Growth in college food banks

April 10, 2014 Leave a comment

From: David Ruccio


As the Washington Post explains, Read more…

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Some links, 10/4/2014. Cooperations, energy (graph), Peter Praet (ECB) on the impossibilities of monetary policy in the EZ

April 10, 2014 Leave a comment

The ILO is officially charged with promoting and estimating cooperatives:

Here a little about the new statistics on cooperations. Here a report about cooperations (mind that Goldman Sachs was a partnership until 1999):

As business organization, cooperatives contribute to economic development, generating more than 100 million jobs and securing the livelihoods of nearly a quarter the world’s population. Cooperatives provide an important channel for bridging market values and human values … The financial and ensuing economic crisis has had negative impacts on the majority of enterprises; however, cooperative enterprises around the world are showing resilience to the crisis. Financial cooperatives remain financially sound; consumer cooperatives are reporting increased turnover; worker cooperatives are seeing growth as people choose the cooperative form of enterprise to respond to new economic realities. This report provides historical evidence and current empirical evidence that proves that the cooperative model of enterprise survives crisis, but more importantly that it is a sustainable form of enterprise able to withstand crisis, maintaining the livelihoods of the communities in which they operate

From the Worldwatch institute: energy priorities: Read more…

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Are New-Keynesians accidentally discovering Keynes?

April 9, 2014 5 comments

Are ‘New-Keynesians’ discovering Keynes? Paul Krugman links on his blog to an Eggertsson/Merohtra paper which allows the ‘natural rate of interest’ to fluctuate. Which actually sounds somewhat Keynesian. In new/neo/old classical thinking the natural rate of interest equilibrates, in the unspecified run, supply and demand in all markets, including the labour market. An idea which, according to Keynes, was not so much wrong but useless. David Glasner, on his ‘Uneasy Money’ blog, states about Keynes this (emphasis added):

Keynes did not conclude, as had Sraffa, that there is no natural rate of interest. Rather, he made a very different argument: that the natural rate of interest is a useless concept, because there are many natural rates each corresponding to a different the level of income and employment, a consideration that Hayek, and presumably Fisher, had avoided by assuming full intertemporal equilibrium.

This last assumption is, according to Eggersson and Merohtra, still crucial for ‘microfounded’ models (which are not founded upon micro-relations at all, but that’s another discussion, see the end). But adding even a little realism to the model leads the model away from equilibrium, even in the long run…

In Summers’ words, we may have found ourselves in a situation in which the natural rate of interest – the short-term real interest rate consistent with full employment – is permanently negative … It may seem somewhat surprising that the idea of secular stagnation has not already been studied in detail in the recent literature on the liquidity trap, which does indeed already invite the possibility that the zero bound on the nominal interest rate is binding for some period of time due to a drop in the natural rate of interest. The reason for this, we suspect, is that secular stagnation does not emerge naturally from the current vintage of models in use Read more…

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The capital controversy — when ignorance is bliss

April 8, 2014 1 comment

from Lars Syll

The production function has been a powerful instrument of miseducation.   The student of economic theory is taught to write Q = f(L, K) where L is a quantity of labor, K a quantity of capital and Q a rate of output of commodities. He is instructed to assume all workers alike, and to measure L in man-hours of labor; he is told something about the index-number problem in choosing a unit of output; and then he is hurried on to the next question,  in the hope that he will forget to ask in what units K is measured. Before he ever does ask, he has become a professor, and so sloppy habits of thought are handed on from one generation to the next.
Joan Robinson The Production Function and the Theory of Capital (1953)




The english recovery (?)

The ONS has published a new report on the recovery (?) of the UK economy. Some snippets:

While aggregate output has grown strongly in recent quarters, Figure 2 suggests that GDP per capita – a measure of output per person in the economy – has only recently started to recover. This difference is particularly pronounced in Panel B of Figure 2. While GDP has closed on the predownturn peak, GDP per capita remains some 6.1% below the level in Q1 2008, and is little higher than the level first achieved in early 2005.

Also, 72% of the increase of the number of self-employed was caused by an increase in the number of self-employed of 50 years and over of age, about half of these were over 65.

Also, the old and feeble also increasingly work for the young and healthy:  Read more…

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Unemployment: is there always a market clearing price? (Netherlands very long run edition).

April 7, 2014 4 comments

Frances Coppola has an interesting post on ‘why labour markets don’t clear‘. She points to the fact that during downturns,

the market-clearing price of labour can fall to below the minimum needed to sustain life.

When wages are at starvation level, hours worked, labour force participation rate and workforce size all decline as people become weak, ill and eventually die – or, if they can, leave for somewhere more prosperous.  Reducing the size of the workforce means that the market will eventually clear and wages start to rise again – for those who have survived.

This is the fundamental flaw in the “sticky wages” argument. In an economic downturn, the labour market cannot clear without incurring unacceptable social costs. Malnutrition, starvation, disease and death are the  consequences of freely falling wages in an economic downturn. The reason why labour markets don’t clear is because we don’t want them to.

I do not entirely agree. Let’s take a look at the Netherlands.


Source: Centraal Bureau voor de Statistiek. Data for the first decades are probably pretty shaky, the 1813 level must for instance have been higher. The rise around 1850 is however real, though the magnitude might have been different. Read more…

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How not to win an economic argument

April 7, 2014 9 comments

from Steve Keen

A critique of a yet-to-be-published paper of mine (“Loanable Funds, Endogenous Money and Aggregate Demand”, forthcoming in the Review of Keynesian Economics later this year; the link is to a partial blog post of that paper) by non-mainstream economist Tom Palley reminds me of one of my favourite ripostes by a politician, back in the days before spin doctors stopped them saying anything offensive — or indeed anything interesting.

As Sir Robert Menzies, former Australian prime minister and leader of the conservative Liberal Party, was giving a campaign speech in 1954, a heckler called out “Mr Menzies, I wouldn’t vote for you if you were the Archangel Gabriel”. Menzies shot back: “Madam, if I were the Archangel Gabriel, you would not be in my constituency.”

So it is with Tom’s critique. He criticises me for a whole range of things that I didn’t discuss, that he thinks I should have discussed, and for techniques I used that he thinks I shouldn’t have used. But Tom wasn’t in my intended audience for this paper — and not because he “wouldn’t be in my constituency”, but because he is. We have our differences, but we’re generally on the same side on the topic of this paper — and I didn’t write it for people who agree with me, but for those who don’t on two key issues: the role of banks, debt and money in the economy, and the role of the change in debt in aggregate demand. Read more…

Lower relative and even absolute wages did not lead to lower price levels in the Eurozone, up to 2012

Do lower relative or even absolute wages lead to a lower absolute or price level, as implied by the at least some of the versions of the ‘New Keynesian pricing Equation‘, other things, like total employment, equal? No, they don’t. At least not in the short or even the medium run. 2012 wages in Portugal and the UK (Euro price level) were about as high as in 2004. Greek wages were even lower (and continued to decline in 2013…). But the price level in these countries increased about as much as the price level in other EU countries.  This is an important fact. It means that slashing wages leads to a massive erosion of purchasing power, with, of course, dire consequences for expenditure, employment and all that. Employment won’t be equal and its decline will aggravate the slump. It’s a very Old Keynesian situation.


Austerity ideology states Read more…

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Is economics ripe for disruption?

April 6, 2014 11 comments

from Lars Syll

It was, of all people, Elizabeth Windsor who laid the charge most forcefully. Opening a new building at the LSE, weeks after Lehman Brothers imploded, she asked one of the dons why no one had seen the meltdown coming. In the years since, it has often seemed as if students are more serious than their lecturers about pursuing the monarch’s concern.


Undergraduates at Sheffield and Cambridge have set out to rattle the foundation stones of their discipline. In Manchester, they went further, organising the Post-Crash Economics Society and securing more eclectic instruction, through a new Bubbles, Panics and Crashes module. Covering the former Fed boss, Ben Bernanke, as well as the interwar Marxist, Kalecki, the course was not reducible to right or left. It offered something closer to economics as understood in Keynes’s Cambridge. Manchester, however, has now declined to accredit the course, and instead opted to pull the plug …

The failure to spot the crisis raised wider questions about the discipline’s usefulness. It can shelter behind unavoidable ambiguities regarding the price of both labour and capital. Will workers respond to income tax cuts by striving for the extra earnings they can now keep or by skiving, on the basis that they can now afford to take more time off? Do high interest rates induce savers to scrimp or encourage them to go out and blow their extra return? No one can say without interrogating the data – which good economists do try to do. But hopes of clear answers are retarded by departments that treat the subject as a branch of applied mathematics, and by practitioners less concerned with the insight than the arithmetical tractability of their models.

These shortcomings go back to “the marginal revolution”, which jettisoned the dynamic, sweeping preoccupations of 19th century classical political economy in favour of a narrower but more precise concern with movements between market equilibrium. But the big questions that concerned Mill, Marx and Smith are now rearing their heads afresh …

Now Thomas Piketty – who spent long years, during which the mainstream neglected inequality, mapping the distribution of income – is making waves with Capital in the 21st Century. Nodding at Marx, that title helps explain the attention, but his decidedly classical emphasis on historical dynamics in determining who gets what resonates in a world where an increasing proportion of citizens are feeling fleeced by the elite. The tide of intellectual history is on the side of Manchester’s students.

The Guardian

Deflation has arrived in at least five Eurozone countries, including Finland and the Netherlands

April 5, 2014 1 comment

Mario Draghi will have to push for wage increases as disinflation continues, in the Eurozone and as quite some countries are already experiencing deflation. Deflation is vicious – especially when, like in the euro zone, debt levels are high while nominal debts are highly rigid and sticky.  On the Eurozone level, there has been quite some disinflation and during the last 9 months inflation was in fact close to zero. And while I do not expect a prolonged period of average deflation as long as average nominal wages keep increasing with about 1%, even ‘lowflation’ will be devastating for the possibilities of quite some countries to pay back their debts. Especially as zero average inflation will, arithmetically, mean that quite a number of countries are actually having deflation. The only way out is not monetary policy (which takes to long to work, if it works at all) but higher wage increases, especially in the Eurozone ‘core’.

Below, data on seasonally adjusted domestic demand inflation in the Eurozone and in individual Eurozone countries. Domestic demand inflation is a broader concept than consumer prices and also includes prices of real investments and government purchases. What do these graphs show?


A) There has been (as we all know) quite a bit of disinflation in the Euro area (graph 1). Read more…

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Top 0.1% wealth share in the U.S., 1913-2012

April 4, 2014 1 comment

from David Ruccio

Roaring 20s

This chart, from the work of Emmanuel Saez and Gabriel Zucman [pdf], illustrates the large increase in top 0.1% wealth share since the 1980s (top 0.1% = wealth above $20 million today. In other words, the inequality in the distribution of wealth in the United States is back to what it was just prior to the first Great Depression.

The weird world of DSGE inflation metrics

April 4, 2014 7 comments

Whenever a DSGE economist uses phrases like ‘fundamental’, ‘deep’, ‘sound’, ‘data-rich’, ‘non-trivial’ or ‘micro-founded’ – beware. The opposite will likely be the case.

Robert King and Mark Watson point out another sorry example of this. They, literally, deconstruct the inflation variable used in a Smets-Wouters model (Smets being the head economist of the ECB) and a Gali-Gartner model, a variable  mistakenly named ‘fundamental inflation’. And this ‘fundamental inflation’ metric turns to be totally unrelated inflation as you and I know it. Some quotes:

We study two decompositions of inflation, motivated by a New Keynesian Pricing Equation. The first uses four components: lagged inflation, expected future inflation, real unit labor cost and a residual. The second uses two components: fundamental inflation (discounted expected future real unit labour cost) and a residual …

From 1999-2011 fundamental inflation fell by more than 15 percentage points, while actual inflation changed little. We discuss this discrepancy in terms of the data (a large drop in labor’s share of income) and through the lens of a canonical structural model (Smets-Wouters (2007)) … While actual inflation is essentially unchanged over the post-1999 period, the measure of fundamental inflation constructed along Gali-Gertler lines fell by nearly 15 percent and that implied by the Smets-Wouters DSGE model fell by nearly 20 percent. That is, both measures of fundamental inflation predicted large deflation over the last decade.

What happened? Labor’s share in income showed a dramatic decline – as is also shown by the familiar graphs comparing real wages per hour (stable) with production per hour (up). This is however not visible in the Smets-Wouters formula, as they mix up micro relations with macro relations – there literally is no changing ‘labor share’ possible in their world. Which rules out inflation caused by increases in profits, taxes, ‘mixed income’ of the self-employed (wich is not included in real unit labour costs), changes in the sector structure of the economy and comparable factors. As they do not take these factors into account they are in fact kind of estimating the declining labour share of income. And call this: ‘fundamental inflation’ (taking their model serious they should of course have pushed for massive increases of wages – but I’m afraid that did not happen…).

By the way – King and Watson define real unit labor costs as nominal labour costs divided by nominal income. Which is wrong.  Real unit labour costs are a derived indicator calculated by taking a series of nominal labour costs in different years and dividing this series by a series of real production in these years.

I’m preparing an article titled: ‘Metrics-meta about a meta-metric – a critical history of the concept of the price level’. However – either my table or my head may give way before it’s finished.

Categories: Uncategorized

Some links, 4/4/2014. Worried banks, What is capital, World Bank made killing mistake, Slave labour, L’amour (not?)

April 4, 2014 3 comments

Straight from the financial world (and they do not even mention Greece…):

2015 will not be the year when Spain, Italy and Portugal return to normal. When we look at the dynamics of unemployment, public and private debt, household and corporate solvency, and industrial production capacity, we see that it will take from 5 to more than 20 years to really return to normal. During this very long period, their economies will remain fragile; the Southern euro-zone countries will remain under the threat of a return of investor pessimism.

I love good writing about the relation between the concept of an economic variable and its measurement. Jamie Galbraith does an outstanding job when he discusses the concept ‘capital’. A taste, from his review of Piketty, ‘Capital in the Twenty-First century‘:

What is “capital”? To Karl Marx, it was a social, political, and legal category—the means of control of the means of production by the dominant class. Capital could be money, it could be machines; it could be fixed and it could be variable. But the essence of capital was neither physical nor financial. It was the power that capital gave to capitalists, namely the authority to make decisions and to extract surplus from the worker.

Early in the last century, neoclassical economics dumped this social and political analysis for a mechanical one. Read more…

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Bubbles, Panics and Crashes module cancelled

April 3, 2014 5 comments

from today’s Guardian

Manchester University move to scrap banking crash module angers students

Course leaders cancelled the Bubbles, Panics and Crashes module developed as counterpoint to free-market teaching
Manchester University students

Joe Earle, front and centre, says students are upset by what they believe are the university’s attempts to obstruct teaching of alternative economic perspectives. Photograph: John Super


Manchester University bosses came under fire from angry economics students after they scrapped a groundbreaking course that examined the effects of the 2008 banking crash.

In an escalation of the crisis gripping university economics departments, the course leaders cancelled the Bubbles, Panics and Crashes module developed to answer protests at the dominance of orthodox free-market teaching.

Read more…

Rational expectations metaphysics

April 3, 2014 2 comments

from Lars Syll

It is now claimed by this group of American monetarists that the … proper cognition of the economy enables rational expectations to be formed which will prevent all but ‘surprise’ departures from an equilibrium path and will, therefore, render nugatory any attempt to reduce unemployment below its ‘natural’ level even in the short run. The centrepiece of this argument is that both workers and employers realise that the quantity theory of money is correct and that wages and prices must rise in the same proportion as the money supply. As a result, it is argued that increased expenditure will cause increases in wages and prices directly without affecting real variables such as output, employment or the real wage rate. They contend that they will base their expectations not on a projection of past trends in the price level or one of its time derivatives (such a procedure would usually be ‘irrational’) but on the ‘correct’ understanding of the economy which takes changing trends into account …

Read more…

Reformist Economics

April 2, 2014 16 comments

from Peter Radford

“… the act of judgement that leads scientists to reject a previously accepted theory is always based upon more than a comparison of that theory with the world. The decision to reject one paradigm is always the decision to accept another, and the judgement leading to that decision involves the comparison of both paradigms with nature and with each other.” – Thomas Kuhn, The Structure of Scientific Revolutions

I will break my recent silence – I am still burrowing down into the issue of inequality – to make a comment on the skepticism I see concerning the Institute for New Economic Thinking.

It is justified.

Let’s think about this a moment.

If we are to set up an institute to support change, provoke discussion, and otherwise meddle about with the established way of thinking, and thus to earn the moniker of “newness”, we ought not to pack our agendas with a steady stream of establishment figures. That is not the way to revolution. It might, however, be the way to raise esteem and thus get the institution media attention. Read more…

Categories: George Soros' INET

Explaining the difference between supply and demand to John Cochrane

April 2, 2014 1 comment

John Cochrane, a well-known Chicago economist, seems to think that a ‘sudden stop’, a sudden slowdown of private capital inflows into a country, leads to inflation. A ‘sudden stop’ is one manifestation of what is also known as a ‘credit crunch’. Cochrane states about these crunches:

“If we just had a credit crunch, we would expect to see stagflation–lower quantities sold, but upward pressure on prices. A credit crunch, like a broken refinery is a “supply shock.”

Sigh. Less credit does not directly lead to less supply. It leads to less demand and therewith to a pressure on prices and only subsequently, as companies can’t sell their stuff, to less supply. Read more…

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Today’s headlines

April 1, 2014 3 comments

“Paul Davidson has converted to Monetarism”

 “Paul Krugman admits that he has never read Keynes’ ‘General Theory’, but promises to give it a go this summer” 

“Chicago University’s Economics Department has offered Steve Keen a chair” 

“The NCTers and MMTers kiss and makeup” 

“Alan Greenspan and Robert Lucas ask to be forgiven for facilitating the GFC” 

“James Galbraith announces that his real father was Milton Friedman” 

“George Soros’ INET announces that henceforth it will support grassroots reform of the economics profession” 

“Joan Robinson has been reincarnated as an app promoting Prince William” 

“Edward Fullbrook was seen at a conference”

“Complexity in real world practices: reshaping the relationships” satellite workshop at ECCS’14

Complexity in real world practices: reshaping the relationships

ECCS 2014, 22-26 September, Lucca, Italy. Satellite Meeting to the main Conference.

Since the ECCS foundation in 2004, a number of meetings have been organized at the ECCS conferences dealing with how Complexity Science might inform about and provide leverage within socioeconomic contexts and policy oriented practices. This meeting is meant to keep alive that discussion and help bring together an inter-disciplinary community who, since the first event, has progressively attracted people from different domains. Thus this workshop provides a direct “interface” to the policy world for the more academic research elsewhere at ECCS, facilitating a dialogue between the policy world and the ECCS community.

In addition, over the last few years several initiatives in universities and EU projects have explored these issues with the spread of the complexity oriented literature into many disciplinary fields.

While the merits of complexity studies are praised on a methodological grounds, their impact on real-world organizations is still limited. The reasons are manifold and may be attributed to the difficulties that private and public organizations have in understanding the impact of this paradigm which, besides dismantling the old one, encroaches on the possibility created by the dramatic progress in ICT and in computational power.

The questions raised in today’s application of complexity approaches tend to polarize around two main themes: 

  1. A conceptual one: designing lines of enquire to address substantial issues for the future of organizations, such as those concerning goals definition, cooperative behaviour and agents engagement on a collective basis (e.g. learning to learn in order to cooperate and build more resilient organizations);
  2. An operational one: developing new techniques for data gathering, information processing and visualization, to manage the increasingly large data source made available by ICT devices.

These questions are also crucial to those involved in policy activities, as they underpin the emerging requirements for open government. However, the opportunity to better articulate the relationships between the above themes is however crucial and the meeting will provide ground for their discussion.

The webpage for this workshop will be linked to:

Categories: Uncategorized

Krugman and DeLong on avoiding secular stagnation

April 1, 2014 3 comments

from Dean Baker

Brad DeLong and Paul Krugman are having some back and forth on the problem of secular stagnation and what it would have taken to avoid a prolonged period of high unemployment. I thought I would weigh in quickly since I have a better track record on this stuff than either of them.

The basic story going into the crash was that we had an economy that was being driven by the housing bubble. This was both directly through residential construction and indirectly through the consumption that followed from $8 trillion of bubble generated housing equity. Residential construction expanded to a record high of more than 6 percent of GDP at a time when demographics would have implied its share would be shrinking. This led to enormous overbuilding, which is why construction hit record lows following the crash. (There was a smaller bubble in non-residential real estate that also burst in the crash.)

Consumption also predictably plummeted. This is known as the housing wealth effect. (I learned about this in grad school, didn’t anyone else?) Anyhow, when people saw their homes soar in value many spent in part based on this wealth. This might have meant doing cash out refinancing, a story that obsessed Alan Greenspan during the bubble years. It might mean a home equity loan, or it might just mean not putting money into a retirement account because your house is saving for you.

Read more…

Categories: The Economy

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