Lars P. Syll

Modern economics — the true picture Most mainstream economists think ‘modern’ economics looks like this:   In reality, I would argue, it looks more like this:

In conclusion, one can say that the sympathy that some of the traditional and Post-Keynesian authors show towards DSGE models is rather hard to understand. Even before the recent financial and economic crisis put some weaknesses of the model – such as the impossibility of generating asset price bubbles or the lack of inclusion of financial sector issues – into the spotlight and brought them even to the attention of mainstream media, the models’ inner working were highly questionable from...

The DSGE mainstream – which is made up of new classical macroeconomics and neo-Keynesianism – is unanimously based on the core assumptions that characterize the paradigm of social exchange theory. These are rationality, ergodicity and substitutionality, the exclusive acceptance of a formal mathematical-deductive, positivist reductionism. After the ‘empirical turn’ of the last two or three decades, these have been combined with sophisticated micro- and macroeconometrics, or with...

Rivers of belief (personal)  [embedded content] This one is for you, Kristina But in dreams, I can hear your name. And in dreams, We will meet again. When the seas and mountains fall And we come to end of days, In the dark I hear a call Calling me there I will go there And back again.

Economics — the ‘ten million cool theories’ problem By Noah Smith’s own account, the field of economics is experiencing an empirical revolution. Unlike the past, it has become necessary to test theories against reality. That places the field of economics many decades behind the field of evolution and numerous fields in the human social sciences that have been rigorously evidence-based all along. Earth to the economics profession: Welcome to Science 101! But there is more to Science 101...

Let me lead you through the streets of London (personal)  [embedded content]

Debt, credit and financial instability  [embedded content] In a blogpost the other day, Simon Wren-Lewis was airing some misgivings about MMT. According to Wren-Lewis there’s basically nothing new about MMT — everything has been ‘well known long before MMT.’ And, argues Wren-Lewis: Some have commented that my recent discussion of fiscal rules ignores the fact that governments can finance investment, or anything else, by creating money. What would happen if the government started doing...

Sanders has been dismissed as selling unrealistic pipe dreams. Social Security would be a pipe dream if we did not already have it; so would Medicare and public education too. There is a lesson in that. Pipe dreams are the stuff of change. Rather than an excess of pipe dreams, our current dismal condition is the product of fear of dreaming. The Democratic Party establishment persistently strives to downsize economic and political expectations. Senator Sanders aims to upsize them, which is...

In my view, scientific theories are not to be considered ‘true’ or ‘false.’ In constructing such a theory, we are not trying to get at the truth, or even to approximate to it: rather, we are trying to organize our thoughts and observations in a useful manner. Robert Aumann What a handy view of science. How reassuring for all of you who have always thought that believing in the tooth fairy make you understand what happens to kids’ teeth. Now a ‘Nobel prize’ winning economist tells you...

Card and Krueger on minimum wage “Myth and Measurement” was recently re-released as a 20th anniversary edition. While it’s common now to hear that raising the minimum wage won’t increase unemployment, the initial empirical work by Card and Krueger wasn’t immediately embraced by other economists … And it makes sense why some economists would find Card and Krueger’s results so shocking and at times literally unbelievable. Simple supply and demand tells us that if a higher minimum wage pushes...