Though I speak with the tongues of angels

11 May, 2013 at 23:15 | Posted in Varia | Comments Off on Though I speak with the tongues of angels

 

Though I speak with the tongues of angels,
If I have not love…
My words would resound with but a tinkling cymbal.
And though I have the gift of prophesy…
And understand all mysteries…
and all knowledge…
And though I have all faith
So that I could remove mountains,
If I have not love…
I am nothing.
Love is patient, full of goodness;
Love tolerates all things,
Aspires to all things,
Love never dies,
while the prophecies shall be done away,
tongues shall be silenced,
knowledge shall fade…
thus then shall linger only
faith, hope, and love…
but the greatest of these…
is love.

On tour

11 May, 2013 at 18:40 | Posted in Varia | Comments Off on On tour

Touring again. Conference in Stockholm and guest appearence in the parliament. Regular blogging will be resumed next week.

sodermalm

100% Wrong on 90%

10 May, 2013 at 16:42 | Posted in Economics | 1 Comment

 

(h/t Simsalablunder)

Ronald Coase – still making sense at 102 (!)

10 May, 2013 at 13:49 | Posted in Economics | Comments Off on Ronald Coase – still making sense at 102 (!)

coaseIn the 20th century, economics consolidated as a profession; economists could afford to write exclusively for one another. At the same time, the field experienced a paradigm shift, gradually identifying itself as a theoretical approach of economization and giving up the real-world economy as its subject matter.

But because it is no longer firmly grounded in systematic empirical investigation of the working of the economy, it is hardly up to the task … Today, a modern market economy with its ever-finer division of labor depends on a constantly expanding network of trade. It requires an intricate web of social institutions to coordinate the working of markets and firms across various boundaries. At a time when the modern economy is becoming increasingly institutions-intensive, the reduction of economics to price theory is troubling enough. It is suicidal for the field to slide into a hard science of choice, ignoring the influences of society, history, culture, and politics on the working of the economy.

Ronald Coase, Saving Economics from the Economists

Reinhart-Rogoff och EU:s normpolitiska åtstramning

10 May, 2013 at 10:44 | Posted in Economics, Politics & Society | 1 Comment

Det brukar kallas normpolitik, föreställningen att det finns tumregler som hjälper finansministrar och centralbankschefer att fatta rätt beslut. Ekonomi är ju, när allt kommer omkring, för svårt och komplicerat för vanliga politiker, för att inte tala om okunniga medborgare. Bättre då att låta normer automatiskt fatta de rätta, de nödvändiga besluten. Regler är dessutom okänsliga för opinion, till skillnad från politiker som alltför ofta försöker infria de vallöften de har gett sina väljare.

hermeleJag skämtar, men ämnet är allvarligt: under de senaste tjugo åren har normer och regler kommit att dominera den faktiskt förda ekonomiska politiken. Ett av de tydligaste tecknen är EU:s Maastrichtfördrag från 1992 som lade grunden för den gemensamma valutan, euron. För att få komma med i euron måste länder uppfylla så kallade konvergenskriterier: inflationen måste vara under 2 procent, budgetunderskottet inte större än 3 procent av bnp, och statsskulden ska inte överstiga 60 procent av bnp. Lägg märke till att ingenting sägs om hur hög arbetslösheten får vara …

Det är i det sammanhanget man kan förstå uppmärksamheten kring en kort artikel av ekonomerna Carmen Reinhart och Kenneth Rogoff – ”Growth in a Time of Debt”, publicerad i American Economic Review 2010. Reinhart och Rogoff hävdar att gränsen för en ansvarsfull politik går vid en historiskt fastställd ”skuldtröskel” om 90 procent av bnp …

För några veckor sedan avslöjade dock en granskning genomförd av Thomas Herndon vid Massachusetts universitet i Amherst att Reinhart och Rogoffs ”skuldtröskel” bygger på två fel: dels har de glömt att ta med flera länder som ingick i deras databas när de sammanfattar sin statistik – ett misstag som författarna erkänt – dels hade de räknat varje tillväxt eller nedgång lika oavsett hur länge den varat … Det leder hela resultatet i konservativ riktning, mot lägre skuldsättning och mer åtstramning …

Det allvarliga med Reinhart och Rogoffs felaktiga artikel är inte att den skulle leda till omedelbara drakoniska åtstramningar över hela linjen.

Nej, det verkligt oroande i deras nu avklädda räkneövningar är att de rättfärdigar normpolitik, som om det faktiskt skulle gå att fastställa vad som är en rimlig skuldsättning eller inflation en gång för alla, för alla länder, för alla tider. Därmed stöder Reinhart och Rogoff alla dem som vill minska valda församlingars och valda politikers handlingsutrymme. Normerna och tumreglerna visar sig alltså vara i högsta grad politiska, inte objektiva, vetenskapligt fastställda sanningar.

Det är något att lägga på minnet för de krisande euro-länderna.

Kenneth Hermele

Bob Pollin responds to Reinhart and Rogoff

9 May, 2013 at 09:27 | Posted in Economics | 1 Comment

 

(h/t Jan Milch)

Niall Ferguson – the peevish hole digger

8 May, 2013 at 22:27 | Posted in Varia | 2 Comments

dig a holeYou would think that a Harvard historian would know about the First Law of Holes: When in a hole, stop digging.

But Harvard historian Niall Ferguson dug his own hole of trouble a bit deeper, in “An Open Letter To The Harvard Community” posted at the Harvard Crimson’s website on Tuesday. In the letter, Ferguson apologizes profusely for recent dumb statements he made about the legendary economist John Maynard Keynes. In the process, Ferguson makes several more dumb statements.

In case you missed it, Ferguson last week declared that Keynes’ homosexuality had left him childless, making Keynes care nothing about the future and leading him to suggest that governments should spend their way out of economic downturns, which is why he is history’s greatest monster. Suck it, logic! At last conservatives had a Unified Theory Of Gay to explain all that has gone wrong with the world for the past 80 years or so.

Of course, most oxygen-breathing creatures immediately recoiled at the 100 or so varieties of stupid in Ferguson’s statement and reacted with fury and scorn. Like Ron Burgundy after he jumped into the Kodiak bear pit to save Veronica Corningstone, Ferguson immediately regretted his decision. In a statement on his website on Saturday, he offered an “Unqualified Apology,” admitting his comments were “doubly stupid” — not only do childless people care about the future, but Keynes’s wife had suffered a miscarriage, he pointed out. I would add that gay people can also have children, which makes Ferguson’s comments at least trebly stupid. But anyway, Ferguson’s apology was indeed appropriately unqualified.

But he just couldn’t shut up about it. He seems to have been baited into commenting further after Berkeley economist Brad DeLong and others noted that Ferguson had previously commented on Keynes’ sexuality, back in 1995. Ferguson’s “Open Letter” now addresses those claims. While purporting to be an apology, it is not unqualified at all. Instead, it turns into an exercise in peevishness and self-defensiveness.

Mark Gongloff

Niall Ferguson’s apology is an epic fail

8 May, 2013 at 13:21 | Posted in Varia | 17 Comments

fergusonFerguson’s “unreserved” apology is nothing of the kind. He does not apologize for his past efforts to smear Keynes. He tries to make it appear that the latest smear was a one-off, unthinking quip. It was neither. He apologizes for being “insensitive.” What could that mean in this context where he is supposedly agreeing that what he said was false – not true but “insensitive?” Ferguson simply made up the part about Keynes and “poetry.” Ferguson’s spreading of homophobic tropes isn’t “insensitive” in this context – it’s false and it is nasty.

Ferguson apologizes for forgetting that Keynes’ wife suffered a miscarriage. But what is the relevance of that fact to Ferguson’s smear or apology? Is he saying that the pregnancy falsifies his implicit smear that Keynes wasn’t “man enough” to have sex with a woman? Did he think gay or bisexual males were sterile or impotent? Why did he emphasize his claim that Keynes married “a ballerina?”

Why didn’t Ferguson apologize for his substantive misstatements? As a historian who has read Keynes he knows that Keynes’ quip about “in the long run we are all dead” had absolutely nothing to do with claiming that the longer-term health of the economy was unimportant or a matter in which Keynes was uninterested.

William K. Black

Added 8/5: And as if this wasn’t enough, Ferguson now has an article in The Harvard Crimson where he accuses his critics of being “among the most insidious enemies of academic freedom.” Read it yourself, but it’s in my view even more pathetic than his original statements. Who can take this guy seriously anymore? I for one certainly can’t.

Modern econometrics – a critical realist critique (wonkish)

7 May, 2013 at 14:47 | Posted in Statistics & Econometrics | 2 Comments

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. keuzenkampAnd as any perusal of the mathematical-statistical and philosophical works of people like for example Nancy Cartwright, Chris Chatfield, Hugo Keuzenkamp, 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 critical realism gives us on econometrics and its methodological foundations.

The methodological difference between an empiricist and a deductivist approach can also clearly be seen in econometrics. The ordinary deductivist “textbook approach” views the modeling process as foremost an estimation problem, since one (at least implicitly) assumes that the model provided by economic theory is a well-specified and “true” model. The more empiricist, general-to-specific-methodology (often identified as “the LSE approach”) on the other hand views models as theoretically and empirically adequate representations (approximations) of a data generating process (DGP). Diagnostics tests (mostly some variant of the F-test) are used to ensure that the models are “true” – or at least “congruent” – representations of the DGP. The modeling process is here more seen as a specification problem where poor diagnostics results may indicate a possible misspecification requiring re-specification of the model. The objective is standardly to identify models that are structurally stable and valid across a large time-space horizon. The DGP is not seen as something we already know, but rather something we discover in the process of modeling it. Considerable effort is put into testing to what extent the models are structurally stable and generalizable over space and time.

Although I have sympathy for this approach in general, there are still some unsolved “problematics” with its epistemological and ontological presuppositions. There is, e. g., an implicit assumption that the DGP fundamentally has an invariant property and that models that are structurally unstable just have not been able to get hold of that invariance. But, as already Keynes maintained, one cannot just presuppose or take for granted that kind of invariance. It has to be argued and justified. Grounds have to be given for viewing reality as satisfying conditions of model-closure. It is as if the lack of closure that shows up in the form of structurally unstable models somehow could be solved by searching for more autonomous and invariable “atomic uniformity”. But if reality is “congruent” to this analytical prerequisite has to be argued for, and not simply taken for granted.

Even granted that closures come in degrees, we should not compromise on ontology. Some methods simply introduce improper closures, closures that make the disjuncture between models and real world target systems inappropriately large. “Garbage in, garbage out.”

Underlying the search for these immutable “fundamentals” lays the implicit view of the world as consisting of material entities with their own separate and invariable effects. These entities are thought of as being able to be treated as separate and addible causes, thereby making it possible to infer complex interaction from knowledge of individual constituents with limited independent variety. But, again, if this is a justified analytical procedure cannot be answered without confronting it with the nature of the objects the models are supposed to describe, explain or predict. Keynes himself thought it generally inappropriate to apply the “atomic hypothesis” to such an open and “organic entity” as the real world. As far as I can see these are still appropriate strictures all econometric approaches have to face. Grounds for believing otherwise have to be provided by the econometricians.

haavelmoTrygve Haavelmo, the “father” of modern probabilistic econometrics, wrote that he and other econometricians could not “build a complete bridge between our models and reality” by logical operations alone, but finally had to make “a non-logical jump” [1943:15]. A part of that jump consisted in that econometricians “like to believe … that the various a priori possible sequences would somehow cluster around some typical time shapes, which if we knew them, could be used for prediction” [1943:16]. But since we do not know the true distribution, one has to look for the mechanisms (processes) that “might rule the data” and that hopefully persist so that predictions may be made. Of possible hypothesis on different time sequences (“samples” in Haavelmo’s somewhat idiosyncratic vocabulary)) most had to be ruled out a priori “by economic theory”, although “one shall always remain in doubt as to the possibility of some … outside hypothesis being the true one” [1943:18].

To Haavelmo and his modern followers, econometrics is not really in the truth business. The explanations we can give of economic relations and structures based on econometric models are “not hidden truths to be discovered” but rather our own “artificial inventions”. Models are consequently perceived not as true representations of DGP, but rather instrumentally conceived “as if”-constructs. Their “intrinsic closure” is realized by searching for parameters showing “a great degree of invariance” or relative autonomy and the “extrinsic closure” by hoping that the “practically decisive” explanatory variables are relatively few, so that one may proceed “as if … natural limitations of the number of relevant factors exist” [Haavelmo 1944:29].

Haavelmo seems to believe that persistence and autonomy can only be found at the level of the individual, since individual agents are seen as the ultimate determinants of the variables in the economic system.

But why the “logically conceivable” really should turn out to be the case is difficult to see. At least if we are not satisfied by sheer hope. As we have already noted Keynes reacted against using unargued for and unjustified assumptions of complex structures in an open system being reducible to those of individuals. In real economies it is unlikely that we find many “autonomous” relations and events. And one could of course, with Keynes and from a critical realist point of view, also raise the objection that to invoke a probabilistic approach to econometrics presupposes, e. g., that we have to be able to describe the world in terms of risk rather than genuine uncertainty.

And that is exactly what Haavelmo [1944:48] does: “To make this a rational problem of statistical inference we have to start out by an axiom, postulating that every set of observable variables has associated with it one particular ‘true’, but unknown, probability law.”

But to use this “trick of our own” and just assign “a certain probability law to a system of observable variables”, however, cannot – just as little as hoping – build a firm bridge between model and reality. Treating phenomena as if they essentially were stochastic processes is not the same as showing that they essentially are stochastic processes. As Hicks [1979:120-21] so neatly puts it:

Things become more difficult when we turn to time-series … The econometrist, who works in that field, may claim that he is not treading on very shaky ground. But if one asks him what he is really doing, he will not find it easy, even here, to give a convincing answer … [H]e must be treating the observations known to him as a sample of a larger “population”; but what population? … I am bold enough to conclude, from these considerations that the usefulness of “statistical” or “stochastic” methods in economics is a good deal less than is now conventionally supposed. We have no business to turn to them automatically; we should always ask ourselves, before we apply them, whether they are appropriate to the problem in hand.”

And as if this wasn’t enough, one could also seriously wonder what kind of “populations” these statistical and econometric models ultimately are based on. Why should we as social scientists – and not as pure mathematicians working with formal-axiomatic systems without the urge to confront our models with real target systems – unquestioningly accept Haavelmo’s “infinite population”, Fisher’s “hypothetical infinite population”, von Mises’s “collective” or Gibbs’s ”ensemble”?

Of course one could treat our observational or experimantal data as random samples from real populations. I have no problem with that. But modern (probabilistic) econometrics does not content itself with that kind of populations. Instead it creates imaginary populations of “parallel universes” and assume that our data are random samples from that kind of populations.

But this is actually nothing else but handwaving! And it is inadequate for real science. As David Freedman writes in Statistical Models and Causal Inference:

With this approach, the investigator does not explicitly define a population that could in principle be studied, with unlimited resources of time and money. The investigator merely assumes that such a population exists in some ill-defined sense. And there is a further assumption, that the data set being analyzed can be treated as if it were based on a random sample from the assumed population. These are convenient fictions … Nevertheless, reliance on imaginary populations is widespread. Indeed regression models are commonly used to analyze convenience samples … The rhetoric of imaginary populations is seductive because it seems to free the investigator from the necessity of understanding how data were generated.

Econometricians should know better than to treat random variables, probabilites and expected values as anything else than things that strictly seen only pertain to statistical models. If they want us take the leap of faith from mathematics into the empirical world in applying the theory, they have to really argue an justify this leap by showing that those neat mathematical assumptions (that, to make things worse, often are left implicit, as e.g. independence and additivity) do not collide with the ugly reality. The set of mathematical assumptions is no validation in itself of the adequacy of the application.

Rigour and elegance in the analysis does not make up for the gap between reality and model. It is the distribution of the phenomena in itself and not its estimation that ought to be at the centre of the stage. A crucial ingredient to any economic theory that wants to use probabilistic models should be a convincing argument for the view that “there can be no harm in considering economic variables as stochastic variables” [Haavelmo 1943:13]. In most cases no such arguments are given.

Of course you are entitled – like Haavelmo and his modern probabilistic followers – to express a hope “at a metaphysical level” that there are invariant features of reality to uncover and that also show up at the empirical level of observations as some kind of regularities.

But is it a justifiable hope? I have serious doubts. The kind of regularities you may hope to find in society is not to be found in the domain of surface phenomena, but rather at the level of causal mechanisms, powers and capacities. Persistence and generality has to be looked out for at an underlying deep level. Most econometricians do not want to visit that playground. They are content with setting up theoretical models that give us correlations and eventually “mimic” existing causal properties.

We have to accept that reality has no “correct” representation in an economic or econometric model. There is no such thing as a “true” model that can capture an open, complex and contextual system in a set of equations with parameters stable over space and time, and exhibiting invariant regularities. To just “believe”, “hope” or “assume” that such a model possibly could exist is not enough. It has to be justified in relation to the ontological conditions of social reality.

In contrast to those who want to give up on (fallible, transient and transformable) “truth” as a relation between theory and reality and content themselves with “truth” as a relation between a model and a probability distribution, I think it is better to really scrutinize if this latter attitude is feasible. To abandon the quest for truth and replace it with sheer positivism would indeed be a sad fate of econometrics. It is more rewarding to stick to truth as a regulatory ideal and keep on searching for theories and models that in relevant and adequate ways express those parts of reality we want to describe and explain.

Econometrics may be an informative tool for research. But if its practitioners do not investigate and make an effort of providing a justification for the credibility of the assumptions on which they erect their building, it will not fulfill its tasks. There is a gap between its aspirations and its accomplishments, and without more supportive evidence to substantiate its claims, critics will continue to consider its ultimate argument as a mixture of rather unhelpful metaphors and metaphysics. Maintaining that economics is a science in the “true knowledge” business, I remain a skeptic of the pretences and aspirations of econometrics. So far, I cannot really see that it has yielded very much in terms of relevant, interesting economic knowledge.

The marginal return on its ever higher technical sophistication in no way makes up for the lack of serious under-labouring of its deeper philosophical and methodological foundations that already Keynes complained about. The rather one-sided emphasis of usefulness and its concomitant instrumentalist justification cannot hide that neither Haavelmo, nor the legions of probabilistic econometricians following in his footsteps, give supportive evidence for their considering it “fruitful to believe” in the possibility of treating unique economic data as the observable results of random drawings from an imaginary sampling of an imaginary population. After having analyzed some of its ontological and epistemological foundations, I cannot but conclude that econometrics on the whole has not delivered “truth”. And I doubt if it has ever been the intention of its main protagonists.

Our admiration for technical virtuosity should not blind us to the fact that we have to have a more cautious attitude towards probabilistic inference of causality in economic contexts. Science should help us penetrate to “the true process of causation lying behind current events” and disclose “the causal forces behind the apparent facts” [Keynes 1971-89 vol XVII:427].  We should look out for causal relations, but econometrics can never be more than a starting point in that endeavour, since econometric (statistical) explanations are not explanations in terms of mechanisms, powers, capacities or causes. Firmly stuck in an empiricist tradition, econometrics is only concerned with the measurable aspects of reality, But there is always the possibility that there are other variables – of vital importance and although perhaps unobservable and non-additive not necessarily epistemologically inaccessible – that were not considered for the model. Those who were can hence never be guaranteed to be more than potential causes, and not real causes.

A rigorous application of econometric methods in economics really presupposes that the phenomena of our real world economies are ruled by stable causal relations between variables. A perusal of the leading econom(etr)ic journals shows that most econometricians still concentrate on fixed parameter models and that parameter-values estimated in specific spatio-temporal contexts are presupposed to be exportable to totally different contexts. To warrant this assumption one, however, has to convincingly establish that the targeted acting causes are stable and invariant so that they maintain their parametric status after the bridging. The endemic lack of predictive success of the econometric project indicates that this hope of finding fixed parameters is a hope for which there really is no other ground than hope itself.

This is a more fundamental and radical problem than the celebrated “Lucas critique” have suggested. This is not the question if deep parameters, absent on the macro-level, exist in “tastes” and “technology” on the micro-level. It goes deeper. Real world social systems are not governed by stable causal mechanisms or capacities. It is the criticism that Keynes [1951(1926): 232-33] first launched against econometrics and inferential statistics already in the 1920s:

The atomic hypothesis which has worked so splendidly in Physics breaks down in Psychics. We are faced at every turn with the problems of Organic Unity, of Discreteness, of Discontinuity – the whole is not equal to the sum of the parts, comparisons of quantity fails us, small changes produce large effects, the assumptions of a uniform and homogeneous continuum are not satisfied. Thus the results of Mathematical Psychics turn out to be derivative, not fundamental, indexes, not measurements, first approximations at the best; and fallible indexes, dubious approximations at that, with much doubt added as to what, if anything, they are indexes or approximations of.

The kinds of laws and relations that econom(etr)ics has established, are laws and relations about entities in models that presuppose causal mechanisms being atomistic and additive. When causal mechanisms operate in real world social target systems they only do it in ever-changing and unstable combinations where the whole is more than a mechanical sum of parts. If economic regularities obtain they do it (as a rule) only because we engineered them for that purpose. Outside man-made “nomological machines” they are rare, or even non-existant. Unfortunately that also makes most of the achievements of econometrics – as most of contemporary endeavours of economic theoretical modeling – rather useless.

 
References

Freedman, David (2010), Statistical Models and Causal Inference. Cambridge: Cambridge University Press.

Haavelmo, Trygve (1943), Statistical testing of business-cycle theories. The Review of  Economics and Statistics 25:13-18.

– (1944), The probability approach in econometrics. Supplement to Econometrica 12:1-115.

Hicks, John (1979), Causality in Economics. London: Basil Blackwell.

Keynes, John Maynard (1951 (1926)), Essays in Biography. London: Rupert Hart-Davis.

– (1971-89) The Collected Writings of John Maynard Keynes, vol. I-XXX. D E Moggridge & E A G Robinson (eds), London: Macmillan.

Libertarian paradise

7 May, 2013 at 14:01 | Posted in Politics & Society | 6 Comments

 

The standard Gini coefficient – a misleading measure of inequality

7 May, 2013 at 09:19 | Posted in Statistics & Econometrics | 1 Comment

It is by now generally accepted that the sharp rise in income and wealth inequality in the US and much of Western Europe over the 1990s and 2000s was one of the bulldozer forces behind the rise in financial fragility.  And it has long been accepted that the Gini coefficient is the workhorse measure of inequality.  But it is not generally recognized that the coefficient is normally defined in a way which biases the measure in a downward direction, making inequality seem less large than another version of the coefficient would suggest.  By this alternative measure inequality is much higher than is generally thought. The standard measure is misleading us into thinking that economic growth is more “inclusive’ than it is.

giniRecall that the Gini coefficient is a number between zero and one that measures the degree of inequality in the distribution of income in a given society (named after an Italian statistician, Corrado Gini). The coefficient is zero for a society in which each member receives exactly the same income; it reaches its maximum value (bounded from above by 1.0) for a society in which one member receives all the income and the rest nothing.

As normally defined the Gini says that inequality remains constant—growth remains ‘inclusive’—if all individuals (or countries by average income) experience the same rate of growth, and rises only when upper incomes grow faster than lower incomes. So inequality remains constant if a two person (or two country) distribution x = (10, 40) becomes y = (20, 80). Yet the income gap has grown from 10 to 40.

It is at least as plausible to say that inequality remains constant—growth remains inclusive—when all individuals (countries) experience the same absolute addition to their incomes; say from x = (10, 40) to y* = (20, 50). If upper income individuals (countries) experience bigger absolute additions, inequality increases, and growth is not inclusive.

The normal Gini could be called the Relative Gini. The Gini based on absolute changes could be called the Absolute Gini—defined as the Relative Gini multiplied by the mean income. In the above illustration, the Relative Gini for both distributions is the same, at 0.3. But as mean income doubles from 25 to 50 in the transition from x to y, the Absolute Gini doubles, from 7.5 to 15.0.

The Absolute Gini typically rises much more frequently and by much more than than the Relative Gini, and its use would make ‘income inequality’ into a more salient political issue. For obvious reasons, the Relative Gini could be called a ‘rightist’ measure, and the Absolute Gini a ‘leftist’ measure …

Robert H. Wade

Yours truly i intervju

7 May, 2013 at 08:05 | Posted in Varia | Comments Off on Yours truly i intervju

JÖNKÖPING – FOLK. En intervju med Lars Pålsson Syll, professor.egobild

Du har skrivit en bok om ekonomen John Maynard Keynes. Vad var det stora med honom?

– Keynes gjorde upp med laissez-faire-ideologin inom nationalekonomin och visade att samhället kan behöva gripa in för att skapa sysselsättning. Hans betonande av att verkligheten genomsyras av genuin osäkerhet (och inte av kalkylerbar risk) har också haft stor betydelse för min syn på ekonomi.

När Sverige skulle ta ställning till EMU, var du en aktiv motståndare. Nu när du kan summera vad som har hänt, vad kan du då ge för kommentarer?

– Att utvecklingen tveklöst visat att vi hade rätt! Ett ja till EMU strider mot all ekonomisk klokskap och även vanligt sunt förnuft. Följdriktigt är det idag inte mer än var tionde som i Sverige förespråkar ett svenskt medlemskap I EMU

Non-profit tog LO ställning för, medan Socialdemokraterna tagit ställning för en modell med begränsat vinstuttag. Vad är dina kommentarer till det?

– Här är jag odelat på LO:s sida. Överväldigande forskning – för att inte tala om verkligheten i form av Carema-skandaler och friskoleplundrare – visar att vinst och kvalitet i skattefinansierad skola och omsorg inte går ihop.

Arbetarnas Bildningsförbund fyllde 100 år förra året och är nu inne på sitt 101:e år. Folkbildningen är stark i Sverige. Vad står ordet folkbildning för?

– En vilja att i gemenskap med andra människor bejaka vår omättliga lust att lära och bilda oss; vetgirighet, nyfikenhet.

Om du skulle beskriva ABFs roll då, nu och i framtiden, hur gör du det?

– Att i ett samhälle som bygger på kunskap bana vägen för att ALLA ska kunna ta del av framtiden.

Centerpartiet vände på bladet och tog fram Annie Lööf. Vad tycker du om den kovändingen?

– Det sämsta man kunde ha gjort. Lööf har fullständigt kört ett en gång respekterat parti i botten. Det är obegripligt att en nyliberal, tyckmyckentrutad, floskulös, Ayn Rand och Margaret Thatcher dyrkande broilerpolitiker idag kan sitta och styra över ett parti som letts av giganter som Hedlund och Fälldin. Monstruöst och sorgligt.

Var det bättre under Maud Olofssons tid?

– Med eftertryck – nej! Det var Olofsson som påbörjade partiets kräftgång in i nyliberalism och sålde ut partiets själ.

Jönköpingssonen Dag Hammarskjöld var en fredens man. Hur skulle du med tre ord kunna beskriva hans livsgärning?

– Imponerande engagerande förebild.

Finns det barnfattigdom i Sverige?

– Utan tvekan.

Hela 780 miljoner människor i världen får inte vatten varje dag. Vad får det dig att tänka på?

– Att det är fullständigt oacceptabelt och i hög utsträckning faktiskt beror på att marknadsfundamentalister inte begriper att vatten precis som luft är något som tillhör oss alla och inte ska fördelas utifrån monetära förutsättningar. Jag var på en internationell konferens för några år sedan, och det grep mig starkt när en sydafrikansk delegat berättade att han numera fick fråga middagsgäster vad de skulle göra på toaletten, just på grund av att vattentillförseln var så erbarmligt undermålig sedan vattenförsörjningen privatiserats. Sådana erfarenheter ger perspektiv för en akademiker som annars mest tänker på det här i teoretiska termer.

Vilka goda råd vill du ge till högskolan i Jönköping för att få en positiv framtid?

– Satsa på gott ledarskap. Jag arbetade själv vid högskolan i fem år i början på 2000-talet och såg då hur ett dåligt ledarskap kunde köra en annars god verksamhet i botten.

Har du någon dröm?

– Att politiker idag slutar upp med sin huvudlösa besparingspolitik och börjar tillämpa en mer Keynes-influerad ekonomisk politik. I annat fall är jag rädd för att den ekonomiska krisen kommer att fortsätta förvärras och att vi snart är tillbaka i ett läge som påminner om den stora depressionen.

Hans Mannefred

How dare you ask us about the real world! We’re economists!

6 May, 2013 at 16:54 | Posted in Economics | 6 Comments

Added: For a longer version of the conference  –  here.

Stödet för euron rekordlågt

6 May, 2013 at 11:18 | Posted in Politics & Society | 2 Comments

Enligt en färsk undersökning från SOM-institutet är stödet för ett svenskt EMU-medlemskap rekordlåga 9 procent. Euromisslyckandet har som väntat också smittat av sig på svenskarnas inställning till EU. Stödet för EU-medlemskapet har sjunkit till 42 procent.

Varje vecka kan vi via medierna se hur konflikterna och problemen med EMU tydliggörs. I land efter land utspelas nu tragedier inför våra ögon därför att EMU-tvångströjan bara kommer i en storlek och uppenbarligen inte passar alla. Nationer och deras ekonomier är i nästintill fritt fall. Precis som i flera andra euroländer klarar man inte – med de handlingsrestriktioner som den monetära gemenskapen sätter – att på ett adekvat sätt ta sig ur den sociala och ekonomiska kris man hamnat i.

Förvisso är deras problem inte bara – eller huvudsakligen – en effekt av EMU-medlemskapet. Självklart har dessa EMU-länder många självförvållade problem. Kritiken handlar om att dessa problem delvis emanerar ur – och förvärras av – EMU-medlemskapets autonomibegränsningar. Ett medlemskap som inte underlättar problemlösandet, eftersom deflationspolitik och frånvaro av möjlighet att bedriva egen valuta- och penningpolitik gör det näst intill omöjligt att få fart på efterfråga och export.

Istället för att fundera över om inte nödhjälp och massdemonstrationer borde vara en tankeställare, hänger sig en del politiker och ekonomer åt en makaber uppvisning i konsten att vara både blinda och döva för det stålbadsliknande test som EMU nu genomgår.

Hela argumentationen visar med eftertryck att EMU inte bara är ett ekonomiskt projekt, utan i minst lika stor utsträckning ett politiskt. Det som nyliberalismen inte klarade av på 1980-och 1990-talen ska nu EMU åstadkomma. Men vill vi verkligen avhända oss ekonomisk-politisk autonomi och tvingas sänka löner och sociala skyddsnät så fort det börjar knaka i ekonomins fogar? Är ökade löneklyftor och en federal överstat verkligen det stoff våra drömmar är gjorda av?

I stället för äreräddning av EMU med hänvisning till ekonomiska modeller – som till stor del bygger på diskutabla vetenskapsteoretiska och metodologiska antaganden – borde man se sig om i verklighetens euroland.

Fakta sparkar. De senaste årens ekonomiska utveckling visar att valutaunionen knappast leder till någon ekonomisk nettofördel. Om vi jämför Sverige och euroländerna kan Sverige uppvisa bättre siffror på nästan alla centrala ekonomiska områden. Om vi tittar på tillväxt, inflation och sysselsättning utgör euron helt enkelt inget argument för att ge upp vår ekonomisk-politiska självständighet. Vår rätt att själva bestämma över hur vi på bästa sätt skall kunna möta en oviss framtid och kunna föra en ekonomisk politik som motsvarar våra behov – finns det ingen anledning att sälja ut för en gemensam valuta som så tydligt visat sig vara ett i grunden feltänkt och gigantiskt misslyckande.

don-quijoteDen mycket prekära utveckling som vi idag ser i Grekland, Portugal, Spanien, Italien och Irland visar på den hämsko som EMU utgör när dessa kristyngda ekonomier ska försöka hitta en väg ut ur krisen. Förmågan att ta sig ur finanskrisens efterdyningar blir onödigt långdragen och låg. Att inte fullt ut ha möjlighet att bedriva en egen ekonomisk politik skapar ett hårt tryck på statsbudgeten och bäddar för de missnöjesyttringar som vi ser rada upp sig i land efter land.

Historien borde förskräcka. Den här sortens förkeynesiansk deflationspolitik provades under 1920- och 1930-talen och var antagligen den främsta enskilda orsaken till depressionen. Ekonomierna tog sig inte ur moraset förrän dåtidens dårskap – guldmyntfoten – kastades på historiens gravhög.

Så nu väntar vi bara på att vår egen Don Quijote – folkpartiets ekonomiske talesman Carl Bastiat Hamilton – med osviklig tajming åter igen ska föra fram krav på att Sverige omedelbart går med i EMU …

Regression analysis and causal inference (wonkish)

5 May, 2013 at 15:36 | Posted in Statistics & Econometrics | Comments Off on Regression analysis and causal inference (wonkish)

As a descriptive exercise, all is well. One can compare the average salary of men and women, holding constant potential confounders. The result is a summary of how salaries differ on the average by gender, conditional on the values of one or more covariates. Why the salaries may on the average differ is not represented explicitly in the regression model …

Berk_Regression_72ppiRGB_150pixelsMoving to causal inference is an enormous step that needs to be thoroughly considered. To begin, one must ponder … whether the causal variable of interest can be usefully conceptualized as an intervention within a response schedule framework [a formal structure in which to consider what the value of the response y would be if an input x were set to some vaue]. Once again consider gender. Imagine a particular faculty member. Now imagine intervening so that the faculty member’s gender could be set to ‘male.’ One would do this while altering nothing else about this person …

Clearly, the fit between the requisite response schedule and the academic world in which salaries are determined fails for at least two reasons: The idea of setting gender to male or female is an enormous stretch, and even, if gender could be manipulated, it is hard to accept that only gender would be changed. In short, the causal story is in deep trouble even before the matter of holding constant surfaces …

This is not to imply that it never makes sense to apply regression-based adjustments in causal modeling. The critical issue is that the real world must cooperate by providing interventions that could be delivered separately …

As a technical move, it is easy to apply regression-based adjustmens to confounders. Whether it is sensible to do so is an entirely different matter …

The most demanding material [is] the examination of what it means to ‘hold constant’ … The problem [is] the potential incongruence between the mechanics of regression-based adjustments and the natural or social world under study.

När dåliga prognoser är bättre än bra

5 May, 2013 at 11:35 | Posted in Economics | Comments Off on När dåliga prognoser är bättre än bra

I veckan som gick hade jag bjudit in fondförvaltare Alf Riple – med bakgrund som chefsanalytiker på Nordea och rådgivare på norska Finansdepartementet – att föreläsa på min kurs Finanskriser – orsaker, förlopp och konsekvenser. Det visade sig att Alf inte bara är en god skribent, utan också en synnerligen kompetent och medryckande föreläsare. En oslagbar kombination.

ripleVad är värst, en dålig prognos eller ingen prognos? Svaret är enkelt. Så fort du exponeras för en prognos är du i en sämre position än du var innan …

Expertprognoser gör med all sannolikhet mer skada än nytta. Det är därför det lönar sig att snabbt bläddra förbi tidningsartiklar med rubriker som ‘Så kommer börsen gå i år’ …

Tänk dig att du har som jobb att sköta ditt företags valutaväxlingar … Du måste bestämma att antingen säkra växelkursen redan nu, eller vänta tills beloppet anländer och växla till den kurs som gäller då … Som tur är har du analytikernas dollarprognoser till hjälp. De gör det inte ett dugg lättare att förutspå dollarkursen. Men de kan hjälpa dig ändå.

Om du lyckas göra rätt spelar inte analyserna någon större roll. Men om dollarn faller som en sten och du har valt att inte säkra växelkursen, kommer företagsledningen att vilja veta varför du har sumpat bort företagets penga … Du kan dra en lång historia om historiska valutatrender, ekonomisk tillväxt, betalningbalans och ränteskillnader. Till slut kommer alla att hålla med om att du agerade rätt mot bakgrund av den information du hade på förhand.

Analyserna gör att du kommer undan. Särskilt de som hade mest fel … Prognoserna har inget ekonomiskt värde, vare sig för företaget eller samhället. Värdet är att de räddar ditt skinn.

Hayek – the illusions of right-wing economics

5 May, 2013 at 10:30 | Posted in Economics | 2 Comments

Just as I was wondering how to start this review, along came the Sunday New York Times Magazine with a short article by Adam Davidson with the title “Made in Austria: Will Friedrich von Hayek be the Tea Party’s Karl Marx?” One Tea Party activist reported that his group’s goal is to fill Congress with Hayekians. This project is unlikely to go smoothly if the price of admission includes an extensive reading of Hayek’s writings. As Davidson remarks, some of Hayek’s ideas would not go down well at all with the American far right: among them is a willingness to entertain a national health care program, and even a state-provided basic income for the poor.

The source of confusion here is that there was a Good Hayek and a Bad Hayek. The Good Hayek was a serious scholar who was particularly interested in the role of knowledge in the economy (and in the rest of society). Since knowledge—about technological possibilities, about citizens’ preferences, about the interconnections of these, about still more—is inevitably and thoroughly decentralized, the centralization of decisions is bound to generate errors and then fail to correct them. The consequences for society can be calamitous, as the history of central planning confirms. That is where markets come in. All economists know that a system of competitive markets is a remarkably efficient way to aggregate all that knowledge while preserving decentralization.

The Good Hayek also knew that unrestricted laissez-faire is unworkable. It has serious defects: successful actors reach for monopoly power, and some of them succeed in grasping it; better-informed actors can exploit the relatively ignorant, creating an inefficiency in the process; the resulting distribution of income may be grossly unequal and widely perceived as intolerably unfair; industrial market economies have been vulnerable to excessively long episodes of unemployment and underutilized capacity, not accidentally but intrinsically; environmental damage is encouraged as a way of reducing private costs—the list is long. Half of Angus Burgin’s book is about the Good Hayek’s attempts to formulate and to propagate a modified version of laissez-faire that would work better and meet his standards for a liberal society. (Hayek and his friends were never able to settle on a name for this kind of society: “liberal” in the European tradition was associated with bad old Manchester liberalism, and neither “neo-liberal” nor “libertarian” seemed to be satisfactory.)

The Bad Hayek emerged when he aimed to convert a wider public. Then, as often happens, he tended to overreach, and to suggest more than he had legitimately argued. The Road to Serfdom was a popular success but was not a good book. Leaving aside the irrelevant extremes, or even including them, it would be perverse to read the history, as of 1944 or as of now, as suggesting that the standard regulatory interventions in the economy have any inherent tendency to snowball into “serfdom.” The correlations often run the other way. Sixty-five years later, Hayek’s implicit prediction is a failure, rather like Marx’s forecast of the coming “immiserization of the working class.”

Robert Solow

Niall Ferguson’s offensive remarks on Keynes – unmitigated sycophancy

4 May, 2013 at 17:29 | Posted in Varia | 8 Comments

Harvard professor and famous historian Niall Ferguson reportedly made some bizarre and offensive remarks about economist John Maynard Keynes at an investment conference yesterday.

According to financial writer Tom Kostigen, the editor at large of Private Wealth and Financial Advisor magazines, Ferguson made two startling suggestions about Keynes at the Tenth Annual Altegris Conference in Carlsbad, California:

Keynes’ economic philosophy, Ferguson reportedly suggested, was the result of Keynes not caring about future generations.
Keynes didn’t care about future generations, Ferguson reportedly suggested, because Keynes was gay and did not have children.

Dan Jamieson at Investment News, also reported the remarks.

Specifically, Kostigen reported the following:

[I]n front of a group of more than 500 investors, Ferguson responded to a question about Keynes’ famous philosophy of self-interest versus the economic philosophy of Edmund Burke, who believed there was a social contract among the living, as well as the dead. Ferguson asked the audience how many children Keynes had. He explained that Keynes had none because he was a homosexual and was married to a ballerina, with whom he likely talked of “poetry” rather than procreated. The audience went quiet at the remark. Some attendees later said they found the remarks offensive. …

Ferguson, who is the Laurence A. Tisch Professor of History at Harvard University, and author of The Great Degeneration: How Institutions Decay and Economies Die, says it’s only logical that Keynes would take this selfish worldview because he was an “effete” member of society. Apparently, in Ferguson’s world, if you are gay or childless, you cannot care about future generations nor society.

Not surprisingly, Kostigen’s report has already drawn considerable attention to, and criticism of, Ferguson. We have reached out to Professor Ferguson for comment. We will update this article when we hear from him.

In addition to the offensive suggestion that those who don’t have children don’t care about the future or society, Professor Ferguson’s reported remarks are bizarre and insulting to Keynes on two levels.

First, this is the first time we have heard a respectable academic tie another economist’s beliefs to his or her personal situation rather than his or her research. Saying that Keynes’ economic philosophy was based on him being childless would be like saying that Ferguson’s own economic philosophy is based on him being rich and famous and therefore not caring about the plight of poor unemployed people.

Second, Keynes’ policies did not suggest that he did not care about future generations. On the contrary. … For the sake of both future generations and current generations, Keynes believed that governments should run deficits during recessions and then run surpluses during economic booms. Politicians have never seemed to be able to follow the second part of Keynes’ proscription — they tend to run deficits at all times — but it seems unfair to blame this latter failing on Keynes.

Business Insider

Changing the economics curriculum

3 May, 2013 at 12:55 | Posted in Economics | 1 Comment

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World Economics Association started its conference on economics curriculum today. Yours truly contributes with the paper Economics textbooks – anomalies and transmogrification of truth.

What is economic theory?

3 May, 2013 at 10:48 | Posted in Economics, Theory of Science & Methodology | Comments Off on What is economic theory?

what is theoryEconomics is a discipline with the avowed ambition to produce theory for the real world. But it fails in this ambition, Lars Pålsson Syll asserts in Chapter 12, at least as far as the dominant mainstream neoclassical economic theory is concerned. Overly confident in deductivistic Euclidian methodology, neoclassical economic theory lines up series of mathematical models that display elaborate internal consistency but lack clear counterparts in the real world. Such models are at best unhelpful, if not outright harmful, and it is time for economic theory to take a critical realist perspective and explain economic life in depth rather than merely modeling it axiomatically.

The state of economic theory is not as bad as Pålsson Syll describes, Fredrik Hansen retorts in Chapter 13. Looking outside the mainstream neoclassic tradition, one can find numerous economic perspectives that are open to other disciplines and manifest growing interest in methodological matters. He is confident that theoretical and methodological pluralism will be able to refresh the debate on economic theory, particularly concerning the nature of realism in economic theory, a matter about which Pålsson Syll and Hansen clearly disagree.

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