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Tony Lawson and the nature of heterodox economics

April 11, 2021 Leave a comment

from Lars Syll

Lawson believes that there is a ‘coherent core’ of heterodox economists who employ methods that are consistent with the social ontology they implicitly advance. However, Lawson also acknowledges that many also use mathematical modelling, a method that presupposes a social ontology that is in severe tension with it. Therefore, I repeat, Lawson proposes that heterodox economists in fact exist in two groups, those who use methods consistent with the social ontology they are committed to, and those who do not. But all are heterodox economists.

Lawson’s hope is that by making the kind of social ontology presupposed by mathematical modelling clear, heterodox economists will increasingly review the legitimacy of the modelling approach. However, Lawson still considers those who make such a methodological mistake to be heterodox economists. For they still, he argues, are committed to the social ontology he defends and always reveal it in some way in their analyses or pronouncements … Read more…

Reasoning in economics

April 9, 2021 18 comments

from Lars Syll

Reasoning: Amazon.co.uk: Scriven, Michael: 9780070558823: BooksReasoning is the process whereby we get from old truths to new truths, from the known to the unknown, from the accepted to the debatable … If the reasoning starts on firm ground, and if it is itself sound, then it will lead to a conclusion which we must accept, though previously, perhaps, we had not thought we should. And those are the conditions that a good argument must meet; true premises and a good inference. If either of those conditions is not met, you can’t say whether you’ve got a true conclusion or not.

Mainstream economic theory today is in the story-telling business whereby economic theorists create make-believe analogue models of the target system – usually conceived as the real economic system. This modeling activity is considered useful and essential. Since fully-fledged experiments on a societal scale as a rule are prohibitively expensive, ethically indefensible or unmanageable, economic theorists have to substitute experimenting with something else. To understand and explain relations between different entities in the real economy the predominant strategy is to build models and make things happen in these ‘analogue-economy models’ rather than engineering things happening in real economies. Read more…

Econometrics and the problem of unjustified assumptions

April 5, 2021 8 comments

from Lars Syll

There seems to be a pervasive human aversion to uncertainty, and one way to reduce feelings of uncertainty is to invest faith in deduction as a sufficient guide to truth. Unfortunately, such faith is as logically unjustified as any religious creed, since a deduction produces certainty about the real world only when its assumptions about the real world are certain …

economUnfortunately, assumption uncertainty reduces the status of deductions and statistical computations to exercises in hypothetical reasoning – they provide best-case scenarios of what we could infer from specific data (which are assumed to have only specific, known problems). Even more unfortunate, however, is that this exercise is deceptive to the extent it ignores or misrepresents available information, and makes hidden assumptions that are unsupported by data …

Econometrics supplies dramatic cautionary examples in which complex modellin​g has failed miserably in important applications …

Sander Greenland

Yes, indeed, econometrics fails miserably over and over again.

One reason why it does, is that Read more…

The methods economists bring to their research

April 1, 2021 7 comments

from Lars Syll

There are other sleights of hand that cause economists problems. In their quest for statistical “identification” of a causal effect, economists often have to resort to techniques that answer either a narrower or a somewhat different version of the question that motivated the research.

rcResults from randomized social experiments carried out in particular regions of, say, India or Kenya may not apply to other regions or countries. A research design exploiting variation across space may not yield the correct answer to a question that is essentially about changes over time: what happens when a region is hit with a bad harvest. The particular exogenous shock used in the research may not be representative; for example, income shortfalls not caused by water scarcity can have different effects on conflict than rainfall-related shocks.

So, economists’ research can rarely substitute for more complete works of synthesis, which consider a multitude of causes, weigh likely effects, and address spatial and temporal variation of causal mechanisms. Work of this kind is more likely to be undertaken by historians and non-quantitatively oriented social scientists.

Dani Rodrik / Project Syndicate

Nowadays it is widely believed among mainstream economists that the scientific value of randomisation — contrary to other methods — is totally uncontroversial and that randomised experiments are free from bias. When looked at carefully, however, there are in fact few real reasons to share this optimism on the alleged ’experimental turn’ in economics. Strictly seen, randomisation does not guarantee anything. Read more…

Why do economists never mention power?

March 30, 2021 7 comments

from Lars Syll

Trumpian trickle down | LARS P. SYLLThe intransigence of Econ 101 points to a dark side of economics — namely that the absence of power-speak is by design. Could it be that economics describes the world in a way that purposely keeps the workings of power opaque? History suggests that this idea is not so far-fetched …

The key to wielding power successfully is to make control appear legitimate. That requires ideology. Before capitalism, rulers legitimised their power by tying it to divine right. In modern secular societies, however, that’s no longer an option. So rather than brag of their God-like power, modern corporate rulers use a different tactic; they turn to economics — an ideology that simply ignores the realities of power. Safe in this ideological obscurity, corporate rulers wield power that rivals, or even surpasses, the kings of old.

Are economists cognisant of this game? Some may be. Most economists, however, are likely just clever people who are willing to delve into the intricacies of neoclassical theory without ever questioning its core tenets. Meanwhile, with every student who gets hoodwinked by Econ 101, the Rockefellers of the world happily reap the benefits.

Blair Fix

How economic orthodoxy protects its dominant position

March 29, 2021 44 comments

from Lars Syll

John Bryan Davis (2016) has offered a persuasive account of the way an economic orthodoxy protects its dominant position. Traditional ‘reflexive domains’ for judging research quality — the theory-evidence nexus, the history and philosophy of economics — are pushed aside. Instead, research quality is assessed through journal ranking systems. This is highly biased towards the status quo and reinforces stratification: top journals feature articles by top academics at top institutions, top academics and institutions are those who feature heavily in top journals.

mainstreampluralismBecause departmental funding is so dependent on journal scores, career advancement is often made on the basis of these rankings — they are not to be taken lightly. It is not that competition is lacking, but it is confined to those who slavishly accept the paradigm, as defined by the gatekeepers — the journal editors. In this self-referential system it is faithful adherence to a preconceived notion of ‘good economics’ that pushes one ahead.

Robert Skidelsky 

Read more…

What’s wrong with economics?

March 27, 2021 2 comments

from Lars Syll

81wDHnOlHnLThis is an important and fundamentally correct critique of the core methodology of economics: individualistic; analytical; ahistorical; asocial; and apolitical. What economics understands is important. What it ignores is, alas, equally important. As Skidelsky, famous as the biographer of Keynes, notes, “to maintain that market competition is a self-sufficient ordering principle is wrong. Markets are embedded in political institutions and moral beliefs.” Economists need to be humbler about what they know and do not know.

Martin Wolf / FT

Mainstream economic theory today is still in the story-telling business whereby economic theorists create mathematical make-believe analogue models of the target system – usually conceived as the real economic system. This mathematical modelling activity is considered useful and essential. To understand and explain relations between different entities in the real economy the predominant strategy is to build mathematical models and make things happen in these ‘analogue-economy models’ rather than engineering things happening in real economies. Read more…

On the poverty of deductivism

March 25, 2021 2 comments

from Lars Syll

In mainstream macroeconomics, there has for long been an insistence on formalistic (mathematical) modelling, and to some economic methodologists (e.g. Lawson 2015, Syll 2016) this has forced economists to give up on realism and substitute axiomatics for real world relevance. According to the critique, the deductivist orientation has been the main reason behind the difficulty that mainstream economics has had in terms of understanding, explaining and predicting what takes place in modern economies. But it has also given mainstream economics much of its discursive power – at least as long as no one starts asking tough questions on the veracity of — and justification for — the assumptions on which the deductivist foundation is erected.

The kind of formal-analytical and axiomatic-deductive mathematical modelling that makes up the core of mainstream economics is hard to make compatible with a real-world ontology. It is also the reason why so many critics find mainstream economic analysis patently and utterly unrealistic and irrelevant. Read more…

Realism and antirealism in social science

March 24, 2021 10 comments

from Lars Syll

Scientific Realism: Selected Essays of Mario Bunge: Mario Bunge, Martin  Mahner: 9781573928922: Amazon.com: BooksThe situation started to change in the 1960s, when antirealism went
on the rampage in the social studies community as well as in Anglo-American philosophy. This movement seems to have had two sources, one philosophical, the other political. The former was a reaction against positivism, which was (mistakenly but conveniently) presented as objectivist simply because it shunned mental states.

I submit that the political source of contemporary antirealism was the rebellion of the Vietnam war generation against the ‘establishment’. The latter was (wrongly) identified with the power behind science and proscientific philosophy. So, fighting science and proscientific philosophy was taken to be part of the fight against the ‘establishment’. But, of course, the people who took this stand were shooting themselves in the foot, or rather in the head, for any successful political action, whether from below or from above, must assume that the adversary is real and can be known. Indeed, if the world were a figment of our imagination, we would people it only with friends …

Breit (1984, p. 20) asks why John K. Galbraith and Milton Friedman, two of the most distinguished social scientists of our time, could have arrived at conflicting views of economic reality. He answers: “there is no world out there which we can unambiguously compare with Friedman’s and Galbraith’s versions. Galbraith and Friedman did not discover the worlds they analyze; they decreed them”. He then compares economists to painters: “each offers a new way of seeing, of organizing experience”, of “imposing order on sensory data”. In this perspective the problems of objective truth and of the difference between science and nonscience do not arise. On the other hand we are left wondering
why on earth anyone should hire economists rather than painters to cope with economic issues.

What makes knowledge in social sciences possible is Read more…

DSGE models — worse than useless

March 21, 2021 15 comments

from Lars Syll

The DSGE Model Quarrel (Again) | BruegelMainstream macroeconomics can only progress if it gets rid of the DSGE albatross around its neck. It is better to do it now than to wait for another 20 years because the question is not whether but when DSGE modeling will be discarded. DSGE modeling is a story of a death foretold …

Getting rid of DSGE models is critical because the hegemonic DSGE program is crowding out alternative macro methodologies that do work … DSGE practitioners, who with a mixture of bluff and bluster act as gatekeeper, judge, jury, and executioner in all macroeconomic matters, are a block on the road to progress. The roadblock has to be removed. The failed and failing DSGE models have to go if mainstream macroeconomics wants to become a force for the common good again.

Servaas Storm

DSGE models are worse than useless — and still, mainstream economists seem to be überimpressed by the ‘rigour’ brought to macroeconomics by New-Classical-New-Keynesian DSGE models and its rational expectations and microfoundations!

It is difficult to see why.

‘Rigorous’ and ‘precise’ DSGE models cannot be considered anything else than unsubstantiated conjectures as long as they aren’t supported by evidence from outside the theory or model. To my knowledge, no decisive empirical evidence has been presented. Read more…

Bayesianism — a patently absurd approach to science

March 18, 2021 2 comments

from Lars Syll

Saturday Morning Breakfast Cereal - BayesianMainstream economics nowadays usually assumes that agents that have to make choices under conditions of uncertainty behave according to Bayesian rules (preferably the ones axiomatised by Ramsey (1931), de Finetti (1937) or Savage (1954)) — that is, they maximise expected utility with respect to some subjective probability measure that is continually updated according to Bayes theorem. If not, they are supposed to be irrational, and ultimately — via some “Dutch book” or “money pump” argument — susceptible to being ruined by some clever “bookie”.

Bayesianism reduces questions of rationality to questions of internal consistency (coherence) of beliefs, but — even granted this questionable reductionism — do rational agents really have to be Bayesian? However, there are no strong warrants for believing so.

In many of the situations that are relevant to economics, one could argue that there is simply not enough of adequate and relevant information to ground beliefs of a probabilistic kind, and that in those situations it is not really possible, in any relevant way, to represent an individual’s beliefs in a single probability measure. Read more…

Neo-Ricardian economics — rigorous and totally irrelevant

March 16, 2021 14 comments

from Lars Syll

Keynes on the use of mathematics in economics | LARS P. SYLLI claim that Sraffian economics, however rigorous in its use of the simultaneous equations method … is irrelevant to our understanding of the real world and, judging by its failure to draw any policy implications, is largely irrelevant to the major concerns of modern economists … This is not a judgment based simply on my opinion, which is ultimately no better than yours. Relevance is not a matter for individual opinion but a social judgment of the community of professional economists. We assess that judgment by inspecting the professional literature, by citation counts, or by any of the other methods of bibliometrics … Show me a piece of research grounded in Sraffian economics and its principal method of long-period analysis that deals with poverty, inequality, deflation, etcetera, and I have lost the argument. I have been unable to locate any such papers …

At one end of the spectrum, we have highly rigorous but totally irrelevant theories, such as general equilibrium theory and, I contend, Sraffian economics. At the other end, we have not very rigorous but highly relevant theories, such as public choice theory and evolutionary and/or institutional economics, and in between we have the hard-to-classify theories, such as game theory …

Sraffians … spend their time finding logical flaws in the models of their enemies rather than building platforms for illuminating the workings of an economy. They are formalists pure and simple, making a fetish of the form of theories at the neglect of strengthening their content. They simply cannot resist what Nancy Cartwright (1999) calls “the vanity of rigour in economics.”

Mark Blaug

On the use of logic and mathematics in economics

March 14, 2021 95 comments

from Lars Syll

1200-453314475-deductive-reasoning-example-4Logic, n. The art of thinking and reasoning in strict accordance with the limitations and incapacities of the human misunderstanding. The basic of logic is the syllogism, consisting of a major and a minor premise and a conclusion – thus:

Major Premise: Sixty men can do a piece of work sixty times as quickly as one man.

Minor Premise: One man can dig a post-hole in sixty seconds; Therefore-
Conclusion: Sixty men can dig a post-hole in one second.

This may be called syllogism arithmetical, in which, by combining logic and mathematics, we obtain a double certainty and are twice blessed.

Ambrose Bierce The Unabridged Devil’s Dictionary

In mainstream economics, both logic and mathematics are used extensively. And most mainstream economists sure look upon themselves as “twice blessed.”

Is there any scientific ground for that blessedness? None whatsoever! Read more…

Macroeconomic modelling

March 11, 2021 2 comments

from Lars Syll

kThere really is something about the way macroeconomists construct their models nowadays that obviously doesn’t sit right.

In mainstream economic theory models largely function as a substitute for empirical evidence. One might have hoped that humbled by the manifest failure of its theoretical pretences during the latest economic-financial crises, the one-sided, almost religious, insistence on axiomatic-deductivist modelling as the only scientific activity worthy of pursuing in economics would give way to methodological pluralism based on ontological considerations rather than mathematical-formalistic tractability. That has, so far, not happened.

Fortunately — when you’ve got tired of the kind of macroeconomic apologetics produced by New Classical and ‘New Keynesian’ macroeconomic modellers — there are some real Keynesian macroeconomists to read. One of them — Axel Leijonhufvud — writes: Read more…

The problem of reductionism in economics

March 9, 2021 5 comments

from Lars Syll

The kinds of laws and relations that economics has established, are laws and relations about entities in models that presuppose causal mechanisms being atomistic and additive. When causal mechanisms operate in the real world they only do it in ever-changing and unstable combinations where the whole is more than a mechanical sum of parts. If economic regularities obtain they do it (as a rule) only because we engineered them for that purpose. Outside man-made “nomological machines” they are rare, or even non-existent. Unfortunately that also makes most of the achievements of contemporary economic theoretical modelling — rather useless.

When mainstream economists think that they can rigorously deduce the aggregate effects of (representative) actors with their reductionist microfoundational methodology, they have to put a blind eye on the emergent properties that characterise all open social systems – including the economic system. The interaction between animal spirits, trust, confidence, institutions etc., cannot be deduced or reduced to a question answerable on the individual level. Macroeconomic structures and phenomena have to be analysed also on their own terms. Read more…

The permanent income hypothesis

March 8, 2021 1 comment

from Lars Syll

FRIEDMAN FRIDAY Milton Friedman's “Free to Choose” film transcripts and  videos here on www.thedailyhatch.org | The Daily HatchAlmost all mainstream macroeconomic theories are based on Milton Friedman’s permanent income hypothesis (PIH). It is mostly used in formulating the consumption Euler equations that make up a vital part of ‘modern’ New Classical and ‘New Keynesian’ macro models.

So, what’s the problem with PIH? Well, only that empirical evidence have — again and again — falsified it!

One implication of PIH is that current consumption is modelled as not being influenced by predictable changes in incomes changes. Heaps of empirical consumption studies — going back for decades — however show that this is not the case.

Given this, it is rather disappointing to see how this falsified hypothesis is treated in mainstream economics.

Let me give just one example. Read more…

General equilibrium illusions

March 7, 2021 1 comment

from Lars Syll

what ifWhen I read in the 70s the publications of Sonnenschein, Mantel and Debreu I was deeply concerned. Up to the
time I had the naive illusion that the microeconomic foundation of the GE model, which I had admired so much,
does not only allow us to prove that the model and the concept of equilibrium are logically consistent (that
equilibrium exists), but also allow us to show that the equilibrium is well determined (unique and stable). This
illusion, or should I rather say, this hope, was destroyed, once and for all. I was tempted to repress this insight and continue to find satisfaction in proving existence of equilibrium for more general models under still weaker assumptions. However, I did not succeed in repressing the newly gained insight because I believe that a theory of economic equilibrium is incomplete if the equilibrium is not well determined.

Werner Hildenbrand

And so what? Why should we care about Sonnenschein-Mantel-Debreu? Read more…

MMT perspective on Biden’s $1.9-trillion big spend

March 4, 2021 5 comments

from Lars Syll

The Deficit Myth: Modern Monetary Theory and the Birth of the People's Economy: Kelton, Stephanie: 9781541736191: Amazon.com: BooksMMT is about identifying the untapped potential in our economy, what we call our fiscal space … How we choose to utilize that fiscal space is a political matter …

The point is that we run our economy like a six-foot-tall guy who wanders around perpetually hunched over in a house with eight-foot ceilings because someone convinced him that if he tries to stand up tall he’ll suffer a massive head trauma. For too many years, we’ve been crouching down when we could have been standing strong. Irrational fears about government debt and fiscal deficits caused policy makers in the US, Japan, the UK, and elsewhere to pivot away from fiscal stimulus toward austerity in the years following the global financial crisis. This forced immeasurable pain on tens, if not hundreds, of millions worldwide.

The U.S. has a deficit. That’s true. But the problem is not the budget deficit. The real deficits are in the climate, healthcare and infrastructure. How do we tackle those deficits? By spending! Read more…

Keynes on models and economics

March 3, 2021 3 comments

from Lars Syll

Economics is a science of thinking in terms of models joined to the art of choosing models which are relevant to the contemporary world. It is compelled to be this, because, unlike the typical natural science, the material to which it is applied is, in too many respects, not homogeneous through time … I also want to emphasise strongly the point about economics being a moral science. I mentioned before that it deals with introspection and with values. I might have added that it deals with motives, expectations, psychological uncertainties. One has to be constantly on guard against treating the material as constant and homogeneous. It is as though the fall of the apple to the ground depended on the apple’s motives, on whether it is worth while falling to the ground, and whether the ground wanted the apple to fall, and on mistaken calculations of the apple as to how far it was from the centre of the earth.

John Maynard Keynes (letter to Harrod, 1938)

Chicago economics — the triumph of empty formalism

February 28, 2021 7 comments

from Lars Syll

Is macroeconomics for real? | LARS P. SYLLVielleicht ist diese Grundperspektive der radikalen Trennung von Form und Gehalt hilfreich, einige zunächst überaus paradoxe Äußerungen von Lucas etwas zu erhellen. Erinnert man sich der Forderungen von Lucas, die Makroökonomik zwingend auf Basis der klassischen Postulate, die Lucas und Sargent (1978) als (a) „Markträumung“ und (b) „Eigennutz“ umrissen hatten, zu errichten, so erstaunt man doch angesichts Passagen wie der folgenden:

“In recent years, the meaning of the term “equilibrium” has undergone such dramatic development that a theorist of the 1930s would not recognize it. It is now routine to describe an economy following a multivariate stochastic process as being “in equilibrium,” by which is meant nothing more than that at each point in time, postulates (a) and (b) above are satisfied. This development, which stemmed mainly from work by K. J. Arrow […] and G. Debreu […], implies that simply to look at any economic time series and conclude that it is a “disequilibrium phenomenon” is a meaningless observation. Indeed, a more likely conjecture […] is that the general hypothesis that a collection of time series describes an economy in competitive equilibrium is without con tent.” (Lucas und Sargent 1978: 58-9)” Read more…