Top Diaries

Keen is not the world's greatest diplomat.

Of course, I would be pretty pissed off too, if I were in his position. It is annoying to have to pander to people who realize the obvious years after it happened, yet have to be dragged kicking and screaming into acknowledging anybody who realized it ahead of time. But you are right that he could communicate the basis for that annoyance more effectively if he dispensed with the invective.

- Jake

If you only spend 20 minutes of the rest of your life on economics, go spend them here.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Jul 1st, 2012 at 05:50:45 PM EST
[ Parent ]

Krugman is an asset in the struggle (4.00 / 8)

to identify the practices of the most egregious predators and the obfuscation by their propagandists in a national forum. Beyond that type of analysis of our worst political forces, though, his alternatives seem to be a 'tweak' at best to me.

Of course, his bottom line is to save Capitalism, but my casual reading of his columns suggests that he just wants a kinder/gentler oligopoly. At least I do not see where his proposals transcend that scenario.

OK - I'm a utopian idealist, and I want to see private monopolies go away. My economic model for some foreseeable future is socialism for commodities, entrepreneurial private business for all new business development (with plenty of safety, health, environmental analysis and regulation), and small business and co-operatives for the basic needs of people in local communities.

But in the present context, as Jerome states below and Henry Ford stated 90 years ago, it's all about re-distribution - either that, or we watch (or participate in) the latest version of social dissolution.

As JakeS and others point out, 'printing' money will reduce real debt via inflation. Most of us can benefit from that. However, it's a 'hard sell', because 90% of us are already seeing inflation in the major part of our expenses, due to the effect of the high costs of energy on production of food, on transportation, and, increasingly, on clothing and household miscellaneous. Housing prices may have declined; but rents did not, building supplies did not, hotels did not. Because of food prices, restaurant prices went up.

As to "social dissolution", I've been paying attention for 60 years. I've seen the data that says we live in less dangerous times in terms of a per capita rate of violent death. That merely means that the Pax Americana argument has some traction when it comes to very-large-scale war. At least in the US nowadays, I read more about personal violence from every location than in the past.

I know that anecdotal evidence is not sufficient, but I can think of several counter-arguments to the narrative that says violent crime statistics have "gone down". Foremost is the observation that the current justification for most police activities is that they are 'winning'. It used to be - and still is in Arizona - that 'the barbarians are winning', but that seemed to lose currency about 15 years ago. And in fact - probably associated with apparent economic improvement for most citizens - the anecdotal evidence was that violent crime was waning. I expect that the theme will change again soon.

Then there is climate change. It may seem that some of the propaganda borders on - or is - hysteria; but there is plenty of data (and abnormal weather events) to support some level of anxiety about impacts on our species. I don't believe in the Butterfly Effect - or the Black Swan event - but we can see climate pressure already in many conflicts.

Thomas argues below that solar-based energy capture can moot the growth-limit concerns. Not sure whether that is intended to give modern Capitalism an escape hatch or not, but it can fit with a re-distribution scheme of a sort - good manufacturing and installation jobs that actually work to our advantage as Earthians.

Which brings us back to Krugman - at the least he seems to support this type of economic activity, along with the government support to accelerate it.

paul spencer

by paul spencer (spencerinthegorge AT yahoo DOT com) on Mon Jul 2nd, 2012 at 12:58:48 PM EST
[ Parent ]

Re: Krugman is an asset in the struggle (none / 1)

paul spencer:

At least in the US nowadays, I read more about personal violence from every location than in the past.

From Long-Term Historical Trends in Violent Crime by Eisner, we can learn (p 99) that the historical long terms in Europe do decrease dramatically from medieval times to the 1950-74 period, but after that they increase. Still a low level compared to medieval times, but contrary to popular claims not the lowest point in history.

A vote for PES is a vote for EPP! A vote for EPP is a vote for PES! Support the coalition, vote EPP-PES in 2009!

by A swedish kind of death on Mon Jul 2nd, 2012 at 04:22:37 PM EST
[ Parent ]

Re: Krugman is an asset in the struggle (4.00 / 3)

Back in the 90s I did a turn as a prosecuting attorney. Rudy Giuliani was mayor of NYC and was getting a lot of headlines with "Broken Windows" policy, namely enforcing small crimes like vandalism and truancy to clean up neighborhoods and suppress more serious crimes. It seemed to work, so many of us tried it. A few succeeded; most, including Yours Truly, did not. The reason for the difference was readily apparent. Those places such as NYC and Seattle that had an economic recovery succeeded. Those places such as mine that had no recovery did not. People who had jobs had less time and, more importantly, less inclination to cause trouble. They didn't need to supplement their incomes through burglary and meth cooking. Giuliani's "get tough" policy had accomplished nothing. He had simply been lucky with his timing.

Which leads me to the crime trend you refer to. 1950-1974 was the height of the living wage model. Stable jobs, stable pay, stable benefits. That ended in 1974, as the oil embargo put paid to the margins that made all that stability painless for corporate management. Jobs went, benefits followed, and wages were driven down. One income couldn't cut it, and when the second was added, as Elizabeth Warren has shown, the death spiral began in earnest. Still the destruction went on. Fewer people had jobs, had a stake in the game, and so had little to lose and everything to gain by grabbing whatever was available. Many who had jobs couldn't cover costs with what was on the table and so started scrounging for what was under it. And of course there was the general stress of living like that, which leads to lashing out. And so crime trended upward.

by rifek on Fri Jul 27th, 2012 at 08:02:14 PM EST
[ Parent ]

Re: Krugman is an asset in the struggle (none / 0)

Of course, his bottom line is to save Capitalism

That is indeed the job of social democracy: saving capitalism from itself.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Wed Jul 4th, 2012 at 01:04:11 PM EST
[ Parent ]

The biggest part of the problem is that the principal MMT prophets -- Wray, Keen, Moesler, etc. -- always seem to frame their research around an argument that "everyone else, but especially traditional Keynesian scholars, are idiots." This inflammatory approach is always going to be a non-starter in academic discourse because it invites suspicion that it's not the work of serious thinkers but rather the work of rejects with an axe to grind. And it is particularly suspicious that it gets leveled against likely intellectual allies who might be inclined to take the arguments more seriously if not required to defend themselves against accusations of being stupid instead. If MMT were demonstrable true this should not matter, but arguments of MMT, unfortunately, do not yet stand up enough on their own as far as falsifiable hypotheses are concerned, to be able to defend themselves without the interest of more established scholars of similar outlooks such as Krugman and deLong.

by santiago on Fri Jul 6th, 2012 at 03:23:15 PM EST
[ Parent ]

arguments of MMT, unfortunately, do not yet stand up enough on their own as far as falsifiable hypotheses are concerned

Yeah, because neoclassical economics has such a great prediction record...

If you are not convinced, try it on someone who has not been entirely debauched by economics. — Piero Sraffa

by Migeru (migeru at eurotrib dot com) on Fri Jul 6th, 2012 at 03:25:47 PM EST
[ Parent ]

They do though. Neoclassical research is thoroughly presented, ad nauseum really, as strictly falsifiable hypotheses. The fact that so many of the hypotheses end up being falsified is another matter, but not the general honesty of the approach. MMT, on the other hand, isn't even a theory yet, and that's according to its proponents, so it's research tends to be merely the assertion of definitions and the suggestion that they are good alternative explanations for things that have been observed. The MMT literature is still largely just an exegesis of Keynes and Minsky's writings.

We need, from MMT, more falsifiable (i.e. testable) hypotheses about the details of how money and investment works and how we might measure observations and why in everyday life, which is what neoclassical and Keynesian -- and anthropology and psychology for that matter -- do offer at least, even when the hypotheses turn out to be false and even where people ignore the false findings. For example, if money is created by individuals who engage with each other in relationships of trust and not by the actions of a central bank, how might we test whether this is true or not through observations and measurement of social activities or behavior? I haven't seen much MMT work to date presented in this format, but it needs to be if it wants to be included in the literature of social science instead of the literature of late-night infomercials.

by santiago on Fri Jul 6th, 2012 at 04:17:31 PM EST
[ Parent ]

Right, what's lacking in neoclassical research is any consequences for repeated falsification.

Ideas are published, but falsification makes no difference to their standing.

by Metatone (metatone [a|t] gmail (dot) com) on Fri Jul 6th, 2012 at 04:22:40 PM EST
[ Parent ]

Neoclassical research is thoroughly presented, ad nauseum really, as strictly falsifiable hypotheses. The fact that so many of the hypotheses end up being falsified is another matter, but not the general honesty of the approach.

That would be nice if it were true.

But it's usually not. And when it is, the models which are falsified are not discarded, and the methodologies which have proven empirically sterile are not revised. As long as this is the case, neoclassicals are doing cargo cult science.

MMT, on the other hand, isn't even a theory yet, and that's according to its proponents, so it's research tends to be merely the assertion of definitions and the suggestion that they are good alternative explanations for things that have been observed. The MMT literature is still largely just an exegesis of Keynes and Minsky's writings.

A major problem with neoclassical economics is that it excludes, through rhetorical and pseudo-mathematical slight of hand, a wide range of policy options. Simply pointing out that these policy options exist, and that the neoclassical arguments against exercising those policy options are all horseshit (insofar as they have even been articulated at all), is itself a valuable service to the economics profession.

We need, from MMT, more falsifiable (i.e. testable) hypotheses about the details of how money and investment works and how we might measure observations and why in everyday life,

I'm not sure what MMT literature you read, but here are a couple of falsifiable predictions (a number of which have turned out to be true):

In the sectoral balance, the foreign account should lead the domestic accounts, and during an economic downturn the private sector balance should lead the public sector balance, given the state of the foreign balance.

M1 less M0 should lead M0.

Interest rates lead investment volume, which lead monetary aggregates.

Raising interest rates will eliminate Ponzi merchants last, and productive businesses first.

Hyperinflation should only be observed in the presence of a specie peg, hard currency debt or similar inflation-indexed credit instruments.

If we broaden our discussion from MMT to general post-Keynesian dynamic economic modeling, we can also include:

Fractal behavior in the stock market.

The dynamic Phillips curve, in which the rate of change of wages depends on the rate of change of employment as well as the state of employment and the rate of inflation.

The absence of "structural" unemployment. (Conversely, the absence of accelerating domestic inflation at full employment.)

The observation that financial deregulation is very nearly always criminogenic.

The absence of Ricardian equivalence.

Routine and persistent violations of Say's Postulate.

- Jake

If you only spend 20 minutes of the rest of your life on economics, go spend them here.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Jul 6th, 2012 at 05:50:57 PM EST
[ Parent ]

More falsifiable predictions (4.00 / 2)

Large, sudden disruptions of the terms of trade should happen exclusively to countries which maintain a specie or FX peg. (This is a corollary to the prediction about hyperinflation.)
Investment should lead saving (care must be taken here to distinguish between balance sheet operations and cash flow - this prediction concerns the cash flow only).
Asset prices should display episodes of persistent and obvious overvaluation.
Overvaluation of assets should be more persistent than undervaluation.

The last two points relate to the inherent asymmetry between long and short positions. A short position comes with implicit leverage, which means that there is a non-zero probability that you will be unable to maintain it until mean-reversion sets in. This means that in order to safely short, you not only need to know that the fair value is below the current value, but also how far up the overvaluation will go. In which case you should not be shorting yet.

Unlike the short position, a long position in a falling market does not inherently have to be carried on margin. Which means that a speculator who is convinced that an asset is undervalued can buy it and be confident that he can decide when to sell.

On a methodological note, the two preceding paragraphs illustrate a wide-spread vulnerability in models employing model-consistent expectations: They tend to be unstable against idiosyncratic behaviour in a small subset of agents. Or, in plain English, "rational expectations" macro is horseshit even before you start comparing it to data.

- Jake

If you only spend 20 minutes of the rest of your life on economics, go spend them here.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Jul 6th, 2012 at 06:47:34 PM EST
[ Parent ]

Presenting your work pro-forma as a set of falsifiable hypotheses does not in and of itself imply any honesty, when the shared premised of both author and peer reviewers is that a core set of long falsified assumptions are permitted for analytical tractability.

The utility maximization assumption is not merely "falsifiable", but long since falsified. Even granting the "as if" arguments defending its use, strictly convex preferences cannot be assumed for any choice prior to the determination whether or not to evaluate a departure from previous behavior, since the evaluation itself has a cost and so within a neighborhood of the previous behavior, repeating the behavior without assessing the choice is superior to deciding to evaluate and determining that the preferred outcome is in the neighborhood of the prior behavior. Neutrality of money is clearly false, yet widely assumed for analytical convenience.

The "approach" is fundamentally dishonest when it follows the form of scientific exploration of economic behavior but is not, in fact, pursuing actually scientific cause and effect explanations of that behavior. That is not being scientific, it is being scientistic.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Fri Jul 6th, 2012 at 07:09:08 PM EST
[ Parent ]

Yanis Varoufakis presented a paper, A Most Peculiar Failure, which describes how neoclassical economics repeatedly produces hypotheses, builds and popularizes edifices on these, then produces research that falsifies core premises and then ignores that falsification, falls back on a more basic principle that has been shown to be of limited value, lets time pass, and then rinse and repeat.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Jul 8th, 2012 at 12:26:24 AM EST
[ Parent ]

Re: Seed comment (4.00 / 4)

We went through a phase when people avoided General Equilibrium arguments because it was shown rigorously that the under all but the most obviously artificial restrictions there will typically be an extremely large number of General Equilibria, with a large number of them with extremely bad dynamic properties ...

... and then slowly a set of incantations were developed that were used by a sufficient number of peer reviewers so that if they were used, they inoculated a paper from getting knocked about for using GE models, and away they want to the races again with "computable General Equilibrium" models.

But its obvious bullshit modeling: we already know that putting restrictions on a GE model to ensure that it is computable is mathematically equivalent to making assumptions long known to be false.

And then there is rational addiction theory ~ consider all of the rational decisions to die of a drug overdose, once one accepts the laughably absurd assumptions of that "body of literature".

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sun Jul 8th, 2012 at 08:58:29 PM EST
[ Parent ]

Nevertheless, the fact that we can point out the dishonesty of the practitioners means that the approach itself is honest.

by santiago on Mon Jul 9th, 2012 at 10:50:06 AM EST
[ Parent ]

No: the practitioners believe themselves to be honest, therefore the approach itself is dishonest.

If you are not convinced, try it on someone who has not been entirely debauched by economics. — Piero Sraffa

by Migeru (migeru at eurotrib dot com) on Mon Jul 9th, 2012 at 12:12:55 PM EST
[ Parent ]

It doesn't matter what the practitioners believe. As long as the rest of us can see their work, which we can, we can judge their results differently. Hence, the approach remains honest regardless of the intents of practitioners. That's the importance of providing falsifiable hypotheses in social science. So that if the facts change, so can our opinions, regardless of the judgements of the authors themselves.

by santiago on Mon Jul 9th, 2012 at 11:43:10 PM EST
[ Parent ]

Young-Earth creationists also make falsifiable predictions, which have been long since falsified. That does not make their approach to doing science honest.

I would argue that any research tradition which bases itself of phlogiston, phrenology, catastrophism, economic equilibrium or any similarly centuries hence debunked nonsense demonstrates sufficient detachment from empirical reality that it may safely be called fundamentally dishonest.

- Jake

If you only spend 20 minutes of the rest of your life on economics, go spend them here.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Jul 10th, 2012 at 08:08:33 AM EST
[ Parent ]

Actually, no, Young Earth creationists don't make falsifiable predictions, that I know of. You or I might take their arguments and derive predictions from them, but I don't think they ever actually do that.

This is different than neoclassical economists, who actually make very specific falsiable hypothoses and who go about proving them empirically. Other econometric research usually calls into question their original findings, which doesn't appear to change their minds, which is problematic, to say the least. But this is categorically different from anything creationists do. And MMT literature, notwithstanding the predictions you've derived and indicated in another comment, also has largely avoided making specific testable hypotheses in the way traditional economics research does.

As I said before, at this early stage in the MMT research project, that's not surprising or problematic, but what is problematic is that without having made the falsifiable hypothesis case strongly enough, MMT proponents too often go about denigrating the intelligence of other economists rather than improving the science of their theory to stand on its own. This makes one suspect that there is less to MMT than one would hope, because if it was clearly superior to other approaches, MMT proponents wouldn't need the editorial backhands that seem so common in their writing.

by santiago on Wed Jul 11th, 2012 at 02:14:46 PM EST
[ Parent ]

Actually, no, Young Earth creationists don't make falsifiable predictions, that I know of.

An Index to Creationist Claims, specifically CD110, CD111, CD303, CD501. And that's just from the first half of the geology section.

Most of these date from the adoption of the "Creation Science" strategy, which was developed after McLean vs. Arkansas.

It's Intelligent Design Creationists (the response to Edwards vs. Aguillard) who try very hard to make no falsifiable predictions. YECs have no such inhibitions.

And MMT literature, notwithstanding the predictions you've derived and indicated in another comment, also has largely avoided making specific testable hypotheses in the way traditional economics research does.

I don't know what MMT literature you're familiar with, but the journal articles I've read from MMT'ers (though I will not claim to have read even a substantial fraction of the total MMT literature) contain solid empirical work.

Occasionally, they don't test their hypotheses in quite the same way marginalists do. This is usually because the author draws on (more suitable) mathematics from non-linear dynamics, rather than comparative statics. That's a feature, not a bug.

Example [pdf] (of both these points, incidentally).

This makes one suspect that there is less to MMT than one would hope, because if it was clearly superior to other approaches, MMT proponents wouldn't need the editorial backhands that seem so common in their writing.

Maybe those editorial backhands are caused by seeing warmed-over gold standard economics being used a century after gold standard economics was conclusively proven a total failure. Physicists rarely discuss perpetual motion machine peddlers respectfully.

- Jake

If you only spend 20 minutes of the rest of your life on economics, go spend them here.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Jul 11th, 2012 at 02:48:54 PM EST
[ Parent ]

I don't think I'd classify the paper you link to as MMT literature, even if the author is also an MMTer. Money, and MMT's alternative conception of it, has nothing to do with the discussion in the paper. It stands on its own without any need for MMTs insights regarding the definition and role of money in society.

by santiago on Wed Jul 11th, 2012 at 03:09:08 PM EST
[ Parent ]

On the contrary, repudiation of the loanable funds fallacy is central to the demand-side model-building in that paper.

And while there are other ways to depart from the loanable funds fallacy than chartalist or creditary models of money, it is one of the prominent consequences of such a conception of money.

- Jake

If you only spend 20 minutes of the rest of your life on economics, go spend them here.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Jul 11th, 2012 at 03:22:55 PM EST
[ Parent ]

I don't see it. You've obviously read it more closely than I have, but I don't see how anything in the paper is dependent upon a repudiation of a loanable funds fallacy. Other than a sentence about the Job Guarantee, something MMTers like to talk about, it seems like traditional Keynes, and consistent with non-MMT conceptions of money as well.

by santiago on Wed Jul 11th, 2012 at 04:11:23 PM EST
[ Parent ]

Loanable funds implies an intertemporal governmental budget constraint. In the presence of an intertemporal government budget constraint, the government must trade off macrostabilization in the present for macrostabilization in the future.

The fact that the paper demonstrates that Japan has been able to maintain stable employment indefinitely argues against the existence of an intertemporal government borrowing constraint, and thereby against loanable funds.

- Jake

If you only spend 20 minutes of the rest of your life on economics, go spend them here.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Jul 11th, 2012 at 04:25:50 PM EST
[ Parent ]

I see it. But an inter-temporal budget constraint can exist, and I think will exist, with or without loanable funds to cover government deficits, so this makes the case for not limiting government spending without really speaking to the nature of government debt and money. If it is as you say in that paper, then loanable funds are then merely the institutional instrument that groups which advocate for smaller government use to limit government power in general. If loanable funds were taken away from them as a discursive tool, other strategies for limiting government spending would fill the gap because limiting government spending, period, is the goal, not living within one's means (which is merely the discursive argument). We know this is true because when groups that advocate for limiting government power the most are actually in power in government, living within one's means is a lower priority for them, as evidenced by higher deficits and debt generally seen in rightist governments than in leftist or centrist ones.

by santiago on Thu Jul 12th, 2012 at 10:40:32 AM EST
[ Parent ]

I see it. But an inter-temporal budget constraint can exist, and I think will exist, with or without loanable funds to cover government deficits,

Not in the government's own currency, no.

The country can run out of real resources. But real resource budgeting is not captured by the loanable funds fallacy, because money is not a veil over barter.

Not-spending money today does not in any way, shape or form secure the country that strategic real resources will be available tomorrow. Spending money today, OTOH, can ensure that the relevant strategic resources are available (or are not-strategic) tomorrow, in a full inversion of the case for a private sector actor.

Less abstractly, the marginal government spending is on labour, which cannot be saved up in its raw state. The real world contains no little gray men running a time-savings bank. That means that at the margin the government has no ability to conserve real resources by not-spending money, because those real resources (man-hours) would simply dissipate into nothingness if they were not used.

If it is as you say in that paper, then loanable funds are then merely the institutional instrument that groups which advocate for smaller government use to limit government power in general.

Merely an institutional instrument that anti-social groups use to reduce government spending (which more often than not includes not-limiting government power in general - very few small governments are also limited governments, and vice versa, for the simple reason that the vote is distributed more evenly than the dollar).

This is an argument for why the loanable funds fallacy (and those groups and research traditions which employ it) is fundamentally dishonest.

If loanable funds were taken away from them as a discursive tool, other strategies for limiting government spending would fill the gap because limiting government spending, period, is the goal, not living within one's means (which is merely the discursive argument).

Yeah, liars gonna lie.

Economists who construct pseudoscientific arguments like loanable funds to aid and abet liars in their lies are dishonest.

- Jake

If you only spend 20 minutes of the rest of your life on economics, go spend them here.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Jul 12th, 2012 at 01:03:00 PM EST
[ Parent ]

By inter-temporal budget constraint, such as loanable funds, I mean a political constraint, not a physical constraint. And if you didn't have budgets and debt to define the political discourse to limit government power, other discursive and institutional tools to do the same thing must emerge instead.

There are also real constraints on government power, up to and including physical resources, numbers and skills of people, and time, but political constraints such as budgets, loanable funds, money supplies, etc. should manifest themselves much earlier.

What the paper shows is that, in general, political constraints on spending are not well matched to real, physical constraints on resources so governments should spend more in recessions fearlessly. It doesn't seem to say anything more specific about the nature of money and debt, however, other than that they belong to the set of institutional -- not real -- matters, which is something only contested by the hard-core, goldbug wing of the economics profession. Krugman, for example, is not arguing that there is anything real to money -- just that the institutions in place today allows central banks much more power to control the buying power of money and distribution of that power in society than individuals or private lenders, which is the opposite of what the MMT crowd appears to be saying.

by santiago on Thu Jul 12th, 2012 at 04:17:23 PM EST
[ Parent ]

By inter-temporal budget constraint, such as loanable funds, I mean a political constraint, not a physical constraint.

Quite. And economists who model as if it were the latter are Lysenkoist hacks, not scientists.

- Jake

If you only spend 20 minutes of the rest of your life on economics, go spend them here.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Jul 12th, 2012 at 04:50:24 PM EST
[ Parent ]

You made me google "Lysenkoist."

by santiago on Thu Jul 12th, 2012 at 05:27:45 PM EST
[ Parent ]

Economics is a poitical onstraint.

As I keep pointing out, the models don't work because they don't have to. They exist as propaganda for decisions that benefit one tiny caste at the expense of all other castes.

There's nothing more complicated happening here.

See e.g. Spain, Greece Ireland, etc.

Or are you seriously going to argue that the decisions being made are somehow genuinely for the benefit of the majority of the population?

by ThatBritGuy (thatbritguy (at) googlemail.com) on Thu Jul 12th, 2012 at 05:21:06 PM EST
[ Parent ]

Economics is a form of policy discourse. Whether it is a constraint or not, or honest or not, depends on context.

by santiago on Thu Jul 12th, 2012 at 05:33:00 PM EST
[ Parent ]

Can a policy discourse be scientific unless it models reality accurately?

Er - no.

So any pretence at science when a discourse has been repeatedly falsified is clearly dishonest.

As for constraints - as I said, ask the Spanish, the Greeks, the Irish, and the German workers if they feel their rights to a reasonable livelihood and a lack of nonsensical financial drama are being politically constrained.

If that's not clear enough, I'll put it more bluntly - economics as used in contemporary statecraft is simply a barefaced lie used by one class to justify the theft of time, creativity and resources from the other classes.

It has no scientific or empirical basis whatsoever. It's simply a blunt stick used to beat working people and bring them to heel for nakedly self-interested political reasons that have no connection whatsoever with their immediate or future prosperity or welfare.

And if the working people ever work this out, they're going to be really, really angry.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Thu Jul 12th, 2012 at 06:19:36 PM EST
[ Parent ]

Re: Seed comment (3.00 / 2)

Social science is not "science." Rather it uses scientific methods to organize thinking, so that participants in its discourse can keep track of the veracity of claims, warrants, and reasoning being made. It is a way of improving the honesty of political discourse precisely because it allows a method for pointing out when people are lying or mistaken about things. It does this through forcing arguments into falsifiable hypotheses that allow for evidence to be presented.

Scientific methods are naturally very limited in policy discourse because so many of the parameters that matter most for deciding things in social life are unobservable by their nature, such as values, aesthetics, and the meaning of life -- the things which Ludwig Wittgenstein famously said that science must remain silent about.

by santiago on Thu Jul 12th, 2012 at 08:15:35 PM EST
[ Parent ]

Social science is not "science." Rather it uses scientific methods to organize thinking, so that participants in its discourse can keep track of the veracity of claims, warrants, and reasoning being made. It is a way of improving the honesty of political discourse precisely because it allows a method for pointing out when people are lying or mistaken about things. It does this through forcing arguments into falsifiable hypotheses that allow for evidence to be presented.

Even by this standard neoclassical economics is unfit for purpose, because it intentionally obfuscates when people are lying or mistaken about things, and systematically refuses to acknowledge when its falsifiable hypotheses are falsified.

Really existing neoclassical economics is a systematically dishonest enterprise.

- Jake

If you only spend 20 minutes of the rest of your life on economics, go spend them here.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Jul 13th, 2012 at 05:57:54 AM EST
[ Parent ]

JakeS:

Really existing neoclassical economics is a systematically dishonest enterprise.
- Jake

word...

it is the legal waterboarding of whole societies.

The power of knowledge is in mortal combat with the knowledge of power. It really is that simple... That's the Edenic apple we are all munching on.

by melo (melometa4(at)gmail.com) on Fri Jul 13th, 2012 at 07:55:56 AM EST
[ Parent ]

I don't see any systematic attempt to obfuscate or refuse to acknowledge when hypotheses have been proven false. The papers and the data to check them are all there for everyone to see after all.

Rather, I do see an unfortunately high number of idiosyncratic cases where individual economists refuse to admit when their hypotheses have been proven lacking, but there is nothing in the methods themselves which cause this. If there was a problem with the methods, it could be labeled systematic, but this is a case of individual faults, not system faults, and it is prevalent in all social sciences. The heavy use of math in economics is what allows us to point it out more easily in economics, which is exactly how it should be and why math is so useful in economics.

by santiago on Fri Jul 13th, 2012 at 12:31:50 PM EST
[ Parent ]

I don't see any systematic attempt to obfuscate or refuse to acknowledge when hypotheses have been proven false.

You can get equilibrium-based macroeconomic models published in purportedly respectable journals.

It has been a full century since the Walrasian approach to economics was conclusively demonstrated to be intellectually and practically sterile. Persisting in promulgating it is systemic obfuscation and refusal to acknowledge falsification.

Rather, I do see an unfortunately high number of idiosyncratic cases where individual economists refuse to admit when their hypotheses have been proven lacking, but there is nothing in the methods themselves which cause this. If there was a problem with the methods, it could be labeled systematic, but this is a case of individual faults, not system faults,

The fact that falsification of economic equilibrium, model-consistent expectations, Say's Postulate, loanable funds, long-run money neutrality (and indeed the whole of the neoclassical long run) is not assimilated by the peer review process is a systemic fault, and a systemic dishonesty.

Publishing things you know or should know are nonsense is not honest just because it is possible for outside observes to take the time to dismantle the farrago of lies. In fact, this particular dishonest tactic has a name: The Gish Gallop.

- Jake

If you only spend 20 minutes of the rest of your life on economics, go spend them here.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Jul 13th, 2012 at 04:41:28 PM EST
[ Parent ]

things which Ludwig Wittgenstein famously said that science must remain silent about.

Wittgenstein wasn't talking about science, he was talking about philosophy.

Wittgenstein to neoclassical economics: just just up.

Then again, famously Piero Sraffa managed to change Wittgenstein's mind about language and logic.

If you are not convinced, try it on someone who has not been entirely debauched by economics. — Piero Sraffa

by Migeru (migeru at eurotrib dot com) on Fri Jul 13th, 2012 at 05:59:33 AM EST
[ Parent ]

Wittgenstein was talking about philosophy in the most general sense, including natural philosophy, i.e., science, and its uniquely helpful language for making and warranting truth proposition statements -- mathematics. Specifically he argued, and remained convinced for the most part, that the most important parts of questions about morality and God, like aesthetics, were not amenable to truth proposition language because truth proposition statements about such matters were nonsensical. (E.g., "Does beauty exist?" is a nonsensical question.) While the language of math and the methods of science might be illuminating (and they might be confounding as well), they can never be decisive in determining truth from falsehood in such matters, so the implication for economics and other social sciences is that, unlike in the natural sciences, you can't rely on mathematical models and observation alone to make what are essentially moral arguments. The sin of the neoclassical approach is that its practitioners too often use math to claim they have discovered right from wrong, when such a use of mathematical language is nonsensical.

by santiago on Fri Jul 13th, 2012 at 11:50:44 AM EST
[ Parent ]

On the other hand, I'm just now finishing reading Keynes' treatise on probability and it's a wonderful development of the idea that probability is a branch of logic... And of course he does apply it to moral philosophy (haven't read that bit yet).

If you are not convinced, try it on someone who has not been entirely debauched by economics. — Piero Sraffa

by Migeru (migeru at eurotrib dot com) on Fri Jul 13th, 2012 at 12:44:18 PM EST
[ Parent ]

Did you actually work through all the math? I decided that it probably wasn't worth the effort to figure out a nonstandard notation that I'd never see anywhere else. Was I wrong?

by gk (g k quattro due due sette "at" gmail.com) on Fri Jul 13th, 2012 at 01:45:29 PM EST
[ Parent ]

Well, he uses

x|h

for the usual

P(x|h)

I've been skipping most of the algebra anyway, the book is more about the philosophy of probability as far as I'm concerned.

But I like reading historical works. The book could be written in half the length today - you could delete an entire chapter just by saying "probabilities are partially ordered".

I haven't given much thought to what his non-numerical probabilities are, that are in < and > relations with numerical probabilities nonetheless...

If you are not convinced, try it on someone who has not been entirely debauched by economics. — Piero Sraffa

by Migeru (migeru at eurotrib dot com) on Fri Jul 13th, 2012 at 01:50:19 PM EST
[ Parent ]

Policy economics is propaganda, not social science.

Rather it uses scientific methods to organize thinking

Quite.

so many of the parameters that matter most for deciding things in social life are unobservable by their nature, such as values, aesthetics, and the meaning of life

And power. Especially power. Except when it becomes visible after people stop believing the lies about it.

Incidentally, there are scientific theories of personal and social values and aesthetics, with falsifiable premises.

(But I wouldn't expect someone who works on the management board of a bank to know that.)

Oh - and did you just attempt to imply that economics is about the meaning the life?

Really? How interesting.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri Jul 13th, 2012 at 06:33:25 AM EST
[ Parent ]

ThatBritGuy:

Oh - and did you just attempt to imply that economics is about the meaning of life?

with your usual unerring accuracy, you have lasered in on the nub.

it damn well should be, as we have given it the power to be so destructive.

The power of knowledge is in mortal combat with the knowledge of power. It really is that simple... That's the Edenic apple we are all munching on.

by melo (melometa4(at)gmail.com) on Fri Jul 13th, 2012 at 07:36:52 AM EST
[ Parent ]

Yes, economics is, first and foremost, a branch of moral philosophy, which, unlike natural philosophy -- science -- which attempts to describe what can be observed about the world, moral philosophy is ultimately about discerning the meaning of life and its implications for how to create a just society.

by santiago on Fri Jul 13th, 2012 at 12:34:39 PM EST
[ Parent ]

Actually economics is equally dishonest when it pretends to be a branch of moral philosophy.

Firstly, moral philosophy is only tangentially related to meaning. The only honest position on the meaning of life is that no one knows and it's impossible to know in principle. Anyone who claims otherwise is lying.

So morality becomes a political and utilitarian issue - which it always is.

But you cannot go from there to claiming that economics - which even at its broadest is about one small subset of all possible human relationships - can ever provide a complete moral picture.

In practice of course economics claims to be moral - as in discussions of moral hazard, etc.

But in fact it's simply political misdirection. It attempts to frame the discussion of human relations in one specific way, while denying validity to other kinds of human relation.

The concept of 'rational self-interest' is immensely poisonous. It's also easily falsifiable behaviourally.

Non-sociopaths relate to others with mutuality and reciprocity. As a moral theory, economics has no useful concept of either.

So where is your morality now?

by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri Jul 13th, 2012 at 12:51:16 PM EST
[ Parent ]

Nothing in economics, whether it's Marxian, neoclassical, or whatever other approach, denies the validity of other kinds of human relations. Rather, economics is the study of the material aspects of human society, which is a very important part of the overall question of the meaning of life of how to go about creating a just society. Mutuality, reciprocity and rational self interest are entirely consistent concepts.

by santiago on Mon Jul 16th, 2012 at 09:17:49 AM EST
[ Parent ]

And naturally you will have no trouble pointing to the many examples of the IMF, the ECB, of the dictators installed and propped by Wall St, and of the entire financial industry using their fine understanding of mutuality and reciprocity to better the lives of working populations across the world.

A revised and empirical version of economics might - one day - be a useful tool for equitable democracy.

Currently it's nothing of the sort, in much the same way that a black widow spider bite isn't a good cure for indigestion.

Pretending that it is is dishonest and utterly shameful.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Jul 16th, 2012 at 09:29:43 AM EST
[ Parent ]

Right. Just like I won't have any trouble finding moral failings in the history of Roman Catholic Church or any other school of thought dealing with the study of morality, social justice, and the meaning of life.

by santiago on Mon Jul 16th, 2012 at 09:36:04 AM EST
[ Parent ]

Some of those schools of thought have useful and relevant things to contribute to society.

The insights of neo-classical economics which are both true and interesting can be counted on one hand. With fingers left over.

- Jake

If you only spend 20 minutes of the rest of your life on economics, go spend them here.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Jul 23rd, 2012 at 10:26:00 AM EST
[ Parent ]

ThatBritGuy:

they're going to be really, really angry.

they already are... so far there still lacks the channels to express it.

the dam's still holding, but the riots last year were the tip of that rage's iceberg.

The power of knowledge is in mortal combat with the knowledge of power. It really is that simple... That's the Edenic apple we are all munching on.

by melo (melometa4(at)gmail.com) on Fri Jul 13th, 2012 at 07:54:03 AM EST
[ Parent ]

ThatBritGuy:

Or are you seriously going to argue that the decisions being made are somehow genuinely for the benefit of the majority of the population?

roflmao

that's the pols' job, to explain patiently to the plebes how up is down and black is white.

damned if they don't pull it off surprisingly effectively, but rather than just lauding their talents for deviance, we need to take responsibility for our part in the bargain.

exactly how, remains the existential question...

i foresee 'unforeseen events' will play an increasingly decisive role in guiding change, since we seem transparently incapable of doing so under our own tutelage, proactively.

more wu-wei dammit!

The power of knowledge is in mortal combat with the knowledge of power. It really is that simple... That's the Edenic apple we are all munching on.

by melo (melometa4(at)gmail.com) on Fri Jul 13th, 2012 at 07:51:28 AM EST
[ Parent ]

Re: MMT's albatross (none / 0)

...what is problematic is that without having made the falsifiable hypothesis case strongly enough, MMT proponents too often go about denigrating the intelligence of other economists...

What is more problematic is that there is no funding from the predominant sources of research funding for ANY modeling not based on DSGE. I suspect that similar constraints apply to other non-mainstream research areas in economics. Talk about putting your finger on the scale - more like the NCE/"New Classical" guys are standing in their pan of the scale when it comes to awarding grants, not to mention publishing papers.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Jul 14th, 2012 at 11:58:55 AM EST
[ Parent ]

Of neoclassical babies and bathwaters (none / 1)

Well, Steve Keen's position may be a bit extreme, but this is it in all its glory: A dynamic monetary multi-sectoral model of production (May 16th, 2011)

At the level of pure theory, a similar contentment prevailed. Though he acknowledged one notable dissenter (Solow 2008), Blanchard's survey was unequivocal:
The state of macro is good. (Blanchard 2009, p. 210)
Few more poorly timed statements have ever been made by prominent economists.
...
Blanchard was forced into recanting his optimism less than a year later (Blanchard, Dell'Ariccia et al. 2010). But while he criticized macroeconomic policy prior to the crisis, he remained a believer in neoclassical theory itself:
Identifying the flaws of existing policy is (relatively) easy. Defining a new macroeconomic policy framework is much harder... It is important to start by stating the obvious, namely, that the baby should not be thrown out with the bathwater. Most of the elements of the pre-crisis consensus, including the major conclusions from macroeconomic theory, still hold. Among them, the ultimate targets remain output and inflation stability. The natural rate hypothesis holds, at least to a good enough approximation, and policymakers should not design policy on the assumption that there is a long-term trade-off between inflation and unemployment. Stable inflation must remain one of the major goals of monetary policy. Fiscal sustainability is of the essence, not only for the long term but also in affecting expectations in the short term. (Blanchard, Dell'Ariccia et al. 2010, p. 207; emphasis added)
Blanchard's unwillingness to countenance the possibility that the Great Recession may be a Kuhnian critical anomaly for neoclassical macroeconomics (Bezemer 2011) is representative of this school of thought:
Indeed, the extreme severity of this great recession makes it tempting to argue that new theories are required to fully explain it... But ... it would be premature to abandon more familiar models just yet. (Ireland 2011, p. 1; emphasis added)
As a representative of the Post Keynesian and complexity theory rump, and one of the handful of economists to foresee the Great Recession (Keen 1995; Keen 2000; Keen 2006; Keen 2007; Keen 2007; Bezemer 2009; Bezemer 2011), I could not disagree more with Blanchard and his colleagues.
...
I cover the myriad flaws in neoclassical macroeconomics in much more detail in Keen 2011b; suffice it to say here that, far from it being unwise to "throw the baby out with the bathwater", neoclassical macroeconomics should never have been conceived in the first place.

If you are not convinced, try it on someone who has not been entirely debauched by economics. — Piero Sraffa

by Migeru (migeru at eurotrib dot com) on Fri Jul 6th, 2012 at 03:36:48 PM EST
[ Parent ]

Re: Of neoclassical babies and bathwaters (none / 1)

Keen does present some good work around the narrow question of whether it makes sense to conceive of the real world as a continuous series of static events or if the dynamic nature of the world needs a different conception altogether (it does, he concludes). That's an example of trying to make falsifiable arguments, of which more is needed among MMT proponents.

by santiago on Fri Jul 6th, 2012 at 04:26:09 PM EST
[ Parent ]

I just found the following interview with Mark Thoma, who's a left-leaning neoclassical econometrist: FiveBooks Interviews >
Mark Thoma on Econometrics (The Browser)

There are several groups. There's the divide between the New Keynesians who believe both monetary and fiscal policy are effective policy tools, the modern version of the monetarists who believe in monetary but not fiscal policy, and the Real Business Cycle economists who don't think either type of policy is effective. The big split is the first one, monetarists versus Keynesians to use an older terminology -- That's people like Lucas and Sargent people like me, Krugman, Brad DeLong and others. Then there's another, much smaller group that don't think any of us have a clue. Those are the heterodox economists. They don't like the tools and techniques we use, they don't like equilibrium models. It's people like Jamie Galbraith, who don't agree with either side.
...
In your field of econometrics, and in economics in general, is there a lot of change going on as a result of the crisis?
There should be, and there has been. But not as much as I would like to see. Since I was in grad school - I graduated in 1986 so it's been about 25 years - we've probably gone through two or three generations of models. When I started it was very Keynesian, then it was New Classical, then we got something called the Real Business Cycle models, then we got the New Keynesian models, and today there is an emerging set of models called the new monetarist models. Within the field there's been a lot of churning of models. The reason those first sets of models didn't survive was because they didn't stand up to the data.
The models that Lucas got his Nobel prize for - the new classical models, where expectations play a fundamental role, only unexpected money matters and things like that - had some really strong implications. We took that model to the data and it couldn't explain the magnitude and the duration of business cycles simultaneously. It also couldn't explain why expected money was correlted with output, and it got rejected. Then we went to real business cycle models. They did better. But they had trouble explaining Great Depressions and other sorts of things, so we rejected those models and went to New Keynesian models. Those models were doing great, or relatively so anyway, right up to the crisis. Then they did horridly. You don't need advanced econometrics to reject that class of models - it's clear that they just didn't handle the crisis. So we're going to reject those too. There's been a lot of change, and I expect that change will speed up. I wish it was even faster, because it's very clear to me that the models we were using prior to the crisis are not going to get the job done.

Maybe Mark Thoma should apply his econometrics to testing whether Stock-Flow Consistent models match the data better than Neoclassical models...

If you are not convinced, try it on someone who has not been entirely debauched by economics. — Piero Sraffa

by Migeru (migeru at eurotrib dot com) on Sat Jul 7th, 2012 at 03:44:04 PM EST
[ Parent ]

I tend to react with greater sympathy to econometrics than to the theory stuff, because the modeling tools (and, importantly, the computing power to make proper time-series econometrics a routine matter) are quite recent.

Whereas any observer of the political economy who has been paying attention at all at any point in the last 100 years should be able to tell you that Ricardian equivalence does not work.

- Jake

If you only spend 20 minutes of the rest of your life on economics, go spend them here.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Jul 7th, 2012 at 06:43:06 PM EST
[ Parent ]