O tempora, o mores!

27 April, 2015 at 09:30 | Posted in Economics | Leave a comment

Är du slö, slapp, lat, loj och likgiltig? Fick du för dåliga betyg? Höll inte uppsatsen måttet? Vågade någon tala om för dig att du gjort ett dåligt arbete eller inte ansträngt dig nog? Det gör inget! För nu för tiden kan alla som inte håller måttet komma undan det egna ansvaret med tidens egen deus ex machina — de är kränkta. Och simsalabim är problemet inte längre deras, utan den som hade fräckheten att våga påtala bristerna och undermåligheten. O tempora, o mores!


I welcome their hatred

26 April, 2015 at 15:16 | Posted in Economics | Leave a comment


Wicksell on the use of mathematics in economics

26 April, 2015 at 10:28 | Posted in Economics | 2 Comments

19266522One must, of course, beware of expecting from this method more than it can give. Out of the crucible of calculation comes not an atom more truth than was put in. The assumptions being hypothetical, the results obviously cannot claim more than a vey limited validity. The mathematical expression ought to facilitate the argument, clarify the results, and so guard against possible faults of reasoning — that is all.

It is, by the way, evident that the economic aspects must be the determining ones everywhere: economic truth must never be sacrificed to the desire for mathematical elegance.

The confidence fairy bleeding

25 April, 2015 at 12:31 | Posted in Economics | 1 Comment

The confidence factor affects government decision-making, but it does not affect the results of decisions. Except in extreme cases, confidence cannot cause a bad policy to have good results, and a lack of it cannot cause a good policy to have bad results, any more than jumping out of a window in the mistaken belief that humans can fly can offset the effect of gravity.

cashreserve1The sequence of events in the Great Recession that began in 2008 bears this out. At first, governments threw everything at it. This prevented the Great Recession from becoming Great Depression II. But, before the economy reached bottom, the stimulus was turned off, and austerity – accelerated liquidation of budget deficits, mainly by cuts in spending – became the order of the day.

Once winded political elites had recovered their breath, they began telling a story designed to preclude any further fiscal stimulus. The slump had been created by fiscal extravagance, they insisted, and therefore could be cured only by fiscal austerity. And not any old austerity: it was spending on the poor, not the rich, that had to be cut, because such spending was the real cause of the trouble.

Any Keynesian knows that cutting the deficit in a slump is bad policy. A slump, after all, is defined by a deficiency in total spending. To try to cure it by spending less is like trying to cure a sick person by bleeding.

So it was natural to ask economist/advocates of bleeding like Harvard’s Alberto Alesina and Kenneth Rogoff how they expected their cure to work. Their answer was that the belief that it would work – the confidence fairy – would ensure its success.

More precisely, Alesina argued that while bleeding on its own would worsen the patient’s condition, its beneficial impact on expectations would more than offset its debilitating effects. Buoyed by assurance of recovery, the half-dead patient would leap out of bed, start running, jumping, and eating normally, and would soon be restored to full vigor. The bleeding school produced some flaky evidence to show that this had happened in a few instances …

With the help of professors like Alesina, conservative conviction could be turned into scientific prediction. And when Alesina’s cure failed to produce rapid recovery, there was an obvious excuse: it had not been applied with enough vigor to be “credible.”

The cure, such as it was, finally came about, years behind schedule, not through fiscal bleeding, but by massive monetary stimulus. When the groggy patient eventually staggered to its feet, the champions of fiscal bleeding triumphantly proclaimed that austerity had worked.

The moral of the tale is simple: Austerity in a slump does not work, for the reason that the medieval cure of bleeding a patient never worked: it enfeebles instead of strengthening. Inserting the confidence fairy between the cause and effect of a policy does not change the logic of the policy; it simply obscures the logic for a time. Recovery may come about despite fiscal austerity, but never because of it.

Robert Skidelsky


Where to write blog posts and listen to music (private)

25 April, 2015 at 11:27 | Posted in Economics | Leave a comment

Karlskrona’s well preserved town plan and wide baroque streets has resulted in UNESCO designating it a World Heritage site. Its archipelago is the southernmost of Sweden’s archipelagos.

A lovely place for writing blog posts — and listening to music like this:

‘De evige tre’

24 April, 2015 at 18:34 | Posted in Economics | Leave a comment


Bayesianism — a dangerous scientific cul-de-sac

24 April, 2015 at 18:24 | Posted in Economics | 6 Comments

419Fn8sV1FL._SY344_BO1,204,203,200_The 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.

Lindeberg-Levy CLT (wonkish)

23 April, 2015 at 11:24 | Posted in Economics | Leave a comment


Money is NOT neutral in the long run

22 April, 2015 at 18:51 | Posted in Economics | 5 Comments

Paul Krugman has often tried to explain why we should continue to use neoclassical hobby horses like IS-LM and Aggregate Supply-Aggregate Demand models. Here’s one example:

So why do AS-AD? … We do want, somewhere along the way, to get across the notion of the self-correcting economy, the notion that in the long run, we may all be dead, but that we also have a tendency to return to full employment via price flexibility. Or to put it differently, you do want somehow to make clear the notion (which even fairly Keynesian guys like me share) that money is neutral in the long run.

Well, this “fairly Keynesian” guy is not impressed. And I doubt that Keynes himself would have been impressed by having his theory being characterized with catchwords like “tendency to return to full employment” and “money is neutral in the long run.”


One of Keynes’s central tenets — in clear contradistinction to the beliefs of neoclassical economists — is that there is no automatic tendency for economies to move toward full employment levels in monetary economies.

Money doesn’t matter in neoclassical macroeconomic models. That’s true. But in the real world in which we happen to live in, money does certainly matter. Money is not neutral and money matters in both the short run and the long run:

The theory which I desiderate would deal … with an economy in which money plays a part of its own and affects motives and decisions, and is, in short, one of the operative factors in the situ-ation, so that the course of events cannot be predicted in either the long period or in the short, without a knowledge of the behaviour of money between the first state and the last. And it is this which we ought to mean when we speak of a monetary economy.

J. M. Keynes A monetary theory of production (1933)

Short refresher on proof techniques (wonkish)

22 April, 2015 at 18:20 | Posted in Economics | Leave a comment


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