Comment on Brian Romanchuk on ‘DSGE Macro “Proves” There Are No Financial Constraints On Government’
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Brian Romanchuk announces what he is going to do: “… I am describing DSGE models in this article. There is a desire among neoclassicals to ‘make MMT more rigorous’ by attempting to cast them in a DSGE model. If we look at the MMT academic literature, it is a subset of the post-Keynesian literature. It seems safe to say that every single behavioural assumption embedded in DSGE models is viewed as incorrect by at least one post-Keynesian. Making a literature ‘more rigorous’ by ignoring the actual contents of said literature is a very curious position for a scholar to take.”
The current state of economics is this: the four major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the foundational concept of the subject matter ― profit ― wrong.
The basic idea of science is that if it turns out that a theory is either materially or logically false it is unceremoniously buried at the Flat-Earth-Cemetery and the attention turns to alternative approaches or, in Lakatosian terms, from a degenerating to a progressive research program.#1 This does not happen in economics. As Morgenstern observed back in 1941: “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.”
This refusal to abandon falsehoods has a fatal effect. Economists not only waste time and mental/physical resources by studying and teaching and communicating their defunct theories, but they also multiply the absurdity by comparing and discussing two defunct theories. This gives rise to heated debates that always end where they have started: everybody goes out with essentially the same garbage in his head with which he came in.
One example of absurd cross-talk is the recent debate between the New Keynesian Paul Krugman and the MMTer Stephanie Kelton.#2 Another example is Brian Romanchuk’s futile attempt to find common ground between DSGE and MMT.
DSGE is known to be dead because ALL microfounded models are dead, ultimately because the Walrasian axioms are provably false. It was Keynes who realized this and tried to advance to macrofoundations: “The 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.”
The problem with Keynes’ paradigm shift, i.e. the move from microfoundations to macrofoundations, was that he messed it up. Unfortunately, Post-Keynesians followed him sheepishly up to MMT’s sectoral balances equation.#3, #4
The question is how can anybody take DSGE still seriously? Does any physicist at the cutting edge of research waste time to comment on the latest arguments of Flat-Earthers? The only interesting question with regard to DSGE is institutional: why are these scientific failures still around and have not been thrown out of academia long ago? Who finances and sponsors and promotes this senseless production of proto-scientific garbage? And why does Brian Romanchuk bring up Ljungqvist/Sargent’s No-Profit-Model? Have all these folks still not realized that there is NO such thing as a No-Profit economy?
It should be pretty obvious that economics can either be based on microfoundations or on macrofoundations. Any synthesis is inconsistent. The microfoundations approach is false and this is known since 80+ years. Scientific methodology requires that falsified theories are buried for good. To teach students supply-demand-equilibrium or DSGE or to recycle this brain dead garbage again and again in economic debates or in the econoblogosphere contributes to global dumbing.
Scientists don’t do this: “There is another alternative: to formulate a completely new research program and conceptual approach. As we have seen, this is often spoken of, but there is still no indication of what it might mean.” (Ingrao et al.)
It means, first of all, that economists who stubbornly recycle refuted theories, i.e. Walrasians, Keynesians, Marxians, Austrians, and MMTers get an immediate and dishonorable discharge from the sciences.
Egmont Kakarot-Handtke
#1 Caught in secular intellectual stagnation
#2 Paul’s and Stephanie’s economic delirium talk
#3 Dear idiots, time to get saving and investment straight (II)
#4 MMT-Refutation for Dummies
Related 'Dead men tweeting' and 'Unsmart allocators' and 'Economists: Either stupid or corrupt or
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