SOS Some Economic Theory is a Myth

HOW DID WE GET INTO THIS MESS? 15,000 economists missed the 2008 Mother of Great Depression. Have anyone ask, is the theory they learned could be a fallacy?

By Dr Steve Keen @ www.debunkingeconomics.com

The fundamental of economics ignore:

• time
• uniqueness of capital
• specific skills of labor

And the Theory is based on:

• capital & labor is "infinitely flexible" within countries
• can move without "loss" between industry

Globalisation promoted involves

• overidding rights for transnational corporations
• free movements of capital (not labor)
• uninhibited repatration of profits

Failed prediction of Globalisation:

Minimum yearly wages
80-84 95-99
Mexico (USD) 1,343 768 down 43%
USA (USD) 6,006 8,056 up 34%

There are many fallacy in the modern economic theories such as:

• competitive advantage
• privatisation
• marginal utility theory of value
• assumed general equilibrium

Has the market system behaved as economic theories predict?

• Asian crisis (blamed on cronyism) vs Dotcom burst
• Japan lost decades

So has reality failed to live up to theory?

• theory predicts market economy will be unstable
• then why assumption of equilibrium?
• economics assumed equilibrium but models won't converge to it (let alone real economies)

This is mainly due to

• majority ignore dynamics, assume can apply equilibrium models to non equilibrium system
• economists continue to insist that linearity remains a good assumption for all time series, despite the fact economic theory provides little support for the assumption of linearity

Fallacy of economic policy

• free trade is always better than protection
• market price is always better than subsidised ones
• private is always better than public/government

Econophysics likely to give time based answers:

Hypothetically

• the economy may grow faster with regime of initial protection that is gradually reduced
• subsidised prices may be necessary until income distribution becomes fairer
• industries with large externalities and economics of scale may be better in public hands until technology changes

Econophysics might finally

• divorce ideology from economics
• make economics more realistics