nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2010‒03‒28
two papers chosen by
Karl Petrick
University of the West Indies

  1. WARNING: Physics Envy May Be Hazardous To Your Wealth! By Andrew W. Lo; Mark T. Mueller
  2. The Inheritance of Gregory Clark By McCloskey, Deirdre Nansen

  1. By: Andrew W. Lo; Mark T. Mueller
    Abstract: The quantitative aspirations of economists and financial analysts have for many years been based on the belief that it should be possible to build models of economic systems - and financial markets in particular - that are as predictive as those in physics. While this perspective has led to a number of important breakthroughs in economics, "physics envy" has also created a false sense of mathematical precision in some cases. We speculate on the origins of physics envy, and then describe an alternate perspective of economic behavior based on a new taxonomy of uncertainty. We illustrate the relevance of this taxonomy with two concrete examples: the classical harmonic oscillator with some new twists that make physics look more like economics, and a quantitative equity market-neutral strategy. We conclude by offering a new interpretation of tail events, proposing an "uncertainty checklist" with which our taxonomy can be implemented, and considering the role that quants played in the current financial crisis.
    Date: 2010–03
    URL: http://d.repec.org/n?u=RePEc:arx:papers:1003.2688&r=pke
  2. By: McCloskey, Deirdre Nansen
    Abstract: An extreme materialist hypothesis explaining the Industrial Revolution would be simply genetic. Gregory Clark asserts such a theory of sociobiological inheritance in his Farewell to Alms (2007). Rich people proliferated in England, Clark argues, and by a social Darwinian struggle the poor and incompetent died out, leaving a master race of Englishmen with the bourgeois values to conquer the world. Clark will have no truck with ideas as causes, adopting a materialist (and as he believes is implied by materialism a quantitative) theory of truth. His method, that is, follows Marx in historical materialism, as many scholars did 1890 to 1980. But he does not follow through on his promise to show his argument quantitatively. The argument fails, on many grounds. For one thing, non-English people succeeded, as for instance the Chinese now are succeeding. And such people have always done fine in a bourgeois country. For another, Clark does not show that his inheritance mechanism has the quantitative oomph to change people generally into bourgeois, nor does he show that bourgeois habits of working hard mattered, or that bourgeois values caused innovation. What made for success in 1500 is not obviously the same as what made for innovation in 1800. And in the modern world of literacy such values are not transmitted down families, but across families. Literal inheritance anyway dissipates in reversion to the mean. What mattered in modern economic growth was not a doubtfully measured change in the inherited abilities of English people. What mattered was a radical change 1600-1776, “measurable” in every play and pamphlet, in what English people wanted, paid for, revalued.
    Keywords: gregory clark; economic history; industrial revolution; sociobiological inheritance
    JEL: N01 N0 N34
    Date: 2009–07
    URL: http://d.repec.org/n?u=RePEc:pra:mprapa:21326&r=pke

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