Lars P. Syll

Responding to the critique of his Bloomberg View post on heterodox economics and its alleged anti-math position, Noah Smith approvingly cites Steve Keen telling us there is a wing of heterodox economics that is anti-mathematical. Known as “Critical Realism” and centred on the work of Tony Lawson at Cambridge UK, it attributes the failings of economics to the use of mathematics itself… Although yours truly appreciate much of Steve Keen’s debunking of mainstream economics, on...

De Vroey’s Chicago style History of Macroeconomics A couple of years ago Michel De Vroey felt the urge to write a defense of Robert Lucas’ denial of involuntary unemployment: What explains the difficulty of constructing a theory of involuntary unemployment? Is it, as argued by Lucas, that the “thing” to be explained doesn’t exist, or is it due to some deeply embedded premise of economic theory? My own view tilts towards the latter. Economic theory is...

Where did the Greek bailout money go? This paper provides a descriptive analysis of where the Greek bailout money went since 2010 and finds that, contrary to widely held beliefs, less than €10 billion or a fraction of less than 5% of the overall programme went to the Greek fiscal budget. In contrast, the vast majority of the money went to existing creditors in the form of debt repayments and interest payments. The resulting risk transfer from the private to...

Bayesian rationality — nothing but a probabilistic version of irrationalism The initial choice of a prior probability distribution is not regulated in any way. The probabilities, called subjective or personal probabilities, reflect personal degrees of belief. From a Bayesian philosopher’s point of view, any prior distribution is as good as any other. Of course, from a Bayesian decision maker’s point of view, his own beliefs, as expressed in his prior...

The Keynes-Ramsey-Savage debate on probability Neoclassical economics nowadays usually assumes that agents that have to make choices under conditions of uncertainty behave according to Bayesian rules, axiomatized by Ramsey (1931) and 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 irrational, and ultimately –...

Uskali Mäki and Tony Lawson — different varieties of realism We are all realists and we all—Mäki, Cartwright, and I—self-consciously present ourselves as such. The most obvious research-guiding commonality, perhaps, is that we do all look at the ontological presuppositions of economics or economists. Where we part company, I believe, is that I want to go much further. I guess I would see their work as primarily analytical and my own as more critically...

On the irrelevance of Milton Friedman In producing theories couched in terms of isolated atoms that are quite at odds with social reality, modellers are actually compelled to make substantive claims that are wildly unrealistic. And because social reality does not conform to systems of isolated atoms, there is no guarantee that event regularities of the sort pursued will occur. Indeed, they are found not to … Friedman enters this scene arguing that all we...

To understand New Classical thinking about this crucial issue, consider Lucas’s response to the following question: If people know the true distribution of future outcomes, why are autocorrelated mistakes such a common occurrence? “If you were studying the demand for umbrellas as an economist, you’d get rainfall data by cities, and you wouldn’t hesitate for two seconds to assume that everyone living in London knows how much it rains there. That would be assumption number one....

Reasons to dislike DSGE models There are many reasons to dislike current DSGE models. First: They are based on unappealing assumptions. Not just simplifying assumptions, as any model must, but assumptions profoundly at odds with what we know about consumers and firms … Second: Their standard method of estimation, which is a mix of calibration and Bayesian estimation, is unconvincing … Third: While the models can formally be used for norma- tive purposes,...

Keynesian economics in a nutshell