Sleep Tight

I want to live
I want to die
I want to go
Where angels guide

Someday I will fly
But not today
Today I will stay
Within my sway

Lost and found
We've always been
A sweet true love
Perhaps a dream

For all is true
Is fantasy
Hence all not true
Not worthwhile

I wish that we
Could reconcile
Yet not today
It cannot be

Perhaps it's not
Supposed to be
At least for now
Or hundred years

Yet there is a bond
I can't deny
Which leads me straight
Up to your heart

And sure I'll see
You everyday
Although you'll be
So far away

So sleep tight love
As every night
You've done all
The last years so bright

Sun will always
Shine for you
And wake you from
Your sweet curfew

I'll miss you so
That's all I say
But life's like this
There is no replay

Debunking Economics – Don’t shoot the piano!

I have argued elsewhere that it is meaningless to criticize mathematics per se. As Steve Keen puts it, “while it is undeniable that an inordinate love of mathematical formalism has contributed to some of the intellectual excesses in economics, generally this reaction is as erroneous as blaming the piano for the discordant notes of a bad piano player. If anything should be shot, it is the pianist, not the piano”. His book combines sound theory (Marx – Schumpeter – Minsky – Keynes) and chaos theory (non-linear differential equations) to analyze the inherent instability of a monetary economy.

He argues that poor scholarship leads to bad theory, both regarding the lack of knowledge in the history of economic thought as well as the lack of proper mathematical training. It is interesting to note that neoclassical economists are so vain about their unlimited mathematical skills and reject their critics on the basis that they do not understand math and therefore aren’t in a position to criticize their work. This can be traced back to Walras:

“As for those economists who do not know any mathematics […] let them go their way repeating that ‘human liberty will never allow itself to be cast into equations’ or that ‘mathematics ignores frictions which are everything in social sciences’ and other equally forceful and flowery phrases”

Ironically, Kalecki who was a great mathematician (see Libânio) was left at the backwaters of economics, which leads to the conclusion that the neoclassical claim to be scientific does not hold up to scrutiny. Since he had a Marxist background where classes were the basic unit of analysis and did not use the conventional tools – equilibrium, utility and production functions, optimization – he was ignored, as anyone who doesn’t follow the dogmas will. To put it short, mathematics on itself won’t take you to the ivory tower of neoclassical economics.

Tony Lawson, trained as a mathematician, supports Keen’s point that you don’t need to be a bad mathematician to be critical of economics. Eric Weinstein, in the same vein, proposes Gauge Theory to deal with economic issues. Evolutionary economics and complexity theory, as well, provide alternatives based on evolutionary game theory and computer simulation that are far from nonmathematical and take the social and historical much more seriously than standard economics.

For every flaw of standard theory there are ancillary assumptions to save the day, however, as Lakatos argues, this is a sign of a degenerative scientific research program, one in which the hard core is constantly being incapable of explaining new phenomena and most effort is applied at adjusting the ancillary assumptions.

Hence, whether you are enthusiastic of Keen, Kalecki, Weinstein, Evolutionary Economics, Complexity Theory (or what have you) you are entitled to say: “don’t shoot me, I’m only the piano”. However, be aware you won’t be invited to play in the lousy gigs where most of the audience goes. But, who said the best parties are the most crowded?

We are all Keynesians now. Really?

Economists are often caricaturized, as if a single photo could describe a film. I have talked about Adam Smith and someday I’ll talk about Walras and Phillips “Dundee” (believe it or not, he was a crocodile hunter in his youth). 
Today, though, I’d like to make a few comments about Keynes.

We are not all Keynesians now. Keynes has influenced economics deeply, but not through his original contribution. The travesty version of Keynes (IS-LM) was a benchmark for quite a while and still lives on undergraduate textbooks, although “cutting-edge” economics has long ago dismissed this flawed interpretation of the General Theory.

I’m not sure why, but as I was an early undergrad learning IS-LM I read Hicks’s paper admitting he was wrong about it (published at the Journal of Post-Keynesian Economics in 1980). I like to think I always struggled with IS-LM because I knew it was wrong from the outset, although it was probably just because I’m not the brightest bulb in the chandelier. Be it as it may, I got Hicks's point that Walras’ Law wouldn’t apply in his analyses and, therefore, it was not correct to use the traditional argument that n markets in equilibrium imply n+1 markets in equilibrium. In that sense, the Labor Market which was such an important feature on the General Theory was erroneously assumed to be constantly in equilibrium. Nevertheless, that could only be true for the intersection point of IS and LM curves, and since equilibrium theory never worried about the time element and dynamics plays no role (don’t be misguided about the D in DSGE, it’s subject to the same criticism although I won’t address this issue now) there was no actual investigation about what happens in disequilibrium and it was just assumed that in the long run we are all dead, pardon me, we are all in equilibrium. Further, uncertainty and psychological features that were paramount to Keynes’s analysis vanished in Hicks’s IS-LM model, which he later on admitted was “a product of my Walrasianism”.

What really amazes me and my motivation to write this post is that most of the profession seems not to be aware of Hicks’s rendition, perhaps because it was written in a non-orthodox journal. As Keen puts it, it “was generally ignored by economists who – if they were aware of it at all – would have been more inclined to put his views down to approaching senility to any blinding logical revelation”. The almighty Lucas, for instance, in 2003 (over 20 years after Hicks plead guilty) said:

“My credentials? Was I a Keynesian myself? Absolutely […] I remember when Leijonhufvud’s book came out and I asked my colleague Gary Becker if he thought Hicks had got the General Theory right with his IS-LM diagram. Gary said, ‘Well, I don’t know, but I hope he did, because if it wasn’t for Hicks I never would have made any sense out of that damn book’. That’s kind of the way I feel, too, so I’m hoping Hicks got it right”.

I don’t have a problem with mathematics being at the center of economics, my concern is that it seems as though it is the sole foundation of our science. My problem is the building of an intellectual edifice in such a fragile soil, the lack of dialogue among economists from different schools and the overall decline of interest in the history of economic thought. My stance towards economics is to get in touch with as many different approaches as I manage, although as Carlos Suprinyak once told me: “if there is one thing we should give credit for neoclassical economists is that time is scarce”. Therefore it seems almost impossible to become a great mathematician and a great historian. On the other hand, Suprinyak also said it is admirable that I am trying to combine historical analyses with an understanding of DSGE models and the like. 

I’m not sure how one divides optimally his time among studying different areas, and equating marginal benefit with marginal cost seems useless to answer such question. But there should be some effort among economists to understand one another, relying on each other’s expertise to create synergy.

If mainstream economists read or even talked to Post-Keynesians, for instance, they wouldn’t claim to be Keynesians. So, to the question are we all Keynesians now I answer:

No, we are all ultra specialized economists now.

We make a film out of a picture, and, even worse, claim to be one of the actors.