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In my macro economics studies we absolutely included involuntary unemployment in models, this in itself broken into different forms like frictional vs structura

In 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 ago
The 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 ago
I 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.
- endzone 11y ago
  you know not all theoretical models are equilibrium based? guess not if keen is your primary source i can't find any coherent argument in your final paragraph. can you rephrase it in a way that has some meaning?
  - asgard1024 11y ago
    > you know not all theoretical models are equilibrium based Depends what you mean. I would love to see a macroeconomic model, which is not just an assumption of equilibrium subjected to external shocks. I have only seen such models from postkeynesians. (Austrians do not count - they pretty much throw hands to the air and say "it does whatever it does, we cannot know anything, therefore it's OK".) > can you rephrase it in a way that has some meaning Well, assuming you want to show that some self-organizing system should be a moral guide, for instance, claiming that free markets lead to "efficient" (whatever that means) outcomes, then necessarily this self-organizing system has to have a stable unique outcome (which pretty much rules out chaotic behaviour that dynamical systems love to exhibit). If it had two different outcomes, then it couldn't be a unique source of morality (someone would have to come and decide which outcome is better). For example, that's why economists, who believe in free market, cling so much to idea that there cannot be endogenous unemployment (and instead explain it as some sort of reaction to external "shock" which will eventually pass). If existing unemployment was endogenous, it would mean that at some point in the past there was a choice (bifurcation), which would set us to path of either unemployment or full employment, and the self-organizing system of free market "made" the morally wrong choice, or at least it was indifferent (meaning it is not a good moral guide).

niklasni1 11y ago

The 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 ago

I 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.

endzone 11y ago
you know not all theoretical models are equilibrium based? guess not if keen is your primary source i can't find any coherent argument in your final paragraph. can you rephrase it in a way that has some meaning?
- asgard1024 11y ago
  > you know not all theoretical models are equilibrium based Depends what you mean. I would love to see a macroeconomic model, which is not just an assumption of equilibrium subjected to external shocks. I have only seen such models from postkeynesians. (Austrians do not count - they pretty much throw hands to the air and say "it does whatever it does, we cannot know anything, therefore it's OK".) > can you rephrase it in a way that has some meaning Well, assuming you want to show that some self-organizing system should be a moral guide, for instance, claiming that free markets lead to "efficient" (whatever that means) outcomes, then necessarily this self-organizing system has to have a stable unique outcome (which pretty much rules out chaotic behaviour that dynamical systems love to exhibit). If it had two different outcomes, then it couldn't be a unique source of morality (someone would have to come and decide which outcome is better). For example, that's why economists, who believe in free market, cling so much to idea that there cannot be endogenous unemployment (and instead explain it as some sort of reaction to external "shock" which will eventually pass). If existing unemployment was endogenous, it would mean that at some point in the past there was a choice (bifurcation), which would set us to path of either unemployment or full employment, and the self-organizing system of free market "made" the morally wrong choice, or at least it was indifferent (meaning it is not a good moral guide).