Lars P. Syll

The right kind of realism Some commentators on this blog seem to be of the opinion that since yours truly is critical of mainstream economics and ask for more relevance and realism I’m bound to be a ‘naive’ realist or empiricist. Nothing could be further from the truth! In a time when scientific relativism is expanding, it is important to keep up the claim for not reducing science to a pure discursive level. We have to maintain the Enlightenment tradition...

Going for the right kind of certainty​ in economics In science we standardly use a logically non-valid inference — the fallacy of affirming the consequent — of the following form: (1) p => q (2) q ————- p or, in instantiated form (1) ∀x (Gx => Px) (2) Pa ———— Ga Although logically invalid, it is nonetheless a kind of inference — abduction — that may be factually strongly warranted and truth-producing. Following the general pattern ‘Evidence  =>...

Pretending that the distribution of income and wealth that results from a long set of policy decisions is somehow the natural workings of the market is not a serious position. It might be politically convenient for conservatives who want to lock inequality in place. It is a more politically compelling position to argue that we should not interfere with market outcomes than to argue for a system that is deliberately structured to make some people very rich while leaving others...

On the limits of Adam Smith’s invisible hand [embedded content] It might look trivial at first sight, but what Harold Hotelling showed in his classic paper Stability in Competition (1929) was that there are cases when Adam Smith’s invisible hand doesn’t actually produce a social optimum. With the advent of neoclassical economics at the end of the 19th century, a large amount of intellectual energy was invested in trying to formalize the stringent conditions...

Adam Smith’s visible hand How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it. Of this kind is pity or compassion, the emotion which we feel for the misery of others, when we either see it, or are made to conceive it in a very lively manner. That we often derive...

James Heckman — ‘Nobel prize’ winner gone wrong Here’s James Heckman in 2013: “Also holding back progress are those who claim that Perry and ABC are experiments with samples too small to accurately predict widespread impact and return on investment. This is a nonsensical argument. Their relatively small sample sizes actually speak for — not against — the strength of their findings. Dramatic differences between treatment and control-group outcomes are...

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Dutch books and money pumps Mainstream neoclassical economics nowadays usually assumes that agents that have to make choices under conditions of uncertainty behave according to Bayesian rules (preferably the ones axiomatized by Ramsey (1931), de Finetti (1937) or Savage (1954)) – that is, they maximize expected utility with respect to some subjective probability measure that is continually updated according to Bayes theorem. If not, they are supposed to be...

Modern macroeconomics — totally messed up Until a few years ago, economists of all persuasions confidently proclaimed that the Great Depression would never recur. In a way, they were right. After the financial crisis of 2008 erupted, we got the Great Recession instead. Governments managed to limit the damage by pumping huge amounts of money into the global economy and slashing interest rates to near zero. But, having cut off the downward slide of 2008-2009,...