Lies that economics is built on

Originally posted on LARS P. SYLL:

Peter Dorman is one of those rare economists that it is always a pleasure to read. Here his critical eye is focussed on economists’ infatuation with homogeneity and averages:

You may feel a gnawing discomfort with the way economists use statistical techniques. Ostensibly they focus on the difference between people, countries or whatever the units of observation happen to be, but they nevertheless seem to treat the population of cases as interchangeable—as homogenous on some fundamental level. As if people were replicants.

You are right, and this brief talk is about why and how you’re right, and what this implies for the questions people bring to statistical analysis and the methods they use.

Our point of departure will be a simple multiple regression model of the form

y = β0 + β1 x1 + β2 x2 + …. + ε

where y is an outcome variable, x1 is an explanatory variable…

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Bootstrapping made easy (wonkish)

Originally posted on LARS P. SYLL:

In Gretl it’s extremely simple to do this kind of bootstrapping. Run the regression and you get an output-window with the regression results. Click on Analysis at the top of the window and then on Bootstrap and select the options Confidence interval and Resample residuals. After having selected the coefficient for which you want to you get bootstrapped estimates, you just clickOK and a window will appear showing the 95% confidence interval for the coefficient. It’s as simple as that!

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The Economic Consequences of the Overthrow of the Natural Rate of Interest

Originally posted on Fixing the Economists:


For quite a few months I have, on this blog, been alluding to a paper that I had written which showed that the natural rate of interest is implicitly dependent on the EMH in its strong-form in order to be coherent. I have finally published this paper (in working paper form) with the Levy Institute and it can be read here:

Endogenous Money and the Natural Rate of Interest: The Reemergence of Liquidity Preference and Animal Spirits in the Post-Keynesian Theory of Capital Markets

Some notes on the paper.

The motivation for the paper was that when reading up on endogenous money during my degree I found that mainstream economists had largely integrated it in their more recent models. This integration, as the paper notes, usually took the form of a Taylor Rule. I should be clear that although this had become standard practice at some levels of the discipline…

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The myth that sold the financial bailout

Originally posted on Real-World Economics Review Blog:

from Den Baker

If there had been political support for massive spending in these areas, the Depression could have ended in 1931 instead of 1941.

Today marks the sixth anniversary of the collapse of Lehman Brothers. The investment bank’s bankruptcy accelerated the financial meltdown that began with the near collapse of the investment bank Bear Stearns in March 2008 (saved by the Federal Reserve and JPMorgan) and picked up steam with Fannie Mae and Freddie Mac going under the week before Lehman’s demise. The day after Lehman failed, the giant insurer AIG was set to collapse, only to be rescued by the Fed.

With the other Wall Street behemoths also on shaky ground, then–Treasury Secretary Henry Paulson ran to Capitol Hill, accompanied by Federal Reserve Chairman Ben Bernanke and New York Fed President Timothy Geithner. Their message was clear: The apocalypse was nigh. They demanded Congress make an open-ended commitment…

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Academic Sophistry: Dart-Throwing Monkeys and the EMH

Originally posted on Fixing the Economists:


The other day I did a post on the Efficient Markets Hypothesis (EMH) that generated some discussion. I want to deal with a few of the issues raised in a some upcoming blogposts.

One issue of interest was that many EMH proponents said: “Sure, Warren Buffett and Keynes beat the market over a long-period we’re not saying that. Some people might beat the market out of pure luck.” Well that seems like rubbish to me.

Think about this. If the EMH says that no one single person can beat the market over the long-run that is a testable proposition. But if they then say that some people might but this is “by luck” that is not testable. That is, in fact, based on an a priori assumption that anyone who beats the market did not do so by skill.

Now, personally I think that some people beat the market by…

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How Do Capitalist Firms Grow?

Originally posted on Fixing the Economists:

Home businessI’m currently reading Marc Lavoie’s new book Post-Keynesian Economics: New Foundations. This really is the defining text of Post-Keynesian economics today. Anyone who is really interested in Post-Keynesian economics should try to get their hands on it. It is a bit overpriced right now — so you can probably only realistically get it if you order it to your university library — but hopefully Marc can find a way to get it out for lower cost

The book is over 600 pages long and most of those pages are pretty dense. When I’ve finished it I will be either writing a review on the book or a full paper. I’m leaning toward the latter right now as I think there are a few things that might be worth saying. Anyway, for now I just want to discuss a single component of the theory that can be summarised in one…

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Originally posted on Pandaemonium:

brueghel tower of babel

Another review from the archives while I am away, the last hopefully before normal service resumes on Pandaemonium. This is a review of Felipe Fernández-Armesto’s Civilizations, first published in the Independent on Sunday, 8 October 2000.

‘It can now be asserted upon convincing evidence that savagery preceded barbarism in all the tribes of mankind, as barbarism is known to have preceded civilization.’ So wrote Victorian anthropologist Lewis Henry Morgan in his 1877 classic Ancient Societies. According to Morgan, savagery, barbarism and civilization ‘are connected with each other in a natural as well as a necessary sequence of progress.’

The idea of history as progressing in a series of natural stages from savagery to civilization is a very Victorian notion, testament to the values of a bygone era. Ours is an age deeply skeptical both of the idea of historical progress and of the capacity of humans…

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