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description= 15 posts published by Lars Syll during September 2020;
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arkup of selling prices over costs higher wages relatively to prices are necessary for long run prosperity but raising wages will do no good because they will only lead to higher prices and inflation the dilemma can be resolved only by the government going to work on both money wage determination and on markup rates both are problems of monopoly and as such are inevitably destructive of a free economy markup rates must be reduced by antimonopoly measures the most important help to the government in this will be the policy of maintaining full employment which will make it profitable for business to work with smaller markups abba lerner most proponents of mmt argue that the aggregate demand impact of interest rate changes is unclear their effect depends on intricate and complex relations especially distributional and institutions which makes it realiter impossible to always be able to tell which way they work public budget deficits and higher interest rates may cause inflation to go up or go down and if so the neoliberal dream of the efficacy of central bank inflation targeting is nothing but a fantasy share on facebook opens in new window facebook share on x opens in new window x share on bluesky opens in new window bluesky expected utility theory an ex parrot 20 sep 2020 at 16 16 posted in economics comments off on expected utility theory an ex parrot if a friend of yours offered you a gamble on the toss of a coin where you could lose 100 or win 200 would you accept it many of us probably wouldn t but if you were offered to make one hundred such bets you would probably be willing to accept it since most of us see that the aggregated gamble of one hundred 50 50 lose 100 gain 200 bets has an expected return of 5000 and making our probabilistic calculations we find out that there is only a 0 04 risk of losing any money unfortunately at least if you want to adhere to the standard mainstream expected utility theory you are then considered irrational a mainstream utility maximizer that rejects the single gamble should also reject the aggregate offer expected utility theory does not explain actual behaviour and choices but still although the theory is obviously descriptively inadequate economists and microeconomics textbook writers gladly continue to use it as though its deficiencies were unknown or unheard of that cannot be the right attitude when facing scientific anomalies when models are plainly wrong you d better replace them or as matthew rabin and richard thaler have it it is time for economists to recognize that expected utility is an ex hypothesis so that we can concentrate our energies on the important task of developing better descriptive models of choice under uncertainty yes indeed expected utility theory is an ex hypothesis this parrot is no more he has ceased to be e s expired and gone to meet is maker e s a stiff bereft of life e rests in peace if you hadn t nailed im to the perch e d be pushing up the daisies is metabolic processes are now istory e s off the twig e s kicked the bucket e s shuffled off is mortal coil run down the curtain and joined the bleedin choir invisible this is an ex parrot an ex parrot that transmogrifies truth shouldn t just be marginally mended it should be replaced share on facebook opens in new window facebook share on x opens in new window x share on bluesky opens in new window bluesky erik syll in memoriam personal 18 sep 2020 at 08 24 posted in varia comments off on erik syll in memoriam personal in loving memory of my father in law erik syll whose funeral took place yesterday at skeda church sweden share on facebook opens in new window facebook share on x opens in new window x share on bluesky opens in new window bluesky why economic models do not explain 16 sep 2020 at 12 33 posted in theory of science methodology 6 comments analogue economy models may picture galilean thought experiments or they may describe credible worlds in either case we have a problem in taking lessons from the model to the world the problem is the venerable one of unrealistic assumptions exacerbated in economics by the fact that the paucity of economic principles with serious empirical content makes it difficult to do without detailed structural assumptions but the worry is not just that the assumptions are unrealistic rather they are unrealistic in just the wrong way nancy cartwright one of the limitations with economics is the restricted possibility to perform experiments forcing it to mainly rely on observational studies for knowledge of real world economies but still the idea of performing laboratory experiments holds a firm grip of our wish to discover causal relationships between economic variables if we only could isolate and manipulate variables in controlled environments we would probably find ourselves in a situation where we with greater rigour and precision could describe predict or explain economic happenings in terms of structural causes parameter values of relevant variables and economic laws galileo galilei s experiments are often held as exemplary for how to perform experiments to learn something about the real world galileo s heavy balls dropping from the tower of pisa confirmed that the distance an object falls is proportional to the square of time and that this law empirical regularity of falling bodies could be applicable outside a vacuum tube when e g air existence is negligible the big problem is to decide or find out exactly for which objects air resistance and other potentially confounding factors is negligible in the case of heavy balls air resistance is obviously negligible but how about feathers or plastic bags one possibility is to take the all encompassing theory road and find out all about possible disturbing confounding factors not only air resistance influencing the fall and build that into one great model delivering accurate predictions on what happens when the object that falls is not only a heavy ball but feathers and plastic bags this usually amounts to ultimately state some kind of ceteris paribus interpretation of the law another road to take would be to concentrate on the negligibility assumption and to specify the domain of applicability to be only heavy compact bodies the price you have to pay for this is that 1 negligibility may be hard to establish in open real world systems 2 the generalisation you can make from sample to population is heavily restricted and 3 you actually have to use some shoe leather and empirically try to find out how large is the reach of the law in mainstream economics one has usually settled for the theoretical road and in case you think the present natural experiments hype has changed anything remember that to mimic real experiments exceedingly stringent special conditions have to obtain in the end it all boils down to one question are there any galilean heavy balls to be found in economics so that we can indisputably establish the existence of economic laws operating in real world economies as far as i can see there some heavy balls out there but not even one single real economic law economic factors variables are more like feathers than heavy balls non negligible factors like air resistance and chaotic turbulence are hard to rule out as having no influence on the object studied galilean experiments are hard to carry out in economics and the theoretical analogue models economists construct and in which they perform their thought experiments build on assumptions that are far away from the kind of idealized conditions under which galileo performed his experiments the nomological machines that galileo and other scientists have been able to construct have no real analogues in economics the stability autonomy modularity and interventional invariance that we may find between entities in nature simply are not there in real world economies that s are real world fact and contrary to the beliefs of most mainstream economists they won t go away simply by applying deductive axiomatic economic theory with tons of more or less unsubstantiated assumptions by this i do not mean to say that we have to discard all causal theories laws building on modularity stability invariance etc but we have to acknowledge the fact that outside the systems that possibly fulfil these requirements assumptions they are of little substantial value running paper and pen experiments on artificial analogue model economies is a sure way of establishing causal economic laws or solving intricate econometric problems of autonomy identification invariance and structural stability in the model world but they are pure substitutes for the real thing and they don t have much bearing on what goes on in real world open social systems setting up convenient circumstances for conducting galilean experiments may tell us a lot about what happens under those kinds of circumstances but few if any real world social systems are convenient so most of those systems theories and models are irrelevant for letting us know what we really want to know to solve understand or explain real world problems you actually have to know something about them logic pure mathematics data simulations or deductive axiomatics don t take you very far most econometrics and economic theories models are splendid logic machines but applying them to the real world is a totally hopeless undertaking the assumptions one has to make in order to successfully apply these deductive axiomatic theories models machines are devastatingly restrictive and mostly empirically untestable and hence make their real world scope ridiculously narrow to fruitfully analyse real world phenomena with models and theories you cannot build on patently and known to be ridiculously absurd assumptions no matter how much you would like the world to entirely consist of heavy balls the world is not like that the world also has its fair share of feathers and plastic bags the problem articulated by cartwright is that most of the idealizations we find in mainstream economic models are not core assumptions but rather structural auxiliary assumptions without those supplementary assumptions the core assumptions deliver next to nothing of interest so to come up with interesting conclusions you have to rely heavily on those other structural assumptions whenever model based causal claims are made experimentalists quickly find that these claims do not hold under disturbances that were not written into the model our own stock example is from auction design models say that open auctions are supposed to foster better information exchange leading to more efficient allocation do they do that in general or at least under any real world conditions that we actually know about maybe but we know that introducing the smallest unmodelled detail into the setup for instance complementarities between different items for sale unleashes a cascade of interactive effects careful mechanism designers do not trust models in the way they would trust genuine galilean thought experiments nor should they economic models frequently invoke entities that do not exist such as perfectly rational agents perfectly inelastic demand functions and so on as economists often defensively point out other sciences too invoke non existent entities such as the frictionless planes of high school physics but there is a crucial difference the false ontology models of physics and other sciences are empirically constrained if a physics model leads to successful predictions and interventions its false ontology can be forgiven at least for instrumental purposes but such successful prediction and intervention is necessary for that forgiveness the idealizations of economic models by contrast have not earned their keep in this way so the problem is not the idealizations in themselves so much as the lack of empirical success they buy us in exchange as long as this problem remains claims of explanatory credit will be unwarranted a alexandrova r northcott in physics we have theories and centuries of experience and experiments that show how gravity makes bodies move in economics we know there is nothing equivalent so instead mainstream economists necessarily have to load their theories and models with sets of auxiliary structural assumptions to get any results at all in their models so why then do mainstream economists keep on pursuing this modelling project continue reading why economic models do not explain 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 value of economics a cost benefit analysis 16 sep 2020 at 09 10 posted in economics comments off on the value of economics a cost benefit analysis economists cannot simply dismiss as absurd or impossible the possibility that our profession has imposed total costs that exceed total benefits and no building a model which shows that it is logically possible for economists to make a positive net contribution is not going to make questions about our actual effect go away why don t we just stipulate that economists are now so clever at building models that they can use a model to show that almost anything is logically possible then we could move on to making estimates and doing the math in the 19th century when it became clear that the net effect of having a doctor assist a woman in child birth was to increase the probability that she would die western society faced a choice get rid of doctors or insist that they wash their hands i do not want western society to get rid of economists but to remain viable our profession needs to be open to the possibility that in a few cases a few of its members are doing enormous harm then it must take on a collective responsibility for making sure that everyone keeps their hands clean paul romer mainstream economic theory today is still in the story telling business whereby economic theorists create mathematical make believe analogue models of our real world economic system the problem is that without strong evidence all kinds of absurd claims and nonsense may pretend to be science mathematics and logic c annot establish the truth value of facts we have to demand more of a justification than rather watered down versions of anything goes when it comes to the main postulates on which mainstream economics is founded if one proposes efficient markets or rational expectations one also has to support their underlying assumptions as a rule none is given which makes it rather puzzling how things like efficient markets and rational expectations have become the standard modelling assumption made in much of modern macroeconomics the reason for this sad state of modern economics is that economists often mistake mathematical beauty for truth it would be far better if they instead made sure they keep their hands clean share on facebook opens in new window facebook share on x opens in new window x share on bluesky opens in new window bluesky kriminalitet och 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