tag:blogger.com,1999:blog-5908830827135060852.post1214071351019399170..comments2018-10-14T08:05:06.607-04:00Comments on Bond Economics: The Curious Profit Accounting Of DSGE ModelsBrian Romanchuknoreply@blogger.comBlogger30125tag:blogger.com,1999:blog-5908830827135060852.post-45787430543501958272018-03-25T05:51:02.198-04:002018-03-25T05:51:02.198-04:00Brian Romanchuk
You say “The equation has been di...Brian Romanchuk<br /><br />You say “The equation has been divided through by the price level … that’s a valid mathematical operation.”<br /><br />The problem is that you are a substandard mathematician. Because of this, you do not realize that DSGE is materially and formally flawed.<br /><br />The analytical superstructure of DSGE is based upon this set of hardcore propositions a.k.a. axioms:<br />HC1. There exist economic agents.<br />HC2. Agents have preferences over outcomes.<br />HC3. Agents independently optimize subject to constraints.<br />HC4. Choices are made in interrelated markets.<br />HC5. Agents have full relevant knowledge.<br />HC6. Observable economic outcomes are coordinated, so they must be discussed with reference to equilibrium states. (Weintraub, p. 109)#1<br /><br />HC3 introduces marginalism which is the all-pervasive principle of standard economics. There are two methodological flaws here: (i) HC3 is an idiotic behavioral assumption, and (ii), constrained optimization of an ordinal preference order is an invalid mathematical operation as the mathematician Jonathan Barzilai has proven (link has been given above).<br /><br />Marginalism has been proto-scientific garbage from the very start.#2 DSGE is the proof that economists are so stupid that have not realized in 140+ years that their axiomatic foundations HC1/HC6 are invalid on all methodological counts.<br /><br />The microfoundations approach is dead. Standard economics is dead. DSGE is dead. Nothing less than a paradigm shift will do. Methodologically it holds: If it isn’t macro-axiomatized it isn’t economics.<br /><br />Egmont Kakarot-Handtke<br /><br />#1 Weintraub, E. R. (1985). General Equilibrium Analysis. Cambridge, London, New York, NY, etc.: Cambridge University Press.<br /><br />#2 Putting the production function back on its feet<br />https://axecorg.blogspot.de/2016/09/putting-production-function-back-on-its.htmlAXEC / E.K-Hhttps://www.blogger.com/profile/10402274109039114416noreply@blogger.comtag:blogger.com,1999:blog-5908830827135060852.post-46832316832420770532018-03-24T12:32:22.691-04:002018-03-24T12:32:22.691-04:00I don’t see how that’s a modifier for inflation. T...I don’t see how that’s a modifier for inflation. The equation has been divided through by the price level; with all due respect to a certain person, that’s a valid mathematical operation.<br /><br />In any event, that’s not Ljungqvist’s and Sargent’s model. I am discussing their model, not hypothetical better models.Brian Romanchukhttps://www.blogger.com/profile/02699198289421951151noreply@blogger.comtag:blogger.com,1999:blog-5908830827135060852.post-40508912126035775242018-03-24T10:12:08.171-04:002018-03-24T10:12:08.171-04:00Brian;
It dawned on me this morning that equation...Brian;<br /><br />It dawned on me this morning that equation 16.2.3 might be incorrectly written.<br /><br />Eq. 16.2.3 makes a lot more sense to me if it is written<br /><br />\[c(t) + g(t) + k(t+1) = (F(t, k_b, n))(1-\delta k(t)).\]<br /><br />Written this way, the last term-group is a modifier for inflation.<br /><br />Is this correct?Roger Sparkshttps://www.blogger.com/profile/01734503500078064208noreply@blogger.comtag:blogger.com,1999:blog-5908830827135060852.post-59990993342426247652018-03-24T07:31:23.254-04:002018-03-24T07:31:23.254-04:00ANC Driver
To sum up. In their DSGE textbook Recu...ANC Driver<br /><br />To sum up. In their DSGE textbook Recursive Macroeconomic Theory, Lars Ljungqvist and Thomas J. Sargent define macroeconomic profit in real terms. This is methodologically as idiotic as one can get because profit is a nominal variable. The DSGE model suffers from a dimensional inconsistency. Alone for this reason, it is scientifically worthless.<br /><br />Neither DSGEers themselves nor their critics have realized that the whole approach is proto-scientific rubbish. On second thought, however, this is not really astounding because the representative economist swallows garbage like utility maximization and supply-demand-equilibrium already since 140+ years as if it were manna.<br /><br />The alternative to microfounded DSGE is macrofounded Post-Keynesianism. It is not one iota better. Macro profit theory is provably false since Keynes.#1 This is the false MMT balances equation (X−M)+(G−T)+(I−S)=0, and this is the true equation (X−M)+(G−T)+(I−S)−(Q−Yd)=0 with profit and distributed profit greater zero.#2<br /><br />Will Lars Ljungqvist, Thomas Sargent, Brian Romanchuk, Roger Sparks, and the rest of mentally retarded microfounded macroeconomists ever get it? No chance, these folks are lost in vacuous proto-scientific space already for centuries.<br /><br />Egmont Kakarot-Handtke<br /><br />#1 Forget Keynes<br />http://axecorg.blogspot.de/2018/02/forget-keynes.html<br /><br />#2 True macrofoundations: the reset of economics<br />http://axecorg.blogspot.de/2017/05/true-macrofoundations-reset-of-economics.htmlAXEC / E.K-Hhttps://www.blogger.com/profile/10402274109039114416noreply@blogger.comtag:blogger.com,1999:blog-5908830827135060852.post-55956038047499294712018-03-23T01:02:59.842-04:002018-03-23T01:02:59.842-04:00If all economists and politicians were legally obl...If all economists and politicians were legally obligated to define terms such as profit* 'one' way, and one way only, then all debates would cease. But because such a law is ridiculous, the next best thing is for everyone to try and make a concerted effort to define words and meanings, as the law itself defines them. With this, we can then agree that when it comes time to protect or enforce what we so dearly cling to at least we can explain it to the judge what it is we are enforcing.<br /><br />*see Economics as a Philosophical Science by Collingwood<br /><br />In this sense, there is a stark difference between flows and stocks. One cannot legally (or physically) transfer a flow, but one can transfer the right or claim to a flow, which is the stock. A surplus, in the physical and nominal sense, implies an increase, and the increase is an increase in claims.<br /><br />Profit, is an increase in claims. Profit is property.<br /><br />In the real sphere, an increase in claims is an increase in ownership of real resources, which decreases everyone elses claims - put in legal parlance means, an increase in rights as against the rest of the world. If one man owns all the resources in the world, there is nothing left to profit from - there are no more resources to accumulate.<br /><br />In the monetary sphere, profits are an increase in claims against particular entities in the form of bank deposits, stocks, bonds, currencies etc.<br /><br />In order for financial wealth to exist, there must be an equal number (>0) of claims as there are obligations/liabilities/duties (however you wish to define it).<br /><br />Profit is an increase in these legal claims. In reality there is no limit to legal claims in the monetary sphere, provided people are willing to extend obligations out into infinity.<br /><br />From a micro-perspective, one mans profits (increase in legal claims) can simply mean a redistribution of legal claims, meaning, someone somewhere else has lost some.<br /><br />From a macro-perspective however, redistribution is nonsensical because the question must always be asked, what enabled the very first profit to exist, which translated means, what created the first ever debt?<br /><br />As the Bank of England pointed out in 2014 'Introduction to Money', if all debts in society were paid off, there would be no money, just 'stuff'. If monetary profits cannot exist unless money exists, this demonstrates without any doubt, profits = dissaving.ANC Driverhttps://www.blogger.com/profile/17395348035867237331noreply@blogger.comtag:blogger.com,1999:blog-5908830827135060852.post-59347300442882533062018-03-20T06:04:47.203-04:002018-03-20T06:04:47.203-04:00Roger Sparks
You repeat the core of the axiomatic...Roger Sparks<br /><br />You repeat the core of the axiomatically correct Profit Law, profit = dissaving, and then you go on saying “Profits do you no good unless they can be used to improve your life and (hopefully) the life of others.”<br /><br />You obviously do not grasp the implication of what I called the “life-formula of the economic system we happen to live in”. Since profit is the very condition of the functioning of the economy, the life-formula tells you also when the economy we happen to live in will break down.<br /><br />This is something that neither DSGE nor MMT nor any other approach will tell you because economists do not know what profit is since economics was established as a proto-science by the silly blatherer Adam Smith.#1<br /><br />The market economy breaks down as soon as macroeconomic profit turns into loss and this is, in the most elementary case, when dissaving stops. The macroeconomic Profit Law for the general case reads Qm=Yd+(X−M)+(G−T)+(I−Sm) and you can figure out for yourself the conditions that turn profit eventually into loss.<br /><br />If you do not understand the life-and-death formula of the monetary economy there is no need to stop emanating blatant nonsense ― you can still have an absolutely senseless conversation about the crappy DSGE profit formula with Brian Romanchuk or, what amounts to the same, channel your grandma.<br /><br />Egmont Kakarot-Handtke<br /><br />#1 Mathematical Proof of the Breakdown of Capitalism<br />https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2375578AXEC / E.K-Hhttps://www.blogger.com/profile/10402274109039114416noreply@blogger.comtag:blogger.com,1999:blog-5908830827135060852.post-83207204121025525022018-03-19T14:52:45.297-04:002018-03-19T14:52:45.297-04:00Egmont,
"profit = dissaving"
Like my g...Egmont,<br /><br />"profit = dissaving"<br /><br />Like my grandma used to say "you can't take your money to heaven."<br /><br />Profits do you no good unless they can be used to improve your life and (hopefully) the life of others.<br /><br />As you intimate, if one sector captures all the capital, no matter what the means of capture, then that sector controls the macro=-economy. That observation remains true whether the controlling sector is household, government or productive.<br /><br />With the importance of capital in mind, I think we need to recognize capital owners as a distinct sector. The beauty of the capitalist system is that the owners of capital become widely distributed between the household and productive sectors. The role of government in capitalism is hotly debated and certainly plays a role in the formation of capital and in the ownership allocation of capital.<br /><br />Let's not freeze our thinking by looking at profits as a destructive weapon with fatal consequences for the macro-economy. Instead, think of profits as gains awaiting redistribution. If in capitalism we can have gains from profits widely distributed within the household sector, then broad sharing of the fruits of labor would have been achieved.<br /><br /><br />Roger Sparkshttps://www.blogger.com/profile/01734503500078064208noreply@blogger.comtag:blogger.com,1999:blog-5908830827135060852.post-9749734944101210942018-03-19T13:14:58.059-04:002018-03-19T13:14:58.059-04:00Brian Romanchuk
To take DSGE seriously for longer...Brian Romanchuk<br /><br />To take DSGE seriously for longer than one minute and to wonder whether market clearing is assumed (of course, this defines equilibrium in GE) is a sure indicator for substandard intellectual performance.<br /><br />Egmont Kakarot-HandtkeAXEC / E.K-Hhttps://www.blogger.com/profile/10402274109039114416noreply@blogger.comtag:blogger.com,1999:blog-5908830827135060852.post-21358824587735377212018-03-19T12:54:44.425-04:002018-03-19T12:54:44.425-04:00(1) Dude! I am not a fan of DSGE macro. However, I...(1) Dude! I am not a fan of DSGE macro. However, I am trying to avoid making wild assertions. Writing that "Egmont Kakarot-Handtke thinks this is totally bogus!" is not enough to prove a logical point.<br />(2) I noted that I had reservations with the accounting of the profit equation. However, I was sticking to what was demonstrably logically inconsistent within the equations, without asserting opinions about accounting *should* be done.<br />(3) The profit equation includes the production function since there is a buried assumption about market clearing (which may or may not have been specified in an earlier chapter of the book). That is, they have done the replacement (business sales) -> (output of the production function). Mathematically, it could be legitimate, except that it probably breaks the way that they are writing the optimisation problem. In order for their other manipulations to be valid, they likely need to keep the two variables (production, sales) distinct, and then somehow deal with the possibility that they can be different. This is very much equivalent to the way that they identified total capital and borrowed capital, which messes up their mathematics. Although interesting, I cannot hope to cover every questionable mathematical manipulation they did within a single article. This is going to be at least a three-part series.Brian Romanchukhttps://www.blogger.com/profile/02699198289421951151noreply@blogger.comtag:blogger.com,1999:blog-5908830827135060852.post-57768526119256337762018-03-19T12:50:14.384-04:002018-03-19T12:50:14.384-04:00Roger Sparks
You say: “I think the logical gaps b...Roger Sparks<br /><br />You say: “I think the logical gaps between our three positions are very wide.”<br /><br />Then, we have to determine in earnest who is right and who is wrong. As Popper said, if statements are contradicting, this shows that they are not all true.<br /><br />You do not even understand the problem of macroeconomic profit. Marx did: “How can they continually draw 600 p. st. out of circulation, when they continually throw only 500 p. st. into it? From nothing comes nothing. The capitalist class as a whole cannot draw out of circulation what was not previously in it.”<br /><br />This led to the conclusion: “The consensus to date has been that it is mathematically impossible for capitalists in the aggregate to make profits.” (Keen) And this zero-profit conclusion is obviously NOT in accordance with the empirical evidence since 200+ years.<br /><br />Exactly at this point resides the logical gap = black hole of economists in general and you and Brian Romanchuk in particular.<br /><br />The mathematical solution of Marx’s problem of the very existence of macroeconomic profit reads Q=−S, that is, the business sector as a whole can only draw more out of circulation if the household sector throws more into it, in plain English, profit = dissaving.<br /><br />This is the core of the life-formula of the economic system we happen to live in. Needless to emphasize that neither you, nor Brian Romanchuk, nor Walrasians, nor Keynesians, nor Marxians, nor Austrians ever understood it.<br /><br />Egmont Kakarot-HandtkeAXEC / E.K-Hhttps://www.blogger.com/profile/10402274109039114416noreply@blogger.comtag:blogger.com,1999:blog-5908830827135060852.post-8114209894868687662018-03-19T11:51:53.998-04:002018-03-19T11:51:53.998-04:00Brian,
I am still thinking about "In Eq. 16....Brian,<br /><br />I am still thinking about "In Eq. 16.2.3, we find the capital sector described twice (as k(t+1) and as k(t)"<br /><br />In Eq. 16.2.3, we find the relationship (1-dk(t)). What is the significance of this relationship? Roger Sparkshttps://www.blogger.com/profile/01734503500078064208noreply@blogger.comtag:blogger.com,1999:blog-5908830827135060852.post-79893351908482236522018-03-19T11:42:16.849-04:002018-03-19T11:42:16.849-04:00Brian Romanchuk
You say: “In this case, all that ...Brian Romanchuk<br /><br />You say: “In this case, all that it done is divide through by the price level. As long as prices are non-zero, that is a legitimate mathematical operation.”<br /><br />This is simply NOT the case. Nobody, in fact, divides anything by the price level. The DSGE profit equation reads Π(t)=F(t,kb,n)−r(t)kb(t)−w(t)n(t) where F(.) is the “real” production function, where w is the “real” wage, and r is the “real” rental cost of capital. There is NO nominal variable in the equation and NO division through P.<br /><br />The “real” DSGE profit formula is pure methodological BS and only good for the demonstration of the galactic dimension of economists’s scientific incompetence.#1 Because you cannot even read the profit equation you do not realize that is all in real variables while profit is a nominal variable that has to be determined by National Accounting.<br /><br />Nobody in his right mind applies a Cobb-Douglas production function to determine profit.<br /><br />Egmont Kakarot-Handtke<br /><br />#1 The futile attempt to recycle Sraffa<br />https://axecorg.blogspot.de/2016/12/the-futile-attempt-to-recycle-sraffa.htmlAXEC / E.K-Hhttps://www.blogger.com/profile/10402274109039114416noreply@blogger.comtag:blogger.com,1999:blog-5908830827135060852.post-22288428347177448802018-03-19T10:31:08.709-04:002018-03-19T10:31:08.709-04:00Egmont,
To me, profit is real and physical. Let ...Egmont, <br /><br />To me, profit is real and physical. Let me explain how I come to that conclusion.<br /><br />Several steps are required. <br /><br />First, money itself is real and physical. Money becomes a physical scale (like a scale measured in feet or meters). <br /><br />Next, we measure productive inputs against our money scale. Labor becomes a number. Parts become a number. Interest charges become a number. You can see the series of production components that is being developed.<br /><br />Because money is viewed as a physical asset, and then borrowed in the DSGE 16.2.3 equation that Brian uses, it becomes logical to call 'capital' (which is another name for 'money') a sector of it's own. This is the basis if my previous comment to Brian.<br /><br />Now turn to profits. When something is built with a goal for future resale, the translation from materials to production to ultimate resale is extremely uncertain. The best we can do is to make an estimate and then translate that estimate into money terms. <br /><br />As an estimator, one can estimate either to low or too high. Of the two choices, too high is better because of the physical reality of money. The estimator hopes that the actual final recovery of physical money (which follows actual sales and conversion of product back to money) results in a surplus greater than the original cost of production. This surplus (of physical money) has name--PROFIT.<br /><br />It is not clear to me that DSGE modeling treats the production and capital interactions correctly. I do appreciate that Brian is trying to bridge the gaps. <br /><br />Unfortunately, I don't think that Brian agrees with me that money is a physical reality. You don't agree that profit exists.<br /><br />I think the logical gaps between our three positions are very wide.Roger Sparkshttps://www.blogger.com/profile/01734503500078064208noreply@blogger.comtag:blogger.com,1999:blog-5908830827135060852.post-71326471738920249712018-03-19T06:42:27.626-04:002018-03-19T06:42:27.626-04:00Egmont, I’m not a fan of DSGE modelling, but if I ...Egmont, I’m not a fan of DSGE modelling, but if I am going to discuss them, I need to discuss what the models are. I’d be happy to ignore them, but the mainstream of the profession does not agree with me.<br /><br />In this case, all that it done is divide through by the price level. As long as prices are non-zero, that is a legitimate mathematical operation. How you interpret the equation is anothr issue, but not in the realm of mathematics.Brian Romanchukhttps://www.blogger.com/profile/02699198289421951151noreply@blogger.comtag:blogger.com,1999:blog-5908830827135060852.post-87965957274743857092018-03-19T06:06:24.340-04:002018-03-19T06:06:24.340-04:00Brian Romanchuk, Roger Sparks
Brian Romanchuk cha...Brian Romanchuk, Roger Sparks<br /><br />Brian Romanchuk characterizes the DSGE profit equation: “The firm’s pure profit (Π) in real terms is given by (16.2.17): Π(t)=F(t,kb,n)−r(t)kb(t)−w(t)n(t), where w is the real wage, and r is the rental cost of capital.”<br /><br />Because both of you have never understood what profit is you do not know that there is NO such thing as “profit in real terms”. Take notice that profit is a feature of the monetary economy and that it cannot be captured by a real model.<br /><br />In order to see this, one has to go back to the most elementary economic configuration, that is, the pure production-consumption economy which consists of the household and the business sector.#1<br /><br />In this elementary economy, three configurations are logically possible: (i) consumption expenditures are equal to wage income C=Yw, (ii) C is less than Yw, (iii) C is greater than Yw.<br /><br />• In case (i) the monetary saving of the household sector Sm≡Yw−C is zero and the monetary profit of the business sector Qm≡C−Yw, too, is zero. The product market is cleared, i.e. X=O in all three cases.<br />• In case (ii) monetary saving Sm is positive and the business sector makes a loss, i.e. Qm is negative. The market clearing price is lower than in (i).<br />• In case (iii) monetary saving Sm is negative, i.e. the household sector dissaves, and the business sector makes a profit, i.e. Qm is positive. The market clearing price is higher than in (i).<br /><br />It always holds Qm+Sm=0 or Qm=−Sm, in other words, at the heart of the monetary economy is an identity: the business sector’s surplus = profit equals the household sector’s deficit = dissaving. And vice versa, the business sector’s deficit = loss equals the household sector’s surplus = saving. This is the most elementary form of the macroeconomic Profit Law.<br /><br />Profit is a purely nominal magnitude: NO share of output O corresponds to it. Under the condition of market clearing, output always goes in full to the wage income receivers. The correspondence of profit is an increase of money in the business sector’s cashbox, as every economist could know from Marx’s famous formula M-C-M’.<br /><br />That no share of output corresponds to profit is logically obvious because the correspondence of loss would be a negative share of output and that is a nonentity.<br /><br />There is NO such thing as a “real” profit. Profit is a nominal variable and the counterpart of dissaving. The DSGE concept of profit is as brain-dead as can be and one has to be a brain-dead economist to take it seriously for more than one second.#2, #3<br /><br />Egmont Kakarot-Handtke<br /><br />#1 The elementary production-consumption economy is given by three macro axioms: (A1) Yw=WL wage income Yw is equal to wage rate W times working hours. L, (A2) O=RL output O is equal to productivity R times working hours L, (A3) C=PX consumption expenditure C is equal to price P times quantity bought/sold X.<br /><br />#2 The Profit Theory is False Since Adam Smith<br />https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2511741<br /><br />#3 How the intelligent non-economist can refute every economist hands down<br />http://axecorg.blogspot.de/2015/12/how-intelligent-non-economist-can.htmlAXEC / E.K-Hhttps://www.blogger.com/profile/10402274109039114416noreply@blogger.comtag:blogger.com,1999:blog-5908830827135060852.post-32985066361765293332018-03-18T17:07:17.388-04:002018-03-18T17:07:17.388-04:00After much additional thought, I am ready to ventu...After much additional thought, I am ready to venture another comment.<br /><br />As you describe the model in Chapter 12, it seems not to be a three sector model but a four sector model. The fourth sector is the capital sector.<br /><br />In Eq. 16.2.3, we find the capital sector described twice (as k(t+1) and as k(t). This would be consistent with capital measured at both the beginning and end of the period. It is also consistent with your suggestion that capital may carry over between periods.<br /><br />We can also consider equation 16.2.3 in terms of ownership. Household, government, and the productive sector all have ownership of some part of the productive stream at some time during the measured interval. The capital sector has claim to the term kb resulting from restricted <i> renting </i> of capital to the other sectors during the year. The productive decision made by capital owners is a yes-or-no decision about renting capital (made once each measured period).<br /><br />You will ask who owns the capital sector? Ownership would be distributed between the three other sectors. I think our real world experience would agree with that possibility. <br /><br />If we adopted my suggestion of four sectors, we would want to change the limits of depreciation to be -1,1 to allow appreciation of capital.<br /><br />You are certainly not supportive of DSGE models. I am thinking that investing in the book may not be worth the cost. (Another example of trying to maximize utility.)Roger Sparkshttps://www.blogger.com/profile/01734503500078064208noreply@blogger.comtag:blogger.com,1999:blog-5908830827135060852.post-85892887457714644602018-03-17T12:01:30.341-04:002018-03-17T12:01:30.341-04:00Egmont - there’s plenty of more insights like that...Egmont - there’s plenty of more insights like that to come!Brian Romanchukhttps://www.blogger.com/profile/02699198289421951151noreply@blogger.comtag:blogger.com,1999:blog-5908830827135060852.post-88474279323303056092018-03-17T10:28:28.760-04:002018-03-17T10:28:28.760-04:00Roger Sparks
Congratulations! It seems that you h...Roger Sparks<br /><br />Congratulations! It seems that you have reanimated Brian Romanchuk’s defunct brain cells. And what revolutionary insights they have produced in the shortest time:<br /><br />• “You need gasoline to power your car; you cannot fill it up with dollar bills and have it run.”<br />• “… we need to distinguish financial assets from real ones.”<br /><br />Who has ever thought such bold thoughts? I am looking forward to the continuation of this mind-boggling dialogue of imbeciles.<br /><br />Egmont Kakarot-HandtkeAXEC / E.K-Hhttps://www.blogger.com/profile/10402274109039114416noreply@blogger.comtag:blogger.com,1999:blog-5908830827135060852.post-64123146432595252192018-03-17T08:23:25.716-04:002018-03-17T08:23:25.716-04:00Roger -
I don’t think the 4th edition much will be...Roger -<br />I don’t think the 4th edition much will be different, although they may have added material. I doubt that they will have addressed my concerns...<br /><br />Converting to dollar equivalents does not work. You need gasoline to power your car; you cannot fill it up with dollar bills and have it run. A single good economy is obviously simplistic, but it does reflect the reality that we need to distinguish financial assets from real ones.Brian Romanchukhttps://www.blogger.com/profile/02699198289421951151noreply@blogger.comtag:blogger.com,1999:blog-5908830827135060852.post-25983552286795296802018-03-17T07:23:49.754-04:002018-03-17T07:23:49.754-04:00Roger Sparks
DSGE is the most recent actualizatio...Roger Sparks<br /><br />DSGE is the most recent actualization of the microfoundations approach which had been kicked-off +140 years ago by Jevons/Walras/Menger. DSGE is based on the neo-Walrasian axiom set: “HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states.” (Weintraub)<br /><br />The representative economist has not realized it but methodologically these premises are forever unacceptable. It should be pretty obvious that the neo-Walrasian hard core contains THREE NONENTITIES: (i) constrained optimization (HC2), (ii) rational expectations (HC4), (iii) equilibrium (HC5).<br /><br />Methodologically, the microfoundations approach has already been dead in the cradle. It was Keynes who realized this and tried to move to macrofoundations. However, in his bottomless incompetence Keynes messed the paradigm shift up. This is why the proto-scientific maximization-and-equilibrium rubbish is still around.<br /><br />But Neoclassicals did not only get the axiomatic foundations of economics wrong but also the mathematics. The proof has been given by the mathematician Jonathan Barzilai.#1 <br /><br />Whoever discusses in our days a DSGE model proves that he has no grasp whatsoever of science and mathematics. DSGE is the economic analogue of the Flat Earth Theory and considered worthy of discussion only by some simpletons.<br /><br />Egmont Kakarot-Handtke<br /><br />#1 An Open Letter to the President of the American Economic Association and An Open Letter to the President of the Canadian Economics Association<br />http://scientificmetrics.com/publications.htmlAXEC / E.K-Hhttps://www.blogger.com/profile/10402274109039114416noreply@blogger.comtag:blogger.com,1999:blog-5908830827135060852.post-73794820638463785532018-03-17T00:42:16.408-04:002018-03-17T00:42:16.408-04:00Could we think of seeds for the growing of wheat a...Could we think of seeds for the growing of wheat as 'borrowed capital'? <br /><br />Hmmm. I'm puzzling why we would have a depreciation term if that analog was used.Roger Sparkshttps://www.blogger.com/profile/01734503500078064208noreply@blogger.comtag:blogger.com,1999:blog-5908830827135060852.post-11067907495849653302018-03-17T00:33:25.895-04:002018-03-17T00:33:25.895-04:00Hmmm. It seems to me that labor is also capital--a...Hmmm. It seems to me that labor is also capital--a renewable resource but transformed into 'total capital' only to the extent that it is productively utilized. <br /><br />Of course, if labor is 'capital', then are borrowed capital and total capital still a single kind of good? <br /><br />In my own mind, all the inputs and outputs are translated to currency equivalents. Following that conversion, 'capital' becomes the common element that allows us to unite the various economic components.<br /><br />I am still trying to wrap my mind around the definitions.<br /><br />Would edition 4 correlate with your work or do you think the changes would be confusing?<br />Roger Sparkshttps://www.blogger.com/profile/01734503500078064208noreply@blogger.comtag:blogger.com,1999:blog-5908830827135060852.post-82923577357817808092018-03-16T22:52:25.994-04:002018-03-16T22:52:25.994-04:00It’s literally a single good economy so there can ...It’s literally a single good economy so there can only be one kind of capital. Output has to be allocated to its various uses (consumption, capital), and so all sectors have to show up in the allocation equation, in order for the accoumting to add up.Brian Romanchukhttps://www.blogger.com/profile/02699198289421951151noreply@blogger.comtag:blogger.com,1999:blog-5908830827135060852.post-50835317278319344562018-03-16T19:47:36.758-04:002018-03-16T19:47:36.758-04:00Eq. 16.2.3 moves a little fast for my taste. It in...Eq. 16.2.3 moves a little fast for my taste. It introduces three sectors, one of which is capital. <br /><br />My thinking is that consumption by both households and government consumes capital in the sense that capital is part of the production function. This leaves open the question of how capital is produced.<br /><br />I like to think of three kinds of capital: financial, tools, and purchased production inputs. Purchased production inputs would be things like fertilizer (for farmers) and parts (for automakers). Tools would be productive property like factories and wrenches.<br /><br />To stay within these divisions, I would avoid combining household and government consumption in the method of 16.2.3. <br /><br />While government may contribute financial capital (with acts of money creation), households (maybe acting as cooperative assembles) are required to create factories and tools. The creation of factories and tools is a productive effort in itself, with ultimate consumption of the productive object occurring eventually.<br /><br />I am interested in acquiring the reference material but it is certainly not free! The biggest problem for me is that Amazon does not provide the version information. I see that version 4 is now available so maybe I should go new, ensuring the version 4 copy.<br /><br />Thanks for the post and inspiration.Roger Sparkshttps://www.blogger.com/profile/01734503500078064208noreply@blogger.comtag:blogger.com,1999:blog-5908830827135060852.post-1748955358152391692018-03-16T17:55:12.410-04:002018-03-16T17:55:12.410-04:00Brian Romanchuk
“There are always many different ...Brian Romanchuk<br /><br />“There are always many different opinions and conventions concerning any one problem or subject-matter …. This shows that they are not all true. For if they conflict, then at best only one of them can be true. Thus it appears that Parmenides … was the first to distinguish clearly between truth or reality on the one hand, and convention or conventional opinion (hearsay, plausible myth) on the other.” (Popper)<br /><br />This exactly is the task of the scientist: to figure out which of the conflicting ‘opinions and conventions’ is true. Economists have badly failed at this task. <br /><br />Keynes is a case in point. He was entirely clueless: “His Collected Writings show that he wrestled to solve the Profit Puzzle up till the semi-final versions of his GT but in the end he gave up and discarded the draft chapter dealing with it.” (Tómasson et al.). And: “Keynes related his definition of income expressly to ‘the practices of the Income Tax Commissioners.’ He was in grave doubt whether ‘it might be better to employ the term windfalls for what I call profits.’ But he was quite sure that ‘saving and investment are, necessarily and by definition, equal ― which after all, is in full harmony with common sense and the common usage of the world.’” (Coates)#1<br /><br />After-Keynesians are no better: Kalecki defined profit as P=Cp+I, Minsky as P=I, and Keen applies the commonsensical but provably false Humpty Dumpty definition total income = wages plus profits.#2<br /><br />And so it goes on. Ricardo’s profit theory is false,#3 same with Marx,#4 same with MMT. Your assertion “there is general agreement on how to define profits in simpler cases (such as in a mathematical model)” is laughable.<br /><br />Nothing shows better the scientific incompetence of economists than the fact that every half-wit applies his own confused definition of profit.<br /><br />Physics has one definition of energy and this magnitude is an element of a consistent set of foundational magnitudes. Economics has a wild variety of inconsistent profit definitions. And this is why economists never get above the level of confused blather.<br /><br />The MMT balances equation reads (I−S)+(G−T)+(X−M)=0, the AXEC balances equation reads (I−S)+(G−T)+(X−M)−(Q−Yd)=0. Only one equation can be true. As someone with applied mathematics training you can certainly spontaneously tell which one.#5<br /><br />Egmont Kakarot-Handtke<br /><br />#1 Marshall and the Cambridge school of plain economic gibberish<br />http://axecorg.blogspot.de/2016/09/marshall-and-cambridge-school-of-plain.html<br /><br />#2 Heterodoxy, too, is scientific junk<br />http://axecorg.blogspot.de/2015/09/heterodoxy-too-is-scientific-junk_85.html<br /><br />#3 Ricardo, too, got profit theory wrong. Sad!<br />https://axecorg.blogspot.de/2018/02/ricardo-too-got-profit-theory-wrong-sad.html<br /><br />#4 Proﬁt for Marxists<br />https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2414301<br /><br />#5 Rectification of MMT macro accounting<br />https://axecorg.blogspot.de/2017/09/rectification-of-mmt-macro-accounting.htmlAXEC / E.K-Hhttps://www.blogger.com/profile/10402274109039114416noreply@blogger.com