Tag Archives: Economics

External validity and experiments — a Faustian bargain Under control conditions bed nets have been shown to be highly effective in preventing malaria: Households randomly “treated” with bed nets experience a reduction in malaria incidence relative to households randomly allocated to control conditions. These controlled experiments identify the “effects of causes”, in this case bed net use reduces malaria incidence. Based on this evidence, numerous programs...

Why monetary policies are impotent Even if interest-rate cuts at all points proximately increase demand, there are substantial grounds for concern if this effect is weak. It may be that any short-run demand benefit is offset by the adverse effects of lower rates on subsequent performance … From a macro perspective, low interest rates promote leverage and asset bubbles by reducing borrowing costs and discount factors, and encouraging investors to reach for...

Expected utility theory and ergodicity — poor guides to decision-making Behavioural scientists generally explore decision making using simple gambles with “additive dynamics.” In each gamble, a person wins or loses fixed amounts of money – say, gaining £1 for a win, and losing £0.50 for a loss. Gambles of this kind turn out to be “ergodic” in the sense that averages over the possible outcomes really are equal to averages over time if the gamble is played...

Economics — a primary reason for the rise of inequality In 2004, the Nobel laureate Robert Lucas warned against any revival of efforts to reduce inequality. “Of the tendencies that are harmful to sound economics, the most seductive, and in my opinion the most poisonous, is to focus on questions of distribution.” Accounts of the rise of inequality often take a fatalistic view. The problem is described as a natural consequence of capitalism, or it is blamed...

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Die ‘schwarze Null’ ist kein ideal Christian Kastrop … ist gewissermaßen der Erfinder der deutschen Schuldenbremse, als Unterabteilungsleiter im Finanzministerium entwickelte er das Konzept einer im Grundgesetz verankerten Regel, die die öffentliche Kreditaufnahme begrenzt. Heute ist Kastrop Europa-Direktor bei der Bertelsmann Stiftung und beschäftigt sich immer noch mit Schulden – nur dass er sie nicht mehr begrenzen will, sondern ermöglichen. Ausgerechnet...

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How would you react if a renowned physicist, say, ​Richard Feynman, was telling you that sometimes force is proportional to acceleration and at other times it is proportional to acceleration squared? I guess you would be unimpressed. But actually, what most mainstream economists do amounts to the same strange thing when it comes to theory development and model modification. In mainstream economic theory,​ preferences are standardly expressed in the form of a utility function....

Rethinking Economics actually gives a pretty good description of the state of modern macroeconomics here. There is a purist streak in economics that wants everything to follow from asumming things like ‘rationality’ and ‘equilibrium.’ That purist streak has given birth to a kind ‘deductivist blindness’ of mainstream economics, something that also to a larger extent explains why it contributes to causing economic crises rather than to solving them. But where does this...

Pourquoi un changement de direction théorique est nécessaire Il y a une certaine tendance française à attribuer à l’utilisation des mathématiques les difficultés des modèles à expliquer les phénomènes économiques … Pour moi, le problème ne réside pas dans l’utilisation des méthodes formelles mais plutôt dans une obsession poussant à améliorer et même à perfectionner des modèles qui semblent être totalement détachés de la réalité. Comme Robert Solow l’a...