Mainstream economics — a severe case of Bourbaki perversion

22 Mar, 2021 at 17:24 | Posted in Economics | Comments Off on Mainstream economics — a severe case of Bourbaki perversion

Il y a une certaine tendance française à attribuer à l’utilisation des mathématiques les difficultés des modèles à expliquer les phénomènes économiques … Pour moi, le problème ne réside pas dans l’utilisation des méthodes formelles mais plutôt dans une obsession poussant à améliorer et même à perfectionner des modèles qui semblent être totalement détachés de la réalité. Comme Robert Solow l’a observé:

«Maybe there is in human nature a deep-seated perverse pleasure in adopting and defending a wholly counterintuitive doctrine that leaves the uninitiated peasant wondering what planet he or she is on.
(Solow [2007])»

kirCependant, je vais suggérer que cette tendance n’est que le reflet d’une longue histoire qui nous a amenés dans une impasse. Avec la raréfaction de nos modèles, nous avons adopté l’attitude des mathématiciens bien décrite par Bourbaki:

«Why do applications [of mathematics] ever succeed? Why is a certain amount of logi cal reasoning occasionally helpful in practical life? Why have some of the most intricate theories in mathematics become an indispensable tool to the modem physicist, to the engineer, and to the manufacturer of atom-bombs? Fortunately for us, the mathematician does not feel called upon to answer such questions. (Bourbaki Journal of Symbolic Logic [1949])»

On peut raisonnablement se demander comment nous nous sommes trouvés dans cette situation …

On peut voir, là, la racine de nos problèmes. On cherche à tout prix à imposer un modèle d’équilibre à un processus qui est fondamentalement dynamique et évolutif ; on veut fermer le modèle d’un processus qui est, presque par définition, non fermé. Comme l’expliquent des économétriciens comme Hendry et Mizon [2010], les individus qui conditionnent leurs anticipations sur l’information concernant un processus passé, quand ce processus évolue dans le temps, ne se comportent pas d’une façon rationnelle. Le poids de notre héritage d’un modèle qui correspond à une situation d’équilibre statique ou stationnaire perturbé de temps en temps par des chocs exogènes est lourd.

Alan Kirman

Mainstream theoretical economics is still under the spell of the Bourbaki tradition in mathematics. Theoretical rigour is everything. Studying real-world economies and empirical corrobation/falsification of theories and models nothing. Separating questions of logic and empirical validity may — of course — help economists to focus on producing rigorous and elegant mathematical theorems that people like Lucas and Sargent consider as “progress in economic thinking.” To most other people, not being concerned with empirical evidence and model validation is a sign of social science becoming totally useless and irrelevant. Economic theories building on known to be ridiculously artificial assumptions without an explicit relationship with the real world is a dead end. That’s probably also the reason why Neo-Walrasian general equilibrium analysis today (at least outside Chicago) is considered a total waste of time. In the trade-off between relevance and rigour, priority should always be on the former when it comes to social science. The only thing followers of the Bourbaki tradition within economics — like Karl Menger, John von Neumann, Gerard Debreu, Robert Lucas and Thomas Sargent — has given us are irrelevant model abstractions with no bridges to real-world economies. It’s difficult to find a more poignant example of a total waste of time in science.

Realism and antirealism in social science

22 Mar, 2021 at 16:19 | Posted in Theory of Science & Methodology | Comments Off on Realism and antirealism in social science

Scientific Realism: Selected Essays of Mario Bunge: Mario Bunge, Martin  Mahner: 9781573928922: BooksThe situation started to change in the 1960s, when antirealism went
on the rampage in the social studies community as well as in Anglo-American philosophy. This movement seems to have had two sources, one philosophical, the other political. The former was a reaction against positivism, which was (mistakenly but conveniently) presented as objectivist simply because it shunned mental states.

I submit that the political source of contemporary antirealism was the rebellion of the Vietnam war generation against the ‘establishment’. The latter was (wrongly) identified with the power behind science and proscientific philosophy. So, fighting science and proscientific philosophy was taken to be part of the fight against the ‘establishment’. But, of course, the people who took this stand were shooting themselves in the foot, or rather in the head, for any successful political action, whether from below or from above, must assume that the adversary is real and can be known. Indeed, if the world were a figment of our imagination, we would people it only with friends …

Breit (1984, p. 20) asks why John K. Galbraith and Milton Friedman, two of the most distinguished social scientists of our time, could have arrived at conflicting views of economic reality. He answers: “there is no world out there which we can unambiguously compare with Friedman’s and Galbraith’s versions. Galbraith and Friedman did not discover the worlds they analyze; they decreed them”. He then compares economists to painters: “each offers a new way of seeing, of organizing experience”, of “imposing order on sensory data”. In this perspective the problems of objective truth and of the difference between science and nonscience do not arise. On the other hand we are left wondering
why on earth anyone should hire economists rather than painters to cope with economic issues.

What makes knowledge in social sciences possible is the fact that society consists of social structures and positions that influence the individuals of society, partly through their being the necessary prerequisite for the actions of individuals but also because they dispose individuals to act (within a given structure) in a certain way. These structures constitute the ‘deep structure’ of society.

Our observations and theories are concept-dependent without therefore necessarily being concept-determined. There is a reality existing independently of our knowledge and theories of it. Although we cannot apprehend it without using our concepts and theories, these are not the same as reality itself. Reality and our concepts of it are not identical. Social science is made possible by existing structures and relations in society that are continually reproduced and transformed by different actors.

Explanations and predictions of social phenomena require theory constructions. Just looking for correlations between events is not enough. One has to get under the surface and see the deeper underlying structures and mechanisms that essentially constitute the social system.

The basic question one has to pose when studying social relations and events are​ what are the fundamental relations without which they would cease to exist. The answer will point to causal mechanisms and tendencies that act in the concrete contexts we study. Whether these mechanisms are activated and what effects they will have in that case it is not possible to predict, since these depend on accidental and variable relations. Every social phenomenon is determined by a host of both necessary and contingent relations, and it is impossible in practice to have complete knowledge of these constantly changing relations. That is also why we can never confidently predict them. What we can do, through learning about the mechanisms of the structures of society, is to identify the driving forces behind them, thereby making it possible to indicate the direction in which things tend to develop.

The world itself should never be conflated with the knowledge we have of it. Science can only produce meaningful, relevant and realist knowledge if it acknowledges its dependence of the​ world out there. Ultimately that also means that the critique yours truly wages against mainstream economics is that it doesn’t take that ontological requirement seriously.

The Deficit Myth

22 Mar, 2021 at 12:15 | Posted in Economics | 6 Comments The Deficit Myth: Modern Monetary Theory and the Birth of the  People's Economy eBook: Kelton, Stephanie: Kindle StoreSoon after joining the Budget Committee, Kelton the deficit owl played a game with the staffers. She would first ask if they would wave a magic wand that had the power to eliminate the national debt. They all said yes. Then Kelton would ask, “Suppose that wand had the power to rid the world of US Treasuries. Would you wave it?” This question—even though it was equivalent to asking to wipe out the national debt—“drew puzzled looks, furrowed brows, and pensive expressions. Eventually, everyone would decide against waving the wand.”

Such is the spirit of Kelton’s book, The Deficit Myth. She takes the reader down trains of thought that turn conventional wisdom about federal budget deficits on its head. Kelton makes absurd claims that the reader will think surely can’t be true…but then she seems to justify them by appealing to accounting tautologies. And because she uses apt analogies and relevant anecdotes, Kelton is able to keep the book moving despite its dry subject matter. She promises the reader that MMT opens up grand new possibilities for the federal government to help the unemployed, the uninsured, and even the planet itself…if we would only open our minds to a paradigm shift …

Precisely because Kelton’s book is so unexpectedly impressive, I would urge longstanding critics of MMT to resist the urge to dismiss it with ridicule. Although it’s fun to lambaste “magical monetary theory” on social media and to ask, “Why don’t you move to Zimbabwe?” such moves will only serve to enhance the credibility of MMT in the eyes of those who are receptive to it.

Robert P. Murphy / Mises Institute

Can a government go bankrupt?
No. You cannot be indebted to yourself.

Can a central bank go bankrupt?
No. A central bank can in principle always ‘print’ more money.

Do taxpayers have to repay government debts?
No, at least not as long the debt is incurred in a country’s own currency.

Do increased public debts burden future generations?
No, not necessarily. It depends on what the debt is used for.

Does maintaining full employment mean the government has to increase its debt?

dec3bb27f72875e4fb4d4b62daebb2fd161b36392c1a0626f00cfd2ece207d84As the national debt increases, and with it the sum of private wealth, there will be an increasingly yield from taxes on higher incomes and inheritances, even if the tax rates are unchanged. These higher tax payments do not represent reductions of spending by the taxpayers. Therefore the government does not have to use these proceeds to maintain the requisite rate of spending, and can devote them to paying the interest on the national debt …

The greater the national debt the greater is the quantity of private wealth. The reason for this is simply that for every dollar of debt owed by the government there is a private creditor who owns the government obligations (possibly through a corporation in which he has shares), and who regards these obligations as part of his private fortune. The greater the private fortunes the less is the incentive to add to them by saving out of current income …

If for any reason the government does not wish to see private property grow too much … it can check this by taxing the rich instead of borrowing from them, in its program of financing government spending to maintain full employment.

Abba Lerner

Comment l’extrême droite a préparé l’insurrection au Capitole

21 Mar, 2021 at 19:01 | Posted in Economics | Comments Off on Comment l’extrême droite a préparé l’insurrection au Capitole


Jag tänkte jämt på dig

21 Mar, 2021 at 18:18 | Posted in Varia | Comments Off on Jag tänkte jämt på dig


Dialektik der Aufklärung

20 Mar, 2021 at 09:31 | Posted in Theory of Science & Methodology | Comments Off on Dialektik der Aufklärung


Bayesianism — a scientific cul-de-sac

20 Mar, 2021 at 09:21 | Posted in Theory of Science & Methodology | 2 Comments

Fact and Method: Miller, Richard W.: 9780691020457: BooksThe bias toward the superficial and the response to extraneous influences on research are both examples of real harm done in contemporary social science by a roughly Bayesian paradigm of statistical inference as the epitome of empirical argument. For instance the dominant attitude toward the sources of black-white differential in United States unemployment rates (routinely the rates are in a two to one ratio) is “phenomenological.” The employment differences are traced to correlates in education, locale, occupational structure, and family background. The attitude toward further, underlying causes of those correlations is agnostic … Yet on reflection, common sense dictates that racist attitudes and institutional racism must play an important causal role. People do have beliefs that blacks are inferior in intelligence and morality, and they are surely influenced by these beliefs in hiring decisions … Thus, an overemphasis on Bayesian success in statistical inference discourages the elaboration of a type of account of racial disadavantages that almost certainly provides a large part of their explanation.

For all scholars seriously interested in questions on what makes up a good scientific explanation, Richard Miller’s Fact and Method is a must read. His incisive critique of Bayesianism is still unsurpassed.

Assume you’re a Bayesian turkey and hold a nonzero probability belief in the hypothesis H that “people are nice vegetarians that do not eat turkeys and that every day I see the sun rise confirms my belief.” For every day you survive, you update your belief according to Bayes’ Rule

P(H|e) = [P(e|H)P(H)]/P(e),

where evidence e stands for “not being eaten” and P(e|H) = 1. Given that there do exist other hypotheses than H, P(e) is less than 1 and a fortiori P(H|e) is greater than P(H). Every day you survive increases your probability belief that you will not be eaten. This is totally rational according to the Bayesian definition of rationality. Unfortunately — as Bertrand Russell famously noticed — for every day that goes by, the traditional Christmas dinner also gets closer and closer …

The Nobel prize that isn’t really a Nobel prize

19 Mar, 2021 at 12:16 | Posted in Economics | Comments Off on The Nobel prize that isn’t really a Nobel prize


And if you want to get that prize in economics — and want to be on the sure side — yours truly would suggest you move to Chicago. Out of the 86 laureates that have been awarded “The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel,” more than a third have been affiliated to The University of Chicago. The world is really a very small place when it comes to  economics …

Professor svarar lättkränkta Malmöstudenter

19 Mar, 2021 at 10:45 | Posted in Economics | Comments Off on Professor svarar lättkränkta Malmöstudenter

Min främsta uppgift är att förmedla kunskap, inte att skydda studenter från obehag. Samtidigt finns det ett pedagogiskt problem i det, för om studenterna upplever alltför stort obehag, kommer det att stå i vägen för deras och deras medstudenters lärande. Det gör min situation svårlösbar: Hur skall jag kunna undervisa om ett visuellt material utan att använda bilder? Hur skall vi lära oss att identifiera och analysera olika stereotyper om vi aldrig får se dem? Att utplåna dem ur akademiska sammanhang – där syftet är att man skall kontextualisera och analysera – betyder ju inte att de försvinner, att den historia som har producerat dem försvinner, eller att effekterna av dem försvinner …

Även här i Sverige hör jag om kolleger som börjar självcensurera. Historier om studentreaktioner på känsliga ord i klassificeringssammanhang eller i gamla artiklar är avskräckande, inte minst när lärarna inte vågar lita på att få stöd från sitt universitet. Hotet att bli utpekad som rasist, sexist, homofob eller transfob är väldigt effektivt. Självcensuren beror alltså inte på hänsyn och respekt, utan rädsla. Och rädsla skapar inte någon bra arbetsmiljö, vare sig för lärare och forskare eller för studenter. Rädsla begränsar forskningen och hämmar undervisningen. Den viktigaste uppgiften – kunskap – går förlorad.

Mariah Larsson / SDS

Mitt eget råd till studenter som inte klarar av att förhålla sig till bilder och ordbruk på ett vetenskapligt sätt — fundera allvarligt på om universitetsstudier verkligen är något för dig! Är man så känslig att man inte vågar utsätta sig för det eventuella obehag vetenskaplig prövning av försanthållanden och fakta kan leda till, bör man inte ägna sig åt universitetsstudier.

Dagens imbecilla tyckmyckentrutade kränkthetspladder är en skymf mot alla de som verkligen blir kränkta i vårt samhälle. Genom att urvattna begreppet ‘kränkthet’ till en totalt intetsägande psykologiserande fras med betydelse ‘jag tycker detta är jobbigt och gillar det inte’ förlorar det den kraft och betydelse det en gång med rätta haft.

When Did everyone Become Pussies — Stop Being So God Damn Offended | by  Chris Kreider — WTH | Medium

Deutsche Aluhüte

19 Mar, 2021 at 09:42 | Posted in Politics & Society | Comments Off on Deutsche Aluhüte


Yours truly among top economics influencers to follow

18 Mar, 2021 at 15:34 | Posted in Economics | 1 Comment

New outlook … | LARS P. SYLLMainstream economics has sadly made economics increasingly irrelevant to the understanding of the real world. Trying to contribute in making economics a more realist and relevant science, yours truly launched this blog in March 2011. Now, ten years later and with millions of page views on it, yours truly is — together with people like e.g. Paul Krugman, Nate Silver, Dani Rodrik, Thomas Piketty, Steve Keen — ranked on Focus Economics’ Top Influencers to Follow list. I am — of course — truly awed, honoured and delighted.

Chicago style history of economics

18 Mar, 2021 at 12:24 | Posted in Economics | Comments Off on Chicago style history of economics

full coverDans son histoire de la macroéconomie, De Vroey (2015) donne le premier rôle aux transformations épistémologiques et méthodologiques défendues par la NEC [nouvelle économie classique], et plus particulièrement par Robert Lucas. Les macroéconomistes aujourd’hui reconnaissent en général cette dimension principale de la NEC … Si les bouleversements qu’a connu la macroéconomie sous l’impulsion de la NEC dans les années 1970 ont durablement marqué la discipline, c’est parce que le coeur des attaques et des questions soulevées par celle-ci est avant tout épistémologique et méthodologique …

Pour Lucas, “une théorie s’occupe de constructions imaginaires”, ce qui la conduit à être fondamentalement “non-réaliste”. Il en vient à penser que “la focalisation sur le ‘réalisme’ d’un modèle économique subvertit son utilité potentielle pour penser la réalité”. Le réalisme d’un modèle, dans sa capacité à représenter le monde ou une partie du monde, n’est pas un critère adéquat d’évaluation de celui-ci. Ce qui doit intéresser le macroéconomiste, c’est la capacité de son modèle à nous fournir de “meilleures imitations” de la réalité …

L’économie modélisée et l’économie réelle doivent être clairement distinguées, et le seul pont qui peut exister entre les deux va des simulations de la première aux séries temporelles de la seconde … Quant à la capacité de la discipline à développer l’intelligence des phénomènes macroéconomiques et à en proposer un récit systématique, elle n’est plus une priorité.

Aurélien Goutsmedt

Yes indeed, in Michel De Vroey’s Chicago version of the history of economics, Robert Lucas’ declaration of the need for macroeconomics to be pursued only within ‘equilibrium discipline’ and declaring equilibrium to exist as a postulate, is hailed as a ‘Copernican revolution.’ Equilibrium is not to be considered something that characterises real economies, but rather “a property of the way we look at things.” De Vroey, approvingly, notices that this — as well as Lucas’ banning of disequilibrium as referring to ‘unintelligible behaviour’ — “amounts to shrinking the pretence of equilibrium theory.”

Mirabile dictu!

Is it really a feasible methodology for economists to make a sharp divide between theory and reality, and then — like De Vroey and Lucas — use instrumentalist justifications and treat the divide as something recommendable and good? Yours truly thinks not.

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 has tried to show in On the use and misuse of theories and models in economics there is really no support for this conviction at all. 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 modell building is little more than hand waving that give us rather a 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 utilised to analyse 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 à la Lucas by assuming equilibrium and rational expectations, and treating uncertainty as if it was possible to reduce to stochastic risk. That is scientific cheating. And it has been going on for too long now.

Adorno’s ‘Aspects of the New Right-Wing Radicalism’

17 Mar, 2021 at 22:23 | Posted in Politics & Society | Comments Off on Adorno’s ‘Aspects of the New Right-Wing Radicalism’


Feynman technique

17 Mar, 2021 at 17:03 | Posted in Education & School | Comments Off on Feynman technique


Yours truly has been teaching at different universities for more than forty years. Again and again I’ve learned one thing for sure. Feynman’s technique works!

The stability problem in Sraffian economic

17 Mar, 2021 at 15:34 | Posted in Economics | Comments Off on The stability problem in Sraffian economic

Ñángara Marx: 10/10/14There is little doubt that the structure of the Sraffian system is identical to GET [General Equilibrium Theory] in its commitment to the algebra of simultaneous equations but with this difference: the equations in GET are demand and supply equations, whereas the equations in Sraffian economics are physical input-output relations, which are supposed to determine prices independently of demand. The existence problem in GET has its counterpart in Sraffian theory: the question now is, are the Leontief technology matrices “invertible,” so as to lead to a unique vector of commodity prices at every rate of profit?

So much, then, for the existence problem. What about the stability problem in Sraffian economics? Here, Sraffa adopted Adam Smith’s “gravity model,” according to which the long-run “natural price” of a commodity is “the attractor” of the short-run “market price,” the latter following and adjusting to the former … The stability problem in Sraffian economics is the question: will an excess rate of profit in an industry automatically result in a self-correcting adjustment, driving the excess rate of profit in that industry down to the uniform rate in the economy? No, not necessarily, argues Ian Steedman (1984), a writer deeply sympathetic to the Sraffian enterprise, in part because the rate of profit varies, as Adam Smith was at pains to argue, with “the certainty and uncertainty of the returns” and not always in proportion to the riskiness of the investment. In short, there is no guarantee that the market price will follow rather than lead the natural price, that the “cross-dual dynamics” as Sraffians call it will be stable, just as there is no guarantee in GET that an increase in demand will always lead to an increase in price.

Mark Blaug

Blaug raises an important issue here. Yours truly remembers having lively discussions on it back in the 80’s with one of the leading Sraffians, Pierangelo Garegnani, at the the PostKeynesian Summer Schools in Trieste. Asking for a justification of this assumption of a ‘gravity center’, I wasn’t particularly impressed by Piero’s answer, which more or less amounted to “either you believe in a long-run equilibrium, or you’re not a Sraffian.” Not much of an argument or justification. To me it sounded more like a defence of a religious dogma.

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