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description= 15 posts published by Lars Syll during July 2017;
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the (480), and (227), that (157), are (84), not (63), for (60), debt (57), #economics (48), with (48), have (45), but (43), they (40), this (39), public (39), has (37), theory (36), more (35), och (33), real (33), jul (32), was (31), will (30), 2017 (29), one (29), models (28), att (28), what (27), can (27), may (26), from (26), there (25), economic (23), jan (22), som (22), when (22), their (22), would (21), which (21), economists (21), our (21), world (21), comments (20), empirical (20), some (19), its (19), about (19), government (18), these (18), problem (18), only (17), det (17), all (17), mar (16), apr (16), jun (16), posted (16), been (16), than (16), since (16), assumptions (16), experiments (16), till (16), other (15), aug (15), sep (15), oct (15), nov (15), dec (15), feb (15), how (15), market (15), prices (15), course (15), debts (15), new (15), har (15), time (14), increase (14), most (14), med (14), target (14), made (14), finance (14), 2014 (13), 2016 (13), house (13), 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use of natural and quasi natural experiments in economics during the last couple of decades has led not only noah smith but several prominent economists to triumphantly declare it as a major step on a recent path toward empirics where instead of being a deductive philosophy economics is now increasingly becoming an inductive science in randomized trials the researchers try to find out the causal effects that different variables of interest may have by changing circumstances randomly a procedure somewhat on average equivalent to the usual ceteris paribus assumption besides the fact that on average is not always good enough it amounts to nothing but hand waving to simpliciter assume without argumentation that it is tenable to treat social agents and relations as homogeneous and interchangeable entities randomization is used to basically allow the econometrician to treat the population as consisting of interchangeable and homogeneous groups treatment and control the regression models one arrives at by using randomized trials tell us the average effect that variations in variable x has on the outcome variable y without having to explicitly control for effects of other explanatory variables r s t etc etc everything is assumed to be essentially equal except the values taken by variable x limiting model assumptions in economic science always have to be closely examined since if we are going to be able to show that the mechanisms or causes that we isolate and handle in our models are stable in the sense that they do not change when we export them to our target systems we have to be able to show that they do not only hold under ceteris paribus conditions and a fortiori only are of limited value to our understanding explanations or predictions of real economic systems real world social systems are not governed by stable causal mechanisms or capacities the kinds of laws and relations that econometrics 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 i also think that most randomistas really underestimate the heterogeneity problem it does not just turn up as an external validity problem when trying to export regression results to different times or different target populations it is also often an internal problem to the millions of regression estimates that economists produce every year just as econometrics randomization promises more than it can deliver basically because it requires assumptions that in practice are not possible to maintain like econometrics randomization is basically a deductive method given the assumptions such as manipulability transitivity separability additivity linearity etc these methods deliver deductive inferences the problem of course is that we will never completely know when the assumptions are right and although randomization may contribute to controlling for confounding it does not guarantee it since genuine ramdomness presupposes infinite experimentation and we know all real experimentation is finite and even if randomization may help to establish average causal effects it says nothing of individual effects unless homogeneity is added to the list of assumptions real target systems are seldom epistemically isomorphic to our axiomatic deductive models systems and even if they were we still have to argue for the external validity of the conclusions reached from within these epistemically convenient models systems causal evidence generated by randomization procedures may be valid in closed models but what we usually are interested in is causal evidence in the real target system we happen to live in when does a conclusion established in population x hold for target population y only under very restrictive conditions ideally controlled experiments tell us with certainty what causes what effects but only given the right closures making appropriate extrapolations from ideal accidental natural or quasi experiments to different settings populations or target systems is not easy it works there s no evidence for it will work here causes deduced in an experimental setting still have to show that they come with an export warrant to the target population system the causal background assumptions made have to be justified and without licenses to export the value of rigorous and precise methods and on average knowledge is despairingly small so no i find it hard to share noah smith s and others enthusiasm and optimism on the value of quasi natural experiments and all the statistical econometric machinery that comes with it guess i m still waiting for the export warrant i would contrary to noah smith s optimism argue that although different empirical approaches have been more or less integrated into mainstream economics there is still a long way to go before economics has become a truly empirical science taking assumptions like utility maximization or market equilibrium as a matter of course leads to the standing presumption in economics that if an empirical statement is deduced from standard assumptions then that statement is reliable the ongoing importance of these assumptions is especially evident in those areas of economic research where empirical results are challenging standard views on economic behaviour like experimental economics or behavioural finance from the perspective of model platonism these research areas are still framed by the superior insights associated with early 20th century concepts essentially because almost all of their results are framed in terms of rational individuals who engage in optimizing behaviour and thereby attain equilibrium for instance the attitude to explain cooperation or fair behaviour in experiments by assuming an inequality aversion integrated in a fraction of the subjects preferences is strictly in accordance with the assumption of rational individuals a feature which the authors are keen to report so while the mere emergence of research areas like experimental economics is sometimes deemed a clear sign for the advent of a new era a closer look at these fields allows us to illustrate the enduring relevance of the model platonism topos and thereby shows the pervasion of these fields with a traditional neoclassical style of thought jakob kapeller ricardo s trade paradigm a formerly true theory 21 jul 2017 at 10 59 posted in economics 6 comments two hundred years ago on 19 april 1817 david ricardo s principles was published in it he presented a theory that was meant to explain why countries trade and based on the concept of opportunity cost how the pattern of export and import is ruled by countries exporting goods in which they have comparative advantage and importing goods in which they have a comparative disadvantage although a great accomplishment per se ricardo s theory of comparative advantage however didn t explain why the comparative advantage was the way it was in the beginning of the 20th century two swedish economists eli heckscher and bertil ohlin presented a theory model theorem according to which the comparative advantages arose from differences in factor endowments between countries countries have a comparative advantages in producing goods that use up production factors that are most abundant in the different countries countries would mostly export goods that used the abundant factors of production and import goods that mostly used factors of productions that were scarce the heckscher ohlin theorem as do the elaborations on in it by e g vanek stolper and samuelson builds on a series of restrictive and unrealistic assumptions the most critically important beside the standard market clearing equilibrium assumptions are 1 countries use identical production technologies 2 production takes place with a constant returns to scale technology 3 within countries the factor substitutability is more or less infinite 4 factor prices are equalised the stolper samuelson extension of the theorem these assumptions are as almost all empirical testing of the theorem has shown totally unrealistic that is they are empirically false that said one could indeed wonder why on earth anyone should be interested in applying this theorem to real world situations as so many other mainstream mathematical models taught to economics students today this theorem has very little to do with the real world using false assumptions mainstream modelers can derive whatever conclusions they want wanting to show that free trade is great just e g assume all economists from chicago are right and all economists from chicago consider free trade to be great 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 what mainstream economics took over from ricardo was not only the theory of comparative advantage the whole deductive axiomatic approach to economics that is still at the core of mainstream methodology was taken over from ricardo nothing has been more detrimental to the development of economics than going down that barren path ricardo shunted the car of economic science on to the wrong track mainstream economics is still on that track it s high time to get on the right track and make economics a realist and relevant science this having been said i think the most powerful argument against the ricardian paradigm is that what counts to day is not comparative advantage but absolute advantage what has changed since ricardo s days is that the assumption of internationally immobile factors of production has been made totally untenable in our globalised world when our modern corporations maximize their profits they do it by moving capital and technologies to where it is cheapest to produce so we re actually in a situation today where absolute not comparative advantages rules the roost when it comes to free trade and in that world what is good for corporations is not necessarily good for nations the balanced budget paradox 18 jul 2017 at 18 44 posted in economics 10 comments the balanced budget paradox is probably one of the most devastating phenomena haunting our economies the harder politicians usually on the advise of establishment economists try to achieve balanced budgets for the public sector the less likely they are to succeed in their endeavour and the more the citizens have to pay for the concomitant austerity policies these wrong headed politicians and economists recommend as the sole solution one of the most effective ways of clearing up this most serious of all semantic confusions is to point out that private debt differs from national debt in being external it is owed by one person to others that is what makes it burdensome because it is interpersonal the proper analogy is not to national debt but to international debt but this does not hold for national debt which is owed by the nation to citizens of the same nation there is no external creditor we owe it to ourselves a variant of the false analogy is the declaration that national debt puts an unfair burden on our children who are thereby made to pay for our extravagances very few economists need to be reminded that if our children or grandchildren repay some of the national debt these payments will be made to our children or grandchildren and to nobody else taking them altogether they will no more be impoverished by making the repayments than they will be enriched by receiving them abba lerner the burden of the national debt 1948 few issues in politics and economics are nowadays more discussed and less understood than public debt many raise their voices to urge for reducing the debt but few explain why and in what way reducing the debt would be conducive to a better economy or a fairer society and there are no limits to all the especially macroeconomic calamities and evils a large public debt is supposed to result in unemployment inflation higher interest rates lower productivity growth increased burdens for subsequent generations etc etc people usually care a lot about public sector budget deficits and debts and are as a rule worried and negative drawing analogies from their own household s economy debt is seen as a sign of an imminent risk of default and hence a source of reprobation but although no one can doubt the political and economic significance of public debt there s however no unanimity whatsoever among economists as to whether debt matters and if so why and in what way and even less one doesn t know what is the optimal size of public debt through history public debts have gone up and down often expanding in periods of war or large changes in basic infrastructure and technologies and then going down in periods when things have settled down the pros and cons of public debt have been put forward for as long as the phenomenon itself has existed but it has notwithstanding that not been possible to reach anything close to consensus on the issue at least not in a long time horizon perspective one has as a rule not even been able to agree on whether public debt is a problem and if when it is or how to best tackle it some of the more prominent reasons for this non consensus are the complexity of the issue the mingling of vested interests ideology psychological fears the uncertainty of calculating ad estimating inter generational effects etc etc in classical economics following in the footsteps of david hume especially adam smith david ricardo and jean baptiste say put forward views on public debt that was more negative the good budget was a balanced budget if government borrowed money to finance its activities it would only give birth to crowding out private enterprise and investments the state was generally considered incapable if paying its debts and the real burden would therefor essentially fall on the taxpayers that ultimately had to pay for the irresponsibility of government the moral character of the argumentation was a salient feature either the nation must destroy public credit or the public credit will destroy the nation hume 1752 later on in the 20th century economists like john maynard keynes abba lerner and alvin hansen would hold a more positive view on public debt public debt was normally nothing to fear especially if it was financed within the country itself but even foreign loans could be beneficient for the economy if invested in the right way some members of society would hold bonds and earn interest on them while others would have to pay the taxes that ultimately paid the interest on the debt but the debt was not considered a net burden for society as a whole since the debt c...
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