Economists for sale

31 December, 2013 at 18:08 | Posted in Economics | 1 Comment

It is remarkable that the public has been convinced that the earth revolves around the sun. This is remarkable because we can all look up in the sky and see the sun revolving around the earth.

economics_major_for_sale_t_shirt-r5b55bfd5732c4c0c8dd390ac69c590cb_804gs_324 Most of us are willing to believe the direct opposite of what we can see with our own eyes because we accept the analysis of the solar system developed by astronomers through many centuries of careful observation. The overwhelming majority of people will never go through the measurements and reproduce the calculations. Rather, our belief that the earth revolves around the sun depends on our confidence in the competence and integrity of astronomers. If they all tell us that the earth in fact orbits the sun, we are prepared to accept this view.

Unfortunately the economics profession cannot claim to have a similar stature. This is both good and bad. It is good because it doesn’t deserve that stature. Economists too often work as hired guns for those with money and power. It is bad because the public needs expertise in economics, just as it needs expertise in medicine and other areas.

Dean Baker


Most viewed posts on Real-World Economics Review Blog in 2013

31 December, 2013 at 15:52 | Posted in Varia | Comments Off on Most viewed posts on Real-World Economics Review Blog in 2013

These are the posts that got the most views in 2013.

Non-ergodicity and the arrow of time (wonkish)

30 December, 2013 at 22:57 | Posted in Statistics & Econometrics | 10 Comments

One of my favourite science videos from 2013 is Ole Peters presentation at Gresham College, showing why time irreversibility and non-ergodicity are such extremely important issues for understanding the deep fundamental flaws of mainstream neoclassical economics.

Introduction to Markov Chain Monte Carlo (wonkish)

30 December, 2013 at 22:30 | Posted in Statistics & Econometrics | Comments Off on Introduction to Markov Chain Monte Carlo (wonkish)


Basic statistics with Gretl (student stuff)

30 December, 2013 at 20:50 | Posted in Statistics & Econometrics | Comments Off on Basic statistics with Gretl (student stuff)

How to flee from libertarianism and become a liberal

29 December, 2013 at 14:55 | Posted in Politics & Society | Comments Off on How to flee from libertarianism and become a liberal

The night before the 2008 Nevada Republican convention, the Ron Paul delegates all met at a Reno high school. Although I’d called myself a libertarian for almost my entire adult life, it was my first exposure to the wider movement …

ayn_rand_final_drewfriedman_webAfter leaving my small town upbringing, I learned that libertarians are made for lots of reasons, like reading the bad fiction of Ayn Rand or perhaps the passable writing of Robert Heinlein. In my experience, most seemed to be poor, white and undereducated. They were contortionists, justifying the excesses of the capitalist elite, despite being victims if libertarian politics succeed.

If you think that selfishness and cruelty are fantastic personal traits, you might be a libertarian. In the movement no one will ever call you an asshole, but rather, say you believe in radical individualism …

The Republican convention didn’t turn me off of libertarians, but I started losing respect for the movement while watching the financial meltdown. Libertarians were (rightly) furious when our government bailed out the banks, but they fought hardest against help for ordinary Americans. They hated unemployment insurance and reduced school lunches. I used to say similar things, but in such a catastrophic recession isn’t the government supposed to help? Isn’t that the lesson of the Great Depression? …

From the ashes of the election rose the movement that pushed me from convinced libertarian into bunny-hugging liberal. The Tea Party monster forever tainted the words freedom and libertarian for me. The rise of the Tea Party made me want to puke, and my nausea is now a chronic condition …

I don’t think regular Americans have any idea just how crazy libertarians can be. The only human corollary I can offer is unquestioning religious fervor, and hell yeah, I used to be a true believer. Libertarians think they own the word “freedom,” but it’s a word that often obfuscates more than enlightens. If you believe the Johann Wolfgang von Goethe quote “None are more hopelessly enslaved than those who falsely believe they are free,” then libertarians live in a prison of their own ideology.

Edwin Lyngar


29 December, 2013 at 00:02 | Posted in Varia | Comments Off on Weightless


The one and only

24 December, 2013 at 14:18 | Posted in Varia | Comments Off on The one and only



24 December, 2013 at 13:58 | Posted in Varia | Comments Off on Feel


Self-righteous drivel from the chairman of the Nobel prize committee

22 December, 2013 at 17:42 | Posted in Economics | 15 Comments

Nobel Prize medalThe Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, usually — incorrectly — referred to as the Nobel Prize in Economics, is an award for outstanding contributions to the field of economics. The Prize in Economics was established and endowed by Sweden’s central bank Sveriges Riksbank in 1968 on the occasion of the bank’s 300th anniversary.The first award was given in 1969. The award is presented in Stockholm at an annual ceremony on December 10.

As of 2012 the prize has been given to 71 individuals.
Of all laureates, 56 have been (by birth or by naturalisation) US citizens — that is: 79 %
The University of Chicago has had 26 affiliated laureates — that is 37 %
Only 5 laureates have come from outside North America or Western Europe — that is: 7 %
Only 1 woman has got the prize — that is: 1.4 %

The world is really a small place when it comes to economics …

But that kind of facts doesn’t seem to bother Per Krusell — the chairman of The Economic Sciences Prize Committee at the Royal Swedish Academy of Sciences (responsible for the selection of candidates for  The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel) — who today, in the leading Swedish newspaper Dagens Nyheter, vehemently tries to defend the prize, saying that critiques — coming from people like yours truly and others —  are “politicized and trivial,” “naive” and “without respect” for the “important steps forward” in answering “important questions” that the prized economists have contributed.

This is indeed one of the most viciously misleading articles — even coming from a leading Swedish neoclassical übereconomist — I’ve read in years!

In a  post last year yours truly wrote about the decision of The Royal Swedish Academy of Sciences  to award The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel for 2012 to Alvin Roth and Lloyd Shapley. I complained that the prize committee once again confirmed that neoclassical economic theory today basically is in the story-telling business whereby economic theorists create make-believe analogue mathematical models of the real economic system.

This year — making an extraordinarily successful forecast — I told Swedish media the prize committee would show how in tune with the times it was and award the prize to Eugene Fama. Why? Well — I argued — he’s a Chicago economist and a champion of rational expectations and efficient markets. And nowadays freshwater economists seem to be the next to the only ones eligible for the prize. And, of course, an economist who has described the notion that finance theory was at fault as “a fantasy” and argued that “financial markets and financial institutions were casualties rather than causes of the recession” had to appeal to a prize committee with a history of awarding theories and economists totally lacking any real world relevance.

Well, my forecast turned out to be right — the Swedish Academy of Sciences awarded The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel for 2013 to (besides Lars Peter Hansen and Robert Shiller) Eugene Fame. The prize committee really did show how in tune with the times it was …

I love to be right of course, but otherwise this is only saddening and shows what a joke this prize is, when someone like Fama can get it. Maybe I’m not showing proper “respect” for Fama’s “important steps forward”, but, really, how could one after reading the following interview with Nobel laureate Fama?

Many people would argue that, in this case, the inefficiency was primarily in the credit markets, not the stock market—that there was a credit bubble that inflated and ultimately burst.

Eugene Fama: I don’t even know what that means. People who get credit have to get it from somewhere. Does a credit bubble mean that people save too much during that period? I don’t know what a credit bubble means. I don’t even know what a bubble means. These words have become popular. I don’t think they have any meaning.

I guess most people would define a bubble as an extended period during which asset prices depart quite significantly from economic fundamentals.

Eugene Fama: That’s what I would think it is, but that means that somebody must have made a lot of money betting on that, if you could identify it. It’s easy to say prices went down, it must have been a bubble, after the fact. I think most bubbles are twenty-twenty hindsight. Now after the fact you always find people who said before the fact that prices are too high. People are always saying that prices are too high. When they turn out to be right, we anoint them. When they turn out to be wrong, we ignore them. They are typically right and wrong about half the time.

Are you saying that bubbles can’t exist?

Eugene Fama: They have to be predictable phenomena. I don’t think any of this was particularly predictable.

John Cassidy

So, without any respect whatsoever, I say once again — Dump the prize!

The Christmas Oratory (private)

22 December, 2013 at 16:21 | Posted in Varia | Comments Off on The Christmas Oratory (private)

The Christmas Oratory — based on Göran Tunström’s s epic masterpiece — is a stunningly beautiful and painful movie.

Stefan Nilsson wrote the music.

It breaks my heart every time I watch it.

All I want for Christmas

21 December, 2013 at 21:17 | Posted in Varia | Comments Off on All I want for Christmas


I guess Margaret never did that …

20 December, 2013 at 16:25 | Posted in Varia | Comments Off on I guess Margaret never did that …


DSGE macroeconomics — a costly waste of time

19 December, 2013 at 20:16 | Posted in Economics | Comments Off on DSGE macroeconomics — a costly waste of time

Commenting on the state of standard modern macroeconomics, Willem Buiter argues that neither New Classical nor New Keynesian microfounded DSGE macro models has helped us foresee, understand or craft solutions to the problems of today’s economies:

buiterThe Monetary Policy Committee of the Bank of England I was privileged to be a ‘founder’ external member of during the years 1997-2000 contained, like its successor vintages of external and executive members, quite a strong representation of academic economists and other professional economists with serious technical training and backgrounds. This turned out to be a severe handicap when the central bank had to switch gears and change from being an inflation-targeting central bank under conditions of orderly financial markets to a financial stability-oriented central bank under conditions of widespread market illiquidity and funding illiquidity. Indeed, the typical graduate macroeconomics and monetary economics training received at Anglo-American universities during the past 30 years or so, may have set back by decades serious investigations of aggregate economic behaviour and economic policy-relevant understanding. It was a privately and socially costly waste of time and other resources.

Most mainstream macroeconomic theoretical innovations since the 1970s … have turned out to be self-referential, inward-looking distractions at best. Research tended to be motivated by the internal logic, intellectual sunk capital and aesthetic puzzles of established research programmes rather than by a powerful desire to understand how the economy works …

Both the New Classical and New Keynesian complete markets macroeconomic theories not only did not allow questions about insolvency and illiquidity to be answered. They did not allow such questions to be asked …

Charles Goodhart, who was fortunate enough not to encounter complete markets macroeconomics and monetary economics during his impressionable, formative years, but only after he had acquired some intellectual immunity, once said of the Dynamic Stochastic General Equilibrium approach which for a while was the staple of central banks’ internal modelling: “It excludes everything I am interested in”. He was right. It excludes everything relevant to the pursuit of financial stability.

The Bank of England in 2007 faced the onset of the credit crunch with too much Robert Lucas, Michael Woodford and Robert Merton in its intellectual cupboard. A drastic but chaotic re-education took place and is continuing.

I believe that the Bank has by now shed the conventional wisdom of the typical macroeconomics training of the past few decades. In its place is an intellectual potpourri of factoids, partial theories, empirical regularities without firm theoretical foundations, hunches, intuitions and half-developed insights. It is not much, but knowing that you know nothing is the beginning of wisdom.

And today Simon Wren-Lewis tells us that “Nearly all the young academic macroeconomists I know want to work with DSGE models, because that is what gets published.”

After reading Buiter’s article, that certainly should be a very worrying confirmation of economics becoming more and more a total waste of time. Why do these young bright guys waste their time and efforts? Besides aspirations of being published, I think maybe Frank Hahn gave the truest answer back in 2005, when interviewed on the occasion of his 80th birthday, he confessed that some economic assumptions didn’t really say anything about “what happens in the world,” but still had to be considered very good “because it allows us to get on this job.”

En liten julhälsning

19 December, 2013 at 17:30 | Posted in Varia | Comments Off on En liten julhälsning


Robert Shiller’s Nobel Prize Lecture 2013

19 December, 2013 at 09:21 | Posted in Economics | 2 Comments


Shiller’s lecture starts at 1:10:50

Microfounded DSGE models — spectacularly useless and positively harmful

18 December, 2013 at 19:23 | Posted in Economics | 3 Comments

Economists — yours truly included — working within the Post Keynesian tradition, have always maintained that there is  a strong risk that people may find themselves unemployed in a market economy.

And, of course, unemployment is also something that can take place in microfounded  DSGE models — but the mechanism in these models is of a fundamentally different kind.

In the basic DSGE models the labour market is always clearedresponding to a changing interest rate, expected life time incomes, or real wages, the representative agent maximizes the utility function by varying her labour supply, money holding and consumption over time. Most importantly — if the real wage somehow deviates from its “equilibrium value,” the representative agent adjust her labour supply, so that when the real wage is higher than its “equilibrium value,”  labour supply is increased, and when the real wage is below its “equilibrium value,”  labour supply is decreased.

In this model world, unemployment is always an optimal choice to changes in the labour market conditions.  Hence, unemployment is totally voluntary. To be unemployed is something one optimally chooses to be. 

Although this picture of unemployment as a kind of  self-chosen optimality, strikes most people as utterly ridiculous, there are also, unfortunately, a lot of neoclassical economists out there who still think that price and wage rigidities are the prime movers behind unemployment. What is even worse — I’m totally gobsmacked every time I come across this utterly ridiculous misapprehension — is that some of them even think that these rigidities are the reason John Maynard Keynes gave for the high unemployment of the Great Depression. This is of course pure nonsense. For although Keynes in General Theory devoted substantial attention to the subject of wage and price rigidities, he certainly did not hold this view. That’s rather the view of microfounded DSGE modelers, explaining variations in employment (and a fortiori output) with assuming nominal wages being more flexible than prices —  happily disregarding the total lack of empirical evidence for this rather counterintuitive assumption.

Since unions/workers, contrary to classical assumptions, make wage-bargains in nominal terms, they will – according to Keynes – accept lower real wages caused by higher prices, but resist lower real wages caused by lower nominal wages. However, Keynes held it incorrect to attribute “cyclical” unemployment to this diversified agent behaviour. During the depression money wages fell significantly and – as Keynes noted – unemployment still grew. Thus, even when nominal wages are lowered, they do not generally lower unemployment.

In any specific labour market, lower wages could, of course, raise the demand for labour. But a general reduction in money wages would leave real wages more or less unchanged. The reasoning of the classical economists was, according to Keynes, a flagrant example of the “fallacy of composition.” Assuming that since unions/workers in a specific labour market could negotiate real wage reductions via lowering nominal wages, unions/workers in general could do the same, the classics confused micro with macro.

Lowering nominal wages could not – according to Keynes – clear the labour market. Lowering wages – and possibly prices – could, perhaps, lower interest rates and increase investment. But to Keynes it would be much easier to achieve that effect by increasing the money supply. In any case, wage reductions was not seen by Keynes as a general substitute for an expansionary monetary or fiscal policy.

Even if potentially positive impacts of lowering wages exist, there are also more heavily weighing negative impacts – management-union relations deteriorating, expectations of on-going lowering of wages causing delay of investments, debt deflation et cetera.

So, what Keynes actually did argue in General Theory, was that the classical proposition that lowering wages would lower unemployment and ultimately take economies out of depressions, was ill-founded and basically wrong.

To Keynes, flexible wages would only make things worse by leading to erratic price-fluctuations. The basic explanation for unemployment is insufficient aggregate demand, and that is mostly determined outside the labor market.

The classical school [maintains that] while the demand for labour at the existing money-wage may be satisfied before everyone willing to work at this wage is employed, this situation is due to an open or tacit agreement amongst workers not to work for less, and that if labour as a whole would agree to a reduction of money-wages more employment would be forthcoming. If this is the case, such unemployment, though apparently involuntary, is not strictly so, and ought to be included under the above category of ‘voluntary’ unemployment due to the effects of collective bargaining, etc …
The classical theory … is best regarded as a theory of distribution in conditions of full employment. So long as the classical postulates hold good, unemploy-ment, which is in the above sense involuntary, cannot occur. Apparent unemployment must, therefore, be the result either of temporary loss of work of the ‘between jobs’ type or of intermittent demand for highly specialised resources or of the effect of a trade union ‘closed shop’ on the employment of free labour. Thus writers in the classical tradition, overlooking the special assumption underlying their theory, have been driven inevitably to the conclusion, perfectly logical on their assumption, that apparent unemployment (apart from the admitted exceptions) must be due at bottom to a refusal by the unemployed factors to accept a reward which corresponds to their marginal productivity …

Obviously, however, if the classical theory is only applicable to the case of full employment, it is fallacious to apply it to the problems of involuntary unemployment – if there be such a thing (and who will deny it?). The classical theorists resemble Euclidean geometers in a non-Euclidean world who, discovering that in experience straight lines apparently parallel often meet, rebuke the lines for not keeping straight – as the only remedy for the unfortunate collisions which are occurring. Yet, in truth, there is no remedy except to throw over the axiom of parallels and to work out a non-Euclidean geometry. Something similar is required to-day in economics. We need to throw over the second postulate of the classical doctrine and to work out the behaviour of a system in which involuntary unemployment in the strict sense is possible.

J M Keynes General Theory

People — like Simon Wren-Lewis — calling themselves “New Keynesians” ought to be rather embarrassed by the fact that the kind of microfounded DSGE models they use, cannot incorporate such a basic fact of reality as involuntary unemployment!

Of course, working with representative agent models, this should come as no surprise. The kind of unemployment that occurs is voluntary, since it is only adjustments of the hours of work that these optimizing agents make to maximize their utility.

The final court of appeal for macroeconomic models is the real world, and as long as no convincing justification is put forward for how the inferential bridging de facto is made, macroeconomic modelbuilding is little more than “hand waving” that give us rather little warrant for making inductive inferences from models to real world target systems. If substantive questions about the real world are being posed, it is the formalistic-mathematical representations utilized to analyze them that have to match reality, not the other way around.

The microfoundationalist illusions of Yates & Wren-Lewis

17 December, 2013 at 20:42 | Posted in Economics | 7 Comments

In a blogpost the other day Tony Yates argues that microfoundations do have merits:

The merit in any economic thinking or knowledge must lie in it at some point producing an insight, a prediction, a prediction of the consequence of a policy action, that helps someone, or a government, or a society to make their lives better.

the_one_and_only_2008aMicrofounded models are models which tell an explicit story about what the people, firms, and large agents in a model do, and why.  What do they want to achieve, what constraints do they face in going about it?  My own position is that these are the ONLY models that have anything genuinely economic to say about anything.

And yesterday Simon Wren-Lewis — non-surprisingly — says he basically agrees:

scrrewmicrofoundations have done a great deal to advance macroeconomics. It is a progressive research program, and a natural way for macroeconomic theory to develop. That is why I work with DSGE models.

The one economist/econometrician/methodologist who has thought most on this issue — writing om microfoundations for now more than 25 years — is without any doubts Kevin Hoover. It’s actually quite interesting to compare his qualified and methodologically founded assessment on the representative-agent-rational-expectations microfoundationalist program with the more or less apologetic views of Yates and Wren-Lewis:

hoovGiven what we know about representative-agent models, there is not the slightest reason for us to think that the conditions under which they should work are fulfilled. The claim that representative-agent models provide microfundations succeeds only when we steadfastly avoid the fact that representative-agent models are just as aggregative as old-fashioned Keynesian macroeconometric models. They do not solve the problem of aggregation; rather they assume that it can be ignored. While they appear to use the mathematics of microeconomis, the subjects to which they apply that microeconomics are aggregates that do not belong to any agent. There is no agent who maximizes a utility function that represents the whole economy subject to a budget constraint that takes GDP as its limiting quantity. This is the simulacrum of microeconomics, not the genuine article …

[W]e should conclude that what happens to the microeconomy is relevant to the macroeconomy but that macroeconomics has its own modes of analysis … [I]t is almost certain that macroeconomics cannot be euthanized or eliminated. It shall remain necessary for the serious economist to switch back and forth between microeconomics and a relatively autonomous macroeconomics depending upon the problem in hand.

So next time these guys want to write atrocities like Wren-Lewis’s

Let’s take a very basic example. Suppose in the real world some consumers are credit constrained, while others are infinitely lived intertemporal optimisers. A microfoundation modeller assumes that all consumers are the latter

a visit to Dr Hoover is recommended!

Added November 18:  And as part of the ongoing debate, Noah Smith contributes with the following tirade on his blog:

I think microfoundations are a great idea! I think they’re the dog’s bollocks! I think that macro time-series data is so uninformative that microfoundations are our only hope for really figuring out the macroeconomy. I think Robert Lucas was 100% on the right track when he called for us to use microfounded models.

Hmm … To me this is like saying “OK, to get our economic model-machine going we have to assume that people are hyper-rational robot-imitations from Mars. But these guys aren’t green, as you say, but blue!” That doesn’t seem to be the right approach to tackle the problem.

On relevance and rigour in macroeconomics

17 December, 2013 at 10:55 | Posted in Economics | 2 Comments

be-relevantThere is something about the way macroeconomists construct their models nowadays that obviously doesn’t sit right.

Empirical evidence only plays a minor role in neoclassical mainstream economic theory, where models largely function as a substitute for empirical evidence.

One might have hoped that humbled by the manifest failure of its theoretical pretences during the latest economic-financial crisis, the one-sided, almost religious, insistence on axiomatic-deductivist modeling as the only scientific activity worthy of pursuing in economics would give way to methodological pluralism based on ontological considerations rather than formalistic tractability. That has, so far, not happened.

Fortunately — when you’ve got tired of the kind of macroeconomic apologetics produced by “New Keynesian” macroeconomists and other DSGE modellers — there still are some real Keynesian macroeconomists to read. One of them — Axel Leijonhufvud — writes:

For many years now, the main alternative to Real Business Cycle Theory has been a somewhat loose cluster of models given the label of New Keynesian theory. New Keynesians adhere on the whole to the same DSGE modeling technology as RBC macroeconomists but differ in the extent to which they emphasise inflexibilities of prices or other contract terms as sources of shortterm adjustment problems in the economy. The “New Keynesian” label refers back to the “rigid wages” brand of Keynesian theory of 40 or 50 years ago. Except for this stress on inflexibilities this brand of contemporary macroeconomic theory has basically nothing Keynesian about it …

I conclude that dynamic stochastic general equilibrium theory has shown itself an intellectually bankrupt enterprise. But this does not mean that we should revert to the old Keynesian theory that preceded it (or adopt the New Keynesian theory that has tried to compete with it). What we need to learn from Keynes … are about how to view our responsibilities and how to approach our subject.

If macroeconomic models – no matter of what ilk –  build on microfoundational assumptions of representative actors, rational expectations, market clearing and equilibrium, and we know that real people and markets cannot be expected to obey these assumptions, the warrants for supposing that conclusions or hypotheses of causally relevant mechanisms or regularities can be bridged, are obviously non-justifiable. Incompatibility between actual behaviour and the behaviour in macroeconomic models building on representative actors and rational expectations microfoundations is not a symptom of “irrationality”. It rather shows the futility of trying to represent real-world target systems with models flagrantly at odds with reality.

A gadget is just a gadget – and no matter how brilliantly silly DSGE models you come up with, they do not help us working with the fundamental issues of modern economies. Using DSGE models only confirms Robert Gordon‘s  dictum that today

rigor competes with relevance in macroeconomic and monetary theory, and in some lines of development macro and monetary theorists, like many of their colleagues in micro theory, seem to consider relevance to be more or less irrelevant.

Ge Riksbanken ett tydligare mandat!

17 December, 2013 at 09:55 | Posted in Economics, Politics & Society | 1 Comment

sveriges-riksbankDen svenska central-banken har en uppgift från riksdagen: att upprätthålla ett fast penning-värde. Sedan har banken själv stipulerat att penningpolitiken ska styras av ett inflationsmål som ska vara 2 procent. På senare tid har bankdirektionen dessutom klarlagt att hushållens skuldsättning överordnats inflationsmålet och är en faktor som ska väga tungt vid utformningen av penningpolitiken. Oenigheten i direktionen vad gäller utformningen av penningpolitiken visar att målen behöver ändras.

Det ska vara riksdagen som utformar de mer exakta målen för penningpolitiken. Detta ska inbegripa nivån på inflationsmålet, vilken målvariabel inflationsmålet ska baseras på samt mål för utvecklingen av den reala ekonomin som ett explicit sysselsättningsmål. Utifrån dessa mål ska sedan Riksbanken självständigt utforma den löpande penningpolitiken. På detta sätt skapas en tydlig ansvarsfördelning. De folkvalda i riksdagen beslutar om policy och Riksbanken verkställer …

Regeringen bär ett stort ansvar för att hushållens skuldsättning ökat. Den har fört en bostadspolitik som lett till ett oerhört lågt byggande vilket har drivit upp bostadspriserna. Därtill har slopandet av förmögenhetsskatten och den kraftigt sänkta fastighetsskatten eldat på bostadsmarknaden. Det är inte rimligt att Riksbanken ska känna att den behöver ta ansvar för regeringens bristande ansvarstagande och därmed försvåra återhämtningen på arbetsmarknaden. Det kräver politiskt agerande för att komma tillrätta med problemen kring hushållens skuldsättning.

Byggandet av hyresrätter måste komma i gång … Bankernas vinstfest på bolånen måste hejdas. Under de senaste fem åren har bankernas marginaler på nytecknade rörliga lån ökat med över 160 procent … Ränteavdragen måste ses över med stor försiktighet och god framförhållning … Minska uppskovsmöjligheterna. Allt för förmånliga uppskovsmöjligheter driver upp bostadspriserna och därmed skuldsättningen.

Det måste göras med stor försiktighet så att ekonomin inte stramas åt i kristid. Men om den privata skuldsättningen minskas och prisökningen på bostäder dämpas, så ökar möjligheten för Riksbanken att sänka räntan. Det skulle stimulera ekonomi och sysselsättning.

Ulla Andersson (V)

(h/t Jan Milch)

Microfoundations — assuming away problems rather than solving them

16 December, 2013 at 18:58 | Posted in Economics | 1 Comment


The idea that macroeconomics not only needs microfoundations, but that microeconomics can replace macroeconomics completely is the dominant position in modern economics. No one, however, knows how to derive empirically relevant explanations of observable aggregate relations from the precise individual behaviors that generate them. Instead, the claims to have produced microfoundations are typically fleshed out with representative­ agent models in which a single agent treats the aggregates as objects of direct choice, playing by rules that appear to follow the logic and mathematics of microeconomics …

I accept idealization as a strategy of model building. But legitimate idealization requires that the idealized model capture the essence of the causal structure or underlying mechanisms at work. It is only on that basis that we can trust the model to analyze situations other than the data to hand … Yet, the trick of using models appropriately is that we should either be able to set aside these particularities in reasoning or show that the results of interest are robust to the range of particular forms that we might reasonably assume.

The essence of the criticism of the common strategies of reducing microeconomics to macroeconomics is that it is based in model building that mixes legitimate idealizations with non­-ideal, particular modeling assumptions and then relies on those assumptions at critical junctures in providing the derivation of the macroeconomic relationships from microeconomic behaviors.

Kevin Hoover

Krugman — finally — seems to get the link between debt and demand right

16 December, 2013 at 15:39 | Posted in Economics | 4 Comments

blog-aggdemand-061209 What a difference a year (and three-quarters) makes. Back in March of 2012, Paul Krugman rejected the argument I make that new debt creates additional demand:

“Keen then goes on to assert that lending is, by definition (at least as I understand it), an addition to aggregate demand. I guess I don’t get that at all. If I decide to cut back on my spending and stash the funds in a bank, which lends them out to someone else, this doesn’t have to represent a net increase in demand. Yes, in some (many) cases lending is associated with higher demand, because resources are being transferred to people with a higher propensity to spend; but Keen seems to be saying something else, and I’m not sure what. I think it has something to do with the notion that creating money = creating demand, but again that isn’t right in any model I understand.” (Minsky and Methodology (Wonkish), March 27, 2012)

Then earlier this month, this argument turned up in his musings about the secular stagnation hypothesis:

“Start with the point I’ve raised several times, and others have raised as well: underneath the apparent stability of the Great Moderation lurked a rapid rise in debt that is now being unwound … Debt was rising by around 2 per cent of GDP annually; that’s not going to happen in future, which a naïve calculation suggests means a reduction in demand, other things equal, of around 2 percent of GDP.” (Secular Stagnation Arithmetic, December 7, 2013)

Don’t get me wrong: I’m glad that Krugman may finally be starting to support the case that I (and some other endogenous money theorists like Michael Hudson and Dirk Bezemer) have been making for many years: that rising debt directly adds to aggregate demand. If he is, then welcome aboard. Though there’s doubt as to whether John Maynard Keynes ever uttered the words attributed to him that “when the facts change, I change my mind – what do you do sir?”, I’m happy to accept this shift in that spirit.

But I don’t want to see this change in analysis sneak under the radar either: it deserves acknowledgement as a major shift in the thinking of a major figure in contemporary economics.

Steve Keen

Studenter som penningpåsar och en universitetsvärld i fritt fall

16 December, 2013 at 10:34 | Posted in Education & School | Comments Off on Studenter som penningpåsar och en universitetsvärld i fritt fall

2989556_1200_675Alltid intressanta radioprogrammet Kaliber handlade tidigare i höst om tillståndet på de svenska högskolorna och universiteten — om sämre studenter och en verksamhet som behöver se om sin krympande ekonomi. Man ställde också den viktiga frågan om vad som händer när studenter med allt sämre bas-kunskaper möter högskolor och universitet med ekonomiska incitament att godkänna så många som möjligt för att få ekonomin att gå ihop.

Även om programmet väl belyste de problem som följer på denna kunskapsmässiga erodering diskuterades dock inte varför det har blivit så här. Yours truly har vid upprepade tillfällen blivit approcherad av media apropå dessa frågor, och har då utöver “the usual suspects” också försökt lyfta en problematik som sällan — antagligen av rädsla för att inte vara “politiskt korrekt” — lyfts i debatten.

De senaste femtio åren har vi haft en fullständig explosion av nya studentgrupper som går vidare till universitets- och högskolestudier. Detta är på ett sätt klart glädjande. Idag har vi lika många doktorander i vårt utbildningssystem som vi hade gymnasister på 1950-talet. Men denna utbildningsexpansion har tyvärr i mycket skett till priset av försämrade möjligheter för studenterna att tillgodogöra sig högskoleutbildningens kompetenskrav. Många utbildningar har fallit till föga och sänkt kraven.

Tyvärr är de studenter vi får till universitet och högskolor över lag allt sämre rustade för sina studier. Omstruktureringen av skolan i form av decentralisering, avreglering och målstyrning har tvärtemot politiska utfästelser inte levererat. I takt med den eftergymnasiala utbildningsexpansionen har en motsvarande kunskapskontraktion hos stora studentgrupper ägt rum. Den skolpolitik som lett till denna situation slår hårdast mot dem den utger sig för att värna — de med litet eller inget ”kulturkapital” i bagaget hemifrån.

Mot denna bakgrund är det egentligen anmärkningsvärt att man inte i större utsträckning problematiserat vad utbildningsexplosionen i sig kan leda till.


Om vi för femtio år sedan vid våra universitet utbildade enbart en bråkdel av befolkningen är det ingen djärv gissning – under antagande av att “begåvning” i en population är åtminstone approximativt normalfördelad — att lejonparten av dessa studenter “begåvningsmässigt” låg till höger om mittpunkten på normalfördelningskurvan. Om vi idag tar in fem gånger så många studenter på våra högskolor och universitet kan vi — under samma antagande — knappast räkna med att en lika stor del av dessa utgörs av individer som ligger till höger om normalfördelningskurvans mittpunkt. Rimligen borde detta — ceteris paribus — innebära att i takt med att proportionen av befolkningen som går vidare till högskola och universitet ökar, så ökar svårigheterna för många av dessa att uppnå traditionellt högt ställda akademiska kravnivåer.

Här borde i så fall statsmakterna ha ytterligare en stark anledning till att öka resurserna till högskola och universitet, istället för att som idag bedriva utbildningar på mager kost och med få lärarledda föreläsningar i rekordstora studentgrupper. Med nya kategorier av studenter, som i allt större utsträckning rekryteras från studieovana hem, är det svårt att se hur vi med knappare resursramar ska kunna lösa dilemmat med högre krav på meritmässigt allt mer svagpresterande studenter.

Bostadsbubblan och ekonomipristagarna

16 December, 2013 at 10:00 | Posted in Economics, Politics & Society | 2 Comments

Kultur-Kielos_1080852cDet är svårt att tänka sig att Nobelpriset i fysik skulle delas mellan en forskare som hävdar att jorden är platt och en annan som hävdar att jorden är rund.
Men ungefär så kan årets mottagare av ekonomipriset beskrivas.
Robert Shiller, en av de tre ekonomer som i veckan tog emot Sveriges Riksbanks pris i ekonomisk vetenskap till Alfred Nobels minne varnar för en bostadsbubbla i Sverige.
Men skulle man fråga Eugene Fama som Robert Shiller delar priset med skulle denne svara att han inte vet vad en bostadsbubbla är.
Eugene Fama erkänner inte bubblors existens. Eftersom de inte kan finnas.
Enligt Eugene Famas teorier.
Eugene Fama är känd för att hävda att marknaden är rationell.
Robert Shiller är känd för att hävda att marknaden är irrationell.
Robert Shiller är känd för att ha förutsagt it-kraschen samt den senaste amerikanska husbubblan.
Eugene Fama tror inte på bubblor över huvud taget.
Människan är ju rationell och marknaden har alltid rätt. Den kan inte övervärdera.
Marknaden vet allt.

När jag intervjuade Robert Shiller sa han att han inte begriper hur Eugene ­Fama drar sina slutsatser. Den typen av national-ekonomi liknar mer en ­reli­gion.
Den tredje pristagaren, stackars Lars Peter Hansen, är i sin tur väldigt trött på att besvara journalisters frågor om huruvida han håller med Eugene Fama eller Robert Shiller.
Det har varit en enda Nobelröra.
Enligt källor satt medlemmar i Robert Shillers familj och himlade med ögonen när Eugene Fama talade under Nobelbanketten.
”Dålig stämning”, som vi säger på svenska.
Men låt oss återgå till bostads­bubblan.
Den påstådda svenska bostads­bubblan.
Ekonomen Nouriel Roubini är mer känd för att han, när ingen lyssnade ­förutsade den globala finanskrisen. Och denne ekonomiska världskändis meddelade för två veckor sedan att den bostadsrättsägande svenska ­medelklassens existens är hotad.
Nouriel Roubini brukar kallas för Doktor Domedag. Elaka tungor säger att han har förutspått fem av de senaste tre lågkonjunkturerna. Han skrev en a­rtikel där han pekade ut ett antal ­länder med oroväckande utveckling på ­bostadsmarknaden. I västvärlden gällde det: Schweiz, Sverige, Norge, Finland, Frankrike, Tyskland, Kanada, Australien, Nya Zealand och Storbritannien.
Nobelpristagare Robert Shiller ­verkar hålla med honom gällande ­Sverige. Även den svenska riksbanken är orolig. Som Karin Pettersson skrev i Aftonbladet är det ett av de stora­­ s­kälen till att det stormat så mycket runt banken det senaste året.

Katrine Kielos/Aftonbladet

(h/t Jan Milch)

Vouchers — a disaster for schools

15 December, 2013 at 22:01 | Posted in Education & School | Comments Off on Vouchers — a disaster for schools

Henry M. Levin — distinguished economist and director of the National Center for the Study of Privatization in Education at Teachers College, Columbia University — recently reviewed the evidence about the effects of vouchers, initiated twenty years ago in the Swedish school system:

VouchersIn 1992 Sweden adopted a voucher-type plan in which municipalities would provide the same funding per pupil to either public schools or independent (private) schools. There were few restrictions for independent schools, and religious or for-profit schools were eligible to participate. In 1994, choice was also extended to that of public schools where parents could choose either a public or private school. In the early years, only about 2 percent of students chose independent schools. However, since the opening of this century, independent school enrollments have expanded considerably. By 2011-12 almost a quarter of elementary and secondary students were in independent schools. Half of all students in the upper secondary schools in Stockholm were attending private schools at public expense.

On December 3, 2012, Forbes Magazine recommended for the U.S. that: “…we can learn something about when choice works by looking at Sweden’s move to vouchers.” On March 11 and 12, 2013, the Royal Swedish Academy of Sciences did just that by convening a two day conference to learn what vouchers had accomplished in the last two decades … The following was my verdict:

  • On the criterion of Freedom of Choice, the approach has been highly successful. Parents and students have many more choices among both public schools and independent schools than they had prior to the voucher system.
  • On the criterion of productive efficiency, the research studies show virtually no difference in achievement between public and independent schools for comparable students. Measures of the extent of competition in local areas also show a trivial relation to achievement. The best study measures the potential choices, public and private, within a particular geographical area. For a 10 percent increase in choices, the achievement difference is about one-half of a percentile. Even this result must be understood within the constraint that the achievement measure is not based upon standardized tests, but upon teacher grades. The so-called national examination result that is also used in some studies is actually administered and graded by the teacher with examination copies available to the school principal and teachers well in advance of the “testing”. Another study found no difference in these achievement measures between public and private schools, but an overall achievement effect for the system of a few percentiles. Even this author agreed that the result was trivial.

In evaluating these results, we must also keep in mind that the overall performance of the system on externally administered and evaluated tests used for international comparisons showed substantial declines over the last fifteen years for Sweden. For those who are interested in the patterns of achievement decline across subjects and grades, I have provided the enclosed powerpoint presentation …

  • With respect to equity, a comprehensive, national study sponsored by the government found that socio-economic stratification had increased as well as ethnic and immigrant segregation. This also affected the distribution of personnel where the better qualified educators were drawn to schools with students of higher socio-economic status and native students. The international testing also showed rising variance or inequality in test scores among schools. No evidence existed to challenge the rising inequality. Accordingly, I rated the Swedish voucher system as negative on equity.

Among the industrialized countries, only three have a universal voucher or choice system Chile, Holland, and Sweden. Some would also argue that Belgium qualifies in this category. The former three countries have very different designs with the Dutch system being the most highly regulated and devoting the most attention to equity. Even so, the tracking that takes place at age 12 in the Netherlands between vocational and academic secondary schools has important equity consequences in terms of socio-economic stratification. Although based upon choice, the available choices available to a student are heavily dependent on her achievement test results. The Chilean system has witnessed an increasingly notable stratification of the population, both within and between public and private sectors. Students from more educated and wealthier families are found in the private schools which receive public funding, but can choose which students to accept from among applicants. The Chilean system allows schools to charge additional fees beyond the voucher, also favoring more advantage families.

OECD-rapport visar att kommunaliseringen av skolan => lägre lärarlöner => sämre skolresultat

15 December, 2013 at 10:28 | Posted in Education & School | 5 Comments

pisa20002012Den rapport om skolornas resurs-fördelning som OECD publicerade i samband med Pisa-resultaten, ”What makes schools successful?” … visar att för länder med en BNP per capita över 20 000 dollar, vilket gäller nästan alla OECD-länder, så finns det inget samband mellan mer resurser och bättre skolresultat. Inte ens när det handlar om enskilda faktorer som till exempel lärartäthet.

I Sverige har kostnaden per elev ökat, kvaliteten på material och läromedel blivit bättre och lärartätheten varit konstant sedan 2003. Dessutom ligger Sverige på eller över OECD-genomsnittet vad gäller samtliga dessa faktorer. Trots detta har alltså de svenska resultaten rasat kraftigt under samma period.

Vad som däremot har betydelse är vad ett land väljer att lägga befintliga resurser på. Och svaret är entydigt: Lärarlönerna. Ju högre löner för lärarna desto bättre resultat för eleverna.

Orsaken är enligt OECD att ett skolsystem aldrig är bättre än sina lärare och att höga löner höjer kvaliteten på lärarkåren.

Statistiken i ”What makes schools successful?” visar att Sverige har bland de lägsta lärarlönerna i förhållande till BNP per capita inom hela OECD.

– Vi har påpekat det förut och säger det igen. Sambandet mellan lärarlöner och kunskapsresultat är alldeles glasklart. Ska yrkets status öka och ska Sverige kunna locka de skickligaste till världens viktigaste yrke måste lönerna upp, säger Lärarförbundets ordförande Eva-Lis Sirén.

Enligt utbildningsminister Jan Björklund beror de låga lärarlönerna främst på kommunaliseringen av skolan.

– Kommunerna har inte tagit sitt ansvar för lärarlönerna, vilket är orsaken till att lärarnas relativlöner har släpat efter de senaste 20 åren. Om vi förstatligar skolan har vi helt andra möjligheter att höja lärarlönerna.

Lärarnas tidning

Modeling economic risk

14 December, 2013 at 19:20 | Posted in Economics | 1 Comment

sav2 Model builders face a constant temptation to make things more complicated than necessary because this makes them appear more capable than they really are.

Remember that a model is not the truth.

It is a lie to help you get your point across.

And in the case of modeling economic risk, your model is a lie about others, who are probably lying themselves.

And what’s worse than a simple lie?

A complicated lie.

Silent night

14 December, 2013 at 18:32 | Posted in Varia | Comments Off on Silent night


Oíche Chiúin

14 December, 2013 at 01:01 | Posted in Varia | 1 Comment


Why neoclassical economics is not a science — the ultimate argument

13 December, 2013 at 17:44 | Posted in Economics | 6 Comments

ein[The problem] with analytic a priori systems in general is not only that they do not give us necessary and irrefutable truth about reality, but also that they may be completely irrelevant to the real world:
“Unlike technology, … science is a form of curiosity, tempered by the requirement that its investigative activities lead to an accurate picture of things. This aim distinguishes it from many other disciplines, such as pure mathematics. A mathematician may construct a conceptual scheme of great elegance that has no application to reality. Yet that it doesn’t may not affect its [sc. pure] mathematical significance. But science is different. If a scientific idea doesn’t fit the facts it will eventually be discarded despite its ingenuity.” (Stroll, Avrum. Informal Philosophy. Rowman & Littlefield Publishers, Lanham, Md. and Plymouth. 2009: 31).
Such is the nature of so many mathematical models in neoclassical economics: elegant models that have zero or virtually zero relevance to real world economies, because their assumptions – such as rational expectations, Ricardian equivalence, representative agents, neutral money, the quantity theory of money, the neutral rate of interest and tendencies to general equilibrium – are inapplicable to reality.

Lord Keynes

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