Lars P. Syll — The DSGE quarrel

Quote by Silvia Merler/Bruegel mentioning Lars, with a shoutout to Brian Romanchuk.

Lars P. Syll’s Blog
The DSGE quarrel
Lars P. Syll | Professor, Malmo University

More from Lars

Economic history — a victim of economics imperialism

Empirical economics and statistical power

The Arthurian — Grab a Barf Bag!

Here's a quote that would make Lars Syll retch:

Because DSGE models start from microeconomic principles of constrained decision-making, rather than relying on historical correlations, they are more difficult to solve and analyze. However, because they are also based on the preferences of economic agents, DSGE models offer a natural benchmark for evaluating the effects of policy change.- MathWorks: Modeling the United States Economy

"... based on the preferences of economic agents, DSGE models offer a natural benchmark for evaluating the effects of policy change.

I think this is one of Syll's pet peeves! DSGE models are not "based on the preferences of" actual economic agents, but on simplified agents arising from "deductivist" assumptions....

The is a good illustration of "mindless math" aka GIGO. Mindless math presumes (hidden assumption) that quantification somehow guarantees outcomes regardless of conceptual logic that underlies the numbers.

For example, variables have arguments based on the conceptual definition of the variable in terms of a set. If the numbers do not match the defined membership of the set, then GIGO. This is all over the place in economic modeling, e.g., where homogeneity is assumed excessively, or where micro is extended to macro when the fallacy of composition applies.

Lars Syll assiduously points out these "freshman errors" in his blog. More economists should be paying attention.

I find it rather surprising that MathWorks would stumble over this.

The New Arthurian Economics

Grab a Barf Bag!

The Arthurian

Lars P. Syll — Noahpinion and the empirical ‘revolution’ in economics

Lars responds in some detail to Noah on the empirical revolution in econ.

Lars P. Syll’s Blog
Noahpinion and the empirical ‘revolution’ in economics
Lars P. Syll | Professor, Malmo University

James Sherman — Uncovering the Bad Math and Logic (and the Bias) at the New York Times

Excellent summary and analysis of the debate over Gerald Friedman's projections about the Bernie Sanders economic plan. It's a Post Keynesian takedown of Justin Wolfers and Christina and David Romer for failure to understand and address Friedman's actual position.

The Body Politick
Uncovering the Bad Math and Logic (and the Bias) at the New York Times
James Sherman, lecturer in the Program in Ethics, Society, and Law at Trinity College, University of Toronto, a research fellow of the University of Toronto’s Centre for Ethics, and the recipient of a Social Sciences and Humanities Research Council of Canada fellowship
ht David Fields

Jason Smith — Falsifiabilité, simplicité, succès ... ou la mort

There is a big theme running through this discussion so far -- that of empirical success. Falsifiability means that empirical success is not trivial. Simplicity depends on your measurements. But you also want your theory to produce the results you actually see! As they say, nothing succeeds like success. This set of heuristics gives us what theory should look like: 

1. Falsifiability. There should exist observations that your theory doesn't allow.
2. Simplicity. Your theory should not be too complex to be falsifiable.
3. Success. Your theory should not be falsified!

Much more in this short post, and I suggest reading it if you are interested in scientific modeling. Jason Smith is knowledgeable about modeling in both physics and economics, math and mathematical modeling, and philosophy of science. This is a non-wonkish post about fundamental issues in economic modeling.

Information Transfer Economics
Falsifiabilité, simplicité, succès ... ou la mort
Jason Smith

More on mathiness and economics as science

More on mathiness and economics as science. Fast and furious now.

Information Transfer Economics

The irony of Paul Romer's mathiness

Another mistake from Romer

Jason Smith

Lars P. Syll’s Blog

Paul Romer is ‘busy’ …

Lars P. Syll | Professor, Malmo University

Econospeak
A Veritable Epidemic of Mathiness
Peter Dorman, Professor of Political Economy, The Evergreen State College

Paul Romer doubles down.

Paul Romer
Protecting the Norms of Science in Economics

Lucas on blueprints as physical capital

Update:

Naked Keynesianism
Some Brief Thoughts on Paul Romer and Mathiness
Matias Vernengo | Associate Professor of Economics, Bucknell University

Econospeak
Mathiness, Growth and Increasing Returns
Sandwichman

Brian Romanchuk — Why Chartblogging Is Superior To Mainstream Macro

Orthodox-heterodox economic squabbling has once again erupted on the internet. As always, the mainstream argument is that their methodologies are superior because they are based on mathematical models. My main area of interest is the quantitative end of economics, so I do not pay too much attention to some of the purely literary approaches to economics. But even so, I believe that mathematical and statistical methods are being applied incorrectly by mainstream economists, and so whatever modelling advantage they have is largely illusionary. I illustrate this with a few examples, including an explanation why I believe the mainstream debate about the "natural rate" of interest is largely meaningless.…

Nice brief summary, not wonkish.

Bond Economics
Why Chartblogging Is Superior To Mainstream Macro
Brian Romanchuk

Brad DeLong — People Claiming That Even John Maynard Keynes Is No True Keynesian!

Brad DeLong takes on JW Mason and Lars Syll.

Oh, this is going to be fun!

Grasping Reality
People Claiming That Even John Maynard Keynes Is No True Keynesian!

Brad DeLong | Professor of Economics, UCAL Berkeley

Brian Romanchuk — Should A Central Bank Care About Loanable Funds?

New Keynesian loanable funds and DSGE modeling following up on Lars Syll and Nick Rowe.

Bond Economics
Should A Central Bank Care About Loanable Funds?
Brian Romanchuk

Philip Pilkington — Krugman Uses ISLM to Proclaim Looming Fiscal Crisis, Denounces Those Who Don’t Use ISLM

Phil takes down Paul Krugman as a faux-liberal and an economist with a poor record at prediction.

Fixing the Economists
Krugman Uses ISLM to Proclaim Looming Fiscal Crisis, Denounces Those Who Don’t Use ISLM
Philip Pilkington

Edward Lambert — Institutionalist Economics did not come up short

Krugman's back at it: "No model." Edward Lambert calls him out on it.

There are two fundamental types of conceptual model used to express theoretical assumptions: the first is mathematical and the second is conceptual. 

Conceptual models have generally fared better than the mathematical ones with respect to policy for a variety of reasons, the basic one being that they can handle more kinds and orders of variables that are relevant, both quantitative and qualitative. Evidence? Keynes and the New Deal.

Krugman is specifically throwing Keynes under the bus? Or does Krugman think that the IS-LM model captures the essence of the General Theory?

Of course, monetarists will say that Keynesianism broke down with stagflation and monetarism repaired the lacuna with its math-based analysis — that showed that what happened in the financial crisis was impossible, or at least highly unlikely. 

Those taking a broader view warned otherwise. Like those influenced by Minsky's analysis.

What amazes me is that monetarists think that the policy rate is the single lever that moves the entire economy, which is neatly depicted in the IS-LM model.

Effective Demand
Institutionalist Economics did not come up short
Edward Lambert

Lars P. Syll — Fiscal policy — whipped out only as a last resort

Edward Harrison compares John Cochrane, Paul Krugman and Lars Syll and concludes that economics is ideological.

LS: "Is ideology only playing a role when it comes to fiscal policies? Hard to believe. As already Gunnar Myrdal argued 80 years go, ideology is all over all economists. Whether they are into monetary or fiscal policies is immaterial."

Fiscal policy — whipped out only as a last resortLars P. Syll | Professor, Malmo University

Rationality and Ideology

Entering the economic debate as a philosopher, what appears obvious to me is the erroneous presumption (hidden assumption) that this appraoch to rationality entails. The assumption that there is a representative (universal) rational agent further assumes that there is only one universe of discourse operative and that all share the same worldview (in Wittgenstein's sense) that it describes and delimits through its norms. This worldview is a logical construct of "reality."

That is patently not the case as wide ideological disagreement shows. People, including economists who are supposedly "scientists," disagree not only over norms but also what the facts may be, because "facts" don't exist independently as "things" but rather are structured in terms of the manner of approach. Difference in worldview result in different ways of structuring facts in that the difference of worldviews are observable in terms of different rules and their application, for instance, criteria.

Although I think this is the beginning of the matter, I don't think that this is the end of the matter, in that there are a lot of other issues with "rationality," too. But this is one that I seldom see even brought up, even though it should be obvious that economics can be viewed as a struggle among competing ideologies and the worldviews they entail. If this were not the case, then a "scientific" resolution would be possible and there would be a Kuhnian normal paradigm in economics. But that is not the case as far as I can see as an observer.

Orthodox attempts to sustain the claim that it's paradigm is normal and everything else is "heterodox," but I don't see that case being made successfully at all, especially when heterodox economists predicted the crisis and orthodox economists not only did not but claim that it is not possible, failing to add, in the "normal' paradigm. That should call the "normal" paradigm into question, but they will not admit that. This is an indication of adherence to ideological norms over feedback for experience.

Note: I posted this a comment at Lars Syll's blog here, but it stands alone, too.

Lars responds:

I can’t but agree, Tom. Neoclassical economics has been tremendously successful in usurping words like “rational” and “effective”, loaded them with very special meanings and relying on people not wanting to be considered as “irrational” or “inefifcient” thinking the economics-meaning of the terms are he same as the common sense meaning. Amartya Sen has done a tremendous job on this.

Yes, a further criticism is that the economics debate in general presupposes capitalism and the assumptions of capitalism about what is "natural." This is taken as self-evident, other than in Marxism, Marxian economics, PROUT, and other non-capitalistic or post-capitalistic schools.

Interestingly, "Christian Economics" is a label that is also used by Religious-Right Libertarians. See Gary North, An Introduction to Christian Economics