Wednesday , September 23 2020
Home / Lars Syll
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

Expected utility theory — an ex-parrot

2 days ago

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

Read More »

The value of economics — a cost-benefit analysis

5 days ago

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

Read More »

Friedman-Savage and Keynesian uncertainty

7 days ago

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

Read More »

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

10 days ago

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

Read More »

Michael Woodford on models

13 days ago

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

Read More »

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

15 days ago

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

Read More »

The pseudo-scientific use of small-world models in a large world

18 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

Read More »

The capital controversy

20 days ago

From Lars Syll
As every mainstream textbook on growth theory, most mainstream economists choose to turn a blind eye to the concept of capital and the Cambridge controversy over it and pretend it’s much fuss about nothing. But they are wrong!

The production function has been a powerful instrument of miseducation. The student of economic theory is taught to write Q = f(L, K) where L is a quantity of labor, K a quantity of capital and Q a rate of output of commodities. He is instructed to assume all workers alike, and to measure L in man-hours of labor; he is told something about the index-number problem in choosing a unit of output; and then he is hurried on to the next question, in the hope that he will forget to ask in what units K is measured. Before he ever does ask, he has become

Read More »

Rethinking public debt

23 days ago

From Lars Syll
Public debt is normally — as emphasized again and again by MMT economists — 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 — if used in a suitable way — the debt, through its effects on investments and employment,

Read More »

Uncertainty, learning, and rational expectations

27 days ago

From Lars Syll
The rational expectations hypothesis presupposes — basically for reasons of consistency — that agents have complete knowledge of all of the relevant probability distribution functions. And when trying to incorporate learning in these models — trying to take the heat of some off the criticism launched against it up to date — it is always a very restricted kind of learning that is considered. A learning where truly unanticipated, surprising, new things never take place, but only rather mechanical updatings — increasing the precision of already existing information sets – of existing probability functions.
Nothing really new happens in these ergodic models, where the statistical representation of learning and information is nothing more than a caricature of what takes place

Read More »

MMT’s inflationary bias

28 days ago

From Lars Syll
A view yours truly often encounters when debating MMT is that there is an inflationary bias in MMT and that its framework ignores expectations.
Hmm …
It is extremely difficult to recognize that description. Given its roots in the writings of Keynes, Lerner, and Minsky, it is, to say the least, rather amazing to attribute those views to MMT. Let me just quote one source to show how ill-founded the critique is on this issue:
MMT recommends a different approach to the federal budgeting process, one that integrates inflation risk into the decision-making process so that lawmakers are forced to stop and think about whether they have taken the necessary steps to guard against inflation risk before approving any new spending. MMT would make us safer in this respect because it

Read More »

MMT — debunking the deficit myth

August 22, 2020

From Lars Syll
We have already shown that deficit spending increases our collective savings. But what happens if Uncle Sam borrows when he runs a deficit? Is that wht eats up savings and forces interest rates higher? The answer is no.
The financial crowding-out story asks us to imagine that there’s a fixed supply of savings from which anyone can attempt to borrow …
MMT rejects the loanable funds story, which is rooted in the idea that borrowing is limited by access to scarce financial resources …
Government deficits always lead to a dollar-for-dollar increase in the supply of net financial assets held in the nongovernment bucket. That’s not a theory. That’s not an opinion. It’s just the cold hard reality of stock-flow consistent accounting.
So fiscal deficits — even with government

Read More »

How to use models in economics

August 21, 2020

From Lars Syll
The reason you study an issue at all is usually that you care about it, that there’s something you want to achieve or see happen. Motivation is always there; the trick is to do all you can to avoid motivated reasoning that validates what you want to hear.
In my experience, modeling is a helpful tool (among others) in avoiding that trap, in being self-aware when you’re starting to let your desired conclusions dictate your analysis. Why? Because when you try to write down a model, it often seems to lead some place you weren’t expecting or wanting to go. And if you catch yourself fiddling with the model to get something else out of it, that should set off a little alarm in your brain.
Paul Krugman 
Hmm …
So when Krugman and other ‘modern’ mainstream economists use their

Read More »

Macroeconomics and reality

August 18, 2020

From Lars Syll
Why would an academic profession sanction the use of theories based on crassly unrealistic assumptions? It is not an intuitively attractive idea. One suspects that the underlying reason is: economists are, in the main, committed to the defense of propositions that cannot be generated by models based on realistic assumptions. For example, a long string of unrealistic assumptions are necessary to generate the desired conclusion that unregulated financial markets perform optimally …
Milton Friedman was not only an economist; he was an energetic conservative political activist as well. His positivist methodology made it possible for conservative economists to use an absurd set of assumptions that no one would accept as a reasonable description of real- world capitalism to

Read More »

Epistemic humility — an intellectual virtue

August 10, 2020

From Lars Syll
Being a true expert involves not only knowing stuff about the world but also knowing the limits of your knowledge and expertise. It requires, as psychologists say, both cognitive and metacognitive skills. The point is not that true experts should withhold their beliefs or that they should never speak with conviction. Some beliefs are better supported by the evidence than others, after all, and we should not hesitate to say so. The point is that true experts express themselves with the proper degree of confidence—meaning with a degree of confidence that’s justified given the evidence …
Epistemic humility is an intellectual virtue. It is grounded in the realization that our knowledge is always provisional and incomplete—and that it might require revision in light of new

Read More »

Why economics is an impossible science

July 28, 2020

From Lars Syll
In a word, Economics is an Impossible Science because by its own definition the determining conditions of the economy are not economic: they are “exogenous.” Supposedly a science of things, it is by definition without substance, being rather a mode of behavior: the application of scarce means to alternative ends so as to achieve the greatest possible satisfaction—neither means, ends, nor satisfaction substantially specified. Exogenous, however, is the culture, all those meanings, values, institutions, and structures, from gender roles, race relations, food preferences, and ethnicities, to technical inventions, legal regulations, political parties, etc., etc. The effect is a never-ending series of new theoretical breakthroughs, each an Economics du jour worthy of a Nobel

Read More »

Radical uncertainty

July 26, 2020

From Lars Syll

In Radical Uncertainty, John Kay and Mervyn King, two well-known British economists, state that rather than trying to understand the ever-changing, uncertain and ambiguous environment by trying to understand “what’s going on here”, the economics profession has become dominated by an approach to uncertainty that requires a comprehensive list of possible outcomes with well-defined numerical probabilities attached to them. Drawing widely on philosophy, anthropology, economics, cognitive science, and strategic management and organisation scholarship, the authors present an argument that probabilistic thinking gives us a false understanding of our power to make predictions and a false illusion of utility-maximising behaviour. Instead of trying to produce probability

Read More »

MMT = Keynes 2.0

July 24, 2020

From Lars Syll
As time goes on, and 2020 turns into 2021, the long-held idea that governments are like households and businesses that have to repay their debts, or even that government deficits must be financed by debt at all, will increasingly be exposed as a mistake.
It will be more or less a return to Keynes, except with the twist that the Keynesian aim of balancing the budget over the course of the cycle – deficits in bad times, surpluses in good times – doesn’t matter, not that anybody has actually achieved that lately anyway.
In future 2020 will be seen as the year when Keynes 2.0 got underway – when monetary and fiscal policy merged and a more sophisticated theory of government took hold, in which spending has no limit apart from the capacity of the economy.
As debt continues to

Read More »

Keynesian vs Newtonian economics

July 19, 2020

From Lars Syll
To complete his theory, Keynes tied these elements together. The market for money determined interest. Interest (and the state of business confidence) determined investment. Investment, alongside consumption, determined effective demand for output. Demand for output determined output and employment. Consumption out of incomes determined savings. Employment determined the real wage.
In this world, a change in monetary policy, such as a cut in interest rates leading to an increase in bank credit, now had fundamental real consequences. The classical dichotomy, in economics as in physics, had been broken. And with the deconstruction of labor and capital markets, the reductionist idea of microfoundations had also to be abandoned. Workers, Keynes pointed out, bargain for money

Read More »

Rethinking public debt

July 16, 2020

From Lars Syll
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 — if used in a suitable way — the debt, through its effects on investments and employment, actually makes future generations net winners. There

Read More »

Paul Krugman — a case of dangerous neglect of methodological reflection

July 13, 2020

From Lars Syll
Alex Rosenberg — chair of the philosophy department at Duke University, renowned economic methodologist and author of Economics — Mathematical Politics or Science of Diminishing Returns? — had an interesting article on What’s Wrong with Paul Krugman’s Philosophy of Economics in 3:AM Magazine a couple of years ago. Writes Rosenberg:
When he accepts maximizing and equilibrium as the (only?) way useful economics is done Krugman makes a concession so great it threatens to undercut the rest of his arguments against New Classical economics:
‘Specifically: we have a body of economic theory built around the assumptions of perfectly rational behavior and perfectly functioning markets. Any economist with a grain of sense — which is to say, maybe half the profession? — knows that

Read More »

Keynes on microfoundations

July 12, 2020

From Lars Syll
The atomic hypothesis which has worked so splendidly in Physics breaks down in Psychics. We are faced at every turn with the problems of Organic Unity, of Discreteness, of Discontinuity – the whole is not equal to the sum of the parts, comparisons of quantity fails us, small changes produce large effects, the assumptions of a uniform and homogeneous continuum are not satisfied. Thus the results of Mathematical Psychics turn out to be derivative, not fundamental, indexes, not measurements, first approximations at the best; and fallible indexes, dubious approximations at that, with much doubt added as to what, if anything, they are indexes or approximations of.
Where ‘New Keynesian’ and New Classical economists think that they can rigorously deduce the aggregate effects of

Read More »

The alleged success of econometrics

July 7, 2020

From Lars Syll
Econometricians typically hail the evolution of econometrics as a “big success”. For example, Geweke et al. (2006) argue that “econometrics has come a long way over a relatively short period” … Pagan (1987) describes econometrics as “outstanding success” because the work of econometric theorists has become “part of the process of economic investigation and the training of economists” …
These claims represent no more than self-glorifying rhetoric … The widespread use of econometrics is not indicative of success, just like the widespread use of drugs does not represent social success. Applications of econometric methods in almost every field of economics is not the same as saying that econometrics has enhanced our understanding of the underlying issues in every field of

Read More »

Inequality and luxury

July 3, 2020

From Lars Syll
Thus luxury is being hollowed out. For in the middle of general fungibility, happiness clings without exception to what is not fungible. No exertion of humanity, no formal reasoning can alter the fact that the clothing which shimmers like a fairy-tale is worn by the one and only, not by twenty-thousand others. Under capitalism, the utopia of the qualitative — what by virtue of its difference and uniqueness does not enter into the ruling exchange relationship — flees into the fetish character. But this promise of happiness in luxury presupposes once more privilege, economic inequality, precisely a society based on fungibility. That is why the qualitative itself turns into a special case of quantification, the not-fungible into the fungible, luxury into comfort and in the

Read More »

An interview with Stephanie Kelton

July 2, 2020

From Lars Syll
Cody Fenwick: What drives the biggest misunderstandings about government debt in our national conversation?
Everything is wrong. The way we talk about federal government debt is, from my perspective, we say things like we’re borrowing from China and foreigners. Hillary Clinton said when she was secretary of State that it’s a national security threat. People talk about it representing a liability to all of us, so we hear people talk about “your share [of the national debt],”  a burden on future generations, that it ultimately has to be paid back, that it’s going to require higher taxes in the future. I could keep going.
So what connects all these misunderstandings? Are we thinking of the government too much like a household or a business? 
Yes, of course. We think that

Read More »

Hicks’ chef-d’oeuvre

June 28, 2020

From Lars Syll
When we cannot accept that the observations, along the time-series available to us, are independent, or cannot by some device be divided into groups that can be treated as independent, we get into much deeper water. For we have then, in strict logic, no more than one observation, all of the separate items having to be taken together. For the analysis of that the probability calculus is useless; it does not apply. We are left to use our judgement, making sense of what has happened as best we can, in the manner of the historian. Applied economics does then come back to history, after all.
I am bold enough to conclude, from these considerations that the usefulness of ‘statistical’ or ‘stochastic’ methods in economics is a good deal less than is now conventionally supposed.

Read More »

The rhetoric of imaginary populations

June 25, 2020

From Lars Syll
The most expedient population and data generation model to adopt is one in wh
ich the population is regarded as a realization of an infinite super population. This setup is the standard perspective in mathematical statistics, in which random variables are assumed to exist with fixed moments for an uncountable and unspecified universe of events …
This perspective is tantamount to assuming a population machine that spawns
individuals forever (i.e., the analog to a coin that can be flipped forever). Each individual is born as a set of random draws from the distributions of Y¹, Y°, and additional variables collective
ly denoted by S …
Because of its expediency, we will usually write with the superpopulation model in the background, even though
the notions of infinite

Read More »

What is theory?

June 23, 2020

From Lars Syll
Economics is a discipline with the avowed ambition to produce theory for the real world. But it fails in this ambition, Lars Pålsson Syll asserts in Chapter 12, at least as far as the dominant mainstream neoclassical economic theory is concerned. Overly confident in deductivistic Euclidian methodology, neoclassical economic theory lines up series of mathematical models that display elaborate internal consistency but lack clear counterparts in the real world. Such models are at best unhelpful, if not outright harmful, and it is time for economic theory to take a critical realist perspective and explain economic life in depth rather than merely modeling it axiomatically.
The state of economic theory is not as bad as Pålsson Syll describes, Fredrik Hansen retorts in Chapter

Read More »

The ultimate takedown of teflon coated defenders of rational expectations

June 21, 2020

From Lars Syll
James Heckman, winner of the “Nobel Prize” in economics (2000), did an interview with John Cassidy in 2010. It’s an interesting read (Cassidy’s words in italics):
What about the rational-expectations hypothesis, the other big theory associated with modern Chicago? How does that stack up now?
I could tell you a story about my friend and colleague Milton Friedman. In the nineteen-seventies, we were sitting in the Ph.D. oral examination of a Chicago economist who has gone on to make his mark in the world. His thesis was on rational expectations. After he’d left, Friedman turned to me and said, “Look, I think it is a good idea, but these guys have taken it way too far.”
It became a kind of tautology that had enormously powerful policy implications, in theory. But the fact

Read More »

Social science — a plaidoyer

June 16, 2020

From Lars Syll
One of the most important tasks of social sciences is to explain the events, processes, and structures that take place and act in society. But the researcher cannot stop at this. As a consequence of the relations and connections that the researcher finds, a will and demand arise for critical reflection on the findings. To show that unemployment depends on rigid social institutions or adaptations to European economic aspirations to integration, for instance, constitutes at the same time a critique of these conditions. It also entails an implicit critique of other explanations that one can show to be built on false beliefs. The researcher can never be satisfied with establishing that false beliefs exist but must go on to seek an explanation for why they exist. What is it

Read More »