Mankiw’s problem

17 februari, 2014 kl. 18:05 | Publicerat i Economics, Politics & Society | 1 kommentar

mankiwfI won’t attempt to take on Greg Mankiw’s latest defense of the 1 percent …

But, in his defense of his defense, Mankiw does make a curious admission: capitalism is fatally flawed.

The admission actually occurs in his textbook, where … he admits that financial crises “do occur from time to time.”

”Finally, keep in mind that this financial crisis was not the first one in history. Such events, though fortunately rare, do occur from time to time. Rather than looking for a culprit to blame for this singular event, perhaps we should view speculative excess and its ramifications as an inherent feature of market economies. Policymakers can respond to financial crises as they happen, and they can take steps to reduce the likelihood and severity of such crises, but preventing them entirely may be too much to ask given our current knowledge.”

Yes, indeed, “speculative excess and its ramifications” are in fact “an inherent feature” of capitalist economies. But then, Mankiw adds, “preventing them entirely may be too much to ask given our current knowledge.”

What Mankiw sees as a problem of knowledge is what the rest of us see as a problem of economic institutions. It’s precisely because the economic system is arranged so that a tiny minority at the top is able to continue to capture the surplus that financial crises occur on a regular basis.

What the rest of us know is that defending the 1 percent is precisely what will guarantee more financial crises in the future.

David Ruccio

Irrational Exuberance – a modern classic

17 februari, 2014 kl. 13:23 | Publicerat i Economics | Kommentarer inaktiverade för Irrational Exuberance – a modern classic

irratI början av år 2000 utkom en bok med den slående titeln Irrational Exuberance. Den amerikanske ekonomiprofessorn och Nobelpristagaren Robert Shiller varnade där för att de omfattande avregleringar på den finansiella marknaden som ägt rum sedan Thatcher-Reagan-eran medfört en alltför snabb kreditexpansion. Bankernas och finansbolagens utlåning ökade lavinartat och satsningen på att vinna allt större marknadsandelar gjorde att kreditvärdighetskontrollen eftersattes och dåliga kundförbindelser kom att accepteras. Framför allt IT-aktiernas värden var oproportionerligt höga. Det skulle oundvikligen leda till en finansiell kris.

Shiller fick rätt. Mindre än två månader efter att boken kommit ut gick det som det brukar. Bubblan sprack och finansmarknadskrisen var ett faktum.

Eftersom människans minne är kort, tornade nya orosmoln åter upp sig efter några år. Den kris den amerikanska ekonomin på nytt hamnade i hade sitt ursprung i den spekulativa bubbla som utvecklades på den amerikanska bolånemarknaden mellan 1997 och 2006. Trots att räntor och byggnadskostnader sjönk kom huspriserna under de tio år då bubblan blåstes upp att stiga med i genomsnitt 85 procent.

Det genomgående mönstret är detsamma i nästan alla finanskriser. Av någon anledning uppstår en förskjutning (krig, innovationer, nya spelregler med mera) i det ekonomiska kretsloppet som leder till förändringar i bankers och företags vinstmöjligheter. Efterfrågan och priser stiger och drar med sig allt fler delar av en ekonomi som hamnar i ett slags eufori. Fler och fler dras med och snart är spekulationsmanin – vare sig det gäller tulpanlökar, fastigheter eller bolån – ett faktum. Förr eller senare säljer någon för att ta ut sina vinster och en rusning efter likviditet sätter in. Det har blivit dags att hoppa av karusellen och lösa in sina värdepapper och andra tillgångar i reda pengar. Ett finansiellt nödläge uppstår och breder ut sig. Priserna börjar sjunka, konkurserna ökar och krisen påskyndas och går över i panik.

För att hindra den slutliga kraschen dras krediten åt och man börjar ropa på en långivare som i sista hand kan garantera tillgången på de efterfrågade kontanta medlen och återupprätta förtroendet. Lyckas inte det är kraschen ett faktum.

Precis som sina föregångare Hyman Minsky och Charles Kindleberger betonar Shiller att bubblor är ett oundvikligen återkommande inslag i en ekonomi med fritt spelrum för väsentligen oreglerade marknader. Men Shiller menar också att vår tids omvärdering av arbete och rikedom spelar in. Under de senaste årtiondena har människors syn på sin roll i ekonomin genomgått en avgörande omvandling. Från att ut­ifrån en protestantisk arbetsetik i grunden se på arbete som basen för vår välfärd har idén om att vi ska förvänta oss göra pengar på investeringar i allt större utsträckning spritt sig. Dagens hjälte är inte den hårt arbetande industriarbetaren utan den smarte investeraren, för vilken pengar inte längre är ett medel utan ett mål i sig. Enligt Shiller är detta omtänkande den djupast liggande orsaken till krisen. Här är mörkrets hjärta.

Att Shiller betonar just de psykologiska aspekterna är inte så märkligt mot bakgrund av att han är en ledande företrädare för den forskningsinriktning inom finansiell ekonomi som kallas finansiell beteendeteori.

Som ung vetenskap var nationalekonomin intimt sammanknippad med andra vetenskaper som filosofi och psykologi. Adam Smith, till exempel, var ju en av sin tids främsta moralfilosofer. Med tiden sökte många ekonomer medvetet att distansera sig från andra vetenskaper. Den ekonomiska vetenskapen skulle bygga på egna fundament i stället för de skakiga grunder en omogen och ovetenskaplig psykologi kunde förse den med.

På senare tid har dock allt fler ekonomer börjat inse behovet av att bygga sina modeller på mer realistiska psykologiska fundament. Beteendeekonomi har snabbt etablerat sig som en bärkraftig del av ekonomiämnet med ett stort inflytande inom särskilt finansiell ekonomi. Att inte beakta finansmarknadens djuppsykologiska dimensioner uppfattas mer och mer som att spela ”Hamlet” utan prinsen av Danmark.

I den traditionella ekonomiska klokskapen har hypotesen om effektiva marknader länge varit central. Hypotesen säger i korthet att de priser som etableras på finansiella marknader motsvarar ekonomins fundamentala värden eftersom alla investerare är rationella och eliminerar förekomsten av priser som avviker från fundamenta.

Finansiell beteendeteori har dock kunnat visa att bilden av investerare som rationella är svår att förena med fakta hämtade från verkliga finansmarknader. Investerare verkar handla mer med utgångspunkt i brus än information. De extrapolerar utifrån korta tidsförlopp, är känsliga för hur problem presenteras, är dåliga på att revidera sina riskbedömningar och ofta överkänsliga för humörsvängningar. Följden blir att en tillgångs pris och verkliga värde kan avvika under en längre tid. Irrationalitet är inte irrelevant på finansmarknader.

Shiller visar i Irrational Exuberance utifrån egna empiriska undersökningar av finansmarknadens fluktuationer att aktievärdenas svängningar var väsentligt högre än vad som är förenligt med hypotesen om den effektiva marknaden. Och när olika aktörstyper inter­agerar med varandra kan vi inte alltid förvänta oss att marknaden är effektiv. För att förstå vad som händer på finansmarknaden måste vi försöka få kunskap om hur verkliga investerare agerar. Finansiell beteendeteori har redan tagit oss en bra bit på vägen.

Vad kan man då göra för att minimera risken för framtida kriser? Finansmarknadens aktörer genererar uppenbarligen kostnader som de inte själva står för. När vår tids främste nationalekonom – John Maynard Keynes – efter börskraschen 1929 förespråkade införandet av en allmän finansmarknadsskatt var det för att han menade att marknaden då får stå för de kostnader som dess instabilitet, obalanser och störningar ger upphov till. De som i sin vinsthunger är beredda att ta onödiga risker och varaktigt skada samhällsekonomin måste själva vara med och betala notan. Det svider. Och det ska det göra om läxan ska läras.

Shiller betonar – precis som Keynes – att man när det gäller krislösningar måste skilja på kort och lång sikt. I det korta tidsperspektivet är det nödvändigt att med olika åtgärdspaket dämpa effekterna av prisfallen på hus och andra tillgångar. Det finns inga garantier för att det ska hjälpa, men i grunden finns inte några hållbara alternativ. Att inget göra skulle bara underblåsa en redan smått förlamande osäkerhet. När huset står i ljusan låga kan vi inte bara stå vid sidan om och diskutera vilken metod som är den bästa för att släcka. Bränder – liksom finansbubblor – har en otäck förmåga att sprida sig.

På lång sikt är det uppenbart bra att tillgångspriserna faller tillbaka till en nivå som motsvarar tillgångens realvärde. Att priset på ens hus sjunker gör det inte mindre beboeligt. Skulle däremot ekonomins hjul stanna blir verkningarna i högs­ta grad reella.

Shiller argumenterar med förslag kraftfulla som yxhugg för en lösning som han kallar finansiell demokrati. Sunda finansprinciper ska utsträckas till att omfatta större delar av samhället. Inte bara finansmarknadens aktörer ska ha tillgång till god information och sakkunskap. I stället för att undvika alla risker — vilket vore förödande för ett samhälles vitalitet och kreativitet – ska vi lära oss hantera försäkringsbara risker på ett rationellt sätt. Grundidén är att omfattande institutionella förändringar, förbättrad finansiell rådgivning, ökad transparens, fritt tillgängliga finansdatabaser med mera ska reducera den långsiktiga risken för uppkomst av spekulativa bubblor.

Det är tvivlet, och inte tron, som skapar ny kunskap. Shiller har i sin forskning med eftertryck visat att vi inte kan både ha kakan och äta den. Så länge vi har en ekonomi med oreglerade finansiella marknader kommer vi också att få dras med periodiskt återkommande kriser.

Shiller förser oss med både karta och kompass och hans förslag kan — tillsammans med skärpt reglering av finansmarknaden — aktivt bidra till att på sikt minska riskerna för kostsamma finansiella systemkriser. Om vi däremot reflexmässigt vägrar att se vidden av problemen kommer vi åter att stå handfallna när nästa kris tornar upp sig.

Macroeconomic machine dreams

16 februari, 2014 kl. 21:15 | Publicerat i Economics | 6 kommentarer

blog_robot_overlordsAre macro-economists doomed to always ”fight the last war”? Are they doomed to always be explaining the last problem we had, even as a completely different problem is building on the horizon?

Well, maybe. But I think the hope is that microfoundations might prevent this. If you can really figure out some timeless rules that describe the behavior of consumers, firms, financial markets, governments, etc., then you might be able to predict problems before they happen. So far, that dream has not been realized. But maybe the current round of ”financial friction macro” will produce something more timeless. I hope so.

Noah Smith (emphasis added)

So there we have it! This is nothing but the age-old machine dream of neoclassical economics — an epistemologically founded cyborg dream that disregards the fundamental ontological fact that economies and societies are open — not closed — systems.

If we are going to be able to show that the mechanisms or causes that we isolate and handle in our models are stable in the sense that they do not change when we ”export” them to our “target systems”, they do only hold under ceteris paribus conditions and are a fortiori of limited value to our understanding, explanations or predictions of real economic systems. Or as the always eminently quotable Keynes wrote in Treatise on Probability(1921):

The kind of fundamental assumption about the character of material laws, on which scientists appear commonly to act, seems to me to be [that] the system of the material universe must consist of bodies … such that each of them exercises its own separate, independent, and invariable effect, a change of the total state being compounded of a number of separate changes each of which is solely due to a separate portion of the preceding state … Yet there might well be quite different laws for wholes of different degrees of complexity, and laws of connection between complexes which could not be stated in terms of laws connecting individual parts … If different wholes were subject to different laws qua wholes and not simply on account of and in proportion to the differences of their parts, knowledge of a part could not lead, it would seem, even to presumptive or probable knowledge as to its association with other parts … These considerations do not show us a way by which we can justify induction … /427 No one supposes that a good induction can be arrived at merely by counting cases. The business of strengthening the argument chiefly consists in determining whether the alleged association is stable, when accompanying conditions are varied … /468 In my judgment, the practical usefulness of those modes of inference … on which the boasted knowledge of modern science depends, can only exist … if the universe of phenomena does in fact present those peculiar characteristics of atomism and limited variety which appears more and more clearly as the ultimate result to which material science is tending.

Greg Mankiw — the inequality defender

16 februari, 2014 kl. 18:00 | Publicerat i Economics, Politics & Society | 5 kommentarer

Walked-out Harvard economist Greg Mankiw once again has felt it necessary to ride out and defend the 0.1 %. This time also invoking Adam Smith’s invisible hand:

[B]y delivering extraordinary performances in hit films, top stars may do more than entertain millions of moviegoers and make themselves rich in the process. They may also contribute many millions in federal taxes, and other millions in state taxes. And those millions help fund schools, police departments and national defense for the rest of us …

[T]he richest 1 percent aren’t motivated by an altruistic desire to advance the public good. But, in most cases, that is precisely their effect.

negotiation1When reading Mankiw’s articles on the ”just desert” of the 0.1 % one gets a strong feeling that Mankiw is really trying to argue that a market economy is some kind of moral free zone where, if left undisturbed, people get what they ”deserve.”

Where does this view come from? Most neoclassical economists actually have a more or less Panglossian view on unfettered markets, but maybe Mankiw has also read neoliberal philosophers like Robert Nozick or David Gauthier. The latter writes in his Morals by Agreement:
 

The rich man may feast on caviar and champagne, while the poor woman starves at his gate. And she may not even take the crumbs from his table, if that would deprive him of his pleasure in feeding them to his birds.

Mankiw has stubbornly refused to nudge on his neoliberal stance on this issue. So, rather consistently, he links on his blog to a PBS-interview with his friend, libertarian professor of law, Richard Epstein:

PAUL SOLMAN: Aren’t many of the top 1 percent or 0.1 percent in this country rich because they’re in finance?

RICHARD EPSTEIN: Yes. Many of the very richest people in the United States are rich because they are in finance.

And one of the things you have to ask is, why is anyone prepared to pay them huge sums of money if in fact they perform nothing of social value? And the answer is that when you try to knock out the financiers, what you do is you destroy the liquidity of capital markets. And when you destroy the liquidity of those markets, you make it impossible for businesses to invest, you make it impossible for people to buy home mortgages and so forth, and all sorts of other breakdowns.

So they should be rich. It doesn’t bother me.

PAUL SOLMAN: Are you worried that a small number of people controlling a disproportionate share of the wealth can control a democratic system?

RICHARD EPSTEIN: Oh, my God no.

Now, compare that mumbo jumbo with what a true liberal — John Maynard Keynes — has to say on the issue in his General Theory (1936):

The outstanding faults of the economic society in which we live are its failure to provide for full employment and its arbitrary and inequitable distribution of wealth and incomes … I believe that there is social and psychological justification for significant inequalities of income and wealth, but not for such large disparities as exist to-day.

A society where we allow the inequality of incomes and wealth to increase without bounds, sooner or later implodes. The cement that keeps us together erodes and in the end we are only left with people dipped in the ice cold water of egoism and greed.

Inequality — the bubonic plague of modern society

16 februari, 2014 kl. 14:41 | Publicerat i Economics, Politics & Society | 3 kommentarer


Inequality continues to grow all over the world — so don’t even for a second think that this is only an American problem!

In case you think — like e. g. Paul Krugman — that it’s different in my own country — Sweden — you should take a look at some new data from Statistics Sweden and this (Swedish) video.

The Gini coefficient is a measure of inequality (where a higher number signifies greater inequality) and for Sweden we have this for the disposable income distribution:
SwedenGini1980to2011            Source: SCB and own calculations

What we see happen in the US and Sweden is deeply disturbing. The rising inequality is outrageous – not the least since it has to a large extent to do with income and wealth increasingly being concentrated in the hands of a very small and privileged elite.

Societies where we allow the inequality of incomes and wealth to increase without bounds, sooner or later implode. The cement that keeps us together erodes and in the end we are only left with people dipped in the ice cold water of egoism and greed. It’s high time to put an end to this the worst Juggernaut of our time!

Wicksell on the unusable Pareto criterion

16 februari, 2014 kl. 13:59 | Publicerat i Economics | Kommentarer inaktiverade för Wicksell on the unusable Pareto criterion

With the advent of neoclassical economics at the end of the 19th century a large amount of intellectual energy was invested in trying to formalize the stringent conditions of obtaining equilibrium and showing in what way the prices and quantities of free competition constituted some kind of social optimum.

That the equilibrium reached in free competition is an optimum for each individual – given prevailing prices and income distribution – was not, however, seen by some economists as making a very strong case for a free market economy per se. It wasn’t possible to prove that free trade and competition gave a maximum of social utility. The gains made in exchange weren’t a manifestation of a maximum social utility.

wicksell2Knut Wicksell was one of those who criticized the idea of regarding the gain in utility arising from free competition as an absolute maximum. This market fundamentalist idea of harmony in a free market system didn’t live up to Wicksell’s demand for objectivity in science – and  “the harmony economists, who endeavoured to extend the doctrine so that it might become a defence of the existing distribution of wealth” were judged severely by Wicksell (Lectures 1934 (1901) p. 39).

When propounders of the new marginalist theory – especially Walras and Pareto – overstepped the strict boundaries of science and used it in ascribing to the market properties it did not possess, Wicksell had to react. To Wicksell (Lectures 1934 (1901) p. 73) it was

almost tragic that Walras … imagined that he had found the rigorous proof … merely because he clothed in mathematical formula the very arguments which he considered insufficient when they were expressed in ordinary language.

Pareto_Front But what about the Pareto criterion? Wicksell had actually more or less anticipated it in his review (in Zeitschrift für Volkswirtschaft, Sozialpolitik und Verwaltung, 1913: 132-51) of Pareto’s Manuel, but didn’t think it really contributed anything useful. It was just the same old doctrine in a new disguise. To Wicksell the market fundamentalist doctrine of the Lausanne School obviously didn’t constitute an advance in economics.

Why male chauvinist pigs get more sex

15 februari, 2014 kl. 15:56 | Publicerat i Statistics & Econometrics | 2 kommentarer

Our results suggest that sexual frequency is highest in households with traditionally gendered divisions of labor … The coefficient for men’s share of core household labor is negative: households in which men do more female-typed (core) tasks report lower sexual frequency. The coefficient for men’s share of non-core household labor, on the other hand, is positive: households in which men do more male-typed (non-core) tasks report more sex. These effects are statistically significant and substantively large. Overall, these results suggest that sexuality is governed by enactments of femininity and masculinity through appropriately gendered performances of household labor that coincide with sexual scripts organizing heterosexual desire.

Kornrich12-sex-housework

To illustrate the substantive size of these effects, Figure 1 shows predicted values for sexual frequency, varying the share of household labor performed by men while setting all other variables to their means. As the figure shows, shifting from a household in which women perform all of the core household tasks to one where women perform none of the core household tasks is associated with a decline in sexual frequency of nearly 1.6 times per month. Given a mean sexual frequency in this sample of slightly over five, this is a large difference. The figure represents two extreme values, but even households in which men do 40 percent of core household task hours report substantially lower sexual frequency than households in which women perform all core housework. The effect for men’s share of non-core housework is similar although somewhat smaller.

Sabino Kornrich et al.

[h/t Andrew Gelman]

Bayes’ Theorem (student stuff)

14 februari, 2014 kl. 17:55 | Publicerat i Statistics & Econometrics | Kommentarer inaktiverade för Bayes’ Theorem (student stuff)

 

Noam Chomsky on libertarian savagery

14 februari, 2014 kl. 16:16 | Publicerat i Politics & Society | Kommentarer inaktiverade för Noam Chomsky on libertarian savagery

 

[h/t Jan Milch]

How to make economics a realist and relevant science

13 februari, 2014 kl. 11:02 | Publicerat i Economics | 7 kommentarer

As yours truly has reported repeatedly lately, university students all over Europe are increasingly beginning to question if the kind of economics they are taught — mainstream neoclassical economics — really is of any value. Some have even started to question if economics really is a science. Two Nobel laureates in economics — Robert Shiller and Paul Krugman — have responded.

This is Robert Shiller‘s view:

Critics of “economic sciences” sometimes refer to the development of a “pseudoscience” of economics, arguing that it uses the trappings of science, like dense mathematics, but only for show. For example, in his 2004 book Fooled by Randomness, Nassim Nicholas Taleb said of economic sciences: “You can disguise charlatanism under the weight of equations, and nobody can catch you since there is no such thing as a controlled experiment” …

My belief is that economics is somewhat more vulnerable than the physical sciences to models whose validity will never be clear, because the necessity for approximation is much stronger than in the physical sciences, especially given that the models describe people rather than magnetic resonances or fundamental particles. People can just change their minds and behave completely differently. They even have neuroses and identity problems, complex phenomena that the field of behavioral economics is finding relevant to understanding economic outcomes.

And this is what Paul Krugman says:

So, let’s grant that economics as practiced doesn’t look like a science. But that’s not because the subject is inherently unsuited to the scientific method. Sure, it’s highly imperfect — it’s a complex area, and our understanding is in its early stages. And sure, the economy itself changes over time, so that what was true 75 years ago may not be true today …

No, the problem lies not in the inherent unsuitability of economics for scientific thinking as in the sociology of the economics profession — a profession that somehow, at least in macro, has ceased rewarding research that produces successful predictions and rewards research that fits preconceptions and uses hard math instead.

My own take on the issue is that economics — and especially mainstream neoclassical economics — has as a science lost immensely in terms of status and prestige during the last years. Not the least because of its manifest inability to foresee the latest financial and economic crisis – and its lack of constructive and sustainable policies to take us out of the crisis.

keynes-right-and-wrong

We all know that many activities, relations, processes and events are uncertain and that the data do not unequivocally single out one decision as the only “rational” one. Neither the economist, nor the deciding individual, can fully pre-specify how people will decide when facing uncertainties and ambiguities that are ontological facts of the way the world works.

Neoclassical economists, however, have wanted to use their hammer, and so decided to pretend that the world looks like a nail. Pretending that uncertainty can be reduced to risk and construct models on that assumption have only contributed to financial crises and economic havoc.

How do we put an end to this intellectual cataclysm? How do we re-establish credence and trust in economics as a science? Five changes are absolutely decisive.

(1) Stop pretending that we have exact and rigorous answers on everything. Because we don’t. We build models and theories and tell people that we can calculate and foresee the future. But we do this based on mathematical and statistical assumptions that often have little or nothing to do with reality. By pretending that there is no really important difference between model and reality we lull people into thinking that we have things under control. We haven’t! This false feeling of security was one of the factors that contributed to the financial crisis of 2008.

(2) Stop the childish and exaggerated belief in mathematics giving answers to important economic questions. Mathematics gives exact answers to exact questions. But the relevant and interesting questions we face in the economic realm are rarely of that kind. Questions like “Is 2 + 2 = 4?” are never posed in real economies. Instead of a fundamentally misplaced reliance on abstract mathematical-deductive-axiomatic models having anything of substance to contribute to our knowledge of real economies, it would be far better if we pursued ”thicker” models and relevant empirical studies and observations.

(3) Stop pretending that there are laws in economics. There are no universal laws in economics. Economies are not like planetary systems or physics labs. The most we can aspire to in real economies is establishing possible tendencies with varying degrees of generalizability.

(4) Stop treating other social sciences as poor relations. Economics has long suffered from hubris. A more broad-minded and multifarious science would enrich today’s altogether too autistic economics.

(5) Stop building models and making forecasts of the future based on totally unreal microfounded macromodels with intertemporally optimizing robot-like representative actors equipped with rational expectations. This is pure nonsense. We have to build our models on assumptions that are not so blatantly in contradiction to reality. Assuming that people are green and come from Mars is not a good – not even as a “successive approximation” – modeling strategy.

När storleken har betydelse

13 februari, 2014 kl. 10:23 | Publicerat i Education & School | Kommentarer inaktiverade för När storleken har betydelse

skolan Det har blivit vanligt att avfärda klasstorlek som viktig för elevernas studie-resultat. Andra faktorer —som lärarnas undervis-nings-metoder och allmänna lärarförmågor — är viktigare än att på politisk väg minska klasstorleken, lyder argumentet. Även om detta är sant är det inte särskilt relevant då den genomsnittliga produktivitetseffekten av politiska åtgärder alltid kommer att vara liten jämfört med de produktivitetsskillnader som finns mellan olika arbetsplatser och anställda. Detta gäller i skolan precis som i all annan verksamhet, men det betyder inte att infrastrukturinvesteringar, regelverk, konkurrensutsättning eller skatte- och bidragssystemens utformning skulle vara irrelevanta. Inte heller finner forskningen att klasstorleken är irrelevant.

Studier kring klasstorlekens betydelse lider av ett centralt metodologiskt problem som grundar sig i att de flesta skolsystem försöker kompensera för elevernas förutsättningar att lyckas väl i skolan. Eftersom elevernas förutsättningar är den viktigaste faktorn bakom deras studieresultat läggs därför mer resurser på elever och skolor som i genomsnitt uppvisar svaga resultat. De studier om klasstorlek som inte förmår hantera denna elevselektion är därför inte trovärdiga.

De studier som faktiskt hanterar att elevselektionen skiljer sig mellan skolor och klasser finner nästan undantagslöst att mindre klasser förbättrar elevernas resultat (STAR, Israel, Californien). Effekterna på studieresultat är varken triviala eller enorma, men en svensk studie (gratisversion) finner att effekterna på elevernas framtida löner gör den samhällsekonomiska avkastningen av minskad klasstorlek hög. Även andra studier finner långsiktigt positiva effekter av minskad klasstorlek.

Detta betyder dock inte att en allmän minskad klasstorlek nödvändigtvis är bra politik. Mindre klasser kan betyda att man måste rekrytera fler lärare och dessa kan vara oerfarna eller av andra skäl vara mindre lämpade som lärare. 

Jonas Vlachos

Berlin

12 februari, 2014 kl. 15:38 | Publicerat i Varia | Kommentarer inaktiverade för Berlin

beerlinbild

Filmen SvT inte vågar visa

12 februari, 2014 kl. 12:24 | Publicerat i Varia | Kommentarer inaktiverade för Filmen SvT inte vågar visa

Adam Smith, moralen och girigheten

11 februari, 2014 kl. 13:56 | Publicerat i Economics | Kommentarer inaktiverade för Adam Smith, moralen och girigheten

Tisdag 19/2 21:03 — 21.37 sänds i Sveriges Radio P1 ett första program i en serie om nationalekonomins historia:

wealth of nations Adam Smith gjorde national-ekonomi till modern vetenskap 1776 med boken Nationernas välstånd.

Hans tes är att egennyttigt handlande, den så kallade ”osynliga handen”, på sikt gynnar hela samhället. Professor Lars Pålsson Syll ger sin syn på denna teori.

Macroeconomics that excludes all that is interesting

10 februari, 2014 kl. 18:30 | Publicerat i Economics | 1 kommentar

In Athreya’s world, and that of a large part of the academic macroeconomics profession, macroeconomics does indeed begin with Walras, and the first modern development in the field was the formalization of Walras’ model by the economic theorists Arrow, Debreu and MacKenzie in the 1950s. The big subsequent development is the integration of growth theory into the static ADM framework to generate the modern dynamic stochastic general equilibrium (DSGE) models. Keynes’ 1936 ‘essay’ is treated as a curiosity, too vague and wordy to permit any real analysis.

big ideasThis has the odd effect that many of the leading Keynesians of the postwar era … are given respectful cites for their work on growth theory, even as … their macroeconomic work is dismissed as being too silly even to be refuted … Real macro (that is, Walrasian GE applied to issues like the business cycle) begins, in this analysis, with Robert Lucas in the late 1970s.

All this gives me a bit more insight into the apparent convergence in macroeconomics in the early years of this century, and its breakdown in 2008. The New Keynesians understood themselves as having met their New Classical colleagues halfway, with DSGE models which were Keynesian in character, at least in the short run, while meeting the demands for rigorous microeconomic foundations. Meanwhile, the New Classical school were quietly snickering whenever Keynes’ name was mentioned, but were prepared to concede the possible existence of largely unspecified market “imperfections”, whose only role in practice was to justify a policy of inflation targeting.

The crisis that erupted in 2008 destroyed this spurious consensus. On any kind of Keynesian view, New or Old, the combination of high unemployment and zero interest rates implied that the economy had been driven into a Keynesian liquidity trap, with a need for fiscal stimulus on a massive scale. By contrast, for the New Classicals, a disaster of this kind could only be the result of government failure (or, in places where they still mattered, the pernicious actions of trade unions). Since this was implausible, New Classical economists have generally preferred to reassert dogma without too much attention to facts.

Broadly speaking, as far as academic macroeconomics is concerned, DSGE has won the day, not so much by force of argument as by maintaining control of the criteria for publication of journal articles in the field: it’s OK to assume full employment, and ignore inflation, but not to omit rigorous microfoundations for your model …

The result is that there is almost zero intersection between Big Ideas in Macroeconomics and what I would think of as macroeconomics. It’s not so much that I think Athreya is wrong is that we are talking past each other. As Charles Goodhart said of DSGE, Athreya’s version of macro excludes everything in which I am interested.

John Quiggin

Wage rigidities and how real labour markets work

10 februari, 2014 kl. 17:44 | Publicerat i Economics | 1 kommentar

Bewley found little evidence to support many popular labour economic theories. He mentions that he “found no support for real business cycle theory. During hundreds of hours of contact with businesspeople, I never heard one description of an exogenous productivity decline.” bewleyLucas-Rapping theory of unemployment (that it is caused by workers voluntarily quitting their job) is found to have little basis in reality. Unemployment is primarily caused by layoffs and quits actually decline during a recession. Nor do workers quit rather than accept a pay cut as they are never given the choice. Unemployment is an unpleasant situation that no one chooses; rather most unemployed were desperate for work. The main theories of strikes were also found to be inaccurate. Strikes do not occur as there is information asymmetries over the financial health of the company (which is usually known) or to test the profitability of the firm (unprofitable firms were as reluctant to compromise as profitable ones which had greater resources to fight the strike).

Bewley finds that most labour economic theories are inaccurate and fail due to unrealistic assumptions. The only exception to this is the morale model of Solow and Akerlof. Bewley criticises the traditional economic view of people being self-interested and having to be either bribed or coerced into performing tasks. Instead he found that employers ascribed different motivations to their staff. Instead they focused on building good relationships with their employees and encouraged them to take pride in their work and to enjoy their job. They want their employees to show initiative and to perform tasks without having to be constantly told to do so. They felt that treating workers like just another expense like equipment would be counterproductive. As intuitive it may be to ordinary people, it is surprising to economists that people resent being treated like machines whose only purpose is to make money.

In conclusion, Bewley has written a fascinating book that contains many insights in how labour markets work in reality. It reveals major holes in economic theory beyond the simple belief that wages adjust until they are in equilibrium.

Robert Nielsen

[h/t Lord Keynes]

Limits of hypothesis testing — a Poisson distribution example

10 februari, 2014 kl. 15:40 | Publicerat i Statistics & Econometrics | Kommentarer inaktiverade för Limits of hypothesis testing — a Poisson distribution example

The only math app you really need — WolframAlpha

10 februari, 2014 kl. 13:20 | Publicerat i Statistics & Econometrics | Kommentarer inaktiverade för The only math app you really need — WolframAlpha

 

Another Brick in the Wall

9 februari, 2014 kl. 16:38 | Publicerat i Varia | Kommentarer inaktiverade för Another Brick in the Wall

Berlin has lately become a second hometown to me and my family.
It’s a beautiful and exciting town — full of history wherever you go …

Cumulative Distribution Functions (student stuff)

9 februari, 2014 kl. 14:31 | Publicerat i Statistics & Econometrics | Kommentarer inaktiverade för Cumulative Distribution Functions (student stuff)

 

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