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description= 15 posts published by Lars Syll during June 2014;
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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 mathematical statistical nomological machines they are rare or even non existant unfortunately that also makes most of contemporary mainstream neoclassical endeavours of mathematical economic modeling rather useless and that also goes for krugman and the rest of the new keynesian family when it comes to modeling philosophy paul krugman has in an earlier piece defended his position in the following words my italics i don t mean that setting up and working out microfounded models is a waste of time on the contrary trying to embed your ideas in a microfounded model can be a very useful exercise not because the microfounded model is right or even better than an ad hoc model but because it forces you to think harder about your assumptions and sometimes leads to clearer thinking in fact i ve had that experience several times the argument is hardly convincing if people put that enormous amount of time and energy that they do into constructing macroeconomic models then they really have to be substantially contributing to our understanding and ability to explain and grasp real macroeconomic processes if not they should after somehow perhaps being able to sharpen our thoughts be thrown into the waste paper basket something the father of macroeconomics keynes used to do and not as today being allowed to overrun our economics journals and giving their authors celestial academic prestige krugman s explications on this issue is really interesting also because they shed light on a kind of inconsistency in his art of argumentation during a couple of years krugman has in more than one article criticized mainstream economics for using too much bad mathematics and axiomatics in their model building endeavours but when it comes to defending his own position on various issues he usually himself ultimately falls back on the same kind of models in his end this depression now just to take one example paul krugman maintains that although he doesn t buy the assumptions about rationality and markets that are embodied in many modern theoretical models my own included he still find them useful as a way of thinking through some issues carefully when it comes to methodology and assumptions krugman obviously has a lot in common with the kind of model building he otherwise criticizes the same critique that when it comes to defending his own position on various issues he usually himself ultimately falls back on the same kind of models that he otherwise criticize can be directed against his new post krugman has said these things before but i am still waiting for him to really explain how the silly assumptions behind is lm helps him work with the fundamental issues if one can only use those assumptions with as krugman says tongue in cheek well why then use them at all wouldn t it be better to use more adequately realistic assumptions and be able to talk clear without any tongue in cheek i have noticed again and again that on most macroeconomic policy issues i find myself in agreement with krugman to me that just shows that krugman is right in spite of and not thanks to those neoclassical models is lm included he ultimately refers to when he is discussing austerity measures ricardian equivalence or problems with the euro he is actually not using those models but rather even simpler and more adequate and relevant thought constructions much more in the vein of keynes 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 model building is little more than hand waving that give us rather 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 utilized to analyze them that have to match reality not the other way around as keynes has it economics is a science of thinking in terms of models joined to the art of choosing models which are relevant to the contemporary world it is compelled to be this because unlike the natural science the material to which it is applied is in too many respects not homogeneous through time if macroeconomic models no matter of what ilk make assumptions and we know that real people and markets cannot be expected to obey these assumptions the warrants for supposing that conclusions or hypotheses of causally relevant mechanisms or regularities can be bridged are obviously non justifiable macroeconomic theorists regardless of being new monetarist new classical or new keynesian ought to do some ontological reflection and heed keynes warnings on using thought models in economics the object of our analysis is not to provide a machine or method of blind manipulation which will furnish an infallible answer but to provide ourselves with an organized and orderly method of thinking out particular problems and after we have reached a provisional conclusion by isolating the complicating factors one by one we then have to go back on ourselves and allow as well as we can for the probable interactions of the factors amongst themselves this is the nature of economic thinking any other way of applying our formal principles of thought without which however we shall be lost in the wood will lead us into error so let me respectfully summarize a gadget is just a gadget and brilliantly silly simple models is lm included do not help us working with the fundamental issues of modern economies any more than brilliantly silly complicated models calibrated dsge and rbc models included and as rosenberg rightly notices when he accepts maximizing and equilibrium as the only way useful economics is done krugman makes a concession so great it threatens to undercut the rest of his arguments against new classical economics share on facebook opens in new window facebook share on x opens in new window x share on bluesky opens in new window bluesky phil mirowski on neoliberalism 27 jun 2014 at 08 23 posted in economics politics society 2 comments h t jan milch bob rowthorn questions two of piketty s central assumptions 26 jun 2014 at 17 38 posted in economics 5 comments piketty uses the terms capital and wealth interchangeably to denote the total monetary value of shares housing and other assets income is measured in money terms we shall reserve the term capital for the totality of productive assets evaluated at constant prices the term output is used to denote the totality of net output value added measured at constant prices piketty uses the symbol β to denote the ratio of wealth to income and he denotes the share of wealth owners in total income by α in his theoretical analysis this share is equated to the share of profits in total output piketty documents how α and β have both risen by a considerable amount in recent decades he argues that this is not mere correlation but reflects a causal link it is the rise in β which is responsible for the rise in α to reach this conclusion he first assumes that β is equal to the capital output ratio k y as conventionally understood from his empirical finding that β has risen he concludes that k y has also risen by a similar amount according to the neoclassical theory of factor shares an increase in k y will only lead to an increase in α when the elasticity of substitution between capital and labour σ is greater than unity piketty asserts that this is the case indeed based on movements α and β he estimates that σ is between 1 3 and 1 6 page 221 thus piketty s argument rests on two crucial assumptions β k y and σ 1 once these assumptions are granted the neoclassical theory of factor shares ensures that an increase in β will lead to an increase in α in fact neither of these assumptions is supported by the empirical evidence which is surveyed briefly in the appendix this evidence implies that the large observed rise in β in recent decades is not the result of a big rise in k y but is primarily a valuation effect piketty argues that the higher income share of wealth owners is due to an increase in the capital output ratio resulting from a high rate of capital accumulation the evidence suggests just the contrary the capital output ratio as conventionally measured has either fallen or been constant in recent decades the apparent increase in the capital output ratio identified by piketty is a valuation effect reflecting a disproportionate increase in the market value of certain real assets a more plausible explanation for the increased income share of wealth owners is an unduly low rate of investment in real capital robert rowthorn it seems to me that rowthorn is closing in on the nodal point in piketty s picture of the long term trends in income distribution in advanced economies as i wrote the other day being able to show that you can get the piketty results using one or another of the available standard neoclassical growth models is of course from a realist point of view of limited value as usual the really interesting thing is how in accord with reality are the assumptions you make and the numerical values you put into the model specification h t erik hegelund share on facebook opens in new window facebook share on x opens in new window x share on bluesky opens in new window bluesky the spirit of tallis feat anna sandström 23 jun 2014 at 20 08 posted in varia comments off on the spirit of tallis feat anna sandström the real damage done 23 jun 2014 at 19 35 posted in economics 1 comment the number of britons living in poverty has more than doubled over the past 30 years a report has revealed about one in three uk families now live below the breadline despite the british economy doubling in size over the same period the uk s largest ever study into poverty in the country has urged the government to take measures to tackle growing levels of poverty the poverty and social exclusion in the united kingdom pse project led by the university of bristol has revealed the wealth gap between the haves and the have nots in the uk is widening still further almost 18 million people are unable to afford adequate housing while one in three do not have the money to heat their homes in winter the coalition government aimed to eradicate poverty by tackling the causes of poverty said professor david gordon from the townsend centre for international poverty research at the university of bristol their strategy has clearly failed the available high quality scientific evidence shows that poverty and deprivation have increased since 2010 the poor are suffering from deeper poverty and the gap between the rich and poor is widening perhaps the most interesting revelation unearthed by the report is the fact that most of the people living in poverty are employed dispelling the myth propagated by ministers that poverty is a consequence of lack of work the pse report says it found that the majority of children living below the breadline live in small families with at least one employed parent in households that suffer from food deprivation the study found that parents often sacrifice their own wellbeing for that of their children in 93 percent of cases at least one parent skimped on meals often to make sure others had enough to eat according to the study women were more likely to make sacrifices cutting back on clothes and social visits the research has shown that in many households parents sacrifice their own welfare going without adequate food clothing or a social life in order to try to protect their children from poverty and deprivation professor jonathan bradshaw of the university of york said in the pse s statement the report calls on the government to address the growing number of poor in the uk rt com share on facebook opens in new window facebook share on x opens in new window x share on bluesky opens in new window bluesky wage rigidity and the importance of checking your model assumptions 23 jun 2014 at 10 20 posted in economics comments off on wage rigidity and the importance of checking your model assumptions the task of this book is to explain wage rigidities it seems reasonable to hope that a successful explanation of wage rigidity would contribute to understanding the extent of the welfare loss associated with unemployment and what can be done to reduce it many theories of wage rigidity and unemployment include partial answers to these questions as part of their assumptions so that the phenomena of real interest are described in the theories assumptions for instance lucas concludes that increased unemployment during recessions implies little welfare loss lucas s policy conclusions are not strongly supported good support can come only from information that distinguishes his microeconomic assumptions from others yielding different policy recommendations a fanciful example may illustrate the danger of taking too narrow a view of instrumentalism you are an explorer seeking contact with the dafs an isolated tribe about which almost nothing is known you observe one of their villages through binoculars from far away you observe that every morning on sunny days men wearing bright yellow hats stand in the backyards and make sweeping gestures toward the sky when you finally arrange a meeting with some dafs you meet a few men with yellow hats and a few other plainer people believing the first to be leaders you offer them presents at which point all the dafs are outraged and assault you what you have not observed is that yellow hats mark slaves who throw grain to the household chickens in the yard on sunny days and inside on rainy ones it would have been worth your while not to settle for treating arm waving and wearing yellow hats as the phenomena to be explained but to test your assumptions about behavior by taking risks to sneak up closer and see precisely what the men were up to share on facebook opens in new window facebook share on x opens in new window x share on bluesky opens in new window bluesky did keynes accept the is lm model 22 jun 2014 at 19 13 posted in economics 1 comment lord keynes has some interesting references and links for those wanting to dwell upon the question if keynes really accepted hicks s is lm model my own view is that is lm doesn t adequately reflect the width and depth of keynes s insights on the workings of modern market economies 1 almost nothing in the post general theory writings of keynes suggests him considering hicks s is lm anywhere near a faithful rendering of his thought in keynes s canonical statement of the essence of his theory in the famous 1937 quarterly journal of economics article there is nothing to even suggest that keynes would have thought the existence of a keynes hicks is lm theory anything but pure nonsense john hicks the man who i...
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