncertainty, comparison of his proposed returns max approach against standard optimal investment theory (because that's what we are talking about). Easy to see that returns maximising isn't necessarily the right objective either - for example if I can choose between investing $10 at 20% return and $100 at 10% I might choose the latter, depends on what you assume about what other returns are available elsewhere.

Egmont Kakarot-Handtke

Senseless model bricolage
Comment on Luis Enrique of Jan 26 on ‘Against anti-economics’

You say economists have “many models, which use equilibrium solution concepts, ... ‘disequilibrium processes’ are also done.”

This, indeed, is the very problem because neither equilibrium nor disequilibrium exists in the economy. So, what economists are in effect doing is what the genuine scientist Feynman called cargo cult science* which is roughly defined as: The outer form looks like science, but it is not science, and it does not work.

The middle-of-the-road economist is like an engineer who is constructing the next perpetual motion machine. The more intelligent economists realized this, of course, “Suffice it to say that, in my opinion, what we presently possess by way of so-called pure economic theory is objectively indistinguishable from what the physicist Richard Feynman, in an unflattering sketch of nonsense ‘science,’ called ‘cargo cult science’.” (Clower, 1994, p. 809)

Economists are doing all sort of things, except science (2013).

Egmont Kakarot-Handtke

References
Clower, R. W. (1994). Economics as an Inductive Science. Southern Economic Journal, 60(4): 805–814.
Kakarot-Handtke, E. (2013). Confused Confusers: How to Stop Thinking Like an Economist and Start Thinking Like a Scientist. SSRN Working Paper Series,
2207598: 1–16. URL http://ssrn.com/abstract=2207598.

* https://en.wikipedia.org/wiki/Cargo_cult_science

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