The Association for Heterodox Economics welcomes student initiatives for fundamental reform of the economics curriculum, as do our post-Keynesian colleagues (Letters, 19 November). Heterodox economists, drawing on a range of theorists, including Keynes, Marx, Minsky and others, have consistently argued for greater pluralism in both economics curricula and economics research evaluation. We recognise the clear benefits of pluralism in economics: it encourages, by exposing them to alternative perspectives, the development of students’ critical thinking and judgment. Read more…
from Claude Hillinger
Imagine for a moment that a delegation from outer space visited the earth with the aim of ascertaining the level of scientific achievement on our planet. Regarding the natural sciences this was fairly easy since here the accomplishments are well known and agreed upon and in the case of applied natural science, they are also easily visible. Understanding the contributions of social science turned out to be more difficult. Researching the internet they chanced on the REPEC repository of economic literature. They found there a list of some 2000 relevant journals. The site also stated that they had had some 300 million abstract views and some 75 million downloads. The delegation was greatly impressed by this immense level of activity in economic research.
There remained a puzzle: where was the knowledge that such a vast outpouring of research could be expected to produce. Read more…
from Lars Syll
AEN: Sir John Hicks has portrayed the 1930s as a period of great intellectual battles between what he portrays as the “Hayekians” versus the budding Keynesians. What are your memories of that time?
SHACKLE: Well, I don’t think it can really be said to have started until a small group of us went down to Cambridge on a Sunday afternoon in October 1935. That’s where we heard Joan Robinson and Richard Kahn and really learned about Keynes’s The General Theory. I didn’t really understand what The General Theory was going to be all about until I heard Joan Robinson. I don’t think you can say that a real battle began until after The General Theory had made some impact on us in that way–perhaps not even until after it came out. But up to 1935 there was a strong Hayekian influence at the LSE–people were greatly sold on Hayek’s views as expressed in Prices and Production; I should say that included Hicks and Lerner and Kaldor.
AEN: If you go through the economics journals for the couple of years after the appearance of The General Theory in 1936 and read the reviews of the book, e.g., Hicks’s first review, Frank Knight’s, Joseph Schumpeter’s, Jacob Viner’s, Dennis Robertson’s, and so on down the line, every one of them criticized the book severely. And if one compiles a list of all the criticisms made in those reviews, there is very little in Keynes’s arguments left unchallenged. Yet, within a few years, the book became the volume guiding economic theorists. Given the opposition to it by so many leaders in the profession, why? Read more…
from Lars Syll
It is widely agreed that a series of collapsing housing-market bubbles triggered the global financial crisis of 2008-2009, along with the severe recession that followed. While the United States is the best-known case, a combination of lax regulation and supervision of banks and low policy interest rates fueled similar bubbles in the United Kingdom, Spain, Ireland, Iceland, and Dubai.
Now, five years later, signs of frothiness, if not outright bubbles, are reappearing in housing markets in Switzerland, Sweden, Norway, Finland, France, Germany, Canada, Australia, New Zealand, and, back for an encore, the UK (well, London). In emerging markets, bubbles are appearing in Hong Kong, Singapore, China, and Israel, and in major urban centers in Turkey, India, Indonesia, and Brazil.
Signs that home prices are entering bubble territory in these economies include fast-rising home prices, high and rising price-to-income ratios, and high levels of mortgage debt as a share of household debt. In most advanced economies, bubbles are being inflated by very low short- and long-term interest rates. Given anemic GDP growth, high unemployment, and low inflation, the wall of liquidity generated by conventional and unconventional monetary easing is driving up asset prices, starting with home prices … Read more…
from Geoff Davies
Non-mainstream economists are all-too aware of the failure of mainstream economists to anticipate, let alone avoid, the Global Financial Crisis and the ensuing Great Recession. The mainstream profession is also failing to fix the problem, and is actually making it worse.
It is hard to get alternative views heard, and the mainstream carries on almost totally unperturbed, despite being centrally responsible for a global disaster. This is of course extremely frustrating.
After reading yet another cri de coeur from yet another frustrated economist, I thought perhaps we need to spell out the message in all bluntness: we need to sack the economists (the mainstreamers). We also need to derail their baleful ideology. That means we need to disband the departments of neoclassical economics, so the poison is not passed on to any more hapless generations.
When I say “we”, I really mean “we, the people”. The job can’t be done by a small band of isolated reformers. That means people need to be informed and persuaded. They need to be spoken to in terms they understand; not everyone, but opinion leaders and interested laypeople, of whom there are many.
Thus was I moved to write the short ebook: Sack the Economists and Disband Their Departments.
The title may seem to be a bit confronting at first, but the book is a concisely argued case, not a rant. The bluntness is justified by Read more…
from Bloomberg News - Dec 5, 2013 10:25 AM GMT
China’s central bank barred financial institutions from handling Bitcoin transactions, moving to regulate the virtual currency after an 89-fold jump in its value sparked a surge of investor interest in the country.
Bitcoin plunged more than 20 percent to below $1,000 on the BitStamp Internet exchange after the People’s Bank of China said it isn’t a currency with “real meaning” and doesn’t have the same legal status. The public is free to participate in Internet transactions provided they take on the risk themselves, it said. Read more…
from Lars Syll
Paul Krugman writes on his blog today re economic models:
Look, economics is about how people (the word “agents” is itself a kind of tribal marker) are motivated to take actions, and how those actions interact. Equilibrium is often a very convenient way to think through all of that, and all of us sometimes use wording about what the economy “needs” or “requires” as shorthand …
The trouble is that we have a lot of economists who apparently don’t understand why they’re doing what they’re doing; they solve their equations without even trying to picture what those equations are supposed to be saying about the actual behavior of consumers and firms.
It’s a very sad state of affairs.
from the WEA Pedagogy Blog
As emphasized in the previous posts by Mady, one of the key problems with current economics (both theory & practice) is the lack of ethical bases. I believe there is no solution except by re-introducing ethics into the study of economics. Justice and equity are crucial to any study of economic systems. In contrast, the unfettered pursuit of profits lies at the heart of capitalism, as Max Weber clarified.
The goal of this blog is the same as the demand of the Manchester students: radical reforms in conventional economic syllabi. Since the dissent to orthodoxy remains a minority position, spreading the message requires development of self-contained texts/lectures.. . . read more
from Lars Syll
“Sorta-kinda New Keynesian” economist Paul Krugman now has learned from Francesco Saraceno — who links to yours truly — that “some people are attacking” him for “defending an economic orthodoxy that has failed.” Krugman writes:
It’s kind of an odd place to find myself, given how critical I’ve been of the way the economics profession has dealt with the crisis. But it’s not entirely unfair: I am quite skeptical of people whose response to the sorry state of affairs is to declare that what we need is a whole new field …
My answer, to put it in technical terms, is “Well, duh.” Maybe grad students at some departments, who are several generations into the law of diminishing disciples, really don’t know that rational behavior is at best a useful fiction, that markets aren’t perfect, etc, etc …
The question is what you do with this insight. Read more…
from Lars Syll
The other day yours truly was interviewed by a public radio journalist working on a series on Great Economic Thinkers. We were discussing the monumental failures of the predictions-and-forecasts-business. But — the journalist asked — if these cocksure economists with their “rigorous” and “precise” mathematical-statistical-econometric models are so wrong again and again — why do they persist wasting time on it?
In a discussion on uncertainty and the hopelessness of accurately modeling what will happen in the real world – in M. Szenberg’s Eminent Economists: Their Life Philosophies – Nobel laureate Kenneth Arrow comes up with what is probably the right answer:
It is my view that most individuals underestimate the uncertainty of the world. Read more…
from Lars Syll
As is well-known, Keynes used to criticize the more traditional economics for making the fallacy of composition, which basically consists of the false belief that the whole is nothing but the sum of its parts. Keynes argued that in the society and in the economy this was not the case, and that a fortiori an adequate analysis of society and economy couldn’t proceed by just adding up the acts and decisions of individuals. The whole is more than a sum of parts. This fact shows up already when orthodox – neoclassical – economics tries to argue for the existence of The Law of Demand – when the price of a commodity falls, the demand for it will increase – on the aggregate. Although it may be said that one succeeds in establishing The Law for single individuals it soon turned out – in the Sonnenschein-Mantel-Debreu theorem firmly established already in 1976 – that it wasn’t possible to extend The Law of Demand to apply on the market level, unless one made ridiculously unrealistic assumptions such as individuals all having homothetic preferences – which actually implies that all individuals have identical preferences. Read more…
from Lars Syll
Paul Krugman had a post up on his blog a while ago where he argued that “Keynesian” macroeconomics more than anything else “made economics the model-oriented field it has become.” In Krugman’s eyes, Keynes was a “pretty klutzy modeler,” and it was only thanks to Samuelson’s famous 45-degree diagram and Hicks’s IS-LM that things got into place. Although admitting that economists have a tendency to use ”excessive math” and “equate hard math with quality” he still vehemently defends — and always have — the mathematization of economics:
I’ve seen quite a lot of what economics without math and models looks like — and it’s not good.
Sure, “New Keynesian” economists like Krugman — and their forerunners, “Keynesian” economists like Paul Samuelson and the young John Hicks — certainly have contributed to making economics more mathematical and “model-oriented.”
But if these math-is-the-message-modelers aren’t able to show that the mechanisms or causes that they isolate and handle in their mathematically formalized macromodels are stable in the sense that they do not change when we “export” them to our “target systems,” these mathematical models do only hold under ceteris paribus conditions and are consequently of limited value to our understandings, explanations or predictions of real economic systems. Or as the eminently quotable Keynes wrote already in Treatise on Probability (1921): Read more…
from The Guardian
The Post-Crash Economics Society at Manchester University. Photograph: Jon Super for the Guardian
“A revolt against the orthodoxy has been smouldering for years and now seems to have gone critical.”
Orthodox economists have failed their own market testStudents are demanding alternatives to a free-market dogma with a disastrous record. That’s something we all need
From any rational point of view, orthodox economics is in serious trouble. Its champions not only failed to foresee the greatest crash for 80 years, but insisted such crises were a thing of the past. More than that, some of its leading lights played a key role in designing the disastrous financial derivatives that helped trigger the meltdown in the first place.
Plenty were paid propagandists for the banks and hedge funds that tipped us off their speculative cliff. Acclaimed figures in a discipline that claims to be scientific hailed a “great moderation” of market volatility in the runup to an explosion of unprecedented volatility. Others, such as the Nobel prizewinner Robert Lucas, insisted that economics had solved the “central problem of depression prevention”.
Any other profession that had proved so spectacularly wrong and caused such devastation would surely be in disgrace. You might even imagine the free-market economists who dominate our universities and advise governments and banks would be rethinking their theories and considering alternatives.
After all, the large majority of economists who predicted the crisis rejected the dominant neoclassical thinking: from Dean Baker and Steve Keen to Ann Pettifor, Paul Krugman and David Harvey. Whether . . . . continue reading here
from Lars Syll
Is academic (mainstream neoclassical) macroeconomics flourishing? “New Keynesian” macroeconomist Simon Wren-Lewis had a post up not that long ago on his blog, answering the question affirmatively:
Consider monetary policy. I would argue that we have made great progress in both the analysis and practice of monetary policy over the last forty years … However, it has to be acknowledged that policymakers who look at the evidence day in and day out believe that New Keynesian theory is the most useful framework currently around. I have no problem with academics saying ‘I know this is the consensus, but I think it is wrong’. However to say ‘the jury is still out’ on whether prices are sticky is wrong. The relevant jury came to a verdict long ago …
It is obvious that when it comes to using fiscal policy in short term macroeconomic stabilisation there can be no equivalent claim to progress or consensus. The policy debates we have today do not seem to have advanced much since when Keynes was alive …
What has been missing with fiscal policy has been the equivalent of central bank economists whose job depends on taking an objective view of the evidence and doing the best they can with the ideas that academic macroeconomics provides…
The contrast between monetary and fiscal policy tells us that this failure is not an inevitable result of the paucity of evidence in macroeconomics. I think it has a lot more to do with the influence of ideology …
And yesterday another sorta-kinda “New Keynesian” — Paul Krugman — has a post up arguing that the problem with the academic profession is that some macroeconomists aren’t “bothered to actually figure out” how the New Keynesian model with its Euler conditions — ”based on the assumption that people have perfect access to capital markets, so that they can borrow and lend at the same rate” — really works. According to Krugman, Read more…
from Lars Syll
Although the expected utility theory is obviously both theoretically and descriptively inadequate, colleagues and microeconomics textbook writers all over the world gladly continue to use it, as though its deficiencies were unknown or unheard of.
Not even Robert Frank — in one of my favourite intermediate textbooks on microeconomics — manages to get it quite right on this issue: Read more…
from Lars Syll
The dogma that macroeconomics must have ‘rigorous microfoundations’ requires us to adopt a micro-reduction strategy that has so often failed when attempted in other areas of scientific research. If it were to be made compulsory for economists it would bring about the euthanasia of macroeconomic theory …
I [J. E. King]begin the book by taking issue with the spatial metaphor on which the case for microfoundations rests, and argue that in economics the relationship between macro and micro should be seen as a horizontal, not a vertical, one. The photograph on the cover makes the point very nicely: a bridge is NOT a foundation …
In the book I draw on an extensive literature in the philosophy of science to show how micro-reduction has failed, over and over again, in other areas of scientific thought. I make special reference to the unsuccessful ‘methodological individualism’ project in the social sciences in the 1950s and 1960s, and to Richard Dawkins’s more recent ‘hierarchical reductionism’, an abortive attempt to reduce the life sciences to propositions about the ‘selfish gene’ … I then explore the emergence of support for microfoundations in the literature of macroeconomics since the 1930s, distinguishing authors who supported the dogma without using the term from those who used the term without intending to support the dogma. I have a lot to say about the opponents of microfoundations, inside and (especially) outside the mainstream: Post Keynesians, institutionalists, Old Keynesians and even some Austrians. On this issue there are some surprises: Robert Solow is on the side of the angels, but so too is Milton Friedman, while many heterodox economists who really should have known better have instead given inadvertent comfort to the mainstream enemy. I show that most economic methodologists have been critical of microfoundations, and for very good reasons, but they have been very largely ignored by economic theorists of all persuasions. I conclude the book by reiterating the case for a (semi-)autonomous science of macroeconomics, whose practitioners will cooperate with their microeconomist colleagues without being subservient
from Lars Syll
Ricardian equivalence is taught in every graduate school in the country. It is also sheer nonsense.
Joseph E. Stiglitz, twitter
Rational expectations is taught in every graduate school all around the world. It is also sheer nonsense.
Lars P. Syll, twitter
from Lars Syll
If at some time my skeleton should come to be used by a teacher of osteology to illustrate his lectures, will his students seek to infer my capacities for thinking, feeling, and deciding from a study of my bones? If they do, and any report of their proceedings should reach the Elysian Fields, I shall be much distressed, for they will be using a model which entirely ignores the greater number of relevant variables, and all of the important ones. Yet this is what ‘rational expectations’ does to economics.
G. L. S. Shackle
Oxford professor Simon Wren-Lewis is not pleased with heterodox critiques of the rational expectations hypothesis. And he seems to be especially annoyed with yours truly, who “does write very eloquently,” but only “appeal to the occasional young economist, who is inclined to believe that only the radical overthrow of orthodoxy will suffice.”
Since I have already put forward a rather detailed theoretical-methodological critique of the rational expectations hypothesis in Rational expectations – a fallacious foundation for macroeconomics in a non-ergodic world (real-world economics review, issue 62, 2012), I’m not going to recapitulate the arguments here, but rather limit myself to elaborate on a couple of the rather unwarranted allegations Wren-Lewis puts forward in his attempt at rescuing the rational expectations hypothesis from the critique. Read more…
from Lars Syll
Economics has long had the ambition to become an “exact science”. Indeed, Walras, usually recognised as the father of modern economic theory, said in his Lettre no. 1454 to Hermann Laurent in Jaffe (1965):
“All these results are marvels of the simple application of the language of mathematics to the quantitative notion of need or utility. Refine this application as much as you will but you can be sure that the economic laws that result from it are just as rational, just as precise and just as incontrovertible as were the laws of astronomy at the end of the 17th century.”