Tag Archives: Economics

Economists of all shades have generally misunderstood the theoretical structure of Keynes’s The General Theory. Quite often this is a result of misunderstanding the concept of ‘effective demand’ — one of the key theoretical innovations of The General Theory. Jesper Jespersen untangles the concept and shows how Keynes, by taking uncertainty seriously, contributed to forming an analytical alternative to the prevailing neoclassical general equilibrium framework: Effective demand...

The invisible hand — invisible because it’s not there Daniel Kahneman … has demonstrated how individuals systematically behave in ways less rational than orthodox economists believe they do. His research shows not only that individuals sometimes act differently than standard economic theories predict, but that they do so regularly, systematically, and in ways that can be understood and interpreted through alternative hypotheses, competing with those...

On the limits of the invisible hand [embedded content] It might look trivial at first sight, but what Harold Hotelling did show in his classic paper Stability in Competition (1929) was that there are cases when Adam Smith’s invisible hand doesn’t actually produce a social optimum. With the advent of neoclassical economics at the end of the 19th century a large amount of intellectual energy was invested in trying to formalize the stringent conditions of...

David K. Levine — unlucky when trying to think In the wake of the latest financial crisis many people have come to wonder why economists never have been able to predict these manias, panics and crashes that haunt our economies. In responding to these warranted wonderings, some economists – like professor David K. Levine in the article Why Economists Are Right: Rational Expectations and the Uncertainty Principle in Economics in the Huffington Post – have...

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...