Home > Uncategorized > Modern macro — ‘genuine plurality’ vs. ‘axiomatic variation’

Modern macro — ‘genuine plurality’ vs. ‘axiomatic variation’

from Lars Syll

out-of-the-fryingThe DSGE mainstream — which is made up of new classical macroeconomics and neo-Keynesianism — is unanimously based on the core assumptions that characterize the paradigm of social exchange theory. These are rationality, ergodicity and substitutionality, the exclusive acceptance of a formal mathematical-deductive, positivist reductionism. After the ‘empirical turn’ of the last two or three decades, these have been combined with sophisticated micro- and macroeconometrics, or with experimental arrangements, such as are familiar from the leading natural sciences (physics and chemistry). The postulate of stability and optimality (Walras’s law), which is implemented a priori in the core assumptions, serves as a ‘model solution,’ and thus functions as a marker of a negative heuristic. The apparently very different model prognoses of new classical macroeconomics (hyper-balanced and hyper-stable) on the one hand, and of standard and neo-Keynesianism (unbalanced, open to intervention) on the other hand are based on changes to assumptions in the ‘protective belt’ (e.g. about the speed of adjustment, the rigidity of prices and quantities, the formation of expectations etc.), but do not actually point to a different paradigmatic origin of the two schools of theory.

Arne Heise & Sebastian Thieme

Maintaining that economics is a science in the ‘true knowledge’ business, yours truly remains a skeptic of the pretences and aspirations of New Classical and ‘New Keynesian’ macroeconomics. So far, I cannot really see that they have yielded very much in terms of realistic and relevant economic knowledge.

The marginal return on its ever higher technical sophistication in no way makes up for the lack of serious underlabouring of the deeper philosophical and methodological foundations of mainstream economics. The rather one-sided emphasis of usefulness and its concomitant instrumentalist justification cannot hide it cannot give supportive evidence for considering it fruitful to analyze macroeconomic structures and events as the aggregated result of optimizing representative actors. After having analyzed some of its ontological and epistemological foundations, I cannot but conclude that ‘modern’ macroeconomics on the whole has not delivered anything else than “as if” unreal and irrelevant models.

Science should help us penetrate to “the true process of causation lying behind current events” and disclose “the causal forces behind the apparent facts” [Keynes 1971-89 vol XVII:427]. We should look out for causal relations. But models can never be more than a starting point in that endeavour. There is always the possibility that there are other variables — of vital importance and although perhaps unobservable and non-additive not necessarily epistemologically inaccessible –- that were not considered for the model.

The kinds of laws and relations that economics has established, are laws and relations about entities in models that presuppose causal mechanisms being atomistic and additive. When causal mechanisms operate in the real world they only do it in ever-changing and unstable combinations where the whole is more than a mechanical sum of parts. If economic regularities obtain they do it (as a rule) only because we engineered them for that purpose. Outside man-made “nomological machines” they are rare, or even non-existant. Unfortunately that also makes most of the achievements of macroeconomics — as most of contemporary endeavours of economic theoretical modeling — rather useless.

Most mainstream economists seem to have no problem with the lack of fundamental diversity — not just path-dependent elaborations of the mainstream canon — and vanishingly little real-world relevance that characterize modern mainstream macroeconomics. They usually stick to the view that there is nothing basically wrong with ‘standard theory.’ As long as policymakers​ and economists stick to ‘standard economic analysis’ everything is just fine. Economics is just a common language and method that makes us think straight,  reach correct answers, and produce ‘knowledge.’

Although some mainstream economists try hard to give a picture of modern macroeconomics as a pluralist enterprise, the change and diversity that gets their approval only takes place within the analytic-formalistic modeling strategy that makes up the core of mainstream economics. You’re free to take your analytical formalist models and apply it to whatever you want — as long as you do it with a modeling methodology that is acceptable to the mainstream. If you do not follow this particular mathematical-deductive analytical formalism you’re not even considered doing economics. If you haven’t modeled your thoughts, you’re not in the economics business. But this isn’t pluralism. It’s a methodological reductionist straightjacket.

No matter how precise and rigorous the analysis is, and no matter how hard one tries to cast the argument in modern ‘the model is the message’ form, mainstream economics do not push economic science forwards one millimetre​ since it simply do not stand the acid test of relevance to the target. No matter how clear, precise, rigorous or certain the inferences delivered inside the models are, that is no guarantee whatsoever they have anything interesting or relevant to say about real-world economies.

  1. Ikonoclast
    September 9, 2021 at 7:46 am

    “If economic regularities obtain they do it (as a rule) only because we engineered them for that purpose. Outside man-made “nomological machines” they are rare, or even non-existant.” – Lars Syll.

    I agree with the first sentence without reservation. The second sentence had me a little baffled at first and I believe that the fault was my lack of initial comprehension. If the “they” of the second sentence refers to “economic regularities” (of a certain type), then the second sentence also makes perfect sense. The “certain type” has to mean, I think, the “top down causation” actions of humans making autonomous voluntary or coerced actions as “choices” so-called. A coerced action can also be seen as a choice in the sense that the coerced action is chosen as less worse than the punishment threatened. Of course extreme coercion removes all choice by murder, torture, restraint or being forcibly moved physically.

    How do we engineer economic regularities or any other behavioral regularities in humans in the arena of autonomous, voluntary, coerced or “choice” activities? We do it by prescriptions backed by rewards and punishments. Follow the rules and be rewarded. Break the rules and be punished. However, it is not quite as simple as that on the reward side. It can also be as follows. Follow the rules and be tricked, exploited or swindled. Workers follow the rules of capitalism and are tricked into giving a large portion of value to the capitalist. The workers do not have as full a view of the full rewards and apportionments as does the capitalist.

    Rewards between workers and capitalists are not following a natural or fundamental law in any given system. As Lars says “If economic regularities obtain they do it (as a rule) only because we engineered them for that purpose.” Or in that way. Different regularities can obtain in different periods of history, in the capitalist era. In different decades we see differing proportions in the ratio of the wages share of the economy to the profits share. What accounts for these is the deferential power of the actors as set by the rules of the system. Permit unions, permit worker solidarity and permit strikes, then the power balance and thus income share balance shifts to workers. Ban unions, ban worker solidarity and ban strikes and the power balance and thus income share balance shifts to owners. In this sense the prescriptions of the system, as laws, regulations and money-finance accounting rules program the system, just as a set of programming instructions program a virtual system.

    However, a real system has what we might term “limits to programming”. A human is a real system, a society of humans is a real system and of course the containing environment is a real system. We cannot program humans to live with less than the reproductive costs of labor, not if we want the continued availability of a labor pool. We cannot program humans to live without food, even as slaves. We cannot program nature (though “program” is no longer the right word) to provide endless resources and accept endless wastes.

    In discerning “limits to programming” in relation to humans, especially human behavior at work, we can discern real limits and moral limits. I cannot instruct a small child laborer to carry a 60 kilo sack of coal up out of the mine. I can instruct him to pick and carry spilled lumps of coal in small burlap sack following behind the coal trams pulled by men or other mean. But would I not transgress reaonable moreal laws in doing so? Have a look at the series of photos of the “breaker boys” of the coal mines of the USA circa 1880s to 1911.

    https://en.wikipedia.org/wiki/Breaker_boy

    We would be much better off searching for and looking at natural laws (fundamental laws of nature) and moral laws (of consequentialist nature I argue) as the guides to our economic prescriptions rather than looking for “laws” inside our own economic rule sets. Our rule sets are prescriptive axioms. The results of prescriptive axioms are axiomatic outcomes or theorems (“theorem-etic” outcomes I term them). But the axiomatic or “theorem-etic” outcomes are only possible within the bounds where fundamental laws of nature are not broken. Outcomes are still possible where only moral laws “merely” are broken but to argue for adherence to prescription while ignoring morally unsupportable consequences is abhorrent and unsupportable.

    Remember that your “Air Jordans” or equivalent loafers and your mobile phones and computers come from the modern sweat shops of Asia. Capitalism has not changed its spots, just the spots where it super-exploits labor via global labor arbitrage. Marxian, Veblenian and CasP (Capital as Power) theory are sufficient, along with democracy, ethics and science, to sort all this out. No need to look any further. The rest is fiddling while the earth burns with climate change and humans burn with COVID-19 fever. These processes climate chnage and pandemics are theorem or “theorem-etic” outcomes of neoliberal capitalist axioms. It’s as simple as that. Let’s not make it harder than it is. Marx and Engels, Veblen, and Bicher and Nitzan have done most of the hard thinking for us. The way is clear. No need to go into the side thickets of bourgeois economic theory to save it or refute it. Just throw it out… except that a little of most useful and most nearly valid of it may be needed for transitioning before jettisoning it also. I could write more about this last but this post is long enough already.

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