Top economics blogs

20 Dec, 2014 at 10:05 | Posted in Varia | Comments Off on Top economics blogs


Superb blog with a mix of top American and European economists and well presented. Covers topical issues with various opinions.

10) Paul Krugman’s Blog
Princeton University Professor and Nobel Laurete

11) Brad De Long’s Blog
Berkely University Professor

12) Economist’s View
Mark Thomas University of Oregon. A very popluar blog and it also has links to other blog posts.

A superb resource for new ideas and commentarty on the gloabl economy and finance by some of the best minds in the economics and finance professions.

A popular blog looking at the US economy and the financial sector. The blog has many contributors and is hence able to give a wide range of coverage and viewpoints.

If you are interested in learning the causes of the current global financial crisis then Steve Keen’s blog is an excellent starting point. He uses Hyman Minsky’s approach to analyse the dynamics and causes of the current crisis.

Real World Economics Review is a blog/economics journal with plenty of real world applications of economic theory. There are a variety of contributors providing their perspective on how economics can be applied to the real world with supporting tables, graphs and data analysis. Plenty of questioning and criticism of the economics mainstream.

61) Lars P Syll’s Blog
If you are interested in the History and Philosophy of Economics then Lars Syll’s blog gives an excellent overview of some of the big debates and ideas in economics. He is currently Professor at Malmö University.

The Institute for New Economics Thinking has a mission to provide new approaches to economic thinking rather than the mainstream consensus. Its blog is particularly useful for those looking for alternatives viewpoints on the current economics problems. There are often accompanying videos.

This primarily Canadian blog written by 5 Canadian economists provides useful insights into a variety of topics such as education, health, finance, inequality and much more.


New Keynesian DSGE models — irrelevant gadgets

19 Dec, 2014 at 16:01 | Posted in Economics | Comments Off on New Keynesian DSGE models — irrelevant gadgets

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

Microsoft PowerPoint - Economic Education.ppt [Compatibility ModEmpirical 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 hypothesis 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.

Och så är det snart jul …

19 Dec, 2014 at 11:06 | Posted in Varia | Comments Off on Och så är det snart jul …


Rotten Apple

19 Dec, 2014 at 08:40 | Posted in Politics & Society | 4 Comments

The BBC launched an investigation into a Pegatron plant that Apple uses to manufacturer its products in China, and found poor treatment of workers, after Apple has stated several times that it’s cleaned up its act.

The British media giant found standards on workers’ hours, ID cards, dormitories, work meetings and juvenile workers were being breached at the Pegatron factories. It even recorded workers falling asleep on the production line after a 12-hour shift.


BBC plans to air its investigation on its BBC Panorama program, on December 18 at 21:00 GMT. Apple responded to the claims, saying: “We are aware of no other company doing as much as Apple to ensure fair and safe working conditions. We work with suppliers to address shortfalls, and we see continuous and significant improvement, but we know our work is never done.”

The BBC used undercover reporters to find issues within the supply chain. One reporter found the longest shift worked to be 16 hours, and at the end just wanted to sleep – not even wanting to get up and eat. Another worker had to work 18 days in a row without a day off, even with requests for days of rest.


O Holy Night

18 Dec, 2014 at 18:30 | Posted in Varia | Comments Off on O Holy Night


Jussi — still no. 1!

Peace on Earth

18 Dec, 2014 at 18:21 | Posted in Varia | 2 Comments


The true meaning of econometric ‘unbiasedness’

18 Dec, 2014 at 16:32 | Posted in Statistics & Econometrics | 1 Comment

One should not jump to the conclusion that there is necessarily a substantive difference between drawing inferences from experimental as opposed to nonexperimental data …

In the experimental setting, the fertilizer treatment is “randomly” assigned to plots of land, whereas in the other case nature did the assignment … “Random” does not mean adequately mixed in every sample. It only means that on the average, the fertilizer treatments are adequately mixed …

abRandomization implies that the least squares estimator is “unbiased,” but that definitely does not mean that for each sample the estimate is correct. Sometimes the estimate is too high, sometimes too low …

In particular, it is possible for the randomization to lead to exactly the same allocation as the nonrandom assignment … Many econometricians would insist that there is a difference, because the randomized experiment generates “unbiased” estimates. But all this means is that, if this particular experiment yields a gross overestimate, some other experiment yields a gross underestimate.

Ed Leamer

Kindleberger and the Minsky model

18 Dec, 2014 at 11:25 | Posted in Economics | 1 Comment

In an often cynical world, standard financial and macroeconomic quantitative models give people the benefi t of the doubt. Fundamental economic theory assumes the best of us, supposing that human beings are perfectly rational, know all the facts of a given situation, understand the risks, and optimize our behavior and portfolios accordingly. Reality, of course, is quite different. While a significant portion of individual and market behavior can be modeled reasonably well, the human emotions that drive cycles of fear and greed are not predictable and can often defy historical precedent. As a result, quantitative models sometimes fail to anticipate major macroeconomic turning points. The ongoing debt crisis in Europe is the most recent example of an extreme event shattering historical norms.

kindleOnce an extreme event occurs, standard models offer limited insight as to how the ensuing crisis could play out and how it should be managed, which is why policy responses can seem disjointed. The latest policy responses to the European crisis have been no exception. To understand and respond to a crisis like the one in Europe, perhaps we need to consider some new models that include the “human factor.” Economic historian Charles Kindleberger can offer some insight. In his book Manias, Panics, and Crashes, Kindleberger explores the anatomy of a typical financial crisis and provides a framework that considers the impact of the powerful human dynamics of fear and greed. Kindleberger’s descriptive process of the boom and bust liquidity cycle can help shed light on the current European sovereign debt saga, and perhaps illuminate whether we have in fact turned the corner on this financial crisis.

Kindleberger analyzed hundreds of financial crises dating back centuries and found them to share a common sequence of events, one that followed monetary theorist Hyman Minsky’s model of the instability of a credit system. Fundamentally, the more stable and prosperous an economic structure appears, the more leverage and speculative financing will build within the system, eventually making it highly vulnerable to a surprising, extreme collapse. Kindleberger provided the qualitative (as opposed to quantitative!) description of the Minsky Model, shown below, which is a useful snapshot of the liquidity cycle. It can be applied to Europe and any potential boom/bust candidate, including Chinese real estate, commodity prices, or investors’ recent love affair with emerging markets. Kindleberger famously dubbed this sequence a “hardy perennial,” probably because the galvanizing human conditions of fear and greed are more often than not prone to overshoot fundamental values compared to the behavior of a rational individual, which exists only in macroeconomic theory.


Loomis Sayles

hymanFor more on Minsky, listen to BBC 4 where Duncan Weldon tries to explain in what way Hyman Minsky’s thoughts on banking and finance offer a radical challenge to mainstream economic theory.

As a young research stipendiate in the U.S. thirty years ago, yours truly had the great pleasure and privelege of having Hyman Minsky as teacher. He was a great inspiration at the time. He still is.

Austerity kills

18 Dec, 2014 at 10:19 | Posted in Economics, Politics & Society | 2 Comments

The correlation between unemployment and suicide has been observed since the 19th century. People looking for work are about twice as likely to end their lives as those who have jobs.

In the United States, the suicide rate, which had slowly risen since 2000, jumped during and after the 2007-9 recession. In a new book, we estimate that 4,750 “excess” suicides — that is, deaths above what pre-existing trends would predict — occurred from 2007 to 2010. Rates of such suicides were significantly greater in the states that experienced the greatest job losses. Deaths from suicide overtook deaths from car crashes in 2009.

passport_The-Body-Economic-Why-Austerity-Kills-154521-ff93369df63aab983003If suicides were an unavoidable consequence of economic downturns, this would just be another story about the human toll of the Great Recession. But it isn’t so. Countries that slashed health and social protection budgets, like Greece, Italy and Spain, have seen starkly worse health outcomes than nations like Germany, Iceland and Sweden, which maintained their social safety nets and opted for stimulus over austerity. (Germany preaches the virtues of austerity — for others.) …

Our research suggests that investing $1 in public health programs can yield as much as $3 in economic growth. Public health investment not only saves lives in a recession, but can help spur economic recovery. These findings suggest that three principles should guide responses to economic crises.

First, do no harm: if austerity were tested like a medication in a clinical trial, it would have been stopped long ago, given its deadly side effects. Each nation should establish a nonpartisan, independent Office of Health Responsibility, staffed by epidemiologists and economists, to evaluate the health effects of fiscal and monetary policies.

Second, treat joblessness like the pandemic it is. Unemployment is a leading cause of depression, anxiety, alcoholism and suicidal thinking. Politicians in Finland and Sweden helped prevent depression and suicides during recessions by investing in “active labor-market programs” that targeted the newly unemployed and helped them find jobs quickly, with net economic benefits.

Finally, expand investments in public health when times are bad. The cliché that an ounce of prevention is worth a pound of cure happens to be true. It is far more expensive to control an epidemic than to prevent one. New York City spent $1 billion in the mid-1990s to control an outbreak of drug-resistant tuberculosis. The drug-resistant strain resulted from the city’s failure to ensure that low-income tuberculosis patients completed their regimen of inexpensive generic medications.

One need not be an economic ideologue — we certainly aren’t — to recognize that the price of austerity can be calculated in human lives. We are not exonerating poor policy decisions of the past or calling for universal debt forgiveness. It’s up to policy makers in America and Europe to figure out the right mix of fiscal and monetary policy. What we have found is that austerity — severe, immediate, indiscriminate cuts to social and health spending — is not only self-defeating, but fatal.

David Stuckler & Sanjay Basu

Why randomization is not enough

17 Dec, 2014 at 19:24 | Posted in Statistics & Econometrics | Comments Off on Why randomization is not enough

randWith interactive confounders explicitly included, the overall treatment effect β0 + β′zt is not a number but a variable that depends on the confounding effects. Absent observation of the interactive compounding effects, what is estimated is some kind of average treatment effect which is called by Imbens and Angrist (1994) a “Local Average Treatment Effect,” which is a little like the lawyer who explained that when he was a young man he lost many cases he should have won but as he grew older he won many that he should have lost, so that on the average justice was done. In other words, if you act as if the treatment effect is a random variable by substituting βt for β0 + β′zt , the notation inappropriately relieves you of the heavy burden of considering what are the interactive confounders and finding some way to measure them. Less elliptically, absent observation of z, the estimated treatment effect should be transferred only into those settings in which the confounding interactive variables have values close to the mean values in the experiment. If little thought has gone into identifying these possible confounders, it seems probable that little thought will be given to the limited applicability of the results in other settings.

Ed Leamer

Friedman’s Folly

17 Dec, 2014 at 11:04 | Posted in Economics | 5 Comments

In economic theory, there is no true sense of government’s central role in a nation’s economy and in every aspect of its citizen’s lives. I call this Friedman’s Folly …

Seven-Bad-Ideas-jacketModern economics has not made a positive case for what government must and can do. Government, after all, is society; it is all of us getting together. The economy is not. But prevailing orthodox economics would have us believe, following Friedman at least to a degree, and with only a little exaggeration, that it is …

Economists across the spectrum were influenced by the extremist Friedman, I’d argue, because he always defended himself by being consistent with the beautiful idea of the Invisible Hand. By the time the financial crisis of 2008 hit, Americans did not feel themselves part of a great national enterprise, a democracy of opportunity and social justice. They were busy reinventing a modern materialistic individualism, unaware of and apparently not caring how lacking they were in community. The failure to sense an obligation to each other is the worst consequence of Friedman’s Folly. There have been intelligent critics of his economic ideas, but economists in general are Friedman’s handmaidens.

Nancy Cartwright on the limits of linear causal models

16 Dec, 2014 at 21:42 | Posted in Theory of Science & Methodology | 1 Comment


Towards a radical reformulation of the economics curriculum

16 Dec, 2014 at 09:45 | Posted in Economics | 2 Comments


One of the main ideas underlining the book is that “being an economist” in the XXI century requires a radical change in the training of economists and such change requires a global effort. A new economics curriculum is needed in order to improve the understanding of the deep interactions between economics and the political forces and the historical processes of social change. The need for trans-disciplinary and interdisciplinary work is highlighted.

Discussions include the following. Main critiques of current practices on theory, methods and structures. Current gaps in the economics curriculum. What should economics graduates know? The contributors are: Nicola Acocella, Sheila Dow, David Hemenway, Arturo Hermann, Grazia Ietto-Gillies, Maria Alejandra Madi, Lars Pålsson Syll, Constantine Passaris, Paul Ormerod, Jack Reardon, Alessando Roncaglia, Asad Zaman.

Yours truly’s contribution to the collection is on “Economics textbooks – anomalies and transmogrification of truth.”

Buy now: Amazon US $17.10 Amazon UK £ 12.00 €19.50 €18.95

Proper use of math in economics

16 Dec, 2014 at 08:31 | Posted in Economics | 1 Comment

Balliol Croft, Cambridge
27. ii. 06
My dear Bowley,

I have not been able to lay my hands on any notes as to Mathematico-economics that would be of any use to you: and I have very indistinct memories of what I used to think on the subject. I never read mathematics now: in fact I have forgotten even how to integrate a good many things.

13.1a Alfred MarshallBut I know I had a growing feeling in the later years of my work at the subject that a good mathematical theorem dealing with economic hypotheses was very unlikely to be good economics: and I went more and more on the rules — (1) Use mathematics as a short-hand language, rather than as an engine of inquiry. (2) Keep to them till you have done. (3) Translate into English. (4) Then illustrate by examples that are important in real life. (5) Burn the mathematics. (6) If you can’t succeed in 4, burn 3. This last I did often.

I believe in Newton’s Principia Methods, because they carry so much of the ordinary mind with them. Mathematics used in a Fellowship thesis by a man who is not a mathematician by nature — and I have come across a good deal of that — seems to me an unmixed evil. And I think you should do all you can to prevent people from using Mathematics in cases in which the English language is as short as the Mathematical …

Your emptyhandedly,

Alfred Marshall

Statistics — not very helpful for understanding economies

15 Dec, 2014 at 18:23 | Posted in Statistics & Econometrics | 4 Comments

I cannot offer a course in mathematics in this slim volume, but I will do what I can to hit a few of the highlights, when genuinely needed. I will issue one early warning: do not be intimidated by what you don’t completely understand. Statistical Science is not really very helpful for understanding or forecasting complex evolving self-healing organic ambiguous social systems – economies, in other words.

edA statistician may have done the programming, but when you press a button on a computer keyboard and ask the computer to find some good patterns, better get clear a sad fact: computers do not think. They do exactly what the programmer told them to do and nothing more. They look for the patterns that we tell them to look for, those and nothing more. When we turn to the computer for advice, we are only talking to ourselves. This works in a simple setting in which there is a very well-defined set of alternative theories and we can provide the computer with clear instructions. But in complex nonexperimental settings, Sherlock Holmes admonishes: “Never theorize before you have all the evidence. It biases the judgments” …

Mathematical analysis works great to decide which horse wins, if we are completely confident which horses are in the race, but it breaks down when we are not sure. In experimental settings, the set of alternative models can often be well agreed on, but with nonexperimental economics data, the set of models is subject to enormous disagreements. You disagree with your model made yesterday, and I disagree with your model today. Mathematics does not help much resolve our internal intellectual disagreements.

Ed Leamer

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