William Paul Bell Queensland University Researcher

Why is mainstream economics not a social science but ideological mathematics?

Posts Tagged ‘economy

Termination of the history of economics courses contributing to the Global Financial Crisis (GFC)

leave a comment »

Helge Nome : The key to controlling humans does not lie in building fences around them, but to steer their minds away from unwanted questions.

http://wileyeconomicsfocus.files.wordpress.com/2011/01/brainwashing1.jpgThe elimination of courses in the history of economics has contributed to the Global Financial Crisis (GFC) by eroding institutional memory that allowed the dismantling of structures designed to prevent a re-occurrence of the Great Depression.  With little space in the curriculum for reflection on the past, graduate economists feed on a diet of neoclassical mathematics produces an extreme form of bounded rationality where history is both irrelevant and unknown, which makes for a very powerful ideology by steering minds away from unwanted questions. Read the rest of this entry »

Advertisements

G8 or G20 Protests and Computable General Equilibrium (CGE) modelling and its Dual Instability Problem

with 3 comments

This article discusses why Computable General Equilibrium (CGE) models are important to the G8 or G20 protests and why CGE models are unsuitable for policy analysis for the following two reasons, CGE lacking microfoundations and the dual instability problem.

First, why are CGE models important to the G8 or G20 protests?  An example of a global CGE model is the Global Trade Analysis Project (GTAP 2009) coordinated by the Centre for Global Trade Analysis, Department of Agricultural Economics, Purdue University.  GTAP (2009) claims that their model provides a common language for global economic analysis; they cite the use of GTAP in three of the five quantitative studies at the 1995 conference of the WTO’s Uruguay Round Agreement and in virtually all the quantitative work for the 1999 Millennium Round of Multilateral Trade.  This example indicates the credibility and perceived importance of CGE. Read the rest of this entry »

Capital Asset Pricing Model (CAPM) and Efficient Market Hypothesis (EMH) Contributing to the Global Financial Crisis (GFC)

leave a comment »

The Efficient Market Hypothesis (EMH) and Capital Asset Pricing Model (CAPM) are a framework and standard financial tool, respectively. Together, they provide a worldview for financiers and determine their decision-making in the financial markets.

Fama (1965; 1970) introduces the EMH in three market efficiency levels: a strong level where all relevant information regarding a stock is fully reflected in its price; a semi-strong level where all publicly available information is reflected in its price; and a weak level where current prices reflex all past history of the prices.

Fama and French (2004, p. 25) note that CAPM of William Sharpe (1964) and John Lintner (1965) marks the birth of asset pricing theory (resulting in a Nobel Prize for Sharpe in 1990). Four decades later, the CAPM is still widely used in applications, such as estimating the cost of capital for firms and evaluating the performance of managed portfolios. It is the centerpiece of MBA investment courses. Indeed, it is often the only asset pricing model taught in these courses. Read the rest of this entry »

Hormonal Male Traders producing a Momentum Effect contrary to the Efficient Market Hypothesis and Rational Choice

leave a comment »

Coates and Herbert (2008) study the role of the endocrine system in financial risk taking in a group of male traders in London. They find a positive relationship between a trader’s testosterone level and his daily Profit and Loss (P&L) and between his cortisol level and financial uncertainty, being measured by variance of economics returns and expected variance of the market. They note that rational choice is affected by the levels of the hormones. The more profits the trader made relative to his daily average the higher his testosterone became. Heightened testosterone increases a trader’s preference for risk. The process has a positive feedback, producing a financial variant of the “winner effect”. Additionally, short periods of high volatility increase a trader’s cortisol levels, which increase his motivation and his ability to focus, producing a euphoric feeling. However, prolonged period of elevated cortisol levels produce selective attention on mostly negative events and anxiety, reducing a trader’s preference for risk. Even if the number of traders is small, these hormonal effects could reinforce the momentum effect and cause markets to deviate from rational choice and the predictions of the Efficient Market Hypothesis (EMH). Read the rest of this entry »

EU acknowledges the failure of traditional economics to predict so adopts agent based modelling

leave a comment »

“This long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again.”
— John Maynard Keynes
A Tract on Monetary Reform (1923), 80.

Traditional economics has failed to predict the knock on effects of the financial crisis says the EU. The Eurace project is designed to remedy this failure, which uses an agent based modelling methodology as an alternative to the rational representative agent model that is a cornerstone of neoclassical economics.  The post Progressing from game theory to agent based modelling to simulate social emergence further discusses agent based modelling.   Read the rest of this entry »

GDP as a proxy for well being misses the mark

leave a comment »

The report prepared for the President of France, Nicolas Sarkozy, by two Nobel prize-winning economists, Joseph Stiglitz and Amartya Sen, has proposed ways of improving our measurement of economic performance and social progress (Gittens 2009).  GDP measures the production of an economy.  There are at least three problems with GDP as a proxy for well-being.  First, this proxy may hold for countries outside the OECD membership, where the basics such as shelter, food, access to medical services, and clean water and sanitations are lacking.  Second, what is measured becomes a policy target, in this case a misguided target in OECD countries.  Third, GDP becoming a target circumvents the important discussion of what are suitable measures for well-being.  Equating the level of GDP to the level of well-being reduces the study of economics to an optimisation problem, allowing neoclassical economics the pretence of being scientific.  My post ‘The G8 protests and the logically inconsistent foundations of neoclassical economics’ further discusses this scientific pretence.
556px-Inglehart-Values-Map-Big

Read the rest of this entry »

Comparing the role of government in self-control problems from behavioural and neoclassical economic perspectives

leave a comment »

In my previous post, titled ‘The G8 protests and the logically inconsistent foundations of neoclassical economics’ , I discussed how neoclassical economics is theoretically and philosophical flawed and how it has become entrenched in our political systems via university economics departments indoctrinating undergraduates with the neoclassical ideology. The current article discusses how the indoctrination produces a world view that causes confusion over the role of government and the concept of freedom of choice. Additionally, the current article provides an economic perspective on  ‘Weighing the blame for illness: biology versus personal responsibility‘ by Dena T. Smith. Read the rest of this entry »