Tag Archives: Economics

On the proper use of mathematics in economics One must, of course, beware of expecting from this method more than it can give. Out of the crucible of calculation comes not an atom more truth than was put in. The assumptions being hypothetical, the results obviously cannot claim more than a vey limited validity. The mathematical expression ought to facilitate the argument, clarify the results, and so guard against possible faults of reasoning — that is all....

Rational choice theory … In economics it is assumed that people make rational choices

Sweden’s growing housing bubble House prices are increasing fast in EU. And more so in Sweden than in any other member state, as shown in the Eurostat graph below, showing percentage increase in annually deflated house price index by member state 2015: Sweden’s house price boom started in mid-1990s, and looking at the development of real house prices during the last three decades there are reasons to be deeply worried. The indebtedness of the Swedish...

Amongst the several problems/disadvantages of this current consensus is that, in order to make a rational expectations, micro-founded model mathematically and analytically tractable it has been necessary in general to impose some (absurdly) simplifying assumptions, notably the existence of representative agents, who never default.This latter (nonsensical) assumption goes under the jargon term as the transversality condition. This makes all agents perfectly creditworthy. Over...

Ricardian equivalence — hopelessly unrealistic According to the Ricardian equivalence hypothesis the public sector basically finances its expenditures through taxes or by issuing bonds, and bonds must sooner or later be repaid by raising taxes in the future. If the public sector runs extra spending through deficits, taxpayers will according to the hypothesis anticipate that they will have pay higher taxes in future — and therefore increase their savings and...

Loanable funds theory is inconsistent with data Loanable funds doctrine dates back to the early nineteenth century and was forcefully restated by the Swedish economist Knut Wicksell around the turn of the twentieth (with implications for inflation not pursued here). It was repudiated in 1936 by John Maynard Keynes in his General Theory. Before that he was merely a leading post-Wicksellian rather than the greatest economist of his and later times. Like...

Paul Romer — favourite candidate for ‘Nobel prize’ 2016 Among Swedish economists, Paul Romer is the favourite candidate for receiving the ‘Nobel Prize’ in economics 2016. Let’s hope the prediction turns out right this time. The ‘Nobel prize’ in economics has almost exclusively gone to mainstream economists, and most often to Chicago economists. So how refreshing it would be if for once we would have a winner who has been brave enough to openly criticize the...

Fact and fiction in economics The idea that we can safely neglect the aggregate demand function is fundamental to [classical] economics … But although the doctrine itself has remained unquestioned by orthodox economists up to a late date, its signal failure for purposes of scientific prediction has greatly impaired, in the course of time, the prestige of its practitioners.For professional economists, after Malthus, were apparently unmoved by the lack of...

Economics departments need to install smoke detectors … Balliol Croft, Cambridge 27. ii. 06 My dear Bowley … I know I had a growing feeling in the later years of my work at the subject that a good mathematical theorem dealing with economic hypotheses was very unlikely to be good economics: and I went more and more on the rules — (1) Use mathematics as a short-hand language, rather than as an engine of inquiry. (2) Keep to them till you have done. (3)...

Olivier Blanchard’s second thoughts Olivier Blanchard has had some Further Thoughts on DSGE Models and now comes up with the view that Macroeconomics is about general equilibrium … The specific role of DSGEs in the panoply of general equilibrium models is to provide a basic macroeconomic Meccano set, i.e. a formal, analytical platform for discussion and integration of new elements … The only way in which DSGEs can play this role is if they are built on...