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Tuesday, July 28, 2020

Revealed: The Simple Change That Breaks Mainstream Macro — NeilW


Funny about assumptions. A model will say whatever a designer wants depending on choice of assumptions. The "one simple trick" of neoclassical economics is unrealistic assumptions. Neil demonstrates this cleverly.  Fix just one unrealistic assumption that is actually more in line with price theory — demand is relative to price rather than randomly selected — and voilà, equilibrium fails. Short.

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Revealed: The Simple Change That Breaks Mainstream Macro

NeilW

4 comments:

  1. NeilW

    “The problem is not just to say that something might be wrong, but to replace it by something — and that is not so easy.” (Feynman)

    It is pointless to criticize Neoclassics for the x-th time, the point is to fully replace it. The rethinking of economics leads with unassailable logic from false Walrasian microfoundations and false Keynesian macrofoundations to true macrofoundations.#1

    Egmont Kakarot-Handtke

    #1 Sovereign Economics Amazon, BoD, etc
    https://www.bod.de/buchshop/sovereign-economics-egmont-kakarot-handtke-9783751946490

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  2. I’m not sure that “mainstream macro” assumes “wages are flexible – particularly downwards”. Most of the text books I’ve read admit that Keynes had a good point when he said (to quote) that “wages are sticky downwards”.

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  3. From the underlying paper

    "This experiment has shown that the labor market can more easily self-organize to an equilibrium if the unemployed are willing
    to accept wage cuts more easily. The model is thus generally consistent with classical economic reasoning." (pp116)

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  4. NeilW

    The macroeconomic Employment Law says that overall employment rises with an increase in the average wage rate.#1 Yes, for a micro brain this appears counter-intuitive. But then, microeconomics is long dead.

    Egmont Kakarot-Handtke

    #1 The end of Mankiw and his Phillips Curve
    https://axecorg.blogspot.com/2019/09/the-end-of-mankiw-and-his-phillips-curve.html

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