Ekonomiutbildningarna måste förnyas

8 Dec, 2019 at 13:14 | Posted in Economics | Leave a comment

Dagens ekonomiutbildningar måste bli mer verklighetsanknutna och framför allt lära ut den roll som pengaskapare som bankväsendet har i ekonomin – om vi ska undvika framtida kriser.

Stockholm_School_of_Economics_-_HandelshögskolanProfessorer och Lärarkårer på Ekonomiutbildningar, Banker och deras roll i skapandet av pengar är en väsentlig del av moderna, finansialiserade ekonomier. Likväl ges dagens ekonomistudenter en långtifrån fullgod bild av saken. Som personer med makt att påverka nästa generation ekonomer, är det av stor vikt att ni ser över bankers roll i ekonomiämnet och bringar detta i linje med samtida forskning. Ekonomistuderande behöver förstå hur banker fungerar i verkligheten för att kriser av det slag vi redan har upplevt ska kunna undvikas och för att kunna organisera ekonomin bättre i framtiden.

Över hela världen fortsätter läroböcker i ekonomi, några av dem från 1960-talet, att lära ut en modell i vilken affärsbanker inte är mer än mellanhänder. Banker antas då bara flytta runt existerande pengar, som smörjmedel i en maskin. Många ekonomikurser sätter sin lit till dessa modeller, utan att bry sig om empirin som motsäger dem. Det resulterar i en obalanserad syn på hur det monetära systemet fungerar och bankernas roll i ekonomin …

Världen över fordrar ekonomistuderande från nätverket Rethinking Economics samt medlemmar från rörelsen International Movement for Monetary Reform (IMMR), bland annat Positiva Pengar i Sverige, att lärare och föreläsare tar itu med denna lucka i utbildningen …

Vi stöder helt och fullt de studerande i detta. Vi vill se professorer och fakultet möta studenternas krav och undersöka hur en mer grundläggande förståelse av bankernas roll i det monetära systemet och den moderna ekonomin kan bli en integrerad del av ekonomiundervisningen. Dagens ekonomistuderande är framtidens makthavare, opinionsbildare, politiker, finansiärer och företagsledare. Om de globalt ska kunna bidra till stabila och produktiva ekonomier, måste de ha en realistisk bild av banker och pengaskapande.

Steve Keen, Kate Raworth, Lars P Syll, Samuel Kazen Orrefur, m fl

Uber and the gender pay gap

7 Dec, 2019 at 18:48 | Posted in Economics | Leave a comment

uberUber has conducted a study of internal pay differentials between men and women, which they describe as “gender blind” … The study found a 7% pay gap in favor of men. They present their findings as proof that there are issues unrelated to gender that impact driver pay. They quantify the reasons for the gap as follows:

Where: 20% is due to where people choose to drive (routes/neighborhoods).

Experience: 30% is due to experience …

Speed: 50% was due to speed, they claim that men drive slightly faster, so complete more trips per hour …

The company’s reputation has been affected by its sexist and unprofessional corporate culture, and its continued lack of gender balance won’t help. Nor, I suspect, will its insistence, with research conducted by its own staff to prove it, that the pay gap is fair. This simply adds insult to obnoxiousness.

But then, why would we have expected any different? The Uber case study’s conclusions may actually be almost the opposite of what they were trying to prove. Rather than showing that the pay gap is a natural consequence of our gendered differences, they have actually shown that systems designed to insistently ignore differences tend to become normed to the preferences of those who create them.

Avivah Wittenberg-Cox

Spending a couple of hours going through a JEL survey of modern research on the gender wage gap, yours truly was struck almost immediately by how little that research really has accomplished in terms of explaining gender wage discrimination. With all the heavy regression and econometric alchemy used, wage discrimination is somehow more or less conjured away …

Trying to reduce the risk of having established only ‘spurious relations’ when dealing with observational data, statisticians and econometricians standardly add control variables. The hope is that one thereby will be able to make more reliable causal inferences. But if you do not manage to get hold of all potential confounding factors, the model risks producing estimates of the variable of interest that are even worse than models without any control variables at all. Conclusion: think twice before you simply include ‘control variables’ in your models!

That women are working in different areas than men, and have other educations than men, etc., etc., are not only the result of ‘free choices’ causing a gender wage gap, but actually to a large degree itself the consequence of discrimination.

The gender pay gap is a fact that, sad to say, to a non-negligible extent is the result of discrimination. And even though many women are not deliberately discriminated against, but rather ‘self-select’ (sic!) into lower-wage jobs, this in no way magically explains away the discrimination gap. As decades of socialization research has shown, women may be ‘structural’ victims of impersonal social mechanisms that in different ways aggrieve them.

Happiness management

6 Dec, 2019 at 22:42 | Posted in Economics | Leave a comment

 

The ergodicity problem in economics (wonkish)

6 Dec, 2019 at 15:59 | Posted in Economics | 5 Comments

A surprising reframing of economic theory follows directly from asking the core ergodicity question: is the time average of an observable equal to its expectation value?

ergAt a crucial place in the foundations of economics, it is assumed that the answer is always yes — a pernicious error. To make economic decisions, I often want to know how fast my personal fortune grows under different scenarios. This requires determining what happens over time in some model of wealth. But by wrongly assuming ergodicity, wealth is often replaced with its expectation value before growth is computed. Because wealth is not ergodic, nonsensical predictions arise. After all, the expectation value effectively averages over an ensemble of copies of myself that cannot be accessed.

This key error is patched up with psychological arguments about human behaviour. The consequences are numerous, but over the centuries their root cause has become invisible in the growing formalism. Observed behaviour deviates starkly from model predictions. Paired with a firm belief in its models, this has led to a narrative of human irrationality in large parts of economics. Scientifically, this deserves some reflection: the models were exonerated by declaring the object of study irrational.

Ole Peters / Nature Physics

Paul Samuelson once famously claimed that the ‘ergodic hypothesis’ is essential for advancing economics from the realm of history to the realm of science. But is it really tenable to assume — as Samuelson and most other mainstream economists — that ergodicity is essential to economics?

Ole Peters’ article shows why ergodicity is such an important concept for understanding the deep fundamental flaws of mainstream economics:

Sometimes ergodicity is mistaken for stationarity. But although all ergodic processes are stationary, they are not equivalent.

Let’s say we have a stationary process. That does not guarantee that it is also ergodic. The long-run time average of a single output function of the stationary process may not converge to the expectation of the corresponding variables — and so the long-run time average may not equal the probabilistic (expectational) average.

Say we have two coins, where coin A has a probability of 1/2 of coming up heads, and coin B has a probability of 1/4 of coming up heads. We pick either of these coins with a probability of 1/2 and then toss the chosen coin over and over again. Now let H1, H2, … be either one or zero as the coin comes up heads or tales. This process is obviously stationary, but the time averages — [H1 + … + Hn]/n — converges to 1/2 if coin A is chosen, and 1/4 if coin B is chosen. Both these time averages have a probability of 1/2 and so their expectational average is 1/2 x 1/2 + 1/2 x 1/4 = 3/8, which obviously is not equal to 1/2 or 1/4. The time averages depend on which coin you happen to choose, while the probabilistic (expectational) average is calculated for the whole “system” consisting of both coin A and coin B.

Instead of arbitrarily assuming that people have a certain type of utility function — as in mainstream theory — time average considerations show that we can obtain a less arbitrary and more accurate picture of real people’s decisions and actions by basically assuming that time is irreversible. When our assets are gone, they are gone. The fact that in a parallel universe it could conceivably have been refilled, are of little comfort to those who live in the one and only possible world that we call the real world.

Time average considerations show that because we cannot go back in time, we should not take excessive risks. High leverage increases the risk of bankruptcy. This should also be a warning for the financial world, where the constant quest for greater and greater leverage — and risks — creates extensive and recurrent systemic crises.

Evolution

5 Dec, 2019 at 22:01 | Posted in Varia | Leave a comment

 

Häften för Kritiska Studier har fyllt 50

5 Dec, 2019 at 17:31 | Posted in Economics, Politics & Society | Leave a comment

polomarkÅr 1968 utkom det första numret av Häften för kritiska studier. Under de femtio år som gått sedan dess har mer än 200 nummer utkommit. För att fira detta tog några av tidskriftens redaktions-medlemmar ett initiativ till en jubileumsskrift som kommer ut nästa månad.

Yours truly har ett bidrag med i skriften och tänkte därför ta tillfället i akt att säga något lite mer personligt om denna fantastiska tidskrift som alltid legat mig varmt om hjärtat.

Som en tämligen intellektuellt brådmogen 13-åring började jag läsa — och snart prenumerera på — HfKS. Jag vågar väl inte påstå att jag alltid fullt ut förstod de tankedigra och många gånger ‘djupa’ artiklar tidskriften var fylld med, men tillräckligt för att jag skulle lockas att läsa mer och förkovra mig. Mitt intresse stod tidigt till ekonomin, och jag minst speciellt ett par artiklar som handlade om handelsteori (som en av jubileumsskriftens bidragsgivare, Jan Otto Andersson författat.)

Tidskriften gav god ammunition när jag några år senare på gymnasiet också dristade att ifrågasätta en samhällskunskapslärare (nybakad nationalekonom från Lund) som försökte få oss alla att tänka inom den traditionella neoklassiska teoriramen.hfDet var ju inget som gjorde en populär i lärarens ögon, men svaren uteblev ofta och förstärkte min övertygelse att de heterodoxa teorier HfKS introducerade hade fog för sig i kritiken av den förhärskande teoriuppfattningen.

På 90-talet kom jag själv att publicera ett flertal artiklar i tidskriften. För dem av oss som ville utveckla och publicera något annat än den vanliga färdigtuggade ekonomigröten vi matades med på de nationalekonomiska institutionerna gav HfKS oss möjlighet att göra våra röster hörda.

Nu så här när HfKS fyllt 50 år kan man inte heller annat än bli imponerad av det oförtröttliga arbete och kulturgärning den ständige redaktörn för tidskriften — Göran Fredriksson — bestått oss med. Få tidskrifter kan stoltsera med att ha en redaktör som varit med på ‘resan’ under ett halvt sekel!

John Hassler — etablissemangsekonom med dimljuset på

5 Dec, 2019 at 12:43 | Posted in Economics | Leave a comment

Det finns dåliga idéer. Men så finns det osannolikt dåliga idéer, du kan knappt föreställa dig hur någon kan ha tänkt tanken. Som att Jimmie Åkesson vill etablera omskolningsläger – ”internatskolor” – där stökiga ungdomar ska marschera i takt och fostras till präktig svenskhet …

dumstrut1Sedan kommer professor John Hassler med ett förslag som är helt uppåt väggarna knasigt … Sverige har en förmögenhet på mer än 1 300 miljarder kronor som vi skulle kunna använda till att bromsa klimatkrisen. Men politikerna väljer att tvångsmässigt betala av en krympande statsskuld.

Hassler är frustrerad. Men han har en idé: Sverige måste låna. Det kan göras till en fast tioårig ränta på minus 0,02 procent. Bra! Låna för att börja satsa tungt? Nej, han vill konstruera en global aktiefond. Mindre bra …

Det är som om han anar att många kommer tycka att det är besynnerligt att frigöra 1 000 miljarder bara för att slänga dem på roulettbordet, när vi skulle kunna investera direkt i svensk infrastruktur.

”Orsaken är att pengarna för närvarande med stor sannolikhet skulle hamna i investeringsprojekt med låg samhällsekonomisk avkastning”, skriver Hassler i Svenska Dagbladet – utan att berätta hur han uppskattat denna sannolikhet eller vilka projekt han menar.

1 000 miljarder är nästan 100 gånger mer än liggande klimat- och miljöbudget. 50 miljarder är nästan fem gånger mer.

Andreas Gustavsson / ETC

Efter att ha tagit del av herr Hasslers analys, slog det mig att jag nog hört det här förut …

Consistency and rationality

4 Dec, 2019 at 00:00 | Posted in Economics | 7 Comments

consistentAxioms of ‘internal consistency’ of choice, such as the weak and the strong axioms of revealed preference … are often used in decision theory, micro-economics, game theory, social choice theory, and in related disciplines …

Can a set of choices really be seen as consistent or inconsistent on purely internal grounds, without bringing in something external to choice, such as the underlying objectives or values that are pursued or acknowledged by choice? …

The presumption of inconsistency may be easily disputed, depending on the context, if we know a bit more about what the person is trying to do. Suppose the person faces a choice at a dinner table between having the last remaining apple in the fruit basket (y) and having nothing instead (x), forgoing the nice-looking apple. She decides to behave decently and picks nothing (x), rather than the one apple (y). If, instead, the basket had contained two apples, and she had encountered the choice between having nothing (x), having one nice apple (y) and having another nice one (z), she could reasonably enough choose one (y), without violating any rule of good behavior. The presence of another apple (z) makes one of the two apples decently choosable, but this combination of choices would violate the standard consistency conditions, including Property a, even though there is nothing particularly “inconsistent” in this pair of choices (given her values and scruples) … We cannot determine whether the person is failing in any way without knowing what he is trying to do, that is, without knowing something external to the choice itself.

Amartya Sen

Being able to model a credible world, a world that somehow could be considered somehow ‘similar’ to the real world is not the same as investigating the real world. The minimalist demand on models in terms of ‘credibility’ and ‘consistency’ has to give away to stronger epistemic demands. Claims in a ‘consistent’ model do not per se give a warrant for exporting the claims to real-world target systems.

Questions of external validity are important more specifically also when it comes to microfounded macro models. It can never be enough that these models somehow are regarded as internally consistent. One always also has to pose questions of consistency with the data. Internal consistency without external validity is worth nothing.

Yours truly has for many years been urging economists to pay attention to the ontological foundations of their assumptions and models. Sad to say, economists have not paid much attention — and so modern economics has become increasingly irrelevant to the understanding of the real world.

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.

To have ‘consistent’ models and ‘valid’ evidence is not enough. What economics needs are real-world relevant models and sound evidence. Aiming only for ‘consistency’ and ‘validity’ is setting the economics aspirations level too low for developing a realist and relevant science.

Economics is not mathematics or logic. It’s about society. The real world.

Sail on silver girl

3 Dec, 2019 at 19:28 | Posted in Varia | 2 Comments


Still — after 50 years — I hold this for being the most beautiful pop song ever written.

Invisible heroes

2 Dec, 2019 at 21:58 | Posted in Varia | Leave a comment

 

Invisible Heroes tells the heroic tale of young Finnish diplomats in Chile during the infamous military coup. The diplomats helped over 2000 Chileans escape Pinochet’s junta. The Finns acted without official authorization while Swedish ambassador Harald Edelstam was the most visible defendant of human rights with the backing of Sweden’s Prime Minister, Olof Palme. Finns were the invisible heroes.

Poem of the atoms

2 Dec, 2019 at 17:57 | Posted in Varia | 1 Comment

 
 

O day, arise! The atoms are dancing.
Thanks to Him the universe is dancing.
The souls are dancing, overcome with ecstasy.
I’ll whisper in your ear where their dance is taking them.
All the atoms in the air and in the desert know well, they seem insane.
Every single atom, happy or miserable,
Becomes enamoured of the sun, of which nothing can be said.

Jalāl ad-Dīn Muhammad Rūmī (1207-1273)

Transmogrifying Keynes

2 Dec, 2019 at 15:11 | Posted in Economics | 1 Comment

econtalkThe other day, on the way home after having attended an economics conference, yours truly tried to beguile the way by listening to a podcast of EconTalk where Garett Jones of George Mason University talked with EconTalk host Russ Roberts about the ideas of Irving Fisher on debt and deflation.

Jones’s thoughts on Fisher were thought-provoking and interesting, but in the middle of the discussion Roberts started to ask questions on the relation between Fisher’s ideas and those of Keynes, saying more or less something like “Keynes generated a lot of interest in his idea that the labour market doesn’t clear … because the price for labour does not adjust, i. e. wages are ‘sticky’ or ‘inflexible’.”

This is of course pure nonsense. For although Keynes in General Theory devoted substantial attention to the subject of wage rigidities, he certainly did not hold the view that wage rigidity was the reason behind high unemployment and other macroeconomic problems. To Keynes, recessions, depressions and faltering labour markets were not basically a problem of “sticky wages.”

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

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

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

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

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

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

To mainstream neoclassical theory, the kind of unemployment that occurs is voluntary, since it is only adjustments of the hours of work that these optimizing agents make to maximize their utility. Keynes, on the other hand, writes in General Theory:

The classical theory … is best regarded as a theory of distribution in conditions of full employment. So long as the classical postulates hold good, unemployment, which is in the above sense involuntary, cannot occur … Writers in the classical tradition, overlooking the special assumption underlying their theory, have been driven inevitably to the conclusion, perfectly logical on their assumption, that apparent unemployment (apart from the admitted exceptions) must be due at bottom to a refusal by the unemployed factors to accept a reward which corresponds to their marginal productivity …

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

gtUnfortunately, Roberts’s statement is not the only example of this kind of utter nonsense on Keynes. Similar distortions of Keynes’s views can be found in, e. g., the economics textbooks of the “New Keynesian” – a grotesque misnomer – Greg Mankiw. How is this possible? Probably because these economists have but a very superficial acquaintance with Keynes’s own works, and rather depend on second-hand sources like Hansen, Samuelson, Hicks and the likes.

Fortunately, there is a solution to the problem. Keynes books are still in print. Read them!!

Indian reservation

2 Dec, 2019 at 14:34 | Posted in Varia | Leave a comment

 

In loving memory of my brother Peter ‘Uncas’ Pålsson — truly ‘a red man deep inside.’

Only one woman

2 Dec, 2019 at 14:06 | Posted in Varia | Leave a comment

 

Graham Bonnet’s vocal performance is just awesome — it still gives me goose pimples every time I listen to it.

Rethinking economics in Copenhagen

1 Dec, 2019 at 13:25 | Posted in Economics | Leave a comment

kphmn

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