New Keynesian nonsense ‘proofs’
from Lars Syll
New Keynesians use mathematics to ‘prove’ some very odd stuff … Take, for example, a paper by Campbell Leith and Simon Wren-Lewis entitled Electoral Uncertainty and the Deficit Bias in a New Keynesian Economy. The thrust of the paper is that our particular form of party-based democracy naturally leads to ‘deficit bias’ … The authors identify the root problem to be one of ‘heterogeneity’ — the fact that different political parties will have different views about how to run the country. Let’s look at a snippet from the paper to see how they use maths to support this earth-shattering discovery:
This lays bare a fundamental problem with the New Keynesians. Their model reduces the economy — the complexity of which is beyond the limits of human understanding — to a ridiculously simple model which bears no relation to reality. They then selectively prime the model with whatever data provides the desired answer. In this case they have defined a model economy with only two household types and then assume that a political party will ‘solely represent’ the interest of one of them. Is that really what politicians do?
The Leith & Wren-Lewis paper is nothing but nonsense on stilts. And worse still — this kind of math-wanking is supposed to be taken seriously!
‘New Keynesian’ economists would be wise to — at least once — read what Keynes himself had to say about the kind of nonsense-methodology they are using:
But I am unfamiliar with the methods involved and it may be that my impression that nothing emerges at the end which has not been introduced expressly or tacitly at the beginning is quite wrong … It seems to me essential in an article of this sort to put in the fullest and most explicit manner at the beginning the assumptions which are made and the methods by which the [results] are derived; and then to state at the end what substantially novel conclusions have been arrived at …
I cannot persuade myself that this sort of treatment of economic theory has anything significant to contribute. I suspect it of being nothing better than a contraption proceeding from premises which are not stated with precision to conclusions which have no clear application … [This creates] a mass of symbolism which covers up all kinds of unstated special assumptions.
Letter from Keynes to Frisch 28 November 1935
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Edward Fullbrook and Jamie Morgan
————— Michael Hudson ————–
Maria Alejandra Madi / Jack Reardon
————- Edward Fullbrook ————-
—————— Steve Keen —————–
————— Richard Smith —————
————– Gustavo Marques————
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————– Lars Pålsson Syll ————-
—————– Stuart Birks —————-
Edward Fullbrook and Jamie Morgan
———— Armando Ochangco ———-
Shimshon Bichler / Jonathan Nitzan
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Real-World Economics Review Blog 
Examination of the mathematics included in this paper reveals exactly what is represented rather than what is purported.
First it is necessary to understand the difference between curve fitting and theoretical equations. The distinctions are profound. Curve fitting has no restrictions about the equations used. Arbitrary equations are perfectly acceptable and frequently preferable to some form of contrived equation. Arbitrary equations are able to conform to the data without restraint. Contrived equations, which are not theoretical valid, tend to force the fitted-shape to something which the data does not really support. Any extrapolation is then disastrous.
Every theoretically valid equation, which include quantities, MUST conform to the requirements of the quantity calculus. The appendix to the de Boer (1995) paper contains precise definitions of all the mathematical manipulations which are required to allow equations to be theoretically valid. Then it is necessary to ensure that they are valid empirically.
So when the equations of the Leith and Wren-Lewis paper are examined, they include mathematical manipulations to quantities which fail the validity test of the quantity calculus.
Their equations can have no theoretical validity and are merely contrived equations which should ONLY be used to interpolate the empirical data. However they extrapolate their fitted equations. Their extrapolations can have NO validity whatsoever.
The paper is irrelevant! It has NO economic significance!
Reference:
de Boer, J. (1995). “On the History of Quantity Calculus and the International System”. In: Metrologia 31.6, p. 405. url: http://stacks.iop.org/0026-1394/31/i=6/a= 001.
Mathematics can’t lead anywhere that human imagination has not already gone and found useful and interesting. So, yes, these equations are just ink on paper. With the paper in the end more valuable.
What if there is a point in time and space where all of the mathematical and empirical systemic complexities and at least several attending orthodoxies that seem to hold the economy’s major problems in suspension….can be cut through and set aside with a simple but deeply insightful understanding of the digital nature of the money system, accounting system and the entire economic/productive process….so that a digital set of policies can resolve them and invert economic and monetary realities from austerity and scarcity to abundance???
And what if economists aren’t looking at that point, its significances and the undeniable temporal universe effects of those policies?
In other words what if there is an Occam’s Razor solution that is right under their noses…and virtually every economist and pundit is either missing it by not looking at it or, because it is contrary to certain orthodoxies, reactively invalidating it?
Play out on paper, in your mind or on a clay demo table the IMMEDIATE and ongoing temporal universe monetary and economic effects (and their “knock on” effects in other systems as well) of the dual policies of a $1000/mo universal dividend distributed to everyone 18 and older and a 50% discount/rebate monetary policy at the point of retail sale. Then align any other policies, regulations and realistic necessities given a flawed world….with an aspect of the PHILOSOPHICAL concept behind those policies, grace as in Monetary Gifting….and take a deep breath and enjoy the integrative new paradigm.
Craig, what you describe in a failure of human imagination. Not uncommon. And even more so in times of imagination dulled by taking too much as certain and fixed. For humanity certainty is impossible. Best humans can hope for in durability. And even that is difficult to achieve. Read Toynbee’s “A Study of History.”
Well yes, but it’s more than just a failure of imagination it’s a failure to understand and embrace Wisdom. It’s true that the temporal universe is process and hence uncertainty…which oddly enough makes uncertainty…the only certainty…..so embracing/fully integrating one’s consciousness with process and the uncertainty of continual change is not only Wisdom it’s a description of the flow state i.e. Wisdom’s pinnacle concept of the state of grace.
But Wisdom/Grace incorporate within them the specificities of science in an integrative way that enables us to acknowledge all realities while transcending any anxiety and need to grasp/unnecessarily conflict with same.
All of the doubt, polarization, increasing contentiousness and disintegration we see looming up around us is a result of moderns either rejecting or forgetting Wisdom and its resolving nature.
We’re stuck in an ever more stressful head butting/pissing contest between thesis and antithesis….and have forgotten the route and thirdness greater oneness purpose of the dialectic….the synthesis that is another definition/aspect of
grace.
Craig, what you discuss is interesting and certainly important. It’s just a bit too dense in my view for this blog. Any reply I would write would be pages long and might easily overwhelm anyone reading this discussion. But to help the discussion I suggest you read Arnold Toynbee’s A Study of History, and Clifford Conner’s A People’s History of Science: Miners, Midwives, Low Mechanicks for two different views on the history of wisdom and the wisdom of history.
“Only the free-wheeling artist-explorer, non-academic, scientist-philosopher, mechanic, economist-poet who has never waited for patron-starting and accrediting of his co-ordinate capabilities holds the prime initiative today.”
“Since the initial publication of the chart of the electromagnetic spectrum, humans have learned that what they can touch, smell, see, and hear is less than one-millionth of reality.”
“We are powerfully imprisoned by the terms in which we have been conducted to think.”
Life is anti-entropic. It is spontaneously inquisitive. It sorts out and endeavors to understand”
R. Buckminster Fuller
Craig, Fuller’s insights are important. Culture is not fixed and can be changed by many persons and events, both intentionally and by accident. Culture is sometimes overturned by its own failures, by deliberate attacks from inside and outside, or just by simple questions. Take for example the questions that began the externalization of European culture around the world. What’s on the other side of he ocean? Is sailing beyond sight of land possible? What other peoples are on the planet? Is a better life for a poor or failed person possible elsewhere in the world? But we must recognize this is not a one direction process. Sometimes questions are asked that lead to no changes, or even end up strengthening existing culture. So, I view Fuller’s free-wheeling artist-explorer in the light of “Babe” Ruth. Ruth was the leader not just in homeruns but also in strike outs.