Tag Archives: Economics

Modern economics — an assumption-making Nintendo game In advanced economics the question would be: ‘What besides mathematics should be in an economics lecture?’ In physics the familiar spirit is Archimedes the experimenter. But in economics, as in mathematics itself, it is theorem-proving Euclid who paces the halls … Economics … has become a mathematical game. The science has been drained out of economics, replaced by a Nintendo game of assumption-making … Most thoughtful economists think...

Relevance is not irrelevant What is science? One brief definition runs: “A systematic knowledge of the physical or material world.” Most definitions emphasize the two elements in this definition: (1) “systematic knowledge” about (2) the real world. Without pushing this definitional question to its metaphysical limits, I merely want to suggest that if economics is to be a science, it must not only develop analytical tools but must also apply them to a world that is now observable or that...

What went wrong with economics? Internal coherence is one way of adjudicating among theories, but so is correspondence to everyday life. Too much realism may kill analysis, but too little realism is unscientific. If theoretical coherence alone were all that mattered, then the only constraint on theoretical exercises would be the human imagination. Interesting puzzles would replace pragmatic solutions to problems encountered in the world — arguably, an accurate characterization of most...

No realism please. We’re Chicago economists! Samuelson’s reconciliation of the micro-economic ideal type with involuntary unemployment was repudiated, along with Keynesian prescriptions, in favor of a view that there could be no involuntary unemployment , hence that government action was unnecessary. The result was a doctrinaire derivation of the laissez-faire conclusions that had been overturned by the formalist revolution; economics was now cleansed of Keynesian impurities that had been...

Efficient Market Hypothesis — an intellectually lazy ideology Both Brad DeLong and Noah Smith have posts up on their blogs commenting on the status of the Efficient Market Hypothesis. As so often the really interesting questions however drown in the usual mumbo jumbo “the model is the message” pseudo science of four-factor models with two mispricing factors being better-performing than three-factor models … Diane Coyle has a much more accurate view of what it’s all about: I would defend...

Economist Brian Arthur has made important contributions to our understanding of inductive versus deductive approaches to problem solving. Arthur notes that you can solve only the easiest problems deductively … But humans are superb at recognizing and matching patterns. We’re inductive machines. Arthur offers a model of inductive reasoning, effectively picking up where Lord Keynes left off. The model is based on the El Farol bar in Santa Fe, New Mexico … Attending the El Farol when it...

To a mainstream economist, theory means model, and model means ideas expressed in mathematical form. In learning how to “think like an economist,” students learn certain critical concepts and models, ideas which typically are taught initially through simple mathematical analyses. These models, students learn, are theory. In more advanced courses, economic theories are presented in more mathematically elaborate models. Mainstream economists believe proper models – good models – take a...

Simpson’s paradox and perspectival realism Which causal relationships we see depend on which model we use and its conceptual/causal articulation; which model is bestdepends on our purposes and pragmatic interests. Take the case of Simpson’s paradox, which can be described as the situation in which conditional probabilities (often related to causal relations) are opposite for subpopulations than for the whole population. Let academic salaries be higher for economists than for sociologists,...

Sir David Hendry on the inadequacies of DSGE models In most aspects of their lives humans must plan forwards. They take decisions today that affect their future in complex interactions with the decisions of others. When taking such decisions, the available information is only ever a subset of the universe of past and present information, as no individual or group of individuals can be aware of all the relevant information. Hence, views or expectations about the future, relevant for their...

The ‘bad luck’ theory of unemployment As is well-known, New Classical Economists have never accepted Keynes’s distinction between voluntary and involuntary unemployment. According to New Classical übereconomist Robert Lucas, an unemployed worker can always instantaneously find some job. No matter how miserable the work options are, “one can always choose to accept them,” according to Lucas: KLAMER: My taxi driver here is driving a taxi, even though he is an accountant, because he can’t...