When I first envitioned the dream of having a PhD one day, I had really wrong ideas about it. At first, I thought a PhD was a synonimous of erudition in economics. I believed that someone who had a PhD would have run trhough all the economic theory. But I was mistaken.
It really amaze me that it exists some people who have a PhD in economics and who have never read the wealth of Nations. Right now, a PhD in Economics looks more like an Applied Math PhD. Which is something that really annoys me.
Today, a PhD in economics is not about mastery of economic science but about mastery of statistics and mathematics, in respect to their applications to economic theory.
If I were a graduate dean, I wouldn't admit anyone without undergrad training in economics to persuit graduate studies. In my opinion the profession is too much full with frustrated mathematician and physist who, after they realized they wouldn't do anything worth in their field turned to economics to corrupt that beautiful science with their arcane mathematics.
I hate that. And I hate people who allows that..."
"The Eatwell-Milgate-Newman policy of publishing multiple entries with slightly different titles for identical subjects constantly produces curious results... On balance, a policy of presenting competing opinions under the same title would have been vastly preferable to the Eatwell-Milgate-Newman policy of several entries under different titles on what is in fact one and the same topic." -- Mark Blaug, Economics Through the Looking Glass: The Distorted Perspective of the New Palgrave Dictionary of Economics, Institute of Economic Affairs, 1988.An example I found would be Walter Eltis' article "Falling Rate of Profit" and N. Okishio on "Choice of Technique and Rate of Profit". Neither references the other. Sometimes the Eatwell-Milgate-Newman policy makes no difference, e.g. in successive articles on "Competition," "Competition: Austrian Conceptions," "Competition: Classical Conceptions," and "Competition: Marxian Conceptions".
"In five different programmatic manifestos over a span of 15 years, Kydland and Prescott have offered five different—and in many ways mutually incompatible—justifications for the models they were advocating." -- James E. Hartley (2006) "Kyland and Prescott's Nobel Prize: the Methodology of Time Consistency and Real Business Cycle Models", Review of Political Economy, V. 18, N. 1 (January): 1-28At one point, business cycles are caused by the time-to-build capital equipment. No, they are caused by technology shocks in a growth model. You should believe this because "the smoothed series and the derivations from the smoothed series are quantitatively consistent with the observed behavior". No, only because the model explains co-movements of the deviations. No, because the newly interpreted model follows from "standard" theory (Solow-Swan growth modeling). And deviations from the model are because the measurements are bad. No, the model was built to explain previously observed facts, which are observed not by looking at deviations from the Solow-Swan growth model, but from deviations from the output of the Hodrick-Prescott filter. In particular, the model explains the observed acyclical nature of movements in real wages. That is, the model explains the observed strong procyclical nature of movements in real wages. And the model is merely an application of Computable General Equilibrium modeling. The parameters of the model are based on observed values. No, they are chosen so the model outputs "mimic the world".
"Paradoxically, the main result obtained by the new classical economists is the demonstration - against their wishes and expectations - that a satisfactory synthesis of macroeconomics and microeconomics is not yet mature. As a matter of fact, the micro-foundations of macroeconomics which they suggest are by now far from satisfactory. They rely on the heroic assumption that the decision-makers of the models are representative agents, whose behavior fairly well approximates the aggregate behavior of the economy. Unfortunately this assumption surreptitiously eliminates the main object that should be studied by macroeconomics: aggregation problems and failures of coordination between the behavior of individuals. Even so, the suggested micro-foundations work only under very special assumptions which actually deny any importance to the main problems considered by Keynes's macroeconomics: uncertainty, disequilibrium, instability, structural change, etc. As we have seen, disequilibria are assumed to be non-intelligible and are therefore ignored; uncertainty is emasculated by the 'certainty equivalence' hypothesis; instability is defined away by arbitrarily restricting the analysis to stationary and ergodic processes and taking account only of the subset of stable solutions...
The failure of this reductionist research programme may be due to the immaturity of current macroeconomics, but it may also be due to weaknesses in existing microeconomic theory. Notwithstanding the widespread belief in its intrinsic solidity, the micro theory currently accepted by the new classical economists may prove on closer examination to be insufficiently powerful to provide solid foundations for a satisfactory macroeconomics. To take the preliminary steps towards a real synthesis between macro and micro theories, it is necessary to consider not only the micro-foundations of macroeconomics but also the macro-foundations of microeconomics (Hicks 1983).
The history of scientific thought shows that whenever a synthesis between different disciplines has been successfully accomplished, the result has been a new discipline with features not reducible to those of the original disciplines. Such a synthesis between micro and macroeconomics, if it is possible, is still far away. In the meantime the reciprocal autonomy of disciplines should be carefully safeguarded. It is particularly important to defend the autonomy of macroeconomics, as today this is greatly jeopardized by views like those mentioned above. Therefore we should revert to the original Keynesian concept of macroeconomics as an autonomous discipline. This does not imply that we should give up making serious efforts to provide rigorous micro-foundations for our macroeconomic statements, if that means searching for greater consistency between the two disciplines. In other words we should continue to pursue a full synthesis between microeconomics and macroeconomics. Many things have been learned from past attempts, unsuccessful as they were, and many others may be learned through future efforts.
But in the meantime one should not reject as non-scientific any contribution that lacks proper 'micro-foundations,' particularly in the restricted sense of a 'reduction to current Walrasian microeconomics.' As a matter of fact, though it may be found impossible to provide proper micro-foundations to a given macroeconomic statement, this might become possible in the future. Such developments have occurred many times in the past and it could happen again, especially if microeconomics extends its range well beyond its Walrasian bounds. To reject this view would be as irrational as to reject as non-scientific any biological statement not yet reducible to chemical statements. Unfortunately, as has been wisely remarked, the only known way to reduce biology to chemistry is murder." -- Alessandro Vercelli, Methodological Foundations of Macroeconomics: Keynes & Lucas, Cambridge University Press, 1991.
q = min(a l, k/σ)where q is gross output, l is the labor employed, k is the value of capital, a is labor productivity, and σ is the capital-output ratio. Both constraints in the production function are always met with equality:
l = q/a
σ = k/qThe capital stock is always employed, but sometimes employment can fall short of the entire labor force, as explained below.
a = a0 exp( α t )The labor force also grows at a constant rate:
n = n0 exp( β t)where n is the labor supply. Hence, v is the employment rate, where the employment rate is defined as follow:
v = l/nWhen v is unity, the labor force is fully employed. v ranges from (a subinterval of) zero to unity in this model.
u = w/aThen (1 - u) is the capitalists' share of the product. Assume that wages are entirely consumed and that a fixed proportion of profits are saved and invested:
dk/dt = s (1 - u) q - δ kwhere s is the savings rate out of profits.
(1/w) dw/dt = - γ + ρ vThe above equation could also be written as:
(1/w) dw/dt = ρ [v - (γ/ρ) ]In words, wages grow faster in a tight labor market. The marginal productivity of labor is beside the point in this model.
(1/v) dv/dt = (1/l) dl/dt - βBy similar manipulations, one can show that the rate of growth of employment is the difference between the rate of growth of output and the rate of growth of productivity:
(1/l) dl/dt = (1/q) dq/dt - αCombining these two equations yields an equation relating the rate of growth of the employment rate to the rate of growth in output:
(1/v) dv/dt = (1/q) dq/dt - (α + β)The derivation of the following equation from the definition of the capital-output ratio and the equation for the rate of change in the value of capital is simpler:
(1/q) dq/dt = (1 - u) s/σ - δHence,
(1/v) dv/dt = (1 - u)(s/σ) - (α + β + δ)The rate of growth of workers' share in gross ouput is the difference between the rate of growth of wages and the rate of growth of productivity:
(1/u) du/dt = (1/w) dw/dt - αSubstitute from the postulated relation between the rate of growth in wages and the employment rate:
(1/u) du/dt = ρ v - (α + γ)
dv/dt = (s/σ - α - β - δ) v - (s/σ) u v
du/dt = -(α + γ) u + ρ u vHere's the cool part - this is the Lotka-Volterra predator-prey model. It is a canonical non-linear dynamical system used to model, say, lynx and rabbits.
(uν1) exp(- θ1 u) = H(v- ν2) exp(θ2 v)where
θ1 = s/σ
θ2 = ρ
ν1 = s/σ - (α + β + δ)
ν2 = (α + γ)and H is an arbitrary integrating constant. All these trajectories consist of cycles, as illustrated in Figure 1. The limit point around which these trajectories cycle is given by:
u* = ν1/θ1
v* = ν2/θ2 = (α + γ)/ρ(The origin in phase space is also a limit point; the origin has the stability of a saddle-point.)
 |
| Figure 1: Phase Space |
 |
| Figure 2: A Trajectory |
"...The conclusions of economic theory as presented by many or perhaps most economists do not follow from current economic theory, but rather from the 50 year old efforts at mathematical economic theory...Read the whole thing. (Hat tip to Ezra Klein)
The problem is, I think, that when they talk to non economists, many economists pretend that traditional economic theory is a good approximation to reality. By 'traditional' I mean 50 year old. The fact that the conclusions are the result of strong assumptions made for tractability and are known to not hold without these assumptions is irrelevant...
...Once a model has been put in textbooks, it becomes immortal invulnerable not only to the data (which can prove it is not a true statement about the world but no one ever thought it was) but also to further theoretical analysis...
...I think the worse problem is that economists who are also libertarian ideologues are lying about the current state of economic theory, not only its very weak scientific standing, but the fact that, even if it were all absolutely true, their policy recommendations do not at all follow from current economic theory..." -- Robert Waldmann
 |
| Figure 1: One View of The Mansion House |
 |
| Figure 2: Another View of The Mansion House |
 |
| Figure 3: Crafts On Display Inside Mansion House |
 |
| Figure 4: Library Inside Mansion House |
 |
| Figure 5: The Factory in Which Oneida Siver Was Manufactured |
 |
| Figure 6: Another View of the Factory |
 |
| Figure 7: Local Park Named After John Humphrey Noyes |
"These governmental measures, combined with the Federal Reserve's loose monetary policy, led to an unsustainable housing boom. The key measure by which the Fed caused this boom was through the manipulation of interest rates, and the open market operations that accompany this lowering.(As an aside, I am aware of some discussion on the community forums at mises.org of some version of my article.)
When interest rates are lowered to below what the market rate would normally be, as the Federal Reserve has done numerous times throughout this decade, it becomes much cheaper to borrow money. Longer-term and more capital-intensive projects, projects that would be unprofitable at a high interest rate, suddenly become profitable.
Because the boom comes about from an increase in the supply of money and not from demand from consumers, the result is malinvestment, a misallocation of resources into sectors in which there is insufficient demand.
In this case, this manifested itself in overbuilding in real estate. When builders realize they have overbuilt and have too many houses to sell, too many apartments to rent, or too much commercial real estate to lease, they seek to recoup as much of their money as possible, even if it means lowering prices drastically." -- Ron Paul, 23 September 2008
"Political scientists and psychologists have noted that, on average, conservatives show more structured and persistent cognitive styles, whereas liberals are more responsive to informational complexity, ambiguity and novelty. We tested the hypothesis that these profiles relate to differences in general neurocognitive functioning using event-related potentials, and found that greater liberalism was associated with stronger conflict-related anterior cingulate activity, suggesting greater neurocognitive sensitivity to cues for altering a habitual response pattern." -- David M. Amodio, John T. Jost, Sarah L. Master, and Cindy M. Lee (2007) "Neurocognitive Correlates of Liberalism and Conservatism" Nature Neuroscience, published online 9 SeptemberAnd another:
"Analyzing political conservatism as motivated social cognition integrates theories of personality (authoritarianism, dogmatism—intolerance of ambiguity), epistemic and existential needs (for closure, regulatory focus, terror management), and ideological rationalization (social dominance, system justification). A meta-analysis (88 samples, 12 countries, 22,818 cases)confirms that several psychological variables predict political conservatism: death anxiety (weighted mean r = .50); system instability (.47); dogmatism—intolerance of ambiguity (.34); openness to experience (—.32); uncertainty tolerance (—.27); needs for order, structure, and closure (.26); integrative complexity (—.20); fear of threat and loss (.18); and self-esteem (—.09). The core ideology of conservatism stresses resistance to change and justification of inequality and is motivated by needs that vary situationally and dispositionally to manage uncertainty and threat." -- John J. Jost, Jack Glaser, Arie W. Kruglanski, and Frank J. Sulloway (2003) "Political Conservatism as Motivated Social Cognition", Psychological Bulletin, V. 129, N. 3: 339-375
"The basis of evaluation in this work is that body of contemporary theory which is given the nebulous description, neo-classical economics. This theoretical corpus stems directly from Marshall, but it has gained much in rigor at the hands of Walras, Wicksteed, and Edgeworth, and more recently the theory has been advanced by a host of economists too numerous even to mention. There is no unanimity regarding 'neo-classical' theory, but on the other hand, the divergences of opinion between competent students are certainly less than at any time since Mill. This statement is somewhat circular, it must be confessed, since a fundamental test of competence is the comprehension and acceptance of this theoretical system." -- George J. Stigler (1941), Production and Distribution Theories: The Formative Period, MacMillan, p. 8
"William Stanley Jevons is the forerunner of neo-classical economics. He did not so much depart from as supplement the classical theory, although the hasty lecteur can easily secure a contrary impression. Jevons, indeed, considered his theory to be revolutionary; he gave an impetus to and enthusiastic statement of the utility theory of value; 'his belief that all evil economic influences were incarnate in John Stuart Mill' is well known; and his mathematical mode of exposition was calculated to emphasize his apparent opposition to classical theory. But his theory of production and distribution ... is fundamentally classical. An indication of the orthodox nature of his approach is suggested by the fact that both Marshall and Edgeworth accepted his wage theory in toto." -- ibid., p. 13My notes say I should find a passage using the label somewhere around page 266, in Stigler’s chapter on Wicksell. I don’t see this.
"[John Bates] Clark independently discovered both the marginal utility and the marginal productivity theories. He is best known, of course, for his exposition of the marginal productivity theory; it is indicative that, even at present, many continental economists consider Clark’s theory to be the marginal productivity theory. His chief task, indeed, was that of popularization – a task that was filled with appropriate detail, emphasis, and lucidity.
On the other hand, Clark performed one function for which economics has less cause for gratitude. In all of his major works, although perhaps to a decreasing extent through time, he introduced what has been called a ‘naïve productivity ethics’ – his marginal productivity theory contained a prescription as well as an analysis. The dubious merits of this ethical system need not concern us, but it is a cause for regret that Clark’s exposition, more than that of any other eminent contemporary economist, afforded some grounds for the popular and superficial allegation that neo-classical economics was essentially an apologetic for the existing economic order. Clark was a made-to-order foil for the diatribes of a Veblen." -- ibid., p. 297
p A (1 + r) + a0 w = pwhere p is a row vector of prices, w is the wage, and r is the rate of profits. After some manipulation, one has:
a0 [ I - A (1 + r)]-1 w = pThe Hawkins-Simon conditions guarantees the existence of the matrix inverse for rates of profits between zero and some maximum rate of profits. Let e be a column matrix representing the numeraire. Multiply on the right by the numeraire:
a0 [ I - A (1 + r)]-1 e w = p e = 1The wage-rate of profits curve is then:
w = 1/(a0 [ I - A (1 + r)]-1 e)
 |
| Figure 1: Wage-Rate Of Profits Curve For Selected Numeraires |
"In response to a policy-induced reduction of the interest rate, one leg of the triangle (measuring the stage dimension of the structure of production) lengthens; the other leg (measuring the final output of the production process) shortens. The forced saving, i.e. the reduced output of consumption goods allows for expansion of the early stages of production. This is pure malinvestment."
Posts
All Comments
