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Lars Syll

Lars Syll

Lars Jörgen Pålsson Syll (born November 5, 1957) is a Swedish economist who is a Professor of Social Studies and Associate professor of Economic History at Malmö University College. Pålsson Syll has been a prominent contributor to the economic debate in Sweden over the global financial crisis that began in 2008.

Articles by Lars Syll

Does it — really — take a model to beat a model?

2 days ago

From Lars Syll
A critique yours truly sometimes encounters is that as long as I cannot come up with some own alternative model to the failing mainstream models, I shouldn’t expect people to pay attention.
This is, however, to totally and utterly misunderstand the role of philosophy and methodology of economics!
As John Locke wrote in An Essay Concerning Human Understanding:
The Commonwealth of Learning is not at this time without Master-Builders, whose mighty Designs, in advancing the Sciences, will leave lasting Monuments to the Admiration of Posterity; But every one must not hope to be a Boyle, or a Sydenham; and in an Age that produces such Masters, as the Great-Huygenius, and the incomparable Mr. Newton, with some other of that Strain; ’tis Ambition enough to be employed as an

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Is economics — really — predictable?

6 days ago

From Lars Syll
As Oskar Morgenstern noted already back in his 1928 classic Wirtschaftsprognose: Eine Untersuchung ihrer Voraussetzungen und Möglichkeiten, economic predictions and forecasts amount to little more than intelligent guessing.
Making forecasts and predictions obviously isn’t a trivial or costless activity, so why then go on with it?
The problems that economists encounter when trying to predict the future really underlines how important it is for social sciences to incorporate Keynes’s far-reaching and incisive analysis of induction and evidential weight in his seminal A Treatise on Probability (1921). 
According to Keynes we live in a world permeated by unmeasurable uncertainty – not quantifiable stochastic risk – which often forces us to make decisions based on anything

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How to teach econometrics

8 days ago

From Lars Syll
Professor Swann (2019) seems implicitly to be endorsing the traditional theorem/proof style for teaching econometrics but with a few more theorems to be memorized. This style of teaching prepares students to join the monks in Asymptopia, a small pristine mountain village, where the monks read the tomes, worship the god of Consistency, and pray all day for the coming of the Revelation, when the estimates with an infinite sample will be revealed. Dirty limited real data sets with unknown properties are not allowed in Asymptopia, only hypothetical data with known properties. Not far away in the mountains is the village of Euphoria where celibate priests compose essays regarding human sexuality. Down on the plains is the very large city of Real Data, where applied economists

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What went wrong with economics?

9 days ago

From Lars Syll
To be ‘analytical’ is something most people find recommendable. The word ‘analytical’ has a positive connotation. Scientists think deeper than most other people because they use ‘analytical’ methods. In dictionaries, ‘analysis’ is usually defined as having to do with “breaking something down.”
But that’s not the whole picture. As used in science, analysis usually means something more specific. It means to separate a problem into its constituent elements so to reduce complex — and often complicated — wholes into smaller (simpler) and more manageable parts. You take the whole and break it down (decompose) into its separate parts. Looking at the parts separately one at a time you are supposed to gain a better understanding of how these parts operate and work. Built on that

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The randomistas revolution

10 days ago

From Lars Syll
In his history of experimental social science — Randomistas: How radical researchers are changing our world (Yale University Press, 2018) — Andrew Leigh gives an introduction to the RCT (randomized controlled trial) method for conducting experiments in medicine, psychology, development economics, and policy evaluation. Although it mentions there are critiques that can be waged against it, the author does not let that shadow his overwhelmingly enthusiastic view on RCT.
Among mainstream economists, this uncritical attitude towards RCTs has become standard. Nowadays many mainstream economists maintain that ‘imaginative empirical methods’ — such as natural experiments, field experiments, lab experiments, RCTs — can help us to answer questions concerning the external validity

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‘New Keynesianism’ — the art of making relevance irrelevant

11 days ago

From Lars Syll
There really is something about the way macroeconomists construct their models nowadays that obviously doesn’t sit right.
Empirical evidence still only plays a minor role in mainstream economic theory, where models largely function as a substitute for empirical evidence. One might have hoped that humbled by the manifest failure of its theoretical pretences during the latest economic-financial crises, the one-sided, almost religious, insistence on axiomatic-deductivist modeling as the only scientific activity worthy of pursuing in economics would give way to methodological pluralism based on ontological considerations rather than formalistic tractability. That has, so far, not happened.
Fortunately — when you’ve got tired of the kind of macroeconomic apologetics produced

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Chicago economics — garbage in, gospel out

14 days ago

From Lars Syll
Every dollar of increased government spending must correspond to one less dollar of private spending. Jobs created by stimulus spending are offset by jobs lost from the decline in private spending. We can build roads instead of factories, but fiscal stimulus can’t help us to build more of both. This form of “crowding out” is just accounting, and doesn’t rest on any perceptions or behavioral assumptions.
John Cochrane
And the tiny little problem? It’s utterly and completely wrong!
What Cochrane is reiterating here is nothing but Say’s law, basically saying that savings are equal to investments and that if the state increases investments, then private investments have to come down (‘crowding out’). As an accounting identity, there is, of course, nothing to say about the

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Some limitations of the experimental approach

16 days ago

From Lars Syll
Without question, the experimental approach has produced genuine insights … All the same, there are serious limitations to a strategy centered on experimental design:
1. Good experimental design results in internal validity, where measurements actually measure the things they’re supposed to and confounding influences are suppressed. External validity, the extent to which results can be generalized to a wider array of situations beyond the confines of the experiment is a different matter. There are two specific aspects of experimentalism that raise questions on this front, the tendency for experiments to be small, local and time-bound …
2. The strategy of experimental design virtually requires a reductionist, small-bore approach to social change. A more sweeping,

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Markov’s inequality (wonkish)

22 days ago

From Lars Syll
One of the most beautiful results of probability theory is Markov’s inequality (after the Russian mathematician Andrei Markov (1856-1922)):
If X is a non-negative stochastic variable (X ≥ 0) with a finite expectation value E(X), then for every a > 0
P{X ≥ a} ≤ E(X)/a
If the production of cars in a factory during a week is assumed to be a stochastic variable with an expectation value (mean) of 50 units, we can – based on nothing else but the inequality – conclude that the probability that the production for a week would be greater than 100 units can not exceed 50% [P(X≥100)≤(50/100)=0.5 = 50%]
I still feel humble awe at this immensely powerful result. Without knowing anything else but an expected value (mean) of a probability distribution we can deduce upper limits for

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RBC models — willfully silly obscurantism

27 days ago

From Lars Syll

As a result of the three waves of new classical economics, the field of macroeconomics became increasingly rigorous and increasingly tied to the tools of microeconomics. The real business cycle models were specific, dynamic examples of Arrow–Debreu general equilibrium theory. Indeed, this was one of their main selling points. Over time, proponents of this work have backed away from the assumption that the business cycle is driven by real as opposed to monetary forces, and they have begun to stress the methodological contributions of this work. Today, many macroeconomists coming from the new classical tradition are happy to concede to the Keynesian assumption of sticky prices, as long as this assumption is imbedded in a suitably rigorous model in which economic actors

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Microfoundations and economic policy choices

December 19, 2019

Lars Syll
Since there will generally be many micro foundations consistent with some given aggregate pattern, empirical support for an aggregate hypothesis does not constitute empirical support for any particular micro foundation … Lucas himself points out that short-term macroeconomic forecasting models work perfectly well without choice-theoretic foundations: “But if one wants to know how behaviour is likely to change under some change in policy, it is necessary to model the way people make choices” (Snowdon and Vane 2005, interview with Robert Lucas). The question, of course, is why on earth would one insist on deriving policy implications from foundations that deliberately misrepresent actual behavior?
Yes, indeed, why would one?
Defenders of microfoundations and its rational

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Can governments ever run out of money?

December 16, 2019

From Lars Syll
Whether it’s more nurses, frozen tax promises, free broadband internet or more social housing in the UK; or tax cuts and green energy investments in America, public spending is set to surge. This sudden abandonment of fiscal rectitude comes amid the rise in prominence of a way of thinking about money, spending and the economy – Modern Monetary Theory (MMT).

According to its key architect, US businessman Warren Mosler, it is based on a simple idea – that countries that issue their own currencies can never run out of money in the same way a business or person can. This is important to understand because it means when someone says the government can’t do something for want of money, that’s simply not applicable, says Mr Mosler. A government can no more run out of money

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2019 ‘Nobel prize’ reveals the poverty of economics

December 13, 2019

From Lars Syll
RCTs have delivered intriguing insights into how poor people think and act, but also into how behavioural economists do. For example, when a slew of high-profile RCTs failed to deliver the evidence that researchers expected on the ‘miracle of microfinance’, the researchers paid little heed to the implications of their insignificant and sometimes even negative findings. Instead, they focused attention onto some small (but statistically) significant behavioural changes in their data. These included microfinance services encouraging slightly higher propensities to engage in entrepreneurship and reduced purchasing of ‘temptation goods’ (a category in which Banerjee and Duflo included, for Indian slum-dwellers, tea and food on the street).
The problem is that these insights,

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Uber and the gender pay gap

December 9, 2019

From Lars Syll
Uber has conducted a study of internal pay differentials between men and women, which they describe as “gender blind” … The study found a 7% pay gap in favor of men. They present their findings as proof that there are issues unrelated to gender that impact driver pay. They quantify the reasons for the gap as follows:
Where: 20% is due to where people choose to drive (routes/neighborhoods).
Experience: 30% is due to experience …
Speed: 50% was due to speed, they claim that men drive slightly faster, so complete more trips per hour …
The company’s reputation has been affected by its sexist and unprofessional corporate culture, and its continued lack of gender balance won’t help. Nor, I suspect, will its insistence, with research conducted by its own staff to prove it, that

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Consistency and rationality

December 7, 2019

From Lars Syll
Axioms of ‘internal consistency’ of choice, such as the weak and the strong axioms of revealed preference … are often used in decision theory, micro-economics, game theory, social choice theory, and in related disciplines …
Can a set of choices really be seen as consistent or inconsistent on purely internal grounds, without bringing in something external to choice, such as the underlying objectives or values that are pursued or acknowledged by choice? …
The presumption of inconsistency may be easily disputed, depending on the context, if we know a bit more about what the person is trying to do. Suppose the person faces a choice at a dinner table between having the last remaining apple in the fruit basket (y) and having nothing instead (x), forgoing the nice-looking

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Transmogrifying Keynes

December 5, 2019

From Lars Syll
The other day, on my way home on the train after having attended an economics conference, yours truly tried to beguile the way by listening to a podcast of EconTalk where Garett Jones of George Mason University talked with EconTalk host Russ Roberts about the ideas of Irving Fisher on debt and deflation.
Jones’s thoughts on Fisher were thought-provoking and interesting, but in the middle of the discussion Roberts started to ask questions on the relation between Fisher’s ideas and those of Keynes, saying more or less something like “Keynes generated a lot of interest in his idea that the labour market doesn’t clear … because the price for labour does not adjust, i. e. wages are ‘sticky’ or ‘inflexible’.”
This is of course pure nonsense. For although Keynes in General

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Maurice Allais on empirics and theory

December 4, 2019

From Lars Syll

Submission to observed or experimental data is the golden rule which dominates any scientific discipline. Any theory whatever, if it is not verified by empirical evidence, has no scientific value and should be rejected.

Maurice Allais
Formalistic deductive “Glasperlenspiel” can be very impressive and seductive. But in the realm of science, it ought to be considered of little or no value to simply make claims about the model and lose sight of reality.
Mainstream — neoclassical — economics has since long given up on the real world and contents itself with proving things about thought up worlds. Empirical evidence only plays a minor role in economic theory, where models largely function as a substitute for empirical evidence. Hopefully humbled by the manifest failure of

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What is (wrong with) mainstream economics?

December 3, 2019

From Lars Syll
If you want to know what is neoclassical economics — or mainstream economics as we call it nowadays — and turn to Wikipedia you are told that
neoclassical economics is a term variously used for approaches to economics focusing on the determination of prices, outputs, and income distributions in markets through supply and demand, often mediated through a hypothesized maximization of utility by income-constrained individuals and of profits by cost-constrained firms employing available information and factors of production, in accordance with rational choice theory.
The basic problem with this definition of neoclassical (mainstream) economics — arguing that its differentia specifica is its use of demand and supply, utility maximization and rational choice — is that it

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Macroeconomic uncertainty

December 1, 2019

From Lars Syll
The financial crisis of 2007-08 hit most laymen and economists with surprise. What was it that went wrong with our macroeconomic models, since they obviously did not foresee the collapse or even make it conceivable?
There are many who have ventured to answer this question. And they have come up with a variety of answers, ranging from the exaggerated mathematization of economics to irrational and corrupt politicians.
But the root of our problem goes much deeper. It ultimately goes back to how we look upon the data we are handling. In ‘modern’ macroeconomics — Dynamic Stochastic General Equilibrium, New Synthesis, New Classical and ‘New Keynesian’ — variables are treated as if drawn from a known ‘data-generating process’ that unfolds over time and on which we, therefore,

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Randomised controlled trials — a retreat from the bigger questions

November 29, 2019

From Lars Syll
Nobel prizes are usually given in recognition of ideas that are already more or less guaranteed a legacy. But occasionally they prompt as much debate as admiration. This year’s economics award, given to Abhijit Banerjee, Esther Duflo and Michael Kremer … recognised the laureates’ efforts to use randomised controlled trials (RCTs) to answer social-science questions … RCT evangelists sometimes argue that their technique is the “gold standard”, better able than other analytical approaches to establish what causes what. Not so, say some other economists … Results are contextually dependent in ways that are hard to discern; a finding from a study in Kenya might not reveal much about policy in Guatemala …
Advanced economies grew rich as a result of a broad transformation that

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1855 — the birth of causal inference

November 28, 2019

From Lars Syll
[embedded content]
If anything, Snow’s path-breaking research underlines how important it is not to equate science with statistical calculation. All science entail human judgement, and using statistical models doesn’t relieve us of that necessity. Working with misspecified models, the scientific value of statistics is actually zero — even though you’re making valid statistical inferences! Statistical models are no substitutes for doing real science. Or as a German philosopher once famously wrote:
There is no royal road to science, and only those who do not dread the fatiguing climb of its steep paths have a chance of gaining its luminous summits.
We should never forget that the underlying parameters we use when performing statistical tests are model constructions. And

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Economics — enslaved by the wrong theory

November 24, 2019

From Lars Syll
The more I learned about economics, the more I discovered a landscape that is surpassingly strange. Like the land of Mordor, it is dominated by a single theoretical edifice that arose like a volcano early in the 20th century and still dominates the landscape. The edifice is based upon a conception of human nature that is profoundly false, defying the dictates of common sense, before we even get to the more refined dictates of psychology and evolutionary theory. Yet, efforts to move the theory in the direction of common sense are stubbornly resisted.
There is plenty of dissent among economists, and some of the best are working the hardest for change. The folks who award the Nobel Prize in economics don’t like the edifice that much either, and often add their weight by

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The origins of MMT

November 23, 2019

From Lars Syll
Many mainstream economists seem to think the idea behind Modern Monetary Theory is new and originates from economic cranks.
New? Cranks? How about reading one of the great founders of neoclassical economics – Knut Wicksell. This is what Wicksell wrote in 1898 on ‘pure credit systems’ in Interest and Prices (Geldzins und Güterpreise), 1936 (1898), p. 68f:
It is possible to go even further. There is no real need for any money at all if a payment between two customers can be accomplished by simply transferring the appropriate sum of money in the books of the bank  …
A pure credit system has not yet … been completely developed in this form. But here and there it is to be found in the somewhat different guise of the banknote system …
We intend therefor, as a basis for the

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Skidelsky on the uselessness of ‘New Keynesian’ economics

November 20, 2019

From Lars Syll
Whereas the Great Depression of the 1930s produced Keynesian economics, and the stagflation of the 1970s produced Milton Friedman’s monetarism, the Great Recession has produced no similar intellectual shift.
This is deeply depressing to young students of economics, who hoped for a suitably challenging response from the profession. Why has there been none?
Krugman’s answer is typically ingenious: the old macroeconomics was, as the saying goes, “good enough for government work”  … Krugman is a New Keynesian, and his essay was intended to show that the Great Recession vindicated standard New Keynesian models. But there are serious problems with Krugman’s narrative …
The New Keynesian models did not offer a sufficient basis for maintaining Keynesian policies once the

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Why Wall Street shorts economists and their DSGE models

November 18, 2019

From Lars Syll
Very few Wall Street firms find the DSGE models useful … This should come as no surprise to anyone who has looked closely at the models. Can an economy of hundreds of millions of individuals and tens of thousands of different firms be distilled into just one household and one firm, which rationally optimize their risk-adjusted discounted expected returns over an infinite future? There is no empirical support for the idea. Indeed, research suggests that the models perform very poorly …
Why does the profession want so desperately to hang on to the models? I see two possibilities. Maybe they do capture some deep understanding about how the economy works … More likely, economists find the models useful not in explaining reality, but in telling nice stories that fit with

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Why philosophy and methodology matter for economics

November 14, 2019

From Lars Syll
A critique yours truly sometimes encounters is that as long as I cannot come up with some own alternative to the failing mainstream theory, I shouldn’t expect people to pay attention.
This is, however, to totally and utterly misunderstand the role of philosophy and methodology of economics!
As John Locke wrote in An Essay Concerning Human Understanding:
The Commonwealth of Learning is not at this time without Master-Builders, whose mighty Designs, in advancing the Sciences, will leave lasting Monuments to the Admiration of Posterity; But every one must not hope to be a Boyle, or a Sydenham; and in an Age that produces such Masters, as the Great-Huygenius, and the incomparable Mr. Newton, with some other of that Strain; ’tis Ambition enough to be employed as an

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The essence of neoliberalism

November 10, 2019

From Lars Syll
The neoliberal utopia evokes powerful belief – the free trade faith – not only among those who live off it, such as financiers, the owners and managers of large corporations, etc., but also among those, such as high-level government officials and politicians, who derive their justification for existing from it. For they sanctify the power of markets in the name of economic efficiency, which requires the elimination of administrative or political barriers capable of inconveniencing the owners of capital in their individual quest for the maximisation of individual profit, which has been turned into a model of rationality. They want independent central banks. And they preach the subordination of nation-states to the requirements of economic freedom for the masters of the

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Why validating assumptions is so important in science

November 8, 2019

From Lars Syll
An ongoing concern is that excessive focus on formal modeling and statistics can lead to neglect of practical issues and to overconfidence in formal results … Analysis interpretation depends on contextual judgments about how reality is to be mapped onto the model, and how the formal analysis results are to be mapped back into reality. But overconfidence in formal outputs is only to be expected when much labor has gone into deductive reasoning. First, there is a need to feel the labor was justified, and one way to do so is to believe the formal deduction produced important conclusions. Second, there seems to be a pervasive human aversion to uncertainty, and one way to reduce feelings of uncertainty is to invest faith in deduction as a sufficient guide to truth.

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Confusing statistics and research

November 5, 2019

From Lars Syll
Coupled with downright incompetence in statistics, we often find the syndrome that I have come to call statisticism: the notion that computing is synonymous with doing research, the naïve faith that statistics is a complete or sufficient basis for scientific methodology, the superstition that statistical formulas exist for evaluating such things as the relative merits of different substantive theories or the “importance” of  the causes of a “dependent variable”; and the delusion that decomposing the covariations of some arbitrary and haphazardly assembled collection of variables can somehow justify not only a “causal model” but also, praise a mark, a “measurement model.” There would be no point in deploring such caricatures of the scientific enterprise if there were a

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