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There are several problems with social sciences not just economics. Recently, I've read an interview by Yanis Varoufakis[1]. Here's an interesting excerpt: ---
by atmosx 11y ago
There are several problems with social sciences not just economics. Recently, I've read an interview by Yanis Varoufakis[1]. Here's an interesting excerpt:
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Mariana Mazzucato, University of Sussex – How has the crisis in Greece (its cause and its effects) revealed failings of neoclassical economic theory at both the micro and the macro level?
Varoufakis: The uninitiated may be startled to hear that the macroeconomic models taught at the best universities feature no accumulated debt, no involuntary unemployment and, indeed, no money (with relative prices reflecting a form of barter). Save perhaps for a few random shocks that demand and supply are assumed to quickly iron out, the snazziest models taught to the brightest of students assume that savings automatically turn into productive investment, leaving no room for crises.
It makes it hard when these graduates come face-to-face with reality. They are at a loss, for example, when they see German savings that permanently outweigh German investment while Greek investment outweighs savings during the “good times” (before 2008) but collapses to zero during the crisis.
Moving to the micro level, the observation that, in the case of Greece, real wages fell by 40% but employment dropped precipitously, while exports remained flat, illustrates in Technicolor how useless a microeconomics approach bereft of macro foundations truly is.
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I really don't know at what level of complexity someone must settle, in order to have a viable mathematical model to predict financial crisis... How many variables do you need? Then again a lot in economics depends on 'perception'. A FinMin will never discuss devaluation of his currency, the moment he does... The currency will drop. How can a mathematical model 'predict' such behaviours?
[1] https://theconversation.com/varoufakis-in-conversation-with-leading-academics-as-syriza-splinters-and-election-beckons-in-greece-35861 https://theconversation.com/varoufakis-in-conversation-with-...
- yummyfajitas 11y agoThis interview is almost incoherent. Note the contradiction: "no involuntary unemployment and, indeed, no money" followed by "real wages fell by 40% but employment dropped". The latter statement only contradicts Keynesian economics, which don't have relative prices (Keynesian economics has only real and nominal dollars of GDP) and uses money combined with sticky prices to explain involuntary unemployment. But although in one sentence he seems to think the Greek experience contradicts Keynesian economics, he turns around and appeals to Keynesian economics a few minutes later: "the 3.5% primary target for 2018 would depress growth today".
- tP5n 11y agoWhy would a self-described 'erratic marxist' even be concerned about contradicting Keynesian economics?
- bildung 11y ago> Note the contradiction: "no involuntary unemployment and, indeed, no money" followed by "real wages fell by 40% but employment dropped". That contradiction quickly dissolves once you see that he first he talks about macroeconomics as taught in the university ("no involuntary unemployment and, indeed, no money") and then about microeconomics ("real wages fell by 40% but employment dropped").
- yummyfajitas 11y agoIt's still nonsense. Macro does discuss involuntary unemployment and money. Also, the specific microeconomic phenomenon he discusses is exactly the microfoundation for a specific macro theory (Keynesian economics).
- crdoconnor 11y ago>The latter statement only contradicts Keynesian economics Uh, no, it contradicts neoclassical economics. Keynesian economics views unemployment as a deficit of aggregate demand and most CERTAINLY does not pretend that it doesn't exist. >But although in one sentence he seems to think the Greek experience contradicts Keynesian economics A quick skim suggests he doesn't contradict Keynesian economists. Probably he contradicts new keynesian economics somewhere, but then again, New Keynesian is an abortion that would have Keynes turning in his grave.
- yummyfajitas 11y agoAccording to Keynesians, if real wages fall, employment should rise (relative to a counterfactual of fixed real wages). According to Varoufakis, "real wages fell by 40% but employment dropped" which is the exact opposite of Keynesian economics. Another phrase for "Keynesian economics" is "macroeconomic models taught at the best universities", which is what Varoufakis is criticizing.
- Gustomaximus 11y agoIn my macro economics studies we absolutely included involuntary unemployment in models, this in itself broken into different forms like frictional vs structural unemployment. Similar inclusions for debt and pricing. As for crisis, then what are macro economic stress tests? Economists can be a overly theoretical in places, they have to be in a world of unlimited and often irrational variables, but this is a bit simplistic. I have quite admired the way Yanis has handled his brief position in Greece. He's clearly an intelligent big picture thinker that was out to serve his peoples interests. This quote seems out of context to my expectations of his usually we'll considered statements. I wonder if there is some loss or context or other soundbite missing here.
- niklasni1 11y agoThe Danish ministry for Finance has an official macroeconomic model that is used to evaluate policies. To the best of my knowledge, it includes a small (I think fixed) amount of structural unemployment but anything else is assumed to be transient. We might have some unemployment now, but it's always assumed to right itself after a few years.
- asgard1024 11y agoI think, if you want to truly understand where Yanis Varoufakis is coming from in that comment, read the book Debunking Economics by Steve Keen. Although Varoufakis is probably even more critical to economic theories than Keen, the two guys agree a lot and admire each other. Besides, Keen (and other postkeynesians) truly shows how the mathematical economics should be done, that is, by having a fully dynamic macro models with time and debt/money. I am afraid machine learning the article talks about is a similar distraction as econometrics. Unless mainstream economists will be willing to rework the theoretical foundations (give up on equilibrium, at least), and base it more on empiricism, mathematical approach, no matter how fancy, will always be a quandary. But as other have said, the problem is that many economists are pretty much the prophets of the free market (or status quo in general). If you want to somehow claim a moral basis of society, then you can't have a model which allows multiple different solutions, and so you need to stick to equilibrium instead of allowing a dynamical solutions.