Lars P. Syll

Bad ideas never die — Greg Mankiw’s Alesina fairy tale So what’s wrong with the economy? … A 2002 study of United States fiscal policy by the economists Olivier Blanchard and Roberto Perotti found that ‘both increases in taxes and increases in government spending have a strong negative effect on private investment spending.’ They noted that this finding is ‘difficult to reconcile with Keynesian theory.’ Consistent with this, a more recent study of...

The EU establishment has been held to account for the euro mess, for austerity policies that turned recession into depression, for the galloping inequality, and for the millions and millions of unemployed. The austerity policies pursued in the UK and elsewhere, is deeply disturbing. When an economy is already hanging on the ropes, you can’t just cut government spendings. Cutting government expenditures reduces the aggregate demand. Lower aggregate demand means lower tax...

Modern economics — the victory of technique over substance Modern economics is sick. Economics has increasingly become an intellectual game played for its own sake and not for its practical consequences for understanding the economic world. Economists have converted the subject into a sort of social mathematics in which analytical rigour is everything and practical relevance is nothing. To pick up a copy of The American Economic Review or The Economic...

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Good Hayek vs. Bad Hayek The source of confusion is that there was a Good Hayek and a Bad Hayek. The Good Hayek was a serious scholar who was particularly interested in the role of knowledge in the economy (and in the rest of society). Since knowledge—about technological possibilities, about citizens’ preferences, about the interconnections of these, about still more—is inevitably and thoroughly decentralized, the centralization of decisions is bound to...

The euro — gold cage of our time  [embedded content] The euro has taken away the possibility for national governments to manage their economies in a meaningful way — and in Greece the people has had to pay the true costs of its concomitant misguided austerity policies. The unfolding of the Greek tragedy during the last couple of years has shown beyond any doubts that the euro is not only an economic project, but just as much a political one. What the...

The confidence fairy history Brad DeLong has an excellent presentation on the history of the confidence fairy up on his blog. What I especially like with Brad’s history is that it makes it crystal clear how hard it has been for mainstream economists to grasp the simple fact that no matter how much confidence you have in the policies pursued by authorities, it cannot turn bad austerity policies into good job creating policies. Austerity measures and...

David Andolfatto’s DSGE flimflam David Andolfatto — vice president at Federal Reserve Bank of St. Louis — has a post up on his blog trying to defend the much criticised use of DSGE models. According to Andalfatto ‘to help organize our thinking’, it is often useful to construct mathematical representations of our theories — not as a substitute, but as a complement to the other tools in our tool kit (like basic intuition).This is a useful exercise if for no...

Mainstream broken pieces models In economic modeling, people often just assume an objective function for one agent or another, throw that into a larger model, and then look only at some subset of the model’s overall implications. But that’s throwing away data … And in doing so, it dramatically lowers the empirical bar that a model has to clear. You’re essentially tossing a ton of broken, wrong structural assumptions into a model and then calibrating (or...

Economics — spending time doing silly things Mainstream macro theory has not really helped out the finance industry, the Fed, or coffee house discussions. The reason … is basically that DSGE models don’t work … But [if] DSGE models really don’t work, why do so many macroeconomists spend so much time on them? … What if it’s signaling? … That suspicion was probably planted in 2005 … by a Japanese economist I knew … He gave me his advice on how to have an econ...