“Read Mike Woodford or Gauti Eggertsson or Ken Rogoff when he’s doing theory: they all take pains to provide an intuition behind their models,” (Krugman)

Of course they provide some intuition. But what if it is not true and ignores the evidence? Then surely it is as meaningless as an unintuitive explanation?

What the above method does is get an explanation to fit the model – as a simple example, so you can get two diagonal lines in the ISLM model.

But a scientific method does the reverse – it achieves an explanation by meticulously piecing together the evidence. That means a lot of qualitative and quantitative historical documentation. Theories and models emanating from this investigation can be referred to, but only usefully so if they are robust and produce consistently accurate forecasts. But the crucial thing is that theories and models emerge from looking at the historical evidence. You never let a theory or model dictate the terms of your analysis.

Unfortunately, whether Krugman, Romer or Woodford, this is not what goes on.

]]>Comment on ‘Macroeconomic ad hocery’

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“Whether we like it or not, we have no philosopher’s stone for touching quickly a humbug.” (Georgescu-Roegen, 1971, p. 67)

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In the deeper meaning, ad hoc is the opposite of science. For example: you have an explanation why and how the apple falls, why and how the moon circles the earth and when comets reappear. The beauty of science is that Newton could demonstrate that all these phenomena, and vastly more, can be derived from a handful of elementary premises.

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“Could all the phaenomena of nature be deduced from only thre [sic] or four general suppositions there might be great reason to allow those suppositions to be true.” (Newton, quoted in Westfall, 2008, p. 642)

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In contradistinction, ad hocery is — in the most extreme case — to construct as many incoherent models as there are economic phenomena. This is, by and large, what the different economic schools actually do.

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Newton stated his ‘general suppositions’ at the very first pages of Principia as axioms. The classical economists understood this methodological procedure very well.

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“To Senior belongs the signal honor of having been the first to make the attempt to state, consciously and explicitly, the postulates that are necessary and sufficient in order to build up … that little analytic apparatus commonly known as economic theory, or to put it differently, to provide for it an axiomatic basis.” (Schumpeter, 1994, p. 575)

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Orthodoxy, too, subscribed to this procedure.

“As with any Lakatosian research program, the neo-Walrasian program is characterized by its hard core, heuristics, and protective belts. Without asserting that the following characterization is definitive, I have argued that the program is organized around the following propositions: HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states.By definition, the hard-core propositions are taken to be true and irrefutable by those who adhere to the program. “Taken to be true” means that the hard-core functions like axioms for a geometry, maintained for the duration of study of that geometry.” (Weintraub, 1985, p. 147)

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Now, it should be pretty obvious what ad hoc means: every model that cannot be logically derived from HC1 to HC5 is ad hoc.

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Thus far Lucas’s argument is cogent and fully in harmony with what Heterodoxy says: “… nothing can be derived from an analytical model that is not logically contained in its axiomatic basis.” (Georgescu-Roegen, 1979, p. 321)

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Lucas’s logical blunder consists first and foremost in the claim that Orthodoxy’s hard core is an acceptable formal basis. It is not.

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“In fact, the history of every science, including that of economics, teaches us that the elementary is the hotbed of the errors that count most.” (Georgescu-Roegen, 1970, p. 9)

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There cannot be a microfoundation of macroeconomics because the axiomatic foundation of micro itself is methodologically unacceptable.

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The scientific dilettantism of Lucas in particular and of the representative economist in general consists in not intuitively realizing that there is no such thing as a behavioral axiom. However, this becomes crystal-clear not before one takes objective axioms as the formal foundation of all of economics (2014).

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All of microeconomics is false because the axiomatic hard core is false. This is, ultimately, the reason why the microfoundation project is proto-scientific humbug.

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Egmont Kakarot-Handtke

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References

Georgescu-Roegen, N. (1970). The Economics of Production. American Economic

Review, Papers and Proceedings, 60(2): 1–9. URL http://www.jstor.org/stable/

1815777.

Georgescu-Roegen, N. (1971). The Entropy Law and the Economic Process. Cambridge,

MA: Cambridge University Press.

Georgescu-Roegen, N. (1979). Methods in Economic Science. Journal of Economic

Issues, 13(2): 317–328. URL http://www.jstor.org/stable/4224809.

Kakarot-Handtke, E. (2014). Objective Principles of Economics. SSRN Working

Paper Series, 2418851: 1–19. URL

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2418851.

Schumpeter, J. A. (1994). History of Economic Analysis. New York, NY: Oxford

University Press.

Weintraub, E. R. (1985). Joan Robinson’s Critique of Equilibrium: An Appraisal.

American Economic Review, Papers and Proceedings, 75(2): 146–149. URL

http://www.jstor.org/stable/1805586.

Westfall, R. S. (2008). Never at Rest. A Biography of Isaac Newton. Cambridge:

Cambridge University Press, 17th edition. ]]>

Love it.

I would go farther and say it is better teaching what is correct than even teaching the mistakes to avoid. Its easier on the half asleep students.

]]>* The minor point: I would have thought that Alan Kirman ranks with Hoover in thinking and writing about this issue.

* The question: I thought that New Classical economists respond to arguments about the impossibility of aggregation like those above with a gesture toward the 2nd welfare theorem. That is, the equilibrium is a pareto optimum, therefore, something is being optimized, therefore we will establish a utility function that corresponds to the thing being optimized and the one to whom this utility function belongs is the representative agent. This strikes me as a dodge, but beyond wondering why we should be interested in this particular — creature? being? deity? — I have never learned of a useful, esp. of a formal, rejoinder. Will someone help me out here?

]]>1) Read what I say below in light of knowing that I agree with you.

2) I think I recall comments elsewhere — Crooked Timber? — by someone using your name (presumably you) that you had a Yale PhD. I believe I followed you there by several years. In the first year macro lecture where Tobin covered the C-C controversy, when someone commented that UK Cambridge was correct in their argument and US Cambridge was wrong, he shrugged and grunted, essentially, “So what? The model describes the data reasonably well.” There was no concern that I was aware of that the first, if not most, important point of a mathematical model is logical consistency, that without this, it fails its (dare I say it) “scientific” purpose. I recall mild scorn for Robinson and her (largely Italian) colleagues. Nowadays, we might take this for hippie punching.

3) When Romer’s attacks on mathiness entered the blogsphere 2-3 months ago, I had the same thoughts as you did at the top of your post. Be patient. Krugman often engaged in hippie punching until about the time of the Iraq War. I don’t think Delong largely dropped the tactic until after the crash and GFC of 2008. Romer has just abandoned his affinity group, and it will take him awhile to recognize who his allies are in this battle. Until then, he will continue to try to show his intellectual seriousness by attacking and misrepresenting those whom he previously opposed (and likely attacked and misrepresented, because misunderstood. “Everybody does it”).

4) In the meantime, sit down, crack open a beer, pass the nuts or pretzels or popcorn — take your pick — and enjoy the show.

]]>“Real Business Cycle” theory is neither, real, nor cyclic. Just a verbal theory.

Here is data of cyclic swings but they are not regular nor at the same frequency.

https://research.stlouisfed.org/fred2/graph/?id=EMRATIO

And it is not in equilibrium. Hardly ever!

]]>Here is my experience with RBC. I tried almost every thing following the equations and the books logic to get a cyclic solution to the equations in my book. (It was Oliver Blanchard’s book.) I could not. I put numbers in, made graphs from equations, etc.

Why? Every movement or change was from **outside the equations! The RBC equations in my book could never produce a cycle because the equations never explicately included time, t, as an independent variable. And, they were not differential equations.** In math,science, and engineering ordinary differential equations are what you use to model dynamic things! Including things that cycle. And, if system reaches an equilibrium after being dynamic the solutions to the dynamic equations will reach equilibrium.

Blanchard’s book’s RBC equations are like twisting the knobs on an etch a sketch. The machine produces nothing but what the user inputs. It was nothing like swinging on a swing or a mass on a spring going up and down with out input! Nothing, like a planet going around the sun because of its momentum and attraction of gravity.

As an engineer we can do dynamic modeling of real things. One of the simplest experimental and mathematical dynamic examples is a weight on a spring going up and down. Or, sideways on a fiction-less table.

The differential equation is this:

X”(t)=-k/m*X(t) where k is the spring constant (stiffness) and m is the mass of the weight.

And a solution could be:

X(t) is the position at time t.

X(t)=sin(t) if k=m=1

A differential equation is hard the first time! They can be numerically solved in a spread sheet program.

Online there are videos such as:

Spray Paint Oscillator

spring oscillator

It is simpler for you to try a pendulum. Or, go to a play ground. The length of the pendulum sets the frequency or period of oscillation.

The videos you want to see first are the actual demonstrations not the math. Then say to your self, “Equilibrium assumption is usually bunk!”

]]>Well said, and that means working like an historical investigator. That would mean eschewing a lot of nonsensical models. In any case, no model should not be used to organise your analysis – the known facts should.

I would add, Romer goes on about ‘mathiness’ by the Freshwater School. But for the sorts of reasons you outline here, I find it is New-Keynesianism which is the more convoluted, hypocritical and dishonest. Methodologically they are at their core doing the same thing, just not being honest about it.

]]>The links between debt and the rise of Britain as the first country to industrialise has been well known for some time, even if mainstream economists who will gadgetise this discussion and by not paying attention to the complexity of the interlinking factors, basically hollow it’s meaning out, have just discovered it. People should not be given credit for things they did not discover. A lot of meticulous historical work has gone into this issue, and historians are far ahead of mainstream gadget economists in understanding it. It also important to understand that the debt and bond finance raising issues are part of a more complex story here. You cannot isolate factors. For example, imperialism is another crucial factor that underlined both the industrial revolution and the ability to underwrite this debt.

This is not deep or pioneering stuff. For example I went to a brilliant seminar given by Patrick O’Brien on this very subject at LSE over a decade ago.

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Romer was quite explicit about where his own loyalties lie in his original paper: he wrote,

“Economists usually stick to science. Robert Solow (1956) was engaged in science when he developed his mathematical theory of growth. But they can get drawn into academic politics.”

“Joan Robinson (1956) was engaged in academic politics when she waged her campaign against capital and the aggregate production function.”

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In my view, it was precisely in that moment, in 1956, when economics, and growth theory in particular, lost its ability to digest the results of critical inquiry. That was when mathiness, as Romer calls it, became inevitable. Not because Robinson was wrong, but because she was right, and Samuelson and Solow acknowledged that she was right, but, then,

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There’s no defense for the production function, aggregate or otherwise, as a theory of production. Production is not a function of factor inputs, and a few minutes of critical thought ought to be sufficient to establish that, and capital as an accumulating factor is even less defensible. That doesn’t mean that Solow’s empirical analysis of growth has no interest, but it does mean that it has no proper claim to be a theory of growth, and certainly not a theory in which explanations of the long-run dynamics of income distribution feature an accumulating capital subject to diminishing returns in production output.

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But, here, we are. Romer knows perfectly well where economics went wrong, but is loath to admit it. He closes his paper in the Papers and Proceedings Volume of the AER with this plaintive question: “Where would we be now if Robert Solow’s math had been swamped by Joan Robinson’s mathiness?”

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Where, indeed? ]]>

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Classical theory has at its centre freewheeling individuals maximizing their utility – there is no need for outside intervention to direct the operation of markets. These notions are entirely in keeping with the protestant work ethic and the protestant belief in the calling. It is not a long jump from here to the law of the jungle and Darwinian dynamics, so much a foundation of classical economics.

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Microeconomics has a clear logical path which opens it easily to expression mathematically. (Hence it appeals to economists that began life as scientists and engineers.) The only problem of course, is that reality is too difficult to model, leading to models steeped in abstraction.

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People like Lucas leave no doubt where they stand in ideological terms. ]]>