Re: The Problem with Economics (was: Re: LVT: a discussion with a center/left economist)

Macroeconomics and economics in general has been the subject of a great
deal of criticism right from Marx. A recent book on this is The
Rhetoric of Economics by Deidre McCloskey. It's a great book and I
highly recommend it. Another book is by Tony Lawson but I can't
remember the name of the book. It's on critical realism as a new way
forward for economics.

I tried doing new models that took into account of more factors that
shape the economy but I only found that the system is inherently
non-deterministic. A key thing missed by all economists, including
Keynes is the role assets markets play in determining macroeconomic
performance. The size of asset markets, many times that of GDP, make a
boom or bust in asset markets crucial for GDP growth.

The problem is that asset markets are mimetic. They are the subject of
a system where people copy demand for assets. This changes prices and
therefore there can be major and sustained fluctuations.

Another aspect is the paradigm of the economy. This is the general
system that determines all macroeconomic variables. This can give
general historical responses to the question, why did an economy grow,
stagnate or fall into recession but cannot give upto date predictions.


I have seen some work on chaos theory in economics but having done
models that rely on chaos I believe that this does not seem a very
fruitful area of enquiry.

The fundamental problem is that the human brain works on many inputs to
generate a decision. These inputs reach a level all together which
releases the decision message. This is not deterministic since many
different inputs could lead to the same or different outcome. In other
words the human brain cannot be modelled easily in the sense of
regressions on data since there would be errors due to there being
different models of behaviour operating at the same time.

Perhaps I haven't explained that well. Please ask if you want
clarification.

.

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