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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

Why economics is an impossible science

11 days ago

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

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Radical uncertainty

13 days ago

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

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MMT = Keynes 2.0

15 days ago

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

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Keynesian vs Newtonian economics

20 days ago

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

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Rethinking public debt

23 days ago

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

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Paul Krugman — a case of dangerous neglect of methodological reflection

26 days ago

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

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Keynes on microfoundations

27 days ago

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

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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

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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

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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

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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.

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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

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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

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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

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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

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Econometric self-deceptions

June 12, 2020

From Lars Syll
One may wonder how much calibration adds to the knowledge of economic structures and the deep parameters involved …
First, few ‘deep parameters’ have been established at all …
Second, even where estimates are available from micro-econometric investigations, they cannot be automatically imported into aggregated general equilibrium models …
Third, calibration hardly contributes to growth of knowledge about ‘deep parameters’. These deep parameters are confronted with a novel context (aggregate time-series), but this is not used for inference on their behalf. Rather, the new context is used to fit the model to presumed ‘laws of motion’ of the economy …
Hugo Keuzenkamp
There are many kinds of useless economics held in high regard within mainstream economics establishment

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MMT — Keynesianism with an expansionary twist

June 11, 2020

From Lars Syll
Expansionary policy with a strong redistributive component is an attractive proposal … Higher output and real wages would likely stimulate productivity growth. Global warming can and should be attacked seriously.
With regard to foundation myths for MMT, Chartalism adds little to the observation that a modern macro economy operates on the basis of fiat money supported by state power which transcends enforcing the mere payment of taxes.
Functional finance is the heart of fiscalist Keynesianism incorporating automatic stabilizers for the business cycle. The MMT job guarantee proposal could be helpful as a supplement to the existing system of stabilizers …
A fiscal expansion poses the risk of price inflation. It is unlikely to turn into a Wicksellian cumulative process so

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What’s the use of economics?

June 7, 2020

From Lars Syll
The simple question that was raised during a recent conference … was to what extent has — or should — the teaching of economics be modified in the light of the current economic crisis? The simple answer is that the economics profession is unlikely to change. Why would economists be willing to give up much of their human capital, painstakingly nurtured for over two centuries? For macroeconomists in particular, the reaction has been to suggest that modifications of existing models to take account of ‘frictions’ or ‘imperfections’ will be enough to account for the current evolution of the world economy. The idea is that once students have understood the basics, they can be introduced to these modifications.
However, other economists such as myself feel that we have finally

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MMT — neither modern, nor monetary

June 5, 2020

From Lars Syll
Voltaire once said of the Holy Roman Empire that it was “Neither Holy, nor Roman, nor an Empire”. Something similar might be said of Modern Monetary Theory … It is neither modern, nor genuinely monetary, and it is at least as much a set of policy proposals as a theory.
It might be thought that “modern” refers to the fiat money world in which we have lived since major currencies broke with gold convertibility in the 1930s … In fact, however, it is a kind of inside joke, motivated by this observation of Keynes
“The State, therefore, comes in first of all as the authority of law which enforces the payment of the thing which corresponds to the name or description in the contracts. But it comes in doubly when, in addition, it claims the right to determine and declare what

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June 3, 2020

From Lars Syll
[embedded content]
A great video, but — there’s always a but — unfortunately also not without some analytical shortcomings.
The point of making a randomized experiment is often said to be that it ‘ensures’ that any correlation between a supposed cause and effect indicates a causal relation. This is believed to hold since randomization (allegedly) ensures that a supposed causal variable does not correlate with other variables that may influence the effect.
The problem with that (rather simplistic) view on randomization is that the claims made are both exaggerated and strictly seen false:
• Even if you manage to do the assignment to treatment and control groups ideally random, the sample selection certainly is — except in extremely rare cases — not random. Even if we make

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Microfoundations — neither law nor true

May 31, 2020

From Lars Syll

Simon Wren-Lewis is one of many mainstream economists that staunchly defends the idea that having microfoundations for macroeconomics moves macroeconomics forward. A couple of years ago he wrote this:
I think the two most important microfoundation led innovations in macro have been intertemporal consumption and rational expectations …  [T]he adoption of rational expectations was not the result of some previous empirical failure. Instead it represented, as Lucas said, a consistency axiom …
I think macroeconomics today is much better than it was 40 years ago as a result of the microfoundations approach.
On this kind of argumentation I would like to add the following comments:
(1) The fact that Lucas introduced rational expectations as a consistency axiom is not really an

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Economic models and reality

May 25, 2020

From Lars Syll
The abandonment of efforts to match real structures has led to disaster, as models of economic theory have grown progressively distant from reality. Attempts to fix the problem have failed to address the cause. Economists look at bad models, and say we should replace these by better models. But the process by which models are evaluated, the underlying methodology, is not examined. The real problem lies much deeper than bad models and ludicrous assumptions. Bad assumptions would quickly be replaced by better ones if the methodology insisted on correction of models to match reality. The real problem is the lack of a progressive methodology. When our mental models are attempts to approximate reality, then, when they fail, we try to improve the match to reality. Our models

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Rational choice theory — an abysmal failure

May 23, 2020

Lars Syll
Though an enthusiast of reason, I believe that rational choice theory has failed abysmally, and it saddens me that this failure has brought discredit upon the very enterprise of serious theorizing in the field of social study …
Rational choice theory is far too ambitious. In fact, it claims to explain everything social in terms of just three assumptions that would hold for all individuals in all social groups and in every historical period. But a Theory of Everything does not explain anything in particular … And being unable to account for differences among individuals and for the variety of social interactions, systems, processes, and institutions, the theory is bound to be unrealistic, i. e., false …
The reader may feel that my criticism is excessive: that I am throwing the

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Econometrics — a Keynesian perspective

May 20, 2020

From Lars Syll
It will be remembered that the seventy translators of the Septuagint were shut up in seventy separate rooms with the Hebrew text and brought out with them, when they emerged, seventy identical translations. Would the same miracle be vouchsafed if seventy multiple correlators were shut up with the same statistical material? And anyhow, I suppose, if each had a different economist perched on his a priori, that would make a difference to the outcome.
J M Keynes
Mainstream economists today usually subscribe to the idea that although mathematical-statistical models are not ‘always the right guide for policy,’ they are still somehow necessary for making policy recommendations. The models are supposed to supply us with a necessary ‘discipline of thinking.’
This emphasis on the

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How the model became the message in economics

May 18, 2020

From Lars Syll
In The World in the Model Mary Morgan gives a historical account of how the model became the message in economics. On the question of how the models provide a method of enquiry where they can function both as “objects to enquire into” and as “objects to enquire with”, Morgan argues that model reasoning involves a kind of experiment. She writes:
It may help to clarify my account of modelling as a double method of enquiry in economics if we compare it with two of the other reasoning styles … the method of mathematical postulation and proof and the method of laboratory experiment.
If we portray mathematical modelling as a version of the method of mathematical postulation and proof … models can indeed be truth-makers about that restricted and mathematical small world … But

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The representative agent — a theoretical cul-de-sac

May 16, 2020

From Lars Syll
Rigorous macroeconomics must therefore ground its analysis in individual behavior, recognize that only a few key variables carry over to the aggregate level, and generally posit distinct functional forms at the macro level. Keynes and Kalecki are eminent examples of this. Keynes builds his analysis of aggregate consumption on personal income and a variety of subjective and objective factors that influence individual savings (non-consumption) behavior. He is also careful to note that institutional and organizational factors play an important role. Despite all of this, he only requires that aggregate real consumption be a function of real income with the property that the marginal propensity to consume be less than one. Kalecki’s theory of price follows a similar path from

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Crazy econometricians

May 14, 2020

From Lars Syll
With a few notable exceptions, such as the planetary systems, our most beautiful and exact applications of the laws of physics are all within the entirely artificial and precisely constrained environment of the modern laboratory … Haavelmo remarks that physicists are very clever. They confine their predictions to the outcomes of their experiments. They do not try to predict the course of a rock in the mountains and trace the development of the avalanche. It is only the crazy econometrician who tries to do that, he says.

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The advantages and limitations of forecasting

May 11, 2020

From Lars Syll
In New York State, Section 899 of the Code of Criminal Procedure provides that persons “Pretending to Forecast the Future” shall be considered disorderly under subdivision 3, Section 901 of the Code and liable to a fine of $250 and/or six months in prison.
Although the law does not apply to “ecclesiastical bodies acting in good faith and without fees,” I’m not sure where that leaves econometricians and other forecasters …
I came to think about this nineteenth-century New York law the other day when interviewed by a journalist working on a series on Great Economic Thinkers. We were discussing the monumental failures of the predictions-and-forecasts-business. But — the journalist asked — if these cocksure economists with their ‘rigorous’ and ‘precise’

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Gary Becker’s big mistake

May 8, 2020

From Lars Syll
The econometrician Henri Theil once said “models are to be used but not to be believed.” I use the rational actor model for thinking about marginal changes but Gary Becker really believed the model. Once, at a dinner with Becker, I remarked that extreme punishment could lead to so much poverty and hatred that it could create blowback. Becker was having none of it. For every example that I raised of blowback, he responded with a demand for yet more punishment …
You can see the idea in his great paper, Crime and Punishment: An Economic Approach. In a famous section he argues that an optimal punishment system would combine a low probability of being punished with a high level of punishment if caught …
We have now tried that experiment and it didn’t work … Most

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