Tag Archives: Economics

L’urne que nous interrogeons In my judgment, the practical usefulness of those modes of inference, here termed Universal and Statistical Induction, on the validity of which the boasted knowledge of modern science depends, can only exist—and I do not now pause to inquire again whether such an argument must be circular—if the universe of phenomena does in fact present those peculiar characteristics of atomism and limited variety which appear more and more...

In economic policy, timing isn’t everything, it’s the only thing. The euro zone crisis has been evolving for over seven years, making it difficult to time policy proposals. Now, the shock of Brexit has created a definitive political opportunity for reforming rather than patching the euro. With that in mind, I would like to revive [...]

The result of the EU referendum was a considerable shock - not just to the UK, but to the EU and indeed to the whole world. Just how big a shock it was is evident from the fact that the OECD has suspended its forecasts until September. It usually only does this for "significant unforeseen or unexpected events", such as a major earthquake or a tsunami. Brexit is a shock to the global economy of a similar order. And it has permanently changed the world. Whatever the future holds, we can be...

Almost a century and a half after Léon Walras founded neoclassical general equilibrium theory, economists still have not been able to show that markets move economies to equilibria. What we do know is that — under very restrictive assumptions — unique Pareto-efficient equilibria do exist. But what good does that do? As long as we cannot show, except under exceedingly unrealistic assumptions, that there are convincing reasons to suppose there are forces which lead economies to...

Axel Leijonhufvud on why economics has become so boring [embedded content]Trying to delineate the difference between ‘New Keynesianism’ and ‘Post Keynesianism’ — during an interview a couple of months ago — yours truly was confronted by the odd and confused view that Axel Leijonhufvud was a ‘New Keynesian.’ I wasn’t totally surprised — I had run into that misapprehension before — but still, it’s strange how wrong people sometimes get things. The  last time...

How Richard Posner became a Keynesian Until [2008], when the banking industry came crashing down and depression loomed for the first time in my lifetime, I had never thought to read The General Theory of Employment, Interest, and Money, despite my interest in economics … I had heard that it was a very difficult book and that the book had been refuted by Milton Friedman, though he admired Keynes’s earlier work on monetarism. I would not have been surprised...

Krugman’s dangerous lack of methodological reflection How do we do useful economics? This is an important question that every earnest economist ought to pose — and try to answer. Here’s one answer, from Nobel laureate Paul Krugman: In general, what we really do is combine maximization-and-equilibrium as a first cut with a variety of ad hoc modifications reflecting what seem to be empirical regularities about how both individual behavior and markets depart...

The truth about banks When faced with the Great Recession in 2008, macroeconomics was initially unprepared to contribute much to the analysis of the interaction of banks with the macro economy. Today there is a sizable body of research on this topic, but the literature still has many difficulties … In modern neoclassical intermediation of loanable funds theories, banks are seen as intermediating real savings. Lending, in this narrative, starts with banks...

On the scaling property of randomness I thought hard and long on how to explain with as little mathematics as possible the difference between noise and meaning, and how to show why the time scale is important in judging an historical event. The Monte Carlo simulator can provide us with such an intuition. We will start with an example borrowed from the investment world … Let us manufacture a happily retired dentist, living in a pleasant sunny town. We know a...

Did Brexit kill British austerity? This is the end of the disastrous experiment that was austerity, which was an ignominious failure that I opposed from the outset … It is clear that the rising number of immigrants has put pressure on public services but this was mostly because Osborne under-invested in services in order to shrink the state. They paid their taxes, but Slasher didn’t invest that money in new schools, houses and hospitals … When a negative...