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Re: Fw: Epistemology & Economics

At 02:21 PM 4/12/00 , you wrote: 
The trouble
with liquidity is that it is never around when you really need it, like bank
loans.



That , of course, is the essence of Keynes GT, my PKMT book, and ,
hopefully, if I can ever convince other Post Keynesians, should be the
essence of Post Keynesian theory.

The global liquidity drought in 1998 was basically a panic in slow motion.
In this age of globalized finance, geographic diversification offers little
protection. The herd instinct always leads to widespread carnage, destroying
long-term or fundamental value.



Unfortuntely there is no such thing as long term fundamental value in a
nonergodic world -- unless and until the liquidity monster is kept in its
cage-- at which point long term fundamentals are whatever the market , on
average, thinks it should be. That, of course, leads to a bootstrap theory
of asset pricing -- one that makes orthodox and other economists, who, as
Mirouski noted, have physics envy , uncomfortable.

A case can be made that the LTCM disaster was attributable not to science
but to
too little science, as I said earlier.



The problem is that Scholes, Merton, etc, want to emulate the ergodic
science of 19ty and early 20 th century physics.  In a nonergodic system
science means only "explanation" and eschews statistically reliable
quantitative predictions.

Unfortunately, too many economists, including some on the pktlist, use
terms such as "uncertainty" and "nonergodic"  to dress up their models,
while still maintaining that they have the magic to make statistically
reliable prediction.  I can understand why Ph.D. hired by Wall Street firs,
banks, etc. make such claims -- in order to be rewarded by the invisible
hand!!  But why should academics do so ???


Some other quant firms, unlike LTCM which played universal markets, are niche
players, and their models concentrate on specific markets, did quite well.
It is
the advantage of narrowing the boundaries, thus make the problem more
solvable.
There is a axiom that the increase of one dimension of any problem will
require
an exponential increase of resources to cope with it.


What a nice fable, but what ever happened to the other Wall Street homily
-- of spreading the risk and never putting all your eggs into one basket?


Paul


Henry C.K. Liu

Gunnar Tomasson wrote:

> Henry:
>
> You may be interested in the following.
>
> Gunnar
>
> ----- Original Message -----
> From: Gunnar Tomasson <tomasson@xxxxxxxx>
> To: David Gleicher <104201.2301@xxxxxxxxxxxxxx>
> Sent: Tuesday, April 11, 2000 12:13 PM
> Subject: Fw: Epistemology & Economics
>
> > David:
> >
> > For some reason, my answer to your message on 'Epistemology & Economics'
> > does not seem to have been forwarded through the PKT Forum.
> >
> > Do they exercise censorship with respect to the intellectual contents of
> > posts?
> >
> > In any case, here is my response.
> >
> > Gunnar
> >
> > ----- Original Message -----
> > From: Gunnar Tomasson <tomasson@xxxxxxxx>
> > To: <pkt@xxxxxxxxxxxxxxxx>
> > Sent: Monday, April 10, 2000 10:36 AM
> > Subject: Re: Epistemology & Economics
> >
> >
> > > David:
> > >
> > > Thanks for your comments.
> > >
> > > I read Feyerabend's book in the late 1970s.  My copy is now in storage,
> > but
> > > as best I recall he was right on the ball with respect to the central
> > point
> > > at issue - that talk of "method" is ex post facto "pretty-story"
> > > rationalization.
> > >
> > > Indeed, IF anyone wishes to contend otherwise, THEN they better be
> > prepared
> > > to take on and refute the view of the relationship between observation
> and
> > > theory held by (a) David Hume, (b) Albert Einstein, and - formally, at
> > > least, (c) Stephen Hawking.
> > >
> > > This is how Einstein put it in 1918:
> > >
> > > "The supreme task of the physicist is to arrive at those universal
> > > elementary laws from which the cosmos can be built up by pure
deduction.
> > > THERE IS NO LOGICAL PATH TO THESE LAWS; only intuition, resting on
> > > sympathetic understanding of experience, can reach them."
> > >
> > > Absent "logical path" between empirical observations and our
> > > conceptualization thereof, and talk of "method" - except, given the
role
> > of
> > > "intuition" in all this, possibly that of transcendental meditation! -
> is
> > > nonsense pure and simple.
> > >
> > > If all this be so, then here is a question for PKT econometricians, who
> > may
> > > agree with Paul Samuelson's claim in his Econometrica (July 1946)
> memorial
> > > piece on Keynes that the newly departed did not have the "technical
> > > knowledge" or words to that effect to know what he was criticizing when
> he
> > > dumped on Tinbergen's 1930s econometric studies for the League Of
> Nations:
> > >
> > > Absent "logical path" between the empirical observations that
> > > econometricians feed into their models and any would-be
> conceptualization
> > of
> > > associated theoretical aspects, in what sense, if any, can econometrics
> > rate
> > > as part of economic SCIENCE?
> > >
> > > In 'The Metaphysical Foundations of Modern Physical Science', Cornell
> > > philosopher E. A. Burtt summarized his conclusions with respect to
> > spurious
> > > claims to knowledge advanced by theoretical physicists as follows:
> > >
> > > "It has, no doubt, been worth the metaphysical barbarism of a few
> > centuries
> > > to possess modern science."
> > >
> > > In this respect, epistemological clarity is NOT of the essence in
> > physics -
> > > the essential stability of Nature's basic forms and their mode of
> > > interaction permits great operational advances to be achieved on the
> basis
> > > of the trial-and-error "method".
> > >
> > > Following Samuelson and Friedman, mainstream and monetarist orthodoxy
> and
> > > ALL econometrics are predicated on the MAKE-BELIEF that the like
> essential
> > > stability is an attribute of Man-made Economic Systems - including
those
> > of
> > > Asia and Russia and the post-Bretton Woods international financial
> system.
> > >
> > > Hence my conclusion that the principles of modern economic analysis
MUST
> > be
> > > rethought from the ground up or else, when the post-Bretton Woods
> > > international financial system hits the skids -as hit it will -
economic
> > > scholars will (a) not know what hit them, and (b) be clueless on how to
> > > reconstruct a stable system.
> > >
> > > Gunnar
> > >
> > >
> > > ----- Original Message -----
> > > From: David Gleicher <104201.2301@xxxxxxxxxxxxxx>
> > > To: POST-KEYNESIAN THOUGHT <pkt@xxxxxxxxxxxxxxxx>
> > > Cc: David Gleicher <104201.2301@xxxxxxxxxxxxxx>
> > > Sent: Saturday, April 08, 2000 3:24 PM
> > > Subject: Epistemology & Economics
> > >
> > >
> > > > Gunnar,
> > > >
> > > > You might want to read, if you haven't already, Feyerabend's Against
> > > > Method.  To summarize:  his thesis is that, indeed, science is
> > "primitive
> > > > and muddled".  Scientists historically have used all sorts of tricks
> > > > (methods) to make their arguments (prove their theories), and the
> pretty
> > > > story that scientists avail themselves of a privileged method for
> > deriving
> > > > truth directly from facts (observations) is just that:  a pretty
> story.
> > > >
> > > > DG
> > > >
> > > >
> > > >
> > > > DG
> > > >
> > > >
> > >
> >


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