Tag Archives: Economics

The limits of game theory If you read Binmore’s Essays on the foundations of game theory (1990) you will find a section where he says that, unfortunately, we get into a kind of impasse. We get this infinite regress linked to the common knowledge problem. For example, I drive frequently from Aix to Marseille. You have the autoroute and parallel to it is the routenationale. Say there is, one day, congestion on the autoroute and nobody on the nationale. I think: “Tomorrow I will take the...

How could ‘testing axioms’ be controversial? Of course the more immediate target of Davidson in his formulation of the argument in the early 1980s was not Samuelson, but Lucas and Sargent and their rational expectations hypothesis … This was indeed the period when new classical economics was riding at its highest point of prestige, with Lucas and Sargent and their rational expectations assumption apparently sweeping the boards of any sort of Keynesian theories.Curiously, they did not seem...

On the non-existence of economic laws In methodischer Hinsicht verdankt das ökonomische Erkenntnisprogramm ohne Zweifel dem Einfluss der klassischen Physik eine wichtige Komponente, nämlich den Gedanken, dass die sozialen Phänomene ebenso von Gesetzmässigkeiten beherrscht sind wie die Naturerscheinungen und dass es daher angezeigt ist, solche Gesetzmässigkeiten zu suchen und theoretisch in ähnlicher weise zu kodifizieren, wie Newton das für die Gesetze der Mechanik in seinem System...

The economy is irreducible … in the sense that no matter how the households are divided into two groups, an increase in the initial assets held by the members of one group can be used to make feasible an allocation which will make no one worse off and at least one individual in the second group better off. It is perhaps interesting to observe that “atomistic” assumptions concerning individual households and firms are not sufficient to establish the existence of equilibrium; “global”...

Signs economists haven’t the foggiest Unlearning economics has a nice post up “outlining the major reasons why economists can be completely out of touch with their public image, as well as how they should do ‘science,’ and why their discipline is so ripe for criticism.” He presents a list of 18 common failings encountered time and time again in discussions with mainstream economists: 1. They refer to the idea that “all models are simplifications” as if this somehow creates a fireguard...

Empirical ‘validation’ of macroeconomic models Modern macroeconomics is characterised by a search for the microeconomic foundations of macroeconomics, and it follows a very specific path. This search for microeconomic foundations follows a hypothetico-deductive approach … It involves starting with an axiomatic system and deducing conclusions from it … The model and the conclusions of the reflection cannot produce predictions that can subsequently be confirmed or refuted. A more flexible...

Postmodern economics? No thanks! Despite its considerable oeuvre, postmodern criticisms of economics are doomed to shrivel and be absorbed by mainstream economics … Social theory, unlike thermodynamics, is condemned to remain untestable, and stuck in the realm of opinion. Economics valiantly attempts to extricate itself from this fate with a touching commitment to mathematics but, sadly, it only ends up as a religion with equations. Postmodernity errs in thinking of this as the inevitable...

Reconsidering ergodicity and uncertainty The concept of fundamental uncertainty is a centerpiece of much of Post Keynesian economics. The foundation of this concept in Keynes’s own work and in broader intellectual foundations and considerations has generated much debate and discussion in recent decades, most recently between Rod O’Donnell (2014-15) and Paul Davidson (2015). We have reviewed their arguments, finding some grounds for O’Donnell’s criticism of Davidson’s claim that rejection...

Why not just face it — austerity does not work When an economy is already hanging on the ropes, you can’t just cut government spendings. Cutting government expenditures reduces the aggregate demand. Lower aggregate demand means lower tax revenues. Lower tax revenues means increased deficits — and calls for even more austerity. And so on, and so on. How was it possible, it has to be asked, for the basic Keynesian insights and analyses to be so badly lost in the making of European economic...

The ‘journal game’ Many of the submissions do  not appear to be written in order to further economic knowledge. Whilst I fully understand the pressure on authors, particularly young academics, it is still disheartening that so many economists seem to be playing the ‘journal game’, i.e. producing variations on a theme that are uninteresting and which do not enlighten. John Hey (Managing Editor of The Economic Journal) Sad to say, if anything, things have gotten even worse since Hey wrote...