Graph of the week: GINI index for 17 countries since WWII

 

RWER issue 54: Adam Kessler

Real-World Economics Review, issue 54
You may read the whole paper here:
http://www.paecon.net/PAEReview/issue54/Kessler54.pdf

Cognitive dissonance, the Global Financial Crisis and

the discipline of economics*

Adam Kessler   [Fairleigh Dickinson University, USA]

 Abstract

The global financial and economic crisis has produced a powerful shock to the worldview of an influential group of economists whom I call believers in laissez faire (BLF). I provide evidence which suggests that the BLF responded to this shock in a manner that can best be described as irrational, ill-considered and clearly erroneous. I consider the social-psychological concept cognitive dissonance as the best explanatory framework for understanding this response. Cognitive dissonance theory predicts that when real-world events “disconfirm” deeply-held beliefs this creates psychological discomfort in persons and they will respond by means of distortion and denial. I test the proposition that the BLF experienced cognitive dissonance through a survey in which I asked two groups of economists what their views were on 10 possible causes of the Great Recession. One group consisted of the signers of the notorious open letter circulated by the Cato Institute opposing President Obama’s stimulus program. (I consider members of this group to be self-proclaimed BLFs.) The second group consisted of a random sample of members of the American Economics Association.

RWER issue 54: Manifesto of the appalled economists

Real-World Economics Review, issue no 54
To read the whole manifesto go to  http://www.paecon.net/PAEReview/issue54/Manifesto54.pdf

Manifesto of the appalled economists

First signatories: Philippe Askenazy (CNRS, France) ; Thomas Coutrot (scientific council of ATTAC, France) ; André Orléan (CNRS, EHESS, president of the French Association for Political Economy) ; Henri Sterdyniak (OFCE, France).
English translation: Gilles Raveaud (Paris 8) and Dany Lang (Paris 13), September, 24^th, 2010. The translators are grateful to Edward Fullbrook (Real-World Economics Review).

You may sign the manifesto at
http://rwer.wordpress.com/2010/09/28/sign-manifesto-of-the-appalled-economists/

Crisis and debt in Europe: 10 pseudo “obvious facts”, 22 measures to drive the debate out of the dead end

Introduction

The world economic recovery, permitted by a massive injection of public spending into the economy (from the United States to China), is fragile but real. One continent lags behind, Europe. Finding again the path of growth is no longer its priority policy. Europe has embarked on another path: the fight against public deficits. 

Sign Manifesto of the appalled economists

This post is for people wishing to sign the Manifesto of the appalled economists.  If you have not already, you may read the manifesto at
http://www.paecon.net/PAEReview/issue54/Manifesto54.pdf

To sign the manifesto, click above on “Leave a comment” and give your first and last names, your profession, your country and, if you have one, your affiliation. If you wish your name to appear as a signatory of the manifesto in a book soon to be published, you must email these details to atterres@gmail.com

RWER issue 54: Steve Keen

Real-World Economics Review, issue 54
You may read the whole paper here:
http://www.paecon.net/PAEReview/issue54/Keen54.pdf

Deleveraging is America’s future

Steve Keen   [University of Western Sydney, Australia]

            The latest Flow of Funds release by the US Federal Reserve shows that the private sector is continuing to delever. However there are nuances in this process that to some extent explain why a recovery appeared feasible for a while.

            The aggregate data is unambiguous: the US economy is delevering in a way that it hasn’t done since the Great Depression, from debt levels that are the highest in its history. The aggregate private debt to GDP ratio is now 267%, versus the peak level of 298% achieved back in February 2009–an absolute fall of 31 points and a percentage fall of 10.3% from the peak. 

You may read the whole paper here:
http://www.paecon.net/PAEReview/issue54/Keen54.pdf

RWER issue 54: Korkut Alp Ertürk

Real-World Economics Review, issue 54
You may read the whole paper here:
http://www.paecon.net/PAEReview/issue54/Erturk54.pdf

Heterodox lessons from the Crisis

Korkut Alp Ertürk   [University of Utah, USA]]

Introduction

 The crisis had at least one important silver lining. It showed the sheer irrelevance of mainstream macroeconomic theory for understanding what caused the crisis and for policy guidance in its aftermath. For a theory based on the very premise that markets work efficiently at all times the crisis simply could not have happened, and the fact that it did was an anomaly too big to ignore. The few – most notably Paul Krugman among them – who have been trying to take stock seem to have provoked a defense of the beleaguered theory by some of its true believers. Yet, no real mainstream explanation of what has gone wrong has emerged and a few arguments that blame the government or the Fed for the crisis lack conviction. In this lacuna, there has been a hasty retreat to “crude” Keynesianism, yet it is too early to tell how much of a lasting influence that will have either. 

RWER issue 54: Lewis L Smith

Real-World Economics Review, issue 54
You may read the whole paper here:
http://www.paecon.net/PAEReview/issue54/Smith54.pdf

I regret to report that Lewis L Smith passed away the day before this paper was published. When it came to knowledge and understanding of the economics of oil and gas he was virtually peerless.  His reports on the energy industries have been a feature of this blog.  He will be greatly missed.
                                                                       The editor

The epistemology of economic decision making

Lewis L. Smith    [Energy Affairs Administration, Puerto Rico]

From knowledge to ignorance in four easy steps

To engage in a business, to undertake a project, to provide long-term financing or do anything “for the long haul”, takes one on a mental journey into a land we call “the future”. Initially, when we are contemplating the short run, the terrain looks familiar. But it becomes less and less so, the farther we look ahead and the more and more uncertainty and ignorance displace certainty and probability. This marked deterioration in our ability to anticipate and understand the future as our planning horizon advances, is the chief problem today of what may be called “the epistemology of economic decision making”.

RWER issue 54: John Duffield

Real-World Economics Review, issue 54
You may read the whole paper here: http://www.paecon.net/PAEReview/issue54/Duffield54.pdf

Ricardian “comparative advantage” is illusory

John Duffield  

Part 1

             The doctrine of “comparative advantage” attributed to David Ricardo remains a staple in the apologetics of corporate globalization:  If international trade only benefits rich and poor countries alike, its opponents are summarily indicted for plain misanthropy.  In the nearly two centuries since its appearance, the Ricardian doctrine has been criticized by both Right and Left of the politico-economic spectrum, but critical consensus still awaits a definitive refutation of Comparative Advantage on its own terms.  This essay presents just such a refutation.1

RWER issue 54: Mary Mellor

Real-World Economics Review, issue 54
You may read the whole paper here: http://www.paecon.net/PAEReview/issue54/Mellor54.pdf

Could the money system be the basis of a sufficiency economy?

Mary Mellor   [Northumbria University< UK] 

In Issue 53 of the real-world economics review Richard Smith called for ‘a practical, workable post-capitalist ecological economy, an economy by the people, for the people, that is geared to production for need, not for profit’ (2010:42).  He suggests economic theorists should ‘go back to the drawing board’ to re-frame how such an economy would operate. In my book The Future of Money I have explored whether the money system could be a possible mechanism for achieving a socially just, democratically administered, sufficiency economy (2010a).

RWER issue 54: Edward Fullbrook

Real-World Economics Review, issue 54
You may read the whole paper here: 
http://www.paecon.net/PAEReview/issue54/Fullbrook54.pdf

How to bring economics into the 3^rd millennium by 2020

Edward Fullbrook

Introduction

This paper argues four theses and outlines an action plan.

1.  The Global Financial Collapse has created a climate among the intelligentsia – left, right and centre – that strongly supports fundamental changes in economics as a discipline, but this climate is unlikely to have significant effect.
2.  Six basic and interconnected categories of institutions comprise the economics profession:

RWER issue 54: Comment: Merijn Knibbe

 real-world economics review, issue 54
To read the whole paper go to  
http://www.paecon.net/PAEReview/issue54/Knibbe54.pdf

Go forth and observe:
answer to Peter Radford’s Whither economics? What do we tell the students?

Merijn Knibbe   [Wageningen University, Netherlands]

‘Far from being disconnected from the market economy, poor households, including those living on less than one dollar a day, are deeply invested in financial transactions. Because these transactions are mostly informal, thus undocumented, they remain invisible to the one-time visitors and others who look at written records.

RWER issue 54: Comment: Herman Daly

Real-World Economics Revies, issue 54
http://www.paecon.net/PAEReview/issue54/Daly54.pdf

Comment

The operative word here is “somehow”

Herman Daly 

            Mr Smith, whose address is listed only as “USA”, (Richard Smith, “Beyond growth or beyond capitalism”, RWER issue no. 53, pp. 28-42) is unhappy with me for arguing for what he calls “steady state capitalism”.

Comment of the week: Redefining economics to redefine the economy

from Merijn Knibbe

A comment on Free e-book: “Britain’s Broken Economy – and how to mend it”

Redefining economics to redefine the economy

Once upon a time, economists like Milton Friedman, Gary Becker and Robert Lukas redefined economics with concepts like ‘Permanent Income’, ‘Human Capital’ and ‘Rational Expectations’. There might be some value in at least the first two of these concepts. But it is not just these individual concepts. These (and other) concepts are linked by three common denominators which makes them neo-classical: atomistic man, rational choice and efficient markets. 

The Terrible Tale of the TARP Two Years Later

from Dean Baker

Two years ago, the top honchos at the Fed, Treasury and the Wall Street banks were running around like Chicken Little warning that the world was about to end. This fear mongering, together with a big assist from the elite media (i.e. NPR, the Washington Post, the Wall Street Journal, etc.), earned the banks their $700 billion TARP blank check bailout. This money, along with even more valuable loans and loan guarantees from the Fed and FDIC, enabled them to survive the crisis they had created. As a result, the big banks are bigger and more profitable than ever. 

United States of Poverty

from David Ruccio

By the numbers:

• Approximately 45 million Americans were living in poverty in 2009.
• 2009 saw the largest single year increase in the U.S. poverty rate since the U.S. government began calculating poverty figures back in 1959.
• The U.S. poverty rate is now the third worst (above only Turkey and Mexico) among the developed nations tracked by the Organization for Economic Cooperation and Development. 

Free e-book: “Britain’s Broken Economy – and how to mend it”

This morning the New Political Economy Network published a free short e-book Britain’s Broken Economy – and how to mend it.  You can download it here http://www.lwbooks.co.uk/ebooks/BritainsBrokenEconomy.pdf

The Role of Government and the Foreclosure Crisis

fron Dean Baker

As we all know, there are two competing views on the proper role of government. On the one hand, we have those who believe that it is the government’s responsibility to redistribute as much income as possible upward to the richest people in the country. On the other hand, there are those who believe that government should promote a strong economy that serves the vast majority of the population.

Adherents of the former group in both political parties have been firmly in control of government in recent decades. This comes out very clearly in the treatment of the foreclosure crisis.  

5 graphs on income inequality and the Great Recession

The report,” Income inequality and the Great Recession released last week by the U.S. Congress Joint Economic Committee begins:   

Income inequality has worsened in the U.S.

 Over the past three decades, income inequality has grown dramatically. After remaining relatively constant for much of the post‐war era, the share of total income accrued by the wealthiest 10 percent of households jumped from 34.6 percent in 1980 to 48.2 percent in 2008.  Much of the spike was driven by the share of total income accrued by the richest 1 percent of households.  

Graph of the week: The top 10% income share in USA, 1917 – 2008

from David Ruccio

Here’s a look at the incomes of the top 10 percent over the course of the past 100 years:

Discussion of the week: Patch, Knibbe and Radford on history vs. science and Krugman’s claim of originality

David Ruccio‘s post Economics: history vs. science  has generated extensive, give-and-take, quality discussion.  Here is a sample. 

Patch

September 11, 2010 at 10:17 am This whole “history vs. science” debate is nothing else than a distraction, wasting resources (time) of critical minds. “History” enters science at two stages: First you have to get a topic to write about and an idea of what to write – that’s where actual events and experience (“history”) will play the biggest role. Then you build a model (or theory or whatever). And stage 3 is that you check if your model fits the data (“history”). For step 2, you formally don’t need history, but in fact all three stages are intertwined. One extreme fraction of economists acts as if