Tag Archives: Economics

The Swedish model is dying The 2017 OECD Economic Survey of Sweden — presented today in Stockholm by OECD Secretary-General Angel Gurría and Sweden’s Minister of Finance Magdalena Andersson — points out that income inequality in Sweden has been rising since the 1990s. I would say that what we see happen in Sweden is deeply disturbing. The rising inequality is outrageous – not the least since it has to a large extent to do with income and wealth...

Why not make macroeconomics a science? The trouble is, too many theorists — especially in the mainstream of the discipline — have drifted far from the real world. Their ambition has been to build mathematically elegant and internally consistent models of the economy, even if that requires wholly unrealistic assumptions. Granted, just as maps have to simplify complex terrain, theoretical models must ignore aspects of reality to be any use. But there’s a line...

Uncertainty and the pretty, polite techniques of economics All these pretty, polite techniques, made for a well-panelled Board Room and a nicely regulated market, are liable to collapse. At all times the vague panic fears and equally vague and unreasoned hopes are not really lulled, and lie but a little way below the surface. Perhaps the reader feels that this general, philosophical disquisition on the behavior of mankind is somewhat remote from the...

Why economists don’t know what every baby knows about scientific methods Limiting model assumptions in economic science always have to be closely examined since if we are going to be able to show that the mechanisms or causes that we isolate and handle in our models are stable in the sense that they do not change when we “export” them to our “target systems”, we have to be able to show that they do not only hold under ceteris paribus conditions and a...

RBC models — nonsense on stilts They try to explain business cycles solely as problems of information, such as asymmetries and imperfections in the information agents have. Those assumptions are just as arbitrary as the institutional rigidities and inertia they find objectionable in other theories of business fluctuations … I try to point out how incapable the new equilibrium business cycles models are of explaining the most obvious observed facts of...

Krugman and Stiglitz — nothing but neoliberal alibis Mirowski’s concern to disabuse his readers of the notion that the wing of neoliberal doctrine disseminated by neoclassical economists could ever be reformed produces some of the best sections of the book. His portrait of an economics profession in haggard disarray in the aftermath of the crisis is both comic and tragic … Incoherence notwithstanding, however, little in the discipline has changed in the...

The origins of MMT Many mainstream economists seem to think the idea behind Modern Monetary Theory is new and originates from economic cranks. New? Cranks? How about reading one of the great founders of neoclassical economics – Knut Wicksell. This is what Wicksell wrote in 1898 on ‘pure credit systems’ in Interest and Prices (Geldzins und Güterpreise), 1936 (1898), p. 68f: It is possible to go even further. There is no real need for any money at all if a...

The hazards of willfully ignoring uncertainty We forget – or willfully ignore – that our models are simplifications of the world … One of the pervasive risks that we face in the information age … is that even if the amount of knowledge in the world is increasing, the gap between what we know and what we think we know may be widening. This syndrome is often associated with very precise-seeming predictions that are not at all accurate … This is like claiming...

Milton Friedman’s pet theory finally shown to be wrong Milton Friedman’s Permanent Income Hypothesis (PIH) says that people’s consumption isn’t affected by short-term fluctuations in incomes since people only spend more money when they think that their life-time incomes change. Believing Friedman is right, mainstream economists have for decades argued that Keynesian fiscal policies therefore are ineffectual. As shown over and over again for the last three...

In The World in the Model Mary Morgan characterizes the modelling tradition of economics as one concerned with “thin men acting in small worlds” and writes: Strangely perhaps, the most obvious element in the inference gap for models … lies in the validity of any inference between two such different media – forward from the real world to the artificial world of the mathematical model and back again from the model experiment to the real material of the economic world. The model...