Tag Archives: Economics

Macroeconomic models — beautiful but irrelevant Roman Frydman is Professor of Economics at New York University and a long time critic of the rational expectations hypothesis. In his seminal 1982 American Economic Review article Towards an Understanding of Market Processes: Individual Expectations, Learning, and Convergence to Rational Expectations Equilibrium — an absolute must-read for anyone with a serious interest in understanding what are the issues in the present discussion on rational...

When science becomes dogmatism Abstraction is the most valuable ladder of any science. In the social sciences, as Marx forcefully argued, it is all the more indispensable since there ‘the force of abstraction’ must compensate for the impossibility of using microscopes or chemical reactions. However, the task of science is not to climb up the easiest ladder and remain there forever distilling and redistilling the same pure stuff. Standard economics, by opposing any suggestions that the...

‘New Keynesianism’ — an uncomfortable trade-off The crucial point however is: market conditions, which are presupposed in the model of intertemporal choice, are not given in reality. Distributing consumption optimally over time depends on the possibility of individuals to lend money on their permanent income, if temporary periods of low market income are to be bridged. Because this perfect financial market does not exist, consumption behaviour necessarily depends strongly on current...

Modern economics — an abstract monstrosity The paradox of modern economics is that while the computers are churning out more and more figures, giving more and more spurious precision to economic pronouncements, the assumptions behind this fiesta of quantification are looking less and less safe. Economic model making was never easier to undertake and never more disconnected from reality. Somewhere along the way economics took a wrong turn. What has occurred, and what has been vastly...

Yours truly on economics rules and deductivism Yours truly has two (!) articles in the latest issue (74) of Real-World Economics Review. One is a review of Dani Rodrik’s Economics Rules (Oxford University Press 2015) — When the model becomes the message — a critique of Rodrik  — on which I run a series of blogposts here in December last year. Rodrik’s book is one of those rare examples where a mainstream economist — instead of just looking the other way — takes his time to ponder on the...

Post Keynesian approaches to uncertainty Two Post-Keynesian approaches to the nature and source of uncertainty and irreducible uncertainty have been considered, each with significantly different foundations and conclusions. The Human Abilities/Characteristics approach, related to epistemological uncertainty, has its primary foundations in human ignorance and inability; in Keynes’s case, the foundations lie in his logical interpretation of probability and his economic theorising from 1936...

‘Vår ekonomi’ — nationalekonomisk lärobok med uppenbara brister Varje vår håller your truly sedan fler år tillbaka en introduktionskurs i nationalekonomi för blivande gymnasielärare. Förutom några av mina egna böcker, står även Klas Eklunds Vår ekonomi på litteraturlistan. Eklunds introduktion till nationalekonomi kom år 2013 ut i sin trettonde uplaga. Imponerande och i sig ett bevis på bokens många förtjänster, inte minst de pedagogiska. Men tyvärr har boken också — fortfarande — några...

Oxford macroeconomist Simon Wren-Lewis thinks that ‘the micrcofoundations revolution’ has been great, since it means that mainstream macroeconomists speak the same language. I can go to a seminar that involves an RBC model with flexible prices and no involuntary unemployment and still contribute and possibly learn something. Wren-Lewis seems to be überjoyed by the fact that using the same language as real business cycles macroeconomists, he can ‘possibly learn something’ from them. Hmm...

Utility theory — an empty tautology In 1938 Paul Samuelson offered a replacement for the then accepted theory of utility. The cardinal utility theory had been discarded a couple of years earlier, but according to Samuelson, the ordinalist revision of utility theory was not drastic enough. One ought to analyze the consumer’s behaviour without having recourse to the concept of utility at all, since this did not correspond to directly observable phenomena. The new theory’s main feature was a...

Utility maximization — explaining everything and nothing Despite the rise of behavioral economics, many economists still believe that utility maximization is a good explanation of human behavior. Although evidence from experimental economics and elsewhere has rolled back the assumption that human agents are entirely self-interested, and shown that altruism and cooperation are important, a prominent response has been to modify individual preference functions so that they are...