from Dean Baker
The prospects for the Trans-Pacific Partnership (TPP) are not looking very good right now. Both parties’ presidential candidates have come out against the deal. Donald Trump has placed it at the top of his list of bad trade deals that he wants to stop or reverse. Hillary Clinton had been a supporter as secretary of state, but has since joined the opposition in response to overwhelming pressure from the Democratic base.
As a concession to President Obama, the Democratic platform does not explicitly oppose the TPP. However it does include unambiguous language opposing investor-state dispute settlement mechanisms — the extra-judicial tribunals that are an integral part of the TPP.
If the political prospects look bleak there also is not much that can be said for the economic merits of the pact. The classic story of gaining from free trade by removing trade barriers doesn’t really apply to the TPP primarily because we have already removed most of the barriers between the countries in the pact.
The United States has trade deals in place with six of the 11 countries in the TPP, so tariffs with these countries are already at or very near zero. Even with the other five countries, in most cases the formal trade barriers are already low, so pushing them to zero will not have much economic impact. Read more…
from Robert Locke
Erich Fromm’s 1941 book, with this title, came to mind while watching Donald Trump and his followers in the Cleveland arena. In his book
“Fromm distinguishes between ‘freedom from’ (negative freedom) and ‘freedom to’ (positive freedom). The former refers to emancipation from restrictions such as social conventions placed on individuals by other people or institutions. This is the kind of freedom typified by the Existentialism of Sartre, and has often been fought for historically, but according to Fromm, on its own it can be a destructive force…Fromm analyzes the character of Nazi ideology and suggests that the psychological conditions of Germany after the first world war fed into a desire for some form of new order to restore the nation’s pride. This came in the form of National Socialism and Fromm’s interpretation of Mein Kampf suggests that Hitler had an authoritarian personality structure that not only made him want to rule over Germany in the name of a higher authority … but also made him an appealing prospect for an insecure middle class that needed some sense of pride and certainty.” Widepedia.
Only he could save America Trump proclaimed to the cheering Trumpites, sprewing out a hate of Hillary Clinton that resembled the mindless chants of Hitler’s followers against the November criminals who made peace and “betrayed” Germany in 1918. In a Germany beset with massive unemployment and saddled with the war guilt clause by the victorious allies in the Versailles treaty, Hitler fanatics were willing to escape from the freedom of the Weimar Republic into a National Socialists dictatorship. History never repeats itself, but the hatred of Clinton and willingness to submit to Donald Trump I saw in the arena was a frightening reminder of events in the 1930s when Germany went berserk.
from Dean Baker
Thanks in large part to Sen. Bernie Sanders, the Democratic Party recently added a financial transactions tax to its platform. In his run for the presidential nomination, Sanders had promoted the idea of an FTT — a small sales tax on the purchase of stocks, bonds or other financial assets — as a way to finance free college for everyone, with money left over for infrastructure and other important needs. The idea has currency beyond the platform, too: Rep. Peter A. DeFazio (D-Ore.) recently reintroduced an earlier proposal for a tax of 3 cents on every 100 dollars on most financial transactions.
Talk of FTTs scares the financial industry: They would significantly reduce the industry’s revenue and profits. As soon as anyone starts taking FTTs seriously, the industry immediately begins issuing dire warnings — which, unsurprisingly, almost always amount to nonsense.
Of late, the industry has taken to pretending that the real victims of an FTT won’t be the high rollers on Wall Street, but rather middle-class families. If families have 401(k)s, industry complainers say, they will have to pay more for the trades done by the people who manage their funds. Likewise, if they have a traditional pension, each trade made by the pension will cost more.
There’s a basic problem with the industry’s logic. A great deal of research shows that trading of stock and other financial assets is hugely responsive to the cost of trading. In fact, most research shows that if the cost of trading goes up by a certain amount — say 20% — the number of trades will fall by an even larger amount, say 25%. Read more…
from Peter Radford
We hear it all the time. It is a relentless drum beat on the left. Capitalism, we are told, is in crisis. This crisis is manifested in all sorts of ways. We – meaning those of us on the left – need to prepare. We need to counter attack. We need to seize this moment and retrieve from the mess whatever we can. Democracy, in various forms depending on who is writing, is our way forward. Only through democracy can we save society from the crisis in capitalism.
Where, exactly is this crisis?
This occurs to me because at the same time leftist writers are proclaiming the existence of crisis they are often, simultaneously, proclaiming the ever increasing divide in social inequality as defined by income or wealth. Capitalists are doing quite nicely I would imagine if these concerns over inequality are correct. Which they are.
So, where, exactly, is this crisis?
If capitalists are taking and ever increasing share of the national income, if they are accumulating an ever increasing proportion of the national wealth, and if they have managed to wrestle effective control of the ship of state from the majority of ordinary folks, how can they be in crisis? I would argue that things look pretty dandy if you’re one of them.
There is no crisis in capitalism if you are a capitalist. You’re on a winning roll. You are loving life.
It’s the rest of us that have a problem. We are the ones mired in crisis. We don’t have a crisis of capitalism. We have a crisis because of capitalism. That’s a big difference. Read more…
I read the rule book – and am not that sure anymore if the Irish GDP figures were calculated ‘according to the rules’. Due to the relocation of headquarters of the headquarters of some large multinational corporations the Irish statisticians mapped an increase of, especially, profit income of the Irish economy of 60 billion euro in two years. Which is a lot, for a country of 4 million people. Eurostat agrees, as it was, according to Eurostat, calculated according to the Eurostat rules. But was it? I don’t think so. According to the ESA 201o (the rule book) just relocating a headquarter (or a ‘centre of predominant economic interest’, as it’s called in the rule book), is not enough. The same for ‘transfer pricing’. It is also about where production actually takes place. An excerpt (article 2.07) from the rulebook, emphasis added: Read more…
There has recently been a fuzz about the 26% Irish 2015 GDP growth rate. For more timely discussion of this phenomenon,look here and here on this blog (though I have to admit that I was flabbergasted too by the upward revision of Irish growth from about 9% to about 26%: beyond imagination). What to make of this? The Irish Central Statistical Office is not happy about it, too, and states: “the CSO intends to convene a high-level cross-sector consultative group” to address this situation. Two points for this discussion: Read more…
from Norbert Häring
On Monday the World Bank made it official that Paul Romer will be the new chief economist. This nomination can be seen as a big step back toward the infamous Washington Consensus, which World Bank and IMF seemed to have left behind. This is true, even though Paul Romer has learned quite well to hide the market fundamentalist and anti-democratic nature of his pet idea – charter cities – behind a veil of compassionate wording.
Romer won significant academic merits with his theory of endogenous growth. He modelled the production of new knowledge within his model rather than letting it drip from sky in convenient increments, as growth theory had done before. At first sight, this sounds like a good qualification for the task at hand. However, Romer has admitted in an interview that it is of rather little use for development economics, because it fails to discriminate between the production of new knowledge at the knowledge frontier, i.e. in highly developed industrial countries, and the adaption of knowledge, which is of particular importance for catch-up processes in poor countries. Still is honors him, that he knows and talks about the limits of his theory. Read more…
from Lars Syll
Reasoning is the process whereby we get from old truths to new truths, from the known to the unknown, from the accepted to the debatable … If the reasoning starts on firm ground, and if it is itself sound, then it will lead to a conclusion which we must accept, though previously, perhaps, we had not thought we should. And those are the conditions that a good argument must meet; true premises and a good inference. If either of those conditions is not met, you can’t say whether you’ve got a true conclusion or not.
Neoclassical economic theory today is in the story-telling business whereby economic theorists create make-believe analogue models of the target system – usually conceived as the real economic system. This modeling activity is considered useful and essential. Since fully-fledged experiments on a societal scale as a rule are prohibitively expensive, ethically indefensible or unmanageable, economic theorists have to substitute experimenting with something else. To understand and explain relations between different entities in the real economy the predominant strategy is to build models and make things happen in these “analogue-economy models” rather than engineering things happening in real economies.
from Robert Locke
In a recent article,”The Milton Friedman Doctrine is Wrong. Here’s How to Rethink the Corporation,” Susan Holmberg and Mark Schmitt intoned: “We won’t fix the problem until we address the nature of the corporation.” at http://economics.com/milton-friedman-doctrine-wrong-heres-rethink-corporation/. Egmont Kakarot-Handtke asserts that sciences of society make no contribution to economics because they are scientifically invalid — to which I replied that his assertion is not true because the neoclassical economists who took over economics in the 20th century excluded history and social studies from the discipline’s purview. History and social studies could make no contribution since they have been ignored. The neoclassical economists’ failure to incorporate firm governance into the economists’ dialogue is a prime example of what I mean. Read more…
from Peter Radford
This is not a time to dwell on the inconsistencies and even contradictions of the recent uprising of populism in the western world. Treat it as a fact. It just is. For there can be no mistaking the trend: people, large numbers of people, in a large swathe of Europe and America really are unhappy with their lot in life. Really unhappy. Fully 52% of Republican supporters of Donald Trump tell pollsters that they are angry with the way the country is going. Not just unhappy or disappointed, but angry. Anger leads to really bad political decision making. It is not a constituent of reasoned argument. It leads too quickly to rash thought and even to hatred.
One theme that emerges from this populist moment is the identification of immigration as a source of concern. No, not just concern, but of deep unease. People in both the UK and the US can be heard demanding that they “get their country back”. Leaders in both nations have lamentably failed to identify the importance of immigration as a lightening rod for malaise. Nor have they reacted with anything sensible as policy.
Here in America the reason most often given for the failure to deal with immigration is the gridlock in Washington. It is impossible to begin a conversation about immigration policy because the pre-existing political positions are so well laid out and well established that any talk leads immediately to a conformation of gridlock. So stasis abounds and people get more and more impatient.
The same goes for economic policy. This is what interests me most of course. The failure of economics is breath-taking. Read more…
from Lars Syll
Almost a century and a half after Léon Walras founded neoclassical general equilibrium theory, economists still have not been able to show that markets move economies to equilibria. What we do know is that — under very restrictive assumptions — unique Pareto-efficient equilibria do exist.
But what good does that do? As long as we cannot show, except under exceedingly unrealistic assumptions, that there are convincing reasons to suppose there are forces which lead economies to equilibria – the value of general equilibrium theory is nil. As long as we cannot really demonstrate that there are forces operating — under reasonable, relevant and at least mildly realistic conditions — at moving markets to equilibria, there cannot really be any sustainable reason for anyone to pay any interest or attention to this theory. A stability that can only be proved by assuming “Santa Claus” conditions is of no avail. Most people do not believe in Santa Claus anymore. And for good reasons. Santa Claus is for kids.
Continuing to model a world full of agents behaving as economists — “often wrong, but never uncertain” — and still not being able to show that the system under reasonable assumptions converges to equilibrium (or simply assume the problem away), is a gross misallocation of intellectual resources and time.
In case you think this verdict is only a heterodox idiosyncrasy, here’s what one of the world’s greatest microeconomists — Alan Kirman — writes in his thought provoking paper The intrinsic limits of modern economic theory: Read more…
from Asad Zaman
Ideology and Science are diametrically opposed to each other. An ideology is a set of beliefs that is maintained even in face of strong empirical evidence to the contrary. Science is primarily concerned with explaining the empirical evidence. Theories which conflict with observations are rejected. This does not mean that ideology is necessarily wrong or bad – we must maintain our belief in justice, morality, honesty, trust, integrity without any empirical evidence; indeed, even when strong empirical evidence suggests that these beliefs will not bring us popularity or personal benefits. However, ideological beliefs in wrong ideas can blind us to the facts and prevent learning which is essential to progress. Nobel Laureate Joseph Stiglitz remarked that modern Economics represents the triumph of ideology over science. This essay explains the reasons for his remarks.
Modern economic theory is founded on axioms for rational behavior, which is equated with selfish behavior by economists. No empirical evidence is presented for this axiom; rather it is taken to be self-evident. In the 1980’s some psychologists, perplexed by the economic theories of human behavior, decided to test these theories via some experiments. Amazingly, nearly all experiments conducted showed human behavior to be strongly in conflict with the economic axioms. A widely replicated experiment is called “The Prisoner’s Dilemma”. This game is similar to many real life situations, where an individual can benefit by betraying a social agreement, as long as other parties stick to the agreement. However, if all people betray the agreement, then everybody loses. Economic theory predicts that selfish individuals will betray agreements, and social conventions of cooperation will break down. However, real life experiments show that cooperation and maintenance of social conventions, even with complete strangers, is quite common. Generally, economic theory assumes that selfish motives dominate all others. However, real life behavior in experiments displays a large variety of motivations, based on reciprocity, trust, generosity, charity, morality, and other motives which are assumed absent in economic theories. read more