More projection from the right: CEPR is not well-funded

May 8, 2021 3 comments

from Dean Baker

I was happy to see the New York Post take note of the work of the Revolving Door Project (RDP) at the Center for Economic and Policy Research. RDP has been very aggressive in vetting potential appointees in the Biden administration. It tries to prevent people with clear conflicts of interest from getting top-level jobs.

The immediate basis for the Post’s ire was the fact that Alex Oh was forced to step down from a top position at the Securities and Exchange Commission (SEC). Before getting the position at the SEC, Oh had worked at a major corporate law firm where she represented several of the country’s largest companies. One of these was Exxon-Mobil, which she defended in a suit claiming that claimed it was responsible for rape, torture, and murder committed by the Indonesian military in the vicinity of one of the company’s oil drilling operations. A judge in the case considered Oh’s conduct sufficiently egregious that he asked her to produce evidence that she should not be subject to sanctions. (Those interested in a fuller account of RDP’s case against Oh can read it here.) Read more…

Weekend Read – Regime change — Technology style

May 7, 2021 3 comments

from Peter Radford

I have mentioned many times here that one of the ways in which economics has ventured astray is in its selection of capital and labor as the core constituents of production.  These are, to me, political and not economic quantities.  They are, at best, an approximation of reality and the farther we venture from the origins of modern technologically driven economic development the less useful the approximation becomes.  This is because they draw a veil over the essence of what went on: the first great wave of industrialization — the first great technological regime to borrow a phrase from Nelson and Winter — was centered on the substitution of different sources of power to drive production.  It was the harnessing and application of new sources of energy that defined this first regime.  

For most of history the energy needed to do the work necessary for human subsistence came in an animate form.  Either human or animal muscle power provided the energy to convert the natural world into something useable by our ancestors in their quest for survival.  Through the course of millennia wind and water were also tamed to assist, but even so most work was done by muscle.   Read more…

Vaccines and underdevelopment as dependency

from Maria Alejandra Madi

The current vaccination scenario calls for a reflection on the conceptualization of underdevelopment as a process of dependency. Nowadays, to understand the big picture of the production and trade of vaccines, for instance, it is necessary to consider the analysis of the dynamics of the world-wide capitalist system.

Indeed, the access to vaccines has put in question the modernization process in Latin America. Regarding the global South, the Brazilian Celso Furtado was undoubtedly an intellectual who aimed to achieve economic transformation social change. Strong influence on him had the interpretation of the Argentinian Raúl Prebish, particularly the center-periphery approach to the understanding of the Latin American underdevelopment based on a deep critique to the competitive advantages approach to growth in the international economy. As a matter of fact, Furtados´s main contribution turned out to be known as the “structural and historical approach” to underdevelopment.

In his view, throughout the 20th century, the modernization presented further land, wealth and income concentration in Latin America.  Indeed, it was a false modernization process as it did benefit only a minority and reinforced the structural heterogeneityread more

March of the billionaires – chart

May 6, 2021 3 comments

Causal explanation of autonomy and invariance of regression relationships

from Asad Zaman

Brief History of Econometrics: Launched in early 20th Century by Ragnar Frisch, econometric methodology was strongly shaped by the Cowles Commission (CC) in the 1960’s. The CC approach relied on structural equations, which embodied causal information known in advanced to the researcher. The goal was estimation of causal effects, and not discovery or assessment of the hypothesized causal structures. The oil shock of the 1970’s led to dramatic failures of macroeconomic regression models, leading to general distrust of econometric methodology. Two major critiques emerged.  read more

China and U.S. GDP: Purchasing Power Parity – chart

May 5, 2021 Leave a comment

Source: International Monetary Fund.

“As the chart shows, China’s economy first passed the U.S. in 2017. It is projected to be more than 16 percent larger this year, and by 2025 is projected to be almost 40 percent larger by 2025.” Dean Baker

Hunting for causes (wonkish)

May 4, 2021 3 comments

from Lars Syll

Causality and CorrelationThere are three fundamental differences between statistical and causal assumptions. First, statistical assumptions, even untested, are testable in principle, given sufficiently large sample and sufficiently fine measurements. Causal assumptions, in contrast, cannot be verified even in principle, unless one resorts to experimental control. This difference is especially accentuated in Bayesian analysis. Though the priors that Bayesians commonly assign to statistical parameters are untested quantities, the sensitivity to these priors tends to diminish with increasing sample size. In contrast, sensitivity to priors of causal parameters … remains non-zero regardless of (non-experimental) sample size. Read more…

Financial transactions taxes: The perfect way to pay for Biden’s infrastructure package

May 3, 2021 4 comments

from Dean Baker

There has been a lot of silliness around President Biden’s proposed infrastructure packages and the extent to which they are affordable for the country. First and foremost, there has been tremendous confusion about the size of the package. This is because the media have engaged in a feast of really big numbers, where they give us the size of the package with no context whatsoever, leaving their audience almost completely ignorant about the actual cost.

We have been told endlessly about Biden’s “massive” or “huge” proposal to spend $4 trillion. At this point, many people probably think that Biden actually proposed a “huge infrastructure” package, with “huge” or “massive,” being part of proposal’s title.

While it would be helpful if media outlets could leave these adjectives to the opinion section, the bigger sin is using a very big number, that means almost nothing to its audience, without providing any context. In fact, much of the reporting doesn’t even bother to tell people that this spending is projected to take place over eight years, not one to two years, as was the case with Biden’s recovery package.

Over an eight-year period, Biden’s proposed spending averages $500 billion annually. This Read more…

Neoliberal economists announce . . .

May 3, 2021 Leave a comment

from Ken Zimmerman (originally a comment)

Neoliberal economists announce to all, whether they want to hear it or not regularly, those who are wealthy and powerful deserve both, and more due to their greater intelligence, commitment, foresight, and competitive spirit. They deny that prejudices of any kind, racial, ethnic, gender, political, etc. play any part in such determinations. Referencing to the old Grouhcho Marx’s joke, these economists want us to believe their theory rather than our eyes. Each day our own experiences both as ‘formal’ scientists and in everyday interactions force us to face many instances in which these and many other prejudices determine our chances in life and who and what we become. What does that make neoliberal economists? At best idiot savants. At worst dangerous liars and propagandists.

USA income redistribution in top one percent 1913 to 2019

May 2, 2021 Leave a comment

Hunting for causes (wonkish)

May 1, 2021 2 comments

from Lars Syll

Causality and CorrelationThere are three fundamental differences between statistical and causal assumptions. First, statistical assumptions, even untested, are testable in principle, given sufficiently large sample and sufficiently fine measurements. Causal assumptions, in contrast, cannot be verified even in principle, unless one resorts to experimental control. This difference is especially accentuated in Bayesian analysis. Though the priors that Bayesians commonly assign to statistical parameters are untested quantities, the sensitivity to these priors tends to diminish with increasing sample size. In contrast, sensitivity to priors of causal parameters … remains non-zero regardless of (non-experimental) sample size.

Second, statistical assumptions can be expressed in the familiar language of probability calculus, and thus assume an aura of scholarship and scientific respectability. Causal assumptions, as we have seen before, are deprived of that honor, and thus become immediate suspect of informal, anecdotal or metaphysical thinking. Read more…

Covid-19 in India – profits before people

May 1, 2021 4 comments

from Jayati Ghosh

The unfolding pandemic horror in India has many causes. These include the complacency, inaction and irresponsibility of government leaders, even when it was evident for several months that a fresh wave of infections of new mutant variants threatened the population. Continued massive election rallies, many addressed by the prime minister, Narendra Modi, brought large numbers to congested gatherings and lulled many into underplaying the threat of infection.

The incomprehensible decision to allow a major Hindu religious festival the Mahakumbh Mela, held every 12 years—to be brought forward by a full year, on the advice of some astrologers, brought millions from across India to one small area along the Ganges River and contributed to ‘super-spreading’ the disease. Unbelievably, the last major ‘ritual bathing’ goes ahead today!

The exponential explosion of Covid-19 cases and it is likely much worse than officially reported, because of inadequate testing and under counting of cases and deaths has revealed not just official hubris and incompetence but lack of planning and major deficiencies in the public health system. The shortage of medical oxygen, for instance, has effectively become a proximate cause of death for many patients.

Failing vaccination programme

But one significant and entirely avoidable reason for the catastrophe is the failing vaccination programme. Read more…

World map of expected covid-19 vaccination coverage

April 30, 2021 3 comments

Wicked problems in economic policy

from Maria Alejandra Madi

While the study of wicked problems is not new, there is a need to develop a broader understanding of its scope in policies under the paradigm of complexity. The origin of the term “wicked Problem” goes back to Rittel and Webber’s (1973) questioning of the validity of technical-scientific approaches in social policy and urban planning. In the face of complexity and uncertainty, these problems require iterative approaches, with the consideration of multiple causes and stakeholders.

More than four decades later, however, there are strong arguments for the development of new topics generated, such as problem framing, policy design, policy capacity and the contexts of policy implementation. According to the OECD, wicked problems are dynamic and persistent in nature. They feature multiple interactions with other social issues and involving many actors. For example, climate change, migration, poverty, unemployment, social exclusion and development are all wicked problems.

According to the report Tackling Wicked Problems (Australian Public Service Commission, 2007), policy makers should consider: read more

Neoliberal globalization

April 30, 2021 8 comments

from Ted Trainer and current RWER issue

The conventional approach to development assumes that movement towards a single unified global economic system is desirable. This is seen as providing greater access for all to markets, productive and export opportunities and sources of imports. Globalization involves reducing impediments to trade and investment such as tariffs, protection, subsidies and government intervention in the market. The pressure is on economies and individuals to produce for sale into the global economy in order to earn the income needed to purchase from it. 

This arrangement has significant benefits but it forces all nations, regions and individuals into competing in the one market and many inevitably fail to do this very effectively. Nations must focus on selling whatever resources they have cheaply. The poorest people and regions, and some entire countries, especially in Africa and the Pacific, are largely irrelevant to the interests of transnational corporations and therefore cannot expect much investment or development. They have no cheap resources to attract foreign investors and could not compete in export markets if they did.

Globalization is in the interests of rich nations and their corporations because it increases their freedom of access to resources and consumers in all countries. It involves leaving development to market forces, which in effect means that there will only be development of whatever it suits the corporations to develop.

A large literature has now accumulated documenting the damaging effects neoliberal globalization has had on many people and nations.

http://www.paecon.net/PAEReview/issue95/Trainer95.pdf

Stage III of industrialization: the pursued era

April 29, 2021 2 comments

from Richard Koo

This golden era does not last forever. At  some  point, wages reach a level where foreign competition can gain a foothold. The first signs of a serious threat to Western economic growth appeared when businesses in  the  US and Europe encountered Japanese competition in the 1970s.

Many in the West were shocked to find that Japanese cars required so little maintenance and so few repairs. The Germans may have invented the automobile, and the Americans may have established the process by which it could be manufactured cheaply, but it was the Japanese who developed cars that did not break down. The arrival of Nikon F camera also came as a huge shock to the German camera industry in the 1960s because it was so much more rugged, adaptable, easy to  use  and  serviceable than German Leicas and Exaktas, and professional photographers around the world quickly switched to the Japanese brand. For the  first  time since the industrial revolution, the West found itself being pursued by a formidable competitor from the East.

Once a country is being chased by a technologically savvy competitor, often with a younger and less expensive labor force, it has entered the third or “pursued” phase of economic development. In this phase, it becomes Read more…

Wealth vs. income concentration in OECD countries – chart

April 29, 2021 2 comments

The 3 foundations of the bifurcation of economics and politics

April 28, 2021 1 comment

from Shimshon Bichler and Jonathan Nitzan and RWER current issue

Foundation 2: The self-equilibrating economic machine

This view emerged together – and remains deeply interlaced – with the mechanical cosmology of the seventeenth century. Throughout history, human beings, perhaps as a way of alienating themselves from nature, have tended to politicize their cosmos, imposing on their natural environment the power structures of their own society.[1] And this politicization continues in the liberal-capitalist order.

Think of the mechanical world, articulated since Machiavelli by Kepler, Galileo, Descartes, Hobbes, Locke, Hume, Leibnitz and above all Newton. The gods of this liberal cosmos represent absolute rationality, or natural law. The structure of this natural law is numerical and its language mathematical. The universe it gives rise to is flat. The particles that populate it have no inherent hierarchy. They don’t obey or submit, but freely interact through attraction and repulsion. Their actions and reactions are dictated not by a lineage of differential obligations, but by universal gravity. They are tuned not to the willful caprice of the Almighty, but to the structured relations between force and counterforce and the invisible power of equilibrating inertia.

This flat universe mirrors the flat ideals of liberal society. Reduced to its bare essentials, the liberal cosmos is a perfectly competitive market, populated by particles – or actors – each of which is too small to significantly affect the overall outcome. The actions of these particles – namely the market’s producers and consumers – are determined not by patriarchal responsibilities, but by scarcity – the gravitational force of the social universe. They are repelled from and attracted to each other not by feudal obligations, but through the universal utilitarian functions of supply and demand. And they obey not the dictates of hierarchy, but the equilibrating force of the invisible hand.

These mutual reflections help explain why politics and economics must remain distinctly constituted, and why politics must be seen as subservient to economics: if they are not, the arbitrary character of politics – and of power more generally – is bound to distort if not totally annul the rational-mathematical automaticity of the perfectly competitive economy; with mathematical rationality gone, liberals lose their universal laws of the economy and Marxists their capitalist laws of value, if not of motion; and with these laws defunct, political economy can no longer claim to be the science of society.   read more  

The U.S. is facing 20 formidable headwinds

April 27, 2021 3 comments

from John Komlos and current RWER issue

Cultural challenges are insurmountable

  1. The defective dominant ideology of neoliberalism characterized “by a huge overestimation of the wisdom of market processes,” has seeped into the popular culture to such an extent that it is difficult to make the citizenry understand that the best government is not one that governs the least.[1] It easy for market aficionados to label progressive politicians who aspire to improve the condition of the poor through government programs as socialists.

Social challenges are deeply rooted

  1. Endemic racism haunts the social fabric. The lack of jobs, the mediocre educational system, and the limited safety net available to minorities makes it difficult to improve their life. The unemployment rate among minorities is usually twice that of whites. African Americans are 1.8 times as likely to be poor than their share of the population and their annual median household income was $24,600 less than that of whites in 2016. They are looked down upon because of their poverty, but their poverty is due to lack of opportunity and inferior schools available to them.
  1. It is widely recognized that the economy in unjust and is not working for half of the population. The top 1% earn 20% of national income. The bailouts of the financial system in 2008 left all the banks in the top 1% of the wealth distribution. None of them sank down into the middle class. Dick Fuld, who bankrupted Lehman brothers, still has $250 million in the bank, while Angelo Mozilo who bankrupted Countrywide Financial has $600 million. However, eight million families were callously evicted from their homes without mercy. Such asymmetric bailouts are indicative of the power of the oligarchy that fueled the populism harnessed by the Trump presidency.[2]
  1. The primary and secondary educational system remains mediocre. So, it does not prepare the next generation for the IT revolution. Furthermore, a large share of the poor is unable to afford college education so important in today’s economy. Hence, the significant demand for IT professionals is unmet. Yet, money is not available to improve the educational system.
  2. Life expectancy was falling even before the pandemic. The 150,000 people who die of “deaths of despair” provide evidence of the immense anxiety at the low end of the income distribution.[3] Such epidemic of suicide does not occur in a good economy.

The economy is out of balance      read more

Brief history of econometrics

April 26, 2021 5 comments

from Asad Zaman

Launched in early 20th Century by Ragnar Frisch, econometric methodology was strongly shaped by the Cowles Commission (CC) in the 1960’s. The CC approach relied on structural equations, which embodied causal information known in advanced to the researcher. The goal was estimation of causal effects, and not discovery or assessment of the hypothesized causal structures. The oil shock of the 1970’s led to dramatic failures of macroeconomic regression models, leading to general distrust of econometric methodology. Two major critiques emerged. The Sims critique argued that hypothesized causal structures were false, and should be abandoned. We should go back to a purely descriptive analysis, looking for patterns in the numbers, without any reference to the real world phenomena represented by these numbers. Directly opposite was the Lucas critique which said that regression models were based on surface relationships between the numbers and ignored the deeper causal structures which drive these relationships. Regression models would fail when economic regimes underwent structural change – precisely when they were most needed. Neither approach has led to successful macro models. Models based on both approaches, as well as more conventional macro models, failed dramatically in the Global financial crisis. The fundamental problem lies in the failure of econometrics to incorporate causal inference correctly.

Causal Explanation of Autonomy & Invariance of Regression Relationships