November 11, 2011
The Reformed Economics is definitely not another school of economics. The Reformation-E (or the reformation of economics) has dual goals: one, to integrate the ‘received wisdom’–the wisdom of the past–while rejecting all the fallacies still cluttering our discipline; and two, to put forward a new scientific approach to economics.
Some may get put off by the term ‘scientific’; it does not have to mean ‘mathematical’. For instance, neither Biology or Psychology need much mathematics to explain the phenomena occurring within their respective fields of study. And even relativistic physics can be understood without any reference to a mathematical formula–although you will need some math to do any calculations.
Human knowledge can only be of two types: scientific and empirical. Empirical knowledge is simply a collection of rules or pronouncements that may or may not be related to others within the same collection. Scientific knowledge, in contrast, is a logically structured collection of rules that explain specific phenomena. Scientific knowledge is based on a set of premises–axioms or postulates–that are deemed to be unquestionably true and are not derived from any other rule or statement within the science. Other statements within the science are logically derived from the premises. A statement within a natural science must be confronted continuously with reality, and whenever found to be false, it must be discarded, and the premise, or premises, from which it was derived must be re-examined.
Empirical knowledge has no such logical constraints. For example, the fine arts, painting or sculpture, need not conform to any external reality. There are no rules nor premises. Thus, those who practice economics as a form of art–specifically non-scientific–do not have to bother with logical consistency, or any other constraints to their pronouncements. In other words, in a non-scientific economics, concepts such as true or correct are meaningless; only individual preference has any bearing on any specific issue or statement. If you are into freedom of thoughts, and diversity of opinions, then you are a non-scientific economist. But if you believe that there is an objective economic reality, you have to stick to the premises and principles of a scientific economics; otherwise, your economic pronouncements may be witty and entertaining but not really relevant.
If you still think that having freedom of thought and cultivating a witty language is better than being able to solve the economic problems our society faces, please think for a moment in what would be the state of health of our society if physicians were to adopt a non-scientific approach to curing diseases. Every physician would have his preferred treatment for every disease that may affect you; epidemics would of course be uncontrollable; and vaccinations out of the question. the arrival of almost any infectious disease would paralyze the nation, not to mention the countless victims it would cause. Fortunately, medicine has developed along scientific lines. Unlike Economics.
There are some schools of economics that follow a scientific methodology; unfortunately they are based on wrong or ambiguous premises, which of course lead to unrealistic principles.
The Reformed Economics (RE) is based on a much simpler and realistic set of premises, from which equally realistic explanations for economic phenomena can be derived. For example, the RE can explain the recent economic crisis as a ‘monetary flow dysfunction’. The so called ‘sub-prime’ mortgage bubble triggered the serious problem in the financial system, which caused a sharp reduction in the flow of credit into the economy, which in turn caused the Great Recession. In other words, the economic crisis was a systemic crisis, caused by a faulty monetary system–money based on private debt. RE can also propose effective solutions to those and other underlying problems (please see The Denver Plan)
The RE can also provide a clear explanation for the Industrial Revolution, to which we owe our current prosperity. First we must understand what is the Industrial Revolution… [to be continued]
I am re-launching the Reform of Economics, July, 8, 2011.
The emergence of the Tea Party movement has pushed the GOP into a political corner: it has now become the unabashed defender of the super-rich, against the basic interests of the great majority of Americans.
The new GOP is now protecting the super-rich from any tax increase. Republicans Have shown themselves to be ready to shut down the government, and worse, if their Democratic counterpart, do not accept a plan to reduce the National debt within ten years, without a tax increase.
It would seem that President Obama will have to give in, and offer large cuts in Medicaid, Medicare, and Social Security, in order to obtain additional government revenues through the closing of some business loopholes. With the unemployment raising again–it is officially 9.2% now–we won’t see a return to normality until several years from now.
Together with the reform of economics, I have proposed several crucial reforms of the financial system, the establishment of country-specific tariffs, the establishment of salary and income caps, and the increase in taxes for the super-rich, as the means to balance the fiscal budget and start paying the national debt.
I intend to publish my “100 Theses for the Reformation of Economics” this Fall.
Jorge Moromisato, Director
Reformed Economics Institute,