October 2011

Roger Guesnerie: A Response to John Kay

INET published a paper, written by John Kay, that deals with the relationship between economics and the world we live in. The Map Is Not the Territory: An Essay on the State of Economics spells out methodological critiques of economic theory in general, and of DSGE models and rational expectations in particular.

INET forwarded Kay's paper to a handful of economists and invited them to respond. Here we offer a perspective by Roger Guesnerie, Professor of Economic Theory and Social Organization and Chairman of the Board of the Paris School of Economics.

Guesnerie, as Michael Woodford before him, takes issue with rational expectations. To Guesnerie, rational expectations is a hypothesis, but “dominant economic discussion and practice have most often transformed the Hypothesis into an unavoidable and supposedly uncontroversial modeling axiom.” The optimism embedded in the efficient market hypothesis, Guesnerie continues, “has been one of the main sources of the recent turmoil: it has opened the floodgates to overconfidence, and weakened regulatory forces everywhere.” Read more

William Lazonick: How Government Helps, and Wall Street Hurts, the Innovative Enterprise

30 Ways to Be an Economist is INET's grantee interview series - INET grantees talk about how they do their work, and how they came to be doing it. This week: William Lazonick - How Government Helps, and Wall Street Hurts, the Innovative Enterprise. Read more

William Lazonick - How Government Helps, and Wall Street Hurts, the Innovative Enterprise

About the Interview

Innovation drives economic growth and welfare, and the industrial corporation drives innovation, says William Lazonick. But just how do corporations innovate? The key idea is commitment. People with knowledge of and experience in particular industries commit to a business model that ventures into unknown territory. The main problem is that modern financiers are not prepared to support commitment, and the modern executive pushes for stock buy-backs -- that is how Wall Street undermines innovation. Understanding how organization drives innovation -- this is new economic thinking. Read more

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Paul Davidson: A Response to John Kay

INET published a paper, written by John Kay, that deals with the relationship between economics and the world we live in. The Map Is Not the Territory: An Essay on the State of Economics spells out methodological critiques of economic theory in general, and of DSGE models and rational expectations in particular. Read more

Michael Woodford: A Response to John Kay

Yesterday, INET published a paper, written by John Kay, that deals with the relationship between economics and the world we live in. The Map Is Not the Territory: An Essay on the State of Economics spells out methodological critiques of economic theory in general, and of DSGE models and rational expectations in particular. Read more

Harald Uhlig: Economics and Reality

Earlier today, INET published a paper, written by John Kay, that deals with the relationship between economics and the world we live in. The Map Is Not the Territory: An Essay on the State of Economics spells out methodological critiques of economic theory in general, and of DSGE models and rational expectations in particular.

INET forwarded Kay's paper to a handful economists and invited them to respond. Here we offer a perspective by Harald Uhlig, Chairman of the Economics Department of the University of Chicago, who sent us his recent working paper: Read more

John Kay: The Map Is Not the Territory: An Essay on the State of Economics

Today, INET presents you a paper that deals with the relationship between economics and the world we live in. John Kay spells out methodological critiques of economic theory in general, and of DSGE models and rational expectations in particular. The paper builds on two articles that Kay, Fellow at St. John’s College of Oxford University and Visiting Professor at the London School of Economics, recently published in the Financial Times (scroll down to find the links). It is concerned with the relation of quantitative models to the world in which we live, and with evergreens such as the implications of unrealistic assumptions in economic theory. Highly recommended reading. Read more

MEDIA MENTIONS: A psychoanalyst reviews "Minding the Markets"

INET awarded a grant to David Tuckett to develop a case for "emotional finance" in economics and finance theory. David's earlier research, based on extensive interviews with fund managers, is now published as a book: Minding the Markets: An Emotional Finance View of Financial Instability. Dr. Prudence L. Gourguechon, a psychoanalyist writing for the Huffington Post, has published a review: Read more

On the Playground: Did your teaching change in response to the crisis?

The kind of economics taught in graduate schools was the main contributor to the current crisis, claims Anatole Kaletsky - a statement that begs the question: Has economics teaching changed in response to the current crisis? "The Kids" asked a dozen economists in the halls of the Mount Washington Hotel in Bretton Woods, and we invite you to watch what they said.

The Teaching of Economics Read more