Oh dear, oh dear, Robert Lucas is talking nonsense – again

30 November, 2012 at 13:17 | Posted in Economics | 7 Comments

In a recent interview Robert Lucas says he “now believe that the evidence on postwar recessions … overwhelmingly supports the dominant importance of real shocks.”

So, according to Lucas, changes in tastes and technologies should be able to explain the main fluctuations in e.g. unemployment that we have seen during the  last six or seven decades.

Let’s look at the facts and see if there is any strong evidence for this allegation. Just to take a couple of examples, let’s look at Sweden and Portugal:

SwedenPortugal-Unemployment

and at the situation in the eurozone:

unemployment

What shocks to tastes and technologies drove the unemployment rate up and down like this in these countries? Not even a Nobel laureate could in his wildest imagination come up with any warranted and justified explanation solely based on changes in tastes and technologies. Lucas is just making himself ridiculous.

Rational expectations – assuming we know what in fact we never know

30 November, 2012 at 10:23 | Posted in Economics | Leave a comment

In a laboratory experiment run by James Andreoni and Tymofiy Mylovanov and presented here, the researchers induced common probability priors, and then told all participants of the actions taken by the others. Their findings are very interesting, and says something rather profound on the value of the rational expectations hypothesis in standard neoclassical economic models:

We look at choices in round 1, when individuals should still maintain common priors, being indifferent about the true state. Nonetheless, we see that about 20% of the sample erroneously disagrees and favors one point of view. Moreover, while other errors tend to diminish as the experiment progresses, the fraction making this type of error is nearly constant. One may interpret disagreement in this case as evidence of erroneous or nonrational choices.

Next, we look at the final round where information about disagreement is made public and, under common knowledge of rationality, should be sufficient to eliminate disagreement. Here we find that individuals weigh their own information more than twice that of the five others in their group. When we look separately at those who err by disagreeing in round 1, we find that these people weigh their own information more than 10 times that of others, putting virtually no stock in public information. This indicates a different type of error, that is, a failure of some individuals to learn from each other. This error is quite large and for a nontrivial minority of the population.

Setting aside the subjects who make systematic errors, we find that individuals still put 50% more weight on their own information than they do on the information revealed through the actions of others, although this difference is not statistically significant.

So in this experiment there seems to be some irrational idiots who don’t understand that that is exactly what they are. When told that the earth is flat they still adhere to their own beliefs of a circular earth. It is as if people thought that the probability that all others are idiots with irrational beliefs is higher than the probability that the earth is circular.

Now compare these experimental results with rational expectations models, where the world evolves in accordance with fully predetermined models where uncertainty has been reduced to stochastic risk describable by some probabilistic distribution.

The tiny little problem that there is no hard empirical evidence that verifies these models doesn’t seem to bother its protagonists too much. When asked in an interview by George Evans and Seppo Honkapohja (Macroeconomic Dynamics (2005, vol.9, 561-583) if he thought “that differences among people’s models are important aspects of macroeconomic policy debates”, Thomas Sargent replied:

The fact is you simply cannot talk about their differences within the typical rational expectations model. There is a communism of models. All agents within the model, the econometricians, and God share the same model.

One might perhaps find it odd to juxtapose God and people, but I think Leonard Rapping – himself a former rational expectationist – was on the right track (Arjo Klamer, The New Classical Macroeconomics 1984, p 234):

Frankly, I do not think that the rational expectations theorists are in the real world. Their approach is much to abstract.

Building models on rational expectations either means we are Gods or Idiots. Most of us know we are neither. So, God may share Sargent’s model, but it certainly isn’t my model.

Paul Krugman on the most important book ever written in the history of economics

29 November, 2012 at 21:22 | Posted in Economics | Leave a comment

 

Sturegatan redux

29 November, 2012 at 20:39 | Posted in Varia | Leave a comment

På allmän begäran repriseras denna lilla TV-pärla på nytt för alla er som vill veta var intelligensreserven i landet bodde när det begav sig på 60-talet.

Tänk så mycket som kan sägas i bara en mening …

General equilibrium economics – a dead end

29 November, 2012 at 14:56 | Posted in Economics | Leave a comment

Almost a century and a half after Léon Walras founded general equilibrium theory, economists still have not been able to show that markets lead economies to equilibria.

We do know that – under very restrictive assumptions – equilibria do exist, are unique and are Pareto-efficient.

But after reading Franklin M. Fisher‘s masterly article The stability of general equilibrium – what do we know and why is it important? one has to ask oneself – what good does that do?

As long as we cannot show, except under exceedingly special assumptions, that there are convincing reasons to suppose there are forces which lead economies to equilibria – the value of general equilibrium theory is nil. As long as we cannot really demonstrate that there are forces operating – under reasonable, relevant and at least mildly realistic conditions – at moving markets to equilibria, there cannot really be any sustainable reason for anyone to pay any interest or attention to this theory.

A stability that can only be proved by assuming “Santa Claus” conditions is of no avail. Most people do not believe in Santa Claus anymore. And for good reasons. Santa Claus is for kids, and general equilibrium economists ought to grow up, leaving their Santa Claus economics in the dustbin of history.

Continuing to model a world full of agents behaving as economists – “often wrong, but never uncertain” – and still not being able to show that the system under reasonable assumptions converges to equilibrium (or simply assume the problem away), is a gross misallocation of intellectual resources and time.

Subventionerad privatundervisning – en klassfråga

28 November, 2012 at 21:43 | Posted in Education & School | 2 Comments

Mycket tyder i dagsläget på att alliansregeringen kommer att få stöd i Riksdagen för förslaget om att låta RUT-avdraget också omfatta privatundervisning.

Alltid lika läsvärde utbildningsekonomen Jonas Vlachos  har sina dubier om denna typ av subvention till privatundervisning - inte minst ur ett rättviseperspektiv och drömmen om en likvärdig skola för alla:

I genomsnitt ligger [i den vanliga skolan] undervisningskostnaden på ca 60 kronor per elevtimme. Går man in på privatundervisningsföretaget My Academys hemsida ser man att subventionen som utgår till privatundervisning ligger på mellan 199 och 249 kronor per elevtimme …

Subventionen till privatundervisning är alltså tre till fyra gånger högre per elevtimme än det belopp som läggs på övrig offentligfinansierad undervisning …
 

 
Ibland hävdas det att ingen förlorar på att några skaffar sig extraundervisning med hjälp av skatteavdrag. Även om man ignorerar kostnaden för skattebetalarna så bortser detta synsätt från att antagningen till attraktiva gymnasie- och högskoleutbildningar baseras på hur väl man lyckas jämfört med andra. Att den som har privatekonomiskt utrymme kan stärka sin konkurrenskraft gentemot andra elever genom att ta del av en betydande offentlig utbildningssubvention, delfinansierad av familjer med snävare privatekonomiska ramar, är minst sagt problematiskt för utbildningssystemets likvärdighet.

Tillägg 29/11: Att detta är en het potatis kan man lätt konstatera genom att titta på kommentarspåret på ekonomistas.

Ljusnande framtid? Inte för gymnasielärare!

28 November, 2012 at 20:59 | Posted in Education & School | Leave a comment

Institutet för Privatekonomi och Saco presenterade häromdagen sin rapport om högskoleutbildningar lönar sig – En ljusnande framtid…? 

Rapporten visar dels hur köpkraften – tre, sex och trettio år efter examen – för olika akademikergrupper utvecklats i jämförelse med industriarbetare, och dels om senare examinerade fått det bättre eller sämre jämfört med tidigare examinerade.

Tyvärr ingen rolig läsning för landets gymnasielärare:

Samarbetet mellan Institutet för Privatekonomi och Saco bekräftar den bild som framkommit bland annat i Saco:s livslöneundersökningar. Inte minst i flera kvinnodominerade yrken är lång utbildning fortfarande särdeles dåligt betald.
 

 
Den mest oroande tendensen är att den stora gruppen gymnasielärare i flera avseenden har en markant svagare utveckling än andra grupper. Den senast undersökta kullen gymnasielärare har i stort sett oförändrad reallön jämfört med sina äldre kollegor, vilket avviker från de flesta andra grupper, och har dessutom tappat jämfört med industriarbetaren. Det är en djupt oroande utveckling för en yrkesgrupp som har en nyckelroll för landets framtid.

Grodors plums och ankors plask

27 November, 2012 at 18:51 | Posted in Varia | 3 Comments

I en debattartikel i DN (25/11) diskuterade Anna Ekström och Claes-Göran Aggebo Skolverkets riktlinjer för gudstjänster och skola. I ett svar skriver biskopen i Linköpings stift, Martin Modéus, igår i DN bl.a. följande:

Att staten är sekulär, vilket nog de flesta i Sverige uppskattar, innebär inte att samhället är det. Det kan inte vara statens uppgift att osynliggöra religionen och kollektivt misstänkliggöra den. Skolverket ställer sig inte neutrala, vilket man försöker påskina, utan tar här aktiva steg för att befrämja sekularism, vilket i praktiken är en annan religion. Det är en modernistisk fördom att man kan skapa ett religionsfritt samhälle. Sekularismen är lika mycket religion. Att tolka livet och medvetet utelämna Gud är inte ett mindre religiöst förhållningssätt än att räkna med Gud. Det är ett annat religiöst förhållningssätt.

Och detta grodors plums och ankors plask ska man behöva läsa år 2012! Det är som om ingenting skulle ha hänt i det här landet sedan 1800-talets mitt. Herre du milde!

Hayek’s political philosophy

26 November, 2012 at 11:59 | Posted in Economics, Politics & Society | Leave a comment

Hayek’s most famous piece of political philosophy was, as we now know, completely wrong. In The Road to Serfdom, Hayek claimed that Keynesian-style macroeconomic management would lead to totalitarianism; in reality, nothing of the sort has ever happened. America, Europe, Japan, Korea, and others became solidly Keynesian after World War 2, and while macroeconomic management didn’t always work as advertised, it nowhere and never led to the advent of totalitarian regimes.

It’s also interesting that Hayek, despite hating the Nazis and totalitarianism in general, seems to have been somewhat influenced by many of the early 20th century Central European ideas that led to the rise of Nazism itself. For example, he repeatedly asserts that people are not created equal, making reference to “superior people,” and stating that he would prefer an economically libertarian dictator to a democratic government that restricted economic freedom. This foreshadowed the unfortunate libertarian support for dictators like Augusto Pinochet, as well as more recent libertarian flirtations with “scientific racist” ideas.

Noahpinion

The power of knowledge

26 November, 2012 at 11:06 | Posted in Varia | 2 Comments

 

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