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I think Anders basically has it. His synthesis also makes more sense if we consider corporations as somewhat state-like institutions.
The free speech dilemma
What role should social pressure play in the policing of free speech? Two things I’ve seen recently pose this question. One is the racist harassment of Rufaro Chisango at Nottingham Trent University. I like to think that in better places and times those racist twats would have been swiftly suppr...
LOL OK Luis, I won't derail Chris' thread any more. I'll let people judge your post for themselves.
Big Facts in economics
Unlearning Economics has a nice piece on the limits of sophisticated empirical techniques and the virtues of eyeball econometrics, reminiscent of Dave Giles’ advice “Always, but always, plot your data.” One extension I’d make to this is the importance of Big Facts. Sometimes, it’s more important...
Well, RDD is there to solve causal inference about a particular outcome...by looking at how it changes around a discontinuity. My point is that if there's no reason to doubt the story being told from descriptive statistics then you can use something like RDD as a robustness check in an appendix, but any precision it offers is spurious - highly local, resting on unchallenged assumptions, and full of statistical noise. Ultimately there are far more important questions that should be filling the pages of 'top' economics journals.
I'd also dispute your far-reaching statement about econometrics, as I've both taught and been taught it and the story you're telling is not familiar.
Big Facts in economics
Unlearning Economics has a nice piece on the limits of sophisticated empirical techniques and the virtues of eyeball econometrics, reminiscent of Dave Giles’ advice “Always, but always, plot your data.” One extension I’d make to this is the importance of Big Facts. Sometimes, it’s more important...
I'm sure I'm not the only one who would like a reference for that Cosma Shalizi claim!
**Comment of the Day**: I have evoked some rants...
**Comment of the Day**: I have evoked some rants from Robert Waldmann...: **Robert Waldmann**: [Monday Smackdown: Oh Dear!](http://www.bradford-delong.com/2017/11/monday-smackdown-oh-dear.html?cid=6a00e551f08003883401b8d2bf205d970c#comment-6a00e551f08003883401b8d2bf205d970c): "It isn't exactly Ro...
Luis, for me one of the ways "actually existing capitalism is in need of major reforms" becomes "we need an alternative to capitalism" is that existing capitalism has seemed to go in the 'wrong' (i.e. socially reprehensible) direction since the crisis. This fits what Chris has said before about cuddly capitalism being unlikely/unsustainable because it is against the predominant power relations created by capitalism.
Willing the ends but not the means
There’s a link between two of my recent posts which I’d like to bring out. It’s that actually-existing centrists and rightists make a mistake of willing the ends but not the means. For example, centrists rightly want us to remain in the EU. Many, however, fail to appreciate that the vote to leav...
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.
The fairness error
In the Wheatsheaf last night, I was struck by an obvious injustice. The pub was charging everybody the same price for beer, regardless of their income. This is obviously unfair: why should the millionaire picking up his children from the posh school pay the same as a low-wage worker? Beer prices...
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.
The Need for a Reformation of Authority and Hierarchy Among Economists in the Public Sphere
Brad Delong: The Need for a Reformation of Authority and Hierarchy Among Economists in the Public Sphere: I find that I have much more to say (or, rather, largely, republish) relevant to the current debate between Simon Wren-Lewis and Unlearning Economics. Let me start by saying that I think...
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.
The Need for a Reformation of Authority and Hierarchy Among Economists in the Public Sphere
I find that I have much more to say (or, rather, largely, republish) relevant to the current debate between [Simon Wren-Lewis][] and [Unlearning Economics][]. Let me start by saying that I think Unlearning Economics is almost entirely wrong in his proposed solutions. Indeed, he does not seem es...
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.
Against Democracy: a review
Should everybody have a right to drive? Most of you would say not. Some people are incompetent, reckless or drunk drivers who endanger others. They should be kept off the road for everyone’s safety. Jason Brennan’s argument in Against Democracy is that what’s true of driving is also true of vo...
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.
Markets as selection devices
One of the stronger defences of free markets is that they act as selection mechanisms. To the allegations that stock markets aren’t efficient because investors are irrational or that firms can’t maximize profits because bosses don’t know what they’re doing, the reply is that this might be so, bu...
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?
Markets as selection devices
One of the stronger defences of free markets is that they act as selection mechanisms. To the allegations that stock markets aren’t efficient because investors are irrational or that firms can’t maximize profits because bosses don’t know what they’re doing, the reply is that this might be so, bu...
@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...
Bad arguments against Marxism
One of the problems with being a Marxist is that one is the subject of silly misunderstandings. Here are a handful of the bad arguments against Marxism I often see, and my replies. “Don’t you realize central planning has failed?” We do. But if you want to find people who still believe in centra...
Maybe economists should just stop signing group letters as if they have the authority to deliver the verdict on political decisions?
The trouble with the Brexit debate
How should the Brexit debate be structured, and presented in the media? Two things I’ve seen today pose this question: Vote Leave’s anger at ITV inviting Nigel Farage to debate against David Cameron; and the letter from 196 economists in favour of Remain. These raise two general issues, which I’...
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.
No friend of the worst off
Danny Finkelstein’s defence of cuts to welfare and taxes has caused a row with Jolyon Maugham: The government argues that the best thing for less well-off people is that the economy should thrive and jobs be created. Income from work is the most secure foundation for vulnerable families of all ...
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 (:
Salience, & obliquity
Is Jeremy Corbyn leader of the Labour party for the same reason that DFS is always having sales? I ask because of a new paper by Markus Dertwinkel-Kalt of the University of Cologne and Gerhard Riener of Mannheim University. They show that, when faced with a choice between products with different...
@doc
It's funny you should mention that, because replication of empirical economic research has been similarly unsuccessful: http://www.federalreserve.gov/econresdata/feds/2015/files/2015083pap.pdf
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'.
In defence of (some) economics
Alex Douglas says that economics “makes very few successful predictions”: that “nothing from economics has improved economic policy in the way that the integrated circuit has improved computing”: and accuses economists of making “logical mistakes.” I don’t intend to reject his claims, but I’ll g...
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.
Against laws & "facts"
In a comment here, Unlearning Economics says that there are some people “who consistently beat the market, which contradicts the efficient markets hypothesis.” I agree. But this is not a problem for the EMH so much as for all economics. I say this because there are, as far as I know, no 100% tru...
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.
Against anti-economics
Simon Wren-Lewis and commenters on Tim’s blog are complaining about ideologically-motivated attacks on conventional economics – one from the left and one from the right. I want to agree with both these complaints. First, the question of the merits or demerits of economics should be independent o...
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:
http://www.fresheconomicthinking.com/2015/08/the-confused-economic-orthodoxy.html
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.
Against anti-economics
Simon Wren-Lewis and commenters on Tim’s blog are complaining about ideologically-motivated attacks on conventional economics – one from the left and one from the right. I want to agree with both these complaints. First, the question of the merits or demerits of economics should be independent o...
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?
Against anti-economics
Simon Wren-Lewis and commenters on Tim’s blog are complaining about ideologically-motivated attacks on conventional economics – one from the left and one from the right. I want to agree with both these complaints. First, the question of the merits or demerits of economics should be independent o...
"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.
The paradox of plenty
Tyler Cowen is asked a good question: are there any goods someone on a median income can afford which are the very best of their kind? The answer, as Tyler shows, is plenty – including some important ones such as books and recorded music. To this we might add that even where the very best goods ...
If I remember correctly, did Keynes not make the prediction with the proviso that there wouldn't be another war?
Keynes' error
Why was Keynes wrong? In his 1930 essay (pdf), Economic possibilities for our grandchildren he predicted that: the standard of life in progressive countries one hundred years hence will be between four and eight times as high as it is to-day. This looks like being spot-on: real UK GDP per hea...
Not sure how clear the intelligence was about Iraq - in many cases it contradicted Bush/Blair's narrative, but they went ahead anyway...
Two Blairs, or one?
Here's a juxtaposition. One the one hand, Tony Blair's partial apology for the Iraq war has reminded us of the greatest failure of New Labour whilst on the other hand, Speri's Tony Payne reminds us that Blair delivered "many substantial achievements" - among them the reduction in pensioner pover...
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.
Trident, & the limits of rationality
Deliberation, which those who begin it by prudence, and continue it with subtilty, must, after long expence of thought, conclude by chance. Looking at the debate about whether to renew Trident reminded me of these words of Samuel Johnson. To see why, let's put aside the principled arguments on ...
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