Tag Archives: Economics

Robert Lucas — an example of macroeconomic quackery In an interview a couple of years ago, Robert Lucas said he now believes that “the evidence on postwar recessions … overwhelmingly supports the dominant importance of real shocks.” So, according to Lucas, changes in tastes and technologies should be able to explain, e.g., the main fluctuations in unemployment that we have seen during the last seven decades. Let’s look at the facts and see if there is any...

To-day, in many parts of the world, it is the serious embarrassment of the banks which is the cause of our gravest concern … [The banks] stand between the real borrower and the real lender. They have given their guarantee to the real lender; and this guarantee is only good if the money value of the asset belonging to the real borrower is worth the money which has been advanced on it. It is for this reason that a decline in money values so severe as that which we are now...

Simon Wren-Lewis — flimflam defender of economic orthodoxy Again and again, Oxford professor Simon Wren-Lewis rides out to defend orthodox macroeconomic theory against attacks from ‘heterodox’ critics like yours truly. A couple of years ago, it was the rational expectations hypothesis (REH) he wanted to save: It is not a debate about rational expectations in the abstract, but about a choice between different ways of modelling expectations, none of which...

RBC models –the art of missing the point completely The real business cycle program is part of the larger new classical macroeconomic research program. Proponents of these models often promote them as models that provide satisfactory microfoundations for macroeconomics … The claim for providing microfoundations is largely based on the fact that new classical models in general, and real business cycle models in particular, model the representative agent as...

Robert Lucas and the triumph of empty formalism Vielleicht ist diese Grundperspektive der radikalen Trennung von Form und Gehalt hilfreich, einige zunächst überaus paradoxe Äußerungen von Lucas etwas zu erhellen. Erinnert man sich der Forderungen von Lucas, die Makroökonomik zwingend auf Basis der klassischen Postulate, die Lucas und Sargent (1978) als (a) „Markträumung“ und (b) „Eigennutz“ umrissen hatten, zu errichten, so erstaunt man doch angesichts...

Solow kicking Lucas and Sargent in the pants In opening the conference, Frank Morris mentioned his disappointment or disillusionment – which many others share – that the analytical success of the 1960s didn’t survive that decade. I think we all knew, even back in the 1960s, that as Geof put it, “inflation doesn’t wait for full employment.” These days inflation doesn’t even seem to care if full employment is going along on the trip … The question is: what...

The logical fallacy that good science builds on In economics most models and theories build on a kind of argumentation pattern that looks like this: Premise 1: All Chicago economists believe in REH Premise 2: Robert Lucas is a Chicago economist —————————————————————– Conclusion: Robert Lucas believes in REH Among philosophers of science this is treated as an example of a logically valid deductive inference (and, following Quine, whenever logic is used in...

Cutting wages is not the solution A couple of years ago yours truly had a discussion with the chairman of the Swedish Royal Academy of Sciences (yes, the one that yearly presents the winners of The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel). What started the discussion was the allegation that the level of employment in the long run is a result of people’s own rational intertemporal choices and that how much people work basically...

Debunking the NAIRU myth In our extended NAIRU model, labor productivity growth is included in the wage bargaining process … The logical consequence of this broadening of the theoretical canvas has been that the NAIRU becomes endogenous itself and ceases to be an attractor — Milton Friedman’s natural, stable and timeless equilibrium point from which the system cannot permanently deviate. In our model, a deviation from the initial equilibrium affects not...

Modern macroeconomics — too much micro and not enough macro This paper … looks back into the pre-crisis (pre-2007) intellectual history of macroeconomic theory and argues that modern macro neglects the basic sources of both impulses and propagation mechanisms of business cycles. The basic problem is that modern macro consists of too much micro and not enough macro. Focus on individual preferences and production functions misses the essence of macro...