tag:blogger.com,1999:blog-5687347459208158501.post7610887573586282502..comments2024-03-28T06:07:03.667-04:00Comments on The Philosopher's Stone: A CRITIQUE OF KEYNES CONCLUSIONRobert Paul Wolffhttp://www.blogger.com/profile/11970360952872431856noreply@blogger.comBlogger6125tag:blogger.com,1999:blog-5687347459208158501.post-17816914995719582042014-07-18T00:15:33.969-04:002014-07-18T00:15:33.969-04:00Unfortunately, I only stumbled upon this comment t...Unfortunately, I only stumbled upon this comment thread today (18 July 2014, 1:25 PM AEST), so I am probably going to get little in the way of feedback from the relevant parties.<br /><br />At any rate, I'll address Chris Langston's comment, specifically what regards what Prof. Wolff calls the "second problem, more serious even than the first", of which Langston says "At root, the second 'problem' is just a hasty indictment of social science in general, and thus is completely over-blown".<br /><br />I, of course, can't speak for Prof. Wolff and if I am mistaken, he should correct me immediately (hopefully, he keeps track of comment), but what he refers here as the second problem was identified by Robert E. Lucas, Jr. (who won the 1995 Nobel Prize for this finding, among others) and is widely known as the Lucas critique. <br /><br />Judge by the conclusion to Lucas' 1976 article "Econometric Policy Evaluation: a critique" (it's easily found with Google):<br /><br />"This essay has been devoted to an exposition and elaboration of a single syllogism: given that the structure of an econometric model consists of optimal decision rules of economic agents, and that optimal decision rules vary systematically with changes in the structure of series relevant to the decision maker, it follows that any change in policy will systematically alter the structure of econometric models.<br />"For the question of the short-term forecasting, or tracking ability of econometric models, we have seen that this conclusion is of only occasional significance. For issues involving policy evaluation, in contrast, it is fundamental; for it implies that comparisons of the effects of alternative policy rules using current macroeconometric models are invalid regardless of the performance of these models over the sample period or in ex ante short-term forecasting".<br /><br />This leads me to my second comment: I am rather perplexed by Langston's claim that the "second problem" is a "hasty indictment of social science in general", when neither Prof. Wolff spoke of social science in general, nor social scientists in general design economic policy.<br /><br />As Langston did not argue this point, and his statement is far from obvious, perhaps he should clarify. I, like him, am not fond of hand-wavings.<br /><br />Furthermore, for good or for ill, the Lucas critique was used precisely as an indictment against economic policy. If Prof. Wolff's "second problem" was over-blown, as Langston claims, it wasn't him who over-blew it. According to the Nobel Committee's press release announcing the 1995 Nobel prize: <br /><br />"The Lucas critique has had a profound influence on economic-policy recommendations. Shifts in economic policy often produce a completely different outcome if the agents adapt their expectations to the new policy stance."<br />http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1995/press.html<br /><br />Finally, I found rather surprising (hastily chosen?) Langston's comparison of "molecules in a fog" with economic agents: the point of Lucas critique and (if I understood him) Prof. Wolff's "second problem" is that we cannot simply compare molecules and people: people, unlike molecules, are free in their way to react to policies.<br /><br />Obviously, Langston may have good reasons to express himself so categorically. So, if he is still reading, I'd be interested in judging his economic argument.Magpiehttps://www.blogger.com/profile/07528637318288802178noreply@blogger.comtag:blogger.com,1999:blog-5687347459208158501.post-23411656216208187152012-05-16T12:54:57.143-04:002012-05-16T12:54:57.143-04:00I know about the film, of course, but in fact have...I know about the film, of course, but in fact have never seen it. The apparent allusion was an accident.Robert Paul Wolffhttps://www.blogger.com/profile/11970360952872431856noreply@blogger.comtag:blogger.com,1999:blog-5687347459208158501.post-87853604920313612942012-05-16T09:15:04.800-04:002012-05-16T09:15:04.800-04:00I wonder if Prof. Wolff has seen Leni Riefenstahl&...I wonder if Prof. Wolff has seen Leni Riefenstahl's film "Triumph of the Will"? Is "Triumph of the Rational" an allusion, or an accident?Windchillhttps://www.blogger.com/profile/01581120776796263758noreply@blogger.comtag:blogger.com,1999:blog-5687347459208158501.post-91830662513130996152012-05-15T09:58:48.120-04:002012-05-15T09:58:48.120-04:00Given the well-composed analysis present in the fi...Given the well-composed analysis present in the first two parts of this essay, part 3 was disappointing, to say the least.<br /><br />First, the two "central problems" with neo-classical economics that the essay identifies are very superficial problems. At root, the second "problem" is just a hasty indictment of social science in general, and thus is completely over-blown. The first "problem," which has somewhat more merit, is that psychology is a dubious foundation for social science. The author doubts that any interesting psychological generalizations are possible that could furnish the grounds required for economic generalizations. In this regard, the author's conclusion is underdeveloped, seemingly premature, and licenses an unwarranted degree of skepticism, since it seems to demand precision of the social sciences that is not even required of the natural sciences. <br /><br />Along these latter lines, I found myself pondering the analogy between Brownian motion and the author's comments about variables representing the individuals' motivations as "summary names given to whole congeries of heterogeneous and shifting motivations." Just as the fact that any single molecule in a fog may follow an extremely complicated course does not upset generalizations about the overall descent of the fog, it seems that any single economic actor may follow a course of action dictated by multiple motivations without upsetting generalizations about the economic behavior of the society as a whole. In the end, the author's skepticism about the neo-classical framework is so general that as a consequence it licenses skepticism about all of social science and a considerable amount of natural science -- which is just a reductio ad absurdum.<br /><br />Second, the proposed alternative framework to neo-classical economics is mysterious and defended with a lot of hand-waving. How *exactly* does this framework differ in its *analysis* from neo-classical economics (and not just in is conclusions)? It's really hard to get a sense of that from the essay. Moreover, severe doubts start to set in when references are made to "rational central planning" in Eastern Europe, without any recognition of the incredible black market in drugs that flourished there, not to mention the famous Eastern exploding tv sets and desultory food stores with names like "Milk" and "Bread." This kind of selective attention to detail made me feel like I was reading the Marxist version of Robin Hansen.<br /><br />What really seems to be missing from this essay is any recognition that market transactions are one -- but only one -- form of genuine cooperation between people. Therefore, there is nothing evil or wrong with market transactions by themselves, and there is no reason to stamp them out completely and replace them with central planning. Problems only arise when market transactions are thought to be the *only* form of cooperation, such that every other form of social cooperation is modeled on and understood in terms of market transactions. This latter development is the real unfortunate legacy of the neo-classical economic framework. Keynes is such an important figure in resisting this framework because his work showed that other, non-market forms of cooperation are required to make market cooperation possible and efficient.Chris Langstonhttps://www.blogger.com/profile/10079209888315974884noreply@blogger.comtag:blogger.com,1999:blog-5687347459208158501.post-73169907722410625252012-05-03T14:13:44.973-04:002012-05-03T14:13:44.973-04:00A necessary, if not sufficient, condition of a &qu...A necessary, if not sufficient, condition of a "triumph of the rational" is the universal breaking of the psychological fetters that, according to Plato, are ingredient in the shadow-play. The success of the Enlightenment ambitions in that direction remains uncertain.Don Schneierhttps://www.blogger.com/profile/12751277350617015241noreply@blogger.comtag:blogger.com,1999:blog-5687347459208158501.post-79122488837513716702012-05-03T13:32:42.184-04:002012-05-03T13:32:42.184-04:00This comment has been removed by the author.Don Schneierhttps://www.blogger.com/profile/12751277350617015241noreply@blogger.com