Economic Models

 This post by Philip Pilkington concludes with this statement:

This is because models like the ISLM are classical or neoclassical constructions. (Remember the title of Hicks’ original paper introducing the model…). In truth these models are built on the back of a seriously flawed theoretical edifice. And that, I think, is the problem with pretty much every mainstream model: they are not intellectual constructions that promote thought; they are more akin to cages built out of the remnants of long dead assumptions that are used to entrap the minds of those they are handed to. It is only those of highly independent mind that can wrench themselves from such conceptions once taught them.
It is worth quoting Keynes in this regard, who knew well the dangers of leaving rotten buildings standing:

The difficulty lies, not in the new ideas, but in escaping from the old ones, which ramify, for those brought up as most of us have been, into every corner of our minds.

Since Keynes, most economists have stopped trying to escape the old ideas. The MMTers, on the other hand, together with their post-Keynesian colleagues, have done nothing less than construct a theoretical edifice that quite literally shakes off the old ideas completely. And that is what makes them seem so strange to their colleagues.

Yes, of course!  Confine the argument to the parameters of a given box and how much of a chance is there of resolving anything if the premise is faulty?  There is no breakout of the boundries of discussion.  The model does not allow it.

I have a problem with the whole thing that economists call a model.  ISLM is a model.  You have to talk econo-speak to understand it!  

At least Philip explains it as follows at the beginning of his his discussion implying that non-economists are welcome to understanding the problem and what is being discussed.

The starting point, as it so often is, is the old ISLM model. IS = “Investment-Savings”, LM = Liquidity – Money Supply”. MMTers hold that the whole model is faulty. It doesn’t take account of a labour market and there are serious problems with having a downward sloping IS-curve. Dean and I only discussed the LM-curve in any detail, however, so we will stick to that for now.
 

The crux of the problem involving the model is that MMT  Modern Money Theory looks at at the  ISLM  problem domain as a challenge to show how the real world works.  While the old model of ISLM problem domain explanation was based on some apparently ideological idea of how things should work based on given, defined, model factors, parameters and contraints all of which are contained within the box.  Therefore: a neatly defined sub universe based on an neatly defined bigger universe that is likewise protected from the variables of reality.

Economic models are equations.  They are algorithms where numbers are plugged in to get computed results.  These are math models.  They relate well to the real world when that real word is the big box of the physical world with time space boundries as well as all the derivative boundries of our physical world based on the fundamental relationship of time and space.

Our conceptual universe, the one we create in our head, is not bound by time or space.  What is consciousness?  There you have it.  It is anything we choose to create without limits, the only limit being what we can conceive of.

A math model does not work to express our conceptual world, we are always conceiving things outside the box of the model.  The model can only be a snapshot of a point in time.  To the extent that we continue to think and do in the same way it has predictive value.  So does the definition of insanity.

A real model, not just a math one applicable to the hard sciences, must give full freedom, or at least freedom bounded only by the latitude of human behavior. to people to freely and independently choose how they wish to implement their own methods, their own acts, in response to the external messages they receive.  When we know how each person chooses to act in response to messages relating to money then we will be able to model the macro economic system.

Money is a social media decision making tool.  When we know how every individual uses that tool to make a decision, or no decision, then we will have not just a model but a real time view of what money does.  In order to see what money does we must define what money is.

When all money is defined as the sum total of all uniquely serialized digital record dollars in the denomination of one recorded on a central server where only the identity of the owning entity changes with transactions and we know the nature of the transaction then we will know what money does.  Based on what money is and  does, presumptions of why decisions were made by entities to do what it does can more accurately be determeined.