International price differences of ‘machinery and equipment’ are remarkably small within the EU. International price differences of another kind of fixed assets, residential building and civil engineering works, are remarkably large (see graphs).
Investments in ‘machinery and equipment’ as well as new ‘residential buildings and civil engineering works’ (i.e. construction) are both future oriented. The flow of expenditure on both kinds of investments can be compared, using the GDP-grid. Both kinds of investment boost our stock of ‘fixed assets’ and both are in a sense a ‘sunk cost’ transfer of the present generation to future generations. But can we arithmetically compare the stock of total ‘machinery’-capital with the stock of total ‘construction’-capital? In an economic sense, the stock of ‘machinery and equipment’ is a quite different item than ‘Residential buildings en engineering works': Read more…
from David Ruccio
Or, in this case, only at Harvard. . . Read more…
from Shimshon Bichler and Jonathan Nitzan
During the late 1980s and early 1990s, we identified a new phenomenon that we called ‘energy conflicts’ and showed that these conflicts were intimately linked to the differential profitability of the leading oil companies. Figure 1 below, which was first published in 1995, adds new data to bring this connection up to date.
The very first sentences of the Financial Stability Review of the ECB (December 2012) define financial stability as:
from Mark Weisbrot
A lot has changed in the last 20 years since then-Federal Reserve Vice-Chairman Alan Blinder had the audacity to suggest, in a speech, that the Fed could use interest-rate policy to help reduce unemployment in the short term. It was real blasphemy back then, and despite the fact that the Fed had by law a dual mandate to maintain both “price stability” and full employment, his remarks ignited a firestorm of controversy.
Now, thanks to the Great Recession, and Ben Bernanke’s willingness to use zero interest rates and venture into uncharted territory with quantitative easing, the “dual mandate” is widely accepted. Both Bernanke and current Fed Chair Janet Yellen also spoke out in favor using fiscal policy (i.e. deficit spending) to increase employment, something that U.S. Fed chairs didn’t say in the past. In a recent speech, Yellen noted that “the lack of fiscal support for demand in recent years also helps account for the weakness of this recovery compared with past recoveries.”
These are important institutional advances, even if other branches of government – most importantly the Congress – are not smart enough to take advantage of free money to create some of the millions of jobs that are so desperately needed. But today’s Fed could still be a threat to full employment if it proceeds too early with the “normalization” of interest rates that even Ms. Yellen is talking about. And everyone is talking about some time next year, and that is too early. Read more…
New data illustrate the extent to which economists have stopped discussing each other’s work.
Once upon a time, economists regularly used to publicly criticise each other’s work in academic journals. But not any more.
In Figure 1 I have illustrated the degree to which economists have stopped debating. The data have been culled from Jstor, the online database of academic journals. To estimate the number of debating articles for each year, I searched for articles with “comment”, “reply”, and/or “rejoinder” in their titles, as these are the key words used to indicate a comment on someone else’s article and a reply to that comment. I did the search for the five most prestigious economics journals. I then used the total number of articles in those five journals in each year as the denominator.
Figure 1 shows how there was a dramatic increase in the level of debate in economics from the 1920s through the 1960s. Then, however, there was an equally dramatic fall. At the peak level, in 1968, fully 22 per cent of the articles published in these journals appear to have been related to debate. By 2013, however, just 2 per cent were.
Why did this rise and fall happen? Read more here
from David Ruccio
After the crash of 2008, in the midst of the Second Great Depression, students around the world have been calling for radical changes in the way economics is taught. They know that the discipline of economics, today as in the past, includes more than neoclassical economics—but, for the most part, students are not being exposed to concepts and methods other than those of neoclassical economic theory.
There are, of course, a handful of departments where non-mainstream theories have been developed and taught, alongside and in addition to neoclassical (and, for that matter, traditional Keynesian) economics. In the United States, in terms of Ph.D.-granting institutions, they include the University of Massachusetts at Amherst (where I received my degree), American University, the University of Missouri-Kansas City, the University of Utah, and New School University.
As Aaron Steelman recognizes, that handful also once included the University of Notre Dame. But that is no longer the case, since the current Department of Economics advertises itself as as purely neoclassical department.
Unfortunately, Steelman gets the history wrong. Read more…
The Polish central bank is concerned about deflation. It should not be. Prices of goods and services are going down. But employment is increasing at a rate of 1,5% a year, unemployment is going down (from 10 to 8,3% in one year) and productivity increases. At the same time, wages are increasing at a rate of about 4% a year. This 4% may, due to rapidly increasing productivity, be not enough to enable positive domestic demand inflation. But that’s not a problem. Rising nominal and real income means that there is no sign of any kind of debt deflation, i.e. people and companies who, due to declining nominal incomes, are not able to pay their bills and other debts.
from Asad Zaman and the WEA Pedagogy Blog
There is widespread agreement on the proposition that people act according to their self-interest. Marx went further to suggest that people subscribe to ideologies conforming to their class interests. For example, agricultural laborers would believe in land reforms, while big landlords would believe that small farms are inefficient. Gradually the weight of strong empirical evidence has led me to understanding that this proposition is false. Large segments of the population can be brought to believe in, and act according to, ideologies extremely harmful to their self interest. As Dani Rodrik has written in “How the Rich Rule”, political scientists Gilens & Page found that on issues where there was a conflict between the interest of the elite and that of the public, Congress voted in favor of the elite and against the public interest. In the past, the elites have enforced their interests by the use of power. In a democratic age, the same effect is achieved by the use of propaganda. This is striking because the propaganda must convince the public to act against their own self-interest, in favor of the ruling elites. It would seem that you can fool most of the people most of the time. Here is some empirical evidence for my thesis: read more
On this blog I’ve repeatedly argued that tourism is one of the main forces driving recoveries (Ireland, UK, Baltics). Here, some data about the magnitude of this effect in the UK. Mind that one pound spend in the tourism business leads to about two times as much work as one buck spend in the financial sector.
Classical and neoclassical economists liked and like to talk about the ‘purchasing power of money’. Which is as apt as talking about the power of a wrench. A wrench has a (sometimes adjustable) size – but no power. The man or woman who uses it has the power. Purchasing power is not about money, it is about income (as every manual on how to calculate price indices shows). We use money to spend our income.
A nice example of the dramatic differences of the amount of nominal capital, expressed as a a % of nominal GDP, and the amount of real capital, expressed as a % of real GDP (relative prices change all the time…). This is related to the Cambridge controversies.
Economic historian Claudio Borio about ‘inflation targeting’ (and the Gold Standard and Bretton Woods and all that): “no policy regime in history has simultaneously achieved sustained monetary and financial stability”
from Grazia Ietto-Gillies
What I am about to report is not specifically about the economics profession. However, it is an economics issue in that it is linked to: competition for research funds and the management of academic researchers in the current culture where the public sector, including universities, is led by: targets; markets for academics – not that dissimilar from markets for footballers -; and competition.
A distinguished Professor in the Department of Medicine of Imperial College London – Professor Stefan Grimm – was found dead in his London home in September following a review of his performance in getting research grants. A few weeks after his death, Professor Grimm’s colleagues received a delayed email, sent from his account, in which he told of his tragic story and which he wanted circulated. It speaks for itself as does the letter from his manager which Professor Grimm made public. Both can be found at: Read more…
from Geoff Davies
Much of the current discussion of reforming economics focusses on the need for pluralism, particularly in teaching curricula, and very recently again on RWER. Pluralist teaching is seen as challenging, because heterodox economic ideas are diverse, have little coherence, and are to a significant extent mutually incompatible.
This theme crops up frequently in discussions on RWER. Now Cameron Murray, in the first issue of Inside, published by the Institute for Dynamic Economic Analysis, proposes to identify over-arching themes that can bring out the relationships among the various approaches. This is commendable but it will not, on its own, result in a reformed economics.
I think the perceived difficulty of teaching heterodox economics comes from expecting too much from the exercise. It will result in better-educated economists, and that is a very good thing. Breaking the academic dominance of neoclassical economics would also be a very good thing. However coherence in economics will not result from trimming and hammering existing fragmented ideas into a new box. Read more…
Time to mark my believes to market. And I was wrong. I was not critical enough of the idea that a demand problem can be cured with supply side solutions. Three years ago, I criticized this article (see the comments) which more or less lauded Danish labour market ‘flexicurity’. And indeed: this supply side solution did not solve a demand side problem – Danish unemployment did not go down as intended. Flexible firing rules in combination with high but short unemployment benefit did lead to an unusual fast increase of Danish unemployment – but it did not lead to a subsequent fast decline of unemployment (graph 1). And the slight decline which can be witnessed at the end of the series is not caused by people getting jobs – but, unlike the situation in Sweden and the Netherlands, by people leaving the labor market (graph 2 and 3), a process which started right after the start of the Great Financial Crisis and which continuous until the present day. I did not expect that to happen. Flexicurity backfired. The Dutch example shows that supply side policies matter – when the macro economic surrounding is favorable. The Swedish example shows how long it can take before the consequences of a severe financial crisis, which leads to an unfavourable macro situation, are overcome. And the Danes teach us that demand side problems have to be tackled with demand side solutions. Read more…
from Lars Syll
Back in 1991, when I earned my first Ph.D. — with a dissertation on decision making and rationality in social choice theory and game theory — yours truly concluded that “repeatedly it seems as though mathematical tractability and elegance — rather than realism and relevance — have been the most applied guidelines for the behavioural assumptions being made. On a political and social level it is doubtful if the methodological individualism, ahistoricity and formalism they are advocating are especially valid.”
The decision theoretical approach I perhaps was most critical of, was the one building on the then reawakened Bayesian subjectivist interpretation of probability.
One of my inspirations when working on the dissertation was Henry E. Kyburg, and I still think his critique is the ultimate take-down of Bayesian hubris (emphasis added): Read more…
from Richard Wolff
This project is important and long-overdue to undo the narrow orthodoxy that has suffocated diversity and heterogeneity and social criticism within the discipline (sic) of economics. I am glad to spread word about it.
Calling all Rebel Economists!
After smothering progress for decades, the mainstream stranglehold on economic thought is finally slipping. With the recent rise of student protest movements like the International Student Initiative for Pluralism in Economics (ISIPE), the demand for real-real world economics is at an all-time high, and a strategic spark may be all it takes for this growing discontent to explode into a global campus revolution.
This January, the rebel economists at Adbusters will head to the American Economic Association conference in Boston to throw off some much-needed sparks. As the largest annual gathering of economists in the U.S., and a magnet for media attention, the AEA conference is the perfect location to light brush fires in people’s minds, stoke debate, and inspire new flare ups of campus activism. From the workshops to the hallways, we’ll shake things up and challenge the dead-end status-quo with the subversive memes and mind-bombs of a new pluralist economics for the 21st century. We’re looking for a few good rebel economists – from students, to educators and beyond – to join in the fun!
Here are the details:
from Peter Radford
Actually the paper I just read is called “The Superiority of Economists”. It’s another analysis of thee economics profession by Marion Fourcade, this time in association with Etienne Ollion and Yann Algan. It is well worth reading and fits neatly in the same analytical tradition as Fourcade’s 2009 book “Economists and Societies”.
The problem is that none of it is particularly surprising. The point being that economists, by asserting their superiority vis other social sciences have exposed themselves to greater scrutiny and criticism than their peers. This has, apparently, induced more soul-searching within economics than in those other social sciences. Along with the air of superiority that economists exude due to their self-proclaimed intellectualism, comes a big dollop of insecurity.
Which is a point worth making: economists, for all their arrogant assertion of the truths of their ‘science’, are a little insecure about something. Hence, perhaps, their brashness and lack of interaction with their peers. One of Fourcade’s findings is that economists are more isolated as a profession than those around them. They quote fewer non-economics papers and books in their own work, and are almost haughty in the disregard of insights that other social sciences take very seriously. Read more…
from David Ruccio
Black Friday has apparently become a spectator sport for the leisure class, who look forward to watching videos of shoppers brawling for discounted items from the safety of their own homes. A reality-show Hunger Games, if you will. Read more…
from Peter Radford
I have been subject to quite a bit of push back on my repeated critique of the anti-democratic nature of orthodox/classical/neoclassical economics.
So I am going to double down on the basis that when you’ve hit a nerve and produce a knee-jerk reaction it is wise to hammer away.
Allow me to restate my opinion in brief: economics in the general tradition of Smith’s invisible hand up to and including the notions of Hayek, Friedman, and their disciples is, at its core, an attempt to conceive of a society stripped of politics. By this I mean it is an attempt to argue that passivity in the face of overwhelming “forces” that are “objective”, “decentralized”, and “systemic” will allow for an optimal distribution of wealth, and the attainment of the maximum possible total wealth compatible with that optimum. All that is needed is a goodly dose of rational decision making, a hopelessly large level of cognitive ability, enormous foresight, and an unobstructed view of absolutely everything. Oh, and under no circumstances ought there be any active interference in the economy to adjust the perfect outcomes. It is a perfect-in-perfect-out wonderland in which no one need concern themselves as to the ethics of the outcome. It is, after all, perfect. It cannot be improved upon. Free markets rule!
This wonderland system, so constructed, will, we are assured, give back to everyone a return justified by their so-called marginal productivity. Read more…
from Lars Syll
Neoclassical economics nowadays usually assumes that agents that have to make choices under conditions of uncertainty behave according to Bayesian rules, axiomatized by Ramsey (1931) and Savage (1954) – that is, they maximize expected utility with respect to some subjective probability measure that is continually updated according to Bayes theorem. If not, they are supposed to be irrational, and ultimately – via some “Dutch book” or “money pump”argument – susceptible to being ruined by some clever “bookie”.
Bayesianism reduces questions of rationality to questions of internal consistency (coherence) of beliefs, but – even granted this questionable reductionism – do rational agents really have to be Bayesian? As I have been arguing elsewhere (e. g. here, here and here) there is no strong warrant for believing so.
In many of the situations that are relevant to economics one could argue that there is simply not enough of adequate and relevant information to ground beliefs of a probabilistic kind, and that in those situations it is not really possible, in any relevant way, to represent an individual’s beliefs in a single probability measure. Read more…