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Why Economic Models Neglect Energy, and Why That’s a Problem
Why Economic Models Neglect Energy, and Why That’s a Problem As the Fed raises interest rates to fight inflation, the economic models they use include energy as a small part of the overall picture. Is that model flawed? Jed Dorsheimer, head of Group Head of Energy & Sustainability at William Blair and former advisor on […]
Importance of Model Building in Economics
IMPORTANCE OF MODEL BUILDING IN ECONOMICS In the natural sciences, a laboratory experiment can isolate various elements and their movements. There is no equivalent in the discipline of economics. The employment of model building is an attempt to produce a laboratory where controlled experiments can be conducted. The idea of having such a laboratory is […]
Why Models Fail
Why Models Fail QUESTION: Mr. Armstrong; Did AIG use the Black-Scholes Model and that is what created the crisis again in 2007? WJ ANSWER: No. It’s my understanding that AIG developed different models, they called a “Value-at-Risk Model,” (VaR) which used a binomial-expansion-technique to start valuing their positions. I believe the original model was developed at Moody’s. However, […]
Why Oil Prices Can’t Bounce Very High; Expect Deflation Instead
Why Oil Prices Can’t Bounce Very High; Expect Deflation Instead Economists have given us a model of how prices and quantities of goods are supposed to interact. Figure 1. From Wikipedia: The price P of a product is determined by a balance between production at each price (supply S) and the desires of those with purchasing […]
“Deeply-Flawed Western Economic Models” Are Undermining The Worst Global Recovery In History
“Deeply-Flawed Western Economic Models” Are Undermining The Worst Global Recovery In History With stocks at record highs, seemingly proving that everything must be awesome in the world, Chris Watling, chief executive of Longview Economics, shocked CNBC on Friday by reminding them that “this is undoubtedly the lowest quality economic recovery we have seen globally… full […]
Feudalism and the “Algorithmic Economy”
Feudalism and the “Algorithmic Economy” Using AI and algorithms to return to feudal economic models For the sake of this essay, feudal economic models imply the idea that a very tiny segment of the society is fantastically rich while the bulk of society works hard, has few choices about the work they do, and tend to […]
Why Energy-Economy Models Produce Overly Optimistic Indications
Why Energy-Economy Models Produce Overly Optimistic Indications I was asked to give a talk to a committee of actuaries who are concerned about modeling the financial future of programs, such as pension plans, given the energy problems that are often discussed. They (and the consultants that they hire) have been using an approach that puts problems […]
The most important and misleading assumption in the world
THE MOST IMPORTANT AND MISLEADING ASSUMPTION IN THE WORLD Editor’s note: This is the second of a two-part series by the author. Part one: “Macro and climate economics: It’s time to talk about the ‘elephant in the room’.“ Part one of this blog post explained how macroeconomic models are flawed in a fundamental way. These models are […]
Why the Theory of Money Does Not Work
Why the Theory of Money Does Not Work QUESTION: We see that the United States can borrow all it needs at minimal cost and we also see that we’re getting a big boost from falling energy/commodity prices, to levels we have not seen in some 15 years my “economic model” — which is not a computer […]
Garbage In Garbage Out Economics
Garbage In Garbage Out Economics “On two occasions I have been asked, “Pray, Mr. Babbage, if you put into the machine the wrong figures, will the right answers come out? …I am not able rightly to apprehend the kind of confusion of ideas that could provoke such a question.” – Charles Babbage, Passages from the […]
Is the slowdown in productivity growth a result of energy costs?
Is the slowdown in productivity growth a result of energy costs? Slowing productivity growth in the United States has been in the news in recent months. It has become a concern to policymakers because they believe it is one of the primary contributors to a middle-class economic squeeze according to the annual report of the White […]
Steve Keen: The Deliberate Blindness Of Our Central Planners
Steve Keen: The Deliberate Blindness Of Our Central Planners Choosing to ignore the largest risks The models we use for decision making determine the outcomes we experience. So, if our models are faulty or flawed, we make bad decisions and suffer bad outcomes. Professor, author and deflationist Steve Keen joins us this week to discuss […]
