Re: Bob Solow on the post keynesians 28, 94 00:12:04 am

[HERBERT GINTIS <gintis@xxxxxxxxxxxxxxx>]

Paul Davidson says,


>the ergodic axiom is a foundation of 19th century classical physics as well).
>But by 1985, Solow (AER Papers and Proceedings, May, p.328) wrote: " Economics
>is a social science.... To express the point more formally, much of what we
>observe cannot be treated as the realization of a stationary stochastic
>processwithout straining credulity". Since nonstationarity is a suggifcient
>condition for nonergodicity (but not a necessary condition), two years after
>Solow disparaged my claim that macroeconomics had to deal with nonergodic
>systems, he was claiming that economics was dealing with nonstationary and
>therefore nonergodic systems.

	Bob Solow is an old timer. If you ask a young economist
whether we should take it as an article of faith that macroeconomic
variables form stationary stochastic processes, you would get a number
of nay- sayers. Non-ergodicity is not radical at all. BTW, ergodicity
is not a feature of biological systems, in general, yet the tools of
probability theory apply quite well here.

	Another BTW, saying something is non-something is saying not
much. The question is what things ARE, not what they ARE NOT. I have
not seen some compelling alternative. My posting suggested that pk'ers
spend too much time criticizing the mainstream and quoting their
historical gurus (Keynes, Marx, who have you) than in producing
alternative explanatory theories.

>      One of "the best and the brightest" that Solow was refewrring to may
>have been Smuelson who insisted in 196os that the "ergodic hypothesis" was
>what made economics a "science" and "removed it from history". Does this
>suggest that Solow was pointing his finger at Samuelson for shunting economics
>down the wrong track?

	I agree with Samuelson. But this does not mean that the
ergodic hypothesis is true. There are places where it is not true
(there are MANY where is is quite reasonable, although perhaps
investment is not one of them). Economic theory must move on. What
'made it a science' in one period may be dropped in a future period.
This is normal scientific progress.

>...haven't we found the Achille's heel to orthodox economics?
>Can't we get all the heterodox people to rally around Keynes's alternative (as
>elaborated by some PKers) where nonergodicity is made the keystone of the
>theoretical analysis????

	Of course not! Non-something is simply everything else! Non-
ergodicity is everying non-ergodic. How can you rally around that!


>       Herb Gintis thinks that the nonergodicity critique is "correct", but
>there is nothing non-mainstream about this. Herb, if nonergodicity is correct
>for investment theory then it is impossible to use any existing market data to
>produce actuarial probabilities regarding expected future profit rates. Thus
>the mainstream theory of risk and uncertainty is not the same. If you read my
>JOURNAL OF ECONOMIC PERSPECTIVES (Winter 1991) paper, you will see where I use
>Savage's own development of Expected Utility Theory to show that Savage
>recognized that EUT is, as Savage wrote "is practical in suitably limited
>domains" and that actual "behavior of people is often at variance with the
>theory". In other words, EUT cannot describe actual behavior when decisions
>are made in nonergodic circumstances.

	I liked you article a lot, actually. I think the fact that
'mainstream economists' cannot produce good investment functions
indicates that non-ergodicity may be the problem. But most of
probability theory does not depend on ergodicity!!! I teach game
theory and microeconomics, and my students don't even know what the
word means! The issue arise in certain time series problems. They are
important problems, but they are not sufficiently central to economic
theory to warrant the 'us/them' stance taken by pk'ers IMHO.

>     When Gintis says there hasn't been significant new insights in pk in
>"recent years", I find that shocking. Has he been reading the minisymposiums
>in the JPKE on HYSTERESIS, on REFORMING THE WORLD'S PAYMENT MECHANISM, on THE

	I quit doing Marxism when I realized that I was spending all my
time defending the faith, and not producing new results. Marxism has
not IMHO produced anything interesting in many years. This is BOTTOM
LINE. I take the same approach to pke. Summarize in 300 words these
'new insights,' and why they are so anti-mainstream.

	I find the articles in JPKE too vague and suggestive for my
mentality. I like to build models and run them through their paces. I
like the models to be micro-founded, although as I suggested before,
people like Peter Skott who do models with macro variable such as
'confidence' and 'fragility' appear to me to be insightful.  This is
not a criticism, of course, since there are many different ways to do
economics.

	BTW, there is a good empirical piece on investment in Gerry
Epstein and my forthcoming edited book _Macroeconomics After the
Conservative Era_ (Cambridge, 1994 or 5), that it very favorable to
pk views on the role of expectations. It is by Chris Heye from MIT.

Regards,

Herb gintis@xxxxxxxxxxxxxxx