Tag Archives: Economics

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Mainstream economics — the art of building fantasy worlds Mainstream macroeconomic models standardly assume things like rational expectations, Walrasian market clearing, unique equilibria, time invariance, linear separability and homogeneity of both inputs/outputs and technology, infinitely lived intertemporally optimizing representative household/ consumer/producer agents with homothetic and identical preferences, etc., etc. At the same time, the models...

Evidence-based economics — the fundamentals Many economists still think that “evidence” is only of one kind, i.e. statistical/econometric analysis. Whilst this is important, it is not enough on its own. One reason for its privileged position may be that it is typically contrasted with “anecdotal evidence”, which is unreliable. But the truth is richer than that. It is true that basing one’s thinking about the economy on one or more stories carries the danger...

The Fed is making a big mistake .[embedded content]

In 1817 David Ricardo presented — in Principles — a theory that was meant to explain why countries trade and, based on the concept of opportunity cost, how the pattern of export and import is ruled by countries exporting goods in which they have a comparative advantage and importing goods in which they have a comparative disadvantage. Ricardo’s theory of comparative advantage, however, didn’t explain why the comparative advantage was the way it was. At the beginning of the...

Mainstream economics — a methodological reductionist strait-jacket. Jamie Morgan: To a member of the public it must seem weird that it is possible to state, as you do, such fundamental criticism of an entire field of study. The perplexing issue from a third party point of view is how do we reconcile good intention (or at least legitimate sense of self as a scholar), and power and influence in the world with error, failure and falsity in some primary sense;...

How banks create money .[embedded content]

This critique goes beyond the narrowly technical — that the workhorse neoclassical model of the economy was found to be lame when it came to running a real crisis race. The deeper critique is that these models, and the technical language that accompanies them, have played a role in policy and in society that has been disproportionate in two senses. First, disproportionate relative to our state of knowledge. Existing economic frameworks have shouldered a policy weight that is...

Axel Leijonhufvud in perspective Axel Leijonhufvud’s sad passing on May 5th has rightly stimulated a round of tributes to a thinker of uncommon breadth. But there is perhaps reason to doubt how widely appreciated the diversity of his thinking really was. Leijonhufvud changed the colors of his economic reasoning in response to many strands of 20th-century discussion, repainting each one. He had an ample palette and his color mixes were always interesting –...

Why economists need to study history .[embedded content]