tag:blogger.com,1999:blog-5908830827135060852.post2386550123891067188..comments2020-05-27T09:52:00.869-04:00Comments on Bond Economics: Why We Should Be Concerned About The Forecastability Of Economic ModelsBrian Romanchukhttp://www.blogger.com/profile/02699198289421951151noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-5908830827135060852.post-16458283639295788562018-04-24T04:43:00.677-04:002018-04-24T04:43:00.677-04:00Part 2
In order to be applicable HC3, requires a ...Part 2<br /><br />In order to be applicable HC3, requires a lot of auxiliary assumptions, most prominently a well-behaved/differentiable production function.#2 Taken together, all axioms and auxiliary assumptions then crystallize to supply-function/demand-function/equilibrium or what Leijonhufvud famously called the Totem of Micro.#3<br /><br />The methodological fact of the matter is that ALL models that take just one NONENTITY into the premises are a priori false.#4<br /><br />So, because these premises are NOT “certain, true, and primary” they cannot be used for model building: expected utility, rationality/bounded rationality/animal spirits, constrained optimization, well-behaved production functions, supply/demand functions, simultaneous adaptation, equilibrium, first/second derivatives, total income=value of output, I=S, real-number quantities/prices, ergodicity. Every theory/model that contains just one NONENTITY goes straight into the wastebasket.<br /><br />The standard microfoundations approach with all its variants and derivatives up to DSGE is methodologically false. The same holds for Keynes’ macrofoundations and all After-Keynesian variants.<br /><br />To put NONENTITIES into the premises is the defining characteristic of fairy tales, science fiction, theology, Hollywood movies, politics, proto-science, and the senseless model bricolage of scientifically incompetent economists.#5<br /><br />Egmont Kakarot-Handtke<br /><br />* http://www.bondeconomics.com/2018/04/forecastability-and-economic-modelling.html<br /><br />#1 The solemn burial of marginalism<br />https://axecorg.blogspot.de/2016/04/the-solemn-burial-of-marginalism.html<br /><br />#2 Putting the production function back on its feet<br />https://axecorg.blogspot.de/2016/09/putting-production-function-back-on-its.html<br /><br />#3 Equilibrium and the violation of a fundamental principle of science<br />https://axecorg.blogspot.de/2017/06/equilibrium-and-violation-of.html<br /><br />#4 The future of economics: why you will probably not be admitted to it, and why this is a good thing<br />https://axecorg.blogspot.de/2016/01/the-future-or-economics-why-you-will.html<br /><br />#5 How to restart economics<br />http://axecorg.blogspot.de/2016/01/how-to-restart-economics.htmlAXEC / E.K-Hhttps://www.blogger.com/profile/10402274109039114416noreply@blogger.comtag:blogger.com,1999:blog-5908830827135060852.post-66359007687792435162018-04-24T04:41:41.516-04:002018-04-24T04:41:41.516-04:00Infantile model bricolage, or, How many economists...Infantile model bricolage, or, How many economists can dance on a non-existing pinpoint?<br />Comment on Brian Romanchuk on ‘Forecastability And Economic Modelling’*<br /><br />“The highest ambition an economist can entertain who believes in the scientific character of economics would be fulfilled as soon as he succeeded in constructing a simple model displaying all the essential features of the economic process by means of a reasonably small number of equations connecting a reasonably small number of variables. Work on this line is laying the foundations of the economics of the future . . .” (Schumpeter, 1946)<br /><br />The future is now and economists still do NOT have the paradigmatic simple core model but a heap of in incommensurable and contradicting constructions. Pluralism may have its merits elsewhere but is the worst thing that can happen in science. As the ancient Greeks already observed: “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.” (Popper)<br /><br />Fact is that, in economics, ALL models are axiomatically false. It holds: “When the premises are certain, true, and primary, and the conclusion formally follows from them, this is demonstration, and produces scientific knowledge of a thing.” (Aristotle, 300 BC) Fact is that the premises of current model are neither certain, true, nor primary.<br /><br />Brian Romanchuk’s SIM model is a case in point. He enumerates his key premises as follows.<br />• The model is a straightforward three sector model, with a household sector, business sector, and government. <br />• The household consumption function is defined in terms of a pair of propensity to consume parameters (out of income, out of wealth). …<br />• The business sector is constrained to break even, …<br />• Government policy is specified in terms of government consumption and a fixed tax rate.<br /><br />Brian Romanchuk starts with macrofoundations, which is correct. But then he assumes a consumption function, which is a NONENTITY, and break even for the business sector, which kills the model already at this early stage because a zero profit economy is the most idiotic NONENTITY of them all.<br /><br />Let us contrast this with the standard microfoundations approach. The whole analytical superstructure of Orthodoxy 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)<br /><br />HC3 introduces marginalism which is the all-pervasive principle of Orthodoxy. HC3, though, and HC5 and HC6 are plain NONENTITIES.#1<br /><br />See part 2AXEC / E.K-Hhttps://www.blogger.com/profile/10402274109039114416noreply@blogger.com