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description= 15 posts published by Lars Syll during January 2014;
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blematique sacrificed on the altar of model derivations this is not by chance for how could one even imagine to empirically test assumptions such as pissarides model 1 assumptions of reality being adequately represented by two overlapping generations of fixed size wages determined by nash bargaining actors maximizing expected utility endogenous job openings jobmatching describable by a probability distribution without coming to the conclusion that this is in terms of realism and relevance nothing but nonsense on stilts the whole strategy reminds me not so little of the following little tale time after time you hear people speaking in baffled terms about mathematical models that somehow didn t warn us in time that were too complicated to understand and so on if you have somehow missed such public displays of throwing the model and quants under the bus stay tuned below for examples but this is far from the case most of the really enormous failures of models are explained by people lying a common response to these problems is to call for those models to be revamped to add features that will cover previously unforeseen issues and generally speaking to make them more complex for a person like myself who gets paid to fix the model it s tempting to do just that to assume the role of the hero who is going to set everything right with a few brilliant ideas and some excellent training data unfortunately reality is staring me in the face and it s telling me that we don t need more complicated models if i go to the trouble of fixing up a model say by adding counterparty risk considerations then i m implicitly assuming the problem with the existing models is that they re being used honestly but aren t mathematically up to the task if we replace okay models with more complicated models as many people are suggesting we do without first addressing the lying problem it will only allow people to lie even more this is because the complexity of a model itself is an obstacle to understanding its results and more complex models allow more manipulation i used to work at riskmetrics where i saw first hand how people lie with risk models but that s not the only thing i worked on i also helped out building an analytical wealth management product this software was sold to banks and was used by professional wealth managers to help people usually rich people but not mega rich people plan for retirement we had a bunch of bells and whistles in the software to impress the clients monte carlo simulations fancy optimization tools and more but in the end the bank s and their wealth managers put in their own market assumptions when they used it specifically they put in the forecast market growth for stocks bonds alternative investing etc as well as the assumed volatility of those categories and indeed the entire covariance matrix representing how correlated the market constituents are to each other the result is this no matter how honest i would try to be with my modeling i had no way of preventing the model from being misused and misleading to the clients and it was indeed misused wealth managers put in absolutely ridiculous assumptions of fantastic returns with vanishingly small risk cathy o neil soros the theory of reflexivity 23 jan 2014 at 10 17 posted in theory of science methodology 2 comments the journal of economic methodology has published a special issue on the theory of reflexivity developed by george soros the issue includes a new article by soros and responses and critiques from 18 leading scholars in economics and the history and philosophy of science the issue can be accessed free of charge here why wall street shorts economists and their dsge models 22 jan 2014 at 11 15 posted in economics 34 comments blogger noah smith recently did an informal survey to find out if financial firms actually use the dynamic stochastic general equilibrium models that encapsulate the dominant thinking about how the economy works the result some do pay a little attention because they want to predict the actions of central banks that use the models in their investing however very few wall street firms find the dsge models useful this should come as no surprise to anyone who has looked closely at the models can an economy of hundreds of millions of individuals and tens of thousands of different firms be distilled into just one household and one firm which rationally optimize their risk adjusted discounted expected returns over an infinite future there is no empirical support for the idea indeed research suggests that the models perform very poorly why does the profession want so desperately to hang on to the models i see two possibilities maybe they do capture some deep understanding about how the economy works more likely economists find the models useful not in explaining reality but in telling nice stories that fit with established traditions and fulfill the crucial goal of getting their work published in leading academic journals knowledge really is power i know of at least one financial firm in london that has a team of meteorologists running a bank of supercomputers to gain a small edge over others in identifying emerging weather patterns their models help them make good profits in the commodities markets if economists dsge models offered any insight into how economies work they would be used in the same way that they are not speaks volumes mark buchanan bloomberg h t jan milch splendid article the unsellability of dsge private sector firms do not pay lots of money to use dsge models is a strong argument against dsge but it is not the most damning critique of it in the basic dsge models the labour market is always cleared responding to a changing interest rate expected life time incomes or real wages the representative agent maximizes the utility function by varying her labour supply money holding and consumption over time most importantly if the real wage somehow deviates from its equilibrium value the representative agent adjust her labour supply so that when the real wage is higher than its equilibrium value labour supply is increased and when the real wage is below its equilibrium value labour supply is decreased in this model world unemployment is always an optimal choice to changes in the labour market conditions hence unemployment is totally voluntary to be unemployed is something one optimally chooses to be although this picture of unemployment as a kind of self chosen optimality strikes most people as utterly ridiculous there are also unfortunately a lot of neoclassical economists out there who still think that price and wage rigidities are the prime movers behind unemployment dsge models basically explains variations in employment and a fortiori output with assuming nominal wages being more flexible than prices disregarding the lack of empirical evidence for this rather counterintuitive assumption lowering nominal wages would not clear the labour market lowering wages and possibly prices could perhaps lower interest rates and increase investment it would be much easier to achieve that effect by increasing the money supply in any case wage reductions was not seen as a general substitute for an expansionary monetary or fiscal policy and 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 the classical proposition that lowering wages would lower unemployment and ultimately take economies out of depressions was ill founded and basically wrong flexible wages would probably 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 obviously it s rather embarrassing that the kind of dsge models modern macroeconomists use cannot incorporate such a basic fact of reality as involuntary unemployment of course working with representative agent models this should come as no surprise 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 to me this the inability to explain involuntary unemployment is the most damning critique of dsge added 23 00 gmt paul davidson writes in a lovely comment on this article in explaining why samuelson s old neoclassical synthesis keynesianism and new keynesianism theories have nothing to do with keynes s general theory of employment i have continually quoted keynes from page 257 of the general theory who wrote for the classical theory has been accustomed to rest the supposedly self adjusting character of the economic system on the assumed fluidity of money wages and when there is rigidity to lay on this rigidity the blame for maladjustment my difference from this theory is primarily a difference of analysis this is in a chapter entitled changes in money wages where keynes explain why changes in money wages can not guarantee full employment when in a published debate with milton friedman in the jpke later published as a book entitled milton friedman s monetary framework a debate with his critics i pointed out this chapter of the general theory to milton his response was that davidson refers to many chapters in the back of the general theory that have some interesting and relevant comments but are not part of keynes s theory while fixity of wages and prices are essential to understanding keynes in a verbal discussion with paul samuelson many years ago i pointed out this chapter to samuelson his response was he found the general theory unpalatable but liked the policy implications and therefore he samuelson merely assumed the general theory was a walrasian system with fixity of wages and prices neoklassiska fantasifoster 22 jan 2014 at 09 41 posted in economics comments off on neoklassiska fantasifoster någon ses piska en dammig matta med en stor pinne av detta drar man slutsatsen att stora pinnar lämpar sig väl för att rengöra dammiga ting som säg fönster de flesta skulle uppfatta slutsatsen som galen varför rimligen för att vi vet tillräckligt om hur pinnar och fönster är beskaffade för att dels se problemet med den specifika rengöringstekniken dels kunna laborera med alternativa möjligheter att uppnå målet ett rent fönster liknelsen ovan presenteras av den brittiska ekonomen tony lawson han fortsätter låt oss nu se framför oss en situation där pinne rengör fönster modellen testas upprepade gånger med produktion av glasbitar som följd vad om slutsatsen då blir att man måste försöka lite hårdare kanske har det varit fel fönster man har prövat med kanske är man snart i mål anhängare av en sådan teori skulle onekligen kunna benämnas dogmatiker de skulle i varje fall inte få tjänstgöra som vaktmästare särskilt länge men detta är konstaterar lawson dessvärre en fungerande analogi för tillståndet inom den samtida ortodoxa nationalekonomin ja utom detta med den sparkade vaktmästaren då lawson skrev det här i mitten av 1990 talet sedan dess har ganska lite hänt det vill säga när det gäller utgångspunkterna för den ekonomivetenskap som undervisas på universiteten som dominerar den akademiska disciplinens kommandohöjder och som levererar premisser till politiska och administrativa beslut i verkligheten har ganska mycket hänt bland annat återkommande finans och valutakriser runt om i världen spekulativa innovationer som bidrog till att blåsa upp bubblor som spruckit och skvätt ned hundratals miljoner människor pågående krishanteringar som puttar hela samhällen ned i långvarig fattigdom och stagnation allt detta medan ledande ekonomer har skrivit ut recept byggda på fantasier om självkorrigerande marknader pinne möter fönster hela institutioner diskuterar swing tekniker ali esbati magasinet arena chant d exil 21 jan 2014 at 13 14 posted in varia comments off on chant d exil de döda skall inte tiga men tala 20 jan 2014 at 19 43 posted in politics society varia comments off on de döda skall inte tiga men tala till fadime sahindal född 2 april 1975 i turkiet mördad 21 januari 2002 i sverige i sverige har vi länge okritiskt omhuldat en ospecificerad och odefinierad mångkulturalism om vi med mångkulturalism menar att det i vårt samhälle finns flera olika kulturer ställer detta inte till med problem då är vi alla mångkulturalister men om vi med mångkulturalism menar att det med kulturell tillhörighet och identitet också kommer specifika moraliska etiska och politiska rättigheter och skyldigheter talar vi om något helt annat då talar vi om normativ multikulturalism och att acceptera normativ mångkulturalism innebär också att tolerera oacceptabel intolerans eftersom den normativa mångkulturalismen innebär att specifika kulturella gruppers rättigheter kan komma att ges högre dignitet än samhällsmedborgarens allmänmänskliga rättigheter och därigenom indirekt bli till försvar för dessa gruppers eventuella intolerans i ett normativt mångkulturalistiskt samhälle kan institutioner och regelverk användas för att inskränka människors frihet utifrån oacceptabla och intoleranta kulturella värderingar den normativa mångkulturalismen innebär att individer på ett oacceptabelt sätt reduceras till att vara passiva medlemmar av kultur eller identitetsbärande grupper men tolerans innebär inte att vi måste ha en värderelativistisk inställning till identitet och kultur de som i vårt samhälle i handling visar att de inte respekterar andra människors rättigheter kan inte räkna med att vi ska vara toleranta mot dem om vi ska värna om det moderna demokratiska samhällets landvinningar kan samhället inte omhulda en normativ mångkulturalism i ett modernt demokratiskt samhälle måste rule of law gälla och gälla alla mot dem som i vårt samhälle vill tvinga andra att leva efter deras egna religiösa kulturella eller ideologiska trosföreställningar och tabun ska samhället vara intolerant mot dem som vill tvinga samhället att anpassa lagar och regler till den egna religionens kulturens eller gruppens tolkningar ska samhället vara intolerant de döda de döda skall icke tiga men tala förskingrad plåga skall finna sin röst och när cellernas råttor och mördarnas kolvar förvandlats till aska och urgammalt stoft skall kometens parabel och stjärnornas vågspel ännu vittna om dessa som föll mot sin mur tvagna i eld men inte förbrunna till glöd förtrampade slagna men utan ett sår på sin kropp och ögon som stirrat i fasa skall öppnas i frid och de döda skall icke tiga men tala om de döda skall inte tigas men talas fast stympade strypta i maktens cell glasartade beledda i cyniska väntrum där döden har klistrat sin freds propaganda skall de vila länge i samvetets montrar balsamerade av sanning och tvagna i eld och de som redan har stupat skall icke brytas och den som tiggde nåd i ett ögonblicks glömska skall resa sig och vittna om det som inte brytes för...
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