Tag Archives: Economics

Economists — nothing but a bunch of idiots savants Let’s be honest: no one knows what is happening in the world economy today. Recovery from the collapse of 2008 has been unexpectedly slow … Policymakers don’t know what to do. They press the usual (and unusual) levers and nothing happens. Quantitative easing was supposed to bring inflation “back to target.” It didn’t. Fiscal contraction was supposed to restore confidence. It didn’t … Most economics students...

To complete the reconciliation of Keynesian economics with general equilibrium theory, Paul Samuelson introduced the neoclassical synthesis in 1955 … In this view of the world, high unemployment is a temporary phenomenon caused by the slow adjustment of money wages and money prices. In Samuelson’s vision, the economy is Keynesian in the short run, when some wages and prices are sticky. It is classical in the long run when all wages and prices have had time to adjust…. Although...

Mainstream economics — nothing but an assumption-making Nintendo game In advanced economics the question would be: ‘What besides mathematics should be in an economics lecture?’ In physics the familiar spirit is Archimedes the experimenter. But in economics, as in mathematics itself, it is theorem-proving Euclid who paces the halls … Economics … has become a mathematical game. The science has been drained out of economics, replaced by a Nintendo game of...

Probability and confidence — Keynes vs. Bayes An alternative possibility is to accept the consequences of the apparent fact that the central prediction of the Bayesian model in its descriptive capacity, that people’s choices are or are ‘as if’ they are informed by real-valued subjective probabilities, is, in general, false … According to Keynes’s decision theory it is rational to prefer to be guided by probabilities determined on the basis of greater...

The pretence of knowledge — ‘New Keynesian’ DSGE models The centre-piece of Paul Romer’s scathing attack on these models is on the ‘pretence of knowledge’ (Romer 2016) … He is critical of the incredible identifying assumptions and ‘pretence of knowledge’ in both Bayesian estimation and the calibration of parameters in DSGE models … A milder critique by Olivier Blanchard (2016) points to a number of failings of DSGE models and recommends greater openness to...

Mathematical economics — a contraption of empty formalism My impression [is] that nothing emerges at the end which has not been introduced expressly or tacitly at the beginning is quite wrong … It seems to me essential in an article of this sort to put in the fullest and most explicit manner at the beginning the assumptions which are made and the methods by which the price indexes are derived; and then to state at the end what substantially novel...

The non-existence of Paul Krugman’s ‘Keynes/Hicks macroeconomic theory’ Paul Krugman has in numerous posts on his blog tried to defend “the whole enterprise of Keynes/Hicks macroeconomic theory” and especially his own somewhat idiosyncratic version of IS-LM. The main problem is simpliciter that there is no such thing as a Keynes-Hicks macroeconomic theory! So, let us get some things straight. There is nothing in the post-General Theory writings of Keynes...

Wednesday’s decision by the Federal Reserve to raise interest rates is unwelcome and unnecessary. As admitted in its statement, investment remains soft, growth is only moderate, and inflation expectations are little changed. Moreover, the economy confronts financial headwinds from the recent jump in long term interest rates and an even stronger dollar. The Federal Reserve seems [...]

This genuinely original book, with its lively and engaging argumentation, is a must read for students of economics who want to remedy the deficiencies of mainstream economics as it is practiced today. Scrutinizing the weird make-believe world of mainstream economics and its narrative dogmatism, determinism and atomism, it constitutes a powerful plaidoyer for real pluralism in economics. Fullbrook brings bold new perspectives on the logic of economic choice, rationality,...

The end of Ricardo-Heckscher-Ohlin-Samuelson trade theory [embedded content] In 1817 David Ricardo presented — in Principles — a theory that was meant to explain why countries trade and, based on the concept of opportunity cost, how the pattern of export and import is ruled by countries exporting goods in which they have comparative advantage and importing goods in which they have a comparative disadvantage. Ricardo’s theory of comparative advantage,...