Monday, May 7, 2018

Jason Smith — Recessions and special snowflakes

My issues with Dirk Bezemer's academic credibility seem to have nudged the Post Keynesian hornets' nest such that they seemed to assume I was attacking Post Keynesianism in general, which I gladly took on because one thing that I really do dislike is cult-like adherence to ideology regardless of what that ideology is. But first let me clarify a few things.…
For those following this. Boiling it down in this post, he is saying to Post Keynesians, convince me and remember that I am a working scientist that is interested in showing regularities in data.  Could be that there is no regularity, but that has to be shown, too. Fair points.

Jason is actually a good foil in the debate. He is not an economist but has taken the time and trouble to acquaint himself with economics, both conventional and heterodox, and he has no horse in the race, other than working on an information transfer theory that he admits is a work in progress.

So he is quipped with all the tools to recognize good and bad arguments. Consequently, he represents a good model for what needs to be done to argue an economic position convincingly to a qualified member of the interested public, instead of waving hands.

Look at it as an opportunity and challenge.

Information Transfer Economics
Recessions and special snowflakes
Jason Smith

5 comments:

Matt Franko said...

“The "dot com" or "[Dow Jones] industrial" adjectives in the market crashes are just adjectives -- not critical components of the analysis.“

I believe they’re figures of speech... but the main point is correct...

Brian Romanchuk said...

Tom, not sure I see a debate here.

Smith has a complete and utter inability to read non-mathematical text. Nobody with adequate reading skills could read Lavoie’s summaries of post-Keynesianism and believe it can be reduced to a single set of reductionist models; Lavoie’s texts describe in detail how the dozens of post-Keynesian cliques disagree with each other over practically everything (other than their dislike of the mainstream). So well, duh, they disagree with each other with regards to saying what caused various recessions.

Manwhile the “insight” that some unknown factor causes recessions, and $1.95, will get you a cup of coffee. Everybody knows that. Without knowing what the magic factor is, the observation is worthless.

In any, go back to fundamentals. What is a recession? Since the definition varies by country (the NBER has a set of criteria for the US), we’ll go with the simple “2 quarters of declining real GDP.” So, we need to see why GDP declined. In most cases, the largest component of the GDP decline is in fixed investment. Why does fixed investment decline? Well, mainly because businesses stop investing. Why do they do that? Well, why do people do anything? Do you really think there is a magic factor that will always drive animal spirits?

Actually, I have an article on the business sector and recessions scheduled for tomorrow. I don’t refer to Smith directly, but I guess it could be viewed as a response.

Tom Hickey said...

While that is correct, the challenge I suggest that JS poses is convincing a non-economist that is qualified to understand arguments.

We can reasonably conclude that conventional economists are never going to come around, and that fact is easily explained by cognitive bias coupled with heavy investment in the status quo and the reputation risk involved.

However, JS presents a different category. There may be cognitive-affective bias operative, but probably not reputational risk

Cognitive-affective bias can be recognized and pointed out.

IN the end, it comes down to whether economics can be scientific in the sense of data-based theory, and JS has suggested that at this point there is little reason to think so based on what's out there. There is no theoretic framework for developing theories and there are problems with acquiring data.

Pilkington may correct in asserting that the best that economists can come with regarding recessions is Godley's SFC based analysis of unsustainable process. But putting a clock on this is probably not possible with the degree of accuracy that would produce compelling reason to accept the analysis as a "forecast."

The question seem to be to be what aspects of economic and finance can be considered "scientific" not in the sense of data-based theory but special cases similar to case studies in business schools.

Otherwise, I would say that inquiry is "proto-scientific."

There is also the matter of scientific explanation. Can unrealistic assumptions that yield correct solutions (Friedman) be accepted logically as scientific explanations? The ordinary approach to logic would say not. They may be useful instrumentally and pragmatically but they do not provide an explanation based on reasons. This is both a logical and epistemological issue, and there are different schools in philosophy of economics that treat it, .e.g, critical realism and instrumentalism.

JS seems to be an instrumentalist and (I think) claims that this is the science is actually done rather than theorized about.

Matt Franko said...

“Why does fixed investment decline? Well, mainly because businesses stop investing. Why do they do that? ”

Because as a result of related policies and often related policy changes, banks can lose authority for short terms to increase financing provided for fixed investment....

AXEC / E.K-H said...

Remark on Tom Hickey on ‘Jason Smith — Recessions and special snowflakes’

Tom Hickey maintains: “Jason is actually a good foil in the debate. He is not an economist but has taken the time and trouble to acquaint himself with economics, both conventional and heterodox, and he has no horse in the race, other than working on an information transfer theory that he admits is a work in progress.

So he is quipped with all the tools to recognize good and bad arguments. Consequently, he represents a good model for what needs to be done to argue an economic position convincingly to a qualified member of the interested public, instead of waving hands.”

Nothing could be more misleading. Jason Smith’s blog is subtitled Information Equilibrium. Nobody needs to go further than that.

Equilibrium is a NONENTITY in economics. Supply-demand-equilibrium and General Equilibrium are dead. The only question is, how can it be that economists needed 140+ years to realize this. Each peer-reviewed paper, textbook, or blog that contains the word equilibrium is proto-scientific dung. The use of the equilibrium concept makes the major part of economic literature scientifically worthless.

How can Tom Hickey recommend and promote a guy who exposes himself already in the subtitle of his blog as cargo cult scientist? In the Augean Stable of economics, posts like those of Jason Smith are the dung that has to be flushed out.

Egmont Kakarot-Handtke