Tag Archives: Economics

Mainstream economics — slipping from the model of reality to the reality of the model A couple of years ago, Paul Krugman had a piece up on his blog arguing that the ‘discipline of modelling’ is a sine qua non for tackling politically and emotionally charged economic issues: In my experience, modeling is a helpful tool (among others) in avoiding that trap, in being self-aware when you’re starting to let your desired conclusions dictate your analysis. Why?...

‘New Keynesian’ DSGE models — unparalleled spectacular failures The problem of the DSGE-models (and more generally of rational expectations macroeconomic models) is that they assume extraordinary cognitive capabilities of individual agents … The fact that the assumption of rational expectations is implausible does not necessarily mean that models using such an assumption cannot be powerful tools in making empirical predictions. The problem, however, is that...

Stephanie Kelton till Stockholm När tankesmedjan Katalys nu firar tioårsjubileum har man passande nog valt att bjuda in författaren till en av årtiondet största megahit inom ekonomiområdet — Underskottsmyten — Stephanie Kelton. Har ni vägarna förbi Stockholm den 6 maj tycker jag definitivt ni ska lägga ettpar timmar på att besöka ABF-huset! Yours truly har under flera års tid nu frågat sig varför vi i det här landet har  begåvats med regeringar som inte...

Why DSGE models are worse than useless The unsellability of DSGE models — private-sector firms do not pay lots of money to use DSGE models — is one strong argument against DSGE. But it is not the most damning critique of it. The most damning critiques that can be levelled against DSGE models are the following two: (1) DSGE models are unable to explain involuntary unemployment In the basic DSGE models the labour market is always cleared – responding to a...

Modelling by the construction of analogue economies is a widespread technique in economic theory nowadays … As Lucas urges, the important point about analogue economies is that everything is known about them … and within them the propositions we are interested in ‘can be formulated rigorously and shown to be valid’ … For these constructed economies, our views about what will happen are ‘statements of verifiable fact.’ The method of verification is deduction … We are, however,...

Dumb and Dumber — the Chicago economics version A couple of years ago, Robert Lucas gave an outline of what the new classical school of macroeconomics thought about the latest downturns in the US economy and its future prospects. After stating his view that the US recession that started in 2008 was basically caused by a run for liquidity, Lucas then goes on to discuss the prospect of recovery, maintaining that past experience would suggest an “automatic”...

Mainstream economics non-ideological? I’ll be dipped! Mainstream (neoclassical) economics has always put a strong emphasis on the positivist conception of the discipline, characterizing economists and their views as objective, unbiased, and non-ideological … Acknowledging that ideology resides quite comfortably in our economics departments would have huge intellectual implications, both theoretical and practical. In spite (or because?) of that, the matter...

Issue 103 of Real-World Economics Review is out Yours truly’s paper Mainstream economics — the poverty of fictional storytelling is downloadable here.

Busting the natural rate of unemployment myth Almost sixty years ago Milton Friedman wrote an (in)famous article arguing that (1) the natural rate of unemployment was independent of monetary policy and that (2) trying to keep the unemployment rate below the natural rate would only give rise to higher and higher inflation. The hypothesis has always been controversial, and much theoretical and empirical work has questioned the real-world relevance of the idea...

Paul Krugman — finally — admits he was wrong! In a recent essay titled “What Economists (Including Me) Got Wrong About Globalization,” adapted from a forthcoming book on inequality, Krugman writes that he and other mainstream economists “missed a crucial part of the story” in failing to realize that globalization would lead to “hyperglobalization” and huge economic and social upheaval, particularly of the industrial middle class in America. And many of...