Dilbert on modeling, math, and assumptions

If you didn't catch these Scott Adams Dilbert cartoons over the last couple of days.

Comic for November 28, 2017

Comic for November 29, 2017

Comic for November 30, 2017

Comic for December 01, 2017

Comic for December 02, 2017

Brian Romanchuk — Equilibrium And Steady State In SFC Models

Noah Smith had already observed that "equilibrium" is an ambiguous term in economics. Brian delves into specifics.

Bond Economics
Equilibrium And Steady State In SFC Models
Brian Romanchuk

Jason Smith — The emergent representative agent [1]

Wonkish, but of interest if interested in mathematical modeling in economics.

Information Transfer Economics
The emergent representative agent [1]
Jason Smith

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

David Ruccio — It’s the math again

On the normative use of mathematics in economics as a rhetorical device for persuasion based on the logical fallacy of appeal to authority not supported by context.

Mathematics never says anything about the state of the world because it is about abstract relationships, but it can be used to appear to do so when accompanied with handwaving. But only testing can determine whether abstract relationships are actually the case.

Consistency does not implies correspondence. That's why we do science. But the math must be consistent. And in economics, this implies stock-flow consistency, which econometric models do not always observe.

Real-World Economics Review Blog
It’s the math again

David Ruccio | Professor of Economics, University of Notre Dame

Andrew Lainton — Post-Apocaplypse Economics

Imagine a world where there was no economics, where a multi-disciplinary team was tasked to understand global economic change using nothing but the balance sheets of companies and (lets be generous) the flow of funds accounts for nations.

Where would they start, what would they uncover?

Decisions, Decisions, Decisions
Post-Apocaplypse Economics
Andrew Lainton

Cathy O'Neil — Global move to austerity based on mistake in Excel

On math modeling.

mathbabe
Global move to austerity based on mistake in Excel
Cathy O'Neil

Heather Boushey — The Next Chapters in the Republican War on Math: Tax Cuts and Austerity

On election night, Republican strategist and Fox News contributor Karl Rove was unwilling to believe that President Obama had won Ohio, arguing with anchor Megyn Kelly that Ohio was too close to call. Eventually, Kelly asked Rove if his calculations were "just math you do as a Republican to make yourself feel better or is this real?"

This televised moment on Election Day was one small victory for statistics. Another was thatFiveThirtyEight blogger Nate Silver accurately predicted the election outcome, right down to the number of electoral votes, using a model that aggregates local and national polls.

These victories for math come on the heels of an election season where Mitt Romney repeatedly and willfully worked to convince the public that his tax plan would both deliver tax cuts and reduce the deficit, which was about as true as saying that two plus two equals five.

But the fact that Romney lost the election does not mean that the war on math is over. While election outcomes lay bare whose hopes got in the way of their math, on a host of other issues, understanding math-denial requires more digging.
There are two math fallacies affecting the current economic debate. First, Republicans continue to argue that tax cuts for the wealthy are key to growing the economy, despite solid evidence to the contrary. This argument is their primary objection to allowing President George W. Bush's tax cuts on the wealthy expire at the end of the year.

The facts fly in the face of their argument. We know what happened in the 2000s after the Bush tax cuts: Despite the supposedly job-creating tax breaks, our economy experienced its worst record for growth in investment, employment, and incomes in half a century, an outcome devastating to our middle class.

Yet Republican leaders are working to make sure that the math fits their version of reality, rather than actual reality. As the New York Times has reported, the Congressional Research Service, a non-partisan arm of Congress, was forced by Republican leaders in the Senate to withdraw an economic report showing "no correlation between top tax rates and economic growth."
...
A second example of math denialism is the notion that sharp cuts in spending to eliminate a budget deficit when an economy hasn't fully recovered from a deep recession will lead to robust economic growth and job creation. Both economic theory and recent experience in countries that have gone down the austerity path show that this perspective is willfully in denial of empirical reality. Countries that have been implementing austerity packages are now teetering toward, if not already in, recession.

The Atlantic
The Next Chapters in the Republican War on Math: Tax Cuts and Austerity
Heather Boushey | Senior Economist at the Center for American Progress

(h/t Mark Thoma via Twitter)

Art Shipman — Yes and Noah

Noahpinion:

Out here in the blogosphere, it is common to hear things like the following:

1. "Economics doesn't work; it has no practical applications."

2. "Economic will never discover any stable scientific laws, because human behavior changes."

3. "Economics shouldn't use math, because math can't describe human behavior."

4. "Economics is not a science."

Yeah, but you won't hear that from me.

Tom?

The New Arthurian Economics
Yes and Noah
Art Shipman

My response at Art's.

Evidence, please.

Hint: "Complex adaptive systems"

Comment either here or there.

And notice, nothing on accounting, where everything that happens "economically" is recorded ex post in terms of actual transaction. Projecting causally from that into the future based on invariance, the basis of scientific law, in a way that is stock-flow consistent? Not so much.

Tim Harford — Where maths ends, computers begin

Machines have finally made their mark on economic theory with their use in agent-based modelling and simulations

The Financial Times Magazine | Undercover Economist
Where maths ends, computers begin
By Tim Harford

Matheus Grasselli — Further thoughts on mathematics and economics

Quantitative Finance: Foundations and Applications
Further thoughts on mathematics and economics
Matheus Grasselli | Associate Professor and Sharcnet Chair in Financial Mathematics working with the PhiMac group in the Department of Mathematics and Statistics at McMaster University, currently Deputy Director at the Fields Institute

I am substantially in agreement here. Of course, math modeling is necessary in economics, just as in any rigorous endeavor involving quantity and especially quantitative systems. It's just that a model's implications should be accurately represented in terms of the model's limitations. This has often been violated in policy recommendation and political advocacy.