tag:blogger.com,1999:blog-2546602206734889307.post5566839692285778946..comments2024-03-28T04:29:22.717+00:00Comments on mainly macro: When economics students rebelMainly Macrohttp://www.blogger.com/profile/09984575852247982901noreply@blogger.comBlogger89125tag:blogger.com,1999:blog-2546602206734889307.post-52525983147096859612015-05-06T13:46:42.684+00:002015-05-06T13:46:42.684+00:00UK is the one of best place for student and educat...UK is the one of best place for student and education level is also best .<br />every student looking colleges and universities in UK ,<br />if any student need accommodation check this link now and get your accommodation ,<br /><br /><br /><a href="http://q3apartments.co.uk/" rel="nofollow">Cheapest student apartments in Manchester</a> | <a href="http://q3apartments.co.uk/" rel="nofollow">Closest student accommodation to Manchester University</a>marry jhonhttps://www.blogger.com/profile/13195754967027719911noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-23592350875805998332015-01-12T00:18:04.226+00:002015-01-12T00:18:04.226+00:00really great post thanks for share .
we have Stude...really great post thanks for share .<br />we have Student apartments in Manchester if any one wants contact us feel free.<br /><br /><br /><br /><a href="http://q3apartments.co.uk/" rel="nofollow">Student apartments in Manchester</a> | <a href="http://q3apartments.co.uk/" rel="nofollow">Best student apartments in Manchester</a>Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-76087255069705766802014-11-11T10:39:30.463+00:002014-11-11T10:39:30.463+00:00great postgreat postBehavioral Economicshttp://jonmjachimowicz.com/noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-78463328694272320262014-05-21T17:23:32.012+00:002014-05-21T17:23:32.012+00:00You really have no idea what you're talking ab...You really have no idea what you're talking about, do you?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-63931173018514936042014-05-09T09:26:22.437+00:002014-05-09T09:26:22.437+00:00Nice, if slightly alarming in places dicussion. Th...Nice, if slightly alarming in places dicussion. Thanks for posting. Greatly concerned by the idea that you - or anyone - believes it may be possible to build a 'science of human behaviour which is independent of ideology or politics'. Absolute folly to believe it may be possible to seperate humans from their conditions. <br /><br />On a different note, Krugman has been mentioned and I enjoyed his recent post::<br /><br />http://www.nytimes.com/2014/05/02/opinion/krugman-why-economics-failed.html?rref=opinion&module=Ribbon&version=context&region=Header&action=click&contentCollection=Opinion&pgtype=Blogs&_r=0Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-59962618437284090942014-05-06T05:06:18.811+00:002014-05-06T05:06:18.811+00:00How shall I put this.
If Alan Manning's work ...How shall I put this.<br /><br />If Alan Manning's work on the labor market were the default model taught in Microeconomics 101 -- monopsony as the default labor market -- and if all published papers had to justify any exceptions from this default in their model -- then economics as a discipline would be a LOT healthier.<br /><br />It isn't. Manning is effectively heterodox. Think about why.<br /><br />Likewise, if the default for goods markets -- taught in Microeconomics 101 and where all papers must justify their departure from these assumptions -- was a cartel of businesses engaged in product-differentiation and advertising to attempt to become monopolies, setting prices by a cost-plus mechanism, then economics would be a LOT healthier.<br /><br />It isn't.Nathanaelnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-4410611210644846632014-05-05T11:23:36.640+00:002014-05-05T11:23:36.640+00:00See Antonio Fatas: http://fatasmihov.blogspot.co.u...See Antonio Fatas: http://fatasmihov.blogspot.co.uk/2014/05/refocusing-economics-education.htmlAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-81837500175760780442014-05-04T09:28:23.214+00:002014-05-04T09:28:23.214+00:00I think I could save pixels by just typing "m...I think I could save pixels by just typing "my usual comment" here, but I will waste pixels. You lament that students are taught the economics of 50 years ago. You also note that Keynesian macro-economics performed very well. I note that Keynesian macroeconomics as it was 50 years ago performed just as well -- in fact the arguments which yielded correct predictions were presented to the public using a 77 year old model which performed very well. <br /><br />Paleo-Keynesian economics is now heterodox. I am not as young as I would like to be (I'm 53) and I wasn't ever taught Paleo Keynesian economics. It seems to me to be worth exploring. <br /><br /> <br /><br />This waste of pixels provides no useful suggestion. I understand that Oxford undergraduates are still taught IS-LM. I think that is a good thing. Yes economics has made huge advances and teaching old micro 101 (without a warning that it has all arguably been refuted) is unwise (I teach it making that warning).Roberthttps://www.blogger.com/profile/14455788499385673507noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-80532142817283174812014-04-30T10:13:01.376+00:002014-04-30T10:13:01.376+00:00"A standard assumption is diminishing margina..."A standard assumption is diminishing marginal utility. Therefore economics implies that, other things being equal, we should redistribute from the rich to the poor."<br /><br />Of course market-fundamentalists would respond that it is the market which should be left to redistribute this. A fundamental message of the General Theory, which I think Farmer is trying to reclarify, is that the market does not achieve a socially efficient outcome.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-11675464389985148472014-04-29T20:04:21.781+00:002014-04-29T20:04:21.781+00:00That sounds like an terrible reason! You do not li...That sounds like an terrible reason! You do not like conservative/neo-liberal messages, and you believe an assertion that standard economics implies these, so standard economics must be incorrect. <br /><br />There are two things wrong here. The first is letting politics be a good way to judge the validity of a social science. The second is assuming that when someone makes a statement about economics it must be true.<br /><br />So let me repeat a point I made in my post, that no one has responded to. Much economics takes a utilitarian view when thinking about social welfare. A standard assumption is diminishing marginal utility. Therefore economics implies that, other things being equal, we should redistribute from the rich to the poor. Clearly economics is the work of committed socialists!Mainly Macrohttps://www.blogger.com/profile/09984575852247982901noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-31613029227462074242014-04-29T18:53:00.642+00:002014-04-29T18:53:00.642+00:00Chris House says this:
"The truth is that mo...Chris House says this:<br /><br />"The truth is that most of the principles of standard economics carry with them a fairly conservative / neo-liberal message*<br /><br />If that is not strong enough reason that we need another paradigm that carries a different message, what is?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-90523371388009721702014-04-29T12:02:36.008+00:002014-04-29T12:02:36.008+00:00Unfortunately, nowhere have I said all mainstream ...Unfortunately, nowhere have I said all mainstream macroeconomics is totally wrong. Or all heterodox is totally correct. That is why I quoted myself above. I listed models, and said there is nothing to learn from these and similar ones. Further, as I said above as well, I have the right to disagree completely with the mainstream, that does not make me a dogmatist. <br />I posted this paper above as well, I will quote Claudio Borio from the BIS, on the essential characteristics for a model, on the parts I fully agree.<br /><br />“Essential features that require modelling<br />The first feature is that the financial boom should not just precede the bust but cause it. The boom sows the seeds of the subsequent bust, as a result of the vulnerabilities that build up during this phase. This perspective is closer to the prewar prevailing view of business fluctuations, seen as the result of endogenous forces that perpetuate (irregular) cycles. It is harder to reconcile with today’s dominant view of business fluctuations, harking back to Frisch (1933), which sees them as the result of random exogenous shocks transmitted to the economy by propagation mechanisms inherent in the economic structure (Borio et al (2001)). And it is especially hard to reconcile with the approaches grafted on the real business- cycle tradition, in which in the absence of persistent shocks the economy rapidly returns to steady state”<br /><br />“The second feature is the presence of debt and capital stock overhangs (disequilibrium excess stocks)”<br /><br />How could this be done?<br />“One step would be to move away from model-consistent (“rational”) expectations” “Heterogeneous and fundamentally incomplete knowledge is a core characteristic of economic processes.”<br /><br />“A third, arguably more fundamental, step would be to capture more deeply the monetary nature of our economies. As discussed in more detail in the next sub-section, models should deal with true monetary economies, not with real economies treated as monetary ones, as is sometimes the case”<br /><br />“And in all probability, this will require us to move away from the heavy focus on equilibrium concepts and methods to analyse business fluctuations and to rediscover the merits of disequilibrium analysis, such as that stressed by Wicksell (1898)”<br /><br />In summary: No equilibrium modelling, no exogenous shock modelling, no representative agent/firm/banks, no rational expectations, no complete knowledge, no non-monetary economies but in the true sense. So, Borio is implicitly saying there is no model in the mainstream that can explain business cycles...<br /><br />These are the minimum requirements needed for the new generation of modelling. And I believe mainstream microfoundations are not so secure, so the models could be macro models without microfoundations (this is where I’d disagree with Borio). As you can guess, that leaves out a vast majority of mainstream models. Are there any models that satisfy all those above in the heterodox modelling? Not to my knowledge. But there are attempts in that direction I am aware of and try to follow. Just like I try to follow attempts from the mainstream in this direction but they are hard to find, particularly when one does not agree with equilibrium and exogenous shock models. <br /><br />Regarding teaching, I am happy to hear about your assignment. I covered money creation and QE in the lectures, and gave an assignment on how public and private debt are related to the crisis in the UK. But the problem extends beyond first year textbooks as I said, to IS-LM and microfoundations in the second year, and to rational expectations and real business cycle in the third year. These are awful characterizations of an economy, and yield biased results. Some may have been lucky to get a good education, but there is a reason in over 10 universities in the UK, students are very unhappy that they are learning a one-sided economics.<br />Anonymoushttps://www.blogger.com/profile/00864616865262018587noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-70332723849355223342014-04-29T11:07:27.690+00:002014-04-29T11:07:27.690+00:00Dr Yilmaz,
"Have you shown the same reaction...Dr Yilmaz,<br /><br />"Have you shown the same reaction you have shown to me to the writer of the first sentence? "<br /><br />Yes. This all started on Tony's blog because Joe said Tony was the only one displaying a dogmatic attitude, and my comment illustrated his error: your attitude is dogmatic too (all orthodox economics is simply wrong etc.). My reaction to you both is the same. If you look at my first comment on Tony's blog you will see I suggest his course should make room for Minsky, Kindleberger, Eichengreen etc. If you look at my first comment here you will see I think economics should be taught as if it is teaching established facts.<br /><br />I am also alarmed at the idea that students leave university thinking that their first-year text books are straightforward descriptions of reality with nothing more to be said. I do not know what proportion leave that that idea, you say 8 out of 10, I hope fewer. For example all our first years had to write an essay using the money multiplier to explain why base monetary expansion (QE) did not increase the money supply, after having looked at data on both in lectures, and they had to explain that banks are not necessarily going to increase lending just because the quantity of reserves in the system has increased. These students should not be graduating with daft counterfactual ideas about QE. [I am not going to say what uni I am talking about, but it's on a par with Manchester (or above it, if you go by research ranking).] <br /><br />other fields may be able to teach material that simply conveys true knowledge, but economics is very different from that, and makes heavy use of deliberately unrealistic models to shine some light on some small part of reality. There is always more to say. I would agree with you that if economics is not taught in a fashion that makes this clear, that would be a very bad thing. But it wasn't taught to me in that way (of course not, it would be absurd to teach perfect competition like that, for example). Luis Enriquehttps://www.blogger.com/profile/09373244720653497312noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-73895044646312125072014-04-29T10:14:36.890+00:002014-04-29T10:14:36.890+00:00Luis Enrique: Don't worry, I can see the diffe...Luis Enrique: Don't worry, I can see the difference, it is the students that cannot see the difference, unless they are shown another world, which is what this discussion is all about. Why do you think almost every student I ask the question "What happens when CB prints money?" replies like a parrot "inflation goes up"? Because they learned the same thing in all their macro modules, from models in which CB controls the money supply and increase in base money leads to more money supply, which leads to inflation. It is in the book. So it does not matter if you are rhetorically claiming that you are only teaching a model in which CB controls the money supply or there are only two countries, you have never claimed that these hold in reality; you are teaching wrong results from your models (anti-inflation bias in rational expectations models, anti government drivel in long run models, justifying abnormal returns with marginal factor pricing) which then are accepted as a universal fact by them because you are neither teaching them something else, nor allowing others to teach them other views.(By the way, I should remind you this is the dictionary definition of dogmatism: Stating an opinion as if it were an established fact. Does that make it clear that it is the mainstream that is dogmatist, because it is dictating its opinion as an established fact? Am I dictating my opinion on modelling/paradigm as the only truth? Do you even know which paradigm or modelling strategy I like?)<br /><br />For this reason, at least 8 out of 10 students you ask from any university will tell you that they think what is in the textbook is the truth. And there is nothing more natural than that, especially when those model results are taught as the only economics in universities. In every field, textbooks present true knowledge confirmed by observation, not what comes out of some model which doesn't really get it right. It is a core textbook, it is not your paper in which you can claim as crazy things as you like. In a textbook that you call "economics", not "mainstream economics", if you write the money multiplier in that way for example, and the students read it as if it were a description of reality, they will believe in it. Then they graduate, get jobs in the financial sector, and when QE starts, they start claiming that there will be hyperinflation. Bank of England finally gets so fed up with the stupid inflation discussions that do not understand credit creation following QE that they publish this:<br /><br />http://www.bankofengland.co.uk/publications/Pages/quarterlybulletin/2014/qb14q1prereleasearticlemoney.aspx<br /><br />Funnily enough, 26 years ago, Basil Moore had written this. So no excuses such as “we all got it wrong”.<br />http://ideas.repec.org/a/mes/postke/v13y1991i3p404-413.html<br /><br />Similarly, BIS had to publish this:<br />http://www.bis.org/publ/work269.htm<br /><br />And FED economists had to write this:<br />www.newyorkfed.org/research/staff_reports/sr380.pdf<br /><br />I recommend you make these essential readings for your macro modules as well if you already haven’t done so. Then I think you will understand why I said there is no need to teach a large chunk of mainstream models, or to work on them any further. <br />http://www.bis.org/publ/work395.htm<br /><br />I have a few questions for you: Which of the following is a stronger statement?<br />-I do not think there is any need to bother with learning heterodox approaches.<br />-I think the students have nothing to learn from mainstream models such as A, B, C and similar ones.<br />Have you shown the same reaction you have shown to me to the writer of the first sentence? If not, why?<br />Anonymoushttps://www.blogger.com/profile/00864616865262018587noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-66101551552594845942014-04-28T22:20:41.049+00:002014-04-28T22:20:41.049+00:00At the moment, the conversation between the mainst...At the moment, the conversation between the mainstream (M), and the heterodox (H) is like this:<br />H - Your models are wrong, they don’t describe reality<br />M- I know, they don’t have to. The instruments can be wrong, the outcome of the model is important<br />H -Ok then, I will use different instruments for modelling.<br />M - No, you cannot do that.<br />H - Why?<br />M - Because your instruments are wrong. And they are more wrong than mine.<br />H - But you said they can be wrong. So is there also a limit to how wrong they can be? Who decides on that and how? <br />M -It doesn’t matter what I said before. My wrong ones are the correct wrong ones.<br />H - How do you know that?<br />M -Because my models have predictive power. And mine also approximate more complex relations very well.<br />H - They don’t. Almost no mainstream model could foresee the last crisis or many others. There’s also plenty of evidence against representative agent/firm modelling, against equilibrium convergence, marginalist decision making. And also, can there not be other wrong instruments we can use?<br />M - No. Mine are the only correct wrong instruments. I just haven’t been able to combine them in the right way up to now.<br />H - How do you know that?<br />M – I know. <br />H - Hmm, I have difficulty in accepting that. Can I do economics without instruments may be?<br />M – No, you cannot. You have to use instruments. <br />H – Why? I am not even sure if we can find the correct wrong instruments. I am a bit sceptical about this.<br />M – No, you must use instruments. I know they exist and we can find them. And you don’t have to try to find new ones, I have already found some for you. Although I almost never get things right and there’s plenty of theoretical and empirical evidence against them, I am sure my instruments are the only correct wrong instruments, and you should use them. Otherwise, you are not doing scientific economics. <br />I am sorry but the mainstream is asking for too much, it is asking for academic immunity, but it has nothing to justify it. If it has chosen to adopt instrumentalism, it should know the limitations associated with it and therefore respect, not dismiss all heterodox instrumentalist approaches and work to show that their instruments and methods are more successful than other formal approaches. This is not the case at the moment, since the mainstream performs terribly even according to the criterion it set itself (predictive power), therefore it is not in a position to claim that its instruments and methods are the only correct ones. Arrogance in this aspect is very annoying and it is the reason all these discussions finally end up as discussions on methodology. Claims like “the heterodox is telling the wrong story, it should work with the same instruments and methods” are unfortunately unsupported, and there might always be many other sets of instruments that might be available to and deployed by heterodox macro models and shown to work. Further, the mainstream should also keep in mind that instrumentalism is not necessarily the only way of doing economics since there is no conclusive consensus in favour of instrumentalism over realism and one can find many strong arguments to choose any of these methods. As every mainstream macro modeller knows by heart, when one starts building a model, one knows more or less what he/she will find and say, and constructs the model in such a way that this result can be deduced from the model. The model employs wrong instruments, but this is tolerated. This process is not necessarily superior to stating the same idea but not finding an appropriate mathematical toy to “back it up”. At the end of the day, what one says is at least as (if not more) important as how one says it.<br />I apologize again this has been a long post. The dismissive arrogance I outlined above still appears here and on the other blog, as now I am accused of not understanding what a model is for by those who have no idea about what they are doing. <br />Anonymoushttps://www.blogger.com/profile/00864616865262018587noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-91680263523531239402014-04-28T22:19:25.534+00:002014-04-28T22:19:25.534+00:00While these changes to microfoundations are justif...While these changes to microfoundations are justified by referring to some data or observation, this does not change the fact that they are imposed ad hoc, at will, as they fit. What makes a micro-founded macro model a better one than the one without microfoundations then? If the whole set of microfoundations drew from advances in psychology, behavioural economics, behavioural finance, experimental economics, industrial economics etc. and therefore had some credibility (realism), there could be some arguments in favour of them and we could discuss only method. Since they are completely ad hoc, bad approximations as shown many times, and most importantly, they still overall depict a fantasy world despite modifications to initial microfoundations (imperfections) are always justified by some data, they are merely very crude instruments still and therefore they are not as crucial in determining the scientificness of a theory as the mainstream wants everyone to believe. This is a very basic tenet of instrumentalism, as I explained above and it was taken to the extreme by Friedman himself. If the mainstream will continuously set its microfoundations in an ad hoc and deductive way as models fail to predict or explain, and also claim that the realisticness of instruments does not matter, how can it blame models without microfoundations to be “ad hoc” and non-scientific? Mainstream as of now is not really micro-founded; it is ad hoc micro-founded at will. Setting the microfoundations in a completely ad hoc way is not any different from setting a macro model in an ad hoc way to make it explain more of what we are investigating, why do we have to use your set of wrong instruments (and methods) which have proven to be very bad ones in our, and many others’ opinion? Even more, there is no difference between setting up a micro-founded model in which you are assuming an ad hoc microfoundation to find something and stating the same thing in words. Modelling in this sense is just a mathematical game mainstream plays within a certain framework additionally, which I accept is fun, but does not have as much value added as it believes unless models work to explain/predict some other phenomenon as well without any modification. Further, that game can be played in many other settings equally or even more scientifically because instruments are not metrics to judge scientificness, or are they?<br />Even further, what makes these two formal approaches superior to non-formal schools, which point to the immense literature on the non-predictability of human behaviour coming from psychology, sociology, behavioural economics etc? Or in other words, what makes instrumentalism superior to realism? What guarantees that mainstream or any heterodox school will be able to find the correct instruments that we need in our models in order to understand causal relations? Is there any guarantee that such instruments even exist in the first place, or that we are mathematically well-equipped to be able to find them now? <br />In my opinion, the outcome of this discussion is that one can do economic modelling using complex system analysis employed by physicists, meteorologists, biologists, neuroscientists, one can use simple or more complicated non-micro-founded models or one can also choose a realist path and abstain from abstract modelling. Mainstream macroeconomics will have to respect to both formal and realist non-formal schools of heterodoxy as much as itself. The mainstream’s current position against formal and non-formal heterodoxy is contradictory and impossible to defend, unless it claims it knows surely<br />1) whether or not modelling is doable in the first place, <br />2) if so, exactly how realistic/unrealistic economic models can/should get, <br />3) only which one set of wrong instruments and methods can be used for modelling, <br />4) and no one else knows anything on this subject. <br />I am only hoping the level of arrogance among the mainstream modellers has not reached to this level despite its now widely acknowledged failure<br />Anonymoushttps://www.blogger.com/profile/00864616865262018587noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-69865753212856224532014-04-28T22:17:14.706+00:002014-04-28T22:17:14.706+00:00These models have every right to try as unrealisti...These models have every right to try as unrealistic instruments as they wish, just like any other formal heterodox model. At the end of the day, how more unrealistic can you get than assuming that there is only one person in an economy? Or that the agent uses marginalist calculus to take decisions? Or that economies always converge to an equilibrium? Is the mainstream then claiming to be more realistic than ABM for instance and therefore to have more merit? If so, what is its response to the criticisms to itself from more realist but mathematically simpler models? Or to those dynamic non-micro-founded continuous time disequilibrium models, some of which have much higher data fit and explanatory power? <br />One other line of argument against complex system analysis is that these models are too complicated. This raises the question of how complicated an economic model can be, and who decides on this level of complexity. A model must find the right balance between abstraction and explanatory power, but to draw a universal benchmark for this balance is impossible. At the end of the day, modelling is not a game of who will explain more of the same data with a simpler model. It is supposed to reveal us some insights into the dynamics of what we are investigating, and that might require a significant level of complexity most of the times. I am using ABM as an example, because it is an interesting case. Unlike other formal heterodox models, which are in general, though not always, mathematically simpler than their mainstream correspondents, ABM models are extremely complicated, and apply mathematical techniques proven to describe phenomena in complex systems before, while escaping the lack of micro-foundations critique from the mainstream (In fact, they are the ultimate micro-founded models). Therefore, the stereotype mainstream dismissal of heterodox models as non-rigorous unfortunately does not work here. But this time, the argument is that ABM is “too rigorous”. Then, this argument can also be used by other formal heterodox models, which might mathematically be simpler than mainstream but might be more realistic and explaining a lot more, just like mainstream models claim to do when they compare themselves with ABM models. The problem once again is that there is no way of knowing where to draw the line here, although mainstream claims it is the ultimate authority to decide on that. I wonder if it is claiming to have found the exact dose of un-realisticness that is required to analyse economies. If so, what is the foundation of this belief? Surely not the legendary non-success of mainstream macro models to predict crisis or to explain macro phenomenon.<br />The issue of microfoundations is critical so I would like to say a few more things on that. One line of defense I have come across many times is that microfoundations, as employed in mainstream models, derives “expected/observed” economic decisions from agent’s behaviour, such as increasing savings when interest rate increases. Therefore, they are claimed to be superior to models which impose this observed behaviour ad hoc. However, the problem here is that in order to produce some other observed relationships, many more ad hoc assumptions, such as distortions, frictions, imperfections, are imposed on the initial microfoundation at random (One model has financial frictions but price flexibility, the other has heterogeneous agents, financial frictions but marginalist calculus, and so on...) Therefore, the problem for the modeller becomes “What additional features should my microfoundations have so that I get this result as well as the other one?” Those that are successful in modifying the microfoundations in the appropriate way to “explain” an anomaly gain credentials within the mainstream, and a whole series of papers employing the same microfoundations emerge, until the models fail again and the same cycle starts from the beginning. <br />Anonymoushttps://www.blogger.com/profile/00864616865262018587noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-8327673873112852772014-04-28T22:16:06.818+00:002014-04-28T22:16:06.818+00:00Dear Simon, thank you very much for your response....Dear Simon, thank you very much for your response. I agree Tony Lawson’s paper does not give any concrete examples. So I will give an example, and try to explain how it is relevant in my opinion. I am writing a post for a blog on this, this piece draws from that. I am sorry it will be a very long one.<br />Let’s take the issue of maximizing representative agent/firm as an example (I also include those models where there’s a “continuum” of identical firms/consumers). This is one of the main points mainstream uses to dismiss most heterodox approaches, even formal ones: Not having microfoundations, and therefore not being “rigorous”. No one would deny that a representative agent is a very unrealistic description of an economy. Rather, the defence for representative agent/firm modelling is that it provides a good approximation to the outcome of interaction of many heterodox agents. If this was the case, however, then model predictions would have been in line with the observed reality, which is very hard, if not impossible, to claim for these models. Further, there are many papers, which show the claim that representative agent/firm is a good approximation has also been challenged theoretically and empirically for a long time.<br />You can say there are many heterogeneous agent/firm models, that is true. Yet, more than 95% of mainstream macro modelling still uses representative agents, firms and banks. And this is only one example. The ones that escape this shortcoming will have many other ones, such as equilibrium thinking, marginalist calculus, or other heroic assumptions. My point is not that the instrument is wrong, that is a common thing in models for simplification. What is rather interesting is that although the mainstream claims that heterodox approaches are not “rigorous” enough due to lack of microfoundations and/or appropriate formal modelling, when it faces precisely the same criticism from physicists, who are experts on analysing dynamic complex systems such as today’s economies, it starts defending its own “elementary” rigour. At this point, mainstream not only claims to have the authority to choose which instruments must be used, but also the level of complexity these instruments should interact with each other! However, reactions towards physicists are much more tuned than reactions to formal and non-formal heterodox schools, since most mainstream macro modellers do not quite understand the mathematics these extremely complex models apply. In these cases, the dismissive tone of mainstream macro modellers in general focuses on physicists’ inability to grasp economic concepts and relationships, and criticizes these extremely complex models for being unrealistic!!! This criticism is of course not only invalid but also funny in the sense that mainstream macro, like other formal heterodox macro, has no problem with unrealistic modelling. What makes a representative agent model for instance a better instrumentalist approach than an Agent-Based Model (ABM) in which thousands of agents exchange goods and services like gas molecules exchanging heat in a complex environment, or any other microfoundation? Especially when there is plenty of evidence that representative agents/firms are very bad tools in averaging the aggregate outcome of interaction of many heterogeneous agents, and they have proven to be very poor in predicting actual outcomes or explaining macro phenomenon. At the end of the day, both are unrealistic representations of reality, and simply different instruments. And as Friedman himself argued fiercely as well, whether or not instruments are realistic should not matter for a model (Lawson and Boland have the quotes). Friedman even claimed the more unrealistic the instruments are, the better it is for an economic model. Then according to this criterion, agent-based models for instance must be superior to mainstream macro if they manage to provide as much data-fit as mainstream models and to outline an as reasonable “story”, simply because they are more unrealistic! <br />Anonymoushttps://www.blogger.com/profile/00864616865262018587noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-44089298293959707352014-04-28T13:16:39.038+00:002014-04-28T13:16:39.038+00:00PS I don't think anyone picked up on your comm...PS I don't think anyone picked up on your comment about the real usefulness of DSGE. I work in investment, and I have been a macro strategist; people don't use DSGE to make money, and everyone treats economists' forecasts with the scepticism they deserve. You remind me of this cartoon: https://xkcd.com/808/JBhttps://www.blogger.com/profile/02900465024382591965noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-15995714217892084782014-04-28T13:12:28.274+00:002014-04-28T13:12:28.274+00:00Thanks @SWA. Other commentators have made some goo...Thanks @SWA. Other commentators have made some good criticisms of your comment.<br /><br />It seems you would like a world where nobody could criticise anything until he was an expert in the field. The problem is that 1) only people who thought the field was good would bother to become experts and 2) once they were experts, they would have a strong incentive to think the field was good. <br /><br />You do not necessarily need expertise to exercise judgement. Speaking as someone who mostly read philosophy, if that was true, I would still be studying Descartes. <br /><br />Again speaking as someone who mostly read philosophy, it is no surprise to me to find some very intelligent people believing in daft things and indeed devoting their intellectual lives to them. This has been the normal fate of very intelligent people for most of history. The big example is, of course, God (and a whole stack of attendant nonsense); Marxism is another widespread case in recent history. These fields are far from unique, and daft sub-fields are surely far more numerous and present in many disciplines. So when I find jolly clever people doing DSGE modelling, I think: "oh, another case of that". JBhttps://www.blogger.com/profile/02900465024382591965noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-10880375467124884012014-04-28T12:02:30.511+00:002014-04-28T12:02:30.511+00:00Coming to the end of my undergraduate course, to m...Coming to the end of my undergraduate course, to me the major problem is that economic history is not studied at anything beyond a very superficial level. <br /><br />I have only the sketchiest idea of the narrative of the recent economic crisis and none of that was taught as part of my course (e.g I have little idea about: the details of US sub-prime lending and shadow banking; the history of financial regulation and deregulation; which banks collapsed and why; a country-specific, detailed analysis of the eurozone crisis (e.g Greece); or past precedents such as the Asian Financial Crisis). A solid knowledge of the real world is needed to judge how plausible different theoretical models are; that's what 'science' is. <br /><br />Similarly, there are not even any optional papers on the history of economic thought: I have never read anything, and know very little about, Smith, Ricardo, Malthus, even Keynes.<br /><br />Other than that, I can't think of another academic discipline that is so narrow, in the sense of simply not teaching dissenting theories. I don't think mainstream macro is as useless as someone like Steve Keen thinks (but I do think most of Micro and its whole approach is fairly useless). But he's surely right that not even mentioning teaching students authors like Minsky or even considering the very fundamental criticisms he suggests is the sign of a bad academic discipline.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-44754245833726782162014-04-28T08:27:43.513+00:002014-04-28T08:27:43.513+00:00"But the most important reason mainstream eco..."But the most important reason mainstream economics has become dominant is not because of these things, but because it has proved far more useful than all of its heterodox alternatives put together."<br /><br />I disagree with this. A lot of knowledge has been forgotten. Take for example our understanding of how countries develop. Developmental economists once knew a lot about the importance of basic provision - such as clean water and other investments - that could only be provided through government, including foreign government aid. It knew about the dangers also of excessive foreign capital dependence. It knew about the unstable consequences on income distribution inherent in the development process. Put basically, it knew that the equity efficiency trade-off was not only not necessarily true, it was a dangerous proposition.<br /><br />In the rush to formalisation so they could mathematicise the discipline (which seemed to be an aim in itself), much of the ideology of post 1978 economics indirectly went into policy. With disastrous consequences - particularly through the World Bank and IMF. I am now happy to say that after failing to get countries out of the poverty trap and the miserable experience of the Asian Financial Crisis even the IMF is now saying that some capital controls are good. The World Bank is using anthropologists and others who understand third world societies much more, rather than uncritical applied mathematicians which I think a lot of PHD Econs are.<br /><br />So we are seeing progress now. But by no means has this been a linear progressive trend.<br /><br />For future progress I think we need to import more knowledge from other disciplines, be more empirical - especially in the interpretation and understanding the context of data, less prone to starting with singular methodologies, and certainly, we need a lot, lot more proper and careful primary evidence generated and model-free historical analysis.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-18581718298947751842014-04-27T17:32:45.267+00:002014-04-27T17:32:45.267+00:00"I read the Manchester Post-Crash Economics S..."I read the Manchester Post-Crash Economics Society’s (PCES) critique of economics education in the UK with a bewildering mixture of emotions. ... Yet even after all these years, it is a position I can empathise with.<br />...<br />Students should certainly be shown something of heterodox (non-mainstream) thought. … We should certainly get more economic history in there, and again that would be easier with a problem solving approach. <br />What I disagree with strongly is that the current dominance of mainstream economics should be reversed, and that we should go back to ‘schools of thought’ economics. <br />...<br />Let me get personal. Over the last few years, I have been in charge of a macroeconomics course at Oxford.<br />...<br />If students want to change the world, I think they are much more likely to do this by working within mainstream economics than heterodox thought."<br /><br />Yes, reading the PCES critique of UK economics education AND reading your post evoked mixed feelings for me, too, which made me hesitate to comment.<br />My son will study (financial) economics MSc in Oxford next academic year, which is partly why I follow your blog.<br />Myself I studied economics and specialised in economics of developing countries in Amsterdam, starting in 1978, when much that PCES finds missing in present curricula was still included.<br />I have been working mainly in financial jobs (not exactly what I aimed for when studying) in not-for-profits, often development NGOs.<br />I was one of those students who wanted to change the world, specifically hoping to be enabled to contribute to solving the problem of global inequality, who was disappointed about the unrealistic economics hidden underneath the math and who included as much social and economic history and other social science in (the electives of) his curriculum in response.<br /><br />Yet I can empathise with your position.<br />I agree that 'schools of thought' economics is less desirable than heterodoxy being taken serious and being successively integrated in new, newer and newest 'syntheses'.<br />I am not so sure that mathematical modelling should be the basis on which all theory should be grafted, though.<br /><br />On a constructive note I could suggest to have a look at the 'conversation' approach to economics (and science in general) as developed by Arjo Klamer (www.speakingofeconomics.com) and his project together with Deirdre McKloskey and Stepen Ziliak to build a pluralistic economic textbook in a participatory way (www.theeconomicconversation.com).<br /><br />"the idea that it should be possible to build a science of human behaviour which is independent of ideology or politics is a noble ideal, and one which has been partly achieved."<br /><br />On a more critical note I do not believe in the desirability of a 'science' of human behaviour that pretends to be independent of ideology and politics.<br />Economics to solve problems should be considered as art rather than science, as 'the way in which we organise that people get what they need' (see my “economics of want and greed”).<br />'... in the face of scarcity', one could add, except that without scarcity no organising is needed.<br />In order to solve problems, economists should be aware WHOSE problems they try to solve.<br />Many economic problems centre on whether the government should have a smaller or larger role in organising the satisfaction of needs.<br />That is also THE issue in the 'civil war within academic macroeconomics' diagnosed by Paul Krugman in his NYtimes blog of April 25th.<br />It matters a lot whether an economist tries to solve a problem of a government (often in need of a narrative to justify its role) or of the type of large organisations that can afford to hire economists (often to make them justify a position that governments should intervene less in their operations).<br />In order to really solve such problems (rather than exacerbating them by antagonising opposite interest groups) economics should endogenise ideology and politics: make their economic role explicit.<br />Ideology and politics are economic tools.<br /><br />@WimNusselderWim Nusselderhttps://www.blogger.com/profile/07997282141403874498noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-19224199693158478612014-04-27T09:09:29.303+00:002014-04-27T09:09:29.303+00:00I agree. Keynes and even ISLM is OK. The bull and ...I agree. Keynes and even ISLM is OK. The bull and the morally and philosophically questionable aspects of macro is in the micro.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-53083414485067360812014-04-27T07:59:18.127+00:002014-04-27T07:59:18.127+00:00No. These things should not be being taught in uni...No. These things should not be being taught in universities, unless the teacher is a moron. I was taught and have taught using standard macro textbooks and was never taught nor have taught students that the central bank can set the (broad) money supply. I have taught students models in which that happens. I find the idea you might not see the difference alarming. You might as well say we teach students the world consists of two countries producing only wine and cloth. Luis Enriquehttps://www.blogger.com/profile/09373244720653497312noreply@blogger.com