Can I warmly endorse a blog post under the above title, to be found here? Anyone who can say this gets my vote:
I was wholly in agreement with Professor David Hendry, who in his presentation on statistical techniques for exploring data, said:
- all macroeconomic theories are incomplete, incorrect and changable
- all macroeconomic time series are aggregated, inaccurate and rrely match theoretical concepts
- all empirical macroeconometric models are aggregated, inaccurate and mis-specified in numerous ways
So why justify an empirical model by an invalid theory that will soon be altered? Why is internal model credibility considered more important than verisimilitude? “It's why people think economists are daft,” he said. And, as he pointed out, DSGE models are not even logically internally consistent because they incorrectly regard agents' expectations today of the future state of the world, conditioned on what they know today, as the same as their equivalent expectations tomorrow, bar for an unpredictable error — but this would only be true in a stationary world. When the state of the world can change in a non-stationary way between today and tomorrow, the kind of ‘model-consistent' or rational expectations conventionally used are not possible.
Oh yes.
So true.
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And quoting from the same article, here you have the reason your ‘Oh yes!’ won’t lead to much in the way of actual change. It’s their own form of corporate capture.
‘…many of those who disagree with the prevailing, albeit broken, ex-consensus feel unable to bring about change even in their own research, and are not eager to speak out or change the nature of their work because it will harm their career prospects. To advance in UK economics departments requires publication of numerous articles in a small number of American journals which are firmly sticking to the conventional modelling approach.’
That’s the American Economic Review for you….a pernicious thing if ever there was one
As pernicious, Richard, is that while we wait for the economics discipline to admit it’s mistakes and amend it’s teaching accordingly many of these academics continue to fill the heads of young people with this guff.
How lucky I was that I attended university (as a mature student) at a time when political economy was still relatively widely taught.
Me too
Yes things change so quickly don’t they.
So we need something that reacts quickly to changing circumstances?
Like the free market?
Or like a department of government?
Take your time.
The idea of a “reply”, Ivor, is to reply to the actual artcle written, not some other article in your own head.
I’m having one of those ‘he hasn’t agreed with that, has he?’ moments.
Diane Coyle’s view of economics is about as conservative as you can possibly get: she is like Hayek in his belief that you don’t change anything because human brains are very complex things, way more complex than sense data, so let’s not go there and stick only with micro where everyone agrees with everyone and everyone’s always happy-clappy.
Krugman blogs June 26, 2012 ‘Economics, Good and Bad’ and June 30, 2012, ‘Macroeconomics and the Centrist Dodge’ gives the links to the criticisms of Coyle.
Coyle is on the BBC Trust: she is as useful as Chris Patten.
I agree in general
But on this occasion she was right…..
Without their toys they’re out of business, aren’t they? As indeed they should be… anyway, that’s why they stick with them.
On 1st October, Martin Hutchinson had an item in Prudent Bear, The Bears Lair, on a world with international exchange based on multiple currencies. I posted on this today, Thursday 4th with the link. What price modelling in a world without models?
URL?
http://www.prudentbear.com/index.php/thebearslairview?art_id=10714