tag:blogger.com,1999:blog-2546602206734889307.post5861468146858360961..comments2024-03-28T04:29:22.717+00:00Comments on mainly macro: Large models, small models and BrexitMainly Macrohttp://www.blogger.com/profile/09984575852247982901noreply@blogger.comBlogger12125tag:blogger.com,1999:blog-2546602206734889307.post-61000250152437028902018-02-21T22:58:44.304+00:002018-02-21T22:58:44.304+00:00Are you able to write a post offering thoughts on ...Are you able to write a post offering thoughts on this report?<br /><br />https://www.economistsforfreetrade.com/wp-content/uploads/2018/02/Alternative-Brexit-Economic-Analysis-20-Feb-18.pdf<br /><br />There are clear signs of it being one-eyed propaganda and nothing more, but the details about the Cardiff World Trade model are a bit above my head.Martin Odonihttps://www.blogger.com/profile/14595064172030457951noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-56016502460090241322018-02-06T17:36:42.090+00:002018-02-06T17:36:42.090+00:00So "additional freedom [of ABM] brings a larg...<br />So "additional freedom [of ABM] brings a large cost. (...) there is a large amount of uncertainty about how people actually behave, we cannot treat any model as a black box."<br /><br />We don't know, if ABM gets different agents' behavior correctly, but we know representative agent DSGE doesn't even try. So I don't see a cost here.<br />Especially that it is an opportunity to end with interdisciplinary closure and use some knowledge about how people behave from other sciences.<br />Anonymoushttps://www.blogger.com/profile/10764514361193775694noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-85422408514258358052018-02-05T12:20:39.130+00:002018-02-05T12:20:39.130+00:00Your "STALINISTS!" shtick was more enter...Your "STALINISTS!" shtick was more entertaining, please go back to that one.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-46176813280862532372018-02-04T21:21:05.386+00:002018-02-04T21:21:05.386+00:00Dipper: with respect, you know, or you should know...Dipper: with respect, you know, or you should know, that your criticism is unfounded and full of that arrogance you accuse economists of. Economic models may have high degrees of inaccuracy when dealing with such things as political decisions and so on, but at least the attempt, usually quite successfully, to explain how the economy works and guide policy. Failing to model at all means you have no idea whatsoever how, ceteris paribus, one factor affects another. Are you suggesting future economic policy be guided, Brexiteer-like, by Boris and Gove's "gut feel" or do you have another suggestion? As an analogy: I can estimate how long it will take me to get from A to B allowing for traffic, weather and so on. I can model it with various factors such as average speed in peak traffic in my car and assume average weather and so on. I will still almost certainly be wrong to varying degrees. I can also know when someone else says they can get there in a tenth of the time I estimate based on "optimism" that they are probably wrong... how do you plan your journeys? How would you set about analysing economic policy decisions?Fabiohttps://www.blogger.com/profile/02626804603479699414noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-58194516085500449022018-02-04T16:42:05.535+00:002018-02-04T16:42:05.535+00:00«how different degrees of Brexit would do the econ...«<i>how different degrees of Brexit would do the economy damage to different extents</i>»<br /><br />The political difficulty with that is that all such damage is in <i>opportunity costs</i>, with respect to a hypothetical alternative.<br />Even a halved growth rates for 10 years after exit, plausible as it is, can be hard to prove after the fact, never mind before.<br /><br />It is a bit like the impact of immigration on wages and employments of natives: the constant argument by "sell-side" Economists and many "Remain" economists is that it has not led to a fall in the average wage, and so is irrelevant, ignoring the arguments that below average wages have fallen, and that what matters as to impact on average wage is whether they would have been higher had immigration been lower.<br /><br />Now the question that then matters politically is not "would have GDP growth been higher without exit?", but "will GDP fall because of exit?", and no model predicts that exit will come out with a GDP lower than in june 2015-june 2016, and even if a model predicted that, no "sell-side" Economist (affiliated to the government or to the City) would ever "talk down the economy" to that extent.Blissexnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-78561263742035497092018-02-04T16:18:16.070+00:002018-02-04T16:18:16.070+00:00From false microfoundations to true macrofoundatio...From false microfoundations to true macrofoundations<br />Comment on Simon Wren-Lewis on ‘Large models, small models and Brexit’<br /><br />Anyone can climb on a soapbox and tell the world how they would save the country or humanity ― except an economist. An economist needs the true theory “In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum)<br /><br />This, then, is the methodological challenge “The highest ambition an economist can entertain who believes in the scientific character of economics would be fulfilled as soon as he succeeded in constructing a simple model displaying all the essential features of the economic process by means of a reasonably small number of equations connecting a reasonably small number of variables. (Schumpeter)<br /><br />Economists do not have the true theory/model. The failure of economics had been programmed by the founding fathers with the definition of the subject matter as social science and latter on with this very specific guideline “It is a touchstone of accepted economics that all explanations must run in terms of the actions and reactions of individuals. Our behavior in judging economic research, in peer review of papers and research, and in promotions, includes the criterion that in principle the behavior we explain and the policies we propose are explicable in terms of individuals, not of other social categories.” (Arrow)#1<br /><br />Arrow’s definition covers General Equilibrium Theory, Marshallian partial analysis, Behavioral Economics, DSGE, Agent Based Models, and verbalized/common sense/ad hoc/special purpose models.<br /><br />The common denominator of these approaches is that they take individual/social behavior as a starting point and then try to explain the behavior of the economy as a whole. The methodological defect of the microfoundations approach is that NO way leads from the explanation of Human Nature/motives/behavior/action to the explanation of how the economic system works. Economics does not conform to Aristotle’s general definition of science “When the premises are certain, true, and primary, and the conclusion formally follows from them, this is demonstration, and produces scientific knowledge of a thing.”<br /><br />Because the premises/microfoundations are NOT certain/true/primary a paradigm shift is necessary. Economics has to move from microfoundations to macrofoundations. For a graphical summary of the methodological basics see Wikimedia.#2<br /><br />Methodologically it holds, (i) all microfoundations approaches are axiomatically dead, (ii) all Keynesian approaches are defective with regard to the definition of macroeconomic profit/income,#3 (iii) if it isn’t macro-axiomatized it isn’t economics,#4 (iv) lacking the true theory, economists have not more to offer than educated/computer-aided common sense.<br /><br />Egmont Kakarot-Handtke<br /><br />#1 This translates into the neo-Walrasian axioms “HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states.” (Weintraub)<br /><br />#2 Wikimedia<br />https://commons.wikimedia.org/wiki/File:AXEC126.png<br /><br />#3 Is Nick Rowe stupid or corrupt or both?<br />https://axecorg.blogspot.de/2018/01/is-nick-rowe-stupid-or-corrupt-or-both.html<br /><br />#4 The core of macroeconomic premises reads: (A0) The objectively given and most elementary systemic configuration of the economy consists of the household and the business sector which, in turn, consists initially of one giant fully integrated firm. (A1) Yw=WL wage income Yw is equal to wage rate W times working hours. L, (A2) O=RL output O is equal to productivity R times working hours L, (A3) C=PX consumption expenditure C is equal to price P times quantity bought/sold X.AXEC / E.K-Hhttps://www.blogger.com/profile/10402274109039114416noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-68543910982848810032018-02-04T15:16:31.916+00:002018-02-04T15:16:31.916+00:00Dipper,
You're simply wrong about macroeconom...Dipper,<br /><br />You're simply wrong about macroeconomic forecasting during periods of economic stability. Even the simplest approaches are usually coreect to within a reasonable margin of error. It's shocks that are impossible to predict, by definition, and difficult to model.<br /><br />The truth is, there simply isn't enough date to develop empirically sound macro models.Antihttps://www.blogger.com/profile/17677035271760844211noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-47774340613962759282018-02-04T09:39:26.584+00:002018-02-04T09:39:26.584+00:00Any politician worth their salt should see an outp...Any politician worth their salt should see an output that has "no scenario under which Brexit is positive" and immediately be skeptical. There are plausible but unlikely political scenarios in the EU which could throw the block into turmoil (e.g. Le Pen in France, Five Star in Italy) - yet these sophisticated mechanical models, no matter how complex, apparently take no account of these political economy outcomes, instead focusing purely on economic man with his potential demand and output functions. <br /><br />I think most people recognise that these unlikely political scenarios, if they occurred, would have extremely large but unquantifiable (apparently) 2nd/3rd order effects and Brexit would on balance be positive in those scenarios. Brexiteers see those outcomes as more likely than the rest of us so their implicit expectations are for completely different model results.<br /><br />The reaction might be childish but it is not necessarily wrong. Marknoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-18797511096009816652018-02-03T11:40:51.784+00:002018-02-03T11:40:51.784+00:00These days I think it most sense to regard economi...These days I think it most sense to regard economists as shamen-like figures, or witch doctors. Rulers drag them out inspect the entrails of sheep or some other such phenomena and then pronounce that the gods support the rulers and that terrible things will befall those who challenge the regime. You can't object because if you are not a witch-doctor, well, you just don't understand the special magic that only witch doctors have.Dippernoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-46539007475423563112018-02-03T11:07:17.255+00:002018-02-03T11:07:17.255+00:00In the aftermath of the debacle of economic predic...In the aftermath of the debacle of economic predictions of immediate consequences of a Leave vote, economic models have become irrevocably toxic. They are seen not as works with any technical merit, but as part of a concerted effort by a group of people to overthrow a democratic decision they didn't like and replace it with rule by an unelected self-appointed group of technocrats. Your models may be right, they may be wrong, they may even be more right than wrong, but what they are not is considered impartial by anyone apart from economists.<br /><br />As a someone with a background in the physical sciences I find the hubris and arrogance of economists about their work to be completely misplaced. The thing about coming up with models that describe nature is that it is really hard. Nature has a habit of not agreeing with the wisdom of scientists. I find no such respect for facts or reality amongst economists or other social scientists who appear to simply torture the data until it agrees with their prejudices.<br /><br />Finally, consider large economies; they are evolutionary. And the thing about evolutionary systems is they are largely completely unpredictable. No-one could have forecast where we are now ten years ago, so it is hard to see why we should now believe forecasts of ten years in the future, particularly given that economists show a marked inability to forecast economic growth one year ahead in stable conditions and we are now entering a period of significant change.Dippernoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-50144012045605877452018-02-03T10:49:06.140+00:002018-02-03T10:49:06.140+00:00I can't help but feel that that last paragraph...I can't help but feel that that last paragraph should have been written two years ago. With or without this latest model, the underlying conditions were still much the same. The only difference was that the 'dishonest Brexit' took the form of false words and numbers written in white on the side of a red single-decker bus.Martin Odonihttps://www.blogger.com/profile/14595064172030457951noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-27156096942820420822018-02-03T10:44:33.746+00:002018-02-03T10:44:33.746+00:00I do wish that prominent BRexiters such as Rees-Mo...I do wish that prominent BRexiters such as Rees-Mogg would be challenged to produce their trade and economic forecasts as a result of BRexit.<br /><br />I discount Minford, as he is the 'climate denier' version of economics. But if BRexiters could produce a decent well-accepted model that supports their fantasies, then surely Remainers would have a more difficult time?<br /><br />I won't be holding my breath however...Anonymousnoreply@blogger.com