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# Debunking Debunking Economics

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### Christopher Auld

Mar 3, 2002, 1:06:02 PM3/3/02
to

These comments relate to the mathematical notes related to the "new
critiques" Steve Keen presents in his book:

http://www.debunking-economics.com/Maths/Present_for_Sraffa.htm

The short version is: What's good here is not new, and what is
new is not good.

1. Supply and demand analysis.

This is essentially an argument that partial equilibrium analysis can be
misleading, and is more likely to be misleading if the market is large
relative to the economy. This argument isn't wrong, but it is very well
known. The gist of point 1 would be a reasonable question for most any
introductory economics course's final exam.

2. Multiple equilibria...

An argument that when the market is small relative to the economy, the
supply curve is flat. In 1926 this may have been a point of much debate;
in 2002 it is very odd since we can estimate supply curves, and they
aren't generally flat. Even if it were true, it amounts to asserting a
special case of standard analysis, not a critique per se.

3. Constant returns....

We now get a long treatment of "mathematical flaws" in the canonical
theory of the firm. Very odd exposition, full of raw output from
Mathematica, follows. But the point is very simple and there is no need
for any even modestly complicated math to make it:

Perfect competition assumes firms are price takers. Firms
then set quantity such that MC=P. If firms are not
price takers, then that quantity is higher than the profit
maximizing quantity.

That's it; that's all the pages and pages of math show. But
showing this would be a perfectly reasonable question for
an intermediate micro midterm exam; it's trivial and obvious.

We are then treated to some silly conclusions. After demonstrating the
equally trivial point that reductions in one firm's output benefits other
firms under imperfect competition, Keen notes

Where will this process of output reduction stop? With the
standard assumptions of a downward sloping market demand
curve and diminishing marginal productivity, it will stop
at the same level of output as for a monopoly: where the
marginal revenue for each firm equals its marginal cost.

This is bizarre. First, Keen seems very confused over the MR=MC
condition, which is very general. The above amounts to an assertion that
the equilibrium of an n-firm quantity setting game is the monopoly output.
In 1838 Cournot derived the correct result (Keen doesn't appear to be
aware of any results in modern Industrial Organization). We then get:

The theory of perfect competition is therefore
fundamentally flawed. Far from being an ideal market
structure by which all other market types should be
judged, it is an illusion built upon fundamental
mathematical fallacies

Which is mathematical rubbish. As is well-known, perfect competition can
be rigorously derived as the limit point of many forms of imperfect
competition, or can be derived with a continuum of firms. Aumann 1964 is
a standard reference.

Finally and most strangely, we arrive at "Profit and time." Let's preface
with a note that dynamic analysis is extremely common in modern economics.
As a straight guess I'd say two-thirds of current theoretical economics is
explicitly dynamic, including almost all of modern macro. The key
mathematical methods used to solve dynamic problems, dynamic programming
and optimal control, are commonly taught at the undergraduate level.
Compare with this surreal rhetoric:

It is feasible to see Sraffa's critique as simply an attempt to take
seriously the limitations which Jevons, Walras, Marshall and Clarke all
acknowledged were endemic in using static methods to analyse what are
clearly dynamic problems. Their defence for the use of static tools was
the inherent difficulty of dynamic analysis, and the absence of suitable
tools. No such defence is available to modern economics, since dynamics
is now a far more developed field of analysis (in sciences other than
economics), and so many tools exist to analyse dynamic systems
dynamically. We can begin this process of recasting economics as a
dynamic science by taking Sraffa's critique to heart and drop altogether
the neoclassical treatment of time.

How anyone with any vague familiarity with modern economics could possibly
believe economists don't use dynamic models is a complete mystery to me.
Standard undergraduate level references include Kamien and Scwartz's
_Dynamic Optimization_ and Chiang's _Elements of Dynamic Optimization_.
Journal articles using such methods are very common: Open a random
journal, flip to a random theoretical paper, repeat if necessary. Use of
similar methods in some form in economics goes back a long way, at least
to Hotelling and Ramsey's work circa 1930, although Bellman's work in 1950s
paved the way for the explosion of dynamic analysis which followed over
the last four or five decades.

But Keen makes this bizarre error exponentially worse by providing his own
dynamic analysis, which any competent undergrad could tear to pieces as
mathematically incompetent:

First, it makes no sense to assert firms maximize the instantaneous rate
of growth of profit. Suppose, for instance, that this rate can be made
arbitrarily high over an arbitrarily short period, but that doing so comes
at great cost in the future. For example, a discrete increase of $1 at point of time t makes this rate infinite. Suppose that$1 increase in
profits comes at a cost of losing $1,000,000,000,000,000 every moment until the end of time. Keen's "solution" says the firm should set out to earn that dollar. So the objective function is clearly nonsense. It's also written to depend directly on t, which only makes sense as a crude reduced form to an interesting problem, and it's written such that it's seperable in time, which assumes away any interesting dynamics so that static analysis is, actually and ironically, correct. Keen then maximizes instanteous rate of growth of profit with respect to quantity at some point in time, subsituting a static solution to the dynamic problem, then further errs by treating the rate of change of quantity as exogenous. A correct dynamic analysis would first specify a sensible objective function, such as the present value of profits. The maximization of this functional over the function: quantity as a function of time, is then the correct solution method. The solution, again ironically, asserts that firms set quantity at any moment to equate marginal revenue and marginal cost, keeping in mind that these are changes in the present value of profits evaluated at the solution. Finally, Keen references another "paper" purporting to show that the standard comparison of monopoly and competition is invalid: Which is also flat-out wrong. Consider an economy consisting of n firms with convex technologies f_i(x_i), i=1,..n. Under perfect competition we have df_i/dx_i = df_j/dx_j for all i and j as a partial characterization of the solution. Now suppose the industry is monopolized, by which we mean: Suppose all n firms are run by a monopolist. Then the monopolist's problem is to set {x_i} to maximize p(\sum f(x_i))(\sum f(x_i)) - w \sum x_i over all x_i, if$w$is the unit price of x. A few manipulations recovers df_i/dx_i = df_j/dx_j as partially characterizing the solution, just as under competition. If Q* is aggregate output under competition and the monopolist faced the constraint Q>=Q*, he would set output across firms to exactly that under perfect competion, and costs would be identical. In words: since all firms face diminishing returns, a one unit increase in total output will be "split" across firms, either under perfect competition or monopoly. It will, in fact, be "split" the same way under either market structure, because the monopolist wants to minimize costs. The industry supply curve and the monopolist's marginal cost curve are one and the same. Keen gets none of this right because he incorrectly interprets the Econ 101 argument as: suppose one of the n firms with technology f(x) is given a monopoly. That isn't the argument, as the above should make clear, and when the argument is presented correctly standard analysis is, of course, correct. -- Chris Auld Department of Economics University of Calgary au...@ucalgary.ca ### jojo unread, Mar 3, 2002, 1:42:44 PM3/3/02 to "Christopher Auld" <au...@acs.ucalgary.ca> wrote in message news:a5toma$2v...@acs1.acs.ucalgary.ca...

>
> These comments relate to the mathematical notes related to the "new
> critiques" Steve Keen presents in his book:
>
> http://www.debunking-economics.com/Maths/Present_for_Sraffa.htm
>
> The short version is: What's good here is not new, and what is
> new is not good.
>
interesting post...still trying to digest it. the thing that strikes me as
somewhat odd, and maybe this is due to my layman's understanding of
economics, is the assertion that the consumer is always trying to maximze
his/her utility, i.e. always seeking a maxed out market basket or baskets,
with whatever they contain.

### Mason Clark

Mar 3, 2002, 3:03:13 PM3/3/02
to
On 3 Mar 2002 11:06:02 -0700, au...@acs.ucalgary.ca (Christopher Auld) wrote:

>
>These comments relate to the mathematical notes related to the "new
>critiques" Steve Keen presents in his book:
>
>http://www.debunking-economics.com/Maths/Present_for_Sraffa.htm
>

The conclusion of which follows. And I chance for me to repeat, "rather than
theorize, why not just ask management how they actually make decisions?"
This would lead to a wordy, non-mathematical, but correct description of the
world, in the spirit of Adam Smith (and Coase?).

Mason C

---quote:

Conclusion
The above analysis supports Sraffa's call in 1926, by showing that the superficially
robust edifice of the microeconomics of production is in fact devoid of content. Its
canonical model, of perfect competition, is untenable, while its canonical insight, that
equating marginal cost and marginal revenue maximizes profit, is invalid in a dynamic
setting.[1] What then should economics do?

We would argue that microeconomics has to become an empirical discipline. Rather than
trying to prove results about firms and market structures from a priori reasoning,
microeconomics should instead be based in robust empirical research into how firms
actually behave, and how actual markets function over time. Economics has a tradition of
ignoring empirical work, on the grounds that, whatever firms might say they are doing,
their behaviour can be interpreted "as if" they are following neoclassical precepts. We
have shown that this cannot possibly be so, since the standard neoclassical a prioris are
in fact erroneous.

The very good empirical work that has been done (see Lee 1998 for an authoritative survey)
has generally found that the neoclassical concepts perfect competition, monopoly, marginal
cost and marginal revenue are regarded as meaningless concepts by factory managers--a
result that should no longer be surprising after the above. Instead, firms normally exist
in markets where there is a range of firms of different sizes, complex inter-relations
between them, price normally far exceeds marginal cost, and variable costs tend to fall as
production rises, rather than being U-shaped.

The apparently neat, self-contained visage of conventional neoclassical microeconomics
hides an empty soul. An empirical economics is bound not to have as tidy a visage, but it
will at least have content.

----end

### Robert Vienneau

Mar 3, 2002, 6:25:14 PM3/3/02
to
In article <a5toma$2v...@acs1.acs.ucalgary.ca>, au...@acs.ucalgary.ca (Christopher Auld) wrote: > These comments relate to the mathematical notes related to the "new > critiques" Steve Keen presents in his book: > > http://www.debunking-economics.com/Maths/Present_for_Sraffa.htm This is too narrow an orientation to debunk Keen's book. The book is a popular presentation of various critiques that have been developed in the advanced literature over decades. To refute Keen, you need to develop some familiarity with this literature. Then you can discuss whether his presentation of these arguments is fair and whether these arguments are cogent. Many mainstream economists have accepted the arguments that I familiar with. > The short version is: What's good here is not new, and what is > new is not good. Keen's point throughout most of his book is not that he's presenting new stuff (exception: part of his critique of the theory of the firm). Nor is it even that this stuff is not taught (though some of it clearly isn't). It's that if economists took their own theory seriously, they would see that it is often logically inconsistent. Here's an example: Markets are supposed to bring in equilibrium individuals with different preferences and endowments. But a standard assumption is that all individuals have identical tastes, and that preferences are homothetic - that is, the one identitical person would consume the same proportion of commodities at twice, ten times, etc. his income. "I want to be an individual, just like you." This is a matter of the Sonnenschein-Mantel-Debreu results. Alan Kirman has two interesting papers on these results: A. P. Kirman, "The Intrinsic Limits of Modern Economic Theory: The Emperor Has No Clothes". Economic Journal, V. 99, 1989. A. P. Kirman, "Whom or What does the Representative Individual Represent?" Journal of Economic Perspectives, V. 6, 1992. (The four economists who I have just mentioned are mainstream, for what it is worth.) Teaching in economics, according to Keen, is presented in such a way that by the time students learn about these matters, they absorb the unwarranted opinion that this sort of thing is only a technical detail that cannot overturn the general picture. Chris Auld's post exemplifies this attitude. I believe Keen somewhere uses the word "indoctrination". This orientation also explains Alan Isaacs' carefully worded blurb somewhere - something about the book being a critique of neoclassical PEDAGOGY. The mainstream presentation of neoclassical theories seems to have consequences about beliefs about policies. > 1. Supply and demand analysis. > > This is essentially an argument that partial equilibrium analysis can be > misleading, and is more likely to be misleading if the market is large > relative to the economy. This argument isn't wrong, but it is very well > known. The gist of point 1 would be a reasonable question for most any > introductory economics course's final exam. The above is an unfair and incorrect summary of Keen's presentation of Sraffa's early work. Sraffa showed that Marshallian supply and demand analysis is logically inconsistent unless factors are specialized to individual markets. That is, there is not a kind of labor or land or whatever that is used in the production of more than one commodity. This objection is so whether or not the market is large relative to the economy. "What a cleaned-up version of Sraffa (1926) establishes is how NEARLY empty are ALL of Marshall's partial equilibrium boxes. To a logical purist of Wittgenstein and Sraffa class, the MARSHALLIAN PARTIAL equilibrium box of CONSTANT cost is even more empty than the box of INCREASING cost..." --Paul A. Samuelson The context is Samuelson arguing AGAINST Sraffians. Naturally, the Sraffians kid Samuelson by contrasting his statements in this context with what is taught in a certain introductory textbook. > 2. Multiple equilibria... > > An argument that when the market is small relative to the economy, the > supply curve is flat. That's not what the argument is. The argument is about when a industry uses either a large or small portion of a factor of production, but not all of it. Neither alternative will yield Marshallian U-shaped cost curves. This is a point of logic. So the gist of this point is that almost any market you are likely to encounter in practice is outside the domain of the introductory theory most often taught in mainstream economics. Basically, firms do not encounter U-shaped average cost curves. Since 1926, a lot of empirical evidence has indicated an alternative theory is better supported. I've always liked this quote: "I am trying to find what are the assumptions implicit in Marshall零 theory; if Mr Robertson regards them as extremely unreal, I sympathise with him. We seem to be agreed that the theory cannot be interpreted in a way which makes it logically self-consistent and, at the same time, reconciles it with the facts it sets out to explain. Mr Robertson零 remedy is to discard mathematics, and he suggests that my remedy is to discard the facts; perhaps I ought to have explained that, in the circumstances, I think it is Marshall零 theory that should be discarded." (Sraffa 1930: 93) By the way, Sraffa's approach was not to develop neoclassical general equilibrium theory after critiquing Marshallian theory. As for the claim that Sraffa's early critique has long been absorbed: "Despite the numerous advances made in microeconomic theory during the twentieth century, the theory of the cost conditions of the firm in a perfectly competitive industry remains mired in contradictions. On some level, increasing, constant and decreasing costs are all incompatible with a partial equilibrium analysis of perfect competition. Although this incompatibility between perfect competition and the entire range of cost functions was first pointed out by Piero Sraffa in a famous 1926 paper entitled "The Laws of Returns Under Competitive Conditions", the theory of perfect competition persists. The purpose of the present paper is threefold: to illustrate the contradictions that persist to this day in this area, to trace those contradictions back to Sraffa's 1926 paper and to suggest why the contradictions have remained unresolved." -- A. J. Cohen, "The Laws Of Returns Under Competitive Conditions: Progress in Microeconomic Since Sraffa (1926)?" Eastern Economic Journal, V. 9, N. 3. July-September, 1983. (Available somewhere on the web.) Both Cohen (1983) and Sraffa (1926) are available somewhere on the web. I'm not sure what I think of the part of Keen's argument that is new. I have noticed that he is basically saying Marshall was incorrect in note XIV in his mathematical appendix. I go by the 8th edition of Principles. Keen also argues somewhere that contemporary economics has not absorbed the complexity vision yet. -- Try http://csf.colorado.edu/pkt/pktauthors/Vienneau.Robert/Bukharin.html To solve Linear Programs: .../LPSolver.html r c A game: .../Keynes.html v s a Whether strength of body or of mind, or wisdom, or i m p virtue, are found in proportion to the power or wealth e a e of a man is a question fit perhaps to be discussed by n e . slaves in the hearing of their masters, but highly @ r c m unbecoming to reasonable and free men in search of d o the truth. -- Rousseau ### Christopher Auld unread, Mar 3, 2002, 8:02:40 PM3/3/02 to Robert Vienneau <rv...@see.sig.com> wrote: o Picky points about the old arguments Keen presents. Very dull. o The always entertaining argument that education is bad. o Absolutely nothing about the bulk of the paper and my post: The clearly and demonstrably wrong and ignorant new "results" Keen presents in Why? Could it be even Robert knows that Keen is wrong? On the most glaringly weird and mistaken of Keen's assertions: Would Robert care to defend either the view that economists don't consider dynamic models, or Keen's own, um, curious, dynamic analysis? ### Mason Clark unread, Mar 4, 2002, 3:47:24 AM3/4/02 to On 3 Mar 2002 18:02:40 -0700, au...@acs.ucalgary.ca (Christopher Auld) wrote: > On the most glaringly weird and mistaken of Keen's > assertions: Would Robert care to defend either the > view that economists don't consider dynamic models, > or Keen's own, um, curious, dynamic analysis? Steve Keen's problem is that (to quote a quote from page 176 of his book): "A typical macroeconomics textbook, for example, states that 'the examination of the process of moving from one equilibrium to another is important and is known as dynamic analysis.' However, it then states that 'Throughout this book we will assume that the economic system is stable and most of the analysis will be conducted in the comparative static mode.'" Most students, once brain-washed with equilibrium, never recover. Actually, the economic system is *never* in equilibrium and I for one hope it never gets there. One can *only* calculate transient states and watch as they go by. Furthermore, the economy is never *headed* toward *an* equilibrium -- the next "equilibrium point" is only a point on the dynamic continuum. (work on that) So while dynamic analysis may have pretense of making economics scientific, it is in danger of only complicating the mysticism. All this most emphatically does *not* mean that one should not do both static (equilibrium) and dynamic analysis. It simply means one should keep one's wit about one at all times -- a task made difficult by the ideological teaching that Keen decries. Mason C ### Christopher Auld unread, Mar 4, 2002, 12:03:29 PM3/4/02 to Mason Clark <mas...@ix.netcom.com> wrote: >au...@acs.ucalgary.ca (Christopher Auld) wrote: >> On the most glaringly weird and mistaken of Keen's >> assertions: Would Robert care to defend either the >> view that economists don't consider dynamic models, >> or Keen's own, um, curious, dynamic analysis? >Steve Keen's problem is that (to quote a quote from page 176 >of his book): > >"A typical macroeconomics textbook, for example, states >that 'the examination of the process of moving from one >equilibrium to another is important and is known as dynamic >analysis.' Mason, this is one sort of "dynamic analysis." It too is rather dated, and is usually called "disequilibrium analysis." The type of "dynamic analysis" Steve Keen thinks economists don't do is another. His example is of a firm which much chooses quantity over time. He is wrong in asserting economists don't undertake such analysis (it's actually very common), and he solves his example incorrectly. >Most students, once brain-washed with equilibrium, never recover. Yes. Education is bad. We know, Mason, we know. ### Mason Clark unread, Mar 4, 2002, 2:02:21 PM3/4/02 to On 4 Mar 2002 10:03:29 -0700, au...@acs.ucalgary.ca (Christopher Auld) wrote: >Mason Clark <mas...@ix.netcom.com> wrote: >>au...@acs.ucalgary.ca (Christopher Auld) wrote: > >>> On the most glaringly weird and mistaken of Keen's >>> assertions: Would Robert care to defend either the >>> view that economists don't consider dynamic models, >>> or Keen's own, um, curious, dynamic analysis? > >>Steve Keen's problem is that (to quote a quote from page 176 >>of his book): >> >>"A typical macroeconomics textbook, for example, states >>that 'the examination of the process of moving from one >>equilibrium to another is important and is known as dynamic >>analysis.' > >Mason, this is one sort of "dynamic analysis." It too is >rather dated, and is usually called "disequilibrium analysis." >The type of "dynamic analysis" Steve Keen thinks economists >don't do is another. His example is of a firm which much >chooses quantity over time. He is wrong in asserting >economists don't undertake such analysis (it's actually very >common), and he solves his example incorrectly. > Chris, it would be helpful if you would give actual quotation and page number. > >>Most students, once brain-washed with equilibrium, never recover. > >Yes. Education is bad. We know, Mason, we know. No, Chris, education is *good*. It is bad education that is bad. Mason C ### Robert Vienneau unread, Mar 4, 2002, 3:26:48 PM3/4/02 to In article <a5uh3g$2t...@acs1.acs.ucalgary.ca>, au...@acs.ucalgary.ca
(Christopher Auld) wrote:

> Robert Vienneau <rv...@see.sig.com> wrote:
>
> o Picky points about the old arguments Keen presents.
> Very dull.

> o The always entertaining argument that education is

Strawperson.

### Christopher Auld

Mar 4, 2002, 3:36:20 PM3/4/02
to
Mason Clark <mas...@ix.netcom.com> wrote:

>Chris, it would be helpful if you would give actual quotation and
>page number.

Mason, I stated quite clearly I was commenting on the "papers"
Keen has on his web site (which he describes as "Some of the
mathematics behind the new critiques presented in the book.")
You can access them here

I was also quite clear on what I section of which paper I
was talking about, and provided an extensive quote on this
topic. Perhaps you should read my post again.

### Christopher Auld

Mar 4, 2002, 4:05:21 PM3/4/02
to
Robert Vienneau <rv...@see.sig.com> wrote:
>(Christopher Auld) wrote:

>> o Picky points about the old arguments Keen presents.
>> Very dull.
>

It is? Really?

>> o The always entertaining argument that education is
>
>Strawperson.

Really? I suppose I'm too brainwashed by all those years
in graduate school to see why.

Now, why is the third point I listed omitted? On that
point, I just glanced at another of Keen's "papers":

This isn't within miles of being remotely competent. It's just

### John J. Weatherby

Mar 4, 2002, 4:52:30 PM3/4/02
to

"Christopher Auld" <au...@acs.ucalgary.ca> wrote in message
news:a5toma$2v...@acs1.acs.ucalgary.ca... > The key > mathematical methods used to solve dynamic problems, dynamic programming > and optimal control, are commonly taught at the undergraduate level. Not that this debunks any of the post but I am curious. Is it common that universities teach optimal control and other dynamic programming techniques at an undergrad level. I know my university did not. It was not until grad. school that these were introduced. I have also noticed most new grad. students do not know these methods. I think it would be a great idea to have an undergraduate class teaching these methods. Granted at small econ. deartments, like mine, it may be hard to find students to take the class, very few if any in any given class plan to go on to grad. school. Just curious if my experience was unusual. > How anyone with any vague familiarity with modern economics could possibly > believe economists don't use dynamic models is a complete mystery to me. Me too, unless I just dreamed I had wrote two thirds of dissertation using an endogenous growth model. I do find that a lot of applied micro people do deal only with static models, ie. most labor models I see. Also even up to 1987 it was rare to see people outside of macro using dynamic analysis. Levin, Cohen, and Reiss avoided the issue in their firm size work and this is in the I/O handbook, although the new addition may update this. I do find that is a somewhat small portion of economist who deal with dynamics. Unfortunately that can make getting comments on an endogenous growth model difficult. However I think the portion is getting larger. I know of a couple older professor who have used dynamics extensively and a lot of younger game theorists, I/O, and of course macro economist who are using dynamics quite regularly. John ### John J. Weatherby unread, Mar 4, 2002, 5:48:15 PM3/4/02 to "Robert Vienneau" <rv...@see.sig.com> wrote in message news:rvien-B086BB....@news.dreamscape.com... > In article <a5toma$2v...@acs1.acs.ucalgary.ca>, au...@acs.ucalgary.ca
> (Christopher Auld) wrote:
>
>But a standard assumption
> is that all individuals have identical tastes, and that preferences
> are homothetic -

For the twentith millionth time this is a simplifying assumption used so
you can solve the bloody model. How else do you propose to compactly solve
the model and present the results in readable format? None the less the fact
that is not entirely realistic is presented throughly in Macro I courses,
those which use representive consumers the most. This even goes for Chicago.

> Teaching in economics, according to Keen, is presented in such a
> way that by the time students learn about these matters, they
> absorb the unwarranted opinion that this sort of thing is only a
> technical detail that cannot overturn the general picture.

It is a technical detail. Do you have a workable alternative?

>Chris
> Auld's post exemplifies this attitude. I believe Keen somewhere uses
> the word "indoctrination".

Oh here we go again, conspiracy again. Here we mainstream economist are
brainwashing students.

> The argument is about when a
> industry uses either a large or small portion of a factor of
> production, but not all of it. Neither alternative will yield
> Marshallian U-shaped cost curves. This is a point of logic.

hmmm interesting. If firms are allocating efficently they are not producing
at optimal points. Wow what a concept.

>On some level, increasing, constant and decreasing
> costs are all incompatible with a partial equilibrium analysis of
> perfect competition.

Wrong. Increasing cost industries work fine with perfect competition.
However there are rents to those who own the factors of production. Constant
cost industries are the textbook example of perfect competition. Decreasing
cost can lead to stable although strange equilibria. Even dynamic analysis
can be used to show this. See Nicholson's micro book.

John

### John J. Weatherby

Mar 4, 2002, 5:58:57 PM3/4/02
to

"Mason Clark" <mas...@ix.netcom.com> wrote in message
news:h3c68u042g9576dlj...@4ax.com...

> On 3 Mar 2002 18:02:40 -0700, au...@acs.ucalgary.ca (Christopher Auld)
wrote:
> "A typical macroeconomics textbook, for example, states
> that 'the examination of the process of moving from one
> equilibrium to another is important and is known as dynamic
> analysis.' However, it then states that 'Throughout this book
> we will assume that the economic system is stable and most
> of the analysis will be conducted in the comparative static mode.'"
>

hmmm funny I don't see anything like this in Mankiw or Ruffin and Gregory
the two text I own. Of course there is no dominant text in the principles
market. Quite a few universities use text written by their professors. Funny
I remember just two weeks ago explaining the Solow model which involves
dynamic analysis and has an emphasis on transition paths. I also covered
some basics on human capital and R&D models. hmm I guess no dynamics there
either. Granted we have to spend a lot of time explaining this to an
undergrad who generally has only taken algebra. hmm could that be why
dynamics are not discussed much in principles. Just maybe.

> Most students, once brain-washed with equilibrium, never recover.
>

Please, markets tend to stable equilibria this is a basic first year
grad. exercise. Perhaps things are constantly changing this does not mean
that markets are not in equilibrium.

> Actually, the economic system is *never* in equilibrium and I for
> one hope it never gets there.

It is funny for some who seem to be arguing about micro analysis you
suddenly inject Keynes' notions into the argument. Keynes argued that in the
aggregate markets may not reach equilibrium. Even Keynes accepts that micro
markets reach equilibrium. This is the essence of his argument that the
Macro economy functions differently from the micro economy. Beside nominal
wage inflexibility and liquidity traps have never been empirically proven
and this is the basis to get Keynes' results.

>One can *only* calculate transient
> states and watch as they go by. Furthermore, the economy is
> never *headed* toward *an* equilibrium -- the next "equilibrium
> point" is only a point on the dynamic continuum. (work on that)
> So while dynamic analysis may have pretense of making economics
> scientific, it is in danger of only complicating the mysticism.
>

I would prefer you learn what you are talking about before you comment.
I suppose you would say an optimal control model is mystism. hmmm tell that
to NASA and Soviet scientist who have used this method to calculate how much
fuel is needed for a trip out of the atmosphere. I suppose they are mystics
too.

John

### Christopher Auld

Mar 4, 2002, 5:33:38 PM3/4/02
to

> Not that this debunks any of the post but I am curious. Is it common
>that universities teach optimal control and other dynamic programming

Yes. Here at the U of C, for instance, the first undergrad
mathematical economics course teaches both discrete and
continuous time methods. This course is typically taken by
second or third year students. A few of the upper-year
field courses draw on these foundations. The U of C is a
reasonably good school, but we are rarely confused with MIT.
On the other hand, as an undergraduate in the late eighties
and early nineties I was only passingly exposed to dynamic
models, and like you only had to wade through them as a

> Me too, unless I just dreamed I had wrote two thirds of dissertation
>using an endogenous growth model. I do find that a lot of applied micro
>people do deal only with static models, ie. most labor models I see.

Of course, adding dynamics makes models harder, so if you can
make your point with a static model that's the way to go. That
said, I find the assertion that labor economists don't commonly
consider dynamic models odd: Search theory, perhaps most notably,
is explicitly dynamic and is the basis for analysis of many
issues in labor economics.

> Also even up to 1987 it was rare to see people outside of macro using dynamic
>analysis.

I don't agree: For at least 30 years many fields have heavily used
dynamic models, including finance, environmental economics, health
economics, labor, anyone dealing with investment, IO, of course macro
as you note, etc. But disagreements, probably semantical, over how
prevalent such models are/were are beside the point: We agree Keen's
assertions are just apallingly ignorant.

### Chasna1

Mar 4, 2002, 10:44:29 PM3/4/02
to
>From: au...@acs.ucalgary.ca (Christopher Auld)

>I was also quite clear on what I section of which paper I
>was talking about, and provided an extensive quote on this
>topic. Perhaps you should read my post again.

I've started reading the section on perfect competition and so far it reads
merely that the author is using special cases to refute other special cases. If
you look in any graduate level micro book you can find the assumptions behind
the standard model of perfect competition presented in a more articulated form.
Also, Stigler has a nice essay on the current history of the perfectly
competitive model. Most hacks fail to understand that the model as presented in
micro principles is really a very modern articulation of a market where firms
are entirely devoid of monopoly power.

### Mason Clark

Mar 4, 2002, 11:59:15 PM3/4/02
to
On Mon, 04 Mar 2002 22:58:57 GMT, "John J. Weatherby" <jjwea...@earthlink.net> wrote:

> I would prefer you learn what you are talking about before you comment.
>I suppose you would say an optimal control model is mystism. hmmm tell that
>to NASA and Soviet scientist who have used this method to calculate how much
>fuel is needed for a trip out of the atmosphere. I suppose they are mystics
>too.
>

Here lies the problem: treating the economic system as a physical system subject
to the laws of physics. Or its own laws sans homo sapiens.

The economic system has people in it. Greenspans, Gingriches, bin Ladens, ...
....... and unpredictable natural events.

Mason C

### Mason Clark

Mar 5, 2002, 12:02:08 AM3/5/02
to
On Mon, 04 Mar 2002 22:48:15 GMT, "John J. Weatherby" <jjwea...@earthlink.net> wrote:
>
> For the twentith millionth time this is a simplifying assumption used so
>you can solve the bloody model.

The science of economics: Fix the bloody model so it can be
solved -- never mind what world it applies to.

Mason C dis joint has too many targets

### Tim Worstall

Mar 5, 2002, 12:58:59 PM3/5/02
to
I need a little bit of help understanding this.....my undergraduate
economics degree some years ago is not really equipping me for this
subject.

Lots of snipping, leaving just this paragraph from Robert that really
puzzles me.

> Markets are supposed to bring in equilibrium individuals with
> different preferences and endowments. But a standard assumption
> is that all individuals have identical tastes,

"and that preferences
> are homothetic - that is, the one identitical person would
> consume the same proportion of commodities at twice, ten times, etc.
> his income."

"I want to be an individual, just like you." This is
> a matter of the Sonnenschein-Mantel-Debreu results. Alan Kirman
> has two interesting papers on these results:

The bit that really puzzles me is this theory of ' homothetic tastes
'.
Is Robert really saying that someone on $10,000 a year spends the same proportion of his income on food as someone on$ 100,000 a year ?
And is he also saying that this is a basic assumption in economics ? (
From personal knowledge I know this is not the case anyway. When you
more things ).

Have I simply misunderstood what Robert is saying ?

It seems grossly wrong for two reasons :
1) The flip side of this argument is that demand curves would be
straight lines. But it is quite obvious from a casual perusal of the
world that this is not so. Whether the item is apples, food, shelter
or whatever, demand curves are a ) curves, and b ) complex ones.
Whatever the cost, you will not be consuming 100 apples a day, 6 meals
might be an upper limit for food consumption, and while the rich do
have more than one house, I'm reasonably certian that they don't spend
the same portion of their income on shelter as those on minimum wage.
There are also those odd products like diamonds, which seem to have a
reverse demand curve, as with other objects of conspicuous
consumption.

The example I recall is water. One will pay very highly for that first
two litres a day, whatever your income, yet for higher levels of water
supply, like 5,000 litres a day through your living room, you will
gladly pay someone to take it away.
That, by the way, is not supposed to be a very detailed
example....just a way of showing that demand curves are not the simple
straight lines shown on many graphs.....they are highly complex
curves, and the demand curve is different for each product /
commodity.
I'm very happy for someone to point out an error in this scribbling,
but I assume that the complexity of demand curves means that '
homothetic tastes' is wrong.

2) Vast areas of economics are dedicated to studying consumption
patterns. ( I recall one big argument here about the Bush tax cuts.
Either that the rich do or do not spend / save their extra income, so
they shouldn't get the tax cuts. Whatever the argument was, it is an
implicit assumption of such an argument that those on different
incomes have different spending patterns ).
Now if in one area of economics we are assuming that different income
levels leads to different expenditure patterns, is Robert really right
in stating that this ' homothetic tastes ' means that in another area
we assume exactly the opposite ? Is economics really that badly
fragmented ?

I can see only three ways out of this :
1) Robert was wrong.
2) I am wrong, in that I have managed to misunderstand what Robert was
saying. But then I often have that problem with his posts :-)
3) Economics really does have completely opposing views of the income
variability of demand ( not that that is probably the right phrase )
depending on what particular thing we are trying to talk about.

Would the good Mr ( Dr ? Prof ? ) Auld care to put me straight ?

Tim Worstall
>

### Chasna1

Mar 5, 2002, 2:33:29 PM3/5/02
to
>From: t...@2xtreme.net (Tim Worstall)

>Lots of snipping, leaving just this paragraph from Robert that really
>puzzles me.
>
>
>
>> Markets are supposed to bring in equilibrium individuals with
>> different preferences and endowments. But a standard assumption
>> is that all individuals have identical tastes,
>

The author is merely challenging what he perceives as the general case scenario
by coming up with special case scenarios that seem, in his mind, as
contradictions to the former. What he doesn't understand is that his
methodology is invalid. Economist fully understand that models are abstractions
based on heroic assumptions and that that methodology delivers the desired
result if the model is a good predictor.

I'm afraid the author has only proved his own theories to be invalid in the
sense that they fail to deliver his socalled debunking results.

### Christopher Auld

Mar 5, 2002, 2:55:54 PM3/5/02
to
Tim Worstall <t...@2xtreme.net> wrote:

>Is Robert really saying that someone on $10,000 a year spends the >same proportion of his income on food as someone on$ 100,000 a year ?

Robert is, for some inexplicable reason, talking about what are
called "aggregation conditions." In economics, they arise
commonly in macroeconomics, and in some microeconomic
applications.

For example, suppose we wish to model consumption of some
commodity X. We might start by writing down a function X(P,Y)
which gives consumption of X as a function of its price P and
mean income Y. But that apparently straightforward first step
actually imposed some extremely strong conditions on how
individuals behave!

Notice that X(P,Y) must evaluate to the same number for any two
populations with the same mean income, all else equal. That
means that consumption of X cannot change if I take a dollar
from Fred and give it to Mary, preserving mean income but
changing the distribution of income across individuals. But
that only happens if Fred decreases his consumption of X by
the same number of units that Mary increases her consumption
of X. Technically, this holds only if preferences are
"quasi-homothetic." This leaves the analyst with two
unappetizing choices: Either make such strong assumptions, or
give up the idea of using simplifications such as X(P,Y) in
the model and stick with the much (often, much, much, much)
more difficult task of keeping track of the behavior of all
the agents in the model.

Mr. Vienneau, who has never taken a graduate economics course
much less given one, proceeds to argue that all of this means
that "neoclassical pedagogy" is "indoctrination." This is a
bizarre flight of fancy on Mr. Vienneau's part. The very
strong and unrealistic conditions required for aggregation are
commonly taught and discussed, appear in common, mainstream
textbooks, and many studies go to great lengths to avoid having
to employ them. What more can we do?

The attack "That model's no good because you made strong
assumptions just to make it tractable" is terribly naive. What
good is a model that can't be solved?

>Would the good Mr ( Dr ? Prof ? ) Auld care to put me straight ?

"Chris" is just fine with me.

### ro...@telus.net

Mar 5, 2002, 3:54:05 PM3/5/02
to
On 5 Mar 2002 12:55:54 -0700, au...@acs.ucalgary.ca (Christopher Auld)
wrote:

>Tim Worstall <t...@2xtreme.net> wrote:

Why not assume a distribution, and observe how closely it matches
reality? The math will no longer be tractable, but that just means
you are no longer sacrificing accuracy to simplicity. One way
physical science progresses is by figuring out when a simplifying
assumption leads to useful results, and when it leads to results too
far from reality to be useful.

>Mr. Vienneau, who has never taken a graduate economics course
>much less given one,

Which would put him in the same company as Adam Smith, David
Ricardo....

>proceeds to argue that all of this means
>that "neoclassical pedagogy" is "indoctrination." This is a
>bizarre flight of fancy on Mr. Vienneau's part. The very
>strong and unrealistic conditions required for aggregation are
>commonly taught and discussed, appear in common, mainstream
>textbooks, and many studies go to great lengths to avoid having
>to employ them. What more can we do?

Learn from the example of phlogiston, and abandon them.

>The attack "That model's no good because you made strong
>assumptions just to make it tractable" is terribly naive. What
>good is a model that can't be solved?

It might be closer to the truth?

What good is solving a model that says nothing useful about the real
world?

-- Roy L

### Mason Clark

Mar 5, 2002, 4:26:09 PM3/5/02
to
On 5 Mar 2002 12:55:54 -0700, au...@acs.ucalgary.ca (Christopher Auld) wrote:
>
>The attack "That model's no good because you made strong
>assumptions just to make it tractable" is terribly naive. What
>good is a model that can't be solved?

My mind so resists that I actually read this that I can't add it to
my collection of quotations. But I will. I'm flustered.

Mason C I must post my collection before it gets to large

### Christopher Auld

Mar 5, 2002, 4:34:39 PM3/5/02
to
<ro...@telus.net> wrote:

>Why not assume a distribution, and observe how closely it matches
>reality?

Assume a distribution of what? What do you mean by "how
closely it matches reality?"

>Which would put him in the same company as Adam Smith, David
>Ricardo....

That's funny, I don't remember either of these gentlemen
in economics in the early 21st century.

>>The attack "That model's no good because you made strong
>>assumptions just to make it tractable" is terribly naive. What
>>good is a model that can't be solved?

>It might be closer to the truth?

Sure. So? What good is it if it can't be solved? You
do understand that this issue comes up in every discipline,
not just economics, right?

>What good is solving a model that says nothing useful about the real
>world?

What models do you have in mind that "say nothing useful

--

### Christopher Auld

Mar 5, 2002, 5:11:25 PM3/5/02
to
Mason Clark <mas...@ix.netcom.com> wrote:
>au...@acs.ucalgary.ca (Christopher Auld) wrote:

>>The attack "That model's no good because you made strong
>>assumptions just to make it tractable" is terribly naive. What
>>good is a model that can't be solved?

>My mind so resists that I actually read this that I can't add it to
>my collection of quotations. But I will. I'm flustered.

Out of curiousity: Mason, what good is a model that can't
be solved?

--

### Mason Clark

Mar 5, 2002, 7:30:17 PM3/5/02
to
On 5 Mar 2002 15:11:25 -0700, au...@acs.ucalgary.ca (Christopher Auld) wrote:

>Mason Clark <mas...@ix.netcom.com> wrote:
>>au...@acs.ucalgary.ca (Christopher Auld) wrote:
>
>>>The attack "That model's no good because you made strong
>>>assumptions just to make it tractable" is terribly naive. What
>>>good is a model that can't be solved?
>
>>My mind so resists that I actually read this that I can't add it to
>>my collection of quotations. But I will. I'm flustered.
>
>Out of curiousity: Mason, what good is a model that can't
>be solved?

You're right Chris. We can only have fun with models that
can be solved. We have a nice one in physics:

There's this ball that has a negative mass of 4.5 kilograms.
It is thrown horizontally west from a height of 9,000 kilometers
in a wind having a velocity of 7,356 knots due north on a
planet that has a mass of 17 kilograms.

How far will the ball travel? I believe I've given all the
strong assumptions necessary for its solution, if not, ask.
By the way, the planet in question is inhabited by economists.

Mason C

### Robert Vienneau

Mar 5, 2002, 8:18:49 PM3/5/02
to
t...@2xtreme.net (Tim Worstall) wrote:

> > Markets are supposed to bring in equilibrium individuals with
> > different preferences and endowments. But a standard assumption
> > is that all individuals have identical tastes,

> > "and that preferences
> > are homothetic - that is, the one identitical person would
> > consume the same proportion of commodities at twice, ten times, etc.
> > his income."
> > "I want to be an individual, just like you." This is
> > a matter of the Sonnenschein-Mantel-Debreu results. Alan Kirman
> > has two interesting papers on these results:

> The bit that really puzzles me is this theory of 'homothetic
> tastes'.
> Is Robert really saying that someone on $10,000 a year spends the > same proportion of his income on food as someone on$ 100,000 a year ?

No.

> And is he also saying that this is a basic assumption in economics ?

It is a common assumption in many areas of economics.

Neoclassical economics was supposed to procede by methodological
individualism, according to its proponents. The data consists
of tastes, endowments, and technology. Few a priori restrictions
were supposed to be imposed on the data. Individuals optimize, and
this has implications about theoretically observable patterns of
behavior for an individual. Regularities at the level of the market,
for example, for a specified commodity are supposed to be
capable of being explained, in the theory, by aggregating over
individuals. But the theory shows that this is not possible,
in general. The Sonnenschein-Mantel-Debreu results are about
microeconomics.

Macroeconomics is supposed to have microfoundations. A standard
assumption is that the macroeconomy acts as if a "representative"
individual is making optimizing decisions, including
intertemporally. This is not good microeconomic theory. It
requires some such assumption like I indicated.

So these research projects are failures. And they are failures
for theoretical reasons.

"The vast majority of economists believe that this high
caste, the mathematical economists, did their work properly,
and proved that the theory is internally consistent. The
caste has indeed done its work properly, BUT IT HAS PROVEN
PRECISELY THE OPPOSITE: that the theory is only internally
consistent under the most restrictive and specious of
assumptions."
-- Steve Keen

This is from the first non-introductory chapter in the book
referred to in the subject heading.

So how should theory be developed? Some have suggested that one
should make assumptions on distributions. I forget whether
these should be about tastes, endowments, or income. But the
point is they are, so to speak, macroeconomic assumptions.
Methodological individualism has failed, and microeconomics
needs macrofoundations. Perhaps we will end up with a
theory more like Adam Smith's, David Ricardo's, and there
modern-day followers - e.g., a theory in which consumption
patterns are assumed to vary among individuals in braod-
based groupings.

Agent-based simulation is thought by some to be a useful tool
for exploring these sort of issues.

Notice that the economists on this thread will not suggest why
the mainstream economist Alan Kirman subtitled one of his
explainations of these issues, "The Emperor Has No Clothes".

Notice that this argument is not about how the theory should be
simplified such that aggregated statistics can be applied to
test it. Nor is it about the "realism" of assumptions at that
stage. It is about what must be the case so that the theory,
considered as theory, is internally consistent.

Also note that I pointed out these elements of theory were
developed by mainstream economists. And I suggested that they
were taught.

I hope you notice the ad hominem and strawpersons elsewhere
on this thread. Why encourage those people?

> Have I simply misunderstood what Robert is saying ?

Yes. I was not making an empricial claim that the world works
as if individuals in actually existing industrialized
economies usually have homothetic preferences.

By the way, you should be interested in Engel curves, if you are
interested in what an assumption of homothetic preferences
is stating.

> Now if in one area of economics we are assuming that different income
> levels leads to different expenditure patterns, is Robert really right
> in stating that this ' homothetic tastes ' means that in another area
> we assume exactly the opposite ? Is economics really that badly
> fragmented ?

Yes.

"The great irony of this particular critique of economics is that
it was constructed by its supporters. There is, as a result, no
articulate rejoinder. Instead there are rationalisations like the
representative agent趴hich, as in Varian 1984, are often openly
described as such.

If a defence were to be given of this practice, it would probably be
what Samuelson termed 'the F-twist': that the assumptions of a
theory don靖 matter, instead all that counts is how accurately a
theory predicts reality. This popular but clearly invalid
methodological defence is debunked in Chapter 7."
-- Steve Keen

### Christopher Auld

Mar 5, 2002, 8:37:00 PM3/5/02
to
Mason Clark <mas...@ix.netcom.com> wrote:

>>Out of curiousity: Mason, what good is a model that can't
>>be solved?

>You're right Chris. We can only have fun with models that
>can be solved. We have a nice one in physics:

Mason, here's an insightful critique:

This model assumes infinite-lived agents. The
prediction that the hazard rate out of employment
is constant is fragile to that assumption. I
haven't solved the more complex problem, but I'd
guess that that rate rises over time with
finite-lived agents.

Here's a stupid critique:

DUDE! PEOPLE DON'T LIVE FOREVER! CRAP, WHAT
PLANET DO YOU LIVE ON ANYWAYS!?!!?

As an exercise in self-awareness, Mason, you could
ask yourself which critique more closely resembles
the gist of a high percentage of the thousands upon
thousands of posts you've so generously shared with
the group.

Incidentally, even physicists make highly unrealistic
assumptions, and the "unrealism" of assumptions rises
with the degree of complexity of the domain of study
for reasons which should be obvious.

### Christopher Auld

Mar 6, 2002, 11:18:27 AM3/6/02
to

Robert Vienneau <rv...@see.sig.com> wrote:

...a rambling discourse on the state of economic theory. Recall
Robert claimed that the treatment of aggregation conditions in
graduate theory courses is an example of "indoctrination" in
economics. He is wrong on that point, and is no position to
argue one way or the other -- that he even holds an opinion on
the matter speaks volumes. Another poster asked why such conditions
are imposed; I explained; Robert responds with this... exercise.

I don't have the time or the inclination to go through Robert's
exagerations, misinterpretations, and unwarranted conclusions
point by point. A few observations:

- I am not interested in conspiracy theories.

- I do not recognize there exists a monolithic entity called
"neoclassical economics" which is felled by some results
in full-blown general equilibrium theory.

- Arguing about assumptions over preferences is, of course,
arguing over the realism of assumptions. It is also
in a sense arguing over "internal consistency," not unlike
debates in many branches of science, ranging from conflict
in quantum chemistry right up through the many strata of
aggregation ending at human societies. Pointing out
aggregation problems in macroeconomics is very, very dull.

- A person simultaneously claiming methodological individualism
is a failure and that agent-based simulation is the future of
economics is a very confused person.

It's very difficult to maintain any sort of discussion with
Robert on any of these issues because he doesn't actually read
economics, he reads books with titles like _Debunking Economics_.
It is not surprising he holds these quirky, negative views.
What is surprising is the startlingly arrogant tone he takes
when lecturing on what he's read in such sources. It grows
tiresome.

### William F Hummel

Mar 6, 2002, 12:28:23 PM3/6/02
to
On 6 Mar 2002 09:18:27 -0700, au...@acs.ucalgary.ca (Christopher
Auld) wrote:

>It's very difficult to maintain any sort of discussion with
>Robert on any of these issues because he doesn't actually read
>economics, he reads books with titles like _Debunking Economics_.
>It is not surprising he holds these quirky, negative views.
>What is surprising is the startlingly arrogant tone he takes
>when lecturing on what he's read in such sources. It grows
>tiresome.

Not nearly as tiresome as the arrogant tone in your "holier than
Quirky negative views are, of course, in the eye of the beholder.

What is lacking in much of academic economics today is any
serious attempt to study heterodox views. Learning some of the
shortcomings of mainstream economics instead of simply rising to
its defense is probably too much to expect of the academy. Mr.
Vienneau may not be credentialed but I suspect he has read much

WFH

### Christopher Auld

Mar 6, 2002, 2:10:24 PM3/6/02
to
William F Hummel <wfhu...@attbi.com> wrote:

> Learning some of the
>shortcomings of mainstream economics instead of simply rising to
>its defense is probably too much to expect of the academy.

> Mr.
>Vienneau may not be credentialed but I suspect he has read much

Mr. Vienneau does seem to read a lot. He has unfortunately
concluded that Aristotle was Belgian.

It is interesting to note that it is in fact true that most of
what I read (professionally) never comes up on sci.econ. That's
because most of what I read is, first, heavily empirical, and
the fact that most economic research is largely statistical is
something one would never guess from reading sci.econ. Second,
most of what I read is not "big-think" meta-analysis, rather it's
applied economics. Today, for instance, while not wasting time
on the internet I will be reading up on nonparametric models of
labor supply in the presence of hours constraints. That these
sort of issues never come up on sci.econ is symptomatic of
what's wrong with this group.

Hummell, another economist-hating vocal member of the merry
sci.econ club, reiterates the wisdom that economists don't
worry about the limitations of their models, which is just
wrong. What is interesting to note is how lax the standards
are on the other side of the coin. It doesn't matter, at all,
how piss-poor a critique of mainstream economics is -- if
it's critical, it's worth repeating. The case in point is the
subject of this thread. Keen's "new critiques" are based on
Keen's misunderstandings of some shockingly elementary
economics, an appalling lack of familiarity with the
literature, and some mathematical errors. There are sound
critiques -- such as the Alan Kirman paper Robert cited --
and there are incompetent critiques. On sci.econ, it's all
good.

### Mark Patrick Witte

Mar 6, 2002, 3:59:57 PM3/6/02
to
In article <h8hc8uog6iq8hk5oi...@4ax.com>,

William F Hummel <wfhu...@attbi.com> wrote:
>On 6 Mar 2002 09:18:27 -0700, au...@acs.ucalgary.ca (Christopher
>Auld) wrote:
>
>>It's very difficult to maintain any sort of discussion with
>>Robert on any of these issues because he doesn't actually read
>>economics, he reads books with titles like _Debunking Economics_.
>>It is not surprising he holds these quirky, negative views.
>>What is surprising is the startlingly arrogant tone he takes
>>when lecturing on what he's read in such sources. It grows
>>tiresome.
>
>Not nearly as tiresome as the arrogant tone in your "holier than

Where is Chris guilty of credentialism? For example, I've read quite
a few of his posts this past week where he repeatedly explained how differing
set-ups in game theory generated different results, and hence how some games
were PD and some where something else. It is true that he has considerable
credentials in the field but seems to be overly forthcoming in explaining
why he holds the views he favors.

>Quirky negative views are, of course, in the eye of the beholder.

Indeed.

>What is lacking in much of academic economics today is any
>serious attempt to study heterodox views.

What is the the current degree of effort in the field spent on
studying heterodox views, and what would be the optimal level? How does
this compare with other fields? OK, so my questions are facitious, but
that many people who did work that was viewed as strange and wrong by the
vast majority of the profession succeeded in winning their arguments and
establishing their approach as a useful in understanding the world. How is
it that some succeed in making their case and others do not? Could it
perhaps have something to do with the quality of the ideas or the strength
of the evidence?

>Learning some of the
>shortcomings of mainstream economics instead of simply rising to
>its defense is probably too much to expect of the academy. Mr.
>Vienneau may not be credentialed but I suspect he has read much

No, that is not true. Certainly Mr. Vienneau has read certain
literatures very deeply, but it's clear that his focus has been extremely
narrow, as recent discussions of basic econometrics and game theory have
made clear. The mainstream journals are called that because many people
choose to read them, and they contain articles on a wide variety of topics.
This is the literature that Chris and I tend to read. They are full of
disagreements between authors and any modelling or empirical moment is fair
game if it allows a model to explain some aspect of reality better than
competing models. As such, what you refer to as the "mainstream" is a very
contentious group of rival scholars who don't bar any sort of literature
if mining it will give them the upper hand in finding results that match the
world we live in better than does the work of their competitors.

>
>WFH

### William F Hummel

Mar 6, 2002, 6:10:05 PM3/6/02
to
On 6 Mar 2002 12:10:24 -0700, au...@acs.ucalgary.ca (Christopher
Auld) wrote:

>William F Hummel <wfhu...@attbi.com> wrote:
>
>> Learning some of the
>>shortcomings of mainstream economics instead of simply rising to
>>its defense is probably too much to expect of the academy.
>
>> Mr.
>>Vienneau may not be credentialed but I suspect he has read much
>
>Mr. Vienneau does seem to read a lot. He has unfortunately
>concluded that Aristotle was Belgian.

I thought Aristotle was Polish. But maybe I was thinking of
Shakespeare.

>
>It is interesting to note that it is in fact true that most of
>what I read (professionally) never comes up on sci.econ. That's
>because most of what I read is, first, heavily empirical, and
>the fact that most economic research is largely statistical is
>something one would never guess from reading sci.econ. Second,
>most of what I read is not "big-think" meta-analysis, rather it's
>applied economics. Today, for instance, while not wasting time
>on the internet I will be reading up on nonparametric models of
>labor supply in the presence of hours constraints. That these
>sort of issues never come up on sci.econ is symptomatic of
>what's wrong with this group.

I would be impressed with your heavy reading if it dealt with
some fundamental issues. Of course a young economist seeking
tenure must read everything in sight. The object is to get
himself published as often as possible in the right technical
journals and with a lot of whiz-bang econometrics. That's the
way system has evolved, handed down from one generation to the
next. The archives are filling up at a stupefying rate with more
and more about less and less.

Unfortunately the world has a plentiful supply of (professional)
economists who only speak to each other, but far too few of the
kind that matter.

>
>Hummell, another economist-hating vocal member of the merry
>sci.econ club, reiterates the wisdom that economists don't
>worry about the limitations of their models, which is just
>wrong.

The truth is that I have great respect for many economists, but
sadly they are not active on sci.econ. Also I have not commented
recently on the subject of models and their limitations, so you
struck out twice in one paragraph.

Your assertion that I am an economist-hater is the same sort of
stuff I see from another who frequently posts to sci.econ, and
whose blather completely discredits him as an "economist". Like
you, he is apparently not used to being challenged by one who

>What is interesting to note is how lax the standards
>are on the other side of the coin. It doesn't matter, at all,
>how piss-poor a critique of mainstream economics is -- if
>it's critical, it's worth repeating. The case in point is the
>subject of this thread. Keen's "new critiques" are based on
>Keen's misunderstandings of some shockingly elementary
>economics, an appalling lack of familiarity with the
>literature, and some mathematical errors.

Most books written by an economist have some positive elements,
but one would never know it from your critique of Keen's book.
Your rush to judgement suggests that you are inclined to fire
away in defense of the orthodoxy without worrying too much about
author's context. Have you actually read the book?

WFH

### susupply

Mar 6, 2002, 6:38:16 PM3/6/02
to

"William F Hummel" <wfhu...@attbi.com> wrote in message
news:io3d8uckret0p4ia7...@4ax.com...

> On 6 Mar 2002 12:10:24 -0700, au...@acs.ucalgary.ca (Christopher
> Auld)

> Most books written by an economist have some positive elements,

> but one would never know it from your critique of Keen's book.
> Your rush to judgement suggests that you are inclined to fire
> away in defense of the orthodoxy without worrying too much about
> author's context. Have you actually read the book?

>> The short version is: What's good here is not new, and what is
>> new is not good.

>> 1. Supply and demand analysis.

>> This is essentially an argument that partial equilibrium analysis can be
>> misleading, and is more likely to be misleading if the market is large
>> relative to the economy. This argument isn't wrong, but it is very well
>> known. The gist of point 1 would be a reasonable question for most any
>> introductory economics course's final exam.

Or:

>> That's it; that's all the pages and pages of math show. But
>> showing this would be a perfectly reasonable question for
>> an intermediate micro midterm exam; it's trivial and obvious.

### John J. Weatherby

Mar 6, 2002, 7:14:23 PM3/6/02
to

"Mason Clark" <mas...@ix.netcom.com> wrote in message
news:bvj88uc480evscb7k...@4ax.com...

> On Mon, 04 Mar 2002 22:58:57 GMT, "John J. Weatherby"
> Here lies the problem: treating the economic system as a physical system
subject
> to the laws of physics. Or its own laws sans homo sapiens.
>
Two words
Rational Expectations

> The economic system has people in it. Greenspans, Gingriches, bin Ladens,
...
> ....... and unpredictable natural events.
>

Two more words
stochastic processes

John

### John J. Weatherby

Mar 6, 2002, 7:25:42 PM3/6/02
to

"Christopher Auld" <au...@acs.ucalgary.ca> wrote in message
news:a60so2\$37...@acs1.acs.ucalgary.ca...

> John J. Weatherby <jjwea...@earthlink.net> wrote:
>
> Yes. Here at the U of C, for instance, the first undergrad
> mathematical economics course teaches both discrete and
> continuous time methods. This course is typically taken by
> second or third year students. A few of the upper-year
> field courses draw on these foundations. The U of C is a
> reasonably good school, but we are rarely confused with MIT.

I suppose this is the way it should be. I have noticed students who were
undergrads from even the lower portion of the top 30 schools genearly do not
have a lot of exposure to these models coming into grad. schools. But then
again my university is in the lower forty and although not a bad school we
definitely aren't confused with MIT or British Columbia either.
I think more schools should push more calculus techniques and dynamic
modeling to undergrads. My math econ course as an undergrad was really
pretty basic. It did help in the first year Micro course though.

John

### John J. Weatherby

Mar 6, 2002, 7:45:50 PM3/6/02
to

"William F Hummel" <wfhu...@attbi.com> wrote in message
news:io3d8uckret0p4ia7...@4ax.com...

> On 6 Mar 2002 12:10:24 -0700, au...@acs.ucalgary.ca (Christopher
> Auld) wrote:
>
> I would be impressed with your heavy reading if it dealt with
> some fundamental issues. Of course a young economist seeking
> tenure must read everything in sight. The object is to get
> himself published as often as possible in the right technical
> journals and with a lot of whiz-bang econometrics.

A. Reading everything is sight is never a good idea. You must know your
area. This is really why economist usually aren't on this list. What are we
worried, well how to deal with endogenity, what to do with the fact you know
you have measurement error in the data, how to use econometric results to
extend on a theory so that its predictions are closer what the data
predicts, etc. This silly musings like that the fact you have to make some
restrictive assumptions to be able to make a model tractable are not our
lives work. There are a few of who realize that people like Rob take this
small issues and try to convince people that are work is crap simply becuase
a representive agent model may not be the most realistic model. Frankly it
makes me a bit angry. Rob doesn't realize that these arguments apply to
basically two areas in economics, real business cycles and early growth
models. Now being that he thinks was Keynes was misrepresented and he knows
what the bumbling old fart really meant, Rob thinks these issues are
important so he push some crap that came out the confusion of Keynes'
ramblings. Somehow Rob hasn't figured out that models that many economist
use do not use aggregate production functions nor representive consumers. In
fact they don't aggregate anything.

B. There need be no whiz-bang fancy flashy econometrics to publish. It is
more important you know your field. Knowing your field allows you to
identify problem areas and this guides your research. Your research must be
done carefully and correctly and based on current important issues. In fact
I can name a few articles from prominent theorist that used only basic
econometrics in their studies. These are also very important papers in the
field of growth.

John

### William F Hummel

Mar 6, 2002, 7:56:24 PM3/6/02
to
On 6 Mar 2002 20:59:57 GMT, mwi...@merle.acns.nwu.edu (Mark
Patrick Witte) wrote:

>In article <h8hc8uog6iq8hk5oi...@4ax.com>,
>William F Hummel <wfhu...@attbi.com> wrote:
>>On 6 Mar 2002 09:18:27 -0700, au...@acs.ucalgary.ca (Christopher
>>Auld) wrote:
>>
>>>It's very difficult to maintain any sort of discussion with
>>>Robert on any of these issues because he doesn't actually read
>>>economics, he reads books with titles like _Debunking Economics_.
>>>It is not surprising he holds these quirky, negative views.
>>>What is surprising is the startlingly arrogant tone he takes
>>>when lecturing on what he's read in such sources. It grows
>>>tiresome.
>>
>>Not nearly as tiresome as the arrogant tone in your "holier than
>
> Where is Chris guilty of credentialism? For example, I've read quite
>a few of his posts this past week where he repeatedly explained how differing
>set-ups in game theory generated different results, and hence how some games
>were PD and some where something else. It is true that he has considerable
>credentials in the field but seems to be overly forthcoming in explaining
>why he holds the views he favors.

Credentialism does not have to be explicit. It is sometimes
implicit in the manner of expression. Auld accuses Vienneau of
an arrogant tone, yet seems to be unaware of his own. Auld has
been consistently disrespectful of Vienneau for months on end. I
don't save old posts so I can't point to examples, other than the
paragraph above.

There should be no doubt that Vienneau reads economics in
considerable depth, in spite of what Auld says. Economics just
happens to be an intellectual pastime for Vienneau rather than a
professional objective. It's worth noting that leaves him free
to shape his own views, perhaps not always right, but at least
more likely to find weaknesses in the conventional wisdom.

>>Quirky negative views are, of course, in the eye of the beholder.
>
> Indeed.
>
>>What is lacking in much of academic economics today is any
>>serious attempt to study heterodox views.
>
> What is the the current degree of effort in the field spent on
>studying heterodox views, and what would be the optimal level? How does
>this compare with other fields?

You should be in better position than I am to answer these
questions. My understanding is that very little time, if any, is
spent exposing students to heterodox views. Yet there are many
very bright heterodox economists, not all of whom could be
totally misguided.

>OK, so my questions are facitious, but
>that many people who did work that was viewed as strange and wrong by the
>vast majority of the profession succeeded in winning their arguments and
>establishing their approach as a useful in understanding the world. How is
>it that some succeed in making their case and others do not? Could it
>perhaps have something to do with the quality of the ideas or the strength
>of the evidence?

The fact that certain ideas become the accepted wisdom does not
necessarily mean they are correct. Economics is a continually
evolving discipline. Many ideas, once widely accepted, have
fallen away. No doubt the same fate awaits many of today's
ideas. However humility has never been a strong point among
mainstream economists, so it always very difficult to get a
respectful hearing for heterodox economics.

>
>>Learning some of the
>>shortcomings of mainstream economics instead of simply rising to
>>its defense is probably too much to expect of the academy. Mr.
>>Vienneau may not be credentialed but I suspect he has read much
>
> No, that is not true. Certainly Mr. Vienneau has read certain
>literatures very deeply, but it's clear that his focus has been extremely
>narrow, as recent discussions of basic econometrics and game theory have
>made clear. The mainstream journals are called that because many people
>choose to read them, and they contain articles on a wide variety of topics.
>This is the literature that Chris and I tend to read. They are full of
>disagreements between authors and any modelling or empirical moment is fair
>game if it allows a model to explain some aspect of reality better than
>competing models. As such, what you refer to as the "mainstream" is a very
>contentious group of rival scholars who don't bar any sort of literature
>if mining it will give them the upper hand in finding results that match the
>world we live in better than does the work of their competitors.
>

The mainstream journals may be contentious, but they are out of
bounds to the heterodox economists. Peer reviews are an inbred
system guaranteed to take care of that. Sure, now and then
someone comes along with an irrefutable argument that upsets the
apple cart. But there is a class of economists who don't even
get a hearing because their "fundamentals" are so antithetical
that none in the mainstream take them seriously. So you are

WFH

### Christopher Auld

Mar 6, 2002, 9:23:57 PM3/6/02
to
William F Hummel <wfhu...@attbi.com> wrote:

>I would be impressed with your heavy reading if it dealt with
>some fundamental issues.

I think William and I might disagree on what constitutes
"fundamental issues." For example, I think one "fundamental
issue" is how to make causal inferences from observational
data. This particular issue has captured the interest of
quantitative researchers in various fields for fifty years.
I've never seen it even mentioned on sci.econ. On the other
hand, I don't think that the conditions that can or cannot
be imposed on excess demand functions in Arrow-Debreu general
equilibrium is a "fundamental issue" at all. But certain
posters steeped in meta-analysis seem to fervently believe
otherwise.

[ snip: miscellaneous run-of-mill sci.econ insults ]

>Your assertion that I am an economist-hater is

...based in no small part on the post to which I was

>What is lacking in much of academic economics today is any

>serious attempt to study heterodox views. Learning some of the

>shortcomings of mainstream economics instead of simply rising to
>its defense is probably too much to expect of the academy.

are hard to reconcile with protestations of moderacy. I
believe most of William's posts are about monetary theory,
which I find uninteresting, don't know much about, and
therefore don't comment on (I know this will be an alien
concept to many of the gentle readers of sci.econ).

>Most books written by an economist have some positive elements,
>but one would never know it from your critique of Keen's book.
>Your rush to judgement suggests that you are inclined to fire
>away in defense of the orthodoxy without worrying too much about
>author's context. Have you actually read the book?

I have not, as I have clearly stated. It is entirely possible
that the unoriginal arguments rehashed in the book are rehashed
well, but I tend to doubt it after reading the stuff on Keen's
page. The "new critiques" are apparently presented in the book
sans formal presentation. Keen presents the formal ideas on his
web page, and, I said, they're just not right. In what "context"
do mistaken algebra and simply false assertions about the content
of the literature become valid?

Now, as I said, there are certainly thoughtful and valid
critiques of all sorts of economic thought, "mainstream"
(whatever exactly that may be) and otherwise. But Keen's
"new critiques" are not amongst them. What I find fascinating
about the jovial denizens of sci.econ is how quickly they
rush to promote the book. Pointing out the "new critiques"
are rubbish elicites responses such as "Your rush to

judgement suggests that you are inclined to fire away in
defense of the orthodoxy without worrying too much about

author's context." Another poster gave the exact cite to
Amazon, where people can buy this tome of "good economics,"
and yet another had the gall to recommend _Debunking Economics_
to someone who asked what a good primer on mathematical
finance might be. In short, it doesn't seem to matter whether
Keen makes the slightest bit of sense; he wrote a book with
the spiffy title _Debunking Economics_. What more do we
need to know?

### Christopher Auld

Mar 6, 2002, 9:38:37 PM3/6/02
to
William F Hummel <wfhu...@attbi.com> wrote:

>Credentialism does not have to be explicit. It is sometimes
>implicit in the manner of expression.

That's a new one. I think "credentialism" might be an
assertion such as, "Graduate training in economics is
brainwashing,indoctrination." I think this "reverse"
credentialism is the only form of that logical error
that's appeared in this thread. Here's another example
of this form of credentialism:

>There should be no doubt that Vienneau reads economics in
>considerable depth, in spite of what Auld says. Economics just
>happens to be an intellectual pastime for Vienneau rather than a
>professional objective. It's worth noting that leaves him free
>to shape his own views, perhaps not always right, but at least
>more likely to find weaknesses in the conventional wisdom.

It is certainly good that William agrees that such assertions
are both insulting and do not form components of logical
arguments.

>Auld has been consistently disrespectful of Vienneau for
>months on end.

Oh yes, poor innocent, disrespected Mr. Vienneau.

Poor Chris Auld
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### ro...@telus.net

Mar 6, 2002, 10:18:13 PM3/6/02
to
On 5 Mar 2002 14:34:39 -0700, au...@acs.ucalgary.ca (Christopher Auld)
wrote:

><ro...@telus.net> wrote:

>
>>Why not assume a distribution, and observe how closely it matches
>>reality?
>
>Assume a distribution of what?

Whatever factor is assumed to be uniform. In the example (snipped),
IIRC, it would be the demand for X under different income
distributions.

>What do you mean by "how
>closely it matches reality?"

How well it "predicts" actual data, including historical data.

>>Which would put him in the same company as Adam Smith, David
>>Ricardo....
>
>That's funny, I don't remember either of these gentlemen
>in economics in the early 21st century.

<yawn> They both expressed great dissatisfaction with the orthodoxies
of their day.

>>>The attack "That model's no good because you made strong
>>>assumptions just to make it tractable" is terribly naive. What
>>>good is a model that can't be solved?
>
>>It might be closer to the truth?
>
>Sure. So?

Thank you for providing such an eloquent debunking of economics....

>What good is it if it can't be solved?

It will be less useful in justifying destructive and evil policies.

>You
>do understand that this issue comes up in every discipline,
>not just economics, right?

Yes, but economics is the only discipline where the vital interests of
the most powerful interests in society may be -- and, in fact, are --
seriously jeopardized by too much truth.

>>What good is solving a model that says nothing useful about the real
>>world?
>
>What models do you have in mind that "say nothing useful