Lars P. Syll — Does it–really–take a model to beat a model?

The implication here is "formal model." But formal models are not the only sort of models. Most models we use are conceptual and they are mostly sufficient to the task. For example, in the Tractatus, Wittgenstein showed how a descriptive statement is a model of a fact that allows for comparing the model to the fact observationally to determine it truth-value. He elaborated how the propositional calculus is used to to describe many fact in using the principles of descriptive logic to construct a conceptual model. 

Wittgenstein used the German term "Bild" (meaning picture) as the basis of his analysis of a proposition as a "picture" of a fact based on there being a one-to-one (logical) correspondence of the elements of a picture to those of the fact it represents. A descriptive proposition models a fact in a way (logically) similar to ordinary picturing.

This notion as not original with Wittgenstein. Wittgenstein was an engineer by training and the Tractatus is modeled on Hertz's introduction to the Principle of Mechanics. It lays the logical foundations for philosophy of science. Philosophers coming from a different angle of approach and take it as an ontological work are mistaken about the task that Wittgenstein set himself as logician with a background in science. Those coming from a psychological background thought that Wittgenstein was making a psychological claim about the mind creating pictures of reality in thought. This, too, is erroneous. Wittgenstein was simply elucidating how the logic of description works since the logic of description cannot describe itself. It is something that one must come to see through logical analysis.

While the Tractatus is about symbolic logic, it is not written in symbolic logic. That does not mean that it is not a highly rigorous work. Even so, very few people commenting on it have seen what Wittgenstein was doing from his own point of view rather than theirs. The comparison with commentary on MMT is striking to me. It seem that many people have difficulty moving beyond their cognitive-affective biases even when these are pointed out to them.

Of course, rigorous models are preferable to less rigorous ones where circumstances call for it. However, it is also evident that rigorous models that don't yield as good results and less rigorous one are not preferable. Formalism itself is not a criterion of truth-value. Logic and math must be consistent, but consistency says nothing about correspondence or pragmatic worth.

Overemphasis on formalism at the expense of model realism and usefulness is an elementary mistake. This should not need saying in a professional setting. 

Lars P. Syll’s Blog
Does it — really — take a model to beat a model?

Lars P. Syll | Professor, Malmo University

Banks And Money (Sigh) — Brian Romanchuk

In terms of the the general case concerning contemporary banking, the basic constraint on lending, by which banks create "money"* by crediting deposit accounts (bank liability) and debiting loan accounts (bank asset), is the availability of creditworthy borrowers. This population is flexible based on, financial and economic conditions, bank credit standards, and government policy and regulation. All of these may change over the cycle.

Price of assets rise to the degree that banks are willing to lend against them as collateral, and goods prices will be affected by changes in bank credit policy. Since bank credit generates much more highly liquid purchasing power (M1) by volume in an economy than government net spending (which also adds to M1), "bank money" is a primary driver of asset values and goods prices.

Since banks, even though privately owned, are part of the government-regulated banking system, they submit to government regulation and oversight, for which they receive access to the central bank as lender of last resort and also deposit insurance.

Yet, much of what we still hear is about gub'ment, crowding out, interest rate explosion, and other idiocies based on the erroneous loanable funds theory.

Thankfully, many economists are finally throwing off the heavy yoke of monetarism, but even many of these are still affected by the cognitive biases resulting from monetarism's deep impressions on the psyche. However, a majority of posts that mention MMT are still rants about the dire effects of "fiat currency"and fiscal depravity as opposed to Libertarianism and "sound money."

Bond Economics
Banks And Money (Sigh)
Brian Romanchuk

* I put money in quotes because "money" is an ambiguous term that should be banned from economics, as Brian notes. "Money" is one of those weasel words that everyone thinks they understand; yet, no one does owing to the extremely high level of abstraction that makes it a wild card. Better to say exactly what you mean, ideally in accounting terms with dealing with a unit of account. 

Unfortunately, there are many other terms in economics like this. See, for example, the Cambridge capital controversy that pitted Samuelson and oSlow against Robinson and Sraffa.

Greg Mankiw' — Sad News from China

Depending on how you look at it.

Greg Mankiw's Blog
Sad News from China

N. Gregory Mankiw | Robert M. Beren Professor of Economics at Harvard University

Revisiting Education of Economics – Dr. Omer Javed

Economics and teaching economics in Pakistan. Good short summary of the history of economics. Curiously, he doesn't mention MMT or even Post Keynesianism, taking a decidedly institutional approach. MMT economists draw on Post Keynesianism and institutional economics heavily, although these are not the only influences. 

Global Village Space
Revisiting Education of Economics – Dr. Omer Javed

Omer Javed, institutional political economist,who previously worked at International Monetary Fund

John Hermanm — The biggest intellectual scandal of our time

If mainstream economists had thought and behaved differently after 1980, then arguably the world would not be in its current state of disarray, and much of the social and environmental dislocation that we have witnessed over that time-span would not have occurred. In a nutshell, these economists uncritically accepted as true the false analyses, promises and prescriptions of neoliberal ideology. The destructive outcomes of their attempts to implement those prescriptions were greatly enhanced by their profound ignorance of the operational dynamics of finance, banking and credit money creation. To this day they continue to hold to barter-based models of economic activity, to the extent that money, credit and banking are missing from their considerations. 

Mainstreamers possess several major blind spots....

I would not call them "blind spots," but rather incorrect assumptions and false operational understandings that vitiate their work and make their policy recommendations not merely wrong-headed but actually dangerous.

erablogdotcom

The biggest intellectual scandal of our time

John Hermanm

Lars P. Syll — Mainstream economics — a pointless waste of time

Be sure to read the comment by Asad Zaman also. Zaman argues that conventional economics is not merely a pointless waste of time but designed for a purpose and to make very explicit points about it. This is not ignorance but deception and part of class warfare.

My view is that economics does perfectly what it is designed to do. It is a MISTAKE to think that conventional economic theory is WRONG. In order to make progress, it is essential to understand the function of economic theories.

1. Every economic policy hurts some groups and helps others

2. No group has sufficient POWER to ENFORCE policies favorable to them.

3. Groups with power MUST somehow create consent among a majority to enact policies favorable to them. If they do not do so, then policies against their interests will be enacted in a democracy.

4. People judge policies according to their THEORETICAL IMPACT, since no one can actually foresee the future. This means that policies are not evaluated as good or bad according to reality, but according to how widely accepted theories predict their impact (for a vivid example, consider BREXIT)

5. Thus the elite, the top 1%, are faced with the necessity of creating theories which show that policies which favor their interests are actually benefical for all, or for a majority.

 [6.?] Let us a label a theory to be ET1% — an Economic Theory of the top 1% — if it shows a policy to be favorable for the majority, when in fact the policy actually favors the top 1%.

7. Now if we consider conventional economic theory, it is easy to show that nearly all of it is ET1% — it is DESIGNED to prove that policies which favor the top 1% are beneficial for all. 

NOW LET US consider dominant economic theories and models in the light of this analysis.…

Real-World Economics Review Blog
Mainstream economics — a pointless waste of time
Lars P. Syll | Professor, Malmo University

Antonio Callari — Economists as public intellectuals

Soon after I read Brad DeLong’s post on “The Economist as…?: The Public Square and Economists,” I contacted my long-time friend and collaborator Antonio Callari, who is the Sigmund M. and Mary B. Hyman Professor of Economics at Franklin and Marshall College and an authority on the history of economics. I am pleased to publish his guest post here.

Must must-read!

We have been much the same thing here and the public is beginning to sense it although they cannot explain it and are being told either than they are delusional or envious, or that there is no alternative.

Snippets:

5. DeLong’s “history of economics” is long on the idea of markets but short on the idea of power. It’s true he mentions power abundantly: he mentions monopoly power, and he even discusses the way in which power subverts neo-institutionalist utopias of complete markets. These are, no doubt, important elements in framing the limits of the parameters of market-economics. Insofar, however, as they work against the background of an analytical system that imagines and formalizes a market system capable, under ideal conditions, to define efficient (i.e., “power-free”) outcomes, these elements relegate questions of power to the periphery of the analytical core of his economics.…

6. But there is another analytical tradition in economics in which questions of power and class are central and not peripheral, a tradition that makes it clear that there is no such thing as a “power-free” market system even at the most abstract level of analysis. This tradition is entirely absent in DeLong’s reflections. It is the tradition that not only Marx but also Veblen created (with their verbal and/or analytical demonstration that “capital” is itself “power”, not a “market-regulated” factor of production), which finds its roots in the analytical core of Adam Smith and David Ricardo, and which more recently found its uncontroverted analytical vindication in the work of Piero Sraffa. In an allusion to its disciplinary longevity, I’ll refer to this tradition as the Smith-Sraffa tradition. It is both an insight and an analytical conclusion of this tradition that a capitalist economy “can” in principle (purely according to market forces) come to find its central tendency at any level of output, and that the particular outcome is fundamentally determined by an exogenous (and primarily politically determined) distributional datum (a position on the wage-profit frontier), with prices (market forces) essentially bending to fit (enable, but not determine) the outcome. This tradition enlarges the set of direct, analytical, concern to economics to include questions of distribution, and of policies directly (administratively and/or politically) effecting distribution (e.g., minimum wage laws, capital controls, accounting and taxing rules for profits and management income, the structure of financial instruments and markets, and so on). In the work of some French economists, the framework for the arrangement of institutional and power levers effecting a particular central tendency or another has been suggestively called an “accumulation regime.…

11. Of course, this brings us directly to DeLong’s downplaying of the public intellectual potential of economists (the second point of #7 above). Had DeLong broadened the content of economics to include the Smith-Sraffa school, he might indeed have found it possible for economists to function as public intellectuals (this, in addition to, and alongside, and not in opposition to, their function in the more limited disciplinary area he addresses). Public intellectuals are people who find ways of making the public an active and knowledgeable participant in understanding key (not necessarily all) parameters of public policy and in the deliberation about and the forging of public policy. In DeLong’s world, the public cannot really participate (and the people are, in fact, in an existential state of epistemic anxiety) because they are confronted with economic and methodological questions (e.g., a threshold level of the rate of interest) they can’t adjudicate, or even grasp. But this is true only if the questions they are confronted with are of such a nature that they haven’t been trained to tackle. The nature of the Smith-Sraffa tradition, however, is such that at least some of its analytical parameters (e.g., again, minimum-wage laws, capital controls, accounting and taxing rules for profits and management income, the structure of financial instruments and markets, and so on) are quite open to intelligent public discussion: their resolution requires not specialized expertise but ideological and moral compasses. Broadening the map of economics to include the Smith-Sraffa tradition might thus have allowed DeLong to create the space for knowledgeable public participation and, hence, for a role for economists as public intellectuals to make it clear in the public square that the people are to be called upon to give the “experts” their marching orders. With public conversations properly framed by the broader analytical perspective the inclusion of the Smith-Sraffa tradition would produce, we would be neither be in the “sewer” of popular passions and ignorance nor in the hands of any philosopher king.…

14. There are ways of thinking economics and writing historiographies in ways that are different from DeLong’s reflections on the role of economists as public intellectuals. I think Bernie Sanders was tapping into (some of) the practitioners of these other ways. In these other traditions, the public can be in a space not just of anxiety, but of real choices.

Occasional Links & Commentary
Economists as public intellectuals
David F. Ruccio | Professor of Economics, University of Notre Dame

Merijn Knibbe — The empirics of Noah-macro

The debate is on.

Real-World Economics Review Blog
The empirics of Noah-macro
Merijn Knibbe

See also

Noahpinion
Econ theory as signaling?
Noah Smith | Assistant Professor of Finance, Stony Brook University

Brad DeLong — Macroeconomics, Fantasy, Reality, and Intellectual Utility…

Sounds like the beginnings of another interesting debate. I suspect others will be jumping in.

What I don't see so far is the need for what E. O. Wilson called "consilience," on the assumption that knowledge is convergent since nature and history are convergent.

This is also a key assumption of systems thinking, system theory, and world-systems theory, which can be viewed as an extension of the fundamental assumption of philosophy since ancient times.

Philosophy studies the whole in terms of key fundamentals, a key assumption of which is that knowledge is compatible across areas.

Why is this important? Because knowledge is not just about understanding ourselves and our world.It is also about shaping them reflexively. Nature is a complex adaptive system and history is the story of human evolution as a product of nature, in which freedom and control are highly developed.

Economics is not merely a theoretical science. It is also a policy science. As a theoretical science it must be compatible with other sciences, and as a policy science it must be integrated with other policy sciences, as well as the humanities, ethics in particular. The end in view is living a good life in a good society.

WCEG — The Equitablog
Macroeconomics, Fantasy, Reality, and Intellectual Utility…
Brad DeLong

Simon Wren-Lewis — Heterodox economists and mainstream eclecticism

The gloves are off.

I think that SWL misses the point. The objection is to "our way or the highway."

And Lars was right. The original post that got this debate going reflected that by the limits that SWL put on eclecticism in the choice of his example, which were different approaches with respect to economic formalism with a disregard for realism.

Oh, and SWL accuses Lars of being "angry," when it is SWL who clearly is angry.

Mainly Macro
Heterodox economists and mainstream eclecticismSimon Wren-Lewis | Professor of Economics, Oxford University

When economics works and when it doesn’t — Jonathan Derbyshire interviews Dani Rodrik

Prospect
Dani Rodrik: when economics works and when it doesn’t
Jonathan Derbyshire interviews Dani Rodrik

ht Mark Thoma of Economist’s View

Sandwichman — Truthiness, media framing and the political economy of economics

Wouldn't it be worthwhile to ask whether the economics practiced today is, in effect, a subsidiary of the corporate mass media rather than an independent academic discipline?

Econospeak
Truthiness, media framing and the political economy of economics
Sandwichman

See also World Economics Association Newsletter
Are economists superior to other social scientists?

Grazia Ietto-Gillies | Emeritus Professor of Applied Economics, London South Bank University