The relation of knowledge to power is one not only of servility but of truth. Much knowledge, if out of pro­portion to the disposition of forces, is invalid, however formally correct it may be.If an émigré doctor says: ‘For me … is a patological case’, his pronouncement may ultimately be con­firmed by clinical findings, but its incongruity with the objective calamity visited on the world in the name of that paranoiac renders the diagnosis ridiculous, mere professional preening. Perhaps … is ‘in-himself’ a pathological case, but certainly not ‘for-him’. The vanity and poverty of many of the declarations against … by émigrés is connected with this. People thinking in the forms of free, detached, disinterested appraisal were unable to accommodate with­ in those forms the

From Lars Syll 
A science that fails to reflect on its own history and neglects critical methodological and theoretical questions about its practice is a science in crisis.
As early as 1991, a commission led by Anne Krueger—featuring esteemed economists such as Kenneth Arrow, Edward Leamer, and Joseph Stiglitz—highlighted a fundamental weakness in graduate economics education. Drawing from their own experiences, they observed an alarming disconnect between theoretical and econometric tools and real-world problems. They noted that both students and faculty felt the absence of “facts, institutional information, data, real-world issues, applications, and policy problems.” Their conclusion was stark: graduate programs were producing “a generation with too many idiot savants skilled in

Models and evidence in economics

Analogue-economy models may picture Galilean thought experiments or they may describe credible worlds. In either case we have a problem in taking lessons from the model to the world. The problem is the venerable one of unrealistic assumptions, exacerbated in economics by the fact that the paucity of economic principles with serious empirical content makes it difficult to do without detailed structural assumptions. But the worry is not just that the assumptions are unrealistic; rather, they are unrealistic in just the wrong way.
Nancy Cartwright

One limitation of economics is the restricted possibility of performing experiments, forcing it to mainly rely on observational studies for knowledge of real-world economies.

President Trump talking bollocks

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Confirms — again — what we already knew: Trump is a reckless, untruthful, outrageous, incompetent and undignified buffoon!

Keynes and Knight on uncertainty

First, Knight and Keynes derive from their different philosophical worldviews distinct definitions of uncertainty. Keynes’s is a wholly epistemic uncertainty concept (see Packard and Clark, 2020), the ignorance of an actor regarding the objective and knowable (a priori) probabilities of future outcomes. Such probabilities are discoverable by learning the underlying ‘probability-relations’ between causes and effects. Scientific efforts mitigate uncertainty by illuminating these probability-relations and by producing ever-increasing evidential weight until each uncertainty is eventually absconded.
Mark D Packard, Per L Bylund, Brent B Clark

An interesting paper that merits a couple of comments.
To understand real-world

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Solving a simple DP problem (student stuff)

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In case you want to solve the problem yourself, here’s a Python script yours truly made (assuming the utility function is of the natural log kind and with some explicit numerical parameterization):

import numpy as np
import matplotlib.pyplot as plt

# Parameters
beta = 0.9 # Discount factor
r = 0.1 # Depreciation rate
T = 3 # Time horizon
k0 = 4.0 # Initial capital

# Production function: f(k) = k^0.5
def f(k):
return k**0.5

# Utility function: u(c) = ln(c), ensuring c > 0
def u(c):
return np.log(c) if c > 0 else -np.inf

# Discretize capital grid
k_vals = np.linspace(0.1, 10, 100)

# Initialize value function and policy storage
V = [{} for _ in range(T + 1)]
policy = [{} for

Best advice to an aspiring economist — don’t be an economist!

A science that fails to reflect on its own history and neglects critical methodological and theoretical questions about its practice is a science in crisis.
As early as 1991, a commission led by Anne Krueger—featuring esteemed economists such as Kenneth Arrow, Edward Leamer, and Joseph Stiglitz—highlighted a fundamental weakness in graduate economics education. Drawing from their own experiences, they observed an alarming disconnect between theoretical and econometric tools and real-world problems. They noted that both students and faculty felt the absence of “facts, institutional information, data, real-world issues, applications, and policy problems.” Their conclusion was stark: graduate

Post Keynesian authors have offered various classifications of uncertainty … A common distinction is that of epistemological versus ontological uncertainty, with the former depending on the limitations of human reasoning and the latter on the actual nature of social systems …
Models of ontological uncertainty tend to hinge on the existence of information that is critical to the decision-making task. Fundamental uncertainty occurs in “situations in which at least some essential information about future events cannot be known at the moment of decision because this information does not exist and cannot be inferred from any existing data set” (Dequech 1999, 415-416). For Davidson (1991, 131), “true” uncertainty arises when “the decision maker believes that no information

Who pays for Trump’s tariffs? You will!

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From Lars Syll
Back in 1991, when yours truly earned his first PhD​ with a dissertation on decision making and rationality in social choice theory and game theory, I concluded that “repeatedly it seems as though mathematical tractability and elegance — rather than realism and relevance — have been the most applied guidelines for the behavioural assumptions being made. On a political and social level, ​it is doubtful if the methodological individualism, ahistoricity and formalism is building on is especially valid.”
This, of course, was like swearing in church. My mainstream colleagues were — to say the least — not exactly überjoyed.
For those of you who are not familiar with game theory, but are eager to learn something relevant about it, I have three suggestions:
Start with the best

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Danke, guter Gott, dass es Politiker wie Heidi gibt!

What is wrong with game theory

Back in 1991, when yours truly earned his first PhD​ with a dissertation on decision making and rationality in social choice theory and game theory, I concluded that “repeatedly it seems as though mathematical tractability and elegance — rather than realism and relevance — have been the most applied guidelines for the behavioural assumptions being made. On a political and social level, ​it is doubtful if the methodological individualism, ahistoricity and formalism game theory is building on is especially valid.”
This, of course, was like swearing in church. My mainstream colleagues were — to say the least — not exactly überjoyed.
For those of you who are not familiar with game theory, but are eager to learn something

Why every researcher should blog

Daniel Waldenström — Sveriges egen Dr Pangloss

Idag presenterades LO:s årliga rapport om inkomstskillnader i vårt land — Makteliten: i raketfart från verkligheten. Den visar att näringslivets direktörslöner fortsätter att dra ifrån rejält och idag ligger på en historiskt hög nivå.

Den genomsnittliga inkomsten för vd:arna vid de 50 största svenska företagen motsvarade år 2023 mer än 70 industriarbetarlöner.
Men för vår egen Dr Pangloss, ekonomiprofessorn Daniel Waldenström, är den ökade ojämlikheten i vårt land inte ett problem. I kvällens Rapport kommenterade han LO:s siffror så  här:
Så länge man helt enkelt diskuterar och landar (sic!) blir det också på vd-nivå och på andra löntagares nivå, den lön som är rimlig att bära.
Ja, vad ska man säga om

The Pygmalion syndrome and the failings of modern economics

As Lars Syll wrote here last month, too much of the profession “has since long given up on the real world” and is happy to investigate the “thought-up worlds” of unrealistic economic models. Too much attention is focused on how the parts of the model fit together, rather than on how well the models fit  with reality.
But how can critics communicate these problems effectively? Especially to those who will be intimidated or turned off by a phrase like ‘ontological foundations’?
In my new book Ricardo’s Dream: How Economists Forgot the Real World and Led Us Astray I unpack the problem and suggest an answer. One that uses a 2,000-year-old story of a lonely sculptor from Greek myth …  
It’s the

Dynamic Programming for Dummies (student stuff)

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Dynamic programming is a cornerstone of optimal control theory. By recursively breaking down complex problems into smaller, more manageable subproblems, it serves as a powerful tool in economics. Economic analysis often involves decisions with long-term consequences, and dynamic programming helps model how different agents make optimal choices when each decision depends on the current state and future possibilities.

Open letter to my students

Yours truly has a reputation for being tough on grading students. It is true. I am tough. And for a reason. Social science is hard. Getting a grade in it is not something you have a right to. You have to show that you master the material. You have to earn it!
One of the popular myths of higher education is that professors are sadists who live to inflict psychological trauma on undergraduates. Perhaps you believe that we pick students at random and then schedule all our assignments in such a way as to make those students’ lives as difficult as possible. The older I get and the longer I do this, the more I recognize that we (the professors) need to be more transparent about our philosophies of evaluation. How does this work?

When You Are Old

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From Lars Syll
Mainstream economists often hold the view that Keynes’ criticism of econometrics resulted from a sadly misinformed and misguided person who disliked and did not understand much of it.
This is, however, nothing but a gross misapprehension.
To be careful and cautious is not the same as to dislike. Keynes did not misunderstand the crucial issues at stake in the development of econometrics—quite the contrary. He knew them all too well and was not satisfied with the validity and philosophical underpinning of the assumptions made for applying its methods.
Keynes’ critique is still valid and unanswered in the sense that the problems he pointed at are still with us today and ‘unsolved.’ Ignoring them — the most common practice among applied econometricians — is not to solve

Knapsack problem (student stuff)

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And, yes, there is a strong connection between the knapsack problem and Bellman’s principle of optimality through dynamic programming, which leverages the principle of optimality to break the problem into smaller subproblems and build up the solution …

Keynes’ critique of econometrics is still valid

Mainstream economists often hold the view that Keynes’ criticism of econometrics resulted from a sadly misinformed and misguided person who disliked and did not understand much of it.
This is, however, nothing but a gross misapprehension.
To be careful and cautious is not the same as to dislike. Keynes did not misunderstand the crucial issues at stake in the development of econometrics—quite the contrary. He knew them all too well and was not satisfied with the validity and philosophical underpinning of the assumptions made for applying its methods.
Keynes’ critique is still valid and unanswered in the sense that the problems he pointed at are still with us today and ‘unsolved.’ Ignoring them — the most

Om ‘statsbudgetpolis’ och otillräckliga räntesänkningar

Sällan eller aldrig har man anledning vara nöjd med ekonomijournalistiken i press, radio och television. Ytterst få ekonomijournalister och börsanalytiker tar sitt jobb på allvar och bedriver ekonomisk journalistik värd namnet. De flesta av oss har därför sedan länge gett upp. Synd bara att allmänheten ska behöva nöja sig med det tyckmyckentrutade nonsens näringsliv och borgerlighet helt oemotsagt får basunera ut i medierna vecka efter vecka.
När man tröttnat på att lyssna på de vanliga etablissemangsflosklerna som serveras på de gängse så kallade ‘ekonomipoddarna’ och den borgerliga pressens ledarsidor, ska man likväl komma ihåg att det finns hopp i mörkret.
Varje vecka kan man nämligen ta del av

From Lars Syll
One way that inequality precipitates debt bubbles begins with “relative deprivation.” This concept concerns the discontent people feel when they compare their socio-economic status, measured by income, wealth, consumption, or other indicators of perceived economic welfare, with that of their richer counterparts. Economists have suggested several ways that this discontent may translate into indebtedness. One theory holds that people of a given income level may try to increase spending to match the higher consumption of those just above them. This in turn leads others just below the group in question to spend more, and so on, in what has been termed an “expenditure cascade.” Another theory focuses on the increased supply of high-status goods and services that flow into the

Oíche Chiúin, Stille Nacht, Silent Night

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The history of random walks

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Entertaining and informative at the same time. Great!
In case you know some Python you could try this little code snippet that yours truly wrote to simulate and plot a special kind of random walk called ‘Brownian motion.’

Andreas Cervenka och den svenska bostadsbubblan

Andreas Cervenka har i sin senaste bok försökt beskriva den svenska bostadsbubblan och vad som ytterst skapat den. Några av de orsaker han lyfter fram är:
♦ Riksbankens långvariga låg-räntepolitik som gjort det billigare för hushåll att låna pengar och därigenom också drivit upp efterfråga och pris på bostäder.
♦ De snabbt ökande bostadspriserna har lett till att svenska hushåll har bland de högsta skuldkvoterna i världen. Denna skuldsättning skapar en hög grad av sårbarhet för ekonomin om boräntorna stiger eller om bostadspriserna faller.
♦ Det svenska skattesystemet med kraftiga ränteavdrag och avsaknad av fastighetsskatt har gjort det billigare att äga bostäder och bidragit till stigande priser.
♦

Debunking the balanced budget superstition

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The balanced budget paradox is probably one of the most devastating phenomena haunting our economies. The harder politicians — usually on the advice of establishment economists — try to achieve balanced budgets for the public sector, the less likely they are to succeed in their endeavour. And the more the citizens have to pay for the concomitant austerity policies these wrong-headed politicians and economists recommend as “the sole solution.”

One of the most effective ways of clearing up this most serious of all semantic confusions is to point out that private debt differs from national debt in being external … A variant of the false analogy is the declaration that national debt puts an

Ernst Wigforss — konsten att häva en depression

I det senaste avsnittet av podden Vi bygger landet presenteras och diskuteras Ernst Wigforss bidrag till arbetarrörelsens kamp för full sysselsättning och den ekonomiska politiken.
Väl värt att lysssna på!
Ernst Wigforss kunde som Sveriges finansminister under stora delar av mellankrigstiden och de tidiga åren efter andra världskriget bidra till att omvandla Sverige till en modell för socialdemokratin genom sin innovativa ekonomiska politik. Hans ekonomiska tänkande var i mångt och mycket rotat i keynesianska principer redan innan dessa blivit allmänt accepterade i och med publiceringen av Keynes General Theory år 1936. Han insåg — liksom den så kallade Stockholmsskolan, med ekonomer som Erik Lindahl och