Monday, July 2, 2012

Lord Keynes — Some Serious Criticism of MMT

There is serious debate to be had here, not because of any hostility to MMT (indeed I personally regard MMT with sympathy as a more radical form of Post Keynesianism), but in the spirit of constructive criticism.
Read it at Social Democracy for the 21st Century
Some Serious Criticism of MMT
by "Lord Keynes"

About that the post of Sergio Cesaratto, “The Spurious Victory of MMT,” at  Naked Keynesianism, linked to recently here at MNE.

Lord Keynes provides a Bill Mitchell quote that addresses this objection.

153 comments:

Bob Roddis said...

Normally, criticism of Modern Monetary Theory (MMT) comes from libertarians, and is laughably ignorant and incompetent criticism at that.

Yes, it's always uproariously funny when neither "Lord Keynes" nor any MMTers understand economic calculation, the essence of Austrian School analysis (and economics in general). Just to admit that there might be a problem with economic calculation under a fiat funny-money regime would eviscerate the Minsky-ites forever.

As John Carney said:

MMTers do not seem to fully appreciate the problems of ignorance and calculation that inform Austrian economics. They seem to recoil at even thinking about them because of the implications for the limits of political action.

http://tinyurl.com/7sycbey

Now that's real funny.

Ryan Harris said...
This comment has been removed by the author.
Unforgiven said...

Thanks for letting us know that Austereians are both ignorant and calculating.

BTW, did you ever dig up that time in history wherein the currency wasn't manipulated in one way or the other?

Tom Hickey said...

Thanks for the boilerplate, Bob. Are you trying to brainwash us with gibberish?

Anonymous said...

MMT is starting to come apart. The balance of payments position is MMT's achilles heel and more and more people are starting to realize it. Back to obscurity for you guys.

Matt Franko said...

Many people fail to realize that any "deficits" are ex post, water over the dam, spilled milk, etc....

All of the leadership of the surplus countries are being made ZOMBIES who zealously seek USD balances at virtually any cost to their own country's citizens.

They are "in love" with the premiere Western financial asset, ie the USD. This is irrational behavior on their part.

The accounting record of this irrational zombie zealousness is the US external deficit.

The entire economy of China is a corrupt exploitive scheme to defraud almost 1B humans into providing labor so that the Chinese zombie leadership can accrue ever increasing balances of USDs... the leadership are sick or drunk or perhaps both.

rsp,

Tom Hickey said...

Anonymous: "MMT is starting to come apart. The balance of payments position is MMT's achilles heel and more and more people are starting to realize it. Back to obscurity for you guys."

Nonsense.

Unforgiven said...

Anonymous -

"Back to obscurity for you guys."

Lead the way, will you? We'll catch up with you later.

Andrew said...

Bring on the constructive criticism and let's have the dialogue. This is the spirit I see in the MMT camp.

MMT's mainstream opponents appear to be shying away from contact, not wanting to risk a rational dialogue.

In the case of emerging nations. MMT or not.....isn't it obvious initial development will slow and painful as the nation has first to acquire the resources from overseas to facilitate a productive export producing economy?

What if MMT principles were applied to an emerging nation without any credit from developed nations (e.g. Without supply of education material and machine tools)?

Well surely the country could still have a JG and full employment, but only to the limit of that countries resources. (E.g. labour intensive farming and grading roads by hand...whatever.) It could bump along the bottom in the economic league table of countries yet still have a functioning and cohesive society. How is that a criticism of MMT and under which economic paradigm would they perform better?

Lord Keynes said...

Anonymous@ July 2, 2012 10:23 PM

MMT is starting to come apart. The balance of payments position is MMT's achilles heel ...

Not for most Western nations.

As I said in the post, MMT would work very well for

(1) the US,
(2) those nations with strong trade surpluses (say, Germany and Japan),
(3) those nations that seem to run near perpetual current account deficits but attract a lot of foreign capital (say, Australia), and
(4) even the Eurozone, if it were suitably reformed with a union-wide fiscal policy, would be able to achieve full employment via MMT-style policies.
---

In short, for most of the Western world: it certainly makes sense, and can be regarded as just a more radical form of full employment Keynesian economics. That is why Post Keynesians, by and large, are reasonably receptive to it.

Ramanan said...

"Not for most Western nations"

That's wrong. Most Western includes Spain as well which obviously has a constraint.

You guys will always make overkills to prove a wrong point.

Tom Hickey said...

SC: Quotes RW: “a country can run a current account deficit so long as the rest of the world wants to accumulate its IOUs. The country’s capital account surplus “balances” its current account deficit…. We can even view the current account deficit as resulting from a rest of world desire to accumulate net savings in the form of claims on the country.” (Wray 2011 MMP26).


SC: "It is hard to believe that the proviso “long as the rest of the world wants to accumulate its IOUs” applies to the majority of the countries."

Where do MMT economists say that this is the case?

As far as I can tell, MMT economists acknowledge that currency issuers can are constrained by asymmetry wrt real resources.

Neo liberal principles of free markets, free trade and free capital flow cannot work in a closed system (global economy) with a large degree of asymmetry. Supposing it can is the problem.

The rules either need to be changed or buffers instituted either through mutual coordination (such as cb currency swaps) or international institutions.

The problem is relying excessively on the private sector to do the balancing act, and it is not up to the job. The sooner TPTB realize this, the better. Neoliberalism is a flop in this environment.

Dan Kervick said...

I don't think understand the criticism that is being advanced here. If an economist says, "a country can run a current account deficit so long as the rest of the world wants to accumulate its IOUs", how is it a criticism of that view to point out that there are countries in the world whose IOUs other countries are not that interested in accumulating?

Unforgiven said...

Ramanan -

"That's wrong. Most Western includes Spain as well which obviously has a constraint. "

Neatly excluded by "most".

Point goes to Dan Kervick.

Ramanan said...

Unforgiven,

Make a list of Western Economies as is usually used.

Then enlist countries that you think do not face this constraint.

Note most European nations are Western.

Tom Hickey said...

I think that the MMT economists would exclude EMU member nations since they are not currency issuers and must fund or finance in a currency they do not control.

Unforgiven said...

Good point Tom. Using apples for apples, Spain doesn't fit the description and MMT correctly describes their situation.

If, for the sake of argument, Spain hadn't joined the European Monetary Unicorn, MMT would still (as Dan points out) correctly describe their situation.

Ramanan said...

"Good point Tom. Using apples for apples, Spain doesn't fit the description and MMT correctly describes their situation."

Then why make an incorrect statement "most Western Economies"

THIS IS IRRITATING.

Andrew said...

MMT clearly identifies which aspects of Spain economy need to be fixed to put them on a better trajectory. Correct diagnosis and correct prescription.

If they move outside the constraints of the Euro Spain could run a sizeable Government deficit, import sufficient goods to rebuild its productive capacity and eventually generate full employment. The mainstream (or Austrian) austerity pogroms are clearly a path to damnation. The data is in and the empirical evidence shows us that.

No one in I have read on MMT is saying a country is NOT constrained by real resources and real events. If they deficit spend too fast or don't build product capacity quickly enough, Inflation could be an issue. Likewise a severe confidence shock to private sector aspirations could cause adverse capital flows and currency movements, derailing any public sector led growth program.

I'm just not seeing any real critique beyond the usual straw man arguments. Put out the scenarios and ask BIll, Randy or whoever how MMT would deal with that scenario. Critique their answer, don't define a problem and prescribe the wrong solution on someone elses behalf.

Bruce said...

A non-issue, I think. Out of 190 countries, 60 countries have trade surpluses while 100 countries have minor trade deficits which can easily be rectified by curbs on imports of non-essential goods. Only 30-odd countries have trade deficit of more than $2 billion, but many of them like Brazil or India also receive massive foreign investments every year due to their growth potential.

Ramanan said...

"A non-issue, I think. Out of 190 countries, 60 countries have trade surpluses while 100 countries have minor trade deficits which can easily be rectified by curbs on imports of non-essential goods. Only 30-odd countries have trade deficit of more than $2 billion, but many of them like Brazil or India also receive massive foreign investments every year due to their growth potential."

Wow! Ignorance! Is that what MMT teaches its fans?

e.g. those who have slightly low trade deficit have so because of a relatively tight fiscal policy which has a deflationary effect. These nations have low incomes/wages and full employment is a dream.

Trollkiller said...

"Anonymous" is troll FDO15 by the way.

Andrew said...

"Wow! Ignorance! Is that what MMT teaches its fans?"

Are you not a fan then?

Dan Kervick said...

Again, I'm sure I understand what claims are at issue here. International trade and forex are definitely not by strong suit. But perhaps a couple of points worth mentioning?:

1. It's not possible for every country in the world to run a trade surplus concurrently. The combined surplus of the surplus countries must be equal to the combined deficit of the deficit countries.

2. On neo-chartalist principles, the scope of a county's ability to generate demand for its currency would be determined by the scope of its power to tax. If the Duchy of Grand Fenwick can successfully impose and collect a tax on its people payable in Fennies, then it can successfully create demand inside its country and among its own people for Fennies. That doesn't mean it can create demand for Fennies in Indonesia simply by imposing the tax on Grand Fenwickians.

money4nothingchicks4free said...

"BTW, did you ever dig up that time in history wherein the currency wasn't manipulated in one way or the other?"

Bob Roddis is still digging. :)

Let us know Bob!

vimothy said...

For anyone who is interested, here's a paper that tries to look at the exchange rate regimes that actually exist and measure the degree of "flexibility":

http://people.ucsc.edu/~hutch/Econ241a/Articles/Calvo-Reinhart.pdf

Calvo & Reinhart (2002), "Fear of Floating".

Ramanan said...

Vimothy,

Nice you referred this.

Few commentators will come with shady arguments that the authors are neoclassical and all that but the results of the paper are nonetheless valid.

The pure float (with no official sector liability in foreign currency) is a difficult to achieve luxury for debtor nations - only a few can achieve that.

Let's count - US, UK, Australia and Canada. Even the UK has foreign currency debt in the books of BoE and HM Treasury. Perhaps Sweden can be added but Sweden has been running positive CABs in the last 10 years or so. Even Canada has had a good external sector since the late 90s and only recently has seen some CAD. The UK's net external debt is close to zero but historically has had a lot of problems - such as in the 70s even when it floated.

Central banks frequently intervene in the currency markets not just to defend any rate but more generally for balance of payments financing.

The IMF calls this issuance of reserve related liabilities and exceptional intervention as exceptional financing transactions.

Keynesians don't appreciate the fact that finally there is a HUGE constraint due to the external sector. A unilateral fiscal expansion leads to a deterioration of trade with it ending up in financing issues.

vimothy said...

Rmanan,

The stuff which is most relevant to this debate is purely empirical, so whether the authors are neoclassical or whatever shouldn't come in to it. Hopefully!

y said...

Those large powerful resource-rich countries that can currently run large current account deficits with a floating currency should do, so that weaker countries have the sustained demand they need for their products and a way to develop their economies and strengthen their currencies.

If the financial sector is thoroughly reformed in the way MMTers like Mosler suggest, and the stronger countries provide support to weaker developing countries, then we should be able to all move forward.

Irrational thinking among elites in the west is threatening growth and development around the world. It needs to stop. We've got to be positive and intelligent here, if we want to make a future world worth existing in. MMT offers good tools which strong economies can adopt without too much trouble - but there are other aspects regarding global cooperation which will undoubtedly be very important too going forward.

vimothy said...

Ramanan,

A few more thoughts:

It's worth noting that the US and UK differ from Canada and Australia in that the former have relatively "hard" currencies. The US in particular is totally anomalous and not a good choice of baseline.

Countries "in the middle" in terms of exchange rate regime don't only need to watch out for sovereign foreign currency debt, but also for foreign currency debt for the private sector, since public sector reserves must facilitate financing for the whole economy.

There's also the issue of contingent liabilities of the government, like implicit and explicit guarantees of the financial sector--normally off the balance, though, as we've seen, realised in some states of the world.

Finally, a perfect float might mean that the exchange rate volatility bears the full weight of the adjustment process and that exchange rate movements are continuous, but that obviously doesn't shield from all negative macroeconomic shocks. Even with no foreign currency debt, sudden financing stops would still be very painful.

Bob Roddis said...

money4nothingchicks4free said...

"BTW, did you ever dig up that time in history wherein the currency wasn't manipulated in one way or the other?"

Bob Roddis is still digging. :)

Let us know Bob!


Was there ever a time in history when there wasn’t genocide and slavery and rape and pillage? I guess not. So I suppose this means that the MMT position is that if bad things continuously happened in history that this means it is wrongheaded to make an attempt at eliminating them or minimizing them.

Your "point" was so pathetic and stupid that I did not originally think it actually required a response.

Anonymous said...

"THIS IS IRRITATING."

Perhaps you should go back to this policy, Rams:

"Really? I commented here because it was posted on my blog. I don't generally comment in Neochartalists' blogs now."

Anonymous said...

"A unilateral fiscal expansion leads to a deterioration of trade with it ending up in financing issues."

Always and everywhere?

y said...

"the MMT position is that if bad things continuously happened in history that this means it is wrongheaded to make an attempt at eliminating them or minimizing them."

Personally I'm all for trying to eliminate genocide, slavery and rape.

But I don't want to live in a world where money is artificially tied to some arbitrary quantity of metal.

At the same time I'm all for keeping inflation reasonably low.

Ramanan said...

"Perhaps you should go back to this policy, Rams:"

Well - my name was brought up in the previous post that's why.

But let's not diverge. First someone comes and claims a rule which has much more exceptions than non-exceptions! And then there is defense of this. Amazing.

Ramanan said...

""A unilateral fiscal expansion leads to a deterioration of trade with it ending up in financing issues."

Always and everywhere?"

I was talking of debtor nations with an imbalance in trade. Creditor nations with surpluses can of course do fiscal expansion but they won't.

Ramanan said...

Vimothy,

Yep - agree.

y said...

"neither "Lord Keynes" nor any MMTers understand economic calculation"

All you're actually saying here Bob is that they don't believe the same things as you.

They understand your theories, Bob, they just think that they're wrong.

(Oh and by the way John Carney is an 'austrian'. So he does believe some of the same things as you.)

It's not a question of understanding, Bob, it's a question of opinion.

Your opinion derives from an ideology which from their perspective is based largely on factual errors, incorrect a priori assumptions, and specious logic.

Tom Hickey said...

vimothy: "For anyone who is interested, here's a paper that tries to look at the exchange rate regimes that actually exist and measure the degree of "flexibility"

"Degree of flexibility" is a good what to put it. As MMT economists like Randy have said, countries have to watch inflation and fx rate.

What this means is that different countries don't have the same flexibility of policy space due to economic and political constraints due to a variety of local factor, on one hand, and measurable economic ones, on the the other. A countries economy, including real resources and productive capacity, are real constraints. A country's relative position in the world is another real constraint.

If anyone on the MMT has said that any country can expand its policy space indefinitely using MMT principles, that is, of course, wrong. That's why no MMT economist would say such a thing.

The basic principle is that non-convertible floating rate monetary regimes provide more policy space than convertible fixed rate regimes. The non-financial "real" constraint is real resources in the context of the local real economy, and the financial constraints are price stability internally and currency stability externally. Policy has to be designed with an eye to all of these, and also taking asymmetries into account in a still very asymmetrical world.

Bob Roddis said...

y said:

Your opinion derives from an ideology which from their perspective is based largely on factual errors, incorrect a priori assumptions, and specious logic.

Talking around and about the alleged form of Austrian arguments is not the same thing as engaging or refuting them. You talk around those arguments because you don’t understand them, you have no familiarity with them and you certainly cannot restate them.

Sorta like Tom Hickey meandering around the topic of human action without ever stating those words or stating what they might mean.

http://tinyurl.com/898dp78

I see nothing but recoiling and aversion on the part of all Keynesians regarding Austrian concepts.

Tom Hickey said...

y: "TThose large powerful resource-rich countries that can currently run large current account deficits with a floating currency should do, so that weaker countries have the sustained demand they need for their products and a way to develop their economies and strengthen their currencies."

Yes, my argument for some time that there are "good" and "bad" external deficits. This is also true of the EZ. Germany's persistent surplus is a "bad" surplus in that this is resulting in "bad" deficits in the periphery that are undermining the EMU.

Tom Hickey said...

Ramanan: "Creditor nations with surpluses can of course do fiscal expansion but they won't."

Right. So simple it boggles the mind. The present mindset is based on competition domestically and internationally, when cooperation, coordination and increasing adaptability rate are what is needed to achieve what everyone wants.

Which why I say that global collective consciousness is still dangerously low and is resulting it a shrinking of the pie, with less for all but a very few, instead of expanding the pie so all can have more.

Bruce said...

"Wow! Ignorance! Is that what MMT teaches its fans?

e.g. those who have slightly low trade deficit have so because of a relatively tight fiscal policy which has a deflationary effect. These nations have low incomes/wages and full employment is a dream."

Most of the countries that are in the category of "slightly low trade deficit" are small African countries. They are unable to step up their productivity due to multitude of reasons, including excessive corruption, political instability, ethnic tensions, lack of entrepreneurial ability, lack of skills needed to convert natural resources into finished goods etc. Unless countries in this category learn to increase their productivity they will remain poor no matter what economic system you apply.

MMT is not a magic pill that can convert a country that is deficient in vital scientific and business skills into a wealthy nation.

money4nothingchicks4free said...

Ramanan, you said It was not about price. Here is my question.

Can you name any country that was not able to import because no one wanted Its currency?

Ramanan said...

chick4free,

Most countries :-)

vimothy said...

Tom,

The basic principle is that non-convertible floating rate monetary regimes provide more policy space than convertible fixed rate regimes

If this is true, why is it in your view that we see the majority of countries intervening in their exchange rates?

Ramanan said...

In other words, why do you think the IMF exists - it is an international lender of the last resort.

y said...

It'd be good to get some responses from Mosler, Wray, Mitchell etc, to these articles by Cesaratta, Ramanan and Lord Keynes. It's definitely an argument that needs to be properly thrashed out.

Tom Hickey said...

Bob R. "I see nothing but recoiling and aversion on the part of all Keynesians regarding Austrian concepts."

What is it going to take to get you to see that we don't agree with these ideas and arguments, for reasons we have made abundantly clear on many occasions.

I can only conclude now that you are trolling, and so I won't be reading your posts anymore. Your message has been received, processed and reject. Nothing more to say.

Ramanan said...

y,

Argued them at various points in their blogs. They won't change their positions of course but I won't engage them more either.

money4nothingchicks4free said...

Can you name any country that was not able to import because no one wanted Its currency?

Ramanan: Most countries :-)


I am sorry but this is BS. There were plenty of US exporters who would have exported to mexico in 2008 for pesos.
And you would have done the same if the price was right for you. There is no such thing as nobody wants your currency with floating forex. you could argue that exchange rate will go down etc but there are always takers.

y said...

Coming back to your earlier points Ramanan:

In 2008 the Fed arranged swap lines with many countries that had current account surpluses, as well as with some countries which had current account deficits. So it would appear that the problem wasn't actually CADs in that case but rather the global banking/financial meltdown.

The GFC made it pretty clear that the banking/financial sector needs to be properly reformed. MMTers have put forward concrete proposals on this.

y said...

"Argued them at various points in their blogs"

Still it would be good to have a more complete formal response in the form of a proper article. Just to be absolutely clear.

But for now, have you got any links to your comment-section debates?

vimothy said...

One way to look at this is that MMT is a policy prescription. That's all well and good, but it would be nice to have some theory that tries to explain why countries act in the ways they do.

So you might think, for e.g., that it would be better if countries ran flexible exchange rates and only sold debt denominated in their domestic currency.

But then the actual actions of countries look kind of incongruous: most of them don't do this. Why don't they? Just saying, "yeah, well, they should," isn't very helpful.

y said...

But then again vimothy the eurozone countries (i.e. their populations) managed to sleepwalk straight into a disaster.

Tom Hickey said...

"If this is true, why is it in your view that we see the majority of countries intervening in their exchange rates?"

In a perfectly symmetrical and coordinated system, then the market might work allow maximum possible policy space for all countries.

As you have probably deduced, I am skeptical of the free market hypothesis outside of simple models. I see this as an ideal that actual event can only approximate under the best of condition.

paul said...

"THIS IS IRRITATING."

This is poor grammar.

A person is ANNOYED.

A condition is IRRITATED.

You of all people should get this right sir.

Tom Hickey said...

vimothy; "One way to look at this is that MMT is a policy prescription. That's all well and good, but it would be nice to have some theory that tries to explain why countries act in the ways they do."

MMT offers a model of how a monetary regime operates. It's about the policy space created, which is what the people who use these kinds of models want to know.

Like all economic models that express general theories rather than deal with specific cases, it is simplified. The general model may not fit any specific model that represents current events.

The idea is to identify the parameters, operations, and constrains in order to determine what policy options are potentially available and how major factors influence each other.

Take an abstract model of a simple system in which all the variables are equally dependent on each other. They it is possible to take any variable as the independent variable and vary it to see how this effects the other variables. This is a simple demonstration of equilibrium.

This is the base case. Now alter the degree of dependency of the various variables and see how the system reacts to changing one of them. Then two of them simultaneously. Then all of them. Now begin increasing the variables.

y said...

I suspect in the case of Mexico the right policies in combination with government deficit spending could actually reduce their CAD. For example, it's insane that Mexico imports so much (subsidised) food from the US when it could be self-sufficient.

Ramanan said...

"y",

"Imports are benefits and exports are costs. See 7DIF under Mandatory Readings"

Sorry can't resist!

Tom Hickey said...

Ramanan: "Imports are benefits and exports are costs. See 7DIF under Mandatory Readings"

Actually, the assertion that MMT makes is "Imports are benefits in real (non-financial) terms of trade, and exports are costs in real terms" Warren usually expresses it that way. That assertion is true.

The corollary is "Exports are benefits in financial terms of trade, and imports are costs in financial terms."

This is also true.

Leverage said...

Well let me tell you something... Spain has already gone through a similar crisis a couple decades ago to the one we see nowadays. And more before that.

How was it "solved"? Through forex depreciation and inflation (this was one of the propellers of housing as an investment vehicle in Spain btw). Not saying is the right or best solution, but it did work in the past.

Off course there are real constraints but the demand of pesetas wasn't one of them, this would impact fuel prices nowadays for example and other import goods. Nevertheless the people would lose purchasing power and would become poorer (even if in a more 'equitable way').

The only time imports were a real problem in Spain was in post-war times because of political isolation of the nation. But the rest of the times most of these problems have derived in forex adjustment without any intervention from organisations like the IMF.

P.S: Not denying this could be a problem if certain situations deteriorate or for some developing nations which don't have enough 'international credit' though.

Pete said...

Tom Hickey:

Thanks for the boilerplate, Bob. Are you trying to brainwash us with gibberish?

Yes, because economic calculation does appear as "gibberish" to those who don't get it.

What is it going to take to get you to see that we don't agree with these ideas and arguments, for reasons we have made abundantly clear on many occasions.

I don't think Roddis is trying to merely convince you to "agree." As has been abundantly clear, there is no engaging and refuting the Austrian concepts such that you can even claim to say you don't agree with them for such and such a reason. You can't disagree with something unless you first understand it.

What is it going to take for you to actually understand? It's not like you lack the resource material. It's free and available online. You have no excuse for not understanding it. I can only conclude you choose to remain willfully ignorant, and are only trolling the Austrians.

Pete said...

y:

Personally I'm all for trying to eliminate genocide, slavery and rape.

Name a country that has never had genocide, slavery, or rape.

You're just an ideologue. Eliminating these things has never happened. You might as well accept them and try to convince the state to harness them for the good of society, rather than calling for an utopia that has never, and will never, exist.

But I don't want to live in a world where money is artificially tied to some arbitrary quantity of metal.

Is it "artificial" if individuals choose to do so in a context of private property rights and economic competition, for not only potatoes, shoes and computers, but money production as well?

When individuals are free from state coercion in the realm of money production, money invariably becomes precious metals based.

It is precisely fiat money that is "artificial", for it rests on the introduction of coercion into what would otherwise be free market activity.

It is not "natural" for states to monopolize money production.

At the same time I'm all for keeping inflation reasonably low.

I'm all for inflation being whatever results from unhampered market activity in not only real goods, but money production as well.

I am not at all in favor of people using coercion to monopolize money production and printing however many pieces of paper are necessary to artificially "target" an arbitrary "price inflation rate" that is set by reading tea leaves.

Tom Hickey said...

Pete, we have been through this before and explained out position on aprioris. I see you have forgotten it already.

Oh wait, IIRC, I already assigned you troll status. What am I doing reading your posts.

money4nothingchicks4free said...

"When individuals are free from state coercion in the realm of money production, money invariably becomes precious metals based."

Really? How do you know?

y said...

Ramanan,

"Imports are benefits and exports are costs. See 7DIF under Mandatory Readings"

If you have unemployment and poverty, and are capable of employing and feeding your own population, yet are obliged by international treaties to maintain high unemployment and to buy food from abroad, then I guess that basic logic begins to break down.

Essentially countries export so that they can import. One is a means to the other. If however you aren't allowed to develop your own economy and instead have to sit open-mouthed whilst foreign goods are shovelled in by foreign powers then the situation is a bit different, I think.

:-0

Tom Hickey said...

The reports about NAFTA I get from countries affected are pretty dismal. Doing business with American on the basis of its rules is like doing business with Goldman Sachs.

Ramanan said...

y,

Yes international trade runs due to the lobby which has pushed for free trade. So they repeated the Friedman argument (and argued since ages) that nations should reduce tariffs. Trade imbalance doesn't matter or the exchange rate adjusts to do some miracle and fantasy such as that:

Btw in your previous comment you seem to assume that a fiscal expansion can improve trade balance which is not so. A fiscal expansion spills over into a deterioration of the trade balance (unless there is an expansion in the rest of the world).

Very few economists have dared to call for import controls.

Here's from Wynne Godley from the late 70s for the UK:

http://www.lrb.co.uk/v02/n01/wynne-godley/wynne-godley-calls-for-general-import-controls


"My alternative macro-economic strategy is altogether different. First, imports should be non-selectively controlled by a high, uniform tariff or by auctioning import licences, thereby ensuring that the pattern of imports would continue to be determined by market forces. Second, I insist that control of overall import penetration, in sharp contrast with selective protectionism, must be an integral part of an expansionary fiscal and monetary programme. Once having removed the balance-of-payments constraint on growth, the Government is free to expand domestic demand within the only constraint that ought to be operative: our own capacity to produce. All and more of the yield of a tariff (or the proceeds of auctions of import licences) should be given back to consumers in the form of tax reductions so as to raise domestic spending. The level of imports would be as high as under present policies. Domestic production and income would be much higher.

In relation to this strategy, all the old arguments against protectionism are irrelevant. Total national income, output and employment, as well as average productivity, would be raised; prices, at least initially, would be reduced by the tax reduction below what they otherwise would have been; the pattern of expenditure and output would be determined by market, not bureaucratic forces; no individually inefficient firm or industry would be saved from the rigours of competition; other countries on balance would not be harmed, since the total level of UK imports would be no lower as a result of the new policy."

y said...

"Pete", aka Major Freedom.

Let's say the government were to give up control of the monetary system tomorrow. It stops taxing and stops printing money. Halleluja! Freedom!

What happens next? Who decides what 'money' is?

Me? You? I don't think so.

Try issuing your own money. You can do that today by the way. But see how far it gets you.

You could try digging up some gold or oil somewhere. But the chances are that already belongs to a large corporation.

Freedom! Yay!

y said...

*Hallelujah

Pete said...

Tom Hickey:

Pete, we have been through this before and explained out position on aprioris. I see you have forgotten it already.

You have not displayed any evidence that you grasp
"out position on aprioris."

You can't possibly claim to have given reasons why you think it is wrong, when you don't even understand it.

Why do you continue to troll?

y:

Let's say the government were to give up control of the monetary system tomorrow. It stops taxing and stops printing money. Halleluja! Freedom!

What happens next? Who decides what 'money' is?

It's not a question of "who" decides. It's WHAT decides it. The "what" is the market process of individual market exchanges, based on private property rights, subject to the regulating mechanism of profit and loss. May the best money win.

Try issuing your own money. You can do that today by the way. But see how far it gets you.

I am coerced into accepting US dollars because I have to pay taxes in US dollars. Are you so confused that you actually want to try to convince me that the market for money production is open? Please.

You could try digging up some gold or oil somewhere. But the chances are that already belongs to a large corporation.

I can EARN that gold by providing goods and services to said corporations.

Yay! Market process in action. Production -> earning money.

Oh the horror!

Freedom! Yay!

So you view freedom as violating people's property rights? Freedom! Yay!

I guess that means Stalin and Hitler brought humanity freedom.

What if the state monopolized car production? Would you then say it is a damper on people's freedom if car production were determined by the market process instead? That we would all be slaves to the few rich people of the world who own cars?

AndyCFC said...

@ Ramanan

Get rid of the WTO would be a good start.

y said...

Ramanan,

I agree with Godley on many things, as I believe you do too. According to Warren Mosler however, Godley wasn't necessarily averse to MMT ideas regarding deficits and CADs, but thought they were politically unfeasible (make of that what you will).

In the case of Mexico, they have this trade agreement that limits what they can do, and so they end up pretty much subject to the US.

If they weren't in that situation, and were importing more food than they needed to, yet also had high unemployment and poverty, then it's possible that a fiscal expansion aimed at increasing domestic investment, employment and demand could actually lead to a reduction in imports, and possibly an increase in exports.

Mexico's situation is distorted by its relationship to the US and the policies which have been forced upon it.

money4nothingchicks4free said...

Ramanan misses the point. In 7DIF Mosler distinguishes between real and nominal. That's why he is saying that exports are cost and imports are benefits. I have asked him (Ramanan) for examples of countries where they were not able to import because nobody wanted their currency, so far there is no examples. The BOP constraint they are talking about is currency depreciation they are so afraid of. Did Mexican peso collapse in 2008? Ramanan says It did, let's look at inflation. Inflation peaked in Mexico 6,53 yoy Jan 2009.
source: http://www.tradingeconomics.com/mexico/inflation-cpi

We had higher inflation in Estonia during the real estate boom.
US is special case, other countries have to pay for imports with exports in long run. How is It going to help to pay for imports with exports if you have high unemployment? It is going to make matters worse.

Ramanan said...

chicks4free,

So what if inflation was low? Mexico had a balance of payments problem.

Ramanan said...

"According to Warren Mosler however, Godley wasn't necessarily averse to MMT ideas regarding deficits and CADs, but thought they were politically unfeasible (make of that what you will)."

Mosler is wrong of course.

y said...

Well, ok Ramanan.

I asked Warren about this issue via his website and he told me that when he spoke to Wynne Godley at the Levy Institute, Godley agreed with his basic argument but stated that the US government would never accept deficits on the scale implied by his calculations (which of course were simply based on Godley's own analysis).

Warren Mosler:

"I recall questioning something he wrote in a levy article where he said something like the only answer for the US was to reduce the CAD.

I asked why the deficit couldn’t be expanded. He said it would need to be 9% which the politicians would never do.
I said that as an academic he should have pointed that out and even recommended, then offer the reduced cad as an alternative given his perception that
9% is too much for politicians to approve. He agreed with me."

Take or leave, by the by.

However, Marc Lavoie also made this comment recently:

"I would put it like this: In a closed economy, the existing stock-flow consistent models show that public debt to GDP ratios are likely to stabilize endogenously, even though governments are pursuing full employment policies and let government expenditures and government deficits rise to pursue this objective, provided real after-tax interest rates are not too high. So, this would be in accord with what neo-chartalist (MMT) economists are saying: let us take care of the employment problem first, and the deficit problem will eventually take care of itself, either through growth or through the rise in interest payments by the government, which will generate higher consumption and hence more aggregate demand, as was clearly the case in Italy in the 1980s, when the Italian sovereign debt was being held by Italians.

In an open economy, with a flexible exchange rate, where the government borrows in its own currency, Wynne and I would argue that this result still roughly holds. If the government borrows in a foreign currency however, as is the case of most countries, then this in itself is likely to create all sorts of problems."

http://www.nakedcapitalism.com/2012/06/new-directions-in-monetary-economics-an-interview-with-marc-lavoie-part-ii.html

I guess it might be worth knowing what he meant by "roughly".

y said...

"I can EARN that gold by providing goods and services to said corporations".

Yes, you can be subject to corporations. A 'free man', paying your rent to the corporation in corporation-denominated money.


"What if the state monopolized car production? Would you then say it is a damper on people's freedom if car production were determined by the market process instead?"

You appear to be incapable of making distinctions between cars and other types of goods.

For you all goods and services are essentially the same. For me they are not. There are goods and services best left to the market, and others best left to your government. The line separating the two is not always perfectly clear, of course. But that doesn't worry me too much as I'm not overly concerned with imaginary absolutes.

y said...

Chicks4free:

To be fair, inflation peaked at 6.5% and then the IMF offered a precautionary credit line to Mexico as 'insurance' to stabilise the situation. After that, the peso strengthened and inflation fell. Annual GDP growth also picked up. So although Mexico didn't have to draw on that credit line, the fact that it was offered most probably calmed markets greatly.

y said...

"you view freedom as violating people's property rights?"

I don't see taxation as a violation of people's property rights per se.

Jose Guilherme said...

On the Mosler quote about imports being benefits and exports being costs, an excerpt from a neo-keynesian textbook from the 1970s does seem to give comfort to his position:

"The importance of exports is that they permit imports to be made".

It follows that exporting goods and services without taking in an equivalent amount of imported goods and services is simply dumb.

Logic, never mind sound econimics, comes out strongly on the side of Mosler in this argument.

Jose Guilherme said...

I forgot to mention that the quote is from "An introduction to Positive Economics" by Richard G. Lipsey, 1973 Edition

Ramanan said...

y,

Don't think Mosler got him right. Its first a political nonstarter but more importantly it is an intrinsic constraint as understood by Godley.

He thought proposing import controls was the thing that made him heterodox!

See the end of this
http://www.levyinstitute.org/conferences/godley2011/Wray.pdf

Even in the intro of the book which came out of the conference, Dimitri says it clearly about Godley's views.

So lets be clear on this:

"Bibow finds that Godley’s diagnosis of the looming economic and financial difficulties ahead of their occurrence was prescient with regard to US domestic developments – a theme that came up in the chapters by Wray and Galbraith. But Bibow takes issue with Wynne’s assessment of the US external balance being unsustainable. He notes that the US investment position and income flows are more or less in balance and he attributes this phenomenon to the safety of the US Treasury securities and the dollar functioning as the reserve currency."

"Even if this is so, it cannot continue indefinitely, Wynne would have replied."

Tom Hickey said...

"Even if this is so, it cannot continue indefinitely, Wynne would have replied."

Interesting. Did he have a specific model of the US? What does it look like?

If this is decidable, it should be able to be shown in terms of a model. Otherwise we are just gassing about ideas.

Ramanan said...

Tom,

There's a big difference between a model-world and the real world.

As far as gassing is concerned, MMTers gass a lot on this and say incorrect thinks - such as stocks of debts stabilizing relative to gdp, which is poor math.

money4nothingchicks4free said...

Ramanan wrote: "So what if inflation was low? Mexico had a balance of payments problem."

Just like US has deficit problem right now. :)

money4nothingchicks4free said...

Y wrote "To be fair, inflation peaked at 6.5% and then the IMF offered a precautionary credit line to Mexico as 'insurance' to stabilise the situation. After that, the peso strengthened and inflation fell. Annual GDP growth also picked up. So although Mexico didn't have to draw on that credit line, the fact that it was offered most probably calmed markets greatly."

I agree, and such forex drop has inflationary bias, but peso did not collapse.At best you could say that forex rate collapsed. Why not let It happen?

Ramanan said...

chicks4free,

Mexico had to borrow from the IMF. You are not even ready to accept there was a crisis. Amazing!

money4nothingchicks4free said...

"Mexico had to borrow from the IMF. You are not even ready to accept there was a crisis. Amazing!"

It's amazing that you are not ready to privide any arguments. Was there fiscal crisis last summer in US? Are you ready to accept that?

Ramanan said...

chick4free,

Oh there was no crisis in Mexico in 2008 right? Pardon my ignorance!

money4nothingchicks4free said...

Ramanan: We all know peso's exchange rate fell and politicians didn't like that. Was there anything else that we don't know about?

Crisis means that exchange rate falls. I don't want to put words in your mouth but I think this is what you mean by crisis.

The statement that you made before that most sovereigns face a constraint that nobody wants their currency is not true.

vimothy said...

money4nothingchicks4free,

I haven't been following your argument (sorry), can you explain, what are you getting at, exactly?

Ramanan said...

Oh, yeah, you are so right - just the exchange rate fell, nothing else happened at all!

money4nothingchicks4free said...

Vimothy: Ramanan is saying that they had a bad peso crisis in Mexico in 2008 and I've been asking him in what sense other than forex rate falling 'cause inflation sure wasn't catastrophic. he said most of the countries other than US have this problem that no one might not want their currency. My argument was that situation like this cannot happen, with floating rate currency there are always takers at some price. If this wasn't so It would become extremly profitable for some to buy stuff from Mexico.

to be honest Vimothy, I don't get the "BOP problem-MMT is wrong"

Ramanan would find anything and run around singing "MMT is wrong". May be It is, It just hasn't been explained to me.

y said...

Ramanan,

Are you in favour of Godley-style import controls then?

Ramanan said...

"My argument was that situation like this cannot happen, with floating rate currency there are always takers at some price. If this wasn't so It would become extremly profitable for some to buy stuff from Mexico. "

There's where you go wrong. If that were the case there would have been no need for Mexico to have gone to the IMF. Now you can start arguing that the central bank didn't use this huge line of credit offered but its the availability of this line of credit which gave confidence to the currency markets.

In this case the IMF helped but it is not bound to rescue everytime. And whenever such events happen, domestic demand has to give in to stabilize the external debt.

You can't simply say that there is a price and the markets clear and its the end of the story. A fall in the currency can stabilize temporarily but this is in expectation of something happening such as an intervention.

Now, if the central bank doesn't react to this, it could have created a further outflow of funds depreciating the currency further.

Also banks - most importantly - have liabilities in foreign currency and an outflow can further increase this with depreciation leading to banks ending up in trouble rolling over their liabilities. It is for this reason as well that Mexico used the Fed's swap lines.

In other circumstances, there is sale of reserve assets, incurring of liabilities of the government in foreign currency etc to help the currency markets function.

If what you think is true there would have been no need for Mexico to have gone to the IMF at all.

Unfortunately that is pure fantasy stuff.

There's a huge literature on how the growth of nations is explained by the balance of payments constraint and its funny how "modern monetary theory" suddenly appears as Magic Pudding Economics!

Funny Minskyism - domestic crisis are frequent but no external crisis!

Ramanan said...

y,

Yeah of course. The present system of international trade is built around by the Ricardian idea of free trade.

It however recognizes that nations can run into balance of payments issues.

See Article XII of the WTO.

But while such a measure is available, policy advisers to the government themselves wouldn't take such a measure and hence rarely used. The adjustment comes via demand by fiscal and monetary measures and also other things such as keeping wages low etc.

Weaker nations are regularly forced
to accept free trade ideas such as low tariffs etc against their wishes.

Also creditor nations are the problem. So it would be nice if penalties are imposed on them for giving a deflationary bias to the world economy.

y said...

Why and in what way are creditor nations the problem?

paul said...

@money4nothingchicks4free

I like your line of argument here.

You have hit upon a pattern that will be evident in all such arguments with certain individuals going forward.

vimothy said...

money4nothingchicks4free,

Thanks.

I don’t really know anything about Mexico 2008, so all I can add to the discussion is very general.

What’s the important difference between floating and fixed exchange rates? Floating means that the CB is freed from having to defend a fixed parity, which, in the extreme case, is impossible to defend and causes discontinuous jumps in the exchange rate as the peg collapses.

This is the basic dynamic of a “classic” currency crisis.
In other words, not pegging your exchange rate “frees” you from ever being in the situation where the peg fails. That seems pretty straightforward. With that said, there’s an important caveat. When people first started to model currency crises, they took the premises necessary to generate the crisis as given. Later economists started to ask questions like: why would anyone want to fix their exchange rate in the first place, given that a currency crisis is a possible outcome?

As you can see from the paper I posted upthread, most exchange rates do not display a great degree of volatility. And most countries seem to intervene to secure this outcome. So it looks like there are costs to high exchange rate volatility—and indeed, it’s not hard to think of what they might be; for example, high inflation pass-through or “liability dollarization”. So what we tend to see is lower exchange rate volatility and higher responses in reserves and interest rates (according to the paper, Mexican real and nominal interest rate variability is 20 times that of the US).

In other words, the “ideal case” is rare, and it’s rare for good reasons.

As to the case of the falling peso in 2008, it seems to me that it makes a rough sense to describe a situation in which the value of currency is falling as one in which there is “no demand”. Although it is not very precise, it’s intuitively obvious from the context that it means that the demand curve is shifting and not that there are no buyers at any price. That’s my reading anyway.

If the peso did collapse then, per my argument above, this could be very costly. The peso is not a hard currency and there doesn’t seem to be an obvious mechanism that would prevent swings without bound in all states other than intervention. So it’s obviously an outcome that the Mexican government would prefer to avoid, and this seems to imply intervening in FX markets, domestic OMO, securing lines of credit, derivative transactions and so on.

y said...

Vimothy, do you think Mexico might be more susceptible to these issues as a result of NAFTA? Perhaps NAFTA actually encourages these problems, first by turning Mexico into a large importer from the US, and then making sudden capital movements in and out of the US more likely.

The peso has steadily depreciated since Mexico joined NAFTA.

y said...

*(depreciated against the dollar)

Ramanan said...

"Why and in what way are creditor nations the problem?"

Creditor nations follow a Mercantilist policy a lot of times. They keep domestic demand and wages low and have run external surpluses. It is a nice strategy but is very selfish.

Keynes argued that they simply didn't believe the market mechanism works to resolve imbalances and hence consider this as the route to success.

However, when they do so, others have to do the adjustments - such as lower income, wages etc to keep the imbalances from going out of hand.

Keynes argued that this "injures all alike".

Pete said...

y:

"I can EARN that gold by providing goods and services to said corporations".

Yes, you can be subject to corporations. A 'free man', paying your rent to the corporation in corporation-denominated money.

Corporations are subject to their customers. How else can a business get another's gold? By taxation? No, that's what states do.

And besides, corporations aren't the only entities that own money. Everyone who is productive can earn money from others.

It is not surprising that you consider free trade with another party as you being a "subject" of them, as if free trade makes you a slave. Of course that implies theft and violations of free trade "set you free." If that is what you actually believe, then you define freedom as including the right to hurt other people. You are therefore not concerned with everyone's freedom. Just your own, whereby everyone else can potentially become your slave. What counts is your freedom, and nobody else's.

What you fail to grasp is that in voluntary exchanges, both parties are subjects and both parties are masters.

Those who offer gold are subject to another's goods and services. They are masters of the gold they own. They are not masters of the gold I own.

Similarly, those who offer goods and services are subject to another's gold. They are masters of the goods and services they own. They are not masters of the goods and services I own.

Do you hate free trade so much that you believe having to exchange with their consent is a violations of your rights?

Are you a communist?

What is wrong with engaging in voluntary exchanges?

Corporations as a rule don't initiate violence. States do. I'd rather take my chances with private property owners who have relatively limited resources that consist of factories, stores and other wealth for MY physical benefit, than states which have relatively more resources that consist of tanks, missile launchers, and automatic weapons and other things that are NOT for MY physical benefit.

Pete said...

y:


"What if the state monopolized car production? Would you then say it is a damper on people's freedom if car production were determined by the market process instead?"

You appear to be incapable of making distinctions between cars and other types of goods.

You appear to be incapable of answering the question directly, and you appear incapable of understanding that the fact that goods are heterogeneous, doesn't mean some of them would "limit your freedom" if controlled by private property owners in economic competition.

All economic resources, including money, are scarce. The most efficient uses for scarce resources, as every economist knows, is according to the allocation in accordance with the market process, of profit and loss.

Money is SUPPOSED to be scarce. A non-scarce money cannot even function as a money.

For you all goods and services are essentially the same. For me they are not. There are goods and services best left to the market, and others best left to your government. The line separating the two is not always perfectly clear, of course. But that doesn't worry me too much as I'm not overly concerned with imaginary absolutes.

Notwithstanding the fact that you just contradicted yourself, by invoking a belief in an imaginary absolute that says "For me not all goods and services are the same...Some are best left to the government", as that assertion itself is an imaginary absolute, because you are merely imagining that certain scarce physical objects of a certain molecular composition have a reality to them that makes the market process unsuitable for their allocation and deployment...what is it about the medium of exchange commodity (money) that the market process is unsuitable, whereby initiations of violence against innocent people is justified? Money is a market created concept.

And what is this "line" between commodities, other than your say so? Where is the economic science?

The artificial dichotomy between private goods and public goods is a myth. All economic resources are scarce and they all fall under the rubric of economic science.

--------

You seem utterly unaware that state control of money is a threat to your economic freedom and your prosperity.

Tom Hickey said...

Ramanan: "There's a big difference between a model-world and the real world."

Yes but to say something specific about a specific situation in a specific country is a prediction. What exactly is it based on?

It is well known that Godley knew the stuff so well he carried the model in his head, so to speak, but for a specific prediction to be more than an opinion, which I think you claiming about Godley v. MMT economists, there needs to be something specific that can be checked. Otherwise, it is Godley opinion v. Mosler's opinion. Both of them are very smart guys and obviously had reasons for their opinions that they were pretty sure of. But if the reasoning is liad out somewhere, then it has to be reconstructed and compared. So far, I am just seeing opinions and not numbers.

paul said...

"You seem utterly unaware that state control of money is a threat to your economic freedom and your prosperity."

You seem utterly unaware that private control of money is a threat to your economic freedom and your prosperity.

Tom Hickey said...

One sure thing I will say about trade: If the US ever gets into an actual problem, that's the end of the free trade and WTO. The US has no problem pulling out of treaties unilaterally, and the world usually follows. :o

Tom Hickey said...

Ramanan: "Keynes argued that they simply didn't believe the market mechanism works to resolve imbalances and hence consider this as the route to success. However, when they do so, others have to do the adjustments - such as lower income, wages etc to keep the imbalances from going out of hand. Keynes argued that this "injures all alike"."

AKA "race to the bottom." (See the EMU.)

Ramanan said...

Tom Hickey @July 4, 2012 10:03 AM,

Unsure as to what you mean. It is clear what Wynne Godley's views were. Check the LRW paper in the comment. So nobody should misrepresent him.

Right or wrong is a different matter.

Ramanan said...

"One sure thing I will say about trade: If the US ever gets into an actual problem, that's the end of the free trade and WTO. The US has no problem pulling out of treaties unilaterally, and the world usually follows. :o"

Well yeah. But please have your feet firmly on earth. The US unemployment has been 8-10% for a long time!

Tom Hickey said...

paul: "You seem utterly unaware that private control of money is a threat to your economic freedom and your prosperity."

Yes, the point being that when a private interests are in control of the money they are in control period. And there is no recourse but revolt.

In a liberal democracy with govt in control of the money, the govt can be changed periodically through elections.

What's so hard to understand about this?

Tom Hickey said...

Ramanan: "Check the LRW paper in the comment."

I did when you put it up but was stopped by the pay wall.

Tom Hickey said...

Ramanan: "Well yeah. But please have your feet firmly on earth. The US unemployment has been 8-10% for a long time!"

And if you noticed, the US is now coming apart at the seams — obviously not only due to U3 but that is definitely a major factor. Neoliberalism is cresting in the US, and the US is exhibiting signs of becoming a failed state.

Lord Keynes said...

"I see nothing but recoiling and aversion on the part of all Keynesians regarding Austrian concepts. "

Austrian concepts/theories are either trivially true and acceptable by all economists (e.g., human action axiom) or a cartload of nonsense (e.g., ABCT).

As for the endless carping about "economic calculation", the market is far more robust and malleable than the Austrian cultists imagine.

E.g., the private sector itself imposes price administration in many sectors - direct setting of prices on factor input cost basis plus markup, but the system doesn't collapse just because these "distortions" are imposed on prices.

Lord Keynes said...

Pete:

"As has been abundantly clear, there is no engaging and refuting the Austrian concepts such that you can even claim to say you don't agree with them for such and such a reason. "

There is no need to refute trivially true propositions like human action axiom: it could be asserted as true by a communist without contradicting his Marxist system.

As for refutation of other Austrian ideas/theories, that is not difficult: it is abundantly clear that the Hayekian form of the ABCT - with its non existent unique Wicksellian natural rate of interest - is flawed and even Robert Murphy admits this.

Even the Austrian trolls like Roddis, when pressed, admit that the classic Hayekian theory has problems.

So there goes your idiotic claim that people don't engage or refute your ideas.

Tom Hickey said...

Lord Keynes: "Austrian concepts/theories are either trivially true and acceptable by all economists (e.g., human action axiom)"

Yes, most mainstream economists still subscribe to rationality. Heterodox economists and scientists from other fields object to this view of rationality as apriori and unrealistic when examined rigorously.

Philosophers of science agree that any methodological assumption — which is what this axiom is logically — can be adopted to gain insight about the variable, but the world that a model based apriori (stipulated) assumptions is not known to be representative of the actual world apriori, i.el, in the absence of comparison of results with expectations.

The ontological status of methodological assumption such as rationality is completely different. Methodological assumptions can be stipulated, but ontological claims must be framed as hypotheses subject to testing and potential falsification. Under scientific scrutiny, the rationality axiom that economists use doesn't fare very will as a cognitive-behavioral hypothesis. Nor does the utility axiom.

These ideas are axioms that are stipulated based on the further assumption of purpose and utility. Since the demise of the Aristotelean methodological approach to knowledge, both resort to apriori principles and teleology are anathema in doing science.

If economics is to approach science, it needs to get with the program. Unless economists think that they can redefine science looking backwards.

vimothy said...

Tom,

I'm eager to hear what heterodox economists are proposing for the basis of a microeconomic theory of consumer choice that is more general than the neoclassical preference relation.

(BTW, what are the utility and rationality axioms?)

vimothy said...

Y,

I'm afraid I don't know enough about the situation to be of any help.

Tom Hickey said...

The most general statement of rationality is that rational agents act for a purpose, which is either an end it itself or means to further end.

The most general statement of utility is that this purpose is perceived usefulness.

Seems self-evident apriori until one starts digging into what it means exactly. Then things get slippery and ambiguous, inviting ever descending turtles and vicious circles, for example, or claims so loose they cannot be pinned down.

paul said...

Consumer choice…?

Consumer choices are severely limited when the consumer has no money, no assets, no job or any combination thereof.

The natural flow of funds is from consumers to producers.

There is no over-arching flow in the reverse direction unless in the aggregate, companies are losing money.

Ramanan said...

Vimothy,

You may find a lot about Post Keynesian theory of consumer choice in Marc Lavoie's book Foundations of Post Keynesian Analysis.

Tom Hickey said...

I'm eager to hear what heterodox economists are proposing for the basis of a microeconomic theory of consumer choice that is more general than the neoclassical preference relation.

They don't start with a theory of consumer choice but by looking at research into what people actually do.

There is no objection to simple models with few and constrained variable. The objection is going beyond the limitations of the model's assumptions and methodology.

Everyone knows that really adequate economic models are highly complex. The trend is away from simplistic models in the direction of methodology capable of handling greater complexity, which means fewer synthetic apriori assumptions and more data crunching using more advanced math or else using accounting-based models. While a lot of this is happening in macro, and heterodox economists tend to focus more on macro, they also have to deal with "microfoundations."

Since economics is not my field, I only have an impression of the direction but as a trend follower I pay attention to directions. I think that there is a tendency away from strict methodological individualism toward an approach that the social systems are highly ordered sets rather than simple aggregates of essentially the same unit, so that the complex relationships among individuals are also determinative factors. Failure to appreciate this is the basis of fallacies of composition, for instance.

Moreover, there are many different heterodox approaches to economics and fields other than economics bear on economics as well.

Here is a good overview of hetero-micro.
Teaching Heterodox Microeconomics by Frederic S. Lee   (University of Missouri-Kansas City), in Post-Autistic Economics Review (May, 2005)

vimothy said...

Tom,

The most general statement of rationality is that rational agents act for a purpose, which is either an end it itself or means to further end.

The most general statement of utility is that this purpose is perceived usefulness.


In general, there’s clearly a lot that could be said about those statements. But we weren’t talking generally. We were talking about neoclassical theory.

You said,

Under scientific scrutiny, the rationality axiom that economists use doesn't fare very will as a cognitive-behavioral hypothesis. Nor does the utility axiom.

As far as I am aware, no such axioms exist. On the other hand, my experience is not definitive, so it might help if, rather than explain what the words mean, you explain where and how they come in as axioms in economic theory.

Tom Hickey said...

Rmanan: "You may find a lot about Post Keynesian theory of consumer choice in Marc Lavoie's book Foundations of Post Keynesian Analysis."

Don't have the book handy, Ramanan, Briefly, is Lavoie's analysis of choice descriptive of transactions using accounting-based modeling or on research into choice in the scientific disciplines that study such behavior, or something else?

Tom Hickey said...

Micro is not something I have studied since college, so I can't speak to the present stare of the field, but texts in use seem to take pretty much the same tack. The basic notion is elasticity of supply and demand in near perfect markets with equally rational agents seek to maximize utility (consumers) or profit (producers) in terms of available options and opportunity costs. The outcome is the identity of value and price as a discovery resulting from the free operation of the near perfect market. then issue are brought in that complicate a simple analysis, such as nominal v. real, monopoly etc.

This is a good simple model that is easy to understand for beginners. But are beginners told that this is only the beginning and that this narrative is simplified to the point of being simplistic because the real world is much more complex than the model suggests?

For what I can tell neo-classical economists admit that developed economic understanding is not achieved before grad school. However, again, as far as I can see, they work in terms of the simple model, articulating the nuance.

Heterodox economics, and there are a number of heterodox schools in economics and related disciplines now, don't follow the same methodological path. For example, institutional economics studies institutional arrangements that affect behavior.

BTW I would recommend that economists drop the term "choice" when they mean behavior, since "choice" is a subjective term. If they persist on using "choice," then they have to incorporate cognitive-behavioral science in accounting for it to be logically consistent with the meaning of the terms they are using in order to avoid confusion. This is always a problem in using ordinary language terminology in technical discourse that depends for rigor on operational definitions.

Consumer and firm behavior is perfectly obvious in transactions, which are recorded as entries in ledger and summarized in accounting reports. Why say, "X chose y," or X preferred y," when X bought y is the case.

Pete said...

Paul:

"You seem utterly unaware that state control of money is a threat to your economic freedom and your prosperity."

You seem utterly unaware that private control of money is a threat to your economic freedom and your prosperity.

Yeah, like my economic freedom and prosperity is "threatened" by private control over the means of producing: food, houses, clothes, cars, computers, medicine, furniture, tools, books, glasses, paper, stereos, radios, refrigerators, microwaves, airplanes, furnaces, lawnchairs, and boats.

Oh if only the state controlled the production of all these things, like they do in North Korea, can my economic freedom and prosperity be improved.

You are totally clueless that your economic freedom and prosperity are maximized WITH private ownership of the means of production, than it is with state control where people live in poverty and under extreme oppression.

vimothy said...

Tom,

If we go back to your original comment,

Yes, most mainstream economists still subscribe to rationality.

What “rationality” means is rational choice theory. Rational choice theory more or less says that we can describe preferences over a choice set in a consistent way (in particular, if the preference relation is a continuous strictly monotone weak ordering on the choice set, it can be represented by a continuous strictly monotone function—known as the “utility function”). The few very simple axioms used basically describe the set-theoretic conditions necessary to get you that far.

As you can see from a bit of Googling, post Keynesians also build up consumer choice theory from a (bigger) set of basic axioms. But how else would you go about building a theory of choice that can be modelled mathematically? I have no idea. You suggest the possibility of “looking at research into what people actually do”, but this is specious, since the issue is not looking at what people do, but figuring out how to actually derive a theory that can explain it.

Pete said...

Tom Hickey:

Yes, the point being that when a private interests are in control of the money they are in control period. And there is no recourse but revolt.

In a liberal democracy with govt in control of the money, the govt can be changed periodically through elections.

What's so hard to understand about this?

You're confused. An individual has far more control over his own life when dealing with private business firms than with the state.

With the state, no matter who is in charge, taxation and obedience to laws, however unjust, are mandatory. The state's courts, their police, and in many instances their schooling, are mandatory "services." You cannot abstain from dealing with them no matter how bad they get.

With private businesses on the other hand, you can abstain from giving them your money and your solicitation. Their goods and services are not mandatory by force. You can choose not to deal with a businessman who does a bad job. You can instantly "fire" a seller by simply walking out of their store.

4 year elections pale in comparison to instant "No, I will not pay you and I will not accept your goods/services" that exists in the market. You are so utterly clueless that you actually believe decentralization, and economic competition, give you less options than state control, where it is the only one.

What about the 49% minority? At least in the market, if 51% of the people pay to buy iPhones, it doesn't mean the remaining 49% have to pay to buy them too. With the state, that freedom does not exist. If 51% of the people want X, it is made mandatory on the remaining 49% even if they don't want it.

If you are so adamant that state control gives you more freedom through the 51% election process, then why not advocate that the state control ALL production, so that "society" can elect those who own the means of production through majority vote, rather than on an individual, case by case basis as in the market?

What is so difficult to comprehend that your worldview is utterly contradictory? That while you say state control over money is better than private control because there are majority elections, but you do a 180 and believe that the means of producing food should not be under state control, but rather under private control? Food is more important than money.

It is baffling how you can claim the things you do, and you can't even see how absurd they are. You are truly uninformed about the market and of life. Your claims are that of a communist, not a free society individual.

paul said...

"…You're confused. An individual has far more control over his own life when dealing with private business firms than with the state.…"

Like when I need to use the road to go to the store?

Tom Hickey said...

All I am saying, vimothy, is that economists should admit their ignorance where appropriate. It's like religious believers. Belief is not knowledge, yet very few believers will admit that they are really agnostics. I don't oppose the direction anyone takes. I do oppose theologizing it and making it dogma in the face of heterodox opposition — and heterodox opposition is mounting.

As a philosopher, my concern is not with developing economic models but looking at what economists and others say and do (context), and pointing out illogic. One of the most often committed logical fallacies is exceeding the bounds of an argument's conclusion in drawing implications from it. Another is using terms inconsistently.

But as far as the direction economists might take to improve their discipline — to paraphrase Friedman, the task of economists is to distinguish good economics from bad economics — heterodox schools are proposing new directions. Some call for building on the mainstream approach and others for a new paradigm.

paul said...

"…Yeah, like my economic freedom and prosperity is "threatened" by private control over the means of producing: food, houses, clothes, cars, computers, medicine, furniture, tools, books, glasses, paper, stereos, radios, refrigerators, microwaves, airplanes, furnaces, lawnchairs, and boats…"

Nearly all of these things are dependent on public investment.

Bruce said...

"Yeah, like my economic freedom and prosperity is "threatened" by private control over the means of producing: food, houses, clothes, cars, computers, medicine, furniture, tools, books, glasses, paper, stereos, radios, refrigerators, microwaves, airplanes, furnaces, lawnchairs, and boats."

You should thank the state for breaking monopolies and cartels that tend to develop within many of the above-mentioned industries when industry is not properly regulated.

Despite strict regulations, Monsanto is trying its best to take over control of global agriculture, private water companies are attempting to gain control of natural water reserves all over the world through privatization. Do some research on medical equipment industry and discover how they inflate the value of equipment by several hundred times the cost price.

Tom Hickey said...

Here's another article by Fredric Lee

The making of heterodox microeconomics, (May 2011)

Pete said...

Lord Keynes:

"I see nothing but recoiling and aversion on the part of all Keynesians regarding Austrian concepts. "

Austrian concepts/theories are either trivially true and acceptable by all economists (e.g., human action axiom) or a cartload of nonsense (e.g., ABCT).

False on both counts.

The action axiom is actually violated/ignored by the the majority of economists, because their methodology presumes the subject matter they are studying are NON-actors, i.e. that the phenomena they study are based on constancy in relations over time.

As for ABCT, you don't even understand the essence of it, which is economic calculation, so of course it will appear nonsensical to you.

As for the endless carping about "economic calculation", the market is far more robust and malleable than the Austrian cultists imagine.

No, it isn't, and Keynesian cultists do not understand how funny money misleads investors and consumers. You cannot possibly claim the market process is so "robust" and "malleable" that individual actors can plan their behavior on the basis of unobservable prices and interest rates, the ones that don't exist precisely because Keynesian cultists have hampered the price system and turned into one that is not in line with market actions, but state actions.

It is precisely the Keynesian cultists who believe the market process is not robust and not malleable, because to you, individuals are too stupid to set their own interest rates, and too stupid to set their own spending, and too stupid to control the production of money. To you Keynesian cultists, we need mommy and daddy government to take care of us.

E.g., the private sector itself imposes price administration in many sectors - direct setting of prices on factor input cost basis plus markup, but the system doesn't collapse just because these "distortions" are imposed on prices.

Nobody said "the system collapses." The system is seriously undermined and hampered, enough to mislead enough investors to misallocate enough resources and labor that later need a correction the size of which is then labeled a "recession."

"As has been abundantly clear, there is no engaging and refuting the Austrian concepts such that you can even claim to say you don't agree with them for such and such a reason. "

There is no need to refute trivially true propositions like human action axiom:

At least the action axiom is true, which is more that can be said for ANY of the foundations you hold, which is utterly devoid of logical rigor.

it could be asserted as true by a communist without contradicting his Marxist system.

False. A Marxist holds action to be non-individual based, but class based, and historical materialist, "productive forces" based. You have no clue what you're talking about.

And talking around and about Austrian concepts is not the same thing as engaging and refuting them.

The action axiom is not trivially true in the sense that leaves are green and the Sun shines are trivially true. Action requires logical analysis in order to be establish as an axiom. This is why you don't grasp it or its implications.

Human action is but one single axiom that grounds the entire Austrian system. Economic calculation is what goes over your head.

Pete said...

Lord Keynes:


As for refutation of other Austrian ideas/theories, that is not difficult

What initial refutation are you talking about? You say "other refutation" as if your incompetent dancing around the concepts constitutes a refutation.

it is abundantly clear that the Hayekian form of the ABCT - with its non existent unique Wicksellian natural rate of interest - is flawed and even Robert Murphy admits this.

The natural rate of interest just refers to the aggregate collection of interest rates. Hayek did not actually believe the free market would have one uniform rate of interest on all loans. The single rate of interest in the traditional ABCT is but a placeholder to refer to collection of interest rates. Not a single chain in ABCT is compromised by the introduction of multiple interest rates. No Austrian would say "You mean during the housing boom that was caused (in part) by artificially low interest rates set by the Federal Reserve System's funny money, that one mortgage loan had 3.78% interest, while another mortgage had 3.85% interest? Oh no! ABCT has been falsified! The housing boom was not caused by artificially low interest rates from the Fed after all!"

You're carping on single versus multiple interest rates because you refuse to address and comprehend the core essence of Austrian theory, which is economic calculation.

Even the Austrian trolls like Roddis, when pressed, admit that the classic Hayekian theory has problems.

Of course Hayek's model had problems. But that doesn't mean we throw the baby out with the bath water. The fact that Keynes' theory had problems, is why there are now NeoKeynesians and Post Keynesians and New Keynesians. You didn't throw Keynes out with the bath water. It's the core essence of theories that truly matter.

When Keynesian trolls are pressed on economic calculation, they balk.

So there goes your idiotic claim that people don't engage or refute your ideas.

??? What? Where? You didn't engage or refute my ideas anywhere, and you're saying "there goes" my claim that you don't engage or refute Austrian ideas?

You're not refuting Austrian ideas, you're just dancing around the concept of economic calculation because you know it blows up your entire worldview.

Tom Hickey said...

vimothy: "hat “rationality” means is rational choice theory"

That is a formal statement. What I am talking about is a presupposition — cognitive bias, really — that human beings are "rational." As contemporary scientists that study this have shown, this is a presumption, generally thought of in 18th century terms, but which goes back to the mindset of the Greeks that was imported in Christianity and passed on culturally in the West.

Now we have strong indications that this is not how human brains operate. See Antonio Damasio, for example, He gave the keynote at INET Berlin.

Antonio Damasio: INET Keynote Address entitled Human Decisions

Tom Hickey said...

Bruce: "Despite strict regulations, Monsanto is trying its best to take over control of global agriculture, private water companies are attempting to gain control of natural water reserves all over the world through privatization."

The negative externality that Monsanto is creating is much much worse than this, too.

Tom Hickey said...

And as I explained elsewhere, the simple view of utility that contemporary economics is based on Bentham's 18th century view. It is a view opposed by just about every other serious thinker as simplistic. It is simplistic because it is based on ontological individualism whereas human beings are social by nature and socially determined.

"Social by nature" is not merely an assumption. It has been as is continually being tested by the results of prolonged solitary confinement, which results in mental imbalance and eventually insanity. Solitary confinement is increasingly being define by experts as torture.

Pete said...

Tom Hickey:

Lord Keynes: "Austrian concepts/theories are either trivially true and acceptable by all economists (e.g., human action axiom)"

Yes, most mainstream economists still subscribe to rationality.

Heterodox economists and scientists from other fields object to this view of rationality as apriori and unrealistic when examined rigorously.

The Misesean notion of rationality is not the same rationality mainstream economists are talking about. You're talking about homo aeconomicus. Mises' conception of rationality is purely descriptive in that individuals are goal seeking entities, who must incur costs in order to achieve their ends. That's what Mises meant by rationality.

But it shouldn't surprise anyone that you don't get that either.

Philosophers of science agree that any methodological assumption — which is what this axiom is logically — can be adopted to gain insight about the variable, but the world that a model based apriori (stipulated) assumptions is not known to be representative of the actual world apriori, i.el, in the absence of comparison of results with expectations.

Notwithstanding the incredibly sloppy grammar and quality of argument here, it is false to claim that action is but an assumption. Action is of a different logical category than either stipulations or hypotheses. Not only that, but the very concepts "stipulations" and "hypotheses", as well as the terms you used, such as "adopted", "gain insight", "known", "comparison" and "expectations" are ALL grounded in and presuppose the validity of action, since they are all actions themselves. You cannot give a coherent meaning to these concepts that are divorced from action, of goal seeking behavior.

What you are talking about when you insist action must be but an assumption, is empiricist-positivism, where knowledge about the world is allegedly accumulated by a method of hypothesis -> test -> confirmation/falsification, where the hypothesis cannot be known true unless it is subjected to empirical confirmation. Yet this method itself rests on, and presupposes, a priori true propositioning, namely, that causality is constant over time. Only if this is true can the method of falsification be coherent. For if causality were NOT constant, then you could not even claim that a test "falsified" or "confirmed" an earlier conjecture, or observation. You could only just say that one observation was such and such, and then another set of observations were such and such later on, and that's it, nothing else follows. There would be no commensurability between the two, since they each existed in their own times with their own causality relations.

Only with constant causality in relations can positivism claim to be a method of knowledge acquisition. But constant causality in relations does not exist in human action. Action contains change. Humans learn over time. There is no constancy relation in nature that can enable us to predict what we will learn, when we will learn it, BEFORE we actually go out and learn it. And since knowledge influences what humans do, it means human action cannot possibly be considered a subject matter that can be scientifically studied by way of presuming constancy in relations, the way physicists and chemists do.

Pete said...

Tom Hickey:


The ontological status of methodological assumption such as rationality is completely different. Methodological assumptions can be stipulated, but ontological claims must be framed as hypotheses subject to testing and potential falsification. Under scientific scrutiny, the rationality axiom that economists use doesn't fare very will as a cognitive-behavioral hypothesis. Nor does the utility axiom.

You're just restating the positivist method, which is inapplicable to subject matter that is not constant, like action.

These ideas are axioms that are stipulated based on the further assumption of purpose and utility. Since the demise of the Aristotelean methodological approach to knowledge, both resort to apriori principles and teleology are anathema in doing science.

They are anathema to positivism, not to science. Mathematics is anathema to positivism, but it is a science. It resides in the science department at virtually every university.

Science is the field of using one's mind to learn about reality. This constant barrage of claims that only observational monism is permitted in science, is an over-reaction to religion. It is not grounded in rigorous logic.

If economics is to approach science, it needs to get with the program. Unless economists think that they can redefine science looking backwards.

You mean if physicists and chemists and mathematicians want to approach economics, THEY need to get with the program of methodological dualism, of grasping the fact that action cannot be scientifically predicted based on constancy, and not be so dogmatic that the only valid methodology for all fields of inquiry is observational monism.

Tom Hickey said...

Heterodox Microfoundations: A Methodological Appraisal, TAE-HEE JO, Journal of Interdisciplinary Research

Abstract — This paper examines underlying methodological commitments in orthodox and heterodox approaches to micro and macro. Identifying methodological advantages and drawbacks of existing microfoundations, macrofoundations, and mesofoundations, I uphold the need for the heterodox microfoundations of macroeconomics which is centered on the casual mechanisms of an economic system. By this, we are capable of analyzing micro- and macroreality which are recursively interrelated. In addition, the fallacy of macroreductionism and central-reductionism can be avoided. One way of articulating the heterodox microfoundations is to utilize a circular production input-output matrix of a capitalist system combined with the price system. Such a framework is consistent with heterodox economics at the methodological and theoretical level.

vimothy said...

Tom,

The fact that people talk about "utility functions" is an anachronism. It would be more accurate to call it something like a representative function of the preference relation. It's not to be confused with the classical utilitarian notion of utility.

Pete said...

Tom Hickey:

And as I explained elsewhere, the simple view of utility that contemporary economics is based on Bentham's 18th century view. It is a view opposed by just about every other serious thinker as simplistic. It is simplistic because it is based on ontological individualism whereas human beings are social by nature and socially determined.

Humans being social does not imply they are socially determined. Regardless of what an individual observes in society, or hears in society, or reads in society, he has to make the choice to adopt or reject whatever he sees, hears, or reads.

Methodological individualism is not simplistic. Claiming that humans are socially determined, that is simplistic, for it enables a person to absolve themselves of all thinking and responsibility for their lives. By simplistically blaming everyone but himself, he can avoid doing serious self-reflection that is HIGHLY complex and mentally painstaking.

Any moron can think at the bare minimum and believe his entire existence is controlled by others. That's exactly why primitive peoples thousands of years ago held that there were controlling Gods in every observable thing, and that whatever happened, it was due to a God being happy or angry.

It was precisely during the enlightenment, when philosophers introduced the "heretical" notion that individuals are capable of using their reason to learn about themselves and physical reality, that humans were able to finally get out of the caves and squalor, and build modern industrial civilization based on DIVISION of labor.

"Social by nature" is not merely an assumption. It has been as is continually being tested by the results of prolonged solitary confinement, which results in mental imbalance and eventually insanity. Solitary confinement is increasingly being define by experts as torture.

FORCED solitary confinement is torture, just like FORCED confinement with murderers, rapists, and torturers is torture.

Voluntary solitude does not lead to "mental imbalances" or "insanity", whatever those vague terms are supposed to mean. There are people who choose to live on their own in the woods, or in the mountains.

Social by nature is an assumption. The "tests" you're referring to also show mental imbalances and insanity following social interaction. For example, a child who grows up in an abusive household, has a higher chance at becoming mentally unstable and insane. It's not social interaction per se, it's the type of social interaction. Just like it's not the solitude per se, it's the type of solitude.

-------

At any rate, what is crucial to understand, which you don't seem to understand, is that methodological individualism does not imply nor does it advocate individuals living totally apart from each other, as isolated "atomistic" entities. All it means is that whatever social events occur, whatever economic phenomena takes place, whatever observations are made on economic history, they can all be explained by the purposeful actions of individual human beings. That's all it means.

A person who learns from another, and then acts differently as a result, was not "determined" by the educator. He had to choose to adopt or reject what the educator said first. That is where methodological individualism comes in. It doesn't claim that he could have learned it on his own.

As far as ontology goes, there only EXISTS individual humans. There is no other human reality apart from individual humans. To be sure, individual humans can achieve gains in cooperation that they could never dream of achieving in isolation. This is the entire reason the division of labor and economic coordination are so important and worth fighting to protect from the ravages of violent thugs, both in the civilian and especially in the government population.

Bored with Pete said...

Pete, aren't there some other people you can go and shout your beliefs at?

Like some people in the street or something.

Bored with Bored with Pete said...

Bored with Pete:

Pete, aren't there some other people you can go and shout your beliefs at?

Like some people in the street or something.

Nah, I don't usually follow MMTers.

Lord Keynes said...

"The natural rate of interest just refers to the aggregate collection of interest rates. Hayek did not actually believe the free market would have one uniform rate of interest on all loans"

What we have here is clear proof that engaging with Pete/Major_Freedom is a complete waste of time.

This guy is a shameless liar. He just re-writes at will what other Austrians think.

Lord Keynes said...

"As far as ontology goes, there only EXISTS individual humans. There is no other human reality apart from individual humans."

Yeah, idiot, we'll familiar with nominalism, as one possible defensible philosophical position.

On perfectly defensible alternative ontological theories, "exist" need not refer to concrete particulars only.

In fact, throughout history one major view in ontology has been that abstract entities can also be said to have existence: e.g., number can exist and so can aggregate entities.

There is no problem with saying that the set of all natural numbers from 1 to 100 exists, on a moderate realist ontology.

Lord Keynes said...

"They are anathema to positivism, not to science. Mathematics is anathema to positivism"

Pure maths is a perfect example of imaginary systems.

A great deal of pure mathematics has no application or relevance to the real world whatsoever, because it does not describe anything in the real world.

A perfectly analogy with Austrian economics, which is a set of theories flawed by false assumptions and unsound arguments, with no relevance to the real world.

Bored with Pete said...

I'm so bored with Pete

Tom Hickey said...

Lord Keynes: "Pure maths is a perfect example of imaginary systems. A great deal of pure mathematics has no application or relevance to the real world whatsoever, because it does not describe anything in the real world."

Right. Mathematicians recognize that they are dealing ideal formal, syntactical) systems and not real world systems.

Scientists construct formal systems using syntactical method and interprete these math models semantically in terms of theoretical models that represent the real world. Then they formulate hypotheses as predictions derived from the theoretical model in order to test the theory by suing observables.

So science has an apriori aspect in formalization through math and logic and an empirical aspect though semantic interpretation and observation.

The stipulations of the formal system are interpreted semantically as empirical foundations and then tested in terms of conclusions drawn from them formulated as testable hypotheses.

Pete said...

Lord Keynes:

"The natural rate of interest just refers to the aggregate collection of interest rates. Hayek did not actually believe the free market would have one uniform rate of interest on all loans"

What we have here is clear proof that engaging with Pete/Major_Freedom is a complete waste of time.

Yes, it is a waste of time to try and convince me of your falsehoods.

This guy is a shameless liar. He just re-writes at will what other Austrians think.

You're a liar. You lie so much you don't even know what the truth is.

"As far as ontology goes, there only EXISTS individual humans. There is no other human reality apart from individual humans."

Yeah, idiot, we'll familiar with nominalism, as one possible defensible philosophical position.

No, you stupid moron, not everyone recognizes the ontological reality of methodological individualism. Methodological individual is not merely one possible defensible philosophical position. It is the only non-contradictory philosophical position.

On perfectly defensible alternative ontological theories, "exist" need not refer to concrete particulars only.

You mean on imperfect, indefensible, internally inconsistent alternative theories.

In fact, throughout history one major view in ontology has been that abstract entities can also be said to have existence: e.g., number can exist and so can aggregate entities.

Fallacy of tradition. You might as well say that because all throughout history people believed in God, that God is real.

There is no problem with saying that the set of all natural numbers from 1 to 100 exists, on a moderate realist ontology.

"Moderate" is codespeak for my belief is untenable so I have to qualify it out of concreteness so as to pretend it is defensible.

"They are anathema to positivism, not to science. Mathematics is anathema to positivism"

Pure maths is a perfect example of imaginary systems.

You added "pure" so as to evade the argument at hand. Nobody said "pure" math. I said mathematics. Applied mathematics is not imaginary at all. As Kant showed, it is grounded in repetition, which is a sub-branch of praxis.

A great deal of pure mathematics has no application or relevance to the real world whatsoever, because it does not describe anything in the real world.

That precisely applies to Keynesianism.

A perfectly analogy with Austrian economics, which is a set of theories flawed by false assumptions and unsound arguments, with no relevance to the real world.

Haha, you have not shown any false assumptions. The action axiom is not flawed. Any attempt to refute it, presupposes its validity. It is Keynesianism that has no relevance to the real world market. Keynesianism is nothing but an ex post justification for state violence, in the form of violence backed monopoly money production and violence backed spending that results.