rwer-issue-61

Issue no. 61, 26 September 2012

You can download the whole issue as a pdf document by clicking   here

In this issue:

The optimal material threshold:
Toward an economics of sufficiency       2
Samuel Alexander    download pdf

The normative foundations of scarcity        22
Asad Zaman    download pdf

Degrowth, expensive oil, and the new economics of energy        40
Samuel Alexander    download pdf

Nash dynamics of the wealthy, powerful, and privileged:       52
America’s two-player, Darwin metaeconomy
L. Frederick Zaman    download pdf

Capital as power: Toward a new cosmology of capitalism       65
Shimshon Bichler and Jonathan Nitzan    download pdf

A warrant for pain:
Caveat emptor vs. the duty of care in American medicine         85
Avner Offer    download pdf

Reassessing the basis of economics:
From Adam Smith to Carl von Clausewitz       100
Robert R Locke    download pdf

Mankiw’s attempted resurrection of marginal productivity theory       115
Fred Moseley    download pdf

The evolution of economic theory:
And some implications for financial risk management      125
Patrick Spread    download pdf

More on why we should bury the neoclassical theory       137
of the return on capital
Roy Grieve  download pdf  

1. Germany’s beggar-thy-neighbour wages policy and 2. Shrinking the financial sector to its 1970s pre-bubble size

The above and related issues arise in two papers in the current issue 59 of the Real-World Economics Review. 

Matías Vernengo and Esteban Pérez-Caldentey, “The euro imbalances and financial deregulation: A post-Keynesian interpretation of the European debt crisis” http://paecon.net/PAEReview/issue59/VernengoPerez59.pdf 
and
Robin Pope, “Public debt tipping point studies ignore how exchange rate changes may create a financial meltdown” (co-author Reinhard Selten) http://paecon.net/PAEReview/issue59/PopeSelten59.pdf

 Vernengo, Pérez-Caldentey and Pope all  agree on the need for: 

(i) fiscal stimulus while the private sector deleverages, 

(ii) inter-country fiscal transfers to losers in a global downturn in order to reduce contagious adverse aggregate demand effects, 

(iii) re-regulation of the financial sector to aid in averting future financial bubbles, and 

(iv) an absolute rise in German wages – though for different reasons.
Robin Pope: in order to try to curb the dramatic increase in inequality in Germany between the upper echelon and the average German worker that has occurred over the past decade, an increase that damages democracy and damps internal demand.
Matías Vernengo and Esteban Pérez-Caldentey: in order to reverse the dramatic narrowing of the gap between wages in Germany and non-core countries that occurred over the past decade, a reversal that they believe would eliminate Germany’s dramatically increased export surplus to non-core countries that occurred over this same decade plus.

On where the three disagree, see their extremely interesting exchange below, and do, if inclined, append your comments. 

Forbes’ update on the state of plutonomy or “democracy for the few”

from Edward Fullbrook

The current Forbes, the bi-weekly of The One Percent, features an update on the current state of what it, like Citigroup, calls plutonomy.  Also called by its insiders “democracy for the few”, this is the basic economic-political reality of our time, which one-percenters chat about daily and which the rest of us generally pretend doesn’t exist.  Skeptics of the analysis of plutonomy offered in “The Political Economy of Bubbles” in the current issue of RWER are encouraged to read Forbes’ plutonomy update.   Below is a taster. 

The new “us versus them” is not like the racism of colonial times. This is starkly different. It’s the 99% versus the 1%, . . .

RWER issue 57: Hazel Henderson

From rigged carbon markets to investing in green growth

Hazel Henderson  

Abstract

Reviews failure of global carbon trading underKyotoand reasons why alternatives emerged.  Assesses prospects for climate policies beyondKyotoand covers shifts toward green growth in governments and private sector investments.

            The Kyoto Protocol and its global carbon emission-trading scheme expire in 2012.  The World Bank in State and Trends of the Carbon Market found that the market declined in 2010 and is at a crossroads, due to loss of political momentum. 

RWER issue 56: Egmont Kakarot Handtke

Scrap the lot and start again

Egmont Kakarot-Handtke   [Germany]

Abstract: In the wake of the recent financial crisis heterodox economists have taken up a time-honored refrain and proposed to abandon the axiomatic method. The present paper argues that this proposal is self-defeating.

            An economic crisis is always a crisis of economic theory – of mainstream economics, to be sure – and the latest financial crisis is no exception. This is the day of reckoning for the heterodox camp and, of course, rightly so for quite different reasons.

RWER issue 56: George DeMartino

The economist as social engineer: Maxi-max decision, utopia and the need for professional economic ethics^*
George DeMartino   [University of Denver, USA]

Introduction

             The economics profession has attracted a good bit of attention lately due to revelations regarding the failure of influential economists to disclose potential conflicts of interest when serving in the role of public intellectual. For this we are indebted to filmmaker Charles Ferguson, whose film “Inside Job” ought to serve as a wake-up call to a profession that has suppressed its ethical obligations for over a century. Even worse,

RWER issue 56: Wolfgang Drechsler

 Understanding the problems of mathematical economics: A “continental” perspective
Wolfgang Drechsler   [Tallinn University of Technology, Estonia]

1.             Introduction

            Within the heterodox and especially the post-autistic, real-world-focused critique of Standard Textbook Economics (STE), often published in this journal, attention to its literally fundamental method, quantitative-mathematical in general and mathematically modelling specifically, and how this method steers economics away from reality, is and has been almost inevitable.

RWER issue 56: Wade and Sigurgeirsdottir

Iceland’s meltdown:The rise and fall of international banking in the North Atlantic
Robert H. Wade and Silla Sigurgeirsdottir [1]   [London School of Economics and University of Iceland]“

Iceland should be a model to the world” (Arthur Laffer, November 2007)

 “They [the Icelandic banks] shouldn’t be worried about the fundamental soundness of their business model. I think it is very sound and very good”. (Richard Portes, May 2008)

In 2007 average income in Iceland was almost $70,000, about the fifth highest in the world and 1.6 times that of the United States.

RWER issue 56: Victor Beker

On the economic crisis and the crisis of economics

Victor A. Beker*   [Universidad de Belgrano and Universidad de Buenos Aires, Argentina]

 “So in summary, Your Majesty, the failure to foresee the timing, extent and severity of the crisis and to head it off, while it had many causes, was principally a failure of the collective imagination of many bright people, both in this country and internationally, to understand the risks to the system as a whole.”

Letter to the Queen of England by the British Academy. July 2009

RWER issue 56: Pavlina Tcherneva

Fiscal policy effectiveness: Lessons from the Great Recession

Pavlina R. Tcherneva   [Levy Economics Institute of Bard College, USA]

 Abstract

This paper reconsiders fiscal policy effectiveness in light of the recent economic crisis. It examines the fiscal policy approach advocated by the economics profession today and the specific policy actions undertaken by the Bush and Obama administrations.

RWER issue 56: Richard Smith

Green capitalism: the god that failed

Richard Smith   [Institute for Policy Research & Development, London]

Abstract

In rejecting the antigrowth approach of the first wave of environmentalists in the 1970s, pro-growth “green capitalism” theorists of the 1980s-90s like Paul Hawken, Lester Brown, and Francis Cairncross argued that green technology, green taxes, eco-conscious shopping and the like could “align” profit-seeking with environmental goals, even “invert many fundamentals” of business practice such that “restoring the environment and making money become one and the same process.” This strategy has clearly failed.

Call for Papers: a planned special issue/section of “Real World Economics Review”

from Bruce Edmonds

Call for contributions on the Social Complexity of Informal Value Exchange: A special issue or section of an issue of “Real World Economics Review“

Whilst traditionally Economics focuses on markets where the mechanisms of price and economic rationality might dominate, we call for contributions that consider a wider class of social phenomena. 

Neoliberals do not know what markets look like

from Merijn Knibbe

Exchange takes place without any specification of its institutional setting. We have consumers without humanity, firms without organizations,and even exchange without markets.
Ronald Coase

I love markets. I love businesses. My family background: the so called ‘Kleine luyden’, ‘Small people’ who had all kinds of business: farming, small scale real estate, groceries, transport, meat – you name it. I recall going to the vegetable auction, sitting in the back of a truck with my nephews, watching the auctioneer and coming back with loads of radishes, cabbages - you name it. This world has largely vanished.

Discussion nuggets #1

Merijn Knibbe – 30 November
I do think that a flexible labor market does not necessarily increase the number of jobs or hours: it’s a bit like ‘musical chairs’. Quite a lot of tension, movement and shifting of chairs – but the tension and the like does not increase or decrease the number of chairs. Other factors however do – just look at the job statistics of the Bureau of Labor Statistics, the OECD or Eurostat. A very alarming statistic is however that the USA at the moment does seem to have something of a ‘Lump of Labor’: the 2010 number of jobs is not

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: 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: 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”.