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Paul Krugman — a math-is-the-message-modeler

from Lars Syll

In a post on his blog, Paul Krugman argues that ‘Keynesian’ macroeconomics more than anything else “made economics the model-oriented field it has become.” In Krugman’s eyes, Keynes was a “pretty klutzy modeler,” and it was only thanks to Samuelson’s famous 45-degree diagram and Hicks’ IS-LM that things got into place. Although admitting that economists have a tendency to use ”excessive math” and “equate hard math with quality” he still vehemently defends — and always has — the mathematization of economics:

I’ve seen quite a lot of what economics without math and models looks like — and it’s not good.

Sure, ‘New Keynesian’ economists like Mankiw and Krugman — and their forerunners, ‘Keynesian’ economists like Paul Samuelson and (young) John Hicks — certainly have contributed to making economics more mathematical and “model-oriented.”

65547036But if these math-is-the-message-modelers aren’t able to show that the mechanisms or causes that they isolate and handle in their mathematically formalized macromodels also are applicable to the real world, these mathematical models are of limited value to our understandings of real-world​ economies.

When it comes to modeling philosophy, Krugman defends his position in the following words (my italics):

I don’t mean that setting up and working out microfounded models is a waste of time. On the contrary, trying to embed your ideas in a microfounded model can be a very useful exercise — not because the microfounded model is right, or even better than an ad hoc model, but because it forces you to think harder about your assumptions, and sometimes leads to clearer thinking. In fact, I’ve had that experience several times.

The argument is hardly convincing. If people put that enormous amount of time and energy that they do into constructing macroeconomic models, then they really have to be substantially contributing to our understanding and ability to explain and grasp real macroeconomic processes.

For years Krugman has in more than one article criticized mainstream economics for using too much (bad) mathematics and axiomatics in their model-building endeavours. But when it comes to defending his own position on various issues he usually himself ultimately falls back on the same kind of models. In his End This Depression Now — just to take one example — Krugman maintains that although he doesn’t buy “the assumptions about rationality and markets that are embodied in many modern theoretical models, my own included,” he still find them useful “as a way of thinking through some issues carefully.” When it comes to methodology and assumptions, Krugman obviously has a lot in common with the kind of model-building he otherwise criticizes.

If macroeconomic models – no matter of what ilk – make assumptions, and we know that real people and markets cannot be expected to obey these assumptions, the warrants for supposing that conclusions or hypotheses can be bridged, are obviously non-justifiable.

A gadget is just a gadget — and brilliantly silly simple models — IS-LM included — do not help us working with the fundamental issues of modern economies any more than brilliantly silly complicated models — calibrated DSGE and RBC models included.

  1. Prof Dr James Beckman, Germany
    July 1, 2018 at 5:16 pm

    But at the end of the day aren’t we left with models which do not predict/explain well what really happens around us. Its assumptions don’t well fit psychological science. It misses what cultural difference have to tell us. And engineers have long possessed better conceptual tools with their systems analyses. These take actual measurements & offer us visualizations of what has occurred, with lots of concurrent although complex corresponding equations.

  2. Paul Davidson
    July 1, 2018 at 6:04 pm

    After reading my article on the fallacy of rational expectations and some face-to-face conservations, I convinced John Hicks that his ISLM model was not Keynes’s General Theory and I got Hicks to write an article entitled “ISLM:An Explanation” explaining why ISLM was not Keynes’s theory.. Hicks article was published in the Winter 1980-81 issue of the JOURNAL OF POST KEYNESIAN ECONOMICS.

    Moreover as I h ave demonstrated many times, Samuelson’s 45 degree model requires owage fixity to produce unemployment, while Keynes’s latter chapters in the General Theory demonstrates that even with perfectly flexible wages, unemployment can persist.

    If only Krugman, who boasts he is a Keynesain, would read Keynes instead of Samuelson!!

    Paul Davidson

    • July 2, 2018 at 8:02 am

      LINK to

      Mr. Keynes, Prof. Krugman, IS-LM, and the End of Economics as We Know It

    • July 2, 2018 at 1:00 pm

      My interpretation of Keynes’ thesis was heavily influence by having been taught by and worked with ex colleagues of Turing and Good, who seems to me to have been the best interpreter of Keynes. On this basis I second the motion that mainstream economics has not grasped the significance of the references to the Treatise in Keynes’ work on economic theory. (And I think it matters, as on my djmarsay.wordpress.com blog.

  3. July 1, 2018 at 6:44 pm

    Leaving out money, banks, and finance from your macroeconomic models is a bad reflection on Krugman. But for him to stand firm, insisting that banks are irrelevant, merely intermediating, moving money from one pocket to another, after witnessing the biggest banking crisis in a century, one that threatens our global system even now, well, that’s inexcusable.

  4. Craig
    July 1, 2018 at 7:26 pm

    Basic old paradigm problems like zen koans are not glibly resolved. Like the classic koan, “What is the sound of one hand clapping?”, they require intense and focused looking and contemplation….in order to snap the noviate out of his glib and habitual garden variety state of walking around consciousness and into a moment of satori. This is exactly what macro-economic theory requires…and new paradigm perception is characterized by. In fact I would say that macro-economics is a discipline caught in the intellectual and habitual un-resolvability of a koan and a satori/new paradigm perception moment is the only way to exit the mental stress it is designed to create. You can’t glibly answer a koan without getting whacked on the head by the zen master and you can’t tweak/palliate macro-economics and pretend you’ve experienced satori.

    What are the “integral” aspects and components of the economy that are not integral at all, but are in fact obstructions to integration itself? How, where, when and with what can a new macro-economic moment of satori/paradigm perception….be best micro foundationally applied?

  5. Frank Salter
    July 1, 2018 at 7:31 pm

    Calibration is another name for curve fitting. Curve fitting describes data is does not predict!

    • July 9, 2018 at 7:44 pm

      Some argue that if one wants to make a prediction then the best one can do is to curve fit and use an extrapolation as a prediction. For example, if two planes are on a collision coarse then one should curve fit and extrapolate, and thus predict that unless at least one of them changes coarse, they will collide. An unconditional prediction would depend on knowing that nothing would change: ceteris parabus. But when would this be justified?

  6. David Harold Chester
    July 2, 2018 at 8:20 am

    Some models are better than others and it also depends on what one is trying to show from the model. Since the aim seems to be that of generalization of the Big picture, the methods and modeling result that I have managed to obtain should be more satisfying and answer some of the needs for seeing the wood without being confused by the trees. My short paper SSRN 2865571 “Einstein’s Criterion Applied to Logically Modeling Macroeconomics” will show you how to achieve a most general picture, that is not as general as Keynes cynically wrote about being dead for a long time.

  7. July 2, 2018 at 10:33 am

    Ever since the Global Financial Crisis, there have been an increasing number of voices calling for change in the economics curriculum/syllabus. However, even people who are sharply critical of mainstream (Rodrik, Stiglitz, Krugman) merely suggest minor and peripheral changes, and do not question the fundamental methodological basis on which neoclassical economics rests. In fact, As Craig says in a comment above, a radical paradigm shift is required. According to current nominalist methodology, any model which produces a match to observables is a good model. The economists have lowered the bar further by not even requiring a good match, and not even comparing model results to reality. See “Friedman’s Methodology: A Stake through the Heart of Reason.” When the methodology is seriously deficient, people are allowed officially to make crazy assumptions, as long as the model produces a match with reality. For example, I could argue that gremlins manipulate the interest rates in accordance with such and such gremlin-formulae — this is exactly what Paul Romer says in the Trouble with Macro; economists use imaginary forces as drivers of their models.  This methodology is such that a good model can only emerge by a random accident — just as the theory of evolution holds that life emerged by accident. I have explained how this seriously mistaken methodology came to be adopted, as a result of the wrong side winning the battle of methodologies; see “Method or Madness

    Keynesian models remain substantially superior to modern RBC and DSGE models because they can explain voluntary unemployment, which is ruled out by assumption in the latter models. Nonetheless, Keynesian models were rejected in favor of dramatically inferior models — — see postscript linked for “70 years of Economists’ Failure to Understand the Labor Market“. . When the methodology is so bad that it cannot differentiate between good and bad models, and cannot revise models in face of conflicting observations, then it become useless to debate whether any particular model is good or bad. After all, even though Solow thought that DSGE models were developed for Mars, and Lucas and Sargent were akin to madmen who believed themselves to be Napolean Bonaparte — DSGE models continue to be used throughout the world, and Lucas and Sargent are extremely respected names in the profession.

    Building good models within the current methodology will serve no purpose; one must change the methodology to one which is CAPABLE of distinguishing between good and bad models, and which is CAPABLE of correcting and revising models when they do not match observational evidence. Such a methodology, which is radically different from what is currently in use, is available in Polanyi’s Methodology  It rejects methodological individualism in favor of giving agency to collective action — groups, communities. It rejects the isolation of economics, arguing that all dimensions of human societies — social, political, economic — interact and cannot be understood in isolation. It also asserts, contrary to mainstream views, the economic theories cannot be understood outside of their historical context, and also, history cannot be understood without considering the economic theories formulated to understand this history — since policies were based on these theories and shaped the course of history. To take this “entanglement” into account, we must study the co-evolution of theories and history. I have several posts explaining entanglement; for instance — The Entanglement of the Objective and the Subjective, Hunter-Gatherer Societies, and The Three Methodologies.

    The main point I am trying to make here is that our problems with models cannot be resolved at the level that we are seeking solutions — that is, criticizing models as being bad, contradicted by data, meaningless, nonesensical, or absurd. — Solutions can only be found at the META-Level, where we consider theories about how theories come to be accepted. This point is made in the article ” On the Central Importance of a Meta-Theory for Economics“.

    • July 2, 2018 at 7:36 pm

      Asad Zaman

      You say: “a radical paradigm shift is required.”

      Indeed, see:
      Hooray! The formalization issue is finally settled

      Egmont Kakarot-Handtke

      • July 2, 2018 at 8:29 pm

        You refer to “the Marshall/Keynes tradition of loose verbal reasoning”. My assumption is that, as in GTE, Keynes intended his economic work to be interpreted by reference to his Treatise. Thus while his economic writing was intended to be accessible to policy makers and mainstream economists and thus necessarily employs ‘loose verbal reasoning’, it is at least underpinned by sound logic. In this sense it seems far less loose than most economics, including interpretations of Keynes’ work that appear uninformed by his Treatise.

        I am sympathetic to what I think are your mains points, if not to how you present them. (Many have a similar view of my own attempts: at least we try.)

      • July 2, 2018 at 10:02 pm

        Dave Marsay

        You say: “My assumption is that, as in GTE, Keynes intended his economic work to be interpreted by reference to his Treatise.”

        Just the opposite. Keynes clearly distanced himself from the ToM.

        “The relation between this book and my Treatise on Money … is probably clearer to myself than it will be to others; and what in my own mind is a natural evolution in a line of thought which I have been pursuing for several years, may sometimes strike the reader as a confusing change of view.”

        “But my lack of emancipation from preconceived ideas showed itself in what now seems to me to be the outstanding fault of the theoretical parts of that work (namely, Books III and IV [of ToM]), that I failed to deal thoroughly with the effects of changes in the level of output.”

        “The above definitions of income and of net income are intended to conform as closely as possible to common usage. It is necessary, therefore, that I should at once remind the reader that in my Treatise on Money I defined income in a special sense. … For this reason, and also because I no longer require my former terms to express my ideas accurately, I have decided to discard them—with much regret for the confusion which they have caused.”

        There is no use to interpret Keynes for x-th time. Keynesianism is dead for 80+ years but After-Keynesians have not realized it. For details see cross-references Keynesianism

        Egmont Kakarot-Handtke

      • July 2, 2018 at 10:13 pm

        I .thought Dave Marsay was referring to Keynes’s Treatise on Probability

      • July 3, 2018 at 9:57 am

        davetaylor1, Dave Marsay

        In the preface of the GT, Keynes stated clearly how he wanted the book to be interpreted with reference to the Treatise on Money but he never said a word that refers to the Treatise on Probability.

        So, Dave Marsay’s statement is false independently of whether he refers to ToP or ToM.

        As the quotes from the GT above show, Keynes wrestled with the definition of income/saving and this has nothing to do with probability.

        This is the key statement from the GT: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (p. 63)

        This two-liner is conceptually and logically defective because Keynes never came to grips with profit.

        “His Collected Writings show that he wrestled to solve the Profit Puzzle up till the semi-final versions of his GT but in the end he gave up and discarded the draft chapter dealing with it.” (Tómasson et al., 2010)

        Because Keynes got the foundational concepts profit/income/saving wrong the whole analytical superstructure of Keynesianism is scientifically worthless, and no reinterpretation in the light of ToP or anything else can save it.

        Keynesianism is dead for 80+ years. Walrasianism is dead for 140+ years. Asad Zaman is right: “a radical paradigm shift is required.”

        Egmont Kakarot-Handtke

      • David Harold Chester
        July 3, 2018 at 4:48 pm

        Is there any kind of “radical paradigm shift” possible, which is not of a logical kind and for it to be engineered to be scientific in its nature? All the other less radical kinds don’t seem to be going anywhere. Either they are less radical or they are less scientific. Mine does answer these two necessary concepts and may be seen through the internet as SSRN 2865571 “Einstein’s Criterion Applied to Logical Macroeconomics Modeling”.

        A lot can follow when we begin to accept the need for a more serious approach to this problem. And the reference of mine in this working paper is how.

      • Craig
        July 3, 2018 at 6:40 pm

        Egmont is right, about Keynesianism and all of present macro-economics actually. Why? Because macro actually doesn’t consider the individual DIRECTLY. It’s a bunch of aggregate statistics derived from thrice removed mathematics trying to discover a solution to a problem that is not forthcoming…because they’re not thinking paradigmatic-ally nor are they looking in the right place to discover that the rate of flow of total costs and so total prices inherently exceeds the rate of flow of total available INDIVIDUAL incomes….and because exactly like the church before the Reformation a monopoly entity dominated INDIVIDUALS’ access to grace via their sacraments ONLY…except now its Finance’s monopoly paradigm of Debt/Burden/Cost ONLY denying the individual’s DIRECT and resolving access to monetary grace as in gifting and commercial agent’s being reciprocally denied the same.

        Directness and immediacy of effect are aspects of the natural philosophical concept of grace and an aspect or aspects of grace have been the operant factors behind every paradigm change in human history.

        Economists need to “up their game” of statistical, abstract and scientific analyses by integrating them into the conscious understanding of paradigm perception and its underlying and resolving concept.

    • Craig
      July 3, 2018 at 9:26 pm


      You are right about economic theory needing a meta level solution. I submit to you that what I refer to as the cosmic code of wisdom [( A x Z) C ] described as the dynamic integration of a duality and/or conceptual opposites within an equally dynamic integrative thirdness greater oneness process…is the very method you refer to and that economics needs. This equation/method is coincidentally also the very process of wisdom itself which is the discernment of truths, workabilities, applicabilities and highest ethical considerations of opposing perspectives/situations….and also the definition of wisdom’s pinnacle concept of grace as in the dynamic interactive flow of several and/or opposing factors.

      • Craig
        July 3, 2018 at 9:43 pm

        Couple this with the fact that an aspect or aspects of the natural philosophical concept of grace have always been the operant factors in every paradigm change in human history…and you’re talking a set of very high level meta coincidences.

  8. July 2, 2018 at 12:55 pm

    It seems to me that Krugman’s approach pays dividends in critiquing the later post, https://larspsyll.wordpress.com/2018/07/01/probability-and-rationality-trickier-than-you-might-think/ . All told, we mostly seem to agree with what I take to be Keynes’ position, that we need less pseudo-mathematics. Our differences are that some of us want to use some proper mathematics instead, whereas others seem to be appealing to something that I could only begin to comprehend by following Krugman’s advice. But maybe that’s my blinkers? (Open to persuasion – maybe.)

    • Frank Salter
      July 3, 2018 at 7:37 am

      I agree that valid mathematics is required. The major element in achieving this is to solve relevant differential equations, The reason this is not done is because doing so is much more difficult than the mathematical techniques being used.

      • July 3, 2018 at 3:43 pm

        Yes. And in that context Krugman is just another stubborn old guy who refuses to learn the “new math”, involving non-linear coupled differential equations.

  9. Craig
    July 2, 2018 at 10:42 pm

    The bald @ssed truth for both the current monetary paradigm of Debt/Burden/Cost Only and for private money creation at all….is that it’s over….and the former must give way to a new primary paradigm of Direct and Reciprocal Monetary Grace as in Gifting and the latter must either utterly and unequivocally embrace that new paradigm….or be resigned to the dust bin of history.

    And I’m leaning very, very heavily toward the latter.

    And this is no unequivacal endorsement of publicly administered money creation either because they must embrace the new paradigm in all of its policy aspects as well…in order to keep from succumbing to the temptations of power and profit inherent in the money creating power. Aside from the necessity to implement the philosophically aligned policies of the new paradigm it’s really simply the pragmatic understanding that it is easier to control and get a single lean and hungry cat to cooperate with an unimpeachable ethic, than attempt to get a herd of fat and exquisitely spoiled ones to do the same.

  10. July 3, 2018 at 6:09 pm

    I am responding Egmont’s of July 3, 2018 at 9:57 am, above.

    I would not attempt to defend Keynes’ economics, lacking any suitable qualification. There is the added difficulty of identifying an accurate text, which do differ. For example, Wikipedia’s first reference is to one without footnotes.

    In my version (BN publishing), Ch12 Fn 61 has:
    By “very uncertain” I do not mean the same thing as “very improbable”. Cf my Treatise on Probability, chap 6, on “the weight of arguments”.

    In other areas it is very common for people to read something, misinterpret the mathematics, misinterpret the whole theory, come up with a bogus conclusion and then discredit the theory. This seems to have happened with Keynes, to the extent that as far as I have studied them (not very far) the criticisms do seem to rely on such misinterpretations. This is not, of course, to say that Keynes was right. Maybe you are on to something, but we would first need to try and understand what Keynes’ theory actually was, which seems much too difficult: the whole subject has been much too muddied by confusion on confusion.

    In other areas I have found that language is used inconsistently. Even Keynes’ useage varied considerably over his life. But I tend to give him the benefit of the doubt and interpret him as at least intending to be logically credible, even if he got some details wrong. (Don’t we all?) In this spirit, I think him worth struggling with, rather than accepting someone else’s gloss.

    Is there a readily searchable and readable and reliable on-line text for GTE, preferably together with any clarifications that Keynes provided? Was Keynes actually a Keynesian?

    • July 3, 2018 at 10:21 pm

      Dave Marsay

      There is science, and it is binary true/false with NOTHING in between. Truth is well-defined since 2000+ years by formal and material consistency. And there is the large swamp of cargo cult science where, as Keynes said, “nothing is clear and everything is possible.”

      In the swamp, vagueness, indeterminacy, inconclusiveness, confusion dressed up as complexity, unresolved contradictions, storytelling, filibuster, gossip, finicky scholasticism (Popper), known/unknown unknowns, nonentities, and the Humpty Dumpty Fallacy are the prevailing components of communication.

      Keynes was a swampie and a defender of the Cambridge tradition of lose verbal reasoning.#1 On rare occasions, Keynes wrote down an unambiguous syllogism, e.g. “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (GT, p. 63)

      Too bad that this rather elementary two-liner is provably false. This is sufficient to refute Keynesianism. Inconsistency is lethal in science. Fortunately for Keynes and After-Keynesian swampies, economics is only a titular science.#2 Because of this, people can have conversations about ‘What Keynes really meant’ until they are blue in the face. Zero outcome guaranteed.#3

      Egmont Kakarot-Handtke

      #1 Marshall and the Cambridge School of plain economic gibberish

      #2 Tricky business

      #3 Forget Keynes

      • July 9, 2018 at 7:56 pm

        Egmont, I think of science as having two types, the theory and application, rather like economics. The theory has to be definite and may appear dogmatic, as you suggest. But surely a dogmatic application of a theory to a real domain is just pseudo-science? For example, since Hilbert, geometry as mathematics has been as provably correct as it gets. But the Eddington experiment seems to show that the application to the cosmos was false. From a theory of knowledge perspective, it is simply not possible ever to justify an absolute belief in an application, no matter how mathematical or scientific the idealised theory. So as far as applications go, I think there is a huge amount between ‘absolutely true’ and false. All one can ever really claim is that a theory is the best we have thought of so far, fitting the evidence that we have considered. This falls short of unconditional ‘truth’.

        Or have I misunderstood you?

      • July 10, 2018 at 8:31 am

        Dave Marsay

        You say: “Egmont, I think of science as having two types, the theory and application, rather like economics. The theory has to be definite and may appear dogmatic, as you suggest. But surely a dogmatic application of a theory to a real domain is just pseudo-science?”

        NO, there are NOT two types of science but science is defined by material AND formal consistency. BOTH!

        This is why Gauss, long before Hilbert, tested Euclidean geometry: “One of the most famous stories about Gauss depicts him measuring the angles of the great triangle formed by the mountain peaks of Hohenhagen, Inselberg, and Brocken for evidence that the geometry of space is non-Euclidean.” (Brown)

        Genuine scientists, which excludes both orthodox and heterodox swampies, have very thoroughly thought about what distinguishes science/truth from blather, i.e. the demarcation problem: “So the idea of truth (of an ‘absolute’ truth) … is our main regulative idea.” and “Although nowadays we have given up the idea of absolutely certain knowledge, we have not by any means given up the idea of the search for truth.” (Popper)

        Scientists do not claim that a theory represents the absolute truth about a subject matter but that it is the best mental representation of reality that is humanly possible. This leaves the door open for anybody to come forward with an even better theory.

        Neither orthodox nor heterodox economists ever understood this and that is why economics is a failed science or what Feynman called a cargo cult science.#1, #2, #3

        Luckily for economists, scientific failure does not prevent a career as useful political idiot.

        Egmont Kakarot-Handtke

        #1 Axiomatics — the heterodox bugbear

        #2 Don Lars and the axiomatic windmill

        #3 Economics between truth and blather

    • Craig
      July 4, 2018 at 3:03 am

      Macro-economics will never solve the problems it has correctly identified because they aren’t looking in the right places to solve them (the actual points of exchange in commerce) and with the integrative tool that is 1) the very infrastructure upon which commerce sits and is embedded within and 2) gives them the insights necessary to craft policies whose temporal expression are the very solutions they seek (double entry bookkeeping).

      When such policies resolve the macro-economic paradox of thrift, cut the seeming Gordian Knot of “monetary” inflation and even resolve the fallacy of composition in economics via policies that create the integrative oneness aspect of the natural philosophical concept of grace….you know you’re onto something.

      • July 4, 2018 at 11:13 am


        You say: “Macro-economics will never solve the problems it has correctly identified because they aren’t looking in the right places to solve them …”

        There is no point any longer in bashing or reinterpreting macro or micro.#1, #2 Orthodoxy, Heterodoxy, and Pluralism are provably false. More specifically, they are axiomatically false, that is, beyond repair.

        In this situation, the representative economist has only this options left (i) to work on the paradigm shift or (ii) to throw himself under the bus.

        Science is binary true/false with NOTHING in-between.

        Egmont Kakarot-Handtke

        #1 Stop beating mainstream economics ― it is long dead

        #2 The miracle cure of economists’ micro-macro schizo

      • Craig
        July 4, 2018 at 6:11 pm


        I completely agree that orthodoxy, heterodoxy and pluralism are all provably false…because they all still reside within the old monetary paradigm of scarcity/austerity….and ITS incompleteness, blindness…and in fact its non alignment with cutting edge science which tells us that the entire cosmos is in an utterly integrated,integrative and abundant (being cosmic how could it be anything but abundant) flux/process/flow…which are all aspects of the natural philosophical concept of grace.

        Science, good science and scientific breakthroughs not only do not conflict with grace….they affirm it.

      • July 5, 2018 at 11:04 am


        You violate the first rule of science: Do NOT apply religious/spiritual concepts in an economic argument.#1

        Scientific truth is well-defined by material/formal consistency. The rest of human communication is just brain-dead blather.

        Egmont Kakarot-Handtke

        #1 The Supreme Being handed over these Twelve Economics Commandments

      • Craig
        July 5, 2018 at 4:29 pm


        Sorry, you violate the first rule of GOOD NON-orthodox science: Keep your mind open to all existent (no matter who it is attributed to) data and philosophy.

        #1 The supreme beingness being the cosmos and you being apart thereof….the associative principle applies

  11. Helen Sakho
    July 4, 2018 at 12:27 am

    Wonderful institution, this Cambridge! The godless institution UCL is slightly better. But the Chicago School of Economics is the bestest.
    In other words: “All animals are equal, but some animals are more equal”
    For a better learning environment of all Econ related concepts, one must highly recommend the barter systems still prevalent in some geographies in ancient cultures, or newer ones in refugee camps.

  12. July 4, 2018 at 8:22 am

    Thank God for Helen’s ironic humour! Forget Egmont: despite my repeatedly correcting him he still insists that Keynes taught what he spelled out as being what needed correction. Forget Craig: despite many shots across his bows he still persists in mystifying old chestnuts. Forget Adam Smith’s invisible hand at your peril, but do realise it is a metaphor for a control system. A much less mystical metaphor (which is indeed a paradigm, a practical example of the relevant theory), has long been available in the theory and practice of navigation, i.e. Cybernetics. As an economist Keynes did not think of that, but like a baby taking its tentative first steps, he did go some way to re-inventing it for steering economies.

    So the math is not the message. What ‘is’ is the meaning of its results when whatever language they are in as been decoded.

  13. July 9, 2018 at 11:09 am


    You say: “Forget Adam Smith’s invisible hand at your peril, but do realise it is a metaphor for a control system. A much less mystical metaphor… has long been available in the theory and practice of navigation, i.e. Cybernetics. As an economist Keynes did not think of that, but like a baby taking its tentative first steps, he did go some way to re-inventing it for steering economies.”

    Take notice that Keynes got the whole thing wrong and Post-Keynesians blindly followed him. Methodologically, economics is a system science but economists second-guess for 200+ years Human Nature/motives/behavior/action.

    To this day, economists have been unable to give a consistent description of how the monetary economy works. Economists do not even know what profit is. This is like medieval physics before the concept of energy was consistently defined and fully understood.

    For this compelling methodological reason, a paradigm shift is necessary which means practically that Walrasianism, Keynesianism, Marxianism, Austrianism, is buried at the Flat-Earth Cemetery.

    Here are the correct systemic foundations of economics.#1, #2 The elementary production-consumption economy is, for a start, defined by three macro axioms (Yw=WL, O=RL, C=PX), two conditions (X=O, C=Yw) and two definitions (monetary profit/loss Qm≡C−Yw, monetary saving/dissaving Sm≡Yw−C). From this follows Qm=−Sm, that is, macroeconomic profit comes in the most elementary case from the growth of household sector debt.#3

    Capitalists don’t know this. Workers don’t know this. Orthodox economists don’t know this. Heterodox economists don’t know this. And davetaylor1, too, does NOT know the most elementary fact about the economic system.

    Egmont Kakarot-Handtke

    #1 Do first your macroeconomic homework!

    #2 New Foundations of Economics

    #3 AXEC Profit Law and Balances Equation

    • July 11, 2018 at 5:39 pm

      With respect, Egmont, taking your criticisms in order:

      Keynes did not get it entirely wrong, he did not entirely get it right. We are differing over whether the glass is half full or half empty.

      Whether or not economists understand how the monetary economy works and what profit is, or wther they don’t want us to understand, is beside the point if I am talking about how real systems work and you about mathematical descriptions.

      I agree a paradigm shift is necessary. By all means bury all your ‘isms’ in the Flat Earth cemetery, but what their authors have and have not said provides interesting clues as to what a new paradigm will need to take account of.

      The correct systematic foundation for a mathematical system start with its dimensionality (degrees of freedom) and definitions of relations between symbols. Your quantitative production-consumption model can only oscillate linearly. A two-dimensional flow system model requires an additional term accounting for distribution, which may be to a fourth function, development: not only of production (industrialisation) but of distribution (warehousing) and reliability of consumption (welfare). That is the real economy. There is an equivalent parasitic development into banking and chrematism parasitic upon it. In the real economy macroeconomic profit comes in the form of real goods produced by investment of an already available surplus of them in physical work and information processing which reproduces the surplus. But of course we are again at cross-purposes. The debt I am concerned with is to each other and to nature, repaid by regenerating the surplus by us together more than earning our keep. You seem to be concerned (apparently unwittingly) with chrematism, which while credit is short creates monetary debt, warehousing it by inflating stock and share prices.

      Davetaylor1, then, does know something about the economy, having lived in for over eighty years and thought about it for sixtyfive. I’m not sure where you have been living, Egmont.

      • July 11, 2018 at 7:26 pm


        You say: “Davetaylor1, then, does know something about the economy, having lived in for over eighty years and thought about it for sixtyfive.”

        This is very interesting for any sitcom but annoying in a scientific discussion. See

        Show first your economic axioms or get out of the discussion

        Egmont Kakarot-Handtke

      • Craig
        July 11, 2018 at 9:02 pm

        axiom #1: The entire cosmos exists within a continually dynamic, interactive, integrative and yet somewhat disequilibrated/randomized state of gracefulness as in process and flow.

        axiom #2: The economy being embedded within the cosmos will reflect this natural and temporal reality.

        axiom #3: Economic policies that effect a greater alignment with and duplication of the cosmological-ly defined graceful reality will be more logical and scientifically accurate.

        axiom #4: A full exegesis of the aspects of the natural philosophical concept of grace is the scientific route to crafting policies that will align with, duplicate and effect the cosmic reality in economics and in any other human system.

      • July 12, 2018 at 10:11 am


        Of course you are right, in my post above I did not mention the cosmos. So here is the enlarged set of foundational propositions.

        (A0i) The set of all things and events is the logical cosmos.

        (A0ii) The sub-set of the logical cosmos that is mentally/physically accessible to earthlings is the empirical cosmos.

        (A0iii) The economy is a sub-set of the empirical cosmos.

        (A0iv) The objectively given and most elementary systemic configuration of the world-economy consists of the household and the business sector which in turn consists initially of one giant fully integrated firm.

        (A0v) For a start,#1 the elementary production-consumption economy is given with three macroeconomic axioms.

        (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.

        (A0vi) From the macroeconomic axioms follow models by specification.

        (A0vii) The Ur-Model is given by two conditions (X=O, C=Yw) and two definitions (monetary profit/loss Qm≡C−Yw, monetary saving/dissaving Sm≡Yw−C).

        The economic Ur-Model tells us two important things: (i) under the condition of market clearing X=O and budget balancing C=Yw, macroeconomic profit is zero and independent of employment, productivity, wage rate, etcetera, and (ii), because of Qm=−Sm macroeconomic profit comes in the most elementary case from dissaving, i.e. the growth of household sector debt.#2

        From this, in turn, follows immediately that all microfounded (Walrasian) and macrofounded (Keynesian) profit theories are false.

        (A1) to (A3) are the correct macroeconomic axioms to start with. The Prime Cosmic Directive says: If it isn’t macro-axiomatized it isn’t economics.

        Egmont Kakarot-Handtke

        #1 Wikimedia, New Foundations of Economics

        #2 Wikimedia, AXEC Profit Law and Balances Equation

      • July 12, 2018 at 2:40 pm

        If I interpret Craig’s axioms to be consistent with Whitehead and Keynes then in A0i the key question is ‘what sort of logic’? Hence in A0iv you have the question of ‘what sort of integration’. In my experience (mostly not in economics) most people seem to think in terms of classical logic and hence what I think to be an inappropriate kind of integration. There seems to be something like an uncertainty law: the more they strive for an inappropriate integration, the more they jeopardise what I think Craig might think was ‘graceful’ integration.

        To any mathematician (fans of Whitehead or no) the key question in your A0v is: do these concepts make sense, which you would normally address through model theory. If Keynes is right, then the answer is either no or maybe, but certainly not something to be taken for granted. More micro-foundational axioms would seem to be required.

        One way to look at this is simply to try simulating a toy economy. I don’t see how you could get things to stabilise to the point where your quantities were classically measurable unless (as many do) you in effect build in something that ensures such stability. Greenspan thought there an elite (‘masters of the universe’?) who had the means and the motive to do this for the real economy, but post 2008 this seems less credible.

        So, not just as a mathematician, I would like to see how you might tackle Keynes’ microfoundational issues, as in his Treatise on Probability, to justify your macro-economics. To be fair, Keynes seems to invoke something like Craig’s grace, which sadly seems to fail us from time to time. But what else is there? An ‘invisible hand’? (Adam Smith hardly argued that this would be fool-proof.)

      • Craig
        July 12, 2018 at 5:37 pm

        Macro-economics’ problem is it does not adequately consider the additional costs of depreciation/the second law of thermo-dynamics and its effects on price considering the cost accounting convention that ALL costs must go into price. It also does not distinguish between total money/credit in the system and total individual incomes the latter of which in ratio to total costs is a scarcity ratio.

  14. July 10, 2018 at 1:30 pm

    This is a reply to Egmont’s of 8:31. (Why no ‘;reply’ button?)

    “NO, there are NOT two types of science but science is defined by material AND formal consistency. BOTH!”

    As a mathematician, may I be excused for moving to firmer ground? According to Keynes, Russell, Whitehead and (as far as I am aware) there are two types of mathematics: commonly called ‘pure’ and ‘applied’. Similarly for logic. In so far as other disciplines rely on logic it seems reasonable to me to think in terms of pure and applied disciplines, and in terms of science and economics this seems to me a very important discipline. Certainly, in talking to an economist the first thing I try to do is establish whether their claims are pure or applied, so that I may treat them accordingly.

    In ‘proper’ science this distinction does not matter much to most of us most of the time, and many suppose it to be ‘pragmatic’ to leave it to proper scientists to worry about, in much the same way as we are happy for theologians to worry about angels and pins. But I have a notion (with some support from experience) that in a crisis one should be wary of what had previously been regarded pragmatic. There is normally some pragma that needs to be challenged, and – in my view – inappropriate pragmas are often part of the ’cause’ of the crisis.

    (Many would agree, but the problem is that in a crisis someone needs to act without the ‘cover’ provided by an accepted pragma, which leaves them exposed if things don’t work out. Also, they need to act logically (in the Keynes, Russell, Whitehead sense), and the switch from pragmatism to ‘the logic of crisis resolution’ is not easy: plenty of evidence for that! Psychologists also have some useful things to say about this.)

    Keynes uses the term pseudo-mathematics to refer to applied mathematics that disguises itself as pure mathematics, often without actually doing the ‘heavy lifting’ that applied mathematics calls for. One can similarly distinguish between science and pseudo-science, and I think the distinction matters. In economics, sadly, mainstream economics appears to be a pseudo-science, at best. What I would like to see would be an economics that was more like ‘proper’ science. I think we would all agree on that. But what is ‘proper’ science?

    In the language of Keynes (as endorse by Russell and Whitehead) I would say that no measurements of any kind can ever have any bearing whatsoever on mathematics per se, by which I mean ‘pure mathematics’. Hilbert tested the old (flawed) geometry as mathematics, Gauss tested it as science, showing that science had got their applied mathematics wrong.

    You quote Popper. I have current and former colleagues and interlocutors who studied under Popper and made a successful careers working within what they see as Popper’s framework, and after extensive discussion we had not found any fundamental in consistencies between Popper and mathematical logic. As with Keynes there are writings that could be interpreted as inconsistent, but – so far – more favourable interpretations seem quite natural, bearing in mind the audience to whom the words were addressed.

    “Scientists do not claim that a theory represents the absolute truth about a subject matter but that it is the best mental representation of reality that is humanly possible. ” This is what Kant thought about geometry. I don’t think you really mean it, unless when you go on: “This leaves the door open for anybody to come forward with an even better theory” you mean to suggest that Eddington was inhuman, or that some inhuman agency had changed what was human possible, or what? (Genuinely puzzled. Was it a typo?)

    If you recommend it, I will read and comment on your references. But I would prefer a definite and definite reference to something familiar, such as Popper. I would then update my blog comments on Popper to reflect any new areas of concern that your views might raise.

    In the UK we have had a few crises where politicians have struggled to identify the ‘genuine scientists’, and changing their view seems to have made a difference. So we agree that this is a key issue (not just for economic). But how do we do this?

    (My own view is that people who are scientists are also human, and in a crisis one should expect their ‘scientific’ recommendations to be ‘corrupted’ (albeit with the best of intentions) by their humanity. Again, we have plenty of infamous evidence of this in the UK. So, when you need them most, there are – in effect – no ‘genuine scientists’. My test for a kind of genuiness is that if anyone claims to be a ‘genuine scientist’ in what I think is the popular view of these things, then they are actually pseudo-scientists. More promising are those who are striving, but acknowledging their own limitations. )

    I suspect (as I do with Lars) that our underlying thoughts and intentions are compatible, but our expressions are infected by our backgrounds and experience. I hope so!

    • July 11, 2018 at 2:58 pm
      • July 12, 2018 at 10:48 am

        Craig at 9:02 offers an ‘axiomatization’. What do you think of it?

        It reminds me of a lot of psycho-babble that I find superficially unattractive, but which I have given some attention to. It may be an honest attempt to put the ideas of Whitehead into ‘accessible’ language. I certainly read Keynes’ Treatise and his GTE in the light of such ideas, without which underpinning they would seem vague or dangerous – or both.

        I am tempted to add an axiom #5, that whatever we think grace is, it is not something that we can safely leave to others. Personally, I think that scientists who lack some kind of grace might reasonably called ‘pseudo-scientist’ (after Keynes) and – if too influential – can ’cause’ or exacerbate some of the problems that some ‘softer’ people complain of. But in practice it seems to be enough to follow Whitehead et al and point out the logical flaws in the (application of) the ‘science’, and avoid the wishy-washy stuff.

      • Craig
        July 12, 2018 at 6:46 pm

        Simply expunge any bias you might have for or against religion/spirituality and its traditional nomenclature and address the most cutting edge scientific description of the cosmos, the various non-religious definitions of the philosophical concept of grace and how economics being embedded within that cosmos would resonate, align with and be a good and accurate way to model same.

        There is at least as much orthodox science floating around in people’s minds as there is religious orthodoxy, and way too much of both.

        Un-examined/unperceived costs and time and their effects are what afflict macro-economics. As I have said here many times economists ARE NOT LOOKING AT double entry bookkeeping and so are missing extremely relevant economic insights to be derived from doing so. You can’t get any more empirical and grounded in the temporal universe than accounting, and it’s not just “bean counting”. And yet I’m the one that most here probably think is “new age” etc. No! I’m for BOTH enlightened philosophy AND scientifically aligned policy. Integration. Integrating. Looking…everywhere without bias. That’s good open minded science.

      • July 13, 2018 at 9:31 am

        Craig, Are there any sources for “non-religious definitions of the philosophical concept of grace ” and their links to your axiom 1 that a mathematician who thinks he has some understanding of Whitehead, Keynes and Russell might find insightful?

      • Craig
        July 13, 2018 at 8:00 pm

        Dave, There’s lots of references in books on mindfulness/consciousness. As I said above one needs to look at the traditional definitions, de-super nature/de-attribute them and then compare those definitions/aspects to cutting edge quantum physics, human psychology, economics and money systems, whatever body of knowledge/human observation one wants to look at/investigate….and see how they jive. For instance dancing and gymnastics. A dancer or gymnast bodily moves across the mat or dance floor in a dynamic, interactive, and unitary balance, equilibrium process and flow that is described as graceful. It’s what is observed and described. It is simply what IS. And if wisdom is the process of personal integration then integrate what you see with the fact that you as a conscious being….are actually there observing it….and you might have a startling experience. As the zen saying goes, “Wherever you go, there YOU are.

        Actually, each of the world’s major wisdom traditions is chock full of such proverbs, insights, and definitions of consciousness -grace.

        Personally I couldn’t care less about whether someone wants to attribute everything to god or to science-nature. I’d simply encourage them to be graciously benevolent and open minded about it. That way it reinforces the positive experience and avoids orthodoxy and dogmatism.

    • July 14, 2018 at 9:15 am


      You say: “I have said here many times economists ARE NOT LOOKING AT double entry bookkeeping and so are missing extremely relevant economic insights to be derived from doing so.”

      False. Macroeconomic accounting has already been rectified.#1

      You say: “You can’t get any more empirical and grounded in the temporal universe than accounting, and it’s not just ‘bean counting’.”

      True. For example the macroeconomic Profit Law Qm=−Sm.#2

      Egmont Kakarot-Handtke

      #1 The Common Error of Common Sense: An Essential Rectification of the Accounting Approach

      #2 For details of the big picture see cross-references Accounting

  15. Helen Sakho
    July 13, 2018 at 1:02 am

    To be fair to all, one can only add that as mr. Trump is currently in London, the centre of universe that defines and decides Time itself for much of the world, and will be visiting kings and castles and is properly protected by an incredibly competent police force whose force has been curtailed by force, let us wish all who are stressed out of their minds, including the demonstrators the best of luck. The utter confusion over Brexit, the Irish and the Scottish and the global warming issues are sufficiently confusing for all. I have a good mind to personally deliver a cup of Tetley’s camomile tea to Trump, but I doubt if it would be sufficient to calm him down just a little bit so that England could decide which continent or ethnicity or god or tradition it actually belongs to against its own starving people. Consulting the old conservative commentators who were themselves sons and daughters of slaves and/or lazy bums (excuse my English) of all colours is the other alternative.

  16. July 13, 2018 at 9:47 am

    Thanks for your best wishes. Interesting times!

    From a mathematical point of view it seems that there is no way out of our predicaments that most people of influence (including Kahneman and Tversky) would regard as ‘rational’ and that there either needs to be some mass movement of concerned citizens or leadership that would need to link our UK concerns to broader issues of global concern (as Gordon Brown tried to do). To those committed to the currently dominant ‘rationality’ either would seem bizarre, even Trumpesque, and as outside observers we would have no way of judging these activities: to do that we would need to engage with the protagonists.

    It seems to me that we are in a bit of a fix and Trump seems the only game in town that could radically change things. But whether we will see this as ‘grace’ or not is still open to question! Intellectually, I think we should try very hard to keep an open mind, even about Trump.

  17. Helen Sakho
    July 13, 2018 at 1:18 pm

    I think “interesting” were and are all the books and novels and histories that none of these people ever managed to struggle with including G. Brown. Times of despair are more appropriate in my view, but I do appreciate your mathematical formulations on stamina. As for open-mindedness, perhaps we need a more specific formula resembling a Lessie fair approach to the brain?

    • July 13, 2018 at 1:48 pm

      If the doom-sayers are right then we could be in for something like another Russian revolution. Just in case, I’m skimming N.D. Kondratiev. While in prison for his views he studied mathematics and came up with this formula: “There are many formulae which come into being in specific circumstances, but one has to use them in completely different circumstances. Thus, using formulae in general, making use of them without taking into account the circumstances, means falling into illusionism, condemning oneself to errors, which may be irreparable, without any utilitarian, moral or other positive results.” [Letter to his wife, 28/2/1934]

      Coincidentally, last week’s New Scientist had an article about the Cerebellum “Mind Maker”. From the article and other speculations I have seen, it may be that, contra Kahneman et al, the brain has something like a quantum computer, that is ‘extra-rational’ in the sense that it is not constrained by our tired old formulae and can usefully out-perform conventionally rational systems. We aren’t there yet, but it may be that our understanding of the brain is about to be revolutionised. Once the implications of this are worked through we may end up with a new concept of rationally that is both logical and useful in helpful to overcome or ameliorate many of our key problems – without the need for something scary like a Trump.

      My reading of history and literature is that – like Kondratiev – we have been here before, but as in his eponymous waves, even with ‘our’ best efforts we have failed to institutionalise or democratise our insights. Or maybe we have just failed to act?

      • Craig
        July 13, 2018 at 9:43 pm

        Yes, a cerebellum “mind Maker” is a scientific way of describing the existential reality of human consciousness….no matter to whom or what it is attributed to. ….and it isn’t the garden variety state of consciousness that most of us mentally inhabit day to day. It’s a higher state, a more SELF aware state and ultimately a state of consciousness that even eliminates the need for a concept OF SELF….because it is what is referred to as cosmic consciousness. A good reference for this and lower states can be found in The Master Game Robert S. De Ropp, especially Part III The Five Rooms pages 49-70 which I just grabbed off the bookshelf. I originally read the paperback back in 1971

      • July 14, 2018 at 12:23 pm

        Craig, There’s a copy at https://selfdefinition.org/psychology/Robert-S-De-Ropp-The-Master-Game.pdf . Skimming it, it seems to fit well within a certain respected long-standing strand of British culture, and I think I see what it is getting at. From a pragmatic point of view, it may well be a good read for most people. As a mathematician, I would ask:
        1. What role can logic play in ‘the will to meaning’?)
        2. Could mathematical modelling (in the broad sense) help in ‘re-educating’ false egos, working around the limitations of ‘the labelling device’ and avoiding ‘formatory thinking’ or at least ameliorating its impact?

        I am tempted to ask if the life and work of Turing et al might not provide a good case study. Even if Whitehead’s process logic, which underpins Keynes’ work, is somehow misguided or incomplete, it would be good to have a critique of it. If, as many seem to assume, there is no helpful mathematics, maybe we could develop some?

        On a practical level, if humanity is suffering from an excess of ‘formatory thinking’, how can we reform things for the better?

  18. Helen Sakho
    July 13, 2018 at 1:22 pm

    So, help us God.

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