Tag Archives: Economics

How (not) to do economics  [embedded content] Great lecture on how to do — and not to do — economics, delivered by Robert Skidelsky.

How to use models in economics The reason you study an issue at all is usually that you care about it, that there’s something you want to achieve or see happen. Motivation is always there; the trick is to do all you can to avoid motivated reasoning that validates what you want to hear. 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...

Why would an academic profession sanction the use of theories based on crassly unrealistic assumptions? It is not an intuitively attractive idea. One suspects that the underlying reason is: economists are, in the main, committed to the defense of propositions that cannot be generated by models based on realistic assumptions. For example, a long string of unrealistic assumptions are necessary to generate the desired conclusion that unregulated financial markets perform...

 [embedded content] As young research stipendiate in the U.S. — in the early ’80s — yours truly remember reading several of Anwar Shaikh’s articles on the poverty of neo-Ricardian economics, the laws of production, and crisis theories. He was a great inspiration at the time. He still is.

None of this is an argument in favor of taking a road along which there is less rigorous thinking. Our problem is much more that we have developed our models using certain mathematical techniques and that we have become slaves to those techniques. It is surely this more than anything else that has led us to persist with a model that, to any outsider, seems such a poor description of what actually happens in markets. The real world is one in which various market forms coexist,...

The difficulty lies, not in the new ideas, but in the escaping from the old ones, which ramify, for those brought up as most of us have been, into every corner of our minds. John Maynard Keynes [embedded content]Mark Blaug (1927-2011) did more than any other economist to establish the philosophy and methodology of economics a respected subfield within economics. His path-breaking The methodology of economics (1980) is still a landmark (and the first textbook on economic...

Epistemic humility — an intellectual virtue Being a true expert involves not only knowing stuff about the world but also knowing the limits of your knowledge and expertise. It requires, as psychologists say, both cognitive and metacognitive skills. The point is not that true experts should withhold their beliefs or that they should never speak with conviction. Some beliefs are better supported by the evidence than others, after all, and we should not...

Time to rewrite textbook chapters on money This article has discussed how money is created in the modern economy. Most of the money in circulation is created, not by the printing presses of the Bank of England, but by the commercial banks themselves: banks create money whenever they lend to someone in the economy or buy an asset from consumers.And in contrast to descriptions found in some textbooks, the Bank of England does not directly control the quantity...

Original sin in economics Mathematics, especially through the work of David Hilbert, became increasingly viewed as a discipline properly concerned with providing a pool of frameworks for possible realities. No longer was mathematics seen as the language of (non-social) nature, abstracted from the study of the latter. Rather, it was conceived as a practice concerned with formulating systems comprising sets of axioms and their deductive consequences, with...

The limited value of economic theory Submission to observed or experimental data is the golden rule which dominates any scientific discipline. Any theory whatever, if it is not verified by empirical evidence, has no scientific value and should be rejected. Maurice Allais Formalistic deductive ‘Glasperlenspiel’ can be very impressive and seductive. But in the realm of science, it ought to be considered of little or no value to simply make claims about a...