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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

Leontief and the sorry state of economics

4 days ago

From Lars Syll
Page after page of professional economic journals are filled with mathematical formulas leading the reader from sets of more or less plausible but entirely arbitrary assumptions to precisely stated but irrelevant theoretical conclusions …
Year after year economic theorists continue to produce scores of mathematical models and to explore in great detail their formal properties; and the econometricians fit algebraic functions of all possible shapes to essentially the same sets of data without being able to advance, in any perceptible way, a systematic understanding of the structure and the operations of a real economic system.
Wassily Leontief
Mainstream economics has indeed, as noted by Leontief, become increasingly irrelevant to the understanding of the real world, and

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Logic and truth in economics

6 days ago

From Lars Syll
To be ‘analytical’ and ‘logical’ is something most people find recommendable. These words have a positive connotation. Scientists think deeper than most other people because they use ‘logical’ and ‘analytical’ methods. In dictionaries, logic is often defined as “reasoning conducted or assessed according to strict principles of validity” and ‘analysis’ 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

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‘Mathiness’ in economics

8 days ago

From Lars Syll
 In practice, what math does is let macro-economists locate the FWUTVs [facts with unknown truth values] farther away from the discussion of identification … Relying on a micro-foundation lets an author say, “Assume A, assume B, …  blah blah blah … And so we have proven that P is true. Then the model is identified.” …
Distributional assumptions about error terms are a good place to bury things because hardly anyone pays attention to them. Moreover, if a critic does see that this is the identifying assumption, how can she win an argument about the true expected value the level of aether? If the author can make up an imaginary variable, “because I say so” seems like a pretty convincing answer to any question about its properties.
Paul Romer
Yes, indeed, modern mainstream

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Has mainstream economics — really — gone through a pluralist and empirical revolution?

10 days ago

From Lars Syll
In an issue of the journal Fronesis yours truly and a couple of other academics (e.g. Julie Nelson, Tony Lawson, and Phil Mirowski) made an effort at introducing its readers to heterodox economics and its critique of mainstream economics. Rather unsurprisingly this hasn’t pleased the Swedish economics establishment.
On the mainstream economics blog Ekonomistas, professor Daniel Waldenström rode out to defend the mainstream with the nowadays standard defence — heterodox critics haven’t understood that mainstream economics today has gone through a pluralist and empirical revolution. Since heterodox critics haven’t noticed that, their views on the mainstream project is more or less irrelevant.
Well, the problem with that defence is that it has pretty little with reality to

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Paul Samuelson and the ergodic hypothesis

12 days ago

From Lars Syll
Paul Samuelson claimed that the “ergodic hypothesis” is essential for advancing economics from the realm of history to the realm of science.
But is it really tenable to assume that ergodicity is essential to economics?
The answer can only be – as I have argued
here
here
here
here
and
here – NO WAY!
Obviously yours truly is far from the only scientist being critical of Paul Samuelson. This is what Ole Peters writes in a highly interesting article on Samuelson’s stance on the ergodic hypothesis:
Samuelson said that we should accept the ergodic hypothesis because if a system is not ergodic you cannot treat it scientifically. First of all, that’s incorrect, although I think I understand how he ended up with this impression: ergodicity means that a system is very insensitive

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Using ‘small-world’ models in a large world

15 days ago

From Lars Syll
Radical uncertainty arises when we know something, but not enough to enable us to act with confidence. And that is a situation we all too frequently encounter …
The language and mathematics of probability is a compelling way of analysing games of chance. And similar models have proved useful in some branches of physics. Probabilities can also be used to describe overall mortality risk just as they also form the basis of short-term weather forecasting and expectations about the likely incidence of motor accidents. But these uses of probability are possible because they are in the domain of stationary processes. The determinants of the motion of particles in liquids, or overall (as distinct from pandemic-driven) human mortality, do not change over time, or do so only

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Graduate education in economics

18 days ago

From Lars Syll
Modern economics has become increasingly irrelevant to the understanding of the real world. In his seminal book Economics and Reality (1997) Tony Lawson traced this irrelevance to the failure of economists to match their deductive-axiomatic methods with their subject.
It is — sad to say — as relevant today as it was twenty-three years ago.

It is still a fact that within mainstream economics internal validity is everything and external validity nothing. Why anyone should be interested in that kind of theories and models is beyond my imagination. As long as mainstream economists do not come up with any export-licenses for their theories and models to the real world in which we live, they really should not be surprised if people say that this is not science, but autism!

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Checking your statistical assumptions

23 days ago

From Lars Syll
The assumption of additivity and linearity means that the outcome variable is, in reality, linearly related to any predictors … and that if you have several predictors then their combined effect is best described by adding their effects together …
 This assumption is the most important because if it is not true then even if all other assumptions are met, your model is invalid because you have described it incorrectly. It’s a bit like calling your pet cat a dog: you can try to get it to go in a kennel, or to fetch sticks, or to sit when you tell it to, but don’t be surprised when its behaviour isn’t what you expect because even though you’ve called it a dog, it is in fact a cat. Similarly, if you have described your statistical model inaccurately it won’t behave itself

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Where modern macroeconomics went wrong

27 days ago

From Lars Syll
DSGE models seem to take it as a religious tenet that consumption should be explained by a model of a representative agent maximizing his utility over an infinite lifetime without borrowing constraints. Doing so is called micro-founding the model. But economics is a behavioral science. If Keynes was right that individuals saved a constant fraction of their income, an aggregate model based on that assumption is micro-founded.Of course, the economy consists of individuals who are different, but all of whom have a finite life and most of whom are credit constrained, and who do adjust their consumption behavior, if slowly, in response to changes in their economic environment. Thus, we also know that individuals do not save a constant fraction of their income, come what may.

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Is economics value-free?

November 3, 2020

From Lars Syll
I’ve subsequently stayed away from the minimum wage literature for a number of reasons. First, it cost me a lot of friends. People that I had known for many years, for instance, some of the ones I met at my first job at the University of Chicago, became very angry or disappointed. They thought that in publishing our work we were being traitors to the cause of economics as a whole.
David Card

Back in 1992, New Jersey raised the minimum wage by 18 per cent while its neighbour state, Pennsylvania, left its minimum wage unchanged. Unemployment in New Jersey should — according to mainstream economics textbooks — have increased relative to Pennsylvania. However, when economists David Card and Alan Krueger gathered information on fast food restaurants in the two states, it

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Is economics value-free?

October 29, 2020

From Lars Syll
I’ve subsequently stayed away from the minimum wage literature for a number of reasons. First, it cost me a lot of friends. People that I had known for many years, for instance, some of the ones I met at my first job at the University of Chicago, became very angry or disappointed. They thought that in publishing our work we were being traitors to the cause of economics as a whole.
David Card
Back in 1992, New Jersey raised the minimum wage by 18 per cent while its neighbour state, Pennsylvania, left its minimum wage unchanged. Unemployment in New Jersey should — according to mainstream economics textbooks — have increased relative to Pennsylvania. However, when economists David Card and Alan Krueger gathered information on fast food restaurants in the two states, it

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Reforming economics

October 26, 2020

From Lars Syll
The typical economics course starts with the study of how rational agents interact in frictionless markets, producing an outcome that is best for everyone. Only later does it cover those wrinkles and perversities that characterise real economic behaviour, such as anti-competitive practices or unstable financial markets. As students advance, there is a growing bias towards mathematical elegance. When the uglier real world intrudes, it only prompts the question: this is all very well in practice but how does it work in theory? …
Fortunately, the steps needed to bring economics teaching into the real world do not require the invention of anything new or exotic. The curriculum should embrace economic history and pay more attention to unorthodox thinkers such as Joseph

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Sunday morning rituals

October 24, 2020

From Lars Syll
One of yours truly’s Sunday morning rituals is reading the obituary column of The Telegraph. This obit is rather typical:
Peter Scott, who has died aged 82, was a highly accomplished cat burglar, and as Britain’s most prolific plunderer of the great and good took particular pains to select his victims from the ranks of aristocrats, film stars and even royalty.
According to a list of 100 names he supplied to The Daily Telegraph, he targeted figures such as Soraya Khashoggi, Shirley MacLaine, the Shah of Iran, Judy Garland and even Queen Elizabeth the Queen Mother — although he added apologetically that, in her case, the authorities had covered up by issuing a “D-notice ”.
In 1994 Scott wrote to the newspaper to say that he would consider it “a massive disappointment if I

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What is ‘effective demand’?

October 22, 2020

From Lars Syll
Economists of all shades have generally misunderstood the theoretical structure of Keynes’s The General Theory. Quite often this is a result of misunderstanding the concept of ‘effective demand’ — one of the key theoretical innovations of The General Theory.
Jesper Jespersen untangles the concept and shows how Keynes, by taking uncertainty seriously, contributed to forming an analytical alternative to the prevailing mainstream general equilibrium framework:
Effective demand is one of the distinctive analytical concepts that Keynes developed in The General Theory. Demand and demand management have thereby come to represent one of the distinct trademarks of Keynesian macroeconomic theory and policy. It is not without reason that the central position of this concept has

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Public debt — how much is too much?

October 19, 2020

From Lars Syll.                                                                                                                              [embedded content]
Public debt is normally nothing to fear, especially if it is financed within the country itself (but even foreign loans can be beneficent for the economy if invested in the right way). Some members of society hold bonds and earn interest on them, while others pay taxes that ultimately pay the interest on the debt. The debt is not a net burden for society as a whole since the debt ‘cancels’ itself out between the two groups. If the state issues bonds at a low-interest rate, unemployment can be reduced without necessarily resulting in strong inflationary pressure. And the inter-generational burden is also not a real burden since —

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Truth and science

October 16, 2020

From Lars Syll
 In my view, scientific theories are not to be considered ‘true’ or ‘false.’ In constructing such a theory, we are not trying to get at the truth, or even to approximate to it: rather, we are trying to organize our thoughts and observations in a useful manner.
Robert Aumann
What a handy view of science.
How reassuring for all of you who have always thought that believing in the tooth fairy make you understand what happens to kids’ teeth. Now a ‘Nobel prize’ winning economist tells you that if there are such things as tooth fairies or not doesn’t really matter. Scientific theories are not about what is true or false, but whether ‘they enable us to organize and understand our observations’ …
Mirabile dictu!
What Aumann and other defenders of scientific storytelling

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Studying economics — a total waste of time

October 14, 2020

From Lars Syll
One may perhaps, distinguish between obscure writers and obscurantist writers. The former aim at truth, but do not respect the norms for arriving at truth, such as focusing on causality, acting as the Devil’s Advocate, and generating falsifiable hypotheses. The latter do not aim at truth, and often scorn the very idea that there is such a thing as the truth …
These writings have in common a somewhat uncanny combination of mathematical sophistication on the one hand and conceptual naiveté and empirical sloppiness on the other. The mathematics, which could have been a tool, is little more than toy … Hard obscurantist models, too, may have some value as tools, but mostly they are toys.
Jon Elster
It’s hard not to agree with Elster’s critique of mainstream economics and its

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Economics education needs a revolution

October 13, 2020

From Lars Syll
You ask me what all idiosyncrasy is in philosophers? … For instance their lack of the historical sense, their hatred even of the idea of Becoming, their Egyptianism. They imagine that they do honour to a thing by divorcing it from history sub specie æterni—when they make a mummy of it.
Friedrich Nietzsche
Nowadays there is almost no place whatsoever in economics education for courses in the history of economic thought and economic methodology. This is deeply worrying. History and methodology matter! A science that doesn’t self-reflect on its own history and asks important methodological and science-theoretical questions about the own activity, is a science in dire straits.
How did we end up in this sad state?
Already back in 1991, a commission chaired by Anne Krueger

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Modern macroeconomics — theory based on misleading illusions

October 9, 2020

From Lars Syll
Standard new Keynesian macroeconomics essentially abstracts away from most of what is important in macroeconomics. To an even greater extent, this is true of the dynamic stochastic general equilibrium (DSGE) models that are the workhorse of central bank staffs and much practically oriented academic work.
Why? New Keynesian models imply that stabilization policies cannot affect the average level of output over time and that the only effect policy can have is on the amplitude of economic fluctuations, not on the level of output. This assumption is problematic at a number of levels …
As macroeconomics was transformed in response to the Depression of the 1930s and the inflation of the 1970s, another 40 years later it should again be transformed in response to stagnation in

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Revealed preference theory — much ado about almost nothing

October 6, 2020

From Lars Syll
Twenty-seven years ago yours truly wrote an article on revealed preference theory that got published in History of Political Economy (no. 25, 1993).
Paul Samuelson wrote a kind letter and informed me that he was the one who had recommended it for publication. But although he liked a lot in it, he also wrote a comment — published in the same volume of HOPE — saying:
Between 1938 and 1947, and since then as Pålsson Syll points out, I have been scrupulously careful not to claim for revealed preference theory novelties and advantages it does not merit. But Pålsson Syll’s readers must not believe that it was all redundant fuss about not very much.
Notwithstanding Samuelson’s comment, I do still think it basically was much fuss about ‘not very much.’
In 1938 Paul Samuelson

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Game theory — theory with little substantive content

October 5, 2020

From Lars Syll
I don’t see that we are even entitled to assume that reality accords to some model that humans are able to envisage … To say that Pandora knows what decision model she is facing can therefore be taken as meaning no more than that she is committed to proceeding as though her model were true …
The price of abandoning psychology for revealed-preference theory is therefore high. We have to give up any pretension to be offering a causal explanation of Pandora’s choice behavior in favour of an account that is merely a description of the choice behavior of someone who chooses consistently. Our reward [sic!] is that we end up with a theory that is hard to criticise because it has little substantive content.
Back in 1991, when yours truly earned his first PhD​ with a dissertation

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Why game theory fails to live up to its promise

October 2, 2020

From Lars Syll

Why, it might be objected, should the goal of social science be mere causal explanations of particular events? Isn’t such an attitude more the province of the historian? Social science should instead be concentrating on systematic knowledge. The Prisoner’s Dilemma, this objection concludes, is a laudable example of exactly that – a piece of theory that sheds light over many different cases.
In reply, we certainly agree that regularities or models that explain or that give heuristic value over many different cases are highly desirable. But ones that do neither are not – especially if they use up huge resources along the way. When looking at the details, the Prisoner’s Dilemma’s explanatory record so far is poor and its heuristic record mixed at best. The only way to

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What’s the use of economic models?

September 27, 2020

From Lars Syll
One can generally develop a theoretical model to produce any result within a wide range. Do you want a model that produces the result that banks should be 100% funded by deposits? Here is a set of assumptions and an argument that will give you that result. That such a model exists tells us very little …
Being logically correct may earn a place for a theoretical model on the bookshelf, but when a theoretical model is taken off the shelf and applied to the real world, it is important to question whether the model’s assumptions are in accord with what we know about the world. To be taken seriously models should pass through the real world filter.
Chameleons are models that are offered up as saying something significant about the real world even though they do not pass

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Evidence-based policies

September 23, 2020

From Lars Syll
Evidence-based theories and policies are highly valued nowadays. Randomization is supposed to control for bias from unknown confounders. The received opinion is that evidence based on randomized experiments, therefore, is the best.
More and more economists have also lately come to advocate randomization as the principal method for ensuring being able to make valid causal inferences.
Yours truly would, however, rather argue that randomization, just as econometrics, promises more than it can deliver, basically because it requires assumptions that in practice are not possible to maintain. Just as econometrics, randomization is basically a deductive method. Given the assumptions (such as manipulability, transitivity, separability, additivity, linearity, etc.) these methods

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Expected utility theory — an ex-parrot

September 20, 2020

From Lars Syll
If a friend of yours offered you a gamble on the toss of a coin where you could lose €100 or win €200, would you accept it? Many of us probably wouldn’t. But if you were offered to make one hundred such bets, you would probably be willing to accept it, since most of us see that the aggregated gamble of one hundred 50–50 lose €100/gain €200 bets has an expected return of €5000 (and making our probabilistic calculations we find out that there is only a 0.04% ‘risk’ of losing any money).
Unfortunately – at least if you want to adhere to the standard mainstream expected utility theory – you are then considered irrational! A mainstream utility maximizer that rejects the single gamble should also reject the aggregate offer.
Expected utility theory does not explain actual

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The value of economics — a cost-benefit analysis

September 17, 2020

From Lars Syll
Economists cannot simply dismiss as “absurd” or “impossible” the possibility that our profession has imposed total costs that exceed total benefits. And no, building a model which shows that it is logically possible for economists to make a positive net contribution is not going to make questions about our actual effect go away. Why don’t we just stipulate that economists are now so clever at building models that they can use a model to show that almost anything is logically possible. Then we could move on to making estimates and doing the math.
In the 19th century, when it became clear that the net effect of having a doctor assist a woman in child-birth was to increase the probability that she would die, western society faced a choice:
– Get rid of doctors; or
– Insist

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Friedman-Savage and Keynesian uncertainty

September 16, 2020

From Lars Syll

An objection to the hypothesis just
presented that is likely to be raised by
many … is that it conflicts with the way human beings actually behave and choose. … Is it not patently unrealistic to suppose that individuals … base their decision on the size of the
expected utility?
While entirely natural and under-
standable, this objection is not strictly relevant … The hypothesis asserts rather that, in making a particular class of decisions, individuals behave as if they calculated and compared expected utility and as if they knew the odds. The validity of this assertion … depend  solely on whether it yields sufficiently accurate predictions about the class of decisions
with which the hypothesis deals.
M Friedman & L J Savage
‘Modern’ macroeconomics — Dynamic Stochastic

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Does it — really — take a model to beat a model? No!

September 13, 2020

From Lars Syll
Many economists respond to criticism by saying that ‘all models are wrong’ … But the observation that ‘all models are wrong’ requires qualification by the second part of George Box’s famous aphorism — ‘but some are useful’ … The relevant  criticism of models in macroeconomics and finance is not that they are ‘wrong’ but that they have not proved useful in macroeconomics and have proved misleading in finance.
When we provide such a critique, we often hear another mantra to which many economists subscribe: ‘It takes a model to beat a model.’ On the contrary, we believe that it takes facts and observations to beat a model … If a model fails to answer the problem to which it is addressed, it should be put back in the toolbox … It is not necessary to have an alternative tool

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Michael Woodford on models

September 10, 2020

From Lars Syll
But I do not believe that the route to sounder economic reasoning will involve an abandonment of economists’ penchant for reasoning with the use of models. Models allow the internal consistency of a proposed argument to be checked with greater precision; they allow more finely-grained differentiation among alternative hypotheses, and they allow longer and more subtle chains of reasoning to be deployed without both author and reader becoming hopelessly tangled in them. Nor do I believe it is true that economists who are more given to the use of formal mathematical analysis are generally more dogmatic in their conclusions than those who customarily rely upon more informal styles of argument. Often, reasoning from formal models makes it easier to see how strong are the

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Do ‘small-world’ models help us understand ‘large-world’ problems?

September 8, 2020

From Lars Syll
In L. J. Savage’s seminal The Foundations of Satistics the reader is invited to tackle the problem of an uncertain future using the concept of ‘lottery tickets’ and the principle of ‘look before you leap.’
Carried to its logical extreme, the ‘Look before you leap’ principle demands that one envisage every conceivable policy for the government of his whole life (at least from now on) in its most minute details, in the light of the vast number of unknown states of the world, and decide here and now on one policy. This is utterly ridiculous … because the task implied in making such a decision is not even remotely resembled by human possibility. It is even utterly beyond our power to plan a picnic or to play a game of chess in accordance with the principle, even when the

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