Tag Archives: Economics

Economists — can-opener-assuming flimflammers Kids, somehow, seem to be more in touch with real science than can-opener-assuming economists … A physicist, a chemist, and an economist are stranded on a desert island. One can only imagine what sort of play date went awry to land them there. Anyway, they’re hungry. Like, desert island hungry. And then a can of soup washes ashore. Progresso Reduced Sodium Chicken Noodle, let’s say. Which is perfect, because the physicist can’t have much salt,...

Economic science does an excellent job of displacing bad ideas with good ones. It’s happening every day. For every person who places obstacles in the way of good science to protect his or her turf, there are five more who are willing to publish innovative papers in good journals, and to promote revolutionary ideas that might be destructive for the powers-that-be. The state of macro is sound – not that we have solved all the problems in the world, or don’t need a good revolution. Stephen...

Human capital and ‘bad taste in mouth’ models The ever-growing literature on human capital has long recognized that the scope of the theory extends well beyond the traditional analysis of schooling and on-the-job training … Yet economists have ignored the analysis of an important class of activities which can and should be brought within the purview of the theory. A prime example of this class is brushing teeth. The conventional analysis of toothbrushing has centered around two basic...

I came to think about this dictum when reading Thomas Piketty’s Capital in the Tenty-First Century.  Piketty refuses to use the term ‘human capital’ in his inequality analysis. I think there are many good reasons not to include ‘human capital’ in economic analyses. Let me just give one — perhaps analytically the most important one — reason and elaborate a little on that. In modern endogenous growth theory knowledge (ideas) is presented as the locomotive of growth. But as Allyn Young,...

Econometrics and the ’empirical turn’ in economics The increasing use of natural and quasi-natural experiments in economics during the last couple of decades has led some economists to triumphantly declare it as a major step on a recent path toward empirics, where instead of being a deductive philosophy, economics is now increasingly becoming an inductive science. In their plaidoyer for this view, the work of Joshua Angrist and Jörn-Steffen Pischke is often apostrophized, so lets start with...

How to get published in ‘top’ economics journals By the early 1980s it was already common knowledge among people I hung out with that the only way to get non-crazy macroeconomics published was to wrap sensible assumptions about output and employment in something else, something that involved rational expectations and intertemporal stuff and made the paper respectable. And yes, that was conscious knowledge, which shaped the kinds of papers we wrote. Paul Krugman More or less says it all,...

Do unrealistic economic models explain real-world phenomena? When applying deductivist thinking to economics, neoclassical economists usually set up “as if” models based on a set of tight axiomatic assumptions from which consistent and precise inferences are made. The beauty of this procedure is of course that if the axiomatic premises are true, the conclusions necessarily follow. The snag is that if the models are to be relevant, we also have to argue that their precision and rigour still...

Roman Frydman on the ‘rational expectations’ hoax Lynn Parramore: It seems obvious that both fundamentals and psychology matter. Why haven’t economists developed an approach to modeling stock-price movements that incorporates both? Roman Frydman: It took a while to realize that the reason is relatively straightforward. Economists have relied on models that assume away unforeseeable change. As different as they are, rational expectations and behavioral-finance models represent the market...

Models and the poverty of atomistic behavioural assumptions  [embedded content]

Is macroeconomics for real? Empirically, far from isolating a microeconomic core, real-business-cycle models, as with other representative-agent models, use macroeconomic aggregates for their testing and estimation. Thus, to the degree that such models are successful in explaining empirical phenomena, they point to the ontological centrality of macroeconomic and not to microeconomic entities … At the empirical level, even the new classical representative-agent models are fundamentally...