Tag Archives: Economics

New Classical macroeconomics — elegant fantasies The crucial issue of macroeconomic theory today is the same as it was sixty years ago when John Maynard Keynes revolted against what he called the “classical” orthodoxy of his day. It is a shame that there are still “schools” of economic doctrine, but perhaps controversies are inevitable when the issues involve policy, politics, and ideology and elude decisive controlled experiments. As a lifelong Keynesian,...

The Nobel factor — the prize in economics that spearheaded the neoliberal revolution The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, usually — incorrectly — referred to as the Nobel Prize in Economics, is an award for outstanding contributions to the field of economics. The Prize in Economics was established and endowed by Sweden’s central bank Sveriges Riksbank in 1968 on the occasion of the bank’s 300th anniversary. The first...

Good advice to aspiring economists Submission to observed or experimental data is the golden rule which dominates any scientific discipline. Any theory whatever, if it is not verified by empirical evidence, has no scientific value and should be rejected. Maurice Allais     Formalistic deductive “Glasperlenspiel” can be very impressive and seductive. But in the realm of science it ought to be considered of little or no value to simply make claims about the...

DSGE macroeconomics — overconfident story-telling We economists trudge relentlessly toward Asymptopia, where data are unlimited and estimates are consistent, where the laws of large numbers apply perfectly and where the full intricacies of the economy are completely revealed … Worst of all, when we feel pumped up with our progress, a tectonic shift can occur, like the Panic of 2008, making it seem as though our long journey has left us disappointingly close...

Solow on post-real Chicago economics As yours truly wrote last week, there has been much discussion going on in the economics academia on Paul Romer’s recent critique of ‘modern’ macroeconomics. But the rhetorical swindle that New Classical and ‘New Keynesian’ macroeconomics have tried to impose upon us with their microfounded calibrations and DSGE models, has not gone unnoticed until Paul Romer came along: I think that Professors Lucas and Sargent really...

Several mainstream economists still believe that ‘any interesting model must be a dynamic stochastic general equilibrium model. From this perspective, there is no other game in town. If you have an interesting and coherent story to tell, you can tell it in a DSGE model. If you cannot, your story is incoherent’ (V.V. Chair). Similarly, not very long ago, Blanchard (2014, p. 31) was affirming that the solution to previous mistakes was that ‘DSGE models should be expanded to...

Post-real macroeconomics — science as fraud There are many kinds of useless economics held in high regard within mainstream economics establishment today . Few — as Paul Romer recently has been arguing — are less deserved than the post-real macroeconomic theory – mostly connected with Nobel laureates Finn Kydland, Robert Lucas,  Edward Prescott and Thomas Sargent – called calibration. In an interview by Seppo Honkapohja and Lee Evans (Macroeconomic...

Paul Romer on macroeconomics as a religious dogma  [embedded content]

The dividing line between bad and good macroeconomics If I am right that in recent decades the equilibrium in post-real macro has discouraged good science … there is some risk that a rear-guard of post-real macroeconomists will continue to defend their notion of methodological purity. At this point it is hard to know whether this group will fracture or dig in for a fight to death. If they dig in, I suspect that it will be in a few departments and that the...

James Tobin on post-real macroeconomics James Tobin explained why real business cycle theory and microfounded DSGE models are such a total waste of time. Thirty years before Paul Romer. Maybe one should start teaching some history of economic thought at economics departments again? Just a thought … They try to explain business cycles solely as problems of information, such as asymmetries and imperfections in the information agents have. Those assumptions...