Lars P. Syll

Economics — a rogue branch of applied mathematics A lot of people complain about the math in economics. Economists tend to quietly dismiss such complaints as the sour-grapes protests of literary types who lack the talent or training to hack their way through systems of equations. But it isn’t just the mathematically illiterate who grouse. New York University economist Paul Romer — hardly a lightweight when it comes to equations — recently complained about how economists use math as a tool...

Mainstream economics is perfectly correct — and totally useless A balloonist, lost, sees someone walking down a country lane. The balloonist lowers the balloon and shouts down to the the walker: — Where am I? — About 20 feet above the ground, comes the reply. After a moment’s pondering, the balloonist says: — You must be an economist. — How did you know? — Your information is perfectly correct — and totally useless. Timothy Brennan

Brad DeLong is wrong on realism and inference to the best explanation Brad DeLong has a new post up where he gets critical about scientific realism and inference to the best explanation: Daniel Little: The Case for Realism in the Social Realm: “The case for scientific realism in the case of physics is a strong one… The theories… postulate unobservable entities, forces, and properties. These hypotheses… are not individually testable, because we cannot directly observe or measure the...

Unbiased econometric estimates? Forget it! Following our recent post on econometricians’ traditional privileging of unbiased estimates, there were a bunch of comments echoing the challenge of teaching this topic, as students as well as practitioners often seem to want the comfort of an absolute standard such as best linear unbiased estimate or whatever. Commenters also discussed the tradeoff between bias and variance, and the idea that unbiased estimates can overfit the data. I agree with...

[embedded content]As always, for you, Jeanette Meyer

‘New Keynesian’ models are not too simple. They are just wrong. Simon Wren-Lewis has a nice post discussing Paul Romer’s critique of macro. In Simon’s words: “It is hard to get academic macroeconomists trained since the 1980s to address [large scale Keynesian models] , because they have been taught that these models and techniques are fatally flawed because of the Lucas critique and identification problems … But DSGE models as a guide for policy are also fatally flawed because they are too...

[embedded content] If thou hast shown mercy unto man, o man, that same mercy shall be shown thee there; and if on an orphan thou hast shown compassion, that same shall there deliver thee from want. If in this life the naked thou hast clothed, the same shall give thee shelter there, and sing the psalm: Alleluia.           A life without the music of people like John Tavener and Arvo Pärt would be unimaginable.

What can economists know? The early concerns voiced by such critics as Keynes and Hayek, while they may indeed have been exaggerated, were not misplaced. I believe that much of the difficulty economists have encountered over the past fifty years can be traced to the fact that the economic environment we seek to model are sometimes too messy to be fitted into the mold of a well-behaved, complete model of the standard kind. It is not generally the case that some sharp dividing line separates...

Has macroeconomics — really — progressed? A typical DSGE model has a key property that from my work seems wrong. A good example is the model in Galí and Gertler (2007). In this model a positive price shock—a ‘‘cost push” shock — is explosive unless the Fed raises the nominal interest rate more than the increase in the inflation rate. In other words, positive price shocks with the nominal interest rate held constant are expansionary (because the real interest rate falls). In my work,...

Krugman is right — public debt is good! The U.S. economy has, on the whole, done pretty well these past 180 years, suggesting that having the government owe the private sector money might not be all that bad a thing. The British government, by the way, has been in debt for more than three centuries, an era spanning the Industrial Revolution, victory over Napoleon, and more. But is the point simply that public debt isn’t as bad as legend has it? Or can government debt actually be a good...