Two books which I haven’t read (yet). Reviews welcome.
Piet Keizer (full disclosure: former teacher of mine):
Multidisciplinary Economics. A methodological account.
Part I: Science, Social Science, Economics
2: The Character of Science
3: Genesis and Development of Economics and Sociology
Part II: Orthodox Economics
4: Orthodox Microeconomics
5: Orthodox Macroeconomics
Part III: Heterodox Economics
6: Evolution and Entrepreneurship, an Evolutionary and an Austrian View
7: Radical Economics
8: Post-Keynesian Economics
9: Social Economics
Part IV: Psychology for Economists
10: Psychology for Economists
Part V: Sociology for Economists
11: Macro and Micro Approaches in Sociology
12: The Historical Approach in Sociology
13: Multidisciplinary Sociology and The Social World
Part VI: Towards an Integration of the Three worlds
14: Integration of the Three Worlds
15: Applications of the Multi-motivational Framework of Interpretation
Part VII: Conclusions
A. The Logical World
B. Kant for Economists
C. Jung for Economists
D. Adam Smith as the Founding Father of Multidisciplinary Economics
And William Mitchell,
from Peter Radford
The 2012 Page, Bartels, and Seawright paper makes interesting reading. I came across it via the Krugman blog and recommend it to you all.
The key is that this is a first small attempt to quantify the difference in perspective between the ‘wealthy’ and the ‘general public’. The paper is thus an important step along the way towards understanding why it is that so much of our political discourse seems totally blind to the reality as experienced by the vast majority of our citizens.
If, like me, you have come to believe that our policy makers have a narrow focus and that their focus overlaps more with that of the wealthy and/or big business than it does with ordinary folk, then this paper is a start to getting empirical support for that feeling.
The paper’s concluding paragraph is worth quoting in full: Read more…
from Dean Baker
Volatility in the stock market over the last couple of weeks has caused enormous unease among investors big and small. Tens of millions of people with much of their retirement money in the market are worried about seeing a sudden plunge in prices. Many of these people will sell their stock to protect themselves from further losses, which demonstrates the basic problem with making retirement income dependent on an unstable, unpredictable exchange.
The story is that people tend to make bad decisions when they manage their money in the stock market. They are likely to sell at a low point after the market has just taken a big tumble, as has happened in the last two weeks. Then they buy back in during a run-up, paying much more than if they’d just held on to their stock. Read more…
‘Headline’ unemployment in Italy is, since the end of 2013, stable around a very high 12,5%. Don’t let this fool you – there is more between work and inactivity than headline unemployment. ‘Disillusioned’ workers, which do not have a job and are able to start working within two weeks but which are not actively seeking are not counted as ‘officially unemployed’. And in Italy the amount of ‘disillusioned workers’ – already by far the highest of Europe – is rising rapidly. I.e.: ‘broad’ unemployment in Italy is rising rapidly, too. Which makes the failure of Italian and Eurozone economic policies even larger. Mind the low amount of ‘disillusioned workers’ in Greece – broad unemployment in Greece and Italy is at about the same level!
from Peter Radford
I have been accused of a few things. I appear to have upset some people. For this I apologize.
I need to explain in order that we can all move on.
Let me begin my stating my belief that economics, in all its multiple instantiations, is a vital discipline. It seeks to get at the heart of one of our most important activities, and it seeks to discover what can be called truths about those activities. It then propagates what it learns and passes its wisdom along to those outside and who might then act upon that wisdom in order to organize human life more properly. However they define ‘properly’.
So I begin with a profound belief in the importance of economics. Read more…
from David Ruccio
I’ve been listening to and reading lots of financial pundits over the course of the past week—all of whom use the same lingo (the U.S. economy as the “cleanest shirt in the hamper,” the “deterioration in risk appetite” around the globe, and so on) and try to explain the volatility of the stock markets in terms of economic “fundamentals” (like the slowing of the Chinese economy, the prospect of deflation in Europe, and so on).
Me, I’m much more inclined to think of terms of uncertainty, unknowability, and “shit happens.”
Let’s face it: stock markets are speculative markets, in the sense that individual and institutional investors are always speculating (with the aid of computer programs) about how others view the market in order to make their bets—with fundamental uncertainty, unknowability, and the idea that shit happens. That is, they have hunches, and they have no idea if their hunches are correct until others respond—with the same amount of uncertainty, unknowability, and the idea that shit happens. And then all of them make up stories (using the lingo of the day and often referring to changes in the “fundamentals”) after the fact, to justify whatever actions they took and their advice to others. Read more…
Looking at neoclassical macro-models through the lens of economic statistics. Today: consumption. See at the end for part 1-6.
Claudio Borio, chief economist of the Bank of International Settlements, gave a speech on how the concept of the current account is used in neoclassical macro models and is not happy. Without any reservation in can be included in this series (even includes some ‘Lucas bashing’ as it states that the ‘Lucas Paradox’ (Robert Lucas, before 2008 the most influential neoclassical macro economists, coined this idea to explay why capital often flows from poor to rich countries) is based upon a poor understanding of the concept of the current account). According to Borio:
As these models are often non-monetary in nature, a ‘sudden stop’ (i.e. foreign and domestic banks which suddenly stop financing
imports of a country companies like supermarkets or car dealers which want to import) can’t be modelled as a change in the behaviour of banks (which is what actually takes place) but has to be modelled either as a sudden change in the propensity to import of the importing country or a sudden change in the propensity to export of the exporting country. Banks and financial flows are outside the scope of the models.
Economists conflate the micro and macro concept of saving. On the micro level, when you save money your stock of money (or, when you invest it in other financial assets, your stock of financial assets) increases. On the macro level, this micro behaviour however does not lead to an increase in the amount of money and the only real saving takes place when the money is invested in new real assets (houses, new medicines, etcetera).
from David Ruccio
Clearly, Pope Francis’s criticisms of capitalism (as I have discussed here and here) have touched a nerve. They certainly have in the case of Harvard’s Ricardo Hausmann, who attempts to argue both that capitalism is not responsible for causing poverty and that more capitalism will eventually eliminate poverty.
Hausmann’s story is a very familiar one. What it comes down to is the idea that the majority of people before capitalism arrived one the scene were poor and as capitalism develops and more and more people became wage-laborers with rising real wages. But areas of the world still remain outside of capitalism and those people will remain poor unless and until capitalism is allowed to fully develop.
It’s a story that is as old as Adam Smith’s Wealth of Nations, and it’s been told and retold by generations of classical and neoclassical economists ever since. Read more…
from Peter Radford
This is meant as a friendly gentle nudge:
As we all know markets are heavenly creations of exquisite perfection. Free and impersonal markets that is. We just know this. It just is. Free impersonal markets are what have delivered us all from the abominations of servitude and the darkest poverty. They have enlightened us. The have illuminated us. They are what have enabled us to discover what we now know. Our literature, our arts, our politics, our cultures, our very beings are due entirely to the ability of free impersonal markets to grab hold of the tyrannical state and demolish its suffocating grip.
Markets said free, and they were free.
That in a democracy we the people are the state and so apparently have our own hands on our own throats is of no consequence. That ‘we the people’ stuff is just a veil behind which lurks the monster of the state waiting to bash us with another calamitous and inevitably doomed policy. Even if that policy was conceived with the best intentions. Read more…
from Steve Keen
In this post I consider the economy in general: I’ll cover asset markets in particular in the next column, but you’ll need to understand today’s post to comprehend the stock and property market dynamics at play. Having said that, the Shanghai Index fell another 7.5% on Tuesday, after losing 8.5% on Monday, and is now down over 45% from its peak—so I’ll try to write the stock-market-specific post by tomorrow. In this post I’ll show, very simply, why a slowdown in the rate of growth of private debt will cause a crisis, if both the level and the rate of change of debt are high at the time of the slowdown. Read more…
from David Ruccio
All the advice today—as the the Dow Jones Industrial Average fell by 1,089 points in the morning and, at this writing, remains almost 450 points below the opening—has been the same: keep calm and carry on investing.
from Dean Baker
Andrew Ross Sorkin seems prepared to pronounce Ken Rogoff to be prescient once again with his prediction that China would run into a debt crisis. Rogoff’s past claims to prescience might be viewed as somewhat questionable. He, along with co-author Carmen Reinhardt, famously argued that countries face a severe slowdown in growth when their debt to GDP ratios exceed 90 percent. It turned out that this claim was driven by an error in an Excel spreadsheet, nonetheless it was used to justify austerity in the euro zone, the United States and elsewhere. This austerity did help to worsen the downturns caused by the collapse of asset bubbles, in effect contributing to the crisis that Sorkin credits Rogoff with predicting. Read more…
from Dean Baker
We are seeing the usual hysteria over the sharp drop in the markets in Asia, Europe, and perhaps the U.S. (Wall Street seems to be rallying as I write.) There are a few items worth noting as we enjoy the panic.
First and most importantly, the stock market is not the economy. The stock market has fluctuations all the time that have nothing to do with the real economy. The most famous was the 1987 crash which did not correspond to any real world bad event that anyone could identify.
Even over longer periods there is no direct correlation between the stock market and GDP. In the decade of the 1970s the stock market lost more than 40 percent of its value in real terms, in the decade of the 1980s it more than doubled. GDP growth averaged 3.3 percent from 1980 to 1990 compared to 3.2 percent from 1970 to 1980.
Apart from its erratic movements, the stock market is not even in principle supposed to be a measure of economic activity. It is supposed to represent the present value of future profits. This means that if people are expecting the economy to slowdown, but also expect a big shift in income from wages to profits, then we should expect to see the market rise. So there is no sense in treating the stock market as a gauge of economic activity, it isn’t.
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by Richard Smith $20
“This book is essential reading for anyone opposed to planetary suicide.” David Klein, Truthout
For over a year now Spain shows high year on year employment growth. Excellent news and a clear sign of a serious recovery! But does this also mean that structural reforms are paying off? Four remarks:
A) The graph shows that. before 2008 (i.e.: before the reforms of the labour market), the Spanish labour market was extremely dynamic already, showing the highest rates of job growth of the entire North Atlantic economy. Which means that the 3% growth we witness at this moment is not any kind of proof of the success of structural reforms.
from Peter Radford
How do you calculate the marginal productivity of an economics professor? Especially a tenured professor. Especially a tenured professor who advocates economics theories based upon ‘marginalist’ thought.
And do they apply those theories to their own lives?
Do they believe that the theories they advocate and promulgate are representations of reality?
If so they must surely live by those theories. Their lives must reflect those ideas. Their day to day existence must mimic the ideas they fill student’s heads with.
I am not so much interested in the fun discussions of cutting edge ideas that occupy their time in graduate seminars, professional meetings, conferences and the like, but, rather, in what they teach everyday students. What do they teach students who are taking only one of two economics classes and whose knowledge of the economy will rest entirely on that exposure? Read more…
Econ 101 textbooks are misleading more than a million students a year in the U.S. alone because they leave the lasting impression that markets could solve all our economic problems if only they were left to themselves. Not even the horrendous sub-prime mortgage-crisis bailout in 2008 and 2009, amounting to trillions of dollars, shook the professions’ faith that the markets know best. They continue to invoke the “invisible hand” metaphor coined by Adam Smith in 1776, without conceding that the global economy has undergone several revolutions and changed profoundly during the intervening centuries. Outdated metaphors will not help but only hinder any effort to understand where we have gone wrong, and why, and what to do about it.
Happily, some students are beginning to see the disconnect between the idealized, theoretical version of economics thought on blackboards and its real-world variant. That is exactly why students walked out of Gregory Mankiw’s Principles of Economics (Econ 10) class at Harvard in 2011,1 and provided him a written explanation for this symbolic gesture: Read more…
Governments have, just like banks, quite some ‘off balance sheet’ debt, which is considered not to to be part of the ‘official’ debt of the government as it is not primarily owed by the government but by a government controlled ‘entity’. The government is, however, often responsible when things go wrong. Especially Germany has a lot of this kind of debt. Greece has remarkably few of such contingent debts. What kind of organizations make up these ‘entities’? A full 121%-point of the 126% of GDP contingent debt of Germany is caused by ‘units involved in financial activities’ (Sparkassen and the like, 40% of all banking assets in Germany are owned by public banks). Mind that these banks have assets too, of course. But ‘contingent government liabilities’ for banks not controlled by the government, the kind of liabilities which cause Brussels to wreck the European welfare states (cut pensions to save the bankers), are not included in these data. Fun fact: the third bailout memorandum for Greece states in a rather shrill, almost hysterical way that CEO’s of banks have to be independent of the government. The German Sparkassen of course aren’t. Germany was one of the very few countries which did not have a house ownership and price bubble.
from Mark Weisbrot
As the ever-lengthening U.S. election season begins to heat up, it is interesting to compare the U.S. and Europe regarding the evolution of their politics since the world financial crisis and recession (2008-09). In Europe, there has been quite a bit of political upheaval, with center-left parties often losing a large part of their voters. In Greece, to take the most dramatic example, the Panhellenic Socialist Movement (PASOK) is now polling just 3 percent of the electorate, after decades of wining around 40 percent or more of the vote. There have been significant losses of popularity for similar center-left parties in Spain, Italy, France and other countries — although some have yet to materialize in elections. In Greece, the leftist Syriza party has gotten most of the disaffected voters and took power this year; in Spain, the newly created leftist Podemos party shot up to the top quickly, although it has fallen some in polls recently. In France it has been the extreme right National Front that gained most, and in Italy, the new populist Five Star Movement. Read more…
from Lars Syll
The U.S. economy has, on the whole, done pretty well these past 180 years, suggesting that having the government owe the private sector money might not be all that bad a thing. The British government, by the way, has been in debt for more than three centuries, an era spanning the Industrial Revolution, victory over Napoleon, and more.
But is the point simply that public debt isn’t as bad as legend has it? Or can government debt actually be a good thing?
Believe it or not, many economists argue that the economy needs a sufficient amount of public debt out there to function well. And how much is sufficient? Maybe more than we currently have. That is, there’s a reasonable argument to be made that part of what ails the world economy right now is that governments aren’t deep enough in debt.
Krugman is absolutely right.
Why? Read more…
I love (most) companies. I love (most) markets. And like Ricardo Hausmann I totally think that investments and increases in scale led to unimaginable increases in productivity, though we have to remember that the largest absolute increase in productivity in spinning took place when the distaff was replaced by the spinningwheel – according to a woman I once talked with at a local fair, who had mastered the distaff as well as the spinning wheel, the wheel is two to three times as productive. I.e. – it cut the time needed to spin a certain amount in half. Such improvements in productivity also enabled increases in prosperity – including shorter working weeks, though we should not forger that people spinning in putting out systems using the spinning wheel or the many single women in pre industrial revolution urban centers were, ahem, not always the most prosperous members of society – though they took part in a well defined market system. Unlike Hausmann, however, I do think that government production (most roads, most education, large parts of healthcare and insurance) is an important part of our present prosperity, too. Hausmann does not even mention this – just like the neoclassical macro models, which almost always assume that government production has zero value by nature. Hausmann also forgets about rent extraction, for instance by multinationals who want to drill for oil and natural gas in Peru and are not taxed enough. And Hausmann is wrong about Peru, too. That’s not a dirt poor country and poverty is (according to world bank data) falling fast, while economic growth is, compared with the South American average, high and stable. Again: why doesn’t Project Syndicate (the site which published the Hausmann blog) have a better fact checker! Read more…