Solow on inequality and growth

17 november, 2014 kl. 09:14 | Publicerat i Economics | Kommentarer inaktiverade för Solow on inequality and growth

 

Låt mig vara din soldat (privat)

16 november, 2014 kl. 14:28 | Publicerat i Varia | Kommentarer inaktiverade för Låt mig vara din soldat (privat)

 

Till mina barn

Modern econometrics — a mixture of metaphysics and bluff

15 november, 2014 kl. 17:28 | Publicerat i Statistics & Econometrics | Kommentarer inaktiverade för Modern econometrics — a mixture of metaphysics and bluff

[Haavelmo’s] effort to create foundations for the probability approach in econometrics finally results in an inconsistent set of claims in its defence. First, there are vast amounts of experience which warrant a frequency interpretation. This is supported by repetitive discussions of experimental design, but the inability to expeeriment inspires an epistemological interpretation.keuzenkamp1 Then Haavelmo mentions the futility of bothering with these issues because the probability approach is most of all a useful tool. This would be an instrumentalistic justification for its use if Haavelmo gave supportive evidence for his claim. There is not one example which attempts to do so. […]

The founders of exonometrics tried to adapt the sampling approach to a non-experimental small sample domain. They tried to justify this with a priori and analytcal arguments. However, the ultimate argument for a ‘probability approach in econometrics’ consists of a mixture of metaphors, metaphysics and a pinch of bluff.

Neoclassical economists often hold the view that criticisms of econometrics are the conclusions of sadly misinformed and misguided people who dislike and do not understand much of it. This is really a gross misapprehension. To be careful and cautious is not the same as to dislike. And as any perusal of the mathematical-statistical and philosophical works of people like for example David Freedman, Nancy Cartwright, Chris Chatfield, Hugo Keuzenkamp, Rudolf Kalman, John Maynard Keynes or Tony Lawson would show, the critique is put forward by respected authorities. I would argue, against “common knowledge”, that they do not misunderstand the crucial issues at stake in the development of econometrics. Quite the contrary. They know them all too well — and are not satisfied with the validity and philosophical underpinning of the assumptions made for applying its methods.

Let me try to do justice to the critical arguments on the logic of probabilistic induction and shortly elaborate — mostly from a philosophy of science vantage point — on some insights a critical realist perspective gives us on econometrics and its methodological foundations.

Read more …

What is a statistical model?

15 november, 2014 kl. 13:14 | Publicerat i Statistics & Econometrics | Kommentarer inaktiverade för What is a statistical model?

My critique is that the currently accepted notion of a statistical model is not scientific; rather, it is a guess at what might constitute (scientific) reality without the vital element of feedback, that is, without checking the hypothesized, postulated, wished-for, natural-looking (but in fact only guessed) model against that reality. To be blunt, as far as is known today, there is no such thing as a concrete i.i.d. (independent, identically distributed) process, not because this is not desirable, nice, or even beautiful, but because Nature does not seem to be like that … As Bertrand Russell put it at the end of his long life devoted to philosophy, “Roughly speaking, what we know is science and what we don’t know is philosophy.” In the scientific context, but perhaps not in the applied area, I fear statistical modeling today belongs to the realm of philosophy.

science_medal9_hTo make this point seem less erudite, let me rephrase it in cruder terms. What would a scientist expect from statisticians, once he became interested in statistical problems? He would ask them to explain to him, in some clear-cut cases, the origin of randomness frequently observed in the real world, and furthermore, when this explanation depended on the device of a model, he would ask them to continue to confront that model with the part of reality that the model was supposed to explain. Something like this was going on three hundred years ago … But in our times the idea somehow got lost when i.i.d. became the pampered new baby.

Rudolf Kalman

Keynes and the New Deal

15 november, 2014 kl. 11:50 | Publicerat i Economics, Politics & Society | 1 kommentar

 

Technological breakthrough of the century

15 november, 2014 kl. 09:53 | Publicerat i Varia | Kommentarer inaktiverade för Technological breakthrough of the century

 
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Debunking the public vs. private sector myth

14 november, 2014 kl. 17:56 | Publicerat i Economics | 3 kommentarer

 

The low wages fallacy

14 november, 2014 kl. 12:13 | Publicerat i Economics | Kommentarer inaktiverade för The low wages fallacy

A couple of years ago — in connection with being awarded The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel — Thomas Sargent, in an interview with Swedish Television, declared that workers ought to be prepared for having low unemployment compensations in order to get the right incentives to search for jobs.

This old mercantilist idea has very little support in research. Still, it’s symptomatic that right-wing politicians and New Classical economists — like Robert Lucas and Thomas Sargent — again and again have been dragging this age-old panancea out of the closet. As their forerunners in the 1920s, they suggest that lowering wages is the right medicine to strengthen the competitiveness of their faltering economies, get the economy going, increase employment and create growth that will get rid of the towering debts and create balance in the state budgets.

unemployment

But, intimating that one could solve economic problems by impairing unemployment compensations and wage cuts, in these dire times, should really be taken more as a sign of how low the confidence in our economic system has sunk. Wage cuts and lower unemployment compensation levels – of course – do not save neither competitiveness, nor jobs.

What is needed more than anything else in these times is stimulus and economic policies that increase effective demand.

On a societal level wage cuts only increase the risk of more people getting unemployed. To think that that one can solve economic crisis in this way is a turning back to those faulty economic theories and policies that John Maynard Keynes conlusively showed to be wrong already in the 1930s. It was theories and policies that made millions of people all over the world unemployed.

It’s an atomistic fallacy to think that a policy of general wage cuts would strengthen the economy. On the contrary. The aggregate effects of wage cuts would, as shown by Keynes, be catastrophical. They would start a cumulative spiral of lower prices that would make the real debts of individuals and firms increase since the nominal debts wouldn’t be affected by the general price and wage decrease. In an economy that more and more has come to rest on increased debt and borrowing this would be the entrance-gate to a debt deflation crises with decreasing investments and higher unemployment. In short, it would make depression knock on the door.

The impending danger for today’s economies is that they won’t get consumption and investments going. Confidence and effective demand have to be reestablished. The problem of our economies is not on the supply side. Overwhelming evidence shows that the problem today is on the demand side. Demand is – to put it bluntly – simply not sufficient to keep the wheels of the economies turning. To suggest that the solution is lower wages and unemployment compensations is just to write out a prescription for even worse catastrophes.

NAIRU och a-kassan

14 november, 2014 kl. 11:57 | Publicerat i Economics | Kommentarer inaktiverade för NAIRU och a-kassan

Sedan början av 1990-talet har Sverige haft stabilt hög arbetslöshet. Trots otaliga reformer och sänkningar av a-kassa och skatter har arbetslösheten varierat kring ungefär samma nivå hela tiden.

a-kassan-som-guldkantDe senaste decennierna har den akademiska och politiska debatten kring arbetslöshet dominerats av teorier som menar att arbetslösheten i förlängningen främst beror på villkoren för arbetskraften, såsom a-kassa, fackföreningar och dylikt. Förändringar i efterfrågan på arbetskraft och dylikt kan enligt teorin endast påverka arbetslösheten på kort sikt. Denna föreställning bygger till exempel på tanken att om efterfrågan ökar, så anpassar sig människors förväntningar varpå lönekraven också ökar i motsvarande grad så till den grad att mängden nya jobb som skapas motsvaras av lika många jobb som försvinner, i och med att lönerna blir för höga.

Därför har man ägnat stor uppmärksamhet åt så kallade institutionella faktorer kring arbetsmarknaden men väldigt liten uppmärksamhet åt faktorer rörande efterfrågan, såsom investeringstakt. Men jämför man utvecklingen för a-kassa, facklig organiseringsgrad med mera i OECD-länderna verkar dessa varken kunna förklara arbetslöshetens utveckling över tid eller skillnaderna mellan länder …

En faktor som dock samvarierar mycket tydligt med arbetslösheten är investeringstakten. Investeringstakten betyder i detta sammanhang typ hur snabbt mängden fabriker och maskiner växer i samhället. Många ekonomer och forskare har dock ignorerat denna faktor eftersom de teoretiskt antar att denna inte har någon betydelse …

Enligt dominerande teoribildning är Phillipskurvan böjd på kort sikt men vertikal på lång sikt … Men om efterfrågan har en avgörande inverkan på arbetslösheten på både kort och lång sikt så är Phillipskurvan istället böjd i någon mening. I så fall kan en alltför ensidig låginflationspolitik per definition innebära att arbetslösheten blir onödigt låg … Med alltför återhållsam penningpolitik (för att hålla nere inflationen) riskerar den så kallade långsiktiga jämviktsarbetslösheten (NAIRU) att bli onödigt hög …

Eftersom de senaste 100 årens erfarenheter tyder på att världen inte fungerar riktigt som den dominerande teorin menar tyder detta alltså på att förväntningarna kanske inte anpassar sig fullt så optimalt som man tänkt sig. Eller att denna anpassning inte är tillräcklig för att ett optimalt resultat ska uppstå och alla som vill ha ett arbete ska kunna få detta. Alltså är det i så fall inte särskilt relevant att betrakta alla aktörer som ”fullständigt rationella” med tillgång till all nödvändig information samt att alla risker och sannolikheter inför framtiden går att beräkna på ett adekvat sätt …

Ofta kan man höra politiker och vissa ekonomer prata i såna här sammanhang om vikten av att a-kassa och bidrag är låga så det ”lönar sig att arbeta och dylikt”. Det kanske även låter logiskt, typ ”vem vill jobba om man får pengar gratis”. Empiriska observationer tyder som sagt på att a-kassan inte har någon avgörande inverkan på den totala arbetslösheten i samhället. Varför? En teoretisk förklaring skulle kunna vara att lägre a-kassa visserligen sänker de arbetssökandes krav och sporrar deras jobbsökande. Men samtidigt sänker detta även dessa människors möjligheter att köpa varor och tjänster, vilket därför sänker den totala efterfrågan i samhällsekonomin och därför även efterfrågan på arbetskraft. Sänkt a-kassa medför då både en positiv och negativ inverkan på arbetslösheten och det verkar svårt att avgöra vilken effekt som dominerar.

Erik Hegelund

Bubble deniers — now and then

12 november, 2014 kl. 16:44 | Publicerat i Economics | 1 kommentar

irving-fisherStock prices have reached what looks like a permanently high plateau. I do not feel there will be soon if ever a 50 or 60 point break from present levels, such as (bears) have predicted. I expect to see the stock market a good deal higher within a few months.

Irving Fisher October 17, 1929

2200691642 My point is that housing prices — since 2007 — seem to have been rather stabilized in relation to disposable incomes. My hypothesis is that we have got a shift to a higher level of housing prices until around 2007 because of the fundamental circumstances that explain the rise in prices, but that in the future we will probably come to see a slower development, more in line with disposable incomes.

Lars E. O. Svensson December 09, 2013

Dags att ompröva Riksbankens och penningpolitikens mål

12 november, 2014 kl. 14:09 | Publicerat i Economics | Kommentarer inaktiverade för Dags att ompröva Riksbankens och penningpolitikens mål

Med anledning av den pågående kontroversen mellan två prominenta ekonom-Lars — Jonung och Svensson — kan det kanske också vara intressant med ett annat perspektiv på penningpolitiken som en tredje ekonom-Lars — Syll — fört fram …

De senaste två decennierna har Sverige, oavsett regering, haft högre arbetslöshet än vad som var fallet under de tre decennierna dessförinnan. Detta sammanfaller i tid med när penningpolitiken lades om till ensidig inflationsbekämpning. Det är dags att förutsättningslöst pröva denna politik.

Situationen på 1990-­talet var till stor del ett resultat av den finanskris och ekonomiska turbulens som inledde decenniet. Men det får betraktas som anmärkningsvärt att arbetslösheten därefter enligt de vanliga definitionerna och mätmetoderna aldrig sjunkit under fyra procent, möjligen med undantag för enstaka mycket korta tidsperioder.

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I dag har Riksbanken som huvudsakligt mål att stabilisera inflationstakten kring två procent. Denna politik bygger i grund och botten på föreställningen att expansiv finans-­ och penningpolitik inte kan påverka arbetslösheten på lång sikt, och att valet av inflationstakt därför inte har någon stor betydelse för arbetslösheten. Denna politik växte fram i en speciell tidsperiod, präglad av kraftig inflation och i kölvattnet av tidigare misslyckade försök att stävja denna. En växande mängd forskning utifrån olika perspektiv tyder dock på att denna politik måste förändras om Sverige ska lyckas pressa ned arbetslösheten …

Enligt standardmodellerna kan penningpolitiken inte sänka arbetslösheten på lång sikt. Förutsättningen för denna slutsats är ett antagande om att investeringstakten inte påverkar arbetslösheten annat än tillfälligt.

Samtidigt finns det empirisk forskning som tyder på motsatsen – att investeringstakten har stor betydelse för arbetslösheten på såväl kort som lång sikt. Flera studier har bland annat presenterats av ekonomerna Robert Rowthorn och Engelbert Stockhammer, båda verksamma i Storbritannien. Ökad investeringstakt tenderar enligt dessa studier att öka efterfrågan på arbetskraft samtidigt som inflationstakten påverkas av fler faktorer än endast arbetslösheten. Investeringstakten kan i sin tur påverkas av riksbankens räntesättning. Resultaten tyder därför på att både investeringstakten och penningpolitiken kan påverka den långsiktiga jämviktsarbetslösheten …

Det är viktigt att förstå att det inte finns en konsensus inom nationalekonomin rörande hur penningpolitiken bör utformas. Det finns i dag en växande medvetenhet om att de teorier som nuvarande penningpolitik bygger på har brister. Samtidigt har penningpolitikens betydelse för arbetslösheten till stor del lyst med sin frånvaro i Sverige de senaste decennierna.

Det är därför hög tid att föra upp dessa frågor på den politiska dagordningen. Regeringen bör snarast tillsätta en utredning som förutsättningslöst prövar frågan utifrån forskningsläget och de senaste decenniernas erfarenheter.

Paul Krugman vs. Paul Krugman

12 november, 2014 kl. 11:15 | Publicerat i Economics | 4 kommentarer

What we’re seeing isn’t the rise of a fairly broad class of knowledge workers. Instead, we’re seeing the rise of a narrow oligarchy: income and wealth are becoming increasingly concentrated in the hands of a small, privileged elite.

Paul Krugman The Conscience of a Liberal (2011)

The factor market most of us know best is the labor market, in which workers are paid for their time. Besides labor, we can think of households as owning and selling the other factors of production to firms. For example, when a corporation pays dividends to its stockholders, who are members of households, it is in effect paying them for the use of the machines and buildings that ultimately belong to those investors. In this case, the transactions are occurring in the capital market, the market in which capital is bought and sold. As we’ll examine in detail later, factor markets ultimately determine an economy’s income distribution, how the total income created in an economy is allocated between less skilled workers, highly skilled workers, and the owners of capital and land [emphasis added].

Paul Krugman Essentials of Economics (2014)

gadget-freak_logo (Kopie)Looks a little schizophrenic, doesn’t it? Who are we to believe? Krugman the blogger or Krugman the textbook gadget modeler? Well, as you know, yours truly is not the least impressed by Krugman’s gadget interpretation of economics, so I go for the first altenative. The rising inequality we have seen for the last 30 years in both the US and elsewhere in Western societies has very little to do with neoclassical gadgets such as aggregate production functions and marginal productivity theory.

Mainstream macroeconomics distorts our understanding of economic reality

11 november, 2014 kl. 12:05 | Publicerat i Economics | 3 kommentarer

For a good many years, Tony Lawson has been urging economists to pay attention to their ontological presuppositions. Economists have not paid much attention, perhaps because few of us know what “ontology” means. This branch of philosophy stresses the need to “grasp the nature of the reality” that is the object of study – and to adapt one’s methods of inquiry to it.

5112X+PoJkLEconomics, it might be argued, has gotten this backwards. We have imposed our pre-conceived methods on economic reality in such manner as to distort our understanding of it. We start from optimal choice and fashion an image of reality to fit it. We transmit this distorted picture of what the world is like to our students by insisting that they learn to perceive the subject matter trough the lenses of our method.

The central message of Lawson’s critique of modern economics is that an economy is an “open system” but economists insist on dealing with it as if it were “closed.” Controlled experiments in the natural sciences create closure and in so doing make possible the unambiguous association of “cause” and “effects”. Macroeconomists, in particular, never have the privilege of dealing with systems that are closed in this controlled experiment sense.

Our mathematical representations of both individual and system behaviour require the assumption of closure for the models to have determinate solutions. Lawson, consequently, is critical of mathematical economics and, more generally, of the role of deductivism in our field. Even those of us untutored in ontology may reflect that it is not necessarily a reasonable ambition to try to deduce the properties of very large complex systems from a small set of axioms. Our axioms are, after all, a good deal shakier than Euclid’s.

The impetus to “closure” in modern macroeconomics stems from the commitment to
optimising behaviour as the “microfoundations” of the enterprise. Models of “optimal choice” render agents as automatons lacking “free will” and thus deprived of choice in any genuine sense. Macrosystems composed of such automatons exclude the possibility of solutions that could be “disequilibria” in any meaningful sense. Whatever happens, they are always in equilibrium.

Axel Leijonhufvud

Modern economics has become increasingly irrelevant to the understanding of the real world. In his seminal book Economics and Reality (1997) Tony Lawson traced this irrelevance to the failure of economists to match their deductive-axiomatic methods with their subject.

It is — sad to say — as relevant today as it was seventeen years ago.

It is still a fact that within mainstream economics internal validity is everything and external validity nothing. Why anyone should be interested in that kind of theories and models is beyond my imagination. As long as mainstream economists do not come up with any export-licenses for their theories and models to the real world in which we live, they really should not be surprised if people say that this is not science, but autism!

Studying mathematics and logics is interesting and fun. It sharpens the mind. In pure mathematics and logics we do not have to worry about external validity. But economics is not pure mathematics or logics. It’s about society. The real world. Forgetting that, economics is really in dire straits.

Economics and Reality was a great inspiration to me seventeen years ago. It still is.

Understanding capitalism

10 november, 2014 kl. 09:28 | Publicerat i Economics | 2 kommentarer

Frank Roosevelt, a member of the Sarah Lawrence economics faculty since 1977, likens his field to the elephant a group of blind scholars famously tried to describe. Each felt a different part of the animal, and so described a different beast.

“There is no objective truth in economics,” says Roosevelt. “Nobody understands the whole picture. Everybody gets a piece of it.”

81ZvfCDvPoLIn February, Oxford University Press published the third edition of the introductory economics textbook Understanding Capitalism: Competition, Command, and Change, Roosevelt’s six-and-a-half-year project of rewriting and revision. It’s an untraditional book. Roosevelt is an untraditional economist.

“I’m not like ninety-nine percent of economists in the world—I’m in the one percent that is self-styled ‘radical,’” he says. “‘Alternative’ is a more sanitized word.”

Each year, about a million college students take introductory economics courses; their textbooks are selected from among some two dozen on the market. But this apparent magnitude of choices, Roosevelt says, belies the sameness in their explanation of economics. “Class,” for example, is not an independent entry in the index of the most popular traditional textbook. “In our book,” says Roosevelt, “class is not only in the index, but it has more references to it than almost any other word.

”There are power groups, power interests, and much of the world is made up of power relationships. Class is about power relations. We think introductory courses should educate people about the economic system in which we live. This concept is central to this book, and that’s what makes it different.”

As a student in the 60’s, Roosevelt was involved in the Civil Rights and anti-war movements, and co-founded a group called the Union for Radical Political Economics. The first edition of Understanding Capitalism (1985) was written by two friends from the Union’s early days, Samuel Bowles and Richard Edwards. Roosevelt began using it right away, giving it equal course time with more traditional textbooks and introducing, he concedes, “a lot of cognitive dissonance” into his classes.

J.B.

Fall of the Berlin Wall

8 november, 2014 kl. 20:51 | Publicerat i Politics & Society | Kommentarer inaktiverade för Fall of the Berlin Wall

Common non-sense on inequality

7 november, 2014 kl. 16:37 | Publicerat i Economics | 1 kommentar

 

To think that the exploding income and wealth inequality that we see around us today can be explained by marginal productivity theory is — to put it gently — an obvious sign of someone having bad luck when trying to think.

Lars, Lars och Lars om bostadsbubblan

7 november, 2014 kl. 11:13 | Publicerat i Economics, Politics & Society | 8 kommentarer

Tydligen behöver man heta Lars här i världen. Professor Lars P Syll. Eller professor Lars Jonung, som nu intervjuas hos Schibsted/SvD. Och säger allt som behöver sägas och även sagts här på bloggen så många gånger.

Bostadsbubblan”Alla finansiella kriser sedan 800 år tillbaka har föregåtts av en längre period med kraftig kredittillväxt i kombination med låga räntor. Det är precis vad vi har sett i Sverige de senaste 15 åren. Vi bygger upp förutsättningarna för en framtida finansiell kris. Vi vet att den kommer, vi vet bara inte när.”

Professor Jonung klarar som alla borde av att se skillnaden på KPI-inflation och tillgångsprisinflation, där den senare är direkt ohälsosam och leder till bubblor och kommande kris.

”Det går inte att uppnå inflationsmålet om vi inte har finansiell stabilitet. Vi har idag inflation i Sverige, men inte konsumentprisinflation, som Riksbanken vill ha, utan tillgångsprisinflation, som Riksbanken inte vill ha.”

Tvärt om är inte en måttlig KPI-deflation något problem. Tvärt om skapar den välstånd och reala inkomstökningar. Det finns ingen som klagar på att TV-apparater, mobiltelefoni etc blir billigare. Utom Riksbanken, som försöker bekämpa teknikutveckling genom att sänka räntan …

Slutsatsen är att man ska läsa och lyssna på människor som heter Lars. Så länge de inte heter Lars E O Svensson, förstås.

Cornucopia

Added November 10: Lars E O Svenssons svar på Jonungs kritik.

Economists — not mathematics — solve economic problems

6 november, 2014 kl. 17:20 | Publicerat i Economics | 3 kommentarer

A common mistake amongst Ph.D. students is to place too much weight on the ability of mathematics to solve an economic problem.  They take a model off the shelf and add a new twist. A model that began as an elegant piece of machinery designed to illustrate a particular economic issue, goes through five or six amendments from one paper to the next. By the time it reaches the n’th iteration it looks like a dog designed by committee.

amathMathematics doesn’t solve economic problems. Economists solve economic problems. My advice: never formalize a problem with mathematics until you have already figured out the probable answer. Then write a model that formalizes your intuition and beat the mathematics into submission. That last part is where the fun begins because the language of mathematics forces you to make your intuition clear. Sometimes it turns out to be right. Sometimes you will realize your initial guess was mistaken. Always, it is a learning process.

Roger Farmer

Good advice — coming from a professor of economics and fellow of the Econometric Society and research associate of the NBER — well worth following.

Åtstramningspolitik vid vägs ände

6 november, 2014 kl. 12:07 | Publicerat i Economics, Politics & Society | Kommentarer inaktiverade för Åtstramningspolitik vid vägs ände

austerity22Kent Werne intervjuade igår Mark Blyth och yours truly apropå Europas — och Sveriges — problem att få fart på ekonomin och riskerna med att ensidigt förlita sig på en förlegad penning-politik. Resultatet kan du läsa i Dagens ETC.

Still dead after all these years — general equilibrium theory

6 november, 2014 kl. 10:47 | Publicerat i Economics | 4 kommentarer

General equilibrium is fundamental to economics on a more normative level as well. A story about Adam Smith, the invisible hand, and the merits of markets pervades introductory textbooks, classroom teaching, and contemporary political discourse. The intellectual foundation of this story rests on general equilibrium, not on the latest mathematical excursions. If the foundation of everyone’s favourite economics story is now known to be unsound — and according to some, uninteresting as well — then the profession owes the world a bit of an explanation.

Frank Ackerman

Almost a century and a half after Léon Walras founded general equilibrium theory, economists still have not been able to show that markets lead economies to equilibria.

We do know that — under very restrictive assumptions — equilibria do exist, are unique and are Pareto-efficient.

But after reading Frank Ackerman’s article — or Franklin M. Fisher’s The stability of general equilibrium – what do we know and why is it important? — one has to ask oneself — what good does that do?

As long as we cannot show, except under exceedingly special assumptions, that there are convincing reasons to suppose there are forces which lead economies to equilibria — the value of general equilibrium theory is nil. As long as we cannot really demonstrate that there are forces operating — under reasonable, relevant and at least mildly realistic conditions — at moving markets to equilibria, there cannot really be any sustainable reason for anyone to pay any interest or attention to this theory.

A stability that can only be proved by assuming ”Santa Claus” conditions is of no avail. Most people do not believe in Santa Claus anymore. And for good reasons. Santa Claus is for kids, and general equilibrium economists ought to grow up, leaving their Santa Claus economics in the dustbin of history.

Continuing to model a world full of agents behaving as economists — ”often wrong, but never uncertain” — and still not being able to show that the system under reasonable assumptions converges to equilibrium (or simply assume the problem away), is a gross misallocation of intellectual resources and time. As Ackerman writes:

The guaranteed optimality of market outcomes and laissez-faire policies died with general equilibrium. If economic stability rests on exogenous social and political forces, then it is surely appropriate to debate the desirable extent of intervention in the market — in part, in order to rescue the market fromits own instability.

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