Tag Archives: Economics

Note that the economist Robert Lucas dealt a blow to econometrics by arguing that if people were rational then their rationality would cause them to figure out predictable patterns from the past and adapt, so that past information would be completely useless for predicting the future … If rational traders detect a pattern of stocks rising on Mondays, then, immediately such a pattern becomes detectable, it would be ironed out by people buying on Friday in anticipation of such...

Mainstream economics — going for the wrong kind of certainty In science we standardly use a logically non-valid inference — the fallacy of affirming the consequent — of the following form: (1) p => q (2) q ————- p or, in instantiated form (1) ∀x (Gx => Px) (2) Pa ———— Ga Although logically invalid, it is nonetheless a kind of inference — abduction — that may be factually strongly warranted and truth-producing. Following the general pattern ‘Evidence...

The loanable funds fallacy The loanable funds theory is in many regards nothing but an approach where the ruling rate of interest in society is — pure and simple — conceived as nothing else than the price of loans or credit, determined by supply and demand — as Bertil Ohlin put it — “in the same way as the price of eggs and strawberries on a village market.” The currently dominant intermediation of loanable funds (ILF) model views banks as barter...

Voters of all stripes have recognized the Trans-Pacific Partnership (TPP) as another betrayal of working people, and they have resoundingly rejected it. Despite that, President Obama continues to push it, to the extent of possibly seeking passage in a “lame duck” session of Congress. President Obama’s pushing of the TPP is recklessly irresponsible politics that [...]

By the time British citizens went to the polls on June 23 to decide on their country’s continued membership in the European Union, there had been no shortage of advice in favor of remaining. Foreign leaders and moral authorities had voiced unambiguous concern about the consequences of an exit, and economists had overwhelmingly warned that leaving the EU would entail significant economic costs. Yet the warnings were ignored. A pre-referendum YouGov opinion poll tells why:...

Paul Krugman — nothing but a die-hard neoclassical economist In his review of Mervyn King’s The End of Alchemy: Money, Banking, and the Future of the Global Economy — on which I had a post up yesterday — Krugman writes: Is this argument right, analytically? I’d like to see King lay out a specific model for his claims, because I suspect that this is exactly the kind of situation in which words alone can create an illusion of logical coherence that dissipates...

Paul Krugman vs. Mervyn King on Keynes Most self-described Keynesians are Part 1ers. They don’t necessarily believe that workers and consumers are perfectly rational, or deny that sudden shifts in behavior can happen, but irrationality and volatility are at the fringes of their worldview. King argues, however, that this is all wrong; he is, basically, a Chapter 12er, asserting that economic decisions always take place under conditions of “radical...

I’ve received several thoughtful responses from economists I respect, all making a particular argument about the effects of Brexit-induced uncertainty. It goes like this: right now, firms don’t know how closely Britain will be tied to Europe, so it makes sense for them to postpone investments until the situation clarifies … Doesn’t this argument suggest essentially the same effects from any policy negotiation whose end result isn’t known? Why don’t we say that the...

The talismanic worship of mathematics in economics Ultimately, the problem isn’t with worshipping models of the stars, but rather with uncritical worship of the language used to model them, and nowhere is this more prevalent than in economics … Right now … there is widespread bias in favour of using mathematics. The success of math-heavy disciplines such as physics and chemistry has granted mathematical formulas with decisive authoritative force. Lord...

NIRP is quickly becoming a consensus policy within the economics establishment. This paper argues that consensus is dangerously wrong, resting on flawed theory and flawed policy assessment. Regarding theory, NIRP draws on fallacious pre-Keynesian economic logic that asserts interest rate adjustment can ensure full employment. That fallacious logic has been augmented by ZLB economics which [...]