Monday, July 10, 2017

Lars Syll — Assumptions

Those of you who have lost a job, or who have struggled to find a job on leaving school, college, or a university, are well aware that unemployment is a painful and dehumanizing experience. You may be surprised to learn that, for the past thirty-five years, the models used by academic economists and central bankers to understand how the economy works have not included unemployment as a separate category. In almost every macroeconomic seminar I attended, from 1980 through 2007, it was accepted that all unemployment is voluntary.
Roger Farmer
Lars P. Syll’s Blog
How ‘New Keynesian’ economics betrays Keynes

The financial and economic crisis also spells a crisis for certain areas of economics, or approaches to economics. Financial economics and macroeconomics are particularly vulnerable. They are the subject areas where the consequences of the standard assumptions have been most damaging, because they are actually least valid. Financial market traders are not remotely like Star Trek’s Mr Spock, making rational calculations unaffected by emotion or by the decisions of other people. Macroeconomics – the study of how millions of individual decisions aggregate into economy-wide measures – is essentially ideological. How macroeconomists answer a question like ‘What will be the effect of cutting the budget deficit on growth next year?’ depends on their political views. This is not remotely a scientific area of the discipline. The consensus about macroeconomics during what’s been described as ‘the Great Moderation’ of the 1990s has entirely broken down.
Diane Coyle
It's the assumptions, stupid.

Lars P. Syll | Professor, Malmo University


AXEC / E.K-H said...

Keynesianism ― the economists’ senile dementia
Comment on Lars Syll on ‘Assumptions’

Keynesianism is a failed approach, more precisely, Keynesianism is axiomatically false and materially/formally inconsistent. This is a provable fact. Because the theory is false Keynesian policy guidance has NO sound scientific foundation. So the question remains why are there still Keynesians around 80+ years after the General Theory? There are three reasons, (i) Walrasianism has been thoroughly falsified and is therefor no option to fall back on, and (ii), nobody has identified the critical methodological blunder of Keynesianism, and (iii), nobody has any serious ambition to get out of the mess. Fact is that economists are rather satisfied with the pluralism of false theories and the ping pong of well-known arguments.

Here is the exact spot where Keynesianism went into the deep woods: “Income = value of output = consumption + investment. Saving = income - consumption. Therefore saving = investment.” (GT, p. 63)

This two-liner is conceptually and logically defective because Keynes NEVER came to grips with profit: “His Collected Writings show that he wrestled to solve the Profit Puzzle up till the semi-final versions of his GT but in the end he gave up and discarded the draft chapter dealing with it.” (Tómasson et al.)

Because profit is ill-defined the WHOLE analytical superstructure of Keynesianism is false, in particular all variants of I=S and IS-LM models.#1, #2

While Keynes was right in rejecting the microfoundations (maximization-and-equilibrium) approach he simultaneously messed up the macrofoundations approach.#3 Because both Walrasianism and Keynesianism are materially/formally inconsistent any synthesis of the two must fail. Because of this all textbooks are logically incoherent since 70+ years.#4

So, Keynes messed up the pivotal issues profit theory#5 and employment theory#6 but After-Keynesians never realized it. As if 80+ years of inconclusive verbiage were not enough Lars Syll#7 and Paul Krugman#8 are mired in a senile debate about who is a real Keynesian which is much like a debate about who is a real Flat-Earther.

Time for a paradigm shift and a change of personnel.

Egmont Kakarot-Handtke

#1 See ‘Mr. Keynes, Prof. Krugman, IS-LM, and the End of Economics as We Know It’

#2 See ‘Why Post Keynesianism Is Not Yet a Science’

#3 See ‘How Keynes got macro wrong and Allais got it right’

#4 See ‘The father of modern economics and his imbecile kids’

#5 See ‘Profit theory in less than 5 minutes’

#6 See ‘Macrofounded labor market theory’

#7 See ‘Say hello to Lars Syll, Keynes’s last parrot’

#8 See ‘Just another wreck’

Tom Hickey said...

As Hayek pointed out, Keynes was not himself an economist but rather a polymath. He pretty much read Marshall and responded to Marshallian problems in a Marshallian context. Keynes exposed some holes in Marshall's frame but basically kept the supply & demand based analytical structure as the basis of a capitalist system.

See "Keynes and Marginalism"

Abba Lerner, who happened to be Hayek's student at LSE, almost immediately took the GT a step further. Keyes objected initially but apparently accepted Lerner's view subsequently.

But there is still no general theory of economics.

In Turchin's recent article at Evonomics, to which I linked yesterday, he notes that it is generally agreed now that a necessary condition for being considered "scientific" is formalization. Turchin observes that the push in the social sciences began with economics. However, there are no accepted general theories in the social sciences, including economics, as there are in the natural and life sciences. Turchin admits that the general theory of the life science is looser than that of the physical sciences, but it is formalized and supported by data. He argues that the same needs to be accomplished in the social sciences, which is more difficult owing to the even looser nature of the subject matter.

If humans behaved like atoms, as neoclassical economics assumes, economics would be a lot simple. But they are not. To paraphrase Feynman, physics would be a lot more difficult if electrons had feelings.

This boils down to measurement problems in providing data to support formal models that claim to be causal, which scientific explanation does assert. A scientific explanation involves some transmission process, since correlation alone does not imply causation. Scientific reasoning is based on reasons that that are supported by observation and measurement.

for those with the requisite training developing formal models is relatively simple. The difficulty arises with showing that the model is representational based on the supporting observational data and theoretical reasoning. And in non-ergodic systems, "past performance is no guarantee of future performance."

AXEC / E.K-H said...
This comment has been removed by the author.
AXEC / E.K-H said...

Tom Hickey

(i) What Hayek said about Keynes and vice versa is irrelevant because both were scientifically incompetent agenda pushers.#1, #2, #3

(ii) What Tuchin said about math/economics/science misses the point entirely.#4

(iii) You say: “However, there are no accepted general theories in the social sciences, including economics, as there are in the natural and life sciences.” Take notice that economics is NOT a so-called social science but a system science.#5

(iv) The rest of your augment is one of the oldest excuses in economics: “Years ago I heard Mr. Cobden say at a League Meeting that ‘Political Economy was the highest study of the human mind, for that the physical sciences required by no means so hard an effort.’” (Bagehot, 1885)#6 Fact is that economists are abysmally incompetent and have achieved NOTHING of scientific value in the past 200+ years.

(v) Keynesianism is axiomatically false and materially/formally inconsistent.#7 Because the theory is false Keynesian policy guidance has NO sound scientific foundation. After-Keynesians are simply 80+ years behind the curve.

Egmont Kakarot-Handtke

#1 See ‘Keynes and the logical brilliance of Bedlam’

#2 See ‘Marshall and the Cambridge school of plain economic gibberish’

#3 See ‘Hayek and other informationally retarded proto-economists’

#4 See ‘We are not yet out of the wood; in fact, we are not yet in it’

#5 See ‘The happy end of the social science delusion’

#6 See ‘Failed economics: The losers’ long list of lame excuses’

#7 See ‘Keynes saw the problems but did not solve them’

Six said...

I think Egmont might confuse economics! with accounting!.

AXEC / E.K-H said...


Accounting is measurement. Measurement is the precondition for testing. Without testing NO real-world economics, only vacuous political blather and pointless psychological second-guessing.

Economists are too stupid for the elementary mathematics of accounting.*

Egmont Kakarot-Handtke

* For more details of the bigger picture see cross-references Accounting