The enduring popularity of ‘The Great Transformation’ by Polanyi

February 16, 2019 Leave a comment


Source: International Labour Organization

The most popular post on this blog is a summary of ‘The Great Transformation‘ by Polanyi. Which is remarkable as it is an old book about even older events: the transformation off traditional economies with a low rate of investment and little wage labor into modern economies with a high rate of investment and high levels of wage labor (Polanyi does not stress investments too much but see, in about the same period, Kuznets (1955) and Rostow (1959)). This economic process went together with a cultural revolution like the commodification of labor and time. Read more…

The times are changing – tax style

February 15, 2019 2 comments

from Peter Radford

The following is part of a correspondence I had recently with a friend here in Vermont:

The purpose of increasing taxes on the wealthy is twofold: one is to raise revenue; the other is to prevent growing concentration of wealth.  I think the second of the two is the more important.  The American system of opportunity and so on was founded on society being more equal than it is [not equal, but more equal].  As wealth gets entrenched further each decade inequality erodes that system and would eventually replace it with an “old world” class system.  So taxes on wealth are a buttress for democracy as much as a source of revenue. 

As for the funding for the various social and infrastructure being bandied about at the moment: I see no reason for us not to augment the increase in revenue generated by the above mentioned taxes by judicious borrowing and the implementation of new taxes such as the “Tobin” tax on financial transactions you mention. 

One of the most frustrating aspects of the current discussion is that whenever a social program is muted, so-called experts immediately decry its expense and the impact on the deficit.  We have to remember that the biggest cause of our current deficit has been the accumulated impact of the Reagan/Bush/Trump tax cuts none of which induced a corresponding increase in economic activity sufficient to allow the government to recoup the lost revenue. The only long term impact on the economy those tax cuts have had is to create the inequality we now suffer from.   Read more…

Attacking inequality at its roots

February 14, 2019 7 comments

from David Ruccio

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How else to put it? The levels of economic inequality in the United States are obscene.  Read more…

The vain search​ for The Holy Grail of Science

February 14, 2019 9 comments

from Lars Syll

Traditionally, philosophers have focused mostly on the logical template of inference. The paradigm-case has been deductive inference, which is topic-neutral and context-insensitive. The study of deductive rules has engendered the search for the Holy Grail: syntactic and topic-neutral accounts of all prima facie reasonable inferential rules. The search has hoped to find rules that are transparent and algorithmic, and whose following will just be a matter of grasping their logical form. Part of the search for the Holy Grail has been to show that the so-called scientific method can be formalised in a topic-neutral way. We are all familiar with Carnap’s inductive logic, or Popper’s deductivism or the Bayesian account of scientific method.


Read more…

USA income growth for the 1% vs the 90% 1917 to 2012

February 14, 2019 1 comment

Machine learning — puzzling Big Data nonsense

February 13, 2019 11 comments

from Lars Syll

maIf we wanted highly probable claims, scientists would stick to​​ low-level observables and not seek generalizations, much less theories with high explanatory content. In this day​ of fascination with Big data’s ability to predict​ what book I’ll buy next, a healthy Popperian reminder is due: humans also want to understand and to explain. We want bold ‘improbable’ theories. I’m a little puzzled when I hear leading machine learners praise Popper, a realist, while proclaiming themselves fervid instrumentalists. That is, they hold the view that theories, rather than aiming at truth, are just instruments for organizing and predicting observable facts. It follows from the success of machine learning, Vladimir Cherkassy avers, that​ “realism is not possible.” This is very quick philosophy!

Quick indeed!

The central problem with the present ‘machine learning’ and ‘big data’ hype is that so many — falsely — think that they can get away with analysing real-world phenomena without any (commitment to) theory. But — data never speaks for itself. Without a prior statistical set-up, there actually are no data at all to process. And — using a machine learning algorithm will only produce what you are looking for.

Machine learning algorithms always express a view of what constitutes a pattern or regularity. They are never theory-neutral.

Clever data-mining tricks are not enough to answer important scientific questions. Theory matters.

When politicians say “free trade,” they mean upward redistribution

February 12, 2019 4 comments

from Dean Baker

In Washington policy circles, being a supporter of free trade is pretty much comparable to saying you believe in evolution. All reasonable people say they accept the doctrine and agree that tariffs and other forms of protectionism are evil and dirty.

While there are good arguments for free trade as an economic policy, in the real world what passes for “free trade” is pretty much any policy that redistributes income upward, even if it is directly at odds with free trade. I have long harped on patent and copyright protection, both because I think that these government-granted monopolies are bad policy (at least in their current form), and because they are 180 degrees at odds with free trade.

The rationale for patents and copyrights is they provide incentives for innovation and creative work, but there is a rationale for every form of protectionism. This doesn’t change the fact that patent and copyright protection are still forms of protectionism. And, the imposition of stronger patent and copyright protections, which has been a central component of every trade deal for the last quarter-century, is a very costly form of protectionism.

Needless to say, the beneficiaries of this protectionism tend to be in the high end of income distribution. The list includes folks like Bill Gates, the pharmaceutical industry and the entertainment industry.  Read more…

Summary of the Great Transformation by Polanyi

February 11, 2019 4 comments

Although this post was published on this blog over five years ago, it continues to be downloaded a thousand times a month.  (editor)

from Asad Zaman

An earlier post by Mady provided an introduction to Polanyi’s classic work The Great Transformation. This book is crucial to understanding both HOW and WHY we need to re-structure economic education today. Unfortunately, the book is quite complex, a bit dry and technical at times, and consequently hard to follow. Although many leading economists have praised it, I did not see any glimmer of understanding of its central arguments anywhere in orthodox arena. Even among heterodox economists, it is not frequently mentioned or cited.

Mostly for the purposes of understanding it for myself, I set out to write a compact summary of the key arguments in the book. The central theme of the book is a historical description of the emergence of the market economy as a competitor to the traditional economy. The market economy won this battle, and ideologies supporting the market economy won the corresponding battle in the marketplace of ideas. I quote from the introduction of my article:  read more

Understanding government debts and deficits

February 10, 2019 26 comments

from Lars Syll

The balanced budget paradox is probably one of the most devastating phenomena haunting our modern economies. The harder politicians — usually on the advice of establishment economists — try to achieve balanced budgets for the public sector, the less likely they are to succeed in their endeavour. And the more the citizens have to pay for the concomitant austerity policies these wrong-headed politicians and economists recommend as “the sole solution.”

One of the most effective ways of clearing up this most serious of all semantic confusions is to point out that private debt differs from national debt in being external … A variant of the false analogy is the declaration that national debt puts an unfair burden on our children, who are thereby made to pay for our extravagances. Very few economists need to be reminded that if our children or grandchildren repay some of the national debt these payments will be made to our children or grandchildren and to nobody else. Taking them altogether they will no more be impoverished by making the repayments than they will be enriched by receiving them.

Abba Lerner The Burden of the National Debt (1948)

Few issues in politics and economics are nowadays more discussed — and less understood — than public debt. Read more…

Sickening inequality facts

February 9, 2019 7 comments

from Lars Syll


Farhad Manjoo promotes billionaire ideology in proposal to get rid of billionaires

February 9, 2019 2 comments

from Dean Baker

New York Times columnist Farhad Manjoo tells us that he likes to “explore maximalist policy visions” in his columns. He falls well short of this goal in a piece calling for abolishing billionaires, which actually helps legitimate their existence.

The piece repeatedly tells us that their wealth is driven by technology, a point that first appears in the subhead which refers to “tech-driven inequality.” The problem with Manjoo’s piece is that the inequality is not in fact driven by technology, it is driven by our policy on technology, specifically patent and copyright monopolies. These forms of protection do not stem from the technology, they are policies created by a Congress which is disproportionately controlled by billionaires.

If the importance of these government granted monopolies is not clear, ask yourself how rich Bill Gates would be if any start-up computer manufacturer could produce millions of computers with Windows and other Microsoft software and not send the company a penny. The same story holds true with most other types of technology. The billionaires get rich from it, not because of the technology but because the government will arrest people who use it without the patent or copyright holder’s permission.

This point is central to the debate on the value of billionaires. If we could get the same or better technological progress without making some people ridiculously rich, then we certainly don’t need billionaires (I discuss alternatives in chapter 5 of my book Rigged [it’s free].) But in any discussion of the merits of billionaires, it is important to understand that they got their wealth because we wrote rules that allowed it. Their immense wealth was not a natural result of the development of technology.

It is unfortunate that this idea is apparently too radical for Manjoo.

Let them pump biodiesel… Or: the French yellow vests are right about prices.

February 8, 2019 3 comments


There is a lot of ado about the French yellow vests who, somewhat violently and in a tenacious way protest the french government and battle the french police. The protests erupted when the Macron government increased gasoline and diesel prices.  Was this the proverbial drop which made the bucket overflow (”la goutte d’eau qui fait deborder la vase” or, to comply with Anglosaxon culture and to connect with the new nationalism in Anglosaxonia (not to be confused with Niedersachsen)): “the straw which broke the camels back”)? Yes, it was. Read more…

Socialism and exploitation

February 7, 2019 2 comments

from David Ruccio

If you listened to or read the text of President Trump’s State of the Union speech Tuesday night, you might have been surprised by the explicit mention of socialism.

Here, in the United States, we are alarmed by new calls to adopt socialism in our country. America was founded on liberty and independence — not government coercion, domination, and control. We are born free, and we will stay free.

Or maybe not—since just last year the Council of Economic Advisers apparently found it necessary to issue a report, on the cusp of the midterm elections, to push back against the fact that “socialism is making a comeback in American political discourse.” And Fox News is engaged in its own campaign against socialism, since “support for Karl Marx’s collectivist ideas is steadily increasing.”

The irony, of course, is that Trump and his principal media outlet are in part responsible for the growth of support for socialism and for policies that are often associated with socialism (such as raising taxes on the income and wealth of the rich).* Claiming that “our country is vibrant and our economy is thriving like never before” and then scapegoating immigrants in “organized caravans [that] are on the march to the United States,” while ignoring the effects of the largest tax break for large corporations in U.S. history—which, while boosting economic growth, executive salaries, and the stock market, leaves American workers further and further behind—makes the case for socialism even more compelling.

But interest in socialism was growing even before Trump took office, especially among millennials. The question is, why?  Read more…

Fallacies of financial fundamentalism

February 7, 2019 15 comments

from Lars Syll

Fallacy 2
Urging or providing incentives for individuals to try to save more is said to stimulate investment and economic growth.

Again, actually the exact reverse is true. In a money economy, for most individuals a decision to try to save more means a decision to spend less; less spending by a saver means less income and less saving for the vendors and producers, and aggregate saving is not increased, but diminished as vendors in turn reduce their purchases, national income is reduced and with it national saving. A given individual may indeed succeed in increasing his own saving, but only at the expense of reducing the income and saving of others by even more …

Saving does not create “loanable funds” out of thin air. There is no presumption that the additional bank balance of the saver will increase the ability of his bank to extend credit by more than the credit supplying ability of the vendor’s bank will be reduced … Attempted saving, with corresponding reduction in spending, does nothing to enhance the willingness of banks and other lenders to finance adequately promising investment projects. With unemployed resources available, saving is neither a prerequisite nor a stimulus to, but a consequence of capital formation, as the income generated by capital formation provides a source of additional savings.

Fallacy 3 
Government borrowing is supposed to “crowd out” private investment. Read more…

Yearly hours worked per capita in USA, Europe and rest of the world

February 5, 2019 4 comments

Progressive taxes only go so far. Pre-tax income is the problem

February 5, 2019 8 comments

from Dean Baker

In recent weeks, there have been several bold calls for large increases in progressive taxation. First we had Representative Alexandria Ocasio-Cortez (D-NY), often referred to as AOC, proposing a top marginal tax rate on income over $10 million. This sent right-wing talking heads into a frenzy, leading many to show they don’t know the difference between a marginal tax rate and an average tax rate. (AOC’s 70 percent rate would only apply to an individual’s income above $10 million.)

More recently, we had Senator Elizabeth Warren propose a wealth tax that would apply to people with assets of more than $50 million. This tax could have Jeff Bezos sending more than $3 billion a year to the Treasury.

Given the enormous increase in inequality over the last four decades, and the reduction in the progressivity of the tax code, it is reasonable to put forward plans to make the system more progressive. But, the bigger source of the rise in inequality has been a growth in the inequality of before-tax income, not the reduction in high–end tax rates. This suggests that it may be best to look at the factors that have led to the rise in inequality in market incomes, rather than just using progressive taxes to take back some of the gains of the very rich.  Read more…

Islam’s gift: an economy of spiritual development

February 4, 2019 17 comments

from Asad Zaman

My article with the title above is due to be published in the next issue of the American Journal of Economics and Sociology (2019). This was written at the invitation of the editor Clifford Cobb, as an introduction to Islamic Economics for a secular audience. The Paper explains how modern economics is deeply flawed because it ignores the heart and soul of man, and assumes that the best behavior for humans is aligned with short-sighted greed. Islam provides a radically different view, showing how generosity, cooperation, and overcoming the pursuit of desires leads to spiritual progress. Islam seeks to create a society where individuals can make spiritual progress and develop the unique and extraordinary capabilities and potentials which every human being is born with. Pre-print – to appear in American Journal of Economics and Sociology, 2019 – is available for view/download at the bottom of this post.

As an excerpt, I am posting Section 2 of the paper, entitled

The Flawed Foundations of Modern Economics

The defeat of Christianity in a battle with science led to an extraordinary respect and reverence for scientific knowledge, sometimes called the “Deification of Science,” in Europe (Olson 1990; Zaman 2015a).   This had fatal consequences. Even though all scientific knowledge is inherently uncertain, a concerted effort was made to prove the opposite—that scientific knowledge is not only certain, but it is the only source of certain knowledge.  Because of distortions necessary to prove something which was not true, the methodology of science was dramatically misunderstood by the logical positivists. read more

Gary Becker — making nonsense out of economic science

February 3, 2019 8 comments

from Lars Syll

1399387137298The econometrician Henri Theil once said “models are to be used but not to be believed.” I use the rational actor model for thinking about marginal changes but Gary Becker really believed the model. Once, at a dinner with Becker, I remarked that extreme punishment could lead to so much poverty and hatred that it could create blowback. Becker was having none of it. For every example that I raised of blowback, he responded with a demand for yet more punishment …

Alex Tabarrok

The alarm that sets off in my brain when reading Becker is that ‘rational actor models,’ rather than being helpful for understanding real-world economic issues, sounds more like an ill-advised plaidoyerfor voluntarily taking on a methodological straight-jacket of unsubstantiated and known to be false assumptions.  Read more…

Punching the clock

February 2, 2019 8 comments

Economics and reality

February 1, 2019 63 comments

from Lars Syll

Modern’ economics has become increasingly irrelevant to the understanding of the real world. In his seminal book Economics and Reality(1997), Tony Lawson traced this irrelevance to the failure of economists to match their deductive-axiomatic methods with their subject

It is — sad to say — as relevant today as it was twenty years ago.

It is still a fact that within mainstream economics internal validity is everything and external validity nothing. Why anyone should be interested in that kind of theories and models is beyond imagination. As long as mainstream economists do not come up with any export-licenses for their theories and models to the real world in which we live, they really should not be surprised if people say that this is not science, but autism!

Studying mathematics and logic is interesting and fun. It sharpens the mind. In pure mathematics and logic, we do not have to worry about external validity. But economics is not pure mathematics or logic. It’s about society. The real world.

Economics and Reality was a great inspiration to yours truly twenty years ago. It still is.