The present state of economics

20 Jul, 2018 at 17:04 | Posted in Economics | 7 Comments

More and more often, confidence in the professional qualifications of individuals representing certain occupational groups which formerly were held in high esteem has started to erode. Dismissing scientific evidence and ignoring expert opinion has become a feature of political discourse around alternative truth. In part this is self-inflicted as various statements that are publicized with the aura of academic certainty do not stand up to closer scrutiny. Alas, this applies particularly to economics, which is often held up as the supreme discipline of social sciences. It suffices to take a look on page one of reasonably respectable printed media to recognize how important economics is in contemporary society. In this chapter, we highlight some issues from micro- and macroeconomics that are critical.

kAgainst this background, one should expect that specialists in the field would have thoroughly analysed principles and functioning of modern economics in order to provide solid knowledge concerning the system’s operating mode. Far wrong! There hardly is any other branch of science where there is such a pronounced incongruity between the outstanding significance of the subject and the lack of expertise of most professors as in economics. This may seem particularly grotesque since for many years only those who have published numerous articles in the very best journals under the strictest peer review conditions normally have a chance in appointment procedures. With that said, the unbiased observer will wonder why there are still pressing economic problems.

Dirk Ehnts & Fritz Helmedag

7 Comments

  1. “the unbiased observer will wonder why there are still pressing economic problems.”
    .
    Mainstream economics has a normative agenda: neoliberalize, or die. Us non-neoliberals are slowly being eradicated. Everything is proceeding according to plan.

  2. Thank you Lars. Looks interesting, will read. ~ Rob

  3. Great!

  4. What’s interesting about the paper referenced above is that mention is made that one of the authors, Ehnts, has written a paper about “the balance sheet approach to economics”. This approach formalizes the relationships between stock and flow variables and emphasizes institutional behaviour – in other words there is a good dose of reality injected into the theorizing. It also reduces to the sectoral balance income equation (S-I+T-G+M-X=0). MMTer’s make great use of this equation but delve into dangerous analytics based solely on this equation. What both approaches require is a firm characterization of the underlying functional/behavioural relationships between variables before analytical conclusions can be drawn.
    .
    Personally, I think this would be a productive path for macroeconomics to take.

    • “the sectoral balance income equation (S-I+T-G+M-X=0)”
      .
      The problem is that the System of National Accounts does not include capital gains in its imputations of Income which makes Savingsca purely calculated fudge factor variable. The reason capital gains are not counted as income, and the reason derivative assets are left out completely in reported statistics by NIPA, is that if you included them the sectoral balance model would explode because the private financial sector is creating vast sums of credit that circulates as money. If you count that money, and you should because it enters the real economy whenever a MBS holder decides to withdraw cash against a MBS asset, the circular flow of income model explodes. Huge volumes of money are entering the economy from the financial sector, without having to come from savings.

  5. Well said, Henry. While (S-I+T-G+M-X=0) is always necessarily true, it is merely a tautology based on accounting definitions. It tells us nothing about how the economy works.

    • Well said Kingsley.


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