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The Pathetic State of Neoclassical Economics

Onion Eater

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The Post-Autistic Economics Network has recently published a paper:

What is Neoclassical Economics? (The three axioms responsible for its theoretical oeuvre, practical irrelevance and, thus, discursive power.)


I find it absolutely PATHETIC that neoclassical economics is so weak that they allow their enemies to define their foundations. Never clearly stated their axioms in their own literature? Tsk! Tsk! How sad!

In sharp contrast, I state my axioms right up front before proving any theorems from them:

1) One's value scale is totally (linearly) ordered:

i) Transitive; p ≤ q and q ≤ r imply p ≤ r

ii) Reflexive; p ≤ p

iii) Anti-Symmetric; p ≤ q and q ≤ p imply p = q

iv) Total; p ≤ q or q ≤ p

2) Marginal (diminishing) utility, u(s), is such that:

i) It is independent of first-unit demand.

ii) It is negative monotonic; that is, u'(s) < 0.

iii) The integral of u(s) from zero to infinity is finite.

3) First-unit demand conforms to proportionate effect:

i) Value changes each day by a proportion (called 1+εj, with j denoting the day), of the previous day's value.

ii) In the long run, the εj's may be considered random as they are not directly related to each other nor are they uniquely a function of value.

iii) The εj's are taken from an unspecified distribution with a finite mean and a non-zero, finite variance.

Read my Simplified Exposition of Axiomatic Economics for a more detailed, but still undergraduate-level discussion of my economic theory. This paper requires knowledge of multi-variable calculus but omits the real analysis that plagues readers of my 1999 book.
 
How does your theory take into account a change in consumer preferences. I see you use a pdf to describe for example the preferences of society at one time, but this distribution would surely shift if we say levied a tax, or the consumers income changed, or the product became a known health risk.

Also, are you familiar with the new keynsian economics, and of the assumotion of near rational behavior?
 

I was reading some of you site. Would you mind explaining your reasoning, as to why mainstream econ is so wrong? If the supply of parking spots is fixed, we can simply make the assumption that the supply of parking spots is completely inelastic. I think the idea of supply elasticity solves the problem you have with supply and stock. We can also consider short v. long term etc.
 
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Onion Eater, for a guy who's always bashing Austrian Economics, you sure do a poor job of it. Hayek abandoned equilibrium theory in his Pure Theory of Capital. But then again, all of your assumptions of him ignore that book, I guess because it's a very hard read.
 
random cartoon

Off topic.



Gerard Debreu published The Theory of Value in 1959...

Which makes your claim that Hayek abandoned General Equilibrium Theory in 1941 a bit dubious.


Plus, not only is Mises the founder of ethics, geometry and optics, but Hayek is widely hailed as the inventor of the time machine. Wow! Those Austrians are smart!


p.s. If you had read my Critique of Austrian Economics you would have found both of these men's books quoted extensively and listed in the references with their publication dates.
 

I write:


The demand distribution describes a single point in time. From time to time, its parameters, u(s), mu, sigma, change, causing the distribution to shift.

Also, are you familiar with the new keynsian economics, and of the assumotion of near rational behavior?

Appendix C of my book provides an axiomatic foundation of Keynesian economics as it was taught in 1999. I have not followed recent developments in Keynesian economics, though I doubt they have renounced the axioms I established for them in 1999 - probably just tweaked some of the parameters.


Elasticity is highly dependent on the time unit chosen, e.g. does "supply" mean how much is produced in a week, a month, a year, or what? Thus, mainstream economics is actually attempting to solve two equations for three unknowns.

I write:

 
Elasticity is highly dependent on the time unit chosen, e.g. does "supply" mean how much is produced in a week, a month, a year, or what? Thus, mainstream economics is actually attempting to solve two equations for three unknowns.

I write:

But elasticity is unitless. There are a heck of a lot more variables than time. You could have so many different variables to how much is made that it would literally be impossible to take them all into account. Microeconomics focuses on only price and the willingness of a producer to sell at a given price. Anything outside this is a ceterus parabis factor, and causes a shift in the supply curve. Elasticity is only the percent change in qunatity divided by the percent change in price, so it only analyzes the relationship between supply and price. Obviously though, this relationship does change over time.

Also, I do not doubt that a distribution works good to model the market at a point in time. But I fail to see your beef with mainstream econ. Econometrics uses a large amount of statistics to study economic theory, such as deriving a demand distribution. Then they use models to see what happens when certain ceterus parabis factors change
 
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Elasticity is only the percent change in qunatity divided by the percent change in price, so it only analyzes the relationship between supply and price. Obviously though, this relationship does change over time.

Everything changes over time. That's not the issue.


One calculates a different price depending on whether one speaks of weekly or monthly supply and demand. But there is only one price. That's the issue.


If one economist defines supply to be the amount produced in a week and another defines it to be the amount produced in a month, how can you be sure that the thirteen successive weeks of supply, calculated with the first method, will equal three successive months of supply calculated with the second method?

If it does, that is only because you rigged your example by using past data. But what good is a theory that only works on problems that you already know the answer to?


I avoid these inconsistencies by using stock instead of supply.


By eliminating the arbitrary time period, I am solving two equations for two unknowns. You are trying to solve two equations for three unknowns.
 

People don't decide how much to buy or produce based on time, they do based on price.

I don't see the complication... To determine quantitiy and price you set marginal cost = marginal revenue. I don't see how you can determine how much a firm will produce, or whether it will shutdown, or even how much profit it will make by just looking at the stock and the price. How do you determine operating costs? How does a firm decide to shutdown production? Seems to me all you could calculate with that information is revenue.
 
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People don't decide how much to buy or produce based on time, they do based on price.

You still don't get it.

 
On page 211 of my book I list the five major mistakes of mainstream economics:


The first of these. belief in supply and demand, is their most serious mistake.

 
On page 211 of my book I list the five major mistakes of mainstream economics:



The first of these. belief in supply and demand, is their most serious mistake.

I honestly do not know what you are talking about. In macro economics we count inventories as investments, specifically if there is a change in invenotories we have a change in unplanned investment. This does factor into the analysis, take a basic keynsian cross for example.

However, your stock and supply thing does not evem matter. Mainstream econ already has distinguished between stock and flow. Obviously at an instantaneos point in time we have a stock.

A person is not mainly concerned with stock when making economic transactions, but rather their future expectations of their disposable income. Income, is not a stock.
 
A person is not mainly concerned with stock when making economic transactions, but rather their future expectations of their disposable income. Income, is not a stock.

All of my decisions are made based on my wealth. My income varies dramatically from day to day and from week to week. There are days when I make thousands and there are days when I make nothing or lose money. The same variance (scaled up) can be seen from one week to the next or from one month to the next. That's because I'm a businessman. Your point of view is very much that of the salaryman.

And it's not just me. I once did the books for a company whose owner insisted on monthly profit reports. That was stupid. I spent a lot of time compiling that information and he learned nothing from it. It cost him 15K a month to pay his employees and the lease on that building. But his monthly income varied from 10K to 50K for no apparent reason. This was especially surprising since half his income was from one big ongoing order.

Companies that work directly for the consumer experience even more variance. Ever tried to manage a restaurant? Half the time your waitresses are standing around gossiping and the other half of the time you've got customers banging on the counter for service. That's why tipping was invented, rather than just including the payment for service in the price of the meal. The institution of tipping is not to encourage better service (quality of service is the same regardless), it is to make the waitresses absorb some of the fluctuations in income. The boss is not rich enough to absorb all of that variance himself; one bad month in which he failed to pay his lease and they'd all be out of work.

Income is a completely useless concept. My boss at that company where I did the monthly profit reports would have been better guided if he'd consulted an astrologer. Neoclassical economics has little impact on the behavior of real-life businessmen, but the impact it does have is to mislead them.

Wealth is the only thing that matters. (Zero wealth means you're dead; zero income just means you had a bad day.) I've owned my current company for 14 years and, over time, I've noticed that my wealth has increased (Yay me!) but my income has always fluctuated unpredictably. I make decisions based on logic, not statistics.
 

So you completely discount expectations about ones futute disposable income? All people live in the here and now, they do not plan for the future. Even if all I got to my name is $1000 in wealth, you don't think I will decide to start spending more if I just learned I got a job as a engineer and I start in 2 weeks.

Anyways, I think mainstream econ accounts for this.

Here is a extremely basic aggregate consumption function:

C = A + MPC x (yd)

A is aggregate autonomous consumption, however much the economy will spend regardless of its disposable income. But getting back to the previous point, don't you think this would shift if expectations about the future changed?
 
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Even if all I got to my name is $1000 in wealth, you don't think I will decide to start spending more if I just learned I got a job as a engineer and I start in 2 weeks.

Salaryman.

You are like a dog who thinks he can explain the behavior of wolves because he was related to them 200K years ago.

Ever sold drugs? Here is an example that at least some of the people on this forum can relate to:

 
Dude, nobody cares because you have yet to wow any relevant journals. Until such a time, consider it nothing more than a work in progress. No offense; it's just nothing groundbreaking at the moment.
 
Dude, nobody cares.

Obviously you care or you wouldn't drop a turd on every thread I start.

Goldenboy219 said:
Wow, nobody cares.

Looks like we have a troll on our hands...

That was two years ago: www.debatepolitics.com/archives/36561-mccain-glass-steagall-crash.html

You denounced me as a troll and tried to get me banned. But that didn't work, did it?

Mises Institute said:
You might have luck getting people to raid [Aguilar] on /b/ or 711chan.org/i/ . They could really mess him up if you convinced them.

Why don't you go back to the Mises Institute and help them with this project? That actually has a better chance of success than getting me banned from Debate Politics. After two years of trying, it should be obvious that the moderators here aren't going to do that for you.
 
I honestly do not know what you are talking about.

That's probably true, though at least you're not trying to ban me, which is refreshing.

I read your profile. You're an engineering student. That's good. I majored in math and all my friends in college were engineers.

In the preface of my book I write:


I don't think you've purchased my book but, in the meantime, why don't you read my paper, Socrates and Hume at Billiards? It is a simulated conversation between the philosophers Socrates and David Hume as they play billiards in heaven. It is specifically written for engineers - a physicist helps the two philosophers determine the path of their billiard ball. His methodology is then compared to the methodology of economists.
 
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I am just annoyed at your constant spamming of discussion forums with an econ section. Again, if it was truly groundbreaking, why have you only sold (how many exactly ???????) copies and not been published?

Instead of regurgitating the same thing over and over and over, why not show us your rejection letters from the top journals? :lamo
 

There's just one problem with your dialogue. "All theories worth their salt make predictions about phenomena that will eventually be observable. It’s pointless to make predictions about things that cannot be observed." Here's your problem though, you can never run experiments to deduce human behavior. Since that is what economics is all about, well then you can't exactly prove any theories in economics. Sure, you can look at data and try to explain why things are that way, but you can't go in the opposite direction because you don't know what causes what just from the data. You can't prove causation from correlation. Furthermore, your whole dialogue seems to completely misunderstand to philosophy of Socrates/Plato. What they theorized about could not possibly ever be proven. I doubt that Socrates would ever state that quote that you wrote. So to hold up Socrates as some kind of hero in your dialogue is just kind of absurd. You'd be better off using Aristotle, but he was the guy who thought that trade was a point of equality and not mutual advantage, and I don't think your economic theories agree with that statement.
 
Here's your problem though, you can never run experiments to deduce human behavior. Since that is what economics is all about, well then you can't exactly prove any theories in economics.

You are using the word "deduce" wrong.

deduce - definition of deduce by the Free Online Dictionary, Thesaurus and Encyclopedia.

1. To reach (a conclusion) by reasoning.

2. To infer from a general principle; reason deductively: deduced from the laws of physics that the new airplane would fly.

Example #1.

Pythagoras deduced that the square of the hypotenuse equals the sum of the squares of the sides of a right triangle from Euclid's five axioms:

1. To draw a straight line from any point to any point.

2. To produce [extend] a finite straight line continuously in a straight line.

3. To describe a circle with any center and distance [radius].

4.
That all right angles are equal to one another.

5. The parallel postulate: That, if a straight line falling on two straight lines make the interior angles on the same side less than two right angles, the two straight lines, if produced indefinitely, meet on that side on which are the angles less than the two right angles.

Example #2.

Aguilar deduced the Law of Price Adjustment from these three axioms:

1) One's value scale is totally (linearly) ordered:

i) Transitive; p ≤ q and q ≤ r imply p ≤ r

ii) Reflexive; p ≤ p

iii) Anti-Symmetric; p ≤ q and q ≤ p imply p = q

iv) Total; p ≤ q or q ≤ p

2) Marginal (diminishing) utility, u(s), is such that:

i) It is independent of first-unit demand.

ii) It is negative monotonic; that is, u'(s) < 0.

iii) The integral of u(s) from zero to infinity is finite.

3) First-unit demand conforms to proportionate effect:

i) Value changes each day by a proportion (called 1+εj, with j denoting the day), of the previous day's value.

ii) In the long run, the εj's may be considered random as they are not directly related to each other nor are they uniquely a function of value.

iii) The εj's are taken from an unspecified distribution with a finite mean and a non-zero, finite variance.
 
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How does that rebut the fact that you can't prove anything in economics?
 
How does that rebut the fact that you can't prove anything in economics?

You mean besides the fact that I provided an example?

 
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