Cash industry association ESTA contradicts EU Advocate General on the right to pay in cash

October 27, 2020 Leave a comment

from Norbert Häring

ESTA, the association of European cash management companies, has published a position paper contradicting the assessment of the EU Advocate General of my case before the European Court of Justice regarding the right to pay my broadcasting fee with the legal tender, cash.

The opinion of the Advocate General is a recommendation to the highest EU court. The Advocate General has more or less adopted the anti-cash stance of the EU Commission. The Board of ESTA, in its opinion adopted on October 26, takes offence at the Attorney General’s assessment that private parties could, without meaningful restrictions, agree by explicit or implicit contractual agreement on a means of payment other than legal tender:

A limitation of legal tender based on contractual agreement, the legal basis of which is not specified in the Opinion, is incompatible with the EU treaties in as much as it bears the promise of the elimination of cash, as it allows market forces to gradually, but irreversibly, phase out cash in the economy.

I find the legal arguments behind it very convincing. Read more…

Reforming economics

October 26, 2020 12 comments

from Lars Syll

Robert Heilbroner Quote: “Before economics can progress, it must abandon  its suicidal formalism.” (7 wallpapers) - QuotefancyThe typical economics course starts with the study of how rational agents interact in frictionless markets, producing an outcome that is best for everyone. Only later does it cover those wrinkles and perversities that characterise real economic behaviour, such as anti-competitive practices or unstable financial markets. As students advance, there is a growing bias towards mathematical elegance. When the uglier real world intrudes, it only prompts the question: this is all very well in practice but how does it work in theory? …

Fortunately, the steps needed to bring economics teaching into the real world do not require the invention of anything new or exotic. The curriculum should embrace economic history and pay more attention to unorthodox thinkers such as Joseph Schumpeter, Friedrich Hayek and — yes — even Karl Marx. Faculties need to restore links with other fields such as psychology and anthropology, whose insights can explain phenomena that economics cannot. Economics professors should make the study of imperfect competition — and of how people act in conditions of uncertainty — the starting point of courses, not an afterthought. …

Economics should not be taught as if it were about the discovery of timeless laws. Those who champion the discipline must remember that, at its core, it is about human behaviour, with all the messiness and disorder that this implies.

Financial Times

Sunday morning rituals

October 25, 2020 2 comments

from Lars Syll

One of yours truly’s Sunday morning rituals is reading the obituary column of The Telegraph. This obit is rather typical:

Peter Scott, who has died aged 82, was a highly accomplished cat burglar, and as Britain’s most prolific plunderer of the great and good took particular pains to select his victims from the ranks of aristocrats, film stars and even royalty.

Peter Scott, 'King of thee Cat Burglers'According to a list of 100 names he supplied to The Daily Telegraph, he targeted figures such as Soraya Khashoggi, Shirley MacLaine, the Shah of Iran, Judy Garland and even Queen Elizabeth the Queen Mother — although he added apologetically that, in her case, the authorities had covered up by issuing a “D-notice ”.

In 1994 Scott wrote to the newspaper to say that he would consider it “a massive disappointment if I were not to get a mention in [its] illustrious obituary column” … He added that he had been a Telegraph reader since 1957, when newspapers were first allowed in prisons, “on account of its broad coverage on crime” …

He identified a Robin Hood streak in himself, too, asserting in his memoirs that he had been “sent by God to take back some of the wealth that the outrageously rich had taken from the rest of us” …

Always a meticulous planner, Scott bought a new suit before each job, so that he would not look out of place in the premises he was burgling. Fear, the possibility of capture, excited him.

In all, by his own reckoning, Scott stole jewels, furs and artworks worth more than £30 million. Read more…

Contemporary inequality is a challenge to economics

October 24, 2020 Leave a comment

from Peter Radford and The Inequality Crisis

The challenge of contemporary inequality is not just to the cohesion of modern society it is also a challenge to economics, because it is economics and its values that sit squarely within the social framework that has allowed inequality to become so pervasive and debilitating. We have built a society resting on only one view of liberty and equality, that of the economic sphere, rather than on a more holistic view that allows the inclusion of other spheres. We persist in believing ourselves as free, but it is a harsh and hollow freedom built upon individuality and isolated action, rather than on solidarity and communal action.

There are economists of a certain type who question whether there is any distortion produced by inequality. They often repeat the claim that inequality is a benign consequence, a side effect of little interest, to the march of economic progress and the accumulation of modern prosperity. It is a profound error to think this. Then again these same people are often oblivious to the existence and importance of society, so they regard themselves as bereft of such an error.

This is a denial of the history of the very ideas that they have used as the foundation of their perspective. Read more…

The time trend in global inequality

October 23, 2020 Leave a comment

from James Galbraith and Jaehee Choi and The Inequality Crisis

Inspection of trends and changes in inequality gives a strong clue to the sweep of events. There are four trends and three distinct turning points. From 1963-1971, no trend appears, and changes in individual countries are for the most part small. After 1971, while inequality increases in some of the wealthy countries, in much of the world it is declining. After 1980, there is a radical change, and the world enters on a period of large inequality increases, sweeping across regions beginning in Latin America and Africa, hitting Eastern Europe and the (former) USSR after 1989, and moving on to Asia in the 1990s. In 2000 there is a further turning point, after which stabilization and even modest declines in inequality are found in Russia, China, Latin America, parts of Africa and elsewhere. Figure 1 provides this time trend as estimated above, over the entire global data set. The key turning points in the early 1970s, in 1981, and 2000 emerge very clearly.

Figure 1 The Time Trend of Global Inequality

US   UK   JP   AU

Government-granted patent monopolies gave Purdue Pharma incentives to push opioids

October 22, 2020 1 comment

from Dean Baker

Maybe this is too obvious a point, but I don’t see it mentioned in news coverage of the company’s settlement. If we could ever have a serious debate on the relative merits of government-granted patent monopolies compared with direct upfront funding, as we did with Moderna’s research on a coronavirus vaccine, the incentive that patents give to lie about the safety and effectiveness of drugs would be an important factor.

Unfortunately, we may never have this debate because our policy types refuse to consider any alternatives to the patent monopoly system. It’s sort of like in the days of the Soviet Union, they didn’t have public debates on the merits of central planning.

What is ‘effective demand’?

October 22, 2020 2 comments

from Lars Syll

Samfundsøkonomi er en svær disciplin – også for topøkonomer - FINANSEconomists of all shades have generally misunderstood the theoretical structure of Keynes’s The General Theory. Quite often this is a result of misunderstanding the concept of ‘effective demand’ — one of the key theoretical innovations of The General Theory.

Jesper Jespersen untangles the concept and shows how Keynes, by taking uncertainty seriously, contributed to forming an analytical alternative to the prevailing mainstream general equilibrium framework:

Effective demand is one of the distinctive analytical concepts that Keynes developed in The General Theory. Demand and demand management have thereby come to represent one of the distinct trademarks of Keynesian macroeconomic theory and policy. It is not without reason that the central position of this concept has left the impression that Keynes’s macroeconomic model predominantly consists of theories for determining demand, while the supply side is neglected. From here it is a short step within a superficial interpretation to conclude that Keynes (and post-Keynesians) had ended up in a theoretical dead end, where macroeconomic development is exclusively determined by demand factors … Read more…

The wayward rise of machina-economicus

October 20, 2020 3 comments

from Gregory Danake and RWER issue 93

The nexus of mainstream (or neoclassical) economic theory is “homo-economicus” (or economic person). It is a super being who dwells in a fairy tale land with complete information and is obligated to act hedonistically (maximizing their individual utility at the margin). Neoclassic economists merely stamp out this little cookie person, and then chuck out all the inconvenient dough, including: altruism, reciprocation, and “moral sentiments” (as Adam Smith suggested in his virtually unknown first volume), not to mention behavioral proclivities and a modicum of concern for the natural environment. Their poor little cookie person has been bludgeoned to crumbs on empirical as well as philosophical grounds for decades (see, Fleming, 2017), and yet its specter lives on. Many ideas and actions of the mainstream have been widely condemned and disconfirmed, yet they persist, suggesting an inordinate level of scientific lassitude.

Some of the more potentially troubling aspects mainstream economics could receive a renewed lease on life, via selective applications of Artificial Intelligence. This is particularly relevant if it is merely used to shore up faulty theories regarding the dog-eat-dog nature of our society. MACHINA-EONOMICUS could be even more impenetrable and strengthen the illusion that the prevailing ideology is unassailable logic. Just when it began to look like the beleaguered cookie person was finally going to yield to the often befuddled (yet authentic) sense of our common humanity, s/he is being refurbished with even more mechanical workings. As AI further penetrates the raison d’état of the clandestine political economy, neoliberalism might be a reinvigorated. Read more…

Public debt — how much is too much?

October 19, 2020 3 comments

from Lars Syll.                                                                                                                              

Public debt is normally nothing to fear, especially if it is financed within the country itself (but even foreign loans can be beneficent for the economy if invested in the right way). Some members of society hold bonds and earn interest on them, while others pay taxes that ultimately pay the interest on the debt. The debt is not a net burden for society as a whole since the debt ‘cancels’ itself out between the two groups. If the state issues bonds at a low-interest rate, unemployment can be reduced without necessarily resulting in strong inflationary pressure. And the inter-generational burden is also not a real burden since — if used in a suitable way — the debt, through its effects on investments and employment, actually makes future generations net winners. There can, of course, be unwanted negative distributional side effects for the future generation, but that is mostly a minor problem since when our children and grandchildren ‘repay’ the public debt these payments will be made to our children and grandchildren. Read more…

TRADE WARS AFTER CORONAVIRUS – online WEA Discussion Forum opened today

October 19, 2020 1 comment

TRADE WARS AFTER CORONAVIRUS

Economic, political and theoretical implications

An online conference from the WEA, 19th October to 5th December, 2020

Read more…

Humanism or racism

October 18, 2020 2 comments

from Hardy Hanappi and issue 93 of RWER

The state of the global political economy is producing an extremely dangerous dynamic. The human species has conquered the planet, its productive forces are reaching ever more sophisticated levels and are arranged in a global network that would be able to transform growth of profits into growth of general welfare. But such a transformation needs a political agent, which is powerful enough to defeat the forces, which currently exploit large parts of the human population just to accumulate profits in the hands of some small, globally ruling classes.

The essential characteristic of the human species is that its members are using internal mental models to choose their actions. These models mostly are learned and shared by groups, constituting what in political economy has been called class consciousness. The formation of this consciousness partly takes place in local family and work contexts, partly it is shaped by the global information sphere. The structure of classes thus today can only be understood by taking the processing contradiction between local and global experiences serious. The successes of Fascism leading to WWII show that there are ways to interpret exploitation, which can mobilize the population of nation states against an imagined group of enemies. This strategy of a self-proclaimed new national ruling class to strengthen their new rule and the accompanying exploitation regime is called Racism. Read more…

Waiting for a vaccine and the collaborative research alternative

October 17, 2020 3 comments

from Dean Baker

It seems increasingly likely that China will begin providing vaccines to its own people, as well as those in some other countries, by December, and possibly as early as next month. The prospect of a vaccine being available that soon has to look good to people here, now that the Trump administration’s pandemic control efforts have completely failed. The whole country would like to get back to normal, but that doesn’t seem like a serious possibility until we have an effective vaccine widely available.

It seems China’s leading vaccine makers got ahead of the ones in the U.S. and Europe by using the old-fashioned dead virus approach to developing a vaccine. This is well-known technology that they were apparently able to quickly adapt for a vaccine providing protection against the coronavirus. This allowed for them to get into the field sooner with large-scale Phase 3 tests. It also has apparently created fewer issues with side effects than the mRNA vaccines being pursued here. In addition, the dead virus vaccines do not require super-cold storage, like the mRNA vaccines. That will be a huge problem in the developing world, but also a serious logistic problem even in the United States. Read more…

Truth and science

October 17, 2020 20 comments

from Lars Syll

What is truth in economics? | LARS P. SYLL In my view, scientific theories are not to be considered ‘true’ or ‘false.’ In constructing such a theory, we are not trying to get at the truth, or even to approximate to it: rather, we are trying to organize our thoughts and observations in a useful manner.

Robert Aumann

What a handy view of science.

How reassuring for all of you who have always thought that believing in the tooth fairy make you understand what happens to kids’ teeth. Now a ‘Nobel prize’ winning economist tells you that if there are such things as tooth fairies or not doesn’t really matter. Scientific theories are not about what is true or false, but whether ‘they enable us to organize and understand our observations’ …

Mirabile dictu!

What Aumann and other defenders of scientific storytelling ‘forgets’ is that potential explanatory power achieved in thought experimental models is not enough for attaining real explanations. Model explanations are at best conjectures, and whether they do or do not explain things in the real world is something we have to test. To just believe that you understand or explain things better with thought experiments is not enough. Without a warranted export certificate to the real world, model explanations are pretty worthless. Proving things in models is not enough. Truth is an important concept in real science.

Pandemic Depression

October 16, 2020 2 comments

from David Ruccio

U.S. billionaires have recouped all of their wealth—and more—during the Pandemic Depression. Meanwhile, since May, the number of poor Americans has grown by about 8 million. And the number of American workers applying for and receiving unemployment benefits continues at record levels.

According to Forbes,

Pandemic be damned: America’s 400 richest are worth a record $3.2 trillion, up $240 billion from a year ago, aided by a stock market that has defied the virus.

Read more…

Hours worked, EU and UK Covid-19 edition.

October 15, 2020 Leave a comment

Source

Measuring the labor market and understanding labormarket data has recently been more of a challenge than usual. Read more…

Studying economics — a total waste of time

October 14, 2020 11 comments

from Lars Syll

obscurant-1One may perhaps, distinguish between obscure writers and obscurantist writers. The former aim at truth, but do not respect the norms for arriving at truth, such as focusing on causality, acting as the Devil’s Advocate, and generating falsifiable hypotheses. The latter do not aim at truth, and often scorn the very idea that there is such a thing as the truth …

These writings have in common a somewhat uncanny combination of mathematical sophistication on the one hand and conceptual naiveté and empirical sloppiness on the other. The mathematics, which could have been a tool, is little more than toy … Hard obscurantist models, too, may have some value as tools, but mostly they are toys.

Jon Elster

It’s hard not to agree with Elster’s critique of mainstream economics and its practice of letting models and procedures become ends in themselves, without considerations of their lack of explanatory value as regards real-world phenomena. The message writes itself: If you’re really interested about what goes on in our economies — stay away from economics! Read more…

The Theil inequality index: a flexible tool for the modern political economist

October 14, 2020 Leave a comment

Contrary to the Gini-index, the Theil inequality index enables us to directly tie estimates of inequality to the class and ownership structure of a society. As such, it’s an indispensable tool for the political economist, requiring a-priori knowledge of political economic theory but also an inductive reading of the sources and the situation. So, why is the Gini and not the Theil index often the economists inequality metric of choice? 

The Gini-index is an often used metric to estimate inequality. As such, it is highly useful. But for the political economist it has a fundamental drawback. It does matter if people are rich or poor and it does show the extent of differences in income or wealth. But it doesn’t matter if people are laborers or a capitalists, teachers of ‘precarious workers’, landowners or farmers, men or a women or black or white. The Gini-index can be used to measure but not to analyze inequality in a direct, metric consistent way. The are metrics, like the Theil index, which do enable this. Even then, economists have come to use exactly the Gini index (and not the Theil index) as their favorite tool for the measure inequality. Why? Branco Milanovic has some interesting ideas: Read more…

Economics education needs a revolution

October 13, 2020 16 comments

from Lars Syll

mummyYou ask me what all idiosyncrasy is in philosophers? … For instance their lack of the historical sense, their hatred even of the idea of Becoming, their Egyptianism. They imagine that they do honour to a thing by divorcing it from history sub specie æterni—when they make a mummy of it.

Friedrich Nietzsche

Nowadays there is almost no place whatsoever in economics education for courses in the history of economic thought and economic methodology. This is deeply worrying. History and methodology matter! A science that doesn’t self-reflect on its own history and asks important methodological and science-theoretical questions about the own activity, is a science in dire straits.

How did we end up in this sad state? Read more…

Limits of mainstream economics today

October 12, 2020 2 comments

from David Ruccio

Keynes’s criticisms of neoclassical economics set off a wide-ranging debate that came to define the terms of—and, ultimately, the limits of debate within—mainstream economics.

On one side are neoclassical economists, who celebrate the invisible hand and argue that markets are the best way to efficiently allocate scarce resources. On the other side are Keynesian economists, who argue instead for the visible hand of government intervention to move markets toward full employment.

That tension, between the theories and policies of neoclassical and Keynesian economics, is the reason why in most colleges and universities the principles of economics are taught in two separate courses: microeconomics and macroeconomics. Moreover, the tension between the two schools of thought plays out within every area of economics, including (but certainly not limited to) microeconomics and macroeconomics.

One way of understanding the differences between the two approaches is to think about them as conservative and liberal interpretations of mainstream economics. Conservative mainstream economics tend to presume that the basic assumptions of neoclassical economics hold in contemporary capitalism, while liberal mainstream economists think they don’t.

Let’s consider two examples. Read more…

Waiting for a vaccine: Killing for inequality

October 11, 2020 1 comment

from Dean Baker

I have been harping on the fact that it is very likely China will be mass producing and distributing a vaccine at least a month, and quite possibly several months, before the United States. This should make people very angry.

Even a month’s delay is likely to mean tens of thousands of avoidable deaths and hundreds of thousands of avoidable infections. And, it adds a month to the time period before we can get back to living normal lives. Of course, the delay could end up being many months, since we still have no idea how the clinical trials will turn out for the leading U.S. contenders.

We are in the situation where we can be waiting several months for a vaccine, after one has already been demonstrated to be safe and effective, because the Trump administration opted to pursue a route of patent monopoly research, as opposed to open-source collaborative research. If Trump had gone the latter route, as soon as China, or anyone, had a vaccine, everyone would have a vaccine, or at least everyone able to manufacture it.

Patent Monopoly Financing Versus Open Source

Since people seem to find the alternative to Trump’s patent monopoly approach confusing, let me outline it simply, so that people can see what is at issue. As it turned out, Trump quite explicitly turned the development of a vaccine into a race. He created “Operation Warp Speed,” to which he committed more than $10 billion of public funds. This effort is supposed to develop both vaccines and treatments for the coronavirus.

Read more…