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description= 15 posts published by Lars Syll during July 2016;
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e are supposed to evaluate tests of a theories and models building on known to be false assumptions what is the point of such tests what can those tests possibly teach us from falsehoods anything logically follows modern expected utility theory is a good example of this leaving the specification of preferences without almost any restrictions whatsoever every imaginable evidence is safely made compatible with the all embracing theory and a theory without informational content never risks being empirically tested and found falsified used in mainstream economics thought experimental activities it may of course be very handy but totally void of any empirical value utility theory has like so many other economic theories morphed into an empty theory of everything and a theory of everything explains nothing just as gary becker s economics of everything it only makes nonsense out of economic science using false assumptions mainstream modelers can derive whatever conclusions they want wanting to show that all economists consider austerity to be the right policy just e g assume all economists are from chicago and all economists from chicago consider austerity to be the right policy the conclusions follows by deduction but is of course factually totally wrong models and theories building on that kind of reasoning is nothing but a pointless waste of time of which gary becker s rational actor model is a superb example greetings from hamburg personal 26 jul 2016 at 19 50 posted in varia comments off on greetings from hamburg personal on our way down to heidelberg we spent a couple of days in hamburg visiting speicherstadt the largest warehouse district in the world on timber pile foundations and since 2015 part of unesco world heritage awesome econometric forecasting an assessment 26 jul 2016 at 16 44 posted in statistics econometrics comments off on econometric forecasting an assessment there have been over four decades of econometric research on business cycles the formalization has undeniably improved the scientific strength of business cycle measures but the significance of the formalization becomes more difficult to identify when it is assessed from the applied perspective especially when the success rate in ex ante forecasts of recessions is used as a key criterion the fact that the onset of the 2008 financial crisis triggered recession was predicted by only a few wise owls while missed by regular forecasters armed with various models serves us as the latest warning that the efficiency of the formalization might be far from optimal remarkably not only has the performance of time series data driven econometric models been off the track this time so has that of the whole bunch of theory rich macro dynamic models developed in the wake of the rational expectations movement which derived its fame mainly from exploiting the forecast failures of the macro econometric models of the mid 1970s recession the limits of econometric forecasting has as noted by qin been critically pointed out many times before trygve haavelmo w ith the completion in 1958 of the twenty fifth volume of econometrica assessed the the role of econometrics in the advancement of economics and although mainly positive of the repair work and clearing up work done haavelmo also found some grounds for despai r we have found certain general principles which would seem to make good sense essentially these principles are based on the reasonable idea that if an economic model is in fact correct or true we can say something a priori about the way in which the data emerging from it must behave we can say something a priori about whether it is theoretically possible to estimate the parameters involved and we can decide a priori what the proper estimation procedure should be but the concrete results of these efforts have often been a seemingly lower degree of accuracy of the would be economic laws i e larger residuals or coefficients that seem a priori less reasonable than those obtained by using cruder or clearly inconsistent methods there is the possibility that the more stringent methods we have been striving to develop have actually opened our eyes to recognize a plain fact viz that the laws of economics are not very accurate in the sense of a close fit and that we have been living in a dream world of large but somewhat superficial or spurious correlations and as the quote below shows even ragnar frisch shared some of haavelmo s and keynes s doubts on the applicability of econometrics i have personally always been skeptical of the possibility of making macroeconomic predictions about the development that will follow on the basis of given initial conditions i have believed that the analytical work will give higher yields now and in the near future if they become applied in macroeconomic decision models where the line of thought is the following if this or that policy is made and these conditions are met in the period under consideration probably a tendency to go in this or that direction is created ragnar frisch econometrics may be an informative tool for research but if its practitioners do not investigate and make an effort of providing a justification for the credibility of the assumptions on which they erect their building it will not fulfill its tasks there is a gap between its aspirations and its accomplishments and without more supportive evidence to substantiate its claims critics will continue to consider its ultimate argument as a mixture of rather unhelpful metaphors and metaphysics maintaining that economics is a science in the true knowledge business i remain a skeptic of the pretences and aspirations of econometrics so far i cannot really see that it has yielded very much in terms of relevant interesting economic knowledge and more specifically when it comes to forecasting activities the results have been bleak indeed the marginal return on its ever higher technical sophistication in no way makes up for the lack of serious under labouring of its deeper philosophical and methodological foundations that already keynes complained about the rather one sided emphasis of usefulness and its concomitant instrumentalist justification cannot hide that the legions of probabilistic econometricians who give supportive evidence for their considering it fruitful to believe in the possibility of treating unique economic data as the observable results of random drawings from an imaginary sampling of an imaginary population are scating on thin ice after having analyzed some of its ontological and epistemological foundations i cannot but conclude that econometrics on the whole has not delivered truth nor robust forecasts and i doubt if it has ever been the intention of its main protagonists our admiration for technical virtuosity should not blind us to the fact that we have to have a more cautious attitude towards probabilistic inference of causality in economic contexts science should help us penetrate to as keynes put it the true process of causation lying behind current events and disclose the causal forces behind the apparent facts we should look out for causal relations but econometrics can never be more than a starting point in that endeavour since econometric statistical explanations are not explanations in terms of mechanisms powers capacities or causes firmly stuck in an empiricist tradition econometrics is only concerned with the measurable aspects of reality but there is always the possibility that there are other variables of vital importance and although perhaps unobservable and non additive not necessarily epistemologically inaccessible that were not considered for the model those who were can hence never be guaranteed to be more than potential causes and not real causes a rigorous application of econometric methods in economics really presupposes that the phenomena of our real world economies are ruled by stable causal relations between variables a perusal of the leading econom etr ic journals shows that most econometricians still concentrate on fixed parameter models and that parameter values estimated in specific spatio temporal contexts are presupposed to be exportable to totally different contexts to warrant this assumption one however has to convincingly establish that the targeted acting causes are stable and invariant so that they maintain their parametric status after the bridging the endemic lack of predictive success of the econometric project indicates that this hope of finding fixed parameters is a hope for which there really is no other ground than hope itself this is a more fundamental and radical problem than the celebrated lucas critique have suggested this is not the question if deep parameters absent on the macro level exist in tastes and technology on the micro level it goes deeper real world social systems are not governed by stable causal mechanisms or capacities it is the criticism that keynes in essays in biography first launched against econometrics and inferential statistics already in the 1920s the atomic hypothesis which has worked so splendidly in physics breaks down in psychics we are faced at every turn with the problems of organic unity of discreteness of discontinuity the whole is not equal to the sum of the parts comparisons of quantity fails us small changes produce large effects the assumptions of a uniform and homogeneous continuum are not satisfied thus the results of mathematical psychics turn out to be derivative not fundamental indexes not measurements first approximations at the best and fallible indexes dubious approximations at that with much doubt added as to what if anything they are indexes or approximations of the kinds of laws and relations that econom etr ics has established are laws and relations about entities in models that presuppose causal mechanisms being atomistic and additive when causal mechanisms operate in real world social target systems they only do it in ever changing and unstable combinations where the whole is more than a mechanical sum of parts if economic regularities obtain they do it as a rule only because we engineered them for that purpose outside man made nomological machines they are rare or even non existant unfortunately that also makes most of the achievements of econometrics as most of contemporary endeavours of economic theoretical modeling rather useless austerity policies nothing but kindergarten economics 25 jul 2016 at 18 51 posted in economics 2 comments i definitely recommend everyone to watch this well argued interview with steve keen to many conservative and neoliberal politicians and economists there seems to be a spectre haunting the united states and europe today keynesian ideas on governments pursuing policies raising effective demand and supporting employment and some of the favourite arguments used among these keynesophobics to fight it are the confidence argument and the doctrine of sound finance is this witless crusade against economic reason new not at all it should be first stated that although most economists are now agreed that full employment may be achieved by government spending this was by no means the case even in the recent past among the opposers of this doctrine there were and still are prominent so called economic experts closely connected with banking and industry this suggests that there is a political background in the opposition to the full employment doctrine even though the arguments advanced are economic that is not to say that people who advance them do not believe in their economics poor though this is but obstinate ignorance is usually a manifestation of underlying political motives clearly higher output and employment benefit not only workers but entrepreneurs as well because the latter s profits rise and the policy of full employment outlined above does not encroach upon profits because it does not involve any additional taxation the entrepreneurs in the slump are longing for a boom why do they not gladly accept the synthetic boom which the government is able to offer them it is this difficult and fascinating question with which we intend to deal in this article we shall deal first with the reluctance of the captains of industry to accept government intervention in the matter of employment every widening of state activity is looked upon by business with suspicion but the creation of employment by government spending has a special aspect which makes the opposition particularly intense under a laissez faire system the level of employment depends to a great extent on the so called state of confidence if this deteriorates private investment declines which results in a fall of output and employment both directly and through the secondary effect of the fall in incomes upon consumption and investment this gives the capitalists a powerful indirect control over government policy everything which may shake the state of confidence must be carefully avoided because it would cause an economic crisis but once the government learns the trick of increasing employment by its own purchases this powerful controlling device loses its effectiveness hence budget deficits necessary to carry out government intervention must be regarded as perilous the social function of the doctrine of sound finance is to make the level of employment dependent on the state of confidence michal kalecki political aspects of full employment 1943 good reasons to worry about inequalities 25 jul 2016 at 13 22 posted in economics politics society 1 comment focussing upon inequality statistics misses an important point what matters is not just the level of income inequality but how that inequality arose a free market society in which high incomes arise from the free choices of consenting adults as in robert nozick s wilt chamberlain parable might have the same gini coefficient as a crony capitalist society but they are two different things a good reason to be worried about current inequality even if it hasn t changed is that it is a symptom of market failures such as corporate welfare regulatory capture or the implicit subsidy to banks in this context what matters is not just inequalities of income but inequalities of power top footballers and top bankers might be earning similar sums but one s salary is the product of market forces and the other of a tax payer subsidy the freelancer on 30 000 who s worrying where his next contract is coming from has similar income to the bullying middle managers who created intolerable working conditions at for example sports direct but they have very different degrees of economic power and the low income that results from having to take a lousy job where your wages are topped up by tax credits gives you much less power than the same income that would come from a basic income and the freer choice to take or leave a low wage job my point here is a simple one there are very good reasons why we should worry about inequality not just leftists but also right...
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