Karl Popper till morgonkaffet

19 Sep, 2013 at 14:09 | Posted in Politics & Society | Comments Off on Karl Popper till morgonkaffet

Neg_5Med ekonomijournalister som Per Lindvall och Andreas Cervenka har Svenska Dagbladet  etablerat sig som en av ytterst få tidningar i Sverige som bedriver ekonomisk journalistik värd namnet.

Alla vi som sedan länge tröttnat på övriga mediers tyckmyckentrutade nonsens bockar och bugar!

Det är inte var dag man får Karl Popper till morgonkaffet. Men ibland händer det. I Svenska Dagbladet Näringsliv skriver Per Lindvall om europrojektet som ett systemskifte som fått vad Popper benämnde “oavsiktliga konsekvenser”:
 
 
 

Införandet av euron är ett exempel på ett av vår tids systemskiften. Euroekonomierna skulle , som det heter, konvergera. I stället har de divergerat och de ekonomiska och sociala spänningarna inom unionen är på bristningsgränsen.

Även andra storskaliga ekonomiska experiment har tappat färgen. Det handlar om idén att marknaden – den osynliga handen – är överlägsen när det gäller att allokera kapital dit det ger bäst långsiktig avkastning, och att avreglera och konkurrensutsätta verksamhet är det saliggörande medlet för att skapa ekonomisk effektivitet och kreativ förnyelse …

Idén om att konkurrens driver utvecklingen framåt håller på att överges till förmån för insikten om att symbios, ömsesidigt beroende och samarbete i många fall är en minst lika framgångsrik strategi i såväl naturen som i samhällsutvecklingen.

Sverige — det klasslösa samhället

18 Sep, 2013 at 21:02 | Posted in Politics & Society | 2 Comments

 

Man tager sig för pannan! Och detta ankors plask och grodors plums ska man behöva höra i ett land där klassklyftorna sedan ett par-tre decennier tillbaka åter växer lavinartat!

Kanske var det ändå inte så tokigt att stänga ner den där skolan …

Wolfgang Schäuble needs a massive reality check

18 Sep, 2013 at 19:27 | Posted in Economics, Politics & Society | 1 Comment

According to the German minister of finance we ought to ignore the doomsayers and instead rejoice because of

the positive economic signals the eurozone is sending almost continuously these days. While the crisis continues to reverberate, the eurozone is clearly on the mend both structurally and cyclically.

Hmmm …

Can’t help myself wondering on what planet that guy lives …

Jesper Jespersen, Karl Popper & kritisk realism (wonkish)

18 Sep, 2013 at 14:06 | Posted in Theory of Science & Methodology | Comments Off on Jesper Jespersen, Karl Popper & kritisk realism (wonkish)

jesperJesper Jespersens Macroeconomic methodology: a post Keynesian perspective (Cheltenham (MA): Edward Elgar, 2009) är det främsta skandinaviska bidraget till den pågående metodologiska vitalisering av postkeynesiansk ekonomisk teori som tillförandet av en kritisk realistisk vetenskapsteoretisk ansats utgör.

Jespersens bok måste ses som ett viktigt bidrag till den makroekonomiska metodologiska förnyelsen inom heterodox ekonomisk teori. Den bygger vidare på och utvecklar den givande korsbefruktning som – med arbeten av bl a Paul Davidson, Sheila Dow, Victoria Chick och Tony Lawson – nu under en tid ägt rum mellan kritisk realism och postkeynesiansk ekonomisk teori. Speciellt med sin betoning på makroekonomins metodologi tillför den ekonomiska metodologin nya bärande synpunkter som varje makroekonom borde (måste) förhålla sig till i sin forskargärning.

Jespersens arbete är ett imponerande kraftprov — men liksom de flesta andra stora vetenskapliga arbeten innehåller den också några mer kritisabla inslag. I Jespersens bok handlar detta om försöket att tillämpa Karl Poppers “three worlds”-perspektiv på de ekonomisk-metodologiska frågor som kritisk realism reser.

Jespersen kommer i boken in på frågan om man kan förena Popper och ett kritisk-realistiskt perspektiv på makroekonomi. Jespersens diskussion är intressant och så vitt jag kan bedöma uttryck för ett bland kritiska realister nytt positivt förhållningssätt till Popper.

Vad Jespersen tar fasta på hos Popper (se t ex A world of propensities (1990)) är dennes tredelning av relationen mellan teori och verklighet i World 1 (som är den verklighet vi försöker förstå och förklara), World 2 (den analytiska) och World 3 (som representerar våra teorier och föreställningar om verkligheten).

Noteras bör att beskrivningarna ovan av de tre världarna är Jespersens. Poppers egna är – se exempelvis hans Tannerföreläsningar ”Three Worlds” (1978) – väsentligen annorlunda. Jespersen har uppenbarligen låtit sig inspireras av Poppers trikotomi, utan att känna sig bunden av upphovsmannens egna explikationer.

Här tror jag dock också att det är viktigt att klarare än Jespersen betona att svaret på frågan om Poppers vetenskapsteoretiska hållning kan vara något att bygga vidare på utifrån kritisk-realistiska synpunkter i stor utsträckning hänger samman med vilken Popper vi talar om. Om vi talar om den sene Popper som skrev exempelvis A world of propensities är det tänkbart. Om vi talar om den yngre Popper (–1970) är jag tveksam.
Read more …

Sagan om Frankensteins medeltal

18 Sep, 2013 at 09:50 | Posted in Statistics & Econometrics | Comments Off on Sagan om Frankensteins medeltal

tageTänkte bara jag skulle tipsa ekonomer som fått det här med värdet av medeltal lite om bakfoten. Tage Danielsson och hans lilla saga om Frankenstein ger nyttiga insikter …
[h/t Jan Milch]

Lars E. O. Svensson gets it so wrong, so wrong

17 Sep, 2013 at 21:33 | Posted in Economics | 6 Comments

The increase in house loans – and house prices – in Sweden has for many years been among the steepest in the world.

Sweden’s house price boom started in mid-1990s, and looking at the development of real house prices since 1986, there are obvious reasons to be deeply worried:

Source: Statistics Sweden and own calculations

The indebtedness of the Swedish household sector has also risen to alarmingly high levels, as indicated by the figure below (based on new data published earlier this year by Statistics Sweden, showing the development of household debts/disposable income 1990 – 2012):
householsdebts

Source: Statistics Sweden and own calculations

As a result yours truly has been trying to argue with “very serious people” that it’s really high time to “take away the punch bowl.”

Lars E. O. Svensson — former deputy governor of the Swedish Riksbank — now argues in a recent article that there is no reason to be worried about the indebtedness of the Swedish household sector since he has noted that (emphasis added)

the households on average have very strong balance sheets

Hmm …

I think maybe Svensson should take a look at the book  The Flaw of Averages by Sam Savage, explaining why average assumptions on average are wrong …

Notes7
:

Why it is better to be roughly right than precisely wrong

17 Sep, 2013 at 18:44 | Posted in Economics | 4 Comments

keynes-right-and-wrong

When applying deductivist thinking to economics, economists usually set up “as if” models based on a set of tight axiomatic assumptions from which consistent and precise inferences are made. The beauty of this procedure is of course that if the axiomatic premises are true, the conclusions necessarily follow. The snag is that if the models are to be relevant, we also have to argue that their precision and rigour still holds when they are applied to real-world situations. They often don’t. When addressing real economies, the idealizations necessary for the deductivist machinery to work, simply don’t hold.

So how should we evaluate the search for ever greater precision and the concomitant arsenal of mathematical and formalist models? To a large extent, the answer hinges on what we want our models to perform and how we basically understand the world.

For Keynes the world in which we live is inherently uncertain and quantifiable probabilities are the exception rather than the rule. To every statement about it is attached a “weight of argument” that makes it impossible to reduce our beliefs and expectations to a one-dimensional stochastic probability distribution. If “God does not play dice” as Einstein maintained, Keynes would add “nor do people”. The world as we know it, has limited scope for certainty and perfect knowledge. Its intrinsic and almost unlimited complexity and the interrelatedness of its organic parts prevent the possibility of treating it as constituted by “legal atoms” with discretely distinct, separable and stable causal relations. Our knowledge accordingly has to be of a rather fallible kind.

To search for precision and rigour in such a world is self-defeating, at least if precision and rigour are supposed to assure external validity. The only way to defend such an endeavour is to take a blind eye to ontology and restrict oneself to prove things in closed model-worlds. Why we should care about these and not ask questions of relevance is hard to see. We have to at least justify our disregard for the gap between the nature of the real world and our theories and models of it.

Keynes once wrote that economics “is a science of thinking in terms of models joined to the art of choosing models which are relevant to the contemporary world.” Now, if the real world is fuzzy, vague and indeterminate, then why should our models build upon a desire to describe it as precise and predictable? Even if there always has to be a trade-off between theory-internal validity and external validity, we have to ask ourselves if our models are relevant.

Models preferably ought to somehow reflect/express/correspond to reality. I’m not saying that the answers are self-evident, but at least you have to do some philosophical under-labouring to rest your case. Too often that is wanting in modern economics, just as it was when Keynes in the 1930s complained about Tinbergen’s and other econometricians lack of justifications of the chosen models and methods.

“Human logic” has to supplant the classical, formal, logic of deductivism if we want to have anything of interest to say of the real world we inhabit. Logic is a marvellous tool in mathematics and axiomatic-deductivist systems, but a poor guide for action in real-world systems, in which concepts and entities are without clear boundaries and continually interact and overlap. In this world I would say we are better served with a methodology that takes into account that “the more we know the more we know we don’t know”.

The models and methods we choose to work with have to be in conjunction with the economy as it is situated and structured. Epistemology has to be founded on ontology. Deductivist closed-system theories, as all the varieties of the Walrasian general equilibrium kind, could perhaps adequately represent an economy showing closed-system characteristics. But since the economy clearly has more in common with an open-system ontology we ought to look out for other theories – theories who are rigorous and precise in the meaning that they can be deployed for enabling us to detect important causal mechanisms, capacities and tendencies pertaining to deep layers of the real world.

Rigour, coherence and consistency have to be defined relative to the entities for which they are supposed to apply. Too often they have been restricted to questions internal to the theory or model. But clearly the nodal point has to concern external questions, such as how our theories and models relate to real-world structures and relations. Applicability rather than internal validity ought to be the arbiter of taste.

The Wisdom of Crowds and Bean Jar Experiments

17 Sep, 2013 at 14:19 | Posted in Economics | 7 Comments

“Who Wants to Be a Millionaire?” was a simple show in terms of structure: a contestant was asked multiple-choice questions, which got successively more difficult, and if she answered fifteen questions in a row correctly, she walked away with $1 million. The show’s gimmick was that if a contestant got stumped by a question, she could pursue three avenues of assistance. First, she could have two of the four multiple-choice answers removed (so she’d have at least a fifty-fifty shot at the right response). Second, she could place a call to a friend or relative, a person whom, before the show, she had singled out as one of the smartest people she knew, and ask him or her for the answer. And third, she could poll the studio audience, which would immediately cast its votes by computer. Everything we think we know about intelligence suggests that the smart individual would offer the most help. And, in fact, the “experts” did okay, offering the right answer—under pressure—almost 65 percent of the time. But they paled in comparison to the audiences. Those random crowds of people with nothing better to do on a weekday afternoon than sit in a TV studio picked the right answer 91 percent of the time.

WoCNow, the results of “Who Wants to Be a Millionaire?” would never stand up to scientific scrutiny … As it happens, the possibilities of group intelligence, at least when it came to judging questions of fact, were demonstrated by a host of experiments conducted by American sociologists and psychologists between 1920 and the mid-1950s … A classic demonstration of group intelligence is the jelly-beans-in-the-jar experiment, in which invariably the group’s estimate is superior to the vast majority of the individual guesses. When finance professor Jack Treynor ran the experiment in his class with a jar that held 850 beans, the group estimate was 871. Only one of the fifty-six people in the class made a better guess.

There are two lessons to draw from these experiments. First, in most of them the members of the group were not talking to each other or working on a problem together. They were making individual guesses, which were aggregated and then averaged … Second, the group’s guess will not be better than that of every single person in the group each time. In many (perhaps most) cases, there will be a few people who do better than the group. This is, in some sense, a good thing, since especially in situations where there is an incentive for doing well (like, say, the stock market) it gives people reason to keep participating. But there is no evidence in these studies that certain people consistently outperform the group. In other words, if you run ten different jelly-bean-counting experiments, it’s likely that each time one or two students will outperform the group. But they will not be the same students each time. Over the ten experiments, the group’s performance will almost certainly be the best possible. The simplest way to get reliably good answers is just to ask the group each time.

Fooled by representativeness

16 Sep, 2013 at 15:45 | Posted in Theory of Science & Methodology | 8 Comments

The Coin-tossing Problem

My friend Ben says that on the first day he got the following sequence of Heads and Tails when tossing a coin:
H H H H H H H H H H

And on the second day he says that he got the following sequence:
H T T H H T T H T H

Which day-report makes you suspicious?

Most people I ask this question says the first day-report looks suspicious.

But actually both days are equally probable! Every time you toss a (fair) coin there is the same probability (50 %) of getting H or T. Both days Ben makes equally many tosses and every sequnece are equally probable!

The Linda Problem

Linda is 40 years old, single, outspoken, and very bright. She majored in philosophy. As a student, she was deeply concerned with issues of discrimination and social justice, and also participated in anti-nuclear demonstrations.

Which of the following two alternatives is more probable?

A. Linda is a bank teller.
B. Linda is a bank teller and active in the feminist movement.

“Rationally,” alternative B cannot be more likely than alternative A. Nonetheless Amos Tversky and Daniel Kahneman reported — “Judgments of and by representativeness”. In D. Kahneman, P. Slovic & A. Tversky (Eds.), Judgment under uncertainty: Heuristics and biases. Cambridge, UK: Cambridge University Press 1982 — that more than 80 percent of respondents said that it was.

Why do we make such “irrational” judgments in both these cases? Tversky and Kahneman argued that in making this kind of judgment we seek the closest resemblance between causes and effects (in The Linda Problem, between Linda’s personality and her behaviour), rather than calculating probability, and that this makes alternative B seem preferable. By using a heuristic called representativeness statement B in The Linda Problem seems more “representative” of Linda based on the description of her, although from a probabilistic point of view it is clearly less likely.

Mark Blaug — a rebel economist

16 Sep, 2013 at 14:36 | Posted in Economics | Comments Off on Mark Blaug — a rebel economist

Richard LipseyRichard Lipsey has been kind enough to send me an e-mail commenting on my article on rational expectations in a recent issue of the Real-World Economics Review. In it he raises some questionmarks on the state of current macro and why “the experience of our world is neither well described nor well predicted by ergodic models.”

Lipsey also forwarded a chapter he has written for a forthcoming book on Mark Blaug: Rebel With Many Causes (Edward Elgar). Interesting reading!
 

Issue 2: Should a theory’s assumptions be subject to testing or just its predictions?

If making falsifiable predictions is a necessary condition for a theory to have relevance, is´it sufficient? I think Mark would have agreed with me that the answer is to this question is “no”. After all, the simple assertion that there will be a recession next year is a testable prediction but not even a theory …

Mark was always critical of what he called (Blaug 1998: 20) “…the license that Friedman’s ‘methodology of positive economics’ gave economists to make any and all unrealistic assumptions, provided only that their theories yielded verifiable implications” … First, Friedman failed to note the important requirement that assumptions that are patently counter factual be robust in the sense that they can be relaxed without seriously altering the theory’s predictions. Second, Friedman’s discussion did not recognise the several different senses in which assumptions are used in economics and the different implicit ways in which they should be assessed. Third, since one of the key purposes of behavioural assumptions is to link a theory`s predictions to observable behaviour, the view of the extreme irrelevance of assumptions reduces theory to mere operationalism. It then does not make sense to ask which of the assumptions is causing the trouble if a theory that seemed to accord with the facts no longer does so …

Issue 5: What reason do we have to accept predictions made with respect both to the reaction to shocks and the value of various economic policies when they are derived from models that assume the economy has a unique equilibrium that no one has even seriously attempted to prove for a model that displays the variety of market forms − competitive, oligopolistic and monopolistic – and behavioural modes that characterise any modern economy?

I answer that when we use the comparative static properties of an economy-wide competitive equilibrium to generate predictions and policy prescriptions concerning real market economies, we are merely taking shots in the dark since no one has any idea of the comparative static properties of a model that captures the realities of the market structures and behavioural modes that characterise any real economy.

That market economies, buttressed by appropriate institutions, are self-organising is beyond question. So is the observation that they are more efficient than the alternative of running them solely according to the commands of bureaucrats – a question that was settled beyond doubt in the 20th century by the failed experiments in planned economies in the USSR and its satellite nations. But just how efficient are the results of that self-organisation is much debated (and, hence, so is the appropriate degree of mix between market determination and state intervention)

Issue 6 Can we learn anything about the efficiency of real-world market economies by studying the efficiency of Arrow-Debreu-style general equilibrium models?

Some economists hold that although this idealised model of the competitive economy bears little relation to the economy in which we live, it nonetheless helps us to understand the virtues of our actual market economy; others hold that this model is of no use in guiding our understanding of any actual market economy. When discussing this issue, Mark wrote (Blaug 2007: 200): “How can anything that is so patently impractical be a useful reference point? Well, actually, it cannot…”. He went on to refer to economists’ schizophrenia in accepting that, although the assumptions required by this model bear virtually no relation to reality, the model nevertheless is in some way useful in helping us to understand reality. The importance of the model lies, he argued, solely in its “ceremonial value”. I agree but also observe that the extreme importance of this model lies in its underpinnings of intuition-based policy prescriptions − intuition based on hours and hours of hard intellectual work spent in graduate school in proving the optimal properties of this model. “If I was asked to work so hard on understanding this model, surely it must be of some value” is a common reaction of students. I stress that such policy advice is intuition- not theory-based. Many, perhaps most, teachers would argue that they stress the limitations of GE theory in general and the two fundamental theorems of welfare economics in particular. But try as they may, it is hard to undo students’ intuition that the time spent on these theories must mean that they have some policy relevance to the real world …

Avec le temps

15 Sep, 2013 at 17:26 | Posted in Varia | 2 Comments


Une des plus grande chanson francaise —  and in case your French is a little bit rusty, here’s an English translation:

With time …
With time everything goes away
We forget the face
and we forget the voice
When the heart beats no more
It’s not worth looking any further
You must let it go and that’s fine

With time …
With time everything goes away
The one we adored,
Whom we looked after in the rain
The one we understood with a simple glance
Between the words, between the lines
And under the make-up of a disguised promise
Which disappear into the night;

With time everything vanishes
With time …
With time everything goes away
Even the dearest memories,
got a strange facelift.
As I rummaged into the gallery of the Past
In the alley of Death,
on Saturday evening when tenderness departs alone

With time …
With time everything goes away
The other person we believed in
For nursing a cold, for any little thing
The other person for whom we gave fresh air and jewels
For whom we would have sold our souls for pennies
In front of whom, we crawled like dogs

With time, everything goes well
With time …
With time everything goes away
We forget the passions and we forget the voices
Which whispered the words of the poor folks:
“don’t come back too late”, “Above all, don’t catch cold”

With time …
With time everything goes away
We feel old and weary like an exhausted horse
And we feel frozen in an unknown bed
And perhaps, we feel lonely but carefree
And we feel cheated by all the lost years
So, truly
With time, we love no more

Time for Krugman to take a course in the history of economics

15 Sep, 2013 at 09:47 | Posted in Economics | 2 Comments

Paul Krugman commented on the NY Times piece on Wynne. There are many little incorrect interpretations, which derive from his lack of understanding of the history of ideas. First, he equates Wynne’s model with the old hydraulic Keynesianism (i.e. Neoclassical Synthesis) of Phillips (of Phillips curve fame, but also of the hydraulic model of the British economy). Nothing further from the truth …

Phillips_and_MONIAC_LSENote that conventional hydraulic models, including the sort of Cowles models like the Klein-Goldberger model of the US economy, put great emphasis on the estimation of parameters based on certain simplistic macro behavior. Wynne took a very different approach to modeling than Klein-Goldberger. He was more concerned with what he referred to as ‘model architecture’ than with parameter estimation …

Krugman then says these models were abandoned because they failed in the face of the Great Inflation of the 1970s, and because they did not deal with consumption in a coherent way. Here again he is wrong. First of all, Wynne’s models had no trouble dealing with the inflation of the 1970s, correctly pointing out the effects of oil prices, devaluation, and wage pressures from the cost side rather than demand pull views, and he was one of the few that correctly foresaw the big recession that the Thatcher policies would cause …

On a funny note at the end, Krugman reveals his misconception about the role of old ideas in the history of science, and economics in particular. He says: “it is kind of funny to see a revival of old-fashioned macro hailed, at least by some, as the key to a reconstruction of the field.” In his view, old ideas are only relevant if you can formalize them in modern garb, but are not a source of forgotten and incorrectly discarded knowledge that are better prepared to understand how the economy works. The limitations of the ‘great economists’ of today, make the loss of economists like Wynne all the more painful.

Matias Vernengo

Added 11.00 GMT: Unlearning economics has another nice piece on Krugman’s dismissal of “hydraulics.”

Inequalities that sicken our politics

14 Sep, 2013 at 21:49 | Posted in Economics, Politics & Society | Comments Off on Inequalities that sicken our politics

 

Léo Ferré — c’est vraiment extra!

14 Sep, 2013 at 18:01 | Posted in Varia | Comments Off on Léo Ferré — c’est vraiment extra!

 

Z

14 Sep, 2013 at 10:02 | Posted in Varia | Comments Off on Z

 

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