[al452]

The reason people build those models with those assumptions isn't some great conspiracy, it's merely because under those assumptions it's actually feasible to build models. Building working mathematical models with imperfect information and imperfect competition and so on is a hell of a lot harder, mostly we don't know how to do it. Conspiracy theory is intellectually lazy.

[js8]

> merely because under those assumptions it's actually feasible to build models

I think it's a really bad excuse in age of computer modelling and when we have mathematical tools to deal with dynamical systems.

[notahacker]

Not really. Computers have been used in economics for decades and tradeoffs between number of assumptions made and the tractability of their effects still exists if you have a machine doing the grunt work.

I mean, "rational expectations" is nothing to do with the relative simplicity of the mathematics (the models it largely replaced were worked out with pen and paper) and everything to do with the argument that economic models shouldn't rely on people making a particular type of systematic error to show a desired outcome (e.g. if policy changes required economic actors to ignore the implications of the policy change to work, they probably wouldn't actually work that well). Essentially it's the absence of an assumption about human behaviour, and there's entire classes of economic models devoted to saying "even if people on average anticipate the future and economies function perfectly smoothly, simply introducing X into the model means that you still get recessions and still get a benefit from a policy response to it", which is a more powerful argument than "if I've calibrated all these parameters and specified all these functions about all these hundreds of different types of agents' planning correctly, this policy will work", especially if you're trying to disprove arguments that the economy will sort itself out eventually.

That doesn't mean there isn't a place for complex computational models and even throwing data at ML algorithms to see what sticks, or that a general equilibrium model to predict actual changes in an economy isn't fairly unlikely yield accurate results over the long term, but they're performing an entirely different function from reasoning that X will [not] affect Y even if or only if all else is held constant or assumed to respond logically.

[js8]

I disagree - by coincidence, the Blatt's book I mentioned elsewhere has a nice model of decision-making under uncertainty that is different from rational expectations. It's not more complicated.

Same goes for Keen's models, they are dynamic and pretty simple. He even writes in his books, to paraphrase, "equilibrium is feasible" was a good excuse at the beginning of 20th century, when Marshall came up with supply/demand model, but it's not today, when we can actually analyze dynamical systems mathematically.

[obastani]

The GP is saying that rational expectations is used not because it's simple, but because it makes the weakest assumptions about human behavior. However, I'm not sure this is entirely accurate since if some agents deviate from the equilibrium, there is no reason you couldn't end up with totally different outcomes (either better or worse).

[js8]

> but because it makes the weakest assumptions about human behavior

My memory on that is little hazy (it's been maybe 15 years ago I read about it), but as I remember this was the case about Blatt's model as well. And IIRC it's based on earlier ideas by Keynes (uncertainty is a different thing than risk).

I also recall nice idea from Paul Ormerod (but it could have been somebody else or folklore) who had an interesting model of economic agents - do either one of the 3 things:

- the thing that you always did

- the thing that others are doing

- another thing that you think might work

This also leads to an interesting class of models (different from rational expectations) and it's not making too much assumptions about humans.

Again, this shows that Blatt and Keen (and other post-keynesians) are woefully underappreciated in economics.

[notahacker]

I'm unfamiliar with Blatt's book (sounds interesting) but assumptions about humans attempting to predict the future don't really get any simpler than human misjudgements of the future don't follow a pattern an economist can predict (and to a lesser extent, companies try to make more profit where possible is also a pretty weak assumption). Especially when the whole reason this came to be popular was the analytical tearing apart of theories which used reasonable sounding alternatives people will base their expectations on what happened last time by pointing out that some people - even a minority - would make enormous amounts of money if chose to behave differently from how the economist said people would would behave, or that "I would like my wages to be the same as last year" would be a really stupid thing for workers to bargain for if the government has stated they're trying to boost the economy by purposely creating inflation. The other side of that argument is there are some conclusions drawn from some rational expectations models which are a bit too dependent on the assumption that people [on average] won't make prediction errors at all.

I've got plenty of time for the post-Keynesians but most of them (particularly in the Keen Godley/Lavoie Social Accounting Matrix style) really aren't doing more complicated mathematics so much as choosing to have models far more sensitive to specified lag structures and/or using different assumptions about human behaviour (The flip side is that Keen's hypersensitive-to-how-it's-specified banking system is better in many respects than a macro model with no banking system or credit constraints) For much of the last century the Cambridge post Keynesians distinguished themselves by doing a lot less modelling than their neoclassical counterparts.

[xiaoma]

We have the models, but economists have been surprisingly resistant to mainstream mathematical tools and often treat fields as scalars. A single consumer price index makes about as much sense as a single temperature measurement for an entire country.

IIRC prominent economists actively ridiculed the idea of a "Manhattan Project" a few years back. The idea was to pull in experts from mathematics, physics, biology and computer science to invigorate the field via cross-pollination like occurred with mathematics and physics in the 70s and economists did not like it.

Update: apparently it did lead to a conference, at least, and Nassim Taleb was one of the participants.

[mypalmike]

A computer model is a model. There's no escaping the fact that models are built on simplifications (a.k.a assumptions).

[sideshowb]

Not necessarily hard. For example, perfect monopoly is as simple a model as perfect competition. Often it is closer to the truth. So why is it not used more?

[icebraining]

I took a basic Econ 101 class and they did model monopolies. Where are they not used?

[sideshowb]

Every time somebody claims that raising minimum wage inevitably raises unemployment. Sure it does under assumptions of perfect competition but most labour markets are closer to monopsomy in this respect and the evidence is very mixed.

[crdoconnor]

It's not exactly a conspiracy, stuff like this happens in the open: https://www.theguardian.com/world/2014/sep/12/koch-brothers-...

I'd characterize this behavior as "rational actors (economists) in a dysfunctional environment responding rationally to incentives, matching demand with a supply of politically useful economic models for wealthy special interests..."

The ultimate outcome of this is Greenspan telling us "nobody saw the financial crisis coming" because economists in policymaking circles drank their own koolaid and almost entirely assumed away the existence of private debt in their models.

[mentallimits]

you have one example of wealthy donors trying to influence hiring at a university. this does not support the rather crazy theory that the overall direction of research is driven by special interests...

[littlestymaar]

Ever heard about the history of the Swedish National Bank's Prize in Economic Sciences in Memory of Alfred Nobel ?

[crdoconnor]

...and they did the same thing at the University of Utah and Arizona State.

Then there's the matter of where the better paid economist jobs are (think tanks like CATO, AEI, ALEC, Heritage, etc. tasked with formulating pro-corporate policy).

Is your argument that economists do not respond to incentives or that these incentives do not exist?

[notahacker]

The Koch brothers haven't exactly hidden their agenda and willingness to promote it, but it's also pretty obvious that (i) most of the most-criticised standard economic axioms existed long before the Koch brothers started spending (ii) mainstream academic economics (even right-wing mainstream economics) is openly and increasingly disdainful of concepts like gold standards the Kochs have thrown a lot of money at promoting and (iii) there are a lot of other research funding sources from tenured professorships allowing people to write what they want to every right-winger's favourite bogeyman Soros throwing an awful lot of money at heterodox centre-left economics

Probably also (iv) if you're an economist sufficiently motivated by financial incentives to change your entire worldview to suit, you go and work for a bank which pays a lot more than a state university or Koch-bros funded think tank.

So I'd struggle to see incentives being the main story behind popular economic theories

[crdoconnor]

>it's also pretty obvious that (i) most of the most-criticised standard economic axioms existed long before the Koch brothers started spending

Except this isn't about who invented the false premises modern economic thought is based upon, it's about who perpetuates them and why.

>mainstream academic economics (even right-wing mainstream economics) is openly and increasingly disdainful of concepts like gold standards

I wasn't even aware the Koch brothers were pro-gold standard. It isn't mentioned here: https://en.wikipedia.org/wiki/Political_activities_of_the_Ko...

A central part of their agenda it is not.

>every right-winger's favourite bogeyman Soros throwing an awful lot of money at heterodox centre-left economics

Yes, he set up a think tank with noted "leftists" like Paul Volcker and David Rockefeller.

The front page on their website right now is an article downplaying inequality. Karl Marx would be so proud.

>Probably also (iv) if you're an economist sufficiently motivated by financial incentives to change your entire worldview to suit

I doubt there are many of those. If your worldview is so divergent from the standard corporatist neoliberal worldview that pervades the profession you probably won't even go into it in the first place. I have a couple of friends who bailed for this reason at postgrad level.

Nonetheless Upton Sinclair's adage that it is difficult to get a man to understand something, when his salary depends on his not understanding it is pretty relevant...

Note that one of the most cited & praised economists in this thread (keen) for his (actually) heterodox approach was actually made redundant from his university not that long ago.

>you go and work for a bank which pays a lot more

Obviously. It's a simple jump from state university professor to a trader raking in $1 mil bonuses.

[notahacker]

Seriously, your post would have read a lot better if you'd trimmed it to the Upton Sinclair quote...

> Except this isn't about who invented the false premises modern economic thought is based upon, it's about who perpetuates them and why.

Right wing academics at predominantly state-funded academic institutions have obviously promoted a particular economic worldview for the past century and a half because they want to be made redundant, not because they believe in them? I'm not convinced everybody who doesn't agree with your views on the economy is only in it for the money, especially the most influential economists on the right who became recognised and even died long before the Kochs started spraying money around.

> I wasn't even aware the Koch brothers were pro-gold standard.

That says a lot about how effective they are at influencing economics... The Kochs fund the Mercatus Center, pretty much the only academic economics department that takes gold standards seriously. Their much-favoured CATO institute was founded by Murray Rothbard.

> The front page on their website right now is an article downplaying inequality. Karl Marx would be so proud.

The front page on their website carries articles about elite financial networks running the world, disappearing middle classes and where modern macroeconomics went wrong (and yes, an argument for spending tax dollars on poverty alleviation rather than just looking at inequality stats). Obviously this is all part of the conspiracy to promote mainstream economics and the interests of the rich. And Stiglitz and Volcker both taking funding from the same source is a clear sign that economic thinking is entirely dictated by where the money comes from.

As for Marx, it's lucky that literally no economist has ever written anything complimentary about him, although I suppose if they did it must have been for Russian funding.

> Note that one of the most cited & praised economists in this thread (keen) for his (actually) heterodox approach was actually made redundant from his university not that long ago.

Keen's version of events is that the university shut down the faculty because his neoclassical colleagues weren't popular enough and he took voluntary redundancy rather than be a professor on a business course...

> Obviously. It's a simple jump from state university professor to a trader raking in $1 mil bonuses.

Obviously state university economics departments are full of professors who would sacrifice their beliefs for fast career progression and high salaries who just couldn't find anyone else that would hire an economics grad.