Lars P. Syll — Foundations of Paul Samuelson’s Revealed Preference Theory

Wonkish but important in taking down the foundations on which the neoclassical assumption of equilibrium based, positing a representational rational agent using utility maximization as the driver. The problem lies in defining "utility" in a way that provides a connection between the theory and the world it purports to explain through a general description. The problem with "utility" is that it is subjective, hence, non-descriptive. Samuelson tried to overcome this bias using revealed preference, which is behavioral, hence, can be described, e.g., through indifference curves. The post is why this approach is also deficient. Neoclassical economics presumes a downward sloping demand curve, and this cannot be shown convincingly using revealed preference as Paul Samuelson had attempted.

Lars P. Syll
Foundations of Paul Samuelson’s Revealed Preference Theory

Lars Syll — Macroeconomics and the microfoundationalist programme

This is an extremely important point and even though the post is long it well worth the read.

Short translation: Neoclassical and New Keynesian models are built on the atomistic assumption of a representative agent (atom) that pursues maximum utility (Bentham's "calculus") based on rational expectation (perfect knowledge). Then the invisible hand of the perfect market in which there is no friction (field) operates completely efficiently in the same way as the law of least action in (ergodic) physical systems, based on perfect competition (single force) of equal participants.

Of course, this is a ludicrous assumption. Social scientists in other fields that aim at explanation with microfoundations use agent-based modeling. Neoclassical and New Keynesian economists are reluctant to accept this, however, since 1) abandoning present economic assumptions undermines key neoliberal assumptions, thereby throwing the entire ideology into question if not into the trash can, and 2) admission of complexity makes econometric modeling difficult if not intractable.

Lars P. Syll's Blog
Macroeconomics and the microfoundationalist programme
Lars P. Syll | Professor, Malmo University

Kevin Drum — Helping the Poor is Now Apparently Anti-Bible

...while I might not be an expert in the Bible, I've read enough to know that Jesus sure didn't seem to think that helping the poor robbed them of dignity. Can someone help me out here? What part of the gospels do you think [Rev. Rick] Warren is referring to?

Read it at Mother Jones
Helping the Poor is Now Apparently Anti-Bible
by Kevin Drum

Certainly not Matthew 25:31-46.

Daniel Little — Coleman on the elementary actor

Interesting post by Daniel Little on the difference between the way most sociologist view human action and most economists.

Here is how Coleman describes two basic approaches to sociology in "Social Capital in the Creation of Human Capital" (link; 1988)."There are two broad intellectual streams in the description and explanation of social action. One, characteristic of the work of most sociologists, sees the actor as socialized and action as governed by social norms, rules, and obligations. The principal virtues of this intellectual stream lie in its ability to describe action in social context and to explain the way action is shaped, constrained, and redirected by the social context.  The other intellectual stream, characteristic of the work of most economists, sees the actor as having goals independently arrived at, as acting independently, and as wholly self-interested. Its principal virtue lies in having a principle of action, that of maximizing utility. This principle of action, together with a single empirical generalization (declining marginal utility) has generated growth of neoclassical economic theory, as well as the growth of political philosophy of several varieties: utilitarianism, contractarianism, and natural rights. (S95)" [emphasis added]

Read it at Understanding Society
Coleman on the elementary actor
by Daniel Little

Karl Smith muses on economics

Mark Thoma asks for thoughts on the following point:

"Psychologists mock what economists call the micro­foundations of consumer behavior…. That this framework is suitable for aggregate systems in a globalized economy simply because the tribe called economics has agreed to adhere to these ad hoc assumptions makes no sense. Increased interactions with disciplines that economists have often mocked as unscientific would greatly improve economists’ understanding of the real world and would be more truly scientific. …"

Read the rest at Modeled Behavior

Musing on Economics

by Karl Smith

(h/t Mark Thoma)

Answer: A model is just a model. Don't try to get it to say what it doesn't, about the implications of max u, for instance.