Methodology

The reason for discussing methodology is to explain why we do things differently and to warn readers not to expect to see on this blog, standard methods for investigating economics. Different methods are used here to develop new economic knowledge. For example, the research for a previous post uses a scientific method which differs from the way in which economic research is usually carried out, as we will explain below.

Without this warning, readers might summarily dismiss the unfamiliar methods we use to advance economic knowledge. Much of what economists use routinely has limited validity and will be relegated to minor special applications. A scientific economic paradigm with broadened objectives and few assumptions demands a different approach.

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What is Economics?

What is economics? Why is it important to define clearly what is economics?

Economics as Phenomenon

Historically, economics originated from the consideration by philosophers of human activities as social phenomenon, to be studied like physics as natural phenomenon (Mirowski, 1989). The assumption is: there are natural laws of economics equivalent to the natural laws of physics. Economics, when considered as knowledge from discoveries about social phenomenon of humans, did not require precise definition; it only required a scoping of human activities under study.

For example, Marshall (1890, p.1) defines economics as "a study of mankind in the ordinary business of life", particularly "connected with the attainment and with the use of the material requisites of wellbeing". The view of economics as social phenomenon persists to today and explains many other misconceptions in economics, which will be subjects for future posts on this blog.

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What is Science?

What is science? Why is economics not science? Why is it important for economics to be a science?

Claims to be Science

The claim that economics is a science is often based on erroneous definitions of science: “science is what scientists do” or “science is the discovery of universal laws”. This has led to an imitation of physics in both appearance and epistemology (Mirowski, 1989). The contemporary economic paradigm has a formal theory of general equilibrium with clearly articulated axioms, mathematical models for applications, systematic data collection and advanced statistical analysis of empirical evidence.

Despite its similar appearance to modern physics and the existence of many “laws”, economics is both “scientistic” and a ”pretence of knowledge” (Hayek, 1952, p.24; 1974). Economics is not a science. This assertion requires a precise definition of “what is science”.

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What is a Paradigm?

What is a paradigm?  Why is it so important to understand what it is?  Why has economics changed so little even after its obvious failure in the recent global economic crisis?

Durability of Paradigm

Most people commonly misuse the word "paradigm" as a synonym for an idea, a theory or a model.  It means much more than that, as it was expounded by Thomas Kuhn (1962) in "The Structure of Scientific Revolutions".  The concept of the paradigm explains why the geocentric theory of Ptolemy for the motion of the planets took many centuries to overthrow.  It took 30 years after the posthumous publication (Copernicus, 1543) of the "Revolutions of the Celestial Spheres" for the heliocentric theory to revolutionize astronomy.  It took a Copernican revolution to change a long-held paradigm in astronomy.

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Keynesian Economic Collapse

Nearly 80 years of Keynesian fallacy has brought the global economy to the edge of collapse. Governments everywhere love Keynesian economics which axiomatically requires governments to spend to maintain aggregate consumption in their economies. What is there not to like about the idea that you can spend your way to prosperity?

The fallacy is captured in a little mathematical formula called the Keynesian multiplier k, given in all introductory textbooks (e.g. Mankiw, 2006, p. 790) as

k = \frac{1}{{1 - c}}The propensity to consume c is the ratio of aggregate consumption to total production (GDP). Keynesian theory asserts that each dollar of new investment produces k dollars of economic output.

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Posted in Econoclasm, Economics | 3 Comments