“All professions are conspiracies
against the laity” as George Bernard Shaw said. And if you don’t believe that many
professional economists are more interested in lining their own pockets than in
sorting out economic problems, then perhaps the words of an economist, Adam
Smith, will persuade you.
As he put it, “People of the same
trade seldom meet together, even for merriment and diversion, but the
conversation ends in a conspiracy against the public, or in some contrivance to
raise prices.”
The main objective of academic
economists is to further their careers and achieve promotion. And they do that
by churning out papers and books, regardless of whether that literature
clarifies or muddies economic issues. So if an academic economist can get
something published that muddies economic issues, that will probably raise
unemployment. But never mind: it furthers the career of the economist, so the
economist will fire ahead with the publication.
New Keynsian economics.
A nice example of the above is so
called “New Keynsian” economics: an idea that has kept hundreds if not
thousands of economists employed worldwide.
One of the two main elements of NK
economics according to Wiki is so called “rational expectations”. And according
to Wiki, rational expectations is “. . .identical to the best guess of the
future (the optimal forecast) that uses all available information.”
In other words households allegedly
make calculated choices based on “all the available information”. You ever
heard anything so patently unrealistic?
This leads to the completely absurd
conclusion (quoting Wiki again) that “If the Federal Reserve attempts to lower
unemployment through expansionary monetary policy economic agents will
anticipate the effects of the change of policy and raise their expectations of
future inflation accordingly. This in turn will counteract the expansionary
effect of the increased money supply.”
So do households actually act in the
above “rational” and calculated way? Of course not, and the evidence supports
the point: that is, households in the US spent a fair proportion of the Bush
tax cuts soon as they got their hands on the money: exactly what anyone with
some common sense would except them to do. So the “expansionary effect of the increased
money supply” was not negated, as rational expectations would have us believe.
Sticky wages and prices.
Another (and hilarious) element of NK
is apparently that “sticky prices and wages, are a central aspect of all New
Keynesian models.” Er . . yes . . one of the main points made by Keynes himself
was that wages were, as he put it “sticky downwards”.
But if your aiming to keep yourself
employed, then no harm in dressing up as new, an idea that is old as the stars.
Hopefully no one will notice.
Microfoundations.
A third important element of NK is “microfoundations”
apparently. Now if by microfoundations one means ACTUAL EVIDENCE as to what
households do (e.g. in reaction to the above Bush tax cuts), that’s OK. But
what “microfoundations” actually means is more like: “convenient assumptions
made by economists as to what households do so as to help them set out fancy
models which they can get published and with no regard to the empirical
evidence”.
As Simon Wren-Lewis
put it, “Internal consistency rather than external consistency is the
admissibility criteria for microfounded models. Which means in ordinary English
that academic papers presenting macroeconomic models will be rejected if some
parts are theoretically inconsistent with other parts, but not if some model
property is inconsistent with the data.”
________
PS (13th July 2014). Lars Syll has just done an article on the nonsense behind "rational expectations".
No comments:
Post a Comment
Post a comment.