Prag — Tor zur Freiheit

30 Sep, 2019 at 15:17 | Posted in Politics & Society | Comments Off on Prag — Tor zur Freiheit

 

Adults in the room

30 Sep, 2019 at 12:17 | Posted in Varia | Comments Off on Adults in the room

 

Why we need pluralist economics

30 Sep, 2019 at 11:52 | Posted in Economics | 1 Comment

 

The only economic analysis that mainstream economists accept is the one that takes place within the analytic-formalistic modeling strategy that makes up the core of mainstream economics. All models and theories that do not live up to the precepts of the mainstream methodological canon are pruned. straight-jacketYou’re free to take your models — not using (mathematical) models at all is considered totally unthinkable — and apply them to whatever you want — as long as you do it within the mainstream approach and its modeling strategy.

If you do not follow that particular mathematical-deductive analytical formalism you’re not even considered doing economics. ‘If it isn’t modeled, it isn’t economics.’

That isn’t pluralism.

That’s a methodological reductionist straightjacket.

Maman

30 Sep, 2019 at 11:39 | Posted in Varia | Comments Off on Maman

 

How to do — and not to do — economics

28 Sep, 2019 at 20:55 | Posted in Economics | Comments Off on How to do — and not to do — economics



Great lectures on how to do — and not to do — economics, delivered by a great historian and economist, Robert Skidelsky. Here you can follow them all.

Naket självutlämnande

28 Sep, 2019 at 18:50 | Posted in Varia | Comments Off on Naket självutlämnande

 

Mer naken och självutlämnande musik är svår att hitta.
En rak höger i solar plexus.
Peter LeMarc imponerade för trettio år sedan.
Det gör han fortfarande.

The M/S Estonia disaster

28 Sep, 2019 at 09:46 | Posted in Varia | Comments Off on The M/S Estonia disaster

Twenty-five years ago, on September 28, 1994, M/S Estonia was on its way from Tallinn to Stockholm with 989 people on board, when the visor in the ship’s bow door opened and the ship sank.

852 people died and 137 people survived in the worst maritime accident ever on the Baltic Sea. 

 

Sargent’s ‘Nobel prize’ winning mumbo jumbo

26 Sep, 2019 at 19:26 | Posted in Economics | 11 Comments

The Royal Swedish Academy of Sciences decided back in 2011 to award The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel to Thomas Sargent and Christopher Sims “for their empirical research on cause and effect in the macroeconomy”.

In an interview with Thomas Sargent in The Region, the Nobel prize winner tried to defend the kind of  “modern macro” he himself has been part of developing:

Sargent: I know that I’m the one who is supposed to be answering questions, but perhaps you can tell me what popular criticisms of modern macro you have in mind.

Rolnick: OK, here goes. Examples of such criticisms are that modern macroeconomics makes too much use of sophisticated mathematics to model people and markets; that it incorrectly relies on the assumption that asset markets are efficient in the sense that asset prices aggregate information of all individuals; … that the modern macro mainstay “real business cycle model” is deficient because it ignores so many frictions and imperfections and is useless as a guide to policy for dealing with financial crises … Shouldn’t these be taken seriously?

lebowski-610x0Sargent: Sorry, Art, but aside from the foolish and intellectually lazy remark about mathematics, all of the criticisms that you have listed reflect either woeful ignorance or intentional disregard for what much of modern macroeconomics is about and what it has accomplished … A rule of thumb is that the more dynamic, uncertain and ambiguous is the economic environment that you seek to model, the more you are going to have to roll up your sleeves, and learn and use some math. That’s life.

Are these the words of an empirical macroeconomist? I’ll be dipped! To me, it sounds like the same old axiomatic-deductivist mumbo-jumbo that parades as economic science of today.

Mainstream economic theory today is in the story-telling business whereby economic theorists create make-believe analogue models of the target system – usually conceived as the real economic system. This modelling activity is considered useful and essential. Since fully-fledged experiments on a societal scale, as a rule, are prohibitively expensive, ethically indefensible or unmanageable, economic theorists have to substitute experimenting with something else. To understand and explain relations between different entities in the real economy the predominant strategy is to build models and make things happen in these “analogue-economy models” rather than engineering things happening in real economies.

Mainstream economics has since long given up on the real world and contents itself with proving things about thought up worlds. Empirical evidence only plays a minor role in economic theory, where models largely function as a substitute for empirical evidence. Hopefully humbled by the manifest failure of its theoretical pretences, the one-sided, almost religious, insistence on axiomatic-deductivist modelling as the only scientific activity worthy of pursuing in economics will give way to methodological pluralism based on ontological considerations rather than formalistic tractability.

When that day comes  The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel will hopefully be awarded real macroeconomists and not axiomatic-deductivist modellers like Thomas Sargent and economists of that ilk in the efficient-market-rational-expectations camp.

The ‘rational expectations’ hoax

26 Sep, 2019 at 16:25 | Posted in Economics | 1 Comment

sun kiIt can be said without great controversy that no other theoretical approach in this century has ever enjoyed the same level of ubiquity throughout the social sciences as the rational choice approach enjoys today. Despite this ubiquity, the success of the approach has been very tenuous. Its advance has been accompanied by an intense debate over its relative merit. The approach has been subject to the usual criticism of blatant inaccuracy given by outsiders to any would-be theoretical hegemon and to a predictable fuzzying of its assumptions as it is adapted to a wider and wider range of empirical phenomena. More notably, however, some of the most virulent mere criticisms of the rational choice approach have come from within its own ranks.

Despite the absence of any clear-cut resolution to this debate, there appears to be a growing consensus about the strengths and weaknesses of the approach. To put it briefly, the main strengths of the approach are that its conventional assumptions about actors are parsimonious and applicable to a very broad range of environments, generating usually falsifiable and sometimes empirically confirmed hypotheses about action across these environments. This provides conventional rational choice with a combination of generality and predictive power not found in other approaches. However, the conventional assumptions of rational choice not only lack verisimilitude in many circumstances but also fail to accurately predict a wide range of human behaviors.

raIn mainstream economics — especially in microeconomics, social choice and game theory — it is taken for granted (by definition) that the actors appearing in the model world, are rational and try to satisfy given preferences. But, confronting the axiomatic model world with the real world, it usually turns out that quite a few actors​ are irrational.

In a classic experiment conducted by Barbara McNeil and colleagues, it was investigated how variations in the way information were presented to patients influenced their choices between alternative therapies. Individuals — randomly assigned — were asked to imagine that they had lung cancer and to choose between two different therapies:

Different groups of respondents received input data that differed only in whether or not the treatments were identified and whether the outcomes were framed in terms of the probability of living or the probability of dying.

The experiment demonstrated that by only changing the ​emphasis from surviving (x) to dying (1-x) in the description of the treatment alternatives, there was a significant change in population preferences. According to ‘rational choice’ theory, the way you ‘frame’ alternatives should be totally inconsequential. Rational people do not change preferences for inconsequential reasons.

So what do we learn from this kind​ of experiments? This: In mainstream ‘as if’ model worlds there are only rational people and in real-life there are a lot of ‘irrational’ people.

Things are obviously not as postulated in mainstream microeconomics. The final court of appeal for models is the real world. As long as no convincing justification is put forward for how the inferential bridging is made from the model world to the real world, ‘rational choice’ models have to be considered little more than hand-waving.

Those who want to build macroeconomics on microfoundations usually maintain that the only robust policies and institutions are those based on rational expectations and representative actors. As yours truly repeatedly argued there is really no support for this conviction at all. On the contrary. If we want to have anything of interest to say on real economies, financial crisis and the decisions and choices real people make, it is high time to place macroeconomic models building on representative actors and rational expectations microfoundations in the dustbin of pseudo-science.

For if this microfounded macroeconomics has nothing to say about the real world and the economic problems out there, why should we care about it? 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 gives us a 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 real macroeconomic challenge is to accept uncertainty and still try to explain why economic transactions take place — instead of simply conjuring the problem away by assuming rational expectations and treating uncertainty as if it was possible to reduce it to stochastic risk. That is scientific cheating. And it has been going on for too long now.

Hyman Minsky at 100

24 Sep, 2019 at 16:57 | Posted in Economics | Comments Off on Hyman Minsky at 100

minskOn the occasion of the 100th anniversary of the birth of Hyman Minsky (1919-1996) I recommend every one to 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. yours truly had the great pleasure and privilege​ of having Hyman Minsky as a ​teacher.

He was a great inspiration at the time.

He still is.

Nobel prize winner Thomas Sargent talking absolute unadulterated horse shit

24 Sep, 2019 at 11:28 | Posted in Economics | 9 Comments


I especially love the way this Nobel laureate “explains” rational expectations:

There are so many people out there, and it is so difficult to know how each one of them thinks about the future. So let’s just assume they think the same. Problem solved.

And that absolute nonsense reasoning rendered this guy a ‘Nobel prize’ in economics!

The tiny little problem that there is no hard empirical evidence that verifies rational expectations models obviously doesn’t bother rational expectations überpriest Thomas Sargent. He goes on defending the epistemological status of the rational expectations hypothesis arguing that since it “focuses on outcomes and does not pretend to have behavioral content,” it has proved to be “a powerful tool for making precise statements.”

Yeah, “precise” and “rigorous” — but what good does that do when they are all wrong?

As Sargent says in the interview, the concept of rational expectations was first developed by John Muth in an Econometrica article in 1961 — Rational expectations and the theory of price movements  — and later — from the 1970s and onward — applied to macroeconomics. Muth framed his rational expectations hypothesis (REH) in terms of probability distributions:

Expectations of firms (or, more generally, the subjective probability distribution of outcomes) tend to be distributed, for the same information set, about the prediction of the theory (or the “objective” probability distributions of outcomes).

But Muth was also very open with the non-descriptive character of his concept:

The hypothesis of rational expectations] does not assert that the scratch work of entrepreneurs resembles the system of equations in any way; nor does it state that predictions of entrepreneurs are perfect or that their expectations are all the same.

To Muth, its main usefulness was its generality and ability to be applicable to all sorts of situations irrespective of the concrete and contingent circumstances at hand.

Muth’s concept was later picked up by New Classical Macroeconomics, where it soon became the dominant model-assumption and has continued to be a standard assumption made in many neoclassical (macro)economic models – most notably in the fields of (real) business cycles and finance (being a cornerstone of the “efficient market hypothesis”).

REH basically says that people on the average hold expectations that will be fulfilled. This makes the economist’s analysis enormously simplistic since it means that the model used by the economist is the same as the one people use to make decisions and forecasts of the future. paste

But in the real world, it is not possible to just assume — as does Sargent — that we know the exact probability distribution of future events. On the contrary. We can’t even assume that probability distributions are the right way to characterize, understand or explain acts and decisions made under uncertainty. When we simply do not know, when we have not got a clue, when genuine uncertainty prevails, REH simply is not  “reasonable.” In those circumstances, it is not a useful assumption, since, under those circumstances, the future is not like the past, and henceforth, we cannot use the same probability distribution – if it at all exists – to describe both the past and future.

If we want to have anything of interest to say on real economies, financial crisis, and the decisions and choices real people make, it is high time to replace the rational expectations hypothesis with more relevant and realistic assumptions concerning economic agents and their expectations. ‘Rational expectations’ — paraphrasing Nichols Kaldor — is a barren and irrelevant apparatus of thought to deal with the way real-world people make decisions and act. It sure is “thoroughly misleading and pretty useless” and also one of the major obstacles to developing economics as a science.

‘Rational expectations’ doesn’t pass The-Real-World-Smell-Test. It is just silly nonsense on stilts.

Greta Thunberg on the leaders that have failed us

23 Sep, 2019 at 20:09 | Posted in Politics & Society | 7 Comments

 

We are in the middle of a climate breakdown, and all they can talk about is money and fairytales of eternal economic growth

In the postwar period, it has become increasingly clear that economic growth has not only brought greater prosperity. The other side of growth, in the form of pollution, contamination, wastage of resources, and climate change, has emerged as perhaps the greatest challenge of our time.

Against the mainstream theory’s view on the economy as a balanced and harmonious system, where growth and the environment go hand in hand, ecological economists object that it can rather be characterized as an unstable system that at an accelerating pace consumes energy and matter, and thereby pose a threat against the very basis for its survival.

nicholasThe Romanian-American economist Nicholas Georgescu-Roegen (1906-1994) argued in his epochal The Entropy Law and the Economic Process (1971) that the economy was actually a giant thermodynamic system in which entropy increases inexorably and our material basis disappears. If we choose to continue to produce with the techniques we have developed, then our society and earth will disappear faster than if we introduce small-scale production, resource-saving technologies and limited consumption.

Following Georgescu-Roegen, ecological economists have argued that industrial society inevitably leads to increased environmental pollution, energy crisis and an unsustainable growth.

Today we really need to re-consider how we look upon how our economy influences the environment and climate change. And — as Greta Thunberg and other youngsters tell us today — we need to do it fast. Nicholas Georgescu-Roegen gives us a good starting point for doing so!

Suppose that you work in a restaurant …

22 Sep, 2019 at 19:32 | Posted in Varia | Comments Off on Suppose that you work in a restaurant …

“Suppose that you work in a restaurant where two regular customers, Ann and Bob, are equally likely to come in for a meal. Further, you know that Ann is indifferent among the 10 items on the menu, whereas Bob strictly prefers the hamburger. While in the kitchen, you receive an order for a hamburger. Who is more likely to be the customer: Ann or Bob?”

feat-work-570I just love this paper, not so much for its content (which is fine) but for its opening. “Suppose that you work in a restaurant…”

I get the feeling that econ papers always take the perspective of people who are more likely to be owners, or at least consumers, not employees, in restaurants. Sure, there was that one famous paper about taxicab drivers, but I feel like most of the time you’ll hear economists talking about why it’s rational to tip, or how much a restaurant should charge its customers, or ways of ramping up workers’ performance, etc …

It’s just refreshing to read an econ paper that takes the employee’s perspective, not to make an economic point and not to make a political point, but just cos why not. Kind of like Night of the Living Dead.

Andrew Gelman

Up in the blue (personal)

22 Sep, 2019 at 18:35 | Posted in Varia | Comments Off on Up in the blue (personal)

 

Jeanette’s birthday present …

Alternatives Economiques

22 Sep, 2019 at 18:01 | Posted in Economics | Comments Off on Alternatives Economiques

Sous pression depuis des années déjà, l’enseignement des SES est repris en main par l’académisme néoclassique. Utilisé comme outil pédagogique par certains enseignants, Alternatives Economiques s’est retrouvé associé aux critiques de la droite et du patronat à l’encontre de cette matière.

altAlternatives Economiques est né en 1980. Le magazine tire son nom de l’interpellation de Margaret Thatcher, arrivée au pouvoir en 1979 au Royaume-Uni, qui avait l’habitude de défendre sa politique ultralibérale en affirmant que « There is no alternative (TINA) », il n’y a pas d’alternative. Depuis le départ, le projet de notre média consiste, au contraire, à montrer qu’il en existe toujours et que les choix de politique publique en matière économique et sociale dépendent avant tout de valeurs, d’intérêts, d’institutions.

Ce projet éditorial a placé Alternatives Economiques au cœur des débats au sujet de l’enseignement de l’économie, à la fois dans le secondaire et dans le supérieur. Il nous a amenés à suivre pas à pas la normalisation de l’enseignement de sciences économiques et sociales dans le secondaire et l’exclusion progressive de l’économie hétérodoxe de l’enseignement supérieur. Au détriment, dans les deux cas, de l’intérêt et de la qualité de l’enseignement dispensé aux jeunes et donc de la formation économique de la population.

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