America’s greatest shame

27 May, 2022 at 22:44 | Posted in Politics & Society | Leave a comment

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IV regression and the difficult art of mimicking randomization

27 May, 2022 at 11:14 | Posted in Statistics & Econometrics | Leave a comment

Nick HK (@nickchk) | TwitterWe need relevance and validity. How realistic is validity, anyway? We ideally want our instrument to behave just like randomization in an experiment. But in the real world, how likely is that to actually happen? Or, if it’s an IV that requires control variables to be valid, how confident can we be that the controls really do everything we need them to?

In the long-ago times, researchers were happy to use instruments without thinking too hard about validity. If you go back to the 1970s or 1980s you can find people using things like parental education as an instrument for your own (surely your parents’ education can’t possibly affect your outcomes except through your own education!). It was the wild west out there…

But these days, go to any seminar where an instrumental variables paper is presented and you’ll hear no end of worries and arguments about whether the instrument is valid. And as time goes on, it seems like people have gotten more and more difficult to convince when it comes to validity. This focus on validity is good, but sometimes comes at the expense of thinking about other IV considerations, like monotonicity (we’ll get there) or even basic stuff like how good the data is.

There’s good reason to be concerned! Not only is it hard to justify that there exists a variable strongly related to treatment that somehow isn’t at all related to all the sources of hard-to-control-for back doors that the treatment had in the first place, we also have plenty of history of instruments that we thought sounded pretty good that turned out not to work so well.

Nick Huntington-Klein’s new book on how to use observational data to make causal inferences is superbly accessible. Highly recommended reading for anyone interested in causal inference in economics and social science!

Why economists need to study history

24 May, 2022 at 12:01 | Posted in Economics | Leave a comment

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Into Eternity

23 May, 2022 at 17:13 | Posted in Varia | Leave a comment

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Vangelis (1943-2022).

Thanks for all the great music that brought us to eternity and beyond.

RIP

Axel Leijonhufvud In Memoriam

23 May, 2022 at 14:27 | Posted in Economics | 3 Comments
 

Axel Leijonhufvud, circa mid-1980's. | Download Scientific DiagramI first came across Axel’s writing as an undergraduate student at Manchester University where we were taught from his doctoral dissertation, Keynes and the Keynesians; a book that shot Axel to intellectual rock stardom. He argued in that book that Keynes’ General Theory had nothing to do with sticky wages and prices but was instead about inter-temporal coordination failure

Although Axel recognized the importance of mathematical methods, he also recognized the limitations of formalism and he insisted that a good economist must be aware of the past. To this end he was a strong supporter of the teaching of economic history and the history of thought as part of the core curriculum.

Economic history disappeared as a core subject from many economics departments in the 1980s. UCLA was an exception largely due to Axel’s insistence that a good macro economist needs to understand the past before she can understand the present or the future …

Axel’s support of the history of thought was deemed anachronistic by many of his contemporaries who viewed economics through the lens of a linear progression of knowledge. In contrast, Axel viewed science — and particularly economics as a non experimental science — as a tree in which herd behavior led often to persistent treks down roads to nowhere …

Axel was a follower of Imre Lakatos and his view of the progression of economics was heavily influenced by Lakatos’ methodology and the concept of progressive and degenerative scientific research programs. In his view, modern macroeconomics is a degenerative research program that took a wrong turn in the 1950s. Axel was right about this and it is a theme that has influenced my own research agenda. Time will tell if the profession will eventually agree.

Roger Farmer

In physics,​ it may possibly not be straining credulity too much to model processes as ergodic — where time and history do not really matter — but in social and historical sciences it is obviously ridiculous. If societies and economies were ergodic worlds, why do econometricians fervently discuss things such as structural breaks and regime shifts? That they do is an indication of the unrealisticness of treating open systems as analyzable with ergodic concepts.

The future is not reducible to a known set of prospects. It is not like sitting at the roulette table and calculating what the future outcomes of spinning the wheel will be. Reading leading mainstream economists today one comes to think of Robert Clower’s apt remark that

much economics is so far removed from anything that remotely resembles the real world that it’s often difficult for economists to take their own subject seriously.

Anyone can construct models. To be seriously interesting, models have to come with an aim. They have to have an intended use. If the intention of a model is​ to help us explain real economies, it has to be evaluated from that perspective. A model or hypothesis without specific applicability is not really deserving our interest.

Without strong evidence,​ all kinds of absurd claims and nonsense may pretend to be science. We have to demand more of a justification than a rather watered-down version of ‘anything goes’ when it comes to the postulates on which mainstream economics is founded. If one proposes things like ‘rational expectations’ one also has to support its underlying assumptions. None is given, which makes it rather puzzling how rational expectations have become the standard modelling​ assumption made in much of modern macroeconomics. Perhaps the reason is that economists often mistake mathematical beauty for truth.

Theory-ladenness

22 May, 2022 at 23:38 | Posted in Theory of Science & Methodology | 1 Comment

Observation of real world objects and events is viewed as theory laden....  | Download Scientific DiagramIt is now widely recognised that observation is not theory-neutral but theory-laden, and that theory does not merely ‘order facts’ but makes claims about the nature of its object. So, in evaluating observations we are also assessing particular theoretical concepts and existential claims. A common response to this shattering of innocent beliefs in the certainty and neutrality of observation has been the development of idealist (especially conventionalist and rationalist) philosophies which assume that if observation is theory-laden, it must necessarily be theory-determined, such that it is no longer possible to speak of criteria of ‘truth’ or ‘objectivity’ which are not entirely internal to ‘theoretical discourse’. However, this is a non-sequitur for at least two reasons. First, theory-laden observation need not be theory-determined. Even the arch-conventionalist Feyerabend (1970) acknowledges that ‘it is possible to refute a theory by an experience that is entirely interpreted within its own terms’. If I ask how many leaves there are on a tree, my empirical observation will be controlled by concepts regarding the nature of trees, leaves and the operation of counting, but to give an answer I’d still have to go and look! In arguing that there are no extra-discursive criteria of truth, recent idealists such as Hindess and Hirst echo Wittgenstein’s identification of the limits of our world with the limits of language, and share the confusion of questions of What exists? with What can be known to exist? The truism that extra-discursive controls on knowledge can only be referred to in discourse does not mean that what is referred to is purely internal to discourse. Secondly, and more simply, it does not follow from the fact that all knowledge is fallible, that it is all equally fallible.

Andrew Sayer

When in Berlin

20 May, 2022 at 10:51 | Posted in Varia | Leave a comment

… yours truly always visits Walter-Benjamin-Platz (close to Kurfürstendamm, between Leibnizstraße and Wielandstraße). Interesting architecture and a couple of excellent restaurants and cafés.

Tagesspiegel Leute's tweet - "Seit über 20 Jahren gibt es den Walter- Benjamin-Platz in Berlin-#Charlottenburg. Jetzt soll dort an den  Namensgeber besser erinnert werden. ➡Thema im aktuellen  Tagesspiegel-Newsletter für die City West #ChaWi.

Ameno

19 May, 2022 at 17:00 | Posted in Varia | Leave a comment

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Axel Leijonhufvud (1933-2022)

18 May, 2022 at 07:41 | Posted in Economics | 5 Comments

The orthodox Keynesianism of the time did have a theoretical explanation for recessions and depressions. Proponents saw the economy as a self-regulating machine in which individual decisions typically lead to a situation of full employment and healthy growth. The primary reason for periods of recession and depression was because wages did not fall quickly enough. If wages could fall rapidly and extensively enough, then the economy would absorb the unemployed. Orthodox Keynesians also took Keynes’ approach to monetary economics to be similar to the classical economists.

axel_press_highresLeijonhufvud got something entirely different from reading the General Theory. The more he looked at his footnotes, originally written in puzzlement at the disparity between what he took to be the Keynesian message and the orthodox Keynesianism of his time, the confident he felt. The implications were amazing. Had the whole discipline catastrophically misunderstood Keynes’ deeply revolutionary ideas? Was the dominant economics paradigm deeply flawed and a fatally wrong turn in macroeconomic thinking? And if this was the case, what was Keynes actually proposing?

Leijonhufvud’s “Keynesian Economics and the Economics of Keynes” exploded onto the academic stage the following year; no mean feat for an economics book that did not contain a single equation. The book took no prisoners and aimed squarely at the prevailing metaphor about the self-regulating economy and the economics of the orthodoxy. He forcefully argued that the free movement of wages and prices can sometimes be destabilizing and could move the economy away from full employment.

Arjun Jayadev

Fortunately, when you’ve got tired of the kind of macroeconomic apologetics produced by ‘New Keynesian’ macroeconomics, there are still some real Keynesian macroeconomists to read. One of them will always be Axel Leijonhufvud.

Bertrand Russell on the folly of religious faith

17 May, 2022 at 14:49 | Posted in Politics & Society | 2 Comments

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Faith should not be a question of believing in eternity, but rather of how to live our finite lives together and be true to our belief in the pursuit of authentic freedom.

Ga-Ga-Gasputin

16 May, 2022 at 20:34 | Posted in Varia | Leave a comment

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Disney and the “Don’t Say Gay” bill

16 May, 2022 at 15:59 | Posted in Varia | Leave a comment

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Formalizing economic theory

16 May, 2022 at 08:18 | Posted in Economics | 5 Comments

Inflation - The New Economics PartyWhat guarantee is there … that economic concepts can be mapped unambiguously into mathematical concepts? The belief in the power and necessity of formalizing economic theory mathematically has thus obliterated the distinction between cognitively perceiving and understanding concepts from different domains and mapping them into each other. Whether the age-old problem of the equality between supply and demand should be mathematically formalized as a system of inequalities or equalities is not something that should be decided by mathematical knowledge or convenience. Surely it would be considered absurd, bordering on the insane, if a surgical procedure was implemented because a tool for its implementation was devised by a medical doctor who knew and believed in topological fixed-point theorems? Yet, weighty propositions about policy are decided on the basis of formalizations based on ignorance and belief in the veracity of one kind of one-dimensional mathematics

K. Vela Velupillai

Berlin

12 May, 2022 at 08:09 | Posted in Varia | 1 Comment

beerlinbild

Touring again.

Guest appearance​​ in Berlin.

Regular blogging to be resumed next week.

Gödel and the limits of mathematics

10 May, 2022 at 16:50 | Posted in Theory of Science & Methodology | 1 Comment

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Gödel’s incompleteness theorems raise important questions about the foundations of mathematics.

The most important concern is the question of how to select the specific systems of axioms that mathematics is supposed to be founded on. Gödel’s theorems irrevocably show that no matter what system is chosen, there will always have to be other axioms to prove previously unproven truths.

This, of course, ought to be of paramount interest for those mainstream economists who still adhere to the dream of constructing deductive-axiomatic economics with analytic truths that do not require empirical verification. Since Gödel showed that any complex axiomatic system is undecidable and incomplete, any such deductive-axiomatic economics will always consist of some undecidable statements. When not even being able to fulfil the dream of a complete and consistent axiomatic foundation for mathematics, it’s totally incomprehensible that some people still think that could be achieved for economics.

Separating questions of logic and empirical validity may — of course — help economists to focus on producing rigorous and elegant mathematical theorems that people like Lucas and Sargent consider “progress in economic thinking.” To most other people, not being concerned with empirical evidence and model validation is a sign of social science becoming totally useless and irrelevant. Economic theories building on known to be ridiculously artificial assumptions without an explicit relationship with the real world is a dead end. That’s probably also the reason why general equilibrium analysis today (at least outside Chicago) is considered a total waste of time. In the trade-off between relevance and rigour, priority should always be on the former when it comes to social science. The only thing followers of the Bourbaki tradition within economics — like Karl Menger, John von Neumann, Gerard Debreu, Robert Lucas, and Thomas Sargent — have given us are irrelevant model abstractions with no bridges to real-world economies. It’s difficult to find a more poignant example of intellectual resource waste in science.

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