Reforming economics

25 Oct, 2020 at 13:43 | Posted in Economics | Leave a comment

Robert Heilbroner Quote: “Before economics can progress, it must abandon  its suicidal formalism.” (7 wallpapers) - QuotefancyThe typical economics course starts with the study of how rational agents interact in frictionless markets, producing an outcome that is best for everyone. Only later does it cover those wrinkles and perversities that characterise real economic behaviour, such as anti-competitive practices or unstable financial markets. As students advance, there is a growing bias towards mathematical elegance. When the uglier real world intrudes, it only prompts the question: this is all very well in practice but how does it work in theory? …

Fortunately, the steps needed to bring economics teaching into the real world do not require the invention of anything new or exotic. The curriculum should embrace economic history and pay more attention to unorthodox thinkers such as Joseph Schumpeter, Friedrich Hayek and — yes — even Karl Marx. Faculties need to restore links with other fields such as psychology and anthropology, whose insights can explain phenomena that economics cannot. Economics professors should make the study of imperfect competition — and of how people act in conditions of uncertainty — the starting point of courses, not an afterthought. …

Economics should not be taught as if it were about the discovery of timeless laws. Those who champion the discipline must remember that, at its core, it is about human behaviour, with all the messiness and disorder that this implies.

Financial Times

Molins fontän

25 Oct, 2020 at 13:30 | Posted in Varia | Leave a comment

Tillägnad alla gamla radikala vänner och kollegor som numera glatt traskar patrull och omfamnar allt de en gång i tiden hade modet att våga kritisera och ifrågasätta …

Blinding lights

25 Oct, 2020 at 13:20 | Posted in Varia | Leave a comment

Sunday morning rituals

24 Oct, 2020 at 11:03 | Posted in Varia | 1 Comment

One of yours truly’s Sunday morning rituals is reading the obituary column of The Telegraph. This obit is rather typical:

Peter Scott, who has died aged 82, was a highly accomplished cat burglar, and as Britain’s most prolific plunderer of the great and good took particular pains to select his victims from the ranks of aristocrats, film stars and even royalty.

Peter Scott, 'King of thee Cat Burglers'According to a list of 100 names he supplied to The Daily Telegraph, he targeted figures such as Soraya Khashoggi, Shirley MacLaine, the Shah of Iran, Judy Garland and even Queen Elizabeth the Queen Mother — although he added apologetically that, in her case, the authorities had covered up by issuing a “D-notice ”.

In 1994 Scott wrote to the newspaper to say that he would consider it “a massive disappointment if I were not to get a mention in [its] illustrious obituary column” … He added that he had been a Telegraph reader since 1957, when newspapers were first allowed in prisons, “on account of its broad coverage on crime” …

He identified a Robin Hood streak in himself, too, asserting in his memoirs that he had been “sent by God to take back some of the wealth that the outrageously rich had taken from the rest of us” …

Always a meticulous planner, Scott bought a new suit before each job, so that he would not look out of place in the premises he was burgling. Fear, the possibility of capture, excited him.

In all, by his own reckoning, Scott stole jewels, furs and artworks worth more than £30 million. He held none of his victims in great esteem (“upper-class prats chattering in monosyllables”) … “Robbing that bastard Aspinall was one of my favourites,” he recollected. “Sophia Loren got what she deserved too” …

In one Bond Street caper alone he stole jewellery worth £1.5 million, and in 1985 he was jailed for four years. On his release he expanded his social horizons by becoming a celebrity “tennis bum”, a racquet for hire at a smart London club where — as he put it in his autobiography — he coached still more potential “rich prats” …

Scott was also a past-master in self-justification of his crimes and misdemeanours: “The people I burgled got rich by greed and skulduggery. They indulged in the mechanics of ostentation — they deserved me and I deserved them. If I rob Ivana Trump, it is just a meeting of two different kinds of degeneracy on a dark rooftop.”

In his memoirs, Gentleman Thief (1995), Scott admitted to an even stronger motivation than fear as he contemplated another “job”: “Even now, after 30 years, it was a sexual thrill.” There was the additional satisfaction in his assumption that the millions reading about his exploits in the papers were silently cheering him on.

Animal rights — a question of human dignity

23 Oct, 2020 at 15:49 | Posted in Politics & Society | Leave a comment

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Throughout European history the idea of the human being has been expressed in contradistinction to the animal. The latter’s lack of reason is the proof of human dignity. So insistently and unanimously has this antithesis been recited … that few other ideas are so fundamental to Western anthropology. The antithesis is acknowledged even today. The behaviorists only appear to have forgotten it. That they apply to human beings the same formulae and results which they wring without restraint from defenseless animals in their abominable physiological laboratories, proclaims the difference in especially subtle way. File:Max Horkheimer Theodor W. Adorno Dialektik der Aufklärung 1947  Titel.jpg - Wikimedia CommonsThe conclusion they draw from the mutilated animal bodies applies, not to animals in freedom, but to human beings today. By mistreating animals they announce that they, and only they in the whole of creation, function voluntarily in the same mechanical, blind, automatic way the twitching movements of the bound victims made use of by the expert …

In this world liberated from appearance — in which human beings, having forfeited reflection, have become once more the cleverest animals, which subjugate the rest of the universe when they happen not to be tear­ing themselves apart — to show concern for animals is considered no longer merely sentimental but​ a betrayal of progress.

Likt en sländas spröda vinge

23 Oct, 2020 at 15:20 | Posted in Varia | Leave a comment

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Good advice

22 Oct, 2020 at 17:55 | Posted in Statistics & Econometrics | Leave a comment

An approximate answer to the right question is worth a great deal more than  a precise answer to the wrong… | This or that questions, Big words,  Inspirational quotes

Ola Gjeilo — Serenity

22 Oct, 2020 at 15:11 | Posted in Varia | Leave a comment

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What is causality?

22 Oct, 2020 at 13:27 | Posted in Theory of Science & Methodology | 7 Comments

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Pelle Erobreren

21 Oct, 2020 at 17:26 | Posted in Varia | Leave a comment

Max von Sydow (1929-2020) was a Swedish actor who featured in more than 100 films and TV series. He made many memorable film roles, but the one that touched me most was as the father in Pelle Erobreren — based on Martin Andersen Nexö’s epic masterpiece. Bille August directed. Stefan Nilsson wrote the music. Max von Sydow made the performance of his life. And it breaks my heart every time I watch it.

A legend is dead. Long live his memory.

Interpreting regression coefficients (wonkish)

21 Oct, 2020 at 14:52 | Posted in Economics | 1 Comment

When econometric and statistical textbooks present simple (and multiple) regression analysis for cross-sectional data, they often do it with regressions like “regress test score (y) on study hours (x)” and get the result

y = constant + slope coefficient*x + error term.

UnknownWhen speaking of increases or decreases in x in these interpretations, we have to remember that it is a question of cross-sectional data and ‘increases’ — which means that we are referring to increases in the value of a variable from one unit in the population to another unit in the same population. Strictly seen it is only admissible to give slope coefficients a dynamic interpretation when we are dealing with time-series regression. For cross-sectional data, we should stick to static interpretations and look upon slope coefficients as giving information about what we can expect to happen to the value of the dependent variable when there is a change in the independent variable from one unit to another.

Although it is tempting to say that a change in the independent variable leads to a change in the dependent variable, we should resist that temptation. Students that put a lot of study hours into their daily routine on average achieve higher scores on their tests than other students that study for fewer hours. The regressions made do not analyse what happens to individual students as they increase or decrease their study hours.

Why is this important? It is important most of all because misinterpreting regression coefficients may give a totally wrong causal view of what is going on in your data. A positive relation between test scores and study hours in a cross-sectional regression does not mean that you as an individual student should expect to get higher test scores by increasing study time.

What is ‘effective demand’?

21 Oct, 2020 at 09:46 | Posted in Economics | 2 Comments

Samfundsøkonomi er en svær disciplin – også for topøkonomer - FINANSEconomists of all shades have generally misunderstood the theoretical structure of Keynes’s The General Theory. Quite often this is a result of misunderstanding the concept of ‘effective demand’ — one of the key theoretical innovations of The General Theory.

Jesper Jespersen untangles the concept and shows how Keynes, by taking uncertainty seriously, contributed to forming an analytical alternative to the prevailing mainstream general equilibrium framework:

Effective demand is one of the distinctive analytical concepts that Keynes developed in The General Theory. Demand and demand management have thereby come to represent one of the distinct trademarks of Keynesian macroeconomic theory and policy. It is not without reason that the central position of this concept has left the impression that Keynes’s macroeconomic model predominantly consists of theories for determining demand, while the supply side is neglected. From here it is a short step within a superficial interpretation to conclude that Keynes (and post-Keynesians) had ended up in a theoretical dead end, where macroeconomic development is exclusively determined by demand factors …

It is the behaviour of profit-seeking firms acting under the ontological condition of uncertainty that is at the centre of post-Keynesian concept of effective demand. It is entrepreneurs’ expectations with regard to demand and supply factor that determine their plans for output as a whole and by that the effective demand for labour.

Therefore, it was somewhat unfortunate that Keynes called his new analytical concept ‘effective demand’, which may have contributed to misleading generations of open minded macroeconomists to concluding that it was exclusively realized demand for consumer and investment goods that drives the macroeconomic development. Hereby a gateway for the IS/LM-model interpretation of effective demand was opened, where demand creates its own supply.

tmp10C1_thumb1On the contrary, it is the interaction between the sum of the individual firms’ sales expectations (aggregate demand) and their estimated production costs (aggregate supply) that together with a number of institutional conditions (bank credit, labour market organization, global competition and technology) determine the business sector decisions on output as a whole and employment …

The supply side in the goods market is an aggregate presentation of firms’ cost functions considered as a whole. It shows a relation between what Keynes called ‘supply price’, i.e. the sales proceeds that, given the production function and cost structures, is needed to ‘just make it worth the while of the entrepreneurs to give that employment’ (Keynes, 1936: 24). This means that behind the supply curve there is a combination of variable costs plus an expected profit at different levels of employment. At each level firms try to maximise their profit, if they succeed there is no (further) incentive for firms to change production or employment.

These assumptions entail that the aggregate supply function (what Keynes called the Z-curve) is upward sloping and represents the proceeds that has to be expected by the industry as a whole to make a certain employment ‘worth undertaken’ … In fact, this aggregate supply function looks like it was taken directly from a standard, neoclassical textbook, where decreasing marginal productivity of labour within the representative firm is assumed; the main difference is that Keynes is dealing with the aggregate sum of heterogeneous firms i.e. the industry as a whole.

The other equally important part of effective demand is aggregate demand function, which is the value of the sales that firms as a whole expect at different levels of macro-activity measured by employment (as a whole) …

Firms make a kind of survey-based expectation with regard to the most likely development in sales and proceeds in the nearer future. This expectation of aggregate demand (as a whole) is a useful point of departure for the individual firms when they have to form their specific expectation of future proceeds. This sales expectation will therefore centre around the future macroeconomic demand (and on the intensity of international competition).

Accordingly, Keynes’s macro-theory has a microeconomic foundation of firms trying to maximise profit, but differs from neoclassical theory by introducing uncertainty related to the future, which makes an explicit introduction of aggregate demand relevant i.e. the expected sales proceeds by business as a whole.

Why does someone have to die?

19 Oct, 2020 at 21:22 | Posted in Varia | Leave a comment

Till minnet av min vän Bengt Nilsson.
Det gör fortfarande — efter två år — ont.
Det känns ofta — som du brukade säga — ‘förtvivlat.’
Men jag minns också — skratten, glädjen, omtanken, den mäktiga intelligensen, den drastiska humorn, det starka sociala patoset.
Livet går vidare, men kommer alltid att vara lite gråare, lite tristare, utan dig min käre vän.

Public debt — how much is too much?

19 Oct, 2020 at 11:56 | Posted in Economics | 1 Comment

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Public debt is normally nothing to fear, especially if it is financed within the country itself (but even foreign loans can be beneficent for the economy if invested in the right way). Some members of society hold bonds and earn interest on them, while others pay taxes that ultimately pay the interest on the debt. The debt is not a net burden for society as a whole since the debt ‘cancels’ itself out between the two groups. If the state issues bonds at a low-interest rate, unemployment can be reduced without necessarily resulting in strong inflationary pressure. And the inter-generational burden is also not a real burden since — if used in a suitable way — the debt, through its effects on investments and employment, actually makes future generations net winners. There can, of course, be unwanted negative distributional side effects for the future generation, but that is mostly a minor problem since when our children and grandchildren ‘repay’ the public debt these payments will be made to our children and grandchildren.

To both Keynes and Lerner — as to today’s MMTers — it was evident that the state has the ability to promote full employment and a stable price level — and that it should use its powers to do so. If that means that it has to take on debt and underbalance its budget — so let it be! Public debt is neither good nor bad. It is a means to achieve two over-arching macroeconomic goals — full employment and price stability. What is sacred is not to have a balanced budget or running down public debt per se, regardless of the effects on the macroeconomic goals. If ‘sound finance,’ austerity and balanced budgets means increased unemployment and destabilizing prices, they have to be abandoned.

Can a government go bankrupt?
No. You cannot be indebted to yourself.

Can a central bank go bankrupt?
No. A central bank can in principle always ‘print’ more money.

Do taxpayers have to repay government debts?
No, at least not as long the debt is incurred in a country’s own currency.

Do increased public debts burden future generations?
No, not necessarily. It depends on what the debt is used for.

Does maintaining full employment mean the government has to increase its debt?
No.

Le ragioni del “No” all’euro: l’esempio della Svezia

19 Oct, 2020 at 09:48 | Posted in Economics | 2 Comments

lars-plsson-syll-a0f42810-c56b-4f3a-8856-811c9d9598f-resize-750Per Lars Pålsson Syll l’eurozona non è mai stata in grado di mostrare significativi aumenti a livello di crescita economica dalla sua creazione, ed anzi non ha fatto che accentuare i problemi che in alcuni casi, vedi Grecia, hanno portato a dei veri e propri disastri.

Uno degli argomenti portati a favore dell’euro era che, in caso di adesione, ci sarebbe stata una convergenza a lungo termine in termini di risultati economici come crescita, occupazione, inflazione e debito pubblico. Oggi possiamo vedere che le differenze non solo sono rimaste, ma si sono addirittura intensificate.

D’altronde non vi è nulla di cui rimanere sorpresi: rinunciando alla propria valuta si rinuncia di fatto alla possibilità di avere una politica monetaria. Si dovrà ricorrere al mercato per finanziare la spesa pubblica, cosa che come ben sappiamo in Italia può diventare molto costosa e a volte molto difficile.

Inoltre l’adesione all’euro porta con se l’impossibilità di adottare liberamente misure economiche atte a garantire determinati livelli di occupazione e di servizi pubblici. Secondo Syll diventa chiaro come l’euro non sia un progetto economico ma fondamentalmente un progetto politico, che mira a realizzare quello che non è riuscito alla rivoluzione liberista, che ha avuto i suoi massimi esponenti politici in Reagan e la Thatcher a partire dagli anni ’80 …

La domanda che si pone Syll e che ci poniamo tutti noi è se i popoli europei vogliano davvero privarsi dell’autonomia politica ed economica, imporre salari più bassi e tagliare la spesa pubblica e quindi i servizi essenziali, alle prime difficoltà? I popoli europei sognano davvero una crescente disuguaglianza e un sovrastato federale? …

La dura realtà mostra come sia difficile, lungo e pieno di sacrifici il percorso necessario per uscire da una crisi economica e ristabilire determinati livelli di occupazione e di crescita economica in una nazione senza sovranità monetaria, dove non sia possibile condurre adeguate politiche fiscali. Per quanto tempo ancora dovremmo sopportare le continue ingerenze? Quante persone ed imprese dovranno essere rovinate prima di porre fine a questo progetto folle chiamato euro?

Claudio Freschi / Il Primato Nazionale

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