Crypto-crash: graph

May 16, 2022 Leave a comment

Source: Forbes

Formalizing economic theory

May 16, 2022 Leave a comment

from Lars Syll

Inflation - The New Economics PartyWhat guarantee is there … that economic concepts can be mapped unambiguously into mathematical concepts? The belief in the power and necessity of formalizing economic theory mathematically has thus obliterated the distinction between cognitively perceiving and understanding concepts from different domains and mapping them into each other. Whether the age-old problem of the equality between supply and demand should be mathematically formalized as a system of inequalities or equalities is not something that should be decided by mathematical knowledge or convenience. Surely it would be considered absurd, bordering on the insane, if a surgical procedure was implemented because a tool for its implementation was devised by a medical doctor who knew and believed in topological fixed-point theorems? Yet, weighty propositions about policy are decided on the basis of formalizations based on ignorance and belief in the veracity of one kind of one-dimensional mathematics

K. Vela Velupillai

Weekend read – MMT, post-Keynesians and currency hierarchy: Notes towards a synthesis

May 14, 2022 1 comment

from Luiz Alberto Vieira and current issue of RWER

Introduction

The current moment seems favorable to debate and potential reconsideration of theoretical systems, a situation derived both of developments in the analysis of public financing and the nature of money, but also, largely, due to the particular political and social circumstances observed in many countries. US hegemony is in crisis, as its industrial might decreases and is put in question by China’s development. The Asian country is now responsible for a large part of the world’s industrial output, boasting a complex and innovative economy. Another point worth noticing is former president Trump’s challenge of the basic principles of American politics and society, a situation the US shares with other countries.

Trump’s defeat in the last elections was only made possible due to unity of the Democratic Party around Joe Biden, thus overcoming the divide between “establishment” Dems and the self-proclaimed socialists, a minority which nonetheless gets 20% of voter’s preference. Since any victory by the party will require such unity, Democrats’ long held liberal economic policies are likely to be altered. Biden´s economic plan is a result of the new power balance in the party, in the sense that it embraces some of the left’s agenda, in a context heavily influenced by the ideas of Modern Monetary Theory (MMT).

Read more…

The threat of a pharma-dictatorship

May 12, 2022 Leave a comment

This is an extract from Norbert Häring‘s International Health Regulations: A big step toward a health dictatorship is imminent 12 May 2022 

What the U.S. has in mind here is an authorization for the WHO to immediately take the reins out of the hands of national governments in the event of an actual or alleged health risk from a pathogen and to be able to determine the assessment of the situation and the countermeasures. The US and their allies in this, the EU and Switzerland, are home to most of the major global pharmaceutical companies, To be sure, governments would retain the right to say no. However, this right is greatly devalued by the fact that they can then immediately be pilloried worldwide, either by the WHO or by a single, powerful government, such as that of the USA.

Should it come to the point that the informal sanctions would be augmented by formal sanctions against non-cooperative governments – which is almost to be expected – the governments of all countries, except the strongest, will hardly be able to defend themselves against having foreign teams of experts sent into their country to determine what has to happen.

This dis-empowerment of governments is made all the more dangerous by the fact that the WHO Director-General is allowed to decide on his own authority, based on extremely vague and elastic criteria, when a health emergency of international relevance is declared.

Moreover, the intention, often and clearly expressed by powerful players such as Johns Hopkins University and Bill Gates, to make standard mass testing of all people against all possible known and as yet unknown pathogens the norm, must be taken into the picture. It will then, with the appropriate will, be no problem at all to declare a potential health emergency. With intensive search, new pathogens will often be found that could become dangerous, but by no means have to.

But who could have an interest in declaring health emergencies and initiating – possibly unnecessary – countermeasures? Read more…

Gödel and the limits of mathematics

May 11, 2022 3 comments

from Lars Syll

irrelevant model abstractions
with no bridges to real-world economies

 

Gödel’s incompleteness theorems raise important questions about the foundations of mathematics.

The most important concern is the question of how to select the specific systems of axioms that mathematics is supposed to be founded on. Gödel’s theorems irrevocably show that no matter what system is chosen, there will always have to be other axioms to prove previously unproven truths.

This, of course, ought to be of paramount interest for those mainstream economists who still adhere to the dream of constructing deductive-axiomatic economics with analytic truths that do not require empirical verification. Since Gödel showed that any complex axiomatic system is undecidable and incomplete, any such deductive-axiomatic economics will always consist of some undecidable statements. When not even being able to fulfil the dream of a complete and consistent axiomatic foundation for mathematics, it’s totally incomprehensible that some people still think that could be achieved for economics. Read more…

Can you think of something snappier than “Understanding the Economy – A Learning System”?

The 1300 words below are extracted from an email that Neva Goodwin wrote and copied me into.  It outlines a large new project initiated by the World Economics Association, but which will include numerous other organizations opposed to the dominance of traditional economic thinking.  However, the extract’s first sentence is misleading because it is Neva’s and Pratisha’s names that should be mentioned first since they are the project’s primary sources of creative energy.  And then there is the question of the project’s name.  As the project develops it will seek wide attention, and therefore needs a “snappier” name.  Perhaps after reading Neva’s description, you can suggest one. 

The project: “Understanding the Economy – A Learning System”

Edward Fullbrook, Pratistha Rajkarnikar, and Neva Goodwin have been working for several months to conceptualize a project designed to provide a good understanding of how economies work – and how they might work for greater human and planetary well-being – to people who are not economics students.

We start from acknowledging that humanity today is in an unprecedently dangerous situation which has been largely created by our economies.  The situation has two prime dimensions.  One, economies are redistributing wealth and income in a way that lethally threatens our socio-political systems.  And two, human economies are impacting the biosphere and its ecosystems in a way that is rapidly destroying, maybe totally, the Earth’s capacity to sustain human life.

Given that the economies most responsible for this situation have been guided by the teachings of traditional economics, a fundamentally new discipline (and perhaps not to be called “economics”) must be quickly developed and made available to the public, especially to the young, who are increasingly aware of the crisis and have the most to lose.

The first stage of this project has included conversations with a variety of economists, including Jamie Galbraith, Andrew Mearman, Alicia Puyana Mutis, Bertrand Hamaide, John Komlos, Katherine N. Farrell, and Gar Alperovitz.  Sam de Muijnck and Joris Tieleman, the leaders of Rethinking Economics/Our New Economy are involved with similar goals and activities to ours, and we hope to coordinate with them as well as with others similarly motivated, such as Leslie Harroun and Ted Howard at the Democracy Collaborative, to take advantage of our overlapping interests and activities.  Our conversations to date have resulted in the following strategy statements:

Read more…

The magnitude of the required reductions

May 9, 2022 3 comments

from Ted Trainer and current issue of RWER

It is not commonly understood how large the reductions would have to be to enable a society that is globally sustainable and just. The World Wildlife Foundation’s Footprint measure (2018) estimates the average Australian per capita use of productive land at 6–8 ha. Thus, if the 9–10 billion people expected to be on earth by 2050 were to live as Australians do now, up to 80 billion ha of productive land would be needed. But there are only about 12 billion ha of productive land on the planet. If one third of it is set aside for nature then each Australian would be living in a way that would require about 10 times as much productive land as all people could ever have. Some other measures taking into account factors such as materials consumption (Wiedmann et al., 2015) indicate higher multiples.

To this must be added the implications of growth. If the Australian GDP rises by 3% pa and by 2050 all 9–10 billion people rise to the “living standards” Australians would then have, each year the global economy would be producing and consuming about 18 times as much as it does now. Yet the present amounts are unsustainable; the WWF estimates that the global footprint is now 70% higher than the planet could sustain. This indicates that the 2050 global resource and ecological impact would be in the region of 30 times a sustainable level. (For a detailed derivation of these multiples see Trainer 2021a.)

The common assumption that technical advance can solve the resource and ecological problems without impacting on affluent living standards and economic growth has now been contradicted by a large amount of evidence. Many studies show that despite constant effort to improve productivity and efficiency the growth of GDP continues to be accompanied by growth in resource use.

read more 

Economics phrasebook

May 9, 2022 1 comment

from Lars Syll

In 1990, two economics PhD students at the University of Chicago, Jeffrey Smith and Kermit Daniel … composed “Economics to Sociology Phrase Book” in order, as they put it, “to help economists adjust their way of speaking in a manner that will make it comprehensible to Sociologists” … Concerning economics terminology, by the way, one can see that not much has changed since then.

Oleg Komlik

economics sociology phrasebook

COVID-19 has shown that capitalism is not enough

May 8, 2022 3 comments

from Fernando García-Quero and Fernando López Castellano and current issue of RWER

Constructing the capitalist world-economy was only made possible through the use of racism and sexism as tools for the hierarchization and categorization of the population (Mbembe, 2000; Wallerstein, 2000). The history of capitalism is also the history of the open veins of the South and massive exploitation of natural resources (Galeano, 1972; Herrero, 2013). Its logic of accumulation entails irreconcilable contradictions and growing inequalities between centers and peripheries (Prebisch, 1949). In the field of Development Economics, the structural adjustment policies promoted by the Washington Consensus are a contemporary example (López Castellano, 2009), as are the Troika impositions which, in 2011, led to severe social cuts in countries like Spain or Greece (López Castellano and García-Quero, 2019). The dilemma of how best to balance public health, care for nature, and economic growth has been highlighted again as a result of the COVID-19. The suspension of work has led to a drastic reduction in environmental pollution, while putting the most vulnerable groups at greater risk. It has also shown how, despite their precariousness and low social recognition, various jobs linked to care and jobs with little monetary value are fundamental to sustaining and reproducing life. The challenge, therefore, is how to build a system with a production model that is compatible with human life and care for nature.

read more

Economic modelling

May 4, 2022 6 comments

from Lars Syll

A couple of years ago, Paul Krugman had a piece up on his blog arguing that the ‘discipline of modeling’ is a sine qua non for tackling politically and emotionally charged economic issues:

economist-nakedIn my experience, modeling is a helpful tool (among others) in avoiding that trap, in being self-aware when you’re starting to let your desired conclusions dictate your analysis. Why? Because when you try to write down a model, it often seems to lead some place you weren’t expecting or wanting to go. And if you catch yourself fiddling with the model to get something else out of it, that should set off a little alarm in your brain.

So when ‘modern’ mainstream economists use their models — standardly assuming rational expectations, Walrasian market clearing, unique equilibria, time invariance, linear separability and homogeneity of both inputs/outputs and technology, infinitely lived intertemporally optimizing representative agents with homothetic and identical preferences, etc. — and standardly ignoring complexity, diversity, uncertainty, coordination problems, non-market clearing prices, real aggregation problems, emergence, expectations formation, etc. — we are supposed to believe that this somehow helps them ‘to avoid motivated reasoning that validates what you want to hear.’

Yours truly is, to say the least, far from convinced. The alarm that sets off in my brain is that this, rather than being helpful for understanding real-world economic issues, is more of an ill-advised plaidoyer for voluntarily taking on a methodological straight-jacket of unsubstantiated and known to be false assumptions.

Let me just give two examples to illustrate my point Read more…

A world economy in disarray

May 2, 2022 2 comments

from C. P. Chandrasekhar

When the world’s financial leaders met mid-April at Washington for the annual spring meetings of the International Monetary Fund and the World Bank, the mood was one of gloom. The world economy is in disarray, with world leaders clueless as to where it is headed or what can be done to prevent a possible collapse. In the April 2022 edition of its World Economic Outlook, the IMF has slashed its 2022 GDP growth forecast of six months ago by 1.3 percentage points to 3.6 per cent, and projects growth to remain below that level for the next two years. Inflation that had emerged as a problem in 2021 has been accelerating over the past three months, and expectations that the price spike would be transitory seem wholly misplaced. And supply levels and price trends are signalling imminent crises in global energy and food markets, with frightful humanitarian implications for vulnerable nations and populations.

Four factors have combined to intensify global economic uncertainty. Read more…

Statistical inference and sampling assumptions

April 30, 2022 5 comments

from Lars Syll

Convenience Sample Grab Accidental Samplingor Opportunity Stockvektor  (royaltyfri) 1612664491Real probability samples have two great benefits: (i) they allow unbiased extrapolation from the sample; (ii) with data internal to the sample, it is possible to estimate how much results are likely to change if another sample is taken. These benefits, of course, have a price: drawing probability samples is hard work. An investigator who assumes that a convenience sample is like a random sample seeks to obtain the benefits without the costs—just on the basis of assumptions. If scrutinized, few convenience samples would pass muster as the equivalent of probability samples. Indeed, probability sampling is a technique whose use is justified because it is so unlikely that social processes will generate representative samples. Decades of survey research have demonstrated that when a probability sample is desired, probability sampling must be done. Assumptions do not suffice. Hence, our first recommendation for research practice: whenever possible, use probability sampling.

If the data-generation mechanism is unexamined, statistical inference with convenience samples risks substantial error. Bias is to be expected and independence is problematic. When independence is lacking, the p-values produced by conventional formulas can be grossly misleading. In general, we think that reported p-values will be too small; in the social world, proximity seems to breed similarity. Thus, many research results are held to be statistically significant when they are the mere product of chance variation.

Richard Berk & David Freedman

In econometrics one often gets the feeling that many of its practitioners think of it as a kind of automatic inferential machine: input data and out comes casual knowledge. This is like pulling a rabbit from a hat. Great — but first you have to put the rabbit in the hat. And this is where assumptions come into the picture. Read more…

There is no political constituency for free trade, it’s just a term used to justify screwing workers

April 29, 2022 2 comments

from Dean Baker

It is amazing how frequently policy types talk about “free trade” as though it is actually a policy anyone is interested in promoting. The reality is that what passes for free trade is a policy of removing barriers to allow low cost manufactured goods to enter the United States without restrictions. This puts downward pressure on the pay of manufacturing workers. Since manufacturing had historically been a source of high paying jobs for workers without college degrees (it is no longer), the loss of these jobs out downward pressure on the pay of non-college educated workers more generally.

A policy of genuine free trade would mean eliminating barriers that limit trade in physicians’ services as well as the services of highly paid professionals more generally. It would also mean weakening or eliminating patent and copyright monopolies, which can raise the price of protected items by many thousand percent above the free market price.

There is no political constituency for removing these protectionist barriers, as can be clearly seen by the fact that no major political figure is advocating this path. Instead, there is a strong political constituency, which includes many self-described liberals, for a trade policy designed to reduce the pay of non-college educated workers.

It is politically more salable to describe this policy as “free trade,” but it is a lie. Reporters should not describe it that way if they are trying to be objective.

On mathematics and economics

April 28, 2022 16 comments

from Lars Syll

Studying mathematics and logic is interesting and fun. It sharpens the mind. But economics is not pure mathematics or logic. It’s about society. The real world. Forgetting that, economics becomes nothing but an irrelevant and uninteresting ‘Glasperlenspiel.’ Or as Knut Wicksell put it already a century ago:

Knut-WicksellOne must, of course, beware of expecting from this method more than it can give. Out of the crucible of calculation comes not an atom more truth than was put in. The assumptions being hypothetical, the results obviously cannot claim more than a vey limited validity. The mathematical expression ought to facilitate the argument, clarify the results, and so guard against possible faults of reasoning — that is all.

It is, by the way, evident that the economic aspects must be the determining ones everywhere: economic truth must never be sacrificed to the desire for mathematical elegance.

Two routes to lower inflation

April 27, 2022 2 comments

from Dean Baker  

Inflation has stayed higher longer than I expected. I got that one wrong. I am happy to acknowledge my mistake, but I also want to know the reason why. This is not a question of finding excuses, I want to know why the economy is acting differently than I thought it would.

The most obvious reason is the supply chain disruptions that led to the original jump in prices have lasted longer and been more far-reaching than I expected. Part of this is due to the persistence of the pandemic, with the delta and omicron strains disrupting economies around the world.

The other major source of disruption is Russia’s invasion of Ukraine. This has blocked the supply of many items manufactured in Ukraine, but more importantly, the war reduces its ability to grow and sell wheat and other crops on world markets. There is also the risk of losing Russia’s oil and gas, which propelled oil prices to levels not seen in more than a decade.[1]

The idea that inflation would spike under such circumstances should not be surprising. As has been widely noted, the jump in inflation was worldwide, not just in the United States. The increase in the inflation rate was comparable in the European Union and the United Kingdom, so it obviously was not just a story of excessive stimulus in the United States. The break-even inflation rate on German 10-year government bonds are now essentially the same as in the United States, indicating that investors expect inflation in the two countries to be roughly the same over this period.

The logic here should not be hard to understand. The normal delivery of goods and services was disrupted by the pandemic. Since overall demand did not drop to anywhere near the same extent (due to various stimulus measures), we had shortages of many items, leading to sharp increases in prices.

Read more…

Oligarchs—American style

April 26, 2022 3 comments

from David Ruccio

There’s been a lot of talk about oligarchs these past couple of months. Russian oligarchs, that is—the billionaires who have accumulated vast amounts of wealth, including large stakes in Russian industries, mines, and banks, as well as superyachts, private jets, investment accounts, and real estate in the West. We’ve even learned their names: Vladimir Potanin, Leonid Mikhelson, Alexey Mordashov, and so on.*

They’re a pretty easy target, given Russia’s savage war on Ukraine. But what about the other oligarchs out there, why aren’t we talking about them?

They also capture and keep massive amounts of the surplus produced by workers around the globe, and then accumulate even larger amounts of wealth, which they can live off of and utilize as they see fit. Why aren’t they on our radar?

Oh, they do pop up periodically. When Telsa founder Elon Musk engages in a hostile takeover of Twitter or workers manage to organize a union in one of Jeff Bezos’s Amazon warehouses or Michael Bloomberg decides to run for president. But there’s really no sustained attention paid to them or how they have managed to become billionaires. Which is why ProPublica’s recent investigation into the finances of the wealthiest Americans is so important.

The report is the latest in a series ProPublica started in June 2021 that examines the tax records of the top 0.001-percent wealthiest Americans—400 individuals all of whom earn more than $110 million a year.** In this installment, they show that U.S. oligarchs contrive to pay taxes at a lower rate than other Americans, even very wealthy ones just below them on the economic pyramid, for two reasons: first, because much of their income is derived from investments, like stocks, which is taxed at a lower rate; and second, they are able to use large charitable donations to obtain huge deductions. Most American workers don’t own much in the way of stocks, and their gifts to charity do little to lower their taxable incomes.

So, who are these oligarchs? Read more…

Things to consider when reading Mankiw 9th ed. Chapter 1: Ten Principles of Economics

April 25, 2022 5 comments

from Rod Hill and the WEA Textbook Commentaries Project

  1. The definition of economics.

Mankiw begins by defining economics: “Economics is the study of how society manages its scarce resources. In most societies, resources are allocated … through the combined choices of millions of households and firms. Economists therefore study how people make decisions” about working, spending, saving and investing their savings. Economists “examine how the many buyers and sellers of a good together determine the price at which the good is sold at the quantity that is sold.” (p.1)

With this definition, the ‘economic problem’ becomes how to allocate scarce resources efficiently, i.e. putting them to their most valuable uses. This definition also sketches out the framework developed throughout the book: individual households and firms interacting in markets are the basic units of analysis. Government is put in the background in a supporting role.

This definition of economics is stated as fact, apparently not involving any value judgements. In fact, normative choices, that is choices involving values and moral judgements, are inescapable even in deciding how to define economics.

Emily Northrop points out that the assertion that resources are scarce is based on the idea that not everyone’s wants can be met given our limited resources. This is true, but (she writes) “to say that this inability is our fundamental economic problem is a normative choice.” Implicitly, it treats all desires equally, such as “one person’s desire to obtain a subsistence diet with another person’s desire for precious jewellery” (2000, p. 54). No distinction is made between basic needs and wants which arise because of what others have (e.g. ‘keeping up with the Joneses’). Defined in this way, the economic problem can never be solved because resources will always be scarce. Read more…

Significance testing and the real tasks of social science

April 25, 2022 Leave a comment

from Lars Syll

acAfter having mastered all the technicalities of regression analysis and econometrics, students often feel as though they are masters of the universe. I usually cool them down with the required reading of Christopher Achen’s modern classic Interpreting and Using Regression. It usually gets​ them back on track again, and they understand that

no increase in methodological sophistication … alter the fundamental nature of the subject. It remains a wondrous mixture of rigorous theory, experienced judgment, and inspired guesswork. And that, finally, is its charm.

And in case they get too excited about having learned to master the intricacies of proper significance tests and p-values, I ask them to also ponder on Achen’s apt warning:

Significance testing as a search for specification errors substitutes calculations for substantive thinking. Worse, it channels energy toward the hopeless search for functionally correct specifications and diverts​ attention from the real tasks, which are to formulate a manageable description of the data and to exclude competing ones.

WEA Commentaries – volume 12, issue 1

April 23, 2022 4 comments

Weekend read – Making thoughts unthinkable – the soft power of economic theory

April 22, 2022 2 comments

from Asad Zaman and WEA Pedagogy Blog

The 1932 science fiction novel Brave New World portrays a dystopian future where history is rewritten and words are redefined in order to make undesirable ideas “unthinkable.”footnote 1 The book is often associated with George Orwell’s 1984, where those who do anything undesired by those in power are made into an “unperson,” with all evidence of their history destroyed. When anyone speaks the unthinkable, they are simply defined out of existence.

More generally, in Brave New World, the populace is controlled by inundating them with false pleasure. In 1984, they’re inundated with needless painfootnote 2. Outside of fiction, here in the real world, both techniques are used. Examples of the former include endless escapism via streaming episodic video series, and modest privilege such as a decent home, car, and health coverage. Examples of the latter are to viciously crush, jail, or kill those already deeply oppressed.

Unthinkable thoughts are utilized by those in power to reduce the chances of actual dissent, by making the mere expression of dissent much more difficult. They do this by reshaping our language such that the ideas and concepts required to express dissent are no longer available.

This essay explores the concept of unthinkable thoughts and the power struggles lying beneath them, at all levels of society. It illuminates how those in power can coerce the rest of us into doing what’s desired without having to resort to direct force, starting with a simple example from a parent-child relationship. It ultimately demonstrates how mainstream economic theory (the macroeconomics of those already on top) is a primary tool of soft power, with two detailed examples of its “unthinkable thoughts.” It ends by imagining how one might come to terms with a lifetime of this kind of deception.

Written by Jeff Epstein, host of Activist #MMT, the podcast. Copy-edited by Ben Szioli. With thanks to Jonathan Wilson of pmpecon.com for valuable feedback, and Asad Zaman for guidance. This essay was originally published at activistmmt.org.

Using soft power to avoid hard power (parent-child)

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