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description= 15 posts published by Lars Syll during July 2016;
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ged 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 rightists who want freer markets and bourgeois virtues focusing only upon the stability of the gini coefficient is a form of statistical fetishism which overlooks important questions chris dillow lucas rapping and new keynesian models of unemployment 25 jul 2016 at 12 06 posted in economics 2 comments lucas and rapping 1969 claim that cyclical increases in unemployment occur when workers quit their jobs because wages or salaries fall below expectations according to this explanation when wages are unusually low people become unemployed in order to enjoy free time substituting leisure for income at a time when they lose the least income according to the theory quits into unemployment increase during recessions whereas historically quits decrease sharply and roughly half of unremployed workers become jobless because they are laid off during the recession i studied people were even afraid to change jobs because new ones might prove unstable and lead to unemployment if wages and salaries hardly ever fall the intertemporal substitution theory is widely applicable only if the unemployed prefer jobless leisure to continued employment at their old pay however the attitude and circumstances of the unemployed are not consistent with their having made this choice in real business cycle theory unemployment is interpreted as leisure optimally selected by workers as in the lucas rapping model it has proved difficult to construct business cycle models consistent with this assumption and with real wage fluctuations as small as they are in reality relative to fluctuations in employment truman f bewley this is of course only what you would expect of new classical chicago economists but sadly enough this extraterrestial view of unemployment is actually shared by so called new keynesians whose microfounded dynamic stochastic general equilibrium models cannot even incorporate such a basic fact of reality as involuntary unemployment of course working with microfunded representative agent models this should come as no surprise if one representative agent is employed all representative agents are 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 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 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 to keynes this was self evident but obviously not so to new classical and new keynesian economists thorbjörn fälldin en gigant har gått ur tiden 25 jul 2016 at 10 48 posted in politics society comments off on thorbjörn fälldin en gigant har gått ur tiden thorbjörn fälldin sveriges tidigare statsminister och ledare för centerpartiet dog i sitt hem i ramvik på lördagskvällen 90 år gammal under thorbjörn fälldins och föregångaren gunnar hedlunds tid representerade centerpartiet fortfarande en genuin politisk kraft i vårt samhälle efter fälldin vände centerpartiet blad och så småningom fick vi maud olofsson med olofsson såldes partiets själ ut och partiets kräftgång in i nyliberalism påbörjades sen kom annie lööf och ett en gång respekterat parti kördes fullständigt i botten att en nyliberal tyckmyckentrutad floskulös ayn rand och margaret thatcher dyrkande broilerpolitiker idag kan sitta och styra över ett parti som letts av giganter som hedlund och fälldin är fullständigt monstruöst obegripligt och sorgligt new keynesian unemployment a paid vacation essentially 24 jul 2016 at 10 45 posted in economics comments off on new keynesian unemployment a paid vacation essentially franco modigliani famously quipped that he did not think that unemployment during the great depression should be described in an economic model as a sudden bout of contagious laziness quite for the past thirty years we have been debating whether to use classical real business cycle models rbc or their close cousins modern new keynesian nk models to describe recessions in both of these models the social cost of persistent unemployment is less than a half a percentage point of steady state consumption what does that mean median us consumption is roughly 30 000 a year one half of one percent of this is roughly 50 cents a day a person inhabiting one of our artificial model rbc or nk model worlds would not be willing to pay more than 50 cents a day to avoid another great depression that is true of real business cycle models it is also true of new keynesian models that s why i eschew nk and rbc models they are both wrong the high unemployment that follows a financial crisis is not the socially efficient response to technology shocks and the slow recovery from a financial melt down has nothing to do with the costs of reprinting menus that underpins the models of nk economists it is a potentially permanent failure of private agents to coordinate on an outcome that is socially desirable roger farmer in the basic dsge models used by both new classical and new keynesian macroeconomists 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 a kind of prolonged vacation 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 and as if this is nonsense economics is not enough in new classical and new keynesian macroeconomists dsge models increases in government spending leads to a drop in private consumption how on earth does one arrive at such as bizarre view in the most basic mainstream proto dsge models one often assumes that governments finance current expenditures with current tax revenues this will have a negative income effect on the households leading rather counterintuitively to a drop in private consumption although both employment an production expands this mechanism also holds when the in famous ricardian equivalence is added to the models ricardian equivalence basically means that financing government expenditures through taxes or debts is equivalent since debt financing must be repaid with interest and agents equipped with rational expectations would only increase savings in order to be able to pay the higher taxes in the future thus leaving total expenditures unchanged why in the standard neoclassical consumption model used in dsge macroeconomic modeling people are basically portrayed as treating time as a dichotomous phenomenon today and the future when contemplating making decisions and acting how much should one consume today and how much in the future facing an intertemporal budget constraint of the form c t c f 1 r f t y t y f 1 r where c t is consumption today c f is consumption in the future f t is holdings of financial assets today y t is labour incomes today y f is labour incomes in the future and r is the real interest rate and having a lifetime utility function of the form u u c t au c f where a is the time discounting parameter the representative agent consumer maximizes his utility when u c t a 1 r u c f this expression the euler equation implies that the representative agent consumer is indifferent between consuming one more unit today or instead consuming it tomorrow typically using a logarithmic function form u c log c which gives u c 1 c the euler equation can be rewritten as 1 c t a 1 r 1 c f or c f c t a 1 r this importantly implies that according to the neoclassical consumption model changes in the real interest rate and consumption move in the same direction and it also follows that consumption is invariant to the timing of taxes since wealth f t y t y f 1 r has to be interpreted as present discounted value net of taxes and so according to the assumption of ricardian equivalence the timing of taxes does not affect consumption simply because the maximization problem as specified in the model is unchanged as a result households cut down on their consumption when governments increase their spendings mirabile dictu macroeconomic models have to abandon ricardian equivalence nonsense but replacing it with overlapping generations and infinite horizon models is in terms of realism and relevance just getting out of the frying pan into the fire all unemployment is still voluntary intertemporal substitution between labour and leisure is still ubiquitous and the specification of the utility function is still hopelessly off the mark from an empirical point of view as one nobel laureate had it ricardian equivalence is taught in every graduate school in the country it is also sheer nonsense joseph e stiglitz twitter and as one economics blogger has it new classical and new keynesian dsge modeling is taught in every graduate school in the country it is also sheer nonsense lars p syll twitter economics vs reality 24 jul 2016 at 09 41 posted in economics 1 comment denicolò and zanchettin in an article published by the prestigious economic journal claim to have shown among other things that stronger patent protection may reduce innovation and growth as a prelude to forty pages of mathematics they state of their model the economy is populated by l identical infinitely lived individuals there is a unique final good in the economy that can be consumed used to produce intermediate goods or used in research not only are all the people in this model world identical and immortal they only produce a single product the product has properties that are entirely unreal not so much science fiction as pure magic the conclusion may be justified or not but the idea that a model so remote from reality can be used to make public policy recommendations is to anyone but a fully certified neoclassical economist staggering the mathematization of economics since ww ii has made mainstream neoclassical economists more or less obsessed with formal deductive axiomatic models confronted with the critique that they do not solve real problems they often react as saint exupéry s great geographer who in response to the questions posed by the little prince says that he is too occupied with his scientific work to be be able to say anything about reality confronting economic theory s lack of relevance and ability to tackle real probems one retreats into the wonderful world of economic models one goes in to the shack of tools as my old mentor erik dahmén used to say and stays there while the economic problems in the world around us steadily increase one is rather happily playing along with the latest toys in the mathematical toolbox modern mainstream economics is sure very rigorous but if it s rigorously wrong who cares instead of making formal logical argumentation based on deductive axiomatic models the message i think we are better served by economists who more than anything else try to contribute to solving real problems and then the motto of john maynard keynes is more valid than ever it is better to be vaguely right than precisely wrong next page recent posts arbetslöshetsiffran som styr den ekonomiska politiken 50 år efter studenten personal finding the late student stuff love s secret stein s paradox a lesson on precision and unbiasedness audioholic summer research ett välförtjänt bottenrekord arbetslösheten inte statsskulden är problemet how credible is the credibility revolution in econometrics randomness and representativeness are not the same lönebildning och arbetslöshet i sverige nancy 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