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description= 15 posts published by Lars Syll during July 2016;
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ere sure is much in the book i like and appreciate but there is also a very disturbing apologetic tendency in the book to blame all of the shortcomings on the economists and depicting economics itself as a problem free smorgasbord collection of models if you just choose the appropriate model from the immense and varied smorgasbord there s no problem it is as if all problems in economics were conjured away if only we could make the proper model selection underlying rodrik and other mainstream economists views on models is a picturing of models as some kind of experiments i ve run into that view many times over the years when having discussions with mainstream economists on their thought experimental obsession and i still think it s too vague and elusive to be helpful just repeating the view doesn t provide the slightest reasont to believe it 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 hence only are of limited value to our understanding explanations or predictions of real economic systems mainstream economists usually do not want to get hung up on the assumptions that their models build on but it is still an undeniable fact that theoretical models building on piles of known to be false assumptions such as pih and the euler equations that build on it in no way even get close to being scientific explanations on the contrary they are untestable and hence totally worthless from the point of view of scientific relevance conclusion mainstream macroeconomics building on the standard neoclassical consumption model with its permanent income hypothesis and euler equations has to be replaced with something else preferably with something that is both real and relevant and not only chosen for reasons of mathematical tractability gary becker s big mistake 27 jul 2016 at 18 21 posted in economics 3 comments the econometrician henri theil once said models are to be used but not to be believed i use the rational actor model for thinking about marginal changes but gary becker really believed the model once at a dinner with becker i remarked that extreme punishment could lead to so much poverty and hatred that it could create blowback becker was having none of it for every example that i raised of blowback he responded with a demand for yet more punishment you can see the idea in his great paper crime and punishment an economic approach in a famous section he argues that an optimal punishment system would combine a low probability of being punished with a high level of punishment if caught we have now tried that experiment and it didn t work most spectacularly the experiment with greater punishment led to more spending on crime control and many more people in prison in the economic theory crime is in a criminal s interest but is crime always done out of interest the rational actor model fits burglary pick pocketing and insider trading but lots of crime including vandalism arson bar fights and many assaults aren t motivated by economic gain and perhaps not by any rational interest the rational choice theory was pushed beyond its limits and in so doing not only was punishment pushed too far we also lost sight of alternative policies that could reduce crime without the social disruption and injustice caused by mass incarceration alex tabarrok interesting article but although becker s belief in his model being a real picture of reality is rather gobsmacking i m far from convinced by tabarrok s instrumentalist use of the same kind of models the alarm that sets off in my brain when reading becker is that rational actor models rather than being helpful for understanding real world economic issues sounds more like an ill advised plaidoyer for voluntarily taking on a methodological straight jacket of unsubstantiated and known to be false assumptions the assumptions that becker s theory builds on are as tabarrok and almost all empirical testing of it 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 that kind of theory to real world situations as so many other mainstream mathematical models taught to economics students today it has next to nothing to do with the real world from a methodological point of view one can of course also wonder how we 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 rathe...
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