Mathematical modeling in economics — a discussion with Steve Keen and Tony Lawson

17 November, 2014 at 10:03 | Posted in Economics | 1 Comment

 

Solow on inequality and growth

17 November, 2014 at 09:14 | Posted in Economics | Leave a comment

 

Låt mig vara din soldat (privat)

16 November, 2014 at 14:28 | Posted in Varia | Leave a comment

 

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Modern econometrics — a mixture of metaphysics and bluff

15 November, 2014 at 17:28 | Posted in Statistics & Econometrics | Leave a comment

[Haavelmo's] effort to create foundations for the probability approach in econometrics finally results in an inconsistent set of claims in its defence. First, there are vast amounts of experience which warrant a frequency interpretation. This is supported by repetitive discussions of experimental design, but the inability to expeeriment inspires an epistemological interpretation.keuzenkamp1 Then Haavelmo mentions the futility of bothering with these issues because the probability approach is most of all a useful tool. This would be an instrumentalistic justification for its use if Haavelmo gave supportive evidence for his claim. There is not one example which attempts to do so. [...]

The founders of exonometrics tried to adapt the sampling approach to a non-experimental small sample domain. They tried to justify this with a priori and analytcal arguments. However, the ultimate argument for a ‘probability approach in econometrics’ consists of a mixture of metaphors, metaphysics and a pinch of bluff.

Neoclassical economists often hold the view that criticisms of econometrics are the conclusions of sadly misinformed and misguided people who dislike and do not understand much of it. This is really a gross misapprehension. To be careful and cautious is not the same as to dislike. And as any perusal of the mathematical-statistical and philosophical works of people like for example David Freedman, Nancy Cartwright, Chris Chatfield, Hugo Keuzenkamp, Rudolf Kalman, John Maynard Keynes or Tony Lawson would show, the critique is put forward by respected authorities. I would argue, against “common knowledge”, that they do not misunderstand the crucial issues at stake in the development of econometrics. Quite the contrary. They know them all too well — and are not satisfied with the validity and philosophical underpinning of the assumptions made for applying its methods.

Let me try to do justice to the critical arguments on the logic of probabilistic induction and shortly elaborate — mostly from a philosophy of science vantage point — on some insights a critical realist perspective gives us on econometrics and its methodological foundations.

Read more …

What is a statistical model?

15 November, 2014 at 13:14 | Posted in Statistics & Econometrics | Leave a comment

My critique is that the currently accepted notion of a statistical model is not scientific; rather, it is a guess at what might constitute (scientific) reality without the vital element of feedback, that is, without checking the hypothesized, postulated, wished-for, natural-looking (but in fact only guessed) model against that reality. To be blunt, as far as is known today, there is no such thing as a concrete i.i.d. (independent, identically distributed) process, not because this is not desirable, nice, or even beautiful, but because Nature does not seem to be like that … As Bertrand Russell put it at the end of his long life devoted to philosophy, “Roughly speaking, what we know is science and what we don’t know is philosophy.” In the scientific context, but perhaps not in the applied area, I fear statistical modeling today belongs to the realm of philosophy.

science_medal9_hTo make this point seem less erudite, let me rephrase it in cruder terms. What would a scientist expect from statisticians, once he became interested in statistical problems? He would ask them to explain to him, in some clear-cut cases, the origin of randomness frequently observed in the real world, and furthermore, when this explanation depended on the device of a model, he would ask them to continue to confront that model with the part of reality that the model was supposed to explain. Something like this was going on three hundred years ago … But in our times the idea somehow got lost when i.i.d. became the pampered new baby.

Rudolf Kalman

Keynes and the New Deal

15 November, 2014 at 11:50 | Posted in Economics, Politics & Society | 1 Comment

 

Technological breakthrough of the century

15 November, 2014 at 09:53 | Posted in Varia | Leave a comment

 
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Debunking the public vs. private sector myth

14 November, 2014 at 17:56 | Posted in Economics | 3 Comments

 

The low wages fallacy

14 November, 2014 at 12:13 | Posted in Economics | Leave a comment

A couple of years ago — in connection with being awarded The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel — Thomas Sargent, in an interview with Swedish Television, declared that workers ought to be prepared for having low unemployment compensations in order to get the right incentives to search for jobs.

This old mercantilist idea has very little support in research. Still, it’s symptomatic that right-wing politicians and New Classical economists — like Robert Lucas and Thomas Sargent — again and again have been dragging this age-old panancea out of the closet. As their forerunners in the 1920s, they suggest that lowering wages is the right medicine to strengthen the competitiveness of their faltering economies, get the economy going, increase employment and create growth that will get rid of the towering debts and create balance in the state budgets.

unemployment

But, intimating that one could solve economic problems by impairing unemployment compensations and wage cuts, in these dire times, should really be taken more as a sign of how low the confidence in our economic system has sunk. Wage cuts and lower unemployment compensation levels – of course – do not save neither competitiveness, nor jobs.

What is needed more than anything else in these times is stimulus and economic policies that increase effective demand.

On a societal level wage cuts only increase the risk of more people getting unemployed. To think that that one can solve economic crisis in this way is a turning back to those faulty economic theories and policies that John Maynard Keynes conlusively showed to be wrong already in the 1930s. It was theories and policies that made millions of people all over the world unemployed.

It’s an atomistic fallacy to think that a policy of general wage cuts would strengthen the economy. On the contrary. The aggregate effects of wage cuts would, as shown by Keynes, be catastrophical. They would start a cumulative spiral of lower prices that would make the real debts of individuals and firms increase since the nominal debts wouldn’t be affected by the general price and wage decrease. In an economy that more and more has come to rest on increased debt and borrowing this would be the entrance-gate to a debt deflation crises with decreasing investments and higher unemployment. In short, it would make depression knock on the door.

The impending danger for today’s economies is that they won’t get consumption and investments going. Confidence and effective demand have to be reestablished. The problem of our economies is not on the supply side. Overwhelming evidence shows that the problem today is on the demand side. Demand is – to put it bluntly – simply not sufficient to keep the wheels of the economies turning. To suggest that the solution is lower wages and unemployment compensations is just to write out a prescription for even worse catastrophes.

NAIRU och a-kassan

14 November, 2014 at 11:57 | Posted in Economics | Leave a comment

Sedan början av 1990-talet har Sverige haft stabilt hög arbetslöshet. Trots otaliga reformer och sänkningar av a-kassa och skatter har arbetslösheten varierat kring ungefär samma nivå hela tiden.

a-kassan-som-guldkantDe senaste decennierna har den akademiska och politiska debatten kring arbetslöshet dominerats av teorier som menar att arbetslösheten i förlängningen främst beror på villkoren för arbetskraften, såsom a-kassa, fackföreningar och dylikt. Förändringar i efterfrågan på arbetskraft och dylikt kan enligt teorin endast påverka arbetslösheten på kort sikt. Denna föreställning bygger till exempel på tanken att om efterfrågan ökar, så anpassar sig människors förväntningar varpå lönekraven också ökar i motsvarande grad så till den grad att mängden nya jobb som skapas motsvaras av lika många jobb som försvinner, i och med att lönerna blir för höga.

Därför har man ägnat stor uppmärksamhet åt så kallade institutionella faktorer kring arbetsmarknaden men väldigt liten uppmärksamhet åt faktorer rörande efterfrågan, såsom investeringstakt. Men jämför man utvecklingen för a-kassa, facklig organiseringsgrad med mera i OECD-länderna verkar dessa varken kunna förklara arbetslöshetens utveckling över tid eller skillnaderna mellan länder …

En faktor som dock samvarierar mycket tydligt med arbetslösheten är investeringstakten. Investeringstakten betyder i detta sammanhang typ hur snabbt mängden fabriker och maskiner växer i samhället. Många ekonomer och forskare har dock ignorerat denna faktor eftersom de teoretiskt antar att denna inte har någon betydelse …

Enligt dominerande teoribildning är Phillipskurvan böjd på kort sikt men vertikal på lång sikt … Men om efterfrågan har en avgörande inverkan på arbetslösheten på både kort och lång sikt så är Phillipskurvan istället böjd i någon mening. I så fall kan en alltför ensidig låginflationspolitik per definition innebära att arbetslösheten blir onödigt låg … Med alltför återhållsam penningpolitik (för att hålla nere inflationen) riskerar den så kallade långsiktiga jämviktsarbetslösheten (NAIRU) att bli onödigt hög …

Eftersom de senaste 100 årens erfarenheter tyder på att världen inte fungerar riktigt som den dominerande teorin menar tyder detta alltså på att förväntningarna kanske inte anpassar sig fullt så optimalt som man tänkt sig. Eller att denna anpassning inte är tillräcklig för att ett optimalt resultat ska uppstå och alla som vill ha ett arbete ska kunna få detta. Alltså är det i så fall inte särskilt relevant att betrakta alla aktörer som ”fullständigt rationella” med tillgång till all nödvändig information samt att alla risker och sannolikheter inför framtiden går att beräkna på ett adekvat sätt …

Ofta kan man höra politiker och vissa ekonomer prata i såna här sammanhang om vikten av att a-kassa och bidrag är låga så det ”lönar sig att arbeta och dylikt”. Det kanske även låter logiskt, typ ”vem vill jobba om man får pengar gratis”. Empiriska observationer tyder som sagt på att a-kassan inte har någon avgörande inverkan på den totala arbetslösheten i samhället. Varför? En teoretisk förklaring skulle kunna vara att lägre a-kassa visserligen sänker de arbetssökandes krav och sporrar deras jobbsökande. Men samtidigt sänker detta även dessa människors möjligheter att köpa varor och tjänster, vilket därför sänker den totala efterfrågan i samhällsekonomin och därför även efterfrågan på arbetskraft. Sänkt a-kassa medför då både en positiv och negativ inverkan på arbetslösheten och det verkar svårt att avgöra vilken effekt som dominerar.

Erik Hegelund

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