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Your point is an important one, but I want to add to something Luis said - we need to be aware of individual policies because often politics is about individual policies. Say we had 10 mildly regressive regulatory policies counterbalanced by a hugely progressive tax system - clearly that would be vulnerable to a relatively straightforward political reversal. IMO we need to combine both perspectives to have politically viable leftist policies.
Toggle Commented 2 days ago on The fairness error at Stumbling and Mumbling
Hi guys, just wanted to clear up the confusion - I meant Randomised Control Trials. If you see the links in my original post there is a Jacobin article about how the kinds of micro policies tested using RCTs often seem to benefit local elites.
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Hey! Thanks for posting on this topic, good post. But I think you are a bit unfair to me. What I said was reasonable and I stuck to topics which I know something about - even if you think I'm wrong, I'm not being ridiculous. Let me comment: 1. Nothing specific to say; you'd have to elaborate 2. The denunciation is of micro policies in general, not necessarily RCTs in themselves and certainly not just RCTs. There is evidence (linked to in the post) that the shift in the IMF/WB to many of these, ranging from those implemented through RCTs to those not, often seems to benefit local elites. 3. Tbh I thought the proposition that Russian privatisation was disastrous was uncontroversial. I'm also not sure about lumping Putin and Yeltsin together (the former was more of a reaction to the latter, no?) And as for Scheifer, he was prosecuted for insider trading and Harvard had to pay out. I don't see what they would do this if he had been clearly innocent. 4. IDK what you mean by the maths was correct. Within the parameters of the model it is not 'wrong', but there is no allowance for fat tails, which explains why it has failed to account for price collapses like 1987 and LTCM. Also, I didn't say the bailout was public - but it was necessary, and the collapse could have had terrible consequences otherwise. 5. I wasn't talking about Friedman or Hayek but the economists employed directly by Pinochet throughout the coup/government.
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Does Brennan distinguish between modern liberal democracy and more local types of democracy (workplace, local govt, community)? I know you've argued before that the latter are more likely to produce better outcomes as they take advantage of Hayekian knowledge and participants have more of a personal stake in the outcomes.
I suppose the question is whether a theory(s) exist which can reconcile the observation that the market is hard to beat with the kind of regularities you identify.
I'm not trying to do a 'gotcha' here Chris, but doesn't a lot of the evidence you present here contradict your support for the EMH?
@Pinkeen Most capitalist states have been murderously oppressive, too. The U.S. was built on genocide and slavery; the UK had an enormous empire in which it killed and starved many in its colonies; I could go on but I'm sure you know it all...
Maybe economists should just stop signing group letters as if they have the authority to deliver the verdict on political decisions?
From the Maugham quote: "To ensure this, it is essential to control the costs of spending programmes" ...erm, why? This is just an empty assertion. It is the huge non-sequitur of the entire austerity program, and people don't even seem to challenge it directly that often.
Toggle Commented Mar 23, 2016 on No friend of the worst off at Stumbling and Mumbling
When I saw that this post was about obliquity and Corbyn, I thought you were going to suggest that his unwillingness/inability to play the game and make political capital of things like personal spats had contributed to Tory apathy, which in turn created the biggest political spat of this parliament or the last. But maybe hypothesis is pushing things a bit. I doubt commenter 'deviation from the mean' would like it (:
Toggle Commented Mar 21, 2016 on Salience, & obliquity at Stumbling and Mumbling
@doc It's funny you should mention that, because replication of empirical economic research has been similarly unsuccessful: I agree with gastro that we have to be cautious about extrapolating previously successful predictions. I'd also point out that 'economics' as a field contains a lot of different theories about financial markets and little ex ante reasons to prefer one theory or another. Sure, knowledge of an area combined with an eye to empirical evidence and some intelligence/intuition - all of which you no doubt have, Chris - will help you to pick out better ideas. But such an ability is not inherent to the practice of 'economics'.
I suppose the question now becomes: when can a theory be entirely abandoned or refuted? Do we constantly expand our library of theories, as Dani Rodrik seems to want? Are theories basically never refutable, which is something a paper called 'economic models as analogies' seemed to argue? I'm not saying you're arguing this but it seems to be the way economics is heading. I've never seen a single theory completely abandoned, while research pushes the basic framework in all sorts of (sometimes contradictory) directions. Personally I find that this is clumsy and creates model selection problems, and am not sure how it is advancing our understanding of the world. Anyway, I don't disagree with most of your post and I think we may be talking about slightly different things. So I'll stop rambling now.
Toggle Commented Jan 23, 2016 on Against laws & "facts" at Stumbling and Mumbling
Luis, Maths is useful when things can be quantified. The problem is that econ is full of mathematisations of things which cannot be quantified, such as effort, utility and countless random parameters that have no obvious interpretation (please don't force me to find an example). I've never been against modelling - just against modelling the wrong things. "That involves writing down clearly articulated models, seeing how well they are supported by data, trying to think of ways to test them. This is what economists do." This is what economists like to think they do. What I've been learning is that in practice, it's more like 'economists write down clearly articulated but unnecessarily complicated models, impose arbitrary assumptions on them to reach a conclusion they could have come to in a sentence, then look for broad, stylised patterns in the data that are loosely consistent with their conclusions.' I'm not saying all econ is like this - that's a worst case scenario. But in general econ is nowhere near rigorous empirical testing of models and I don't know if it ever can be. Obviously, Murray's paper is not the same as his blog post. He doesn't just use thought experiment examples; he refers to a lot of evidence on return-maximising firms to support his case. He also comes to a number of non-standard conclusions with his framework. Off the top of my head these include that perfect competition is not necessarily the most efficient and that firms will not produce unless there are decreasing returns to scale to start. I don't see how renting capital is the same as having it in the denominator in the maximisation decision, either. It's another annoying habit of economists to respond to any new idea by insisting it's in their model if you interpret this way or that way. It's like a particular sub-category of Romer's 'mathiness'. sam, I've not actually said anything about equilibrium or economic history, but I'll bite. No equilibrium critique has ever concluded "...and therefore, there should be large surpluses and shortages in a capitalist economy". You are not referring to 'equilibrium' as a modelling tool but to an implication of standard demand-supply. Advocating non-equilibrium tools does not mean that you think every conclusion of every equilibrium model is wrong. Although supermarkets do throw away a lot of food and firms tend to keep spare inventories precisely due to dynamic considerations that are absent from this model. History is simply not a staple part of most economists' training. Individual economists are aware of history; there are fields devoted to studying it; but in general research, education and policymaking is a lot more concerned with modelling than with learning from history. I think this is a sad state of affairs.
Toggle Commented Jan 23, 2016 on Against anti-economics at Stumbling and Mumbling
Chris, I don't believe that assuming people are not rational, as defined by economics, is tantamount to assuming they are stupid. Investors are dealing with a remarkably complicated situation and, being human, have no choice but to use heuristics and cognitive shortcuts. I also think my mum would say that the market is hard to beat and she would have no idea how to invest! But of course there are those who consistently beat the market, which contradicts the EMH. One thing I forgot to mention is the fact that we have multiple theories leading to the same prediction in economics. So EMH implies the market is unpredictable but so does the theory of fractal markets, albeit for different reasons. How does Dani Rodrik choose between these two in any sort of rigorous way? Luis, because the use of maths does not just require the maths itself to be precise; it requires you to be precise about what you are mathematising. You can write any mathematical model, attach economicsy-sounding labels to the variables and claim it says something about the world, but ultimately if you have no clearly defined links between the theory and the maths then it's not clear why and when the maths is relevant. Economics doesn't use maths in this way; it uses it in a more vague, intuitive way and tries to defend every model as potentially valid, depending on the judgement of the economist. But there are two crucial questions missing: (a) What does this model add over the basic insight it is supposed to represent (behavioural econ is a repeat offender here); (b) How do I know when to use this model over some other model? Without well defined domains and boundary conditions, it's difficult to answer (b), particularly if two models yield similar predictions. It's almost as if economics is celebrating having an n=k problem, where n is real world situations and k is models. If you want evidence economists are resistant to non-standard ideas then how about Cameron Murray's theory of return seeking firms: To me, these seems pretty well substantiated empirically, novel and interesting. But some of the referee's responses are pretty pathetic if you ask me.
Toggle Commented Jan 21, 2016 on Against anti-economics at Stumbling and Mumbling
While I agree with your point that attacks on economics should in general not be ideologically motivated, I disagree with your choice of theory to defend economics (the EMH) and even more strongly with this new 'economics is about choosing models' fad. Firstly, economics has a habit of using extremely unrealistic models to make wrong predictions, then describing the disconnect between the unrealistic model and the world as a 'puzzle'. Then, after some time and with a lot of mathematical tinkering, the 'puzzle' may be solved in any number of ways. The problem is that these 'puzzles' are only 'puzzles' if you believe the ridiculously unrealistic models in the first place. In the case of the EMH, one of the puzzles might be 'excess volatility'. The type of papers you link to have discovered that investors tend to herd, follow rules of thumb, act on wrong/imperfect information etc. Well, surprise surprise! My mum could have told you that. So how has economic theory advanced our knowledge here? To be sure, there's benefit to testing and sometimes formalising our intuitions. But when formalising theory takes centre stage, even when the theory contradicts the knowledge we have and does not have evidence to support it, it pushes our understanding backwards rather than forwards. Going on to shoehorn things we already knew into this theoretical framework only gets us back to where we were before - unless the theory can make another clear, sound, nontrivial prediction. Similar examples are the equity premium, life cycle hypothesis, allais 'paradox' etc. Secondly, and in partial reply to Luis' first comment, heterodox economists do not claim to have the one true theory at all. What we would prefer is that (a) our theories get a hearing alongside neoclassical ones and (b) there are clear conditions for using theories, including some conditions for when we simply do not have a good enough theory! Economists are ultimately in a state of dissarray about their use of models and as a result they are producing mutually conflicting assertions: - The claim that maths adds rigour and precision to theory; - The claim that they should choose between these theories based on vague, arbitrary and unstated hunches; - The dismissal of heterodox theories outright. Do I really have to detail why any 2 of these 3 are contradictory?
Toggle Commented Jan 20, 2016 on Against anti-economics at Stumbling and Mumbling
"Autonomy is not something that can be given to you in any meaningful sense, you have to achieve it." But it can be taken away from you by coercion by e.g. your employer. That's one of Chris' points.
Toggle Commented Jan 9, 2016 on The paradox of plenty at Stumbling and Mumbling
If I remember correctly, did Keynes not make the prediction with the proviso that there wouldn't be another war?
Toggle Commented Nov 18, 2015 on Keynes' error at Stumbling and Mumbling
Not sure how clear the intelligence was about Iraq - in many cases it contradicted Bush/Blair's narrative, but they went ahead anyway...
Toggle Commented Oct 28, 2015 on Two Blairs, or one? at Stumbling and Mumbling
I would go one step further and suggest that nuclear catastrophe is not something to which we can attach a probability. And it could be that trident increases some risks by making *us* more aggressive.
@britonomist ""Value" is subjective, it's that simple." It really isn't. Subjectivists and Marxists mean two different things when they say 'value'. For Marxists, 'value' is the phenomenon underlying production and surplus under capitalism. For subjectivists, it means personal preferences. It's incredible that two different uses of the same word has caused so much confusion for so long. @luis "Does Marx say that once profits are sufficiently low, they no longer qualify as exploitation but as a fair return on capital? I am thinking of an analogue of "the cost needed to bring that factor into production" as this wiki definition of economic rents puts it:" No - exploitation does not depend on the amount of profit the capitalist gets; it simply depends on the labour-capital relationship. Capitalists pay workers wages below the value that they produce, the difference being exploitation. I suppose you're asking whether a capitalist could feasibly pay a worker more than the value they produced, and hypothetically I guess this could happen. But it couldn't be widespread, as such as business would be sucking up surplus from elsewhere, resulting in no profits -> no capitalism. And even this would still retain the owner's control over what was produced, which is for me the essence of the relationship in qualitative terms. "And if so, if the rate of profit is supposed to fall over time, does that mean capitalism gets less exploitative until, perhaps, it is no longer exploitative at all?" Well, the point is that as the RoP falls it generates crises which reset it to a higher level (or prompt some sort of social revolution/disintegration). Capitalism can't continue existing with a low rate of profit for reasons that aren't necessarily marxist (no growth, unemployment etc). @Matt Moore "I can work for years on an invention or artwork but if no one wants it, it's worthless." This is true, and something Marx also believed, but commented: "What has this to do with my theory of value? To the degree that corn is sold above its value, other commodities...are, to the same degree, sold below their value. The sum of values remains the same." The point is that the LTV concerns aggregate, economy-wide trends rather than individual prices. There is disagreement among Marxists about this, but IMO @Brett is right to note that the empirical evidence Chris presented is partly tautological. Investigations into the LTV should concern aggregate rather than micro tendencies.
"It's possible to argue that wages depend upon social forces because those forces affect the position of supply and demand curves." You could, but this would render the concepts even more unfalsifiable than they are already. Why must we assume demand-supply 'underlies' everything? Is there any scope for abandoning it? The rest of your post is fine without any appeals to demand or supply.
A couple of quick objections: 1. Regardless of how efficient you believe markets are at predicting, they can't predict base don information which isn't there. You just gave a number of ways in which young people face fundamental uncertainty - how exactly can markets deal with this better than individuals if it depends on things which are completely unpredictable? 2. I would worry about speculation here. Hedge funds decide to short, I don't know, cleaners - will this have no effect on the profession? You seem to believe markets can be benign and only reflect fundamentals, rather than influencing them.
@luis See, someone from a discipline which was more secure about its empirical record wouldn't have responded with a petty dig; they'd have (a) given some examples and (b) asked themselves exactly how someone could complete an economics degree without having the usefulness of utility demonstrated to them. By the way, I'm now half way through a Master's, and it still hasn't happened. If anything, the more I learn the sillier utility becomes.
Toggle Commented Jan 9, 2015 on Endogenous preferences at Stumbling and Mumbling
@ luis The problem with the "we don't really believe that but it's useful" refrain is that it just becomes an empty catch-all that you can use whenever utility is questioned. The question is *how* utility is useful (making theory mathematically tractable doesn't qualify because that says nothing about its realism).
Toggle Commented Jan 7, 2015 on Endogenous preferences at Stumbling and Mumbling