Tag Archives: Economics

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...

If all agents are supposed to have rational expectations, it becomes convenient to assume also that they all have the same expectation and thence tempting to jump to the conclusion that the collective of agents behaves as one. The usual objection to representative agent models has been that it fails to take into account well-documented systematic differences in behaviour between age groups, income classes, etc. In the financial crisis context, however, the objection is rather...

Paul Samuelson’s balanced budget religion I think there is an element of truth in the view that the superstition that the budget must be balanced at all times [is necessary]. Once it is debunked, [it] takes away one of the bulwarks that every society must have against expenditure out of control. There must be discipline in the allocation of resources or you will have anarchistic chaos and inefficiency. And one of the functions of old fashioned religion was...

Dani Rodrik a heterodox economist? You must be joking! I discussed long ago what it means to be heterodox in economics. Bob Kuttner, who I once saw giving a talk at the New School (in the 1990s), a very sharp journalist that knows quite a bit about economics, sings the praises of Dani Rodrik as an heterodox economist … Rodrik is, or was a few years ago at least, in what Colander, Holt and Rosser refer to as the cutting edge of the profession … which is to...

The ‘deductivist blindness’ of modern economics Scientific progress … is frequently the result of observation that something does work, which runs far ahead of any understanding of why it works. Not within the economics profession. There, deductive reasoning based on logical inference from a specific set of a priori deductions is “exactly the right way to do things”. What is absurd is not the use of the deductive method but the claim to exclusivity made for...

There was an unusual degree of consensus among economists about what would happen if Britain voted for Brexit in the referendum on June 23 last year. The language used by the International Monetary Fund was typical: It expressed fears of an “abrupt reaction,” adding that this “may have already begun” … What happened instead was that Britain enjoyed the best growth of any major advanced economy in 2016 … Andy Haldane compared the pitfalls of economic prediction to the single...