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Kenneth Arrow (1921-2017)

from Lars Syll

arrowA democratic polity is supposed to be based on egalitarian distribution of political power. In a system where virtually all resources are available for a price, economic power can be translated into political power by channels too obvious for mention. In a capitalist society, economic power is very unequally distributed, and hence democratic government is inevitably something of a sham. In a sense, the maintained ideal of democracy makes matters worse, for it adds the tensions of hypocrisy to the inequality of power.

Kenneth Arrow

Kenneth Arrow, one of the greatest economists ever, died last month at age 95.
A great modeler, yes, but also an economist who never forgot on what assumptions the models were based …

  1. March 13, 2017 at 5:49 pm

    Great quote.

  2. March 13, 2017 at 5:58 pm

    How Arrow pushed economics over the cliff
    Comment on Lars Syll on ‘Kenneth Arrow (1921-2017)’

    The inevitable failure of economics started with Jevons/Walras/Menger but Arrow gave the final push with this fundamental methodological specification: “It is a touchstone of accepted economics that all explanations must run in terms of the actions and reactions of individuals. Our behavior in judging economic research, in peer review of papers and research, and in promotions, includes the criterion that in principle the behavior we explain and the policies we propose are explicable in terms of individuals, not of other social categories.” (Arrow, 1994)

    The definition of the subject matter translates into the following hard core propositions, a.k.a. axioms: “HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states.” (Weintraub, 1985)

    Obviously, this axiom set contains THREE NONENTITIES: (i) constrained optimization (HC2), (ii) rational expectations (HC4), (iii) equilibrium (HC5). Every theory/model that contains a nonentity is A PRIORI false. By consequence, General Equilibrium theory of the Arrow-Debreu type and its offspring until DSGE/RBC/New Keynesianism is scientifically worthless.

    Egmont Kakarot-Handtke

  3. March 13, 2017 at 6:01 pm

    The American system of democractic governance is based on the fragmentation of power; therefore, for the political system to be effective you have to build coaltions into a governing majority. The capitalist system concentrates economic power as the economy broadens (nationally and internationally); and, the concentration of economic power has ramifications in the political sphere. This contrasting duality in America has resulted in a culture and institutions that have been forced to accept change to survive; and, that is what makes the American culture unique among previous great cultures.

    • robert locke
      March 14, 2017 at 9:14 am

      Survive? We are talking about s period of hegemony of 40 years, which is not very long; the Ottoman Empire took more than 400 to collapse after its last expansionist threat to Europe in the 16th century. The British Emporium lasted 250 years. The uniqueness of America’s great culture might be its brevity. Learn some history.

      • March 14, 2017 at 1:25 pm

        History?…it is still going strong.

    • March 14, 2017 at 3:43 pm

      Good statement. One has an interplay or ‘competiition’ between chaos and order. In physics they use the term order parameter. Its sort of like (in my mind) GDP for a physical system—one number to describe everything. Order parameters for a gas, liquid, or solid,are different–but you can get them from one another.
      .

    • March 15, 2017 at 8:56 am

      No doubt Arrow was not just a first rate intellect but had a sensitive empathy for everyday life and those who made that world (not economists). Too bad he choose to be an economist.

      Vic, as to the balance of political and economic power, as Arrow made clear the two are convertible to one another. History of the USA shows very clearly that citizens depending on democratic controls and institutions (e.g., Congress, POTUS, SCOTUS) to protect them and their livelihoods will often be victimized by economic institutions (e,g. corporations, industries, the rich “folk”) if not directly through money contributions (bribery) then via the indirect route of being deemed less important to “the economy” than these institutions. No way for a citizen or cooperative of citizens to win this contest.

      • March 15, 2017 at 1:03 pm

        Not a very good explanation for how change has come about in American history; or, some of the regional differences you find in the U.S. that have developed through the decades of our history.

      • March 17, 2017 at 8:57 am

        Vic, the comment was not meant to be comprehensive. I agree there are significant regional, ethnic, and religious differences in the US. But none supersede wealth as the primary driving factor in US history and politics, particularly after the US Civil War. A nation built around speculation and exploitation could not really take another course.

  4. Norman L. Roth
    March 14, 2017 at 12:43 am

    March 1, 2017,

    Really, M. Egmont Handtke !

    What do you find so hard to accept about Kenneth Arrow’s 1994 statement about “….explicable in terms of individuals….not social categories” & “the actions and reactions of individuals”? It’s not unrelated to Ludwig Von Mises’s admonition {with inspiration from his mathematician brother Richard} that “Case probability is not class {category} probability”. You appear to be unaware of the great John Stuart Mill’s wisdom about the nature of axioms.
    This can be summarized as follows: It’s not so much the unreality of our explicitly stated
    [visible} axioms that bedevils us: It’s the ghostly “hidden axioms” that we don’t recognize, especially when they emerge from the recesses of our consciousness, to influence our best efforts to understand how our world really works. The role played by the gremlins of “hidden axioms” is not unrelated to “Hume’s Guillotine”: “One cannot deduce what ought to be from what is”. Think about it.

    GOOGLE: Norman L. Roth

    • March 14, 2017 at 3:38 pm

      good quote—its the hidden axioms (like hidden variables in quantum theory). The axioms you have tend to obscure the ones you don’t have, and people forget about them until something happens.
      In a way this is like the development of Europe and USA—everything looks good (‘progress’, democracy, economic growth etc) but people forget the history of imperialism, colonization, slavery, and all the previous empires from ghengis kahn, ottoman empire, alexander the great (greece), ancient egypt and nubia, etc. ‘What you see is what you don’t see’. . The set of elements of a set is the complement of all the elements you left outside of the set’.

  5. March 14, 2017 at 3:26 pm

    Arrow was definately a ‘bright guy’. He certainly did formalize ‘general equilibrium theory’ (GET)to me its just a rigorous formalization of basic walrasian supply=demand and leontief’s input-output analyses). Sure, its unfortunate that the arrow-hahn-debreu model became something of a religion and an obsession for mathematically oriented people–but within that model is contained basically every criticism of GET– SMD is contained within the model. You can ‘tweak’ GET as well to get just about every other model in econ. Its just a set of axioms.

    Alot of people prefer caricatures (something is either good or its evil). This is like General Relativity — Einstein preferred one interpretation (solution) of that model of cosmology, but his friend Godel found another solution to GR which was perfectly mathematically consistant but permitted time travel (including going back in time). Einstein helped created quantum theory, but also showed this theory included EPR so it was not ‘local and realist’ or complete. Alot of these physcists didn’t like ‘the baby they gave birth to’. It grew up to be a monster, and turned into a nitemare.

    Objectitions to GET are like those of Adam Smith and ‘the invisible hand’, division of labor, capitalism, etc. People who demonize Smith (who was not perfect but a product of his times, just like many famous american people–jefferson , washington, …) forget he wrote ‘the moral sentiments’ as well. He was not an apolgist for robber barron capitalism or greed.

    In the 90’s Arrow helped coordinate the SFI workshops on ‘the economy as a complex evolving system’—a meeting of economists and physicists. Of course he’s also known for ‘the paradox of voting’ or impossibiity theorem (a formalization of Condorcet’s stuff from 1700’s or whenever). That also resulted in a sort of industry in mathematical politics. (But some results from that is actually used—different voting systems–some used in my area).
    (Kirman was also a very ‘hardcore’ formalizer of GET, but like Arrrow very aware of its limitations, and spent some his career formalizing econ from the view of physics — Kirman may have been at SFI workshops though he also had his own ones in europe).

    (one can also remember the person who first came up with formalism for GDP (S Kuznets) said at the time it was just a first attempt to measure the economy, which left out many things and also used very unreliable data—which was all they had.. Ecologists try to measure the size of ecosystems (and measure number of species, biomass…) and cosmologists measure the size and ‘quantity’ of the universe—but they end up with alotm of ‘missing mass’, ‘dark matter’, ‘cosmological constants’ (fudge term to make everything add up to 1, as opposed to infinity or 0.) Feynman introduced ‘renormalization’ to make sure calulcations in QED and particle scattering didn’t come up with results like that the mass of an electron was infinite. You just keep adding an infinite number of terms , but some are ‘less than zero’ (or have ‘negative probability’–another concept associated with Feynman, and still around) so it adds up to 1 or a finite number. )

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