Modern Economics

As someone interested in economics, but who is decidedly a layman, I'd like to know Random Variable's opinion of Steve Keen and his book Debunking Economics. I'd also like to hear from Reiver, if he can get through the post without succumbing to the temptation of ad hominem. Keen also I think is attacking Neoclassical's models, but more especially on axiomatic grounds...

Economists are especially valued as prognosticators. It may well be that their role there is as vain as astrologers in times past. I'm nowhere near informed enough to have an opinion on that; but at the least, if economics has a value, it is in helping us to understand the past development of the economy. This, I think, is its most salient contribution as a social science. Like much else of the social sciences, the value it can have for present action might simply be in helping us to recognize and avoid repeating our mistakes...

Is this what you're getting at in your critique of the baroque complexity of the latest iterations of the Neoclassical paradigm, Random?

 

The ad homs aren't mine sonny jim. Read the thread again!

In terms of Keen, the biggest lesson is that maths isn't the problem. The problem is the influence of neoclassical economics. Its clear,as I've already remarked, that economics education should include reference to a variety of political economic schools of thought. This isn't anything new. Pluralist teaching methods are very common.

The crux of a lot of the debate is 'to what extent is neoclassical economics useful?'. Whilst Keen makes numerous pertinent points (particularly in terms of the errors that are simply ignored), he doesn't always present a balanced view over that usefulness. See, for example, his lecture output into Managerial Economics. It doesn't really show how the neoclassical approach has adapted and embedded institutionalist thought within its theoretical apparatus. And that sums up the beauty of modern economics. There is no one truth and researchers are very much prepared to 'steal' from other schools and other disciplines. We therefore see more rapid change in thought and elimination of ignorance. There are elements that do stand out though, such as the problems inherent in orthodox macroeconomics (arguably a hangover from the attempt to maintain consistency between orthodox microeconomics and inconvenient macroeconomic thought from the likes of Keynes; with a blind alley debate spawned by is/lm and the phillips curve)

 

Yeah, I was wondering how much the Neoclassical theory has come to grips with the 'thick' (diachronic, if you will) analyses of actual existing economies, brought forward by the institutionalist approach. By my (amateur) reckoning, I'd figure that it would be at the nexus of the Neoclassical paradigm, and the Institutionalist literature, that game theory would have many valuable contributions...

 

We have to be careful. 'New Institutionalism' is a friendly version, rather than the traditional school which continues to be focused on disputing the relevance of neoclassical analysis. It would be true to note that academics were often forced into other subject areas (politics, industrial relations and even- god forbid- business related subject areas such as organisational behaviour). I don't see that happening now. Even 'New Institutionalism' shows compatibility with Marxist theory

Neoclassical theory was in a bind. It had no coherent theory of the firm (as, with the assumption of costless transactions, we should only see competing and/or co-operative entrepreneurship) and complete reliance on mythical marginal costs. Institutionalism fills the hole. I'd argue, however, they haven't quite realised the dramatic changes it has for economic predictions (which is why I brought up labour economics and how, just by slightly amending the neoclassical approach, the policy implications can change dramatically)

I'd be careful, as I mentioned earlier, with the game theory stuff. Clearly it has had some important effects. Take undergraduate education. The idea that we can understand oligopoly with a kinked-demand curve (which had no theoretical explanation, given the kink was assumed to be a historical accident) was child-like. Game theory improves the analysis no end. However, its not always positive. Take something like conflict economics. Game theory has been vital for understanding arms races (and possible deterrence effects, such as Mutually Beneficial Destruction). However, the search for increasingly more technical analysis certainly hasn't out-trumped the policy value of more traditional international security analysis

 

LOL

I came across this and thought I would post it.

The current economic crisis: its nature and the course of academic economics, Cambridge Journal of Economics, Volume 33, Issue 4

Here are a few excerpts:

For many years now, economic policy analysis emanating from the academy has been framed mostly in terms of properties of mathematical deductivist models.

Clearly an opening up of the economics academy to methods other than those of mathematical deductivist modelling, though an appropriate response if I am correct, will not, in and of itself, lead us out of the crisis. But in that almost all academic resources in economics have, in recent years, been devoted to this mathematical activity, the resources that would thereby be rendered available to relevant academic enquiry, a situation not occurring for very many decades, must be a stimulus to any solution.

Before indicating why the emphasis on mathematical modelling in modern economics is problematic, let me first observe that in economic journals the formalistic modelling activities seem currently to be continuing unabated. If my methodological concerns outlined below are valid, and if the crisis provides an opportunity for change, the most prominent academic economic journals are seemingly not yet responding.

http://cje.oxfordjournals.org/content/33/4/759.full

 

A splendid error! I was the one that first referred to the Cambridge Journal of Economics, using it to demonstrate the variation in the nature of economic journals. I was also the first to detail problems inherent in macroeconomics, reflecting a lack of 'political economic' debate (dating back to the fake argument between monetarists and bastardised Keynesians) and the usefulness of the post-Keynesian counter (itself part of modern economics).

Glad to see you try and catch up though! Well done

 

How embarassing for you.

Perhaps now the real discussion can begin.

 

That you've managed to catch up and refer to the journal I told you to refer to and the subject area I noted differed from most other elements of modern economics is embarrassing? Nope, just not predicted. Great to see you listening though

 

You have been embarassed numerous times by numerous members of this forum in regards to your lack of knowledge and your ignorance of modern economics. Not only by members of this forum, but more importantly by economists and academics who have much more intimate knowledge of modern economics than you do.

You are unintelligent. This is no longer a claim but an empirical fact - and this thread is the evidence.

 

You've again provided no content, going for the sullen teen routine. However, I'm still cheering that I managed to manipulate you towards good practice via the reference to the CJE. I'm sure you'll eventually thank me

 

I've been posting links to sources that have destroyed your claims all throughout this thread, sweetie. The irony of one of them being an economic journal that you claimed would support your arguments is hilarious. The opportunity was too good to pass up.

You earn minimum wage, don't you? Admit it.

 

Don't fib now. I've only sen you utilise one sound source (and this is after I gave you the main 'force for change' within the economics profession: PAE)

The problem is that you don't understand economics. You do not appreciate the numerous schools of thought, nor even how neoclassical economics has evolved away from the standard equilibrium approach (e.g. once we consider transaction costs, replacing profit maximisation with transaction cost minimisation, we automatically shift the debate of the firm towards a more dynamic approach- with striking similarities to the likes of Edith Penrose's output)

 

I have never denied that there exist multiple schools of thought or that schools of thought have evolved over time. This has nothing to do with anything. If you possessed more than a couple of brain cells, you would have understood this by now, as it has been explained to you numerous times. I've even explained it to you as if you were a retard (which you are) yet you still could not comprehend it.

The issue is with the way economic analysis & modelling is conducted by economists who are responsible for public policy.

But you're unintelligent. This cocnept is obviously beyond your level of comprehension.

 

What you've done is ignored modern economics and made a few blubbering noises over general equilibrium. The very existence of multiple schools of thought (many of which only partially utilise mathematical methods) and the evolution within neoclassical analysis destroys the validity of your OP. You of course have realised that.

 

Everything you said here has been discredited by modern economists and academics. As has been shown in this thread.

 

Name one thing! I've actually bothered to refer to the nature of modern economics. Don't hide now. Tell me one thing that I've said that has been discredited.

 

That there is not an over-reliance on mathematics by economists responsible for public policy.

Notice how you could not dispute a single thing in the CJE article.

 

Sounds like a conspiracy theory. There isn't a sub-group of "economists responsible for public policy". There certainly are elements within macroeconomics that have got it wrong badly. Of course I've already summed up the nature of the problem: the impact of bastardised Keynesianism and the subsequent prance created (included Friedman's vertical phillips curve, the Lucas critique and the New Classical vs New Keynesianism). However, you'll find that the economist has more impact on- say- industrial policy than macroeconomics (the latter is dominated by conservatism through central banks). And you won't find industrial economics restricted to mathematical analysis. Crikey, even the marginal cost curve is treated as purely hypothetical

Why would I want to dispute a journal that I asked you to consider? Its very existence (and popularity) is an example of the truth: mathematics is but a tool within a vibrant discipline characterised by multiple (competing, but sometime complementary) schools of thought

 

Don't agree. mathematics is useful to expose assumptions and such, I think some Keynesian macro was discarded because it required assumption of increasing returns to scale, for example.. It also explains ideas clearer then words even can and ensures ideas do not contradict themselves. There is understand of a concept and then being able to mathematically model a concept.

So what are we supposed to do? Be like the sociologists? no thanks! Mathematically modelling things clears up your thinking. If you really are a math major, surely you understand that. I don't think any economist would ever claim macro doesn't suffer problems of chaos theory, but I also find it ridiculous that some thing cannot be predicted.

So again, is the solution just so say "(*)(*)(*)(*) it" and guess randomly with regards to policy? This is what I would image economist would do if they disregarded their models (and thus theories!) as appear to advocate! Again models approximate actual markets and clear up thinking regarding them. Just getting down supply and demand shocks is an example of this. Clears up predicts about whether something will increase price or quantity or both.

Depends on the field. There also the problem that many variables are inherently hard to quantify. Also depends what you mean by "not a good track record." For example I've seen regressions where almost every variables was significant on the .01 level, done by undergraduates. If you want an R^2 of 100%, you just aren't going to find that in any social science, unless they did something stupid like test an accounting identity or something.

 

One of the most agreeable aspects of modern economics is its ability to steal from the other social sciences! We do get some interesting differences. Take crime. I'm more convinced by sociology's social strain theory than the standard rational choice modeling used to understand the link between unemployment and crime

 

This is because the difference between the social sciences are mostly based on the concepts they use to understand the world (E.g. a economist's supply and demand vs. a sociologists social norms). I don't mean to claim this is bad, merely that I think math is a useful tool to allow one to have clearer thoughts on human action and motivation.

 

I have no problem with the 'maths as a tool' comment. The real criticism (at least with the likes of the Chicago school) is the over-reliance on rational choice. The sneaky tampering with the utility function (such as the inclusion of social capital to try and understand social norms) suggests an obsessive reliance on rational economic man

 

I read some but not all of the responses but the one thing I can uncategorically state is that our governments are incompetent when it comes to intervening in the economy. I like to use the example of the American Gold Bullion Coin Act of 1985 as an example. A $10 American Gold Eagle contains 0.25 oz of pure gold while a $50 American Gold Eagle coin contains 1.0 oz of pure gold. If I have five $10 American Gold Eagles I have 1.25 oz of pure gold but if I have one $50 American Gold Eagle I only have 1 oz of pure gold. What part of 1.25 doesn't equal 1.0 did the members of the US Congress fail to understand when passing this law? Are they really so stupid that they can't even add and who in their right mind would want someone that can't even do simply math running an entire nation's economy? I wouldn't trust the US Congress to balance my checkbook (as they obviously can't do that because they can't balance the US budget).

Back to the issue of "economic" theories the most important aspect of any economic theory is the enforcement of Contract Law. If the conditions of contract are not universally enforced then any economy is going to suffer because of it. We have a fundamental failure in the enforcement of contract law in the United States. The Federal Reserve issues Federal Reserve Notes and, like any financial note they are promissory notes. They don't promise US goods and services because the Federal Reserve doesn't own US goods and services. What they do promise is redemption on demand in "lawful money" which today are American Eagle Bullion coins being produced by the US Mint. This would not be a problem for the Federal Reserve if it also fulfilled it's statutory responsibility to ensure that Federal Reserve Notes and American Eagle Coins, both of which are "legal tender" in the United States, had equal purchasing power. It does not ensure that nor is it willing to redeem Federal Reserve Notes in American Eagle coins. American Eagle Coins are lawful money because they promise nothing but Federal Reserve Notes are a promissory note that are being issued without any intent to fulfill that which they promise. Federal Reserve Notes are fraudlent under Contract Law and no economy can survive if Contract Law is not enforced.

 

Which is assumed in modern economics! That of course provides an understanding of, for example, the difficulties in Pigovian tax solutions to market failure. However, we're then left with a comparison of those problems with the difficulties within market solutions. The Coase Theorem, for example, informs us that enforcing property rights is often an unpractical solution

 

In reading up on the Couse Theorem it appears that enforcing property rights is, on rare occasions, is problematic but not generally so. It is the exception as opposed to the rule and generally reflects incorrect criteria for the definition of certain types of property rights as opposed to property rights in general.

One problem I have with "economic theory" is that overall they seek to establish the "best" economy but that to me isn't a valid criteria. It isn't about the overall benefit to all of the people but instead about providing equal opportunity for all people. People complain about not finding a job for example but ignore the option of starting their own enterprise. Self employment should be the primary form of employment and not the secondary form of employment we seek. Of course we then have the problem that the greatest impediment to self-employment is government interventionism.

Personally I don't want the "best economic" situation I want the one that respects and protects the inalienable Right of the Person engaged in that economy. The government doesn't own the economy, the people do, and except for providing for their protection the government should get the hell out of the economy.