As long as we cannot show, except under exceedingly special assumptions, that there are convincing reasons to suppose there are forces which lead economies to equilibria - the value of general equilibrium theory is nil. As long as we can not really demonstrate that there are forces operating – under reasonable, relevant and at least mildly realistic conditions – at moving markets to equilibria, there can not really be any sustainable reason for anyone to pay any interest or attention to this theory.
A stability that can only be proved by assuming “Santa Claus” conditions is of no avail.Read it at Lars P. Syll's Blog
Why general equilibrium economics is a dead end
by Lars P. Syll
Lars concludes:
Continuing to model a world full of agents behaving as economists – “often wrong, but never uncertain” – and still not being able to show that the system under reasonable assumptions converges to equilibrium (or simply assume the problem away), is a gross misallocation of intellectual resources and time.We have to ask why this would continue for so long, when it is clearly unfruitful, and, moreover, both inefficient and damaging.
There are at least three possible explanations.
First, the people involved are excessively stubborn to the degree of being in denial wrt feedback. Check.
Secondly, it might be due to institutional momentum resulting from prior investments. Check.
Thirdly, as Ravi Batra asserts based on his analysis of historical evidence, it results from co-optation of the upper-echelon intelligentsia by the ruling elite, in this case the acquisitors that benefit from and support research recommending policy that favors the elite. Hmmm?
I recall some wag saying that since Marriner Eccles, the elite have never permitted anyone to be appointed as a central banker who actually understood central banking.
It seems like something similar happened in economics after Lorie Tarshis wrote the first introductory exposition of JMK, The Elements of Economics. Tarshis was promptly denounced as a communist sympathizer (sound familiar today?), The book was withdrawn as a textbook and is long out of print. (It's available for free download here).
Paul Samuelson tried to save Keynes by sanitizing him though a "synthesis" whose result was "bastard Keynesianism." Now "Keynesianism" of any sort is synonymous with "socialism."
And we are stuck with policy models that don't work other than for those benefitting from them most, and resistance to change is fierce. Accidental, or coincidental?
15 comments:
Tom I think you should put up Richard Koo's talk from April
http://www.youtube.com/watch?v=DFxWCyHRD1I
Thanks, Clonal. Up.
Tom
How does Batra deal with those who become politicians wrt his 4 classes?
Pols pulled from the 4 classes and in effect jockey for position?
Rsp
PS:
Eccles wrote in the context of exogenous 'money' seems like exclusively.
Beware.
Rsp
Batra theorizes that there are three classes that alternate rule in the following order: warrior, intelligentsia, and acquisitor. In the fourth stage, the acquisitors integrate the labor class. The labor class never assumes rule itself.
The warrior class is not necessarily the military but those with a "warrior" mindset. The intelligentsia, which Batra calls the intellectual class, is comprise of the specialists of the day, the mindset of which is knowledge and technology, the acquisitive class is made up of those whose mindset is characterized by the pursuit of wealth and opulence.
So far historically, the laboring class has not become well educated enough to assume rule and either supports one of the other classes or is suppressed by whoever is ruling.
Batra sees an end coming for acquisitive rule and a reseversion to rule by the warrior mindset that detests venality and corruption and values orderliness. When political corruption and economic chaos comes due to venality and selfishness, then those with a warrior mindset rise up to rectify the imbalance.
'When political corruption and economic chaos comes due to venality and selfishness, then those with a warrior mindset rise up to rectify the imbalance."
Seems like the time for that could be currently. But the only high profile warrior class person mentioned in a Presidential context seems like Patraeus but he seems like he has the personality of a damp dish towel....
rsp,
Matt,
I believe that the warrior in the Batra sense does not necessarily mean a soldier. It could also mean - "one who punishes or prosecutes wrong doers." It could well be somebody who goes after the bankers, and the people that caused the crisis. As we well know nobody has gone after the venal ones.
I think that Batra broad definition of warrior mentality fits both some of the Tea Party people and some of Occupy folks. These are the ones calling the politicians out on corruption and cronyism and they are also victims of the economic chaos that engulfing us. However, at this point I would says it's the Occupy/ Indignado/Arab Spring folks that are out there putting their butts on the line around the world. There is blood in the streets all over the place.
Clonal, I don't think it is true to say that no one has gone after the venal ones. Elizabeth Warren was out front on this, way ahead of the administration, and she is not emerging as an up and coming political figure. Batra would includes here in the warrior mindset even though she is technically a member of the intelligentsia. Chomsky is another. Both are hated by TPTB. But Chomsky is much more of the intelligentsia. Warren is out there in action in the political arena.
Of course, I could also mention UMKC's Bill Black, Michael Hudson and Randy Wray as activists, too. Warren has been out there as an activist, too, and ran for political office. And David Graeber, who was in on the founding of Occupy and has been a leader in it.
Right Tom & Clonal,
I see all 4 classes getting involved politically.
iow Batra does not call out "politicians" as one of his 4 classes.
So looks like the political positions (or "rule"?) is up for grabs for persons from any of the 4 classes and/or you have the 4 classes trying to influence the politics constantly.
Clonal correct I could see a "warrior" type cleaning up that cesspool of corruption and re-setting it as job #1.
Rsp
Matt "iow Batra does not call out "politicians" as one of his 4 classes."
In a republic, politicians represent TPTB rather than "the people."
FDR was a warrior in the sense that he went against his own class, the elite of the day. FDR was eventually thrust into the position of being a warrior by WWII. So was Lincoln by the Civil War, without which he might not be remembered any more than the other presidents of that time. Washington was, of course, an actual warrior and he displayed the high type warrior mindset when he dismissed the notion of his becoming king. Grant was an actual warrior and a great one, but he did not exhibit the warrior mindset while president and his presidency is doesn't match his military achievement. Teddy Roosevelt was a warrior of sorts but he exhibited the warrior mindset while president.
I was curious as to whether Eccles "wrote in the context of exogenous 'money'" ...
"The banks create money when they make loans and investments."
(Governor Marriner Eccles, June 24, 1941)
So, although not calling it "endogenous money" it would appear that he was working with knowledge and within the context of both "exogenous" and "endogenous"?
Apologies if I'm wrong. Link to source here.
Anon from Eccles:
"On January 25, Governor Eccles, speaking for himself, openly challenged
the Administration in testimony before the Joint Committee on the Economic
Report. He testified:
As long as the Federal Reserve is required to buy government securities
at the will of the market for the purpose of defending a fixed pattern of
interest rates established by the Treasury, it must stand ready to create
new bank reserves in unlimited amount. This policy makes the entire
banking system, through the action of the Federal Reserve System, an
engine of inflation. (U.S. Congress 1951, p. 158)"
Monetarist moron? Or perhaps as you imply a schizoid?
http://www.richmondfed.org/publications/research/economic_quarterly/2001/winter/pdf/hetzel.pdf
Page 43
I remember reading something from him where he talks about how the US "financed" WW2...
Unreliable source at best, moron at worst.
rsp,
Matt - Read through that document.
Damn-- You are right about Eccles. Seems like he cared about "Fed independence" more than getting it right.
Even he thought Fed controlled money creation.
PS - this needs a blog post.
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