...the root of our problem goes much deeper. It ultimately goes back to how we look upon the data we are handling. In “modern” macroeconomics – dynamic stochastic general equilibrium, new synthesis, new-classical and new-Keynesian – variables are treated as if drawn from a known “data-generating process” that unfolds over time and on which we therefore have access to heaps of historical time-series. If we do not assume that we know the “data-generating process” – if we do not have the “true” model – the whole edifice collapses. And of course it has to. I mean, who really honestly believes that we should have access to this mythical Holy Grail, the data-generating process?...
...as Keynes convincingly argued in his monumental Treatise on Probability (1921), this is not always possible. Often we simply do not know. We cannot always put exact numbers on the assessments we make. There are no given probability distributions we can appeal to.
In the end this is what it all boils down to. We all know that many activities, relations, processes and events are genuinely uncertain. The data do not unequivocally single out one decision as the only “rational” one. Neither the economist, nor the deciding individual, can fully pre-specify how people will decide when facing uncertainties and ambiguities that are ontological facts of the way the world works.GIGO.
This is a key problem with formalism. According to the scientific method, an explanation is true if and only if it fits all the facts it purports to explain. In magical thinking, an explanation is presumed true if it fits selected facts that are chosen based on methodological convenience or ideological assumptions. That is to say, the assumptions serve to prove the explanation, which is the fallacy of circular reasoning.
Mainstream macroeconomics — a massive intellectual mistake
Lars P. Syll | Professor of Civics, Faculty of Education and Society, Malmö University
3 comments:
There are 3 mistakes at work here, actually 4.
1) ortho-Econ is BS
2) policy wonks take orth-Econ as real religion
3) electorates swallow this trashy lure, hook, line & clunker
4) anyone who points out the illogic of a social emperor missing 3 layers of clothes ... is promptly told that the mathematics of the real logic "doesn't work for fools"
Well, now that we all agree, can we move on to NOT placing fools in charge of national policy?
Reversion toward a mean in human systems don't work to describe it! Regression models work until they don't for a marketplace or economy. Ask a trader, like Mike, how often prices go away from a mean and don't revert for a very, very long time. How often do they break a regression channel? How often do they break out of a transformed regression channel? All the time. Assuming any distribution or any transformation will normalize is goofy and unrealistic. Economics, like a trader, can't bet on the 95% of time things act normally and ignore the outliers. The outliers and long periods of non-standard distributions are the only times where economists are expected to get 'it' right, they can't view those instances as a friction, a shock some other abstraction that implies in-explicability. It isn't a one-off irrational agent folks!
at Ryan Harris
Seeing as economists & various religious shamans are the only people in the world who DON'T know this ... what's the deeper lesson here?
That every scale of every analog computing "system" (including human analog computing or "social" networks) assumes a mean & waits for diversion?
Then it's only a question of how long any perturbed analog computing system takes to notice change.
Of course, it helps a bit if every student is told to expect systemic change, and to LOOK for it ... instead of just waiting for change to kill half their family and destroy their economy and culture.
We were far better at these things 200 years ago. All that's changed is the number of distracting people keeping us from thinking clearly?
Post a Comment