Re: The Aggregate Supply Function (fwd)

["Alan G. Isaac" <aisaac@xxxxxxxxxxxx>]

---------- Forwarded message ----------
   From: Paul Davidson <pdavidson@xxxxxxx>
   Subject: Re: The Aggregate Supply Function

> On Fri, 31 Aug 2001, Gunnar Tómasson wrote:
>> And what constitutes "normal times"?
>> For econometricians, "times" are "normal" when projection of past trends
>> happens to hit close to future trends.
>> And when it does not, the "times" are "abnormal".

At 12:14 PM 09/01/2001 -0400, Alan Isaac wrote:
> And they are *normal* because that is what *usually* happens; enough
> to be useful.  It is amazing that your foundationalist leanings
> obscure this obvious fact from you, when you are forced to rely on it
> pragmatically all the time just in living your life.

Or as Keynes (GT, p. 151)  noted in explaining the hourly reevaluations on
the stock market; "In practice we have tacitly agreed, as a rule, to fall
back on what is, in truth, a CONVENTION. The essence of this convention --
though it does not, of course, work out quite so simply -- lies in assuming
that the exiting state of affairs will continue indefinitely, except in so
far as we  have specific reasons to expect a change.  This does not mean
that we really believe that the existing state of affairs will continue
indefinitely. We know from extensive experience that this is most unlikely".

This description seems quite applicable to Alan's "normal times".

The problem that Alan does not seem to understand is that econometricans
believe (at least they use to) that their econometric relations would be
the normal for the entire future!  Recently with the concept of
"hysteresis" , even that idea seems silly -- so what are we left
with?  Unless we think something will change, we assume nothing will
change--- does not take high-tech econometrics to "prove" that.

At 12:14 PM 09/01/2001 -0400, Alan Isaac wrote:
> The commitment
> to perceiving others (in your case, economists) as radically misguided
> and stupid is preventing you from seeing the obvious: they are
> behaving like everyone else, including you, in dealing with the world
> they encounter.  When you drive, you make countless pragmatic
> judgments that are without foundation but which are useful in getting
> you from place to place.  Of course, sometimes there are terrible
> accidents.

But it is the accidents that policy is (should be) designed to prevent!
Using "normal times" econometrics does not help us to understand what
causes such accidents if the sample is always drawn from "normal times"--
and if so of the data is drawn from abnormal times-- then the sample is
being drawn from two different universes.

At 12:14 PM 09/01/2001 -0400, Alan Isaac wrote:
>   Sensible people try to avoid these by improving their
> judgments, using the available tools.

But what is the tool for if it is usable only in "normal times". and we al
recognize the ephemeral possibilities of normal times?

Paul

Paul Davidson
Holly Chair of Excellence in Political Economy
Editor, JOURNAL OF POST KEYNESIAN ECONOMICS [JPKE]
Economics Department -- 523 SMC
University of Tennessee
Knoxville, Tennessee 37996-0550
email: Pdavidson@xxxxxxx;   phone: (865)974-4221;    fax: (865) 974-4601
home phone:(865) 573-9160
http://econ.bus.utk.edu/Davidson.html