Tag Archives: Economics

The vanity of rigour in economics Reasoning is the process whereby we get from old truths to new truths, from the known to the unknown, from the accepted to the debatable … If the reasoning starts on firm ground, and if it is itself sound, then it will lead to a conclusion which we must accept, though previously, perhaps, we had not thought we should. And those are the conditions that a good argument must meet; true premises and a good inference. If either...

The implicit argument in favor of representative-agent models as empirically relevant to aggregate economic data runs something like this: a representative-agent model is not itself an acceptable representation of the whole economy … but it is a first step in a program which step by step will inevitably bring the model closer to the agent-by-agent microeconomic model of the whole economy … I call this argument eschatological justification: it is the claim that there is a...

‘New Keynesian’ nonsense taught at our economics departments What can the central bank do to counter the bad animal spirits? If it cuts [real interest rate] r(t) below [rate of time-preference] n, even temporarily, we know there exists no rational expectations equilibrium in which there is always full employment. All we know is that we must have negative equilibrium growth in consumption for as long as r(t) remains below n. It is not obvious to me how...

David Freedman — uncovering where the statistical skeletons are buried Invariance assumptions need to be made in order to draw causal conclusions from non-experimental data: parameters are invariant to interventions, and so are errors or their distributions. Exogeneity is another concern. In a real example, as opposed to a hypothetical, real questions would have to be asked about these assumptions. Why are the equations “structural,” in the sense that the...

Tony Lawson — en presentation En av de ledande metodologerna inom den ekonomiska vetenskapen i dag heter Tony Lawson. Denne engelske ekonom har i flera böcker på djupet undersökt och kritiserat de vetenskapsteoretiska och metodologiska fundamenten för den moderna nationalekonomin. Ekonomer uppvisar ofta ett svalt intresse inte bara för det egna ämnets idéhistoria, utan också för vetenskapsteoretiska reflektioner kring förutsättningarna för och antagandena...

Conventional thinking about financial markets begins with the idea that security prices always accurately reflect all available information; it ends with the belief that price changes come about only when there is new information. Markets are supposed to reflect new information quickly and efficiently, albeit with a few anomalies. In 2007, I interviewed over 50 investment managers mainly in New York, Boston, London, and Edinburgh. Talking to them I came to the conclusion that...

Mainstream macro modeling — nothing but smoke and mirrors Those of us in the economics community who are impolite enough to dare question the preferred methods and models applied in mainstream macroeconomics, are as a rule met with disapproval. But although people seem to get very agitated and upset by the critique, defenders of ‘received theory’ always say that the critique is “nothing new”, that they have always been “well aware” of the problems, that...

So let’s say a woman faces discrimination by this definition – she loses out to a man with weaker credentials. “Loses out” itself is pretty vague and could reasonably be consistent with several different observed labor market outcomes, two of which are: Outcome A: She gets hired to the same job as the man but at lower pay, and Outcome B: She doesn’t get the job and instead takes her next best offer in a different occupation at lower pay. Let’s further say that she is paid her...

Econ 101 theory of labour markets — not very scientific OK, so what are some empirical things we know about labor markets? Here are two stylized facts that, while not completely uncontroversial, are pretty one-sided in the literature: 1. A surge of immigration does not have a big immediate negative impact on wages. 2. Modest minimum wage hikes do not have a big immediate negative impact on employment. The first fact alone does not falsify the Econ 101...

NAIRU — a false hypothesis The natural rate hypothesis (NRH) is the idea that unemployment has an inherent tendency to return to some special “natural rate” that is a property of the available technology for finding jobs. It is a fact of nature, a bit like the gravitational constant in celestial mechanics. The theory of the NRH natural rate hypothesis has been taught to every economist in every top economics department for the past thirty years. As part of...