People are not spending down their savings II

June 30, 2022 1 comment

from Dean Baker

Last month I wrote a piece where I managed to mangle a very simple point. While the reported saving rate had fallen in April, it was actually due to people paying more capital gains taxes, not the result of households spending down savings.

The issue here is straightforward. Saving is defined as the portion of disposable income that is not consumed. Savings can fall either because either consumption has increased, or disposable income has fallen.

We are not seeing especially rapid consumption growth in 2022 (real consumption actually fell in May), rather we are seeing weak growth in disposable income, which is defined as personal income, minus tax payments. The story here is not that personal income growth has been weak, but rather that tax payments have soared.

The May data show taxes being paid at an annual rate of $3,123.4 billion (NIPA Table 2.1, Line 26). This is up by 41.6 percent, from the $2,205.1 billion paid in taxes in 2019.

This big jump in tax payments cannot be explained by an increase in tax rates. There have been no major increases in taxes since 2019. Rather, the jump in taxes almost certainly reflects large capital gains tax payments that people are making on stock they have sold in the last year. The huge runup in the stock market means that many people would have substantial amounts of taxable gains. Read more…

Maternal mortality in US compared to . . .

June 29, 2022 Leave a comment


The Law of Demand

June 28, 2022 2 comments

from Lars Syll

Mainstream economics is usually considered to be very ‘rigorous’ and ‘precise.’ And yes, indeed, it’s certainly full of ‘rigorous’ and ‘precise’ statements like “the state of the economy will remain the same as long as it doesn’t change.” Although ‘true,’ this is, however — like most other analytical statements — neither particularly interesting nor informative.

As is well known, the law of demand is usually tagged with a clause that entails numerous interpretation problems: the ceteris paribus clause. In the strict sense this must thus at least be formulated as follows to be acceptable to the majority of theoreticians: ceteris paribus – that is, all things being equal – the demanded quantity of a consumer good is a monotone-decreasing function of its price …

Wissenschaftstheorie: Hans Albert feiert 100. Geburtstag - Forschung & LehreIf the factors that are to be left constant remain undetermined, as not so rarely happens, then the law of demand under question is fully immunized to facts, because every case which initially appears contrary must, in the final analysis, be shown to be compatible with this law. The clause here produces something of an absolute alibi, since, for every apparently deviating behavior, some altered factors can be made responsible. This makes the statement untestable, and its informational content decreases to zero.

One might think that it is in any case possible to avert this situation by specifying the factors that are relevant for the clause. However, this is not the case. In an appropriate interpretation of the clause, the law of demand that comes about will become, for example, an analytic proposition, which is, in fact, ​true for logical reasons, but which is thus precisely for this reason not informative …

Various widespread formulations of the law of demand contain an interpretation of the clause that does not result in a tautology, but that has another weakness. The list of the factors to be held constant includes, among other things, the structure of the needs of the purchasing group in question. This leads to a difficulty connected with the identification of needs. As long as there is no independent test for the constancy of the structures of needs, any law that is formulated in this way has an absolute ‘alibi’. Any apparent counter case can be traced back to a change in the needs, and thus be discounted. Thus, in this form, the law is also immunized against empirical facts. To counter this situation, it is in fact necessary to dig deeper into the problem of needs and preferences; in many cases, however, this is held to be unacceptable, because it would entail crossing the boundaries into social psychology.

Hans Albert

In mainstream economics there’s — still — a lot of talk about ‘economic laws.’ Read more…

Neoliberals do not like a free market, but they want you to think they do

June 26, 2022 2 comments

from Dean Baker   

It was very frustrating to read Noam Scheiber’s profile of Jaz Brisack, the person who led the first successful union organizing drive at a Starbucks. Brisack does sound like a very impressive person and it is good to see her getting the attention her efforts warrant. However, Scheiber ruins the story by repeatedly telling readers that the neoliberals, who have dominated political debate in recent decades, want a free market. Nothing could be further from the truth.

I will start the indictment with their support of intellectual property. Government-granted patent and copyright monopolies transfer many hundred billion dollars annually from the rest of us to the top 10 percent, and especially the top one percent. Bill Gates would still be working for a living if the government didn’t threaten to arrest anyone who made copies of Microsoft software without his permission.

Then we have “free trade.” The neoliberals made it a top priority to make it as easy as possible to bring in cheap manufactured goods from developing countries. This cost millions of manufacturing jobs, and put downward pressure on the pay of noncollege educated workers more generally.

Read more…

Mainstream economics — the art of building fantasy worlds

June 25, 2022 2 comments

from Lars Syll

Mainstream macroeconomic models standardly assume things like rational expectations, Walrasian market clearing, unique equilibria, time invariance, linear separability and homogeneity of both inputs/outputs and technology, infinitely lived intertemporally optimizing representative household/ consumer/producer agents with homothetic and identical preferences, etc., etc. At the same time, the models standardly ignore complexity, diversity, uncertainty, coordination problems, non-market clearing prices, real aggregation problems, emergence, expectations formation, etc., etc.

How to Build a Fantasy Economy - YouTubeBehavioural and experimental economics — not to speak of psychology — show beyond doubt that “deep parameters” — peoples’ preferences, choices and forecasts — are regularly influenced by those of other economic participants. And how about the homogeneity assumption? And if all actors are the same — why and with whom do they transact? And why does economics have to be exclusively teleological (concerned with intentional states of individuals)? Where are the arguments for that ontological reductionism? And what about collective intentionality and constitutive background rules? Read more…

Should Ukraine be part the EU?

June 24, 2022 15 comments

Ukraine applied for EU membership. The application has been accepted, the long journey towards membership has started. Good? Bad? Let’s first be honest about the EU. And the Russian empire – which of course is the main motivator behind the Ukrainian application.

We can be short about the Russian empire. It is large, resource rich, not exactly a failed state but governed by a closed self- enriching criminal gang of with fantasies about a Russian greatness which never existed. It’s also an economic dwarf, undemocratic, technological regressing, it has dismal demographics and a low life expectancy (especially for males). For the last twenty years of so, been extremely aggressive towards, especially, small neighbors. And its a stated aim of Putin to expand all this beyond the borders of Ukraine, whatever the means.

The EU is different. It’s not just an economic entity. It’s a military entity, too. According to the treaty:

If a Member State is the victim of armed aggression on its territory, the other Member States
shall have towards it an obligation of aid and assistance by all the means in their power, in
accordance with Article 51 of the United Nations Charter. This shall not prejudice the specific
character of the security and defence policy of certain Member States.

Commitments and cooperation in this area shall be consistent with commitments under the North
Atlantic Treaty Organisation, which, for those States which are members of it, remains the foundation of their collective defence and the forum for its implementation

Read more…

World Economic Forum touts Bitcoin as a tool against global warming

June 24, 2022 Leave a comment

from Norbert Häring

With its Great Reset, the World Economic Forum, the lobby of the world’s largest corporations, supposedly wants to save the world from climate collapse. With a contribution on protecting the climate through Bitcoin, the powerful organisation proves- once again – that distrust is called for when it comes to corporate commitments to social goals. Greenwashing is the order of the day.

Scandalously, the World Economic Forum is recognised as an international organisation, like the Red Cross, not least because of the UN’s dependence on corporate money. As such, it does not sit in the ranks as a lobby iwhen the supposed international bodies discuss how save the world, but sits at the table.

There already indications, that the greenwashing of the Forum will influence policy on Bitcoin and Co. Moreover, the Forum also influences the formulation of the UN’s social and environmental goals and the strategies to achieve them. Therefore, it is important to point to examples that show how misguided it is to assume that this organisation has an interest beyond corporate profits.

Bitcoin’s greenwashing

The recent post on the Forum’s website “Can crypto become a leader in sustainability?” is a prime example of the greenwashing of an environmentally harmful technology in which many IT and financial corporations have a great financial interest. Read more…

Socialism ain’t what it used to be

June 23, 2022 10 comments

from Dean Baker

I was very disappointed with Ezra Klein’s NYT interview with Bhaskar Sunkara, in large part because I have a high opinion of Sunkara, the founder of Jacobin and now the president of The Nation. My main disappointment stems from his non-answer to one of the main questions raised by Klein.

Klein asked why the Democrats, and other liberal/left parties around the world, rely largely on more educated people for their support, while more working-class types have turned to the right. Socialists had historically envisioned socialism as the agenda of the working class, not college-educated professionals.

Sunkara gave an answer that put the blame on the decline in unions, which is undoubtedly a big part of the story. But the answer clearly goes beyond this.

Liberal/left parties around the world in recent decades, have not only often supported policies that weakened unions, but they have also supported policies that directly redistribute money from the traditional working class to people with more education, you know, the ones carrying the flame of socialism.

My favorite example here is Read more…

Free trade

June 22, 2022 6 comments

from Lars Syll

In 1817 David Ricardo presented — in Principles — a theory that was meant to explain why countries trade and, based on the concept of opportunity cost, how the pattern of export and import is ruled by countries exporting goods in which they have a comparative advantage and importing goods in which they have a comparative disadvantage.

Heckscher-Ohlin-HO-Modern-Theory-of-International-TradeRicardo’s theory of comparative advantage, however, didn’t explain why the comparative advantage was the way it was. At the beginning of the 20th century, two Swedish economists — Eli Heckscher and Bertil Ohlin — presented a theory/model/theorem according to which the comparative advantages arose from differences in factor endowments between countries. Countries have comparative advantages in producing goods that use up production factors that are most abundant in the different countries. Countries would mostly export goods that used the abundant factors of production and import goods that mostly used factors of production that were scarce.

The Heckscher-Ohlin theorem — as do the elaborations on in it by e.g. Vanek, Stolper and Samuelson — builds on a series of restrictive and unrealistic assumptions. The most critically important — besides the standard market-clearing equilibrium assumptions — are

— Countries use identical production technologies.

— Production takes place with constant returns to scale technology.

— Within countries, the factor substitutability is more or less infinite.

— Factor prices are equalised (the Stolper-Samuelson extension of the theorem).

These assumptions are, as almost all empirical testing of the theorem has shown, totally unrealistic. That is, they are empirically false. Read more…

Real statistics: a radical approach

June 13, 2022 4 comments

from Asad Zaman

In a previous posts Preface to Radical Statistics and Why an Islamic Approach to Statistics?, I have explained how we can develop a new approach to statistics, which rejects a century of developments based on a methodology created by Sir Ronald Fisher, father of modern statistics. It is my hope that this will be a disruptive technology – it will eventually sweep away the entire structure of knowledge which has been built up under this name, and replace it with a radically different alternative. This structure of statistics (which I studied in detail and depth at the Ph.D. Statistics program at Stanford University), is currently being taught in universities around the globe. This structure is deeply deficient for a number of reasons. The most important among these is the logical positivist philosophy which was used to create the foundations of this discipline in the early 20th Century. We briefly describe the key problems created by this.

First, a very brief introduction to the Logical Positivist philosophy. Over a century of brutal and massively destructive religious warfare between Christian factions made it necessary for European intellectuals to find an alternative to religion on which to create a secular political science. Bitter experience had shown them that Christianity was highly unsuitable for this purpose. Ultimately, over the period of more than two centuries, this led to the creation of a whole body of knowledge which forms the foundations of secular modernity. Read more…

Reset this!

June 10, 2022 1 comment

from David Ruccio

This was supposed to be the great reset. As the U.S. economy recovered from the Pandemic Depression, millions of jobs were being created, unemployment was falling, and the balance of power between workers and capitalists would shift toward wage-earners and against their employers.

That, at least, was the promise (or, for capitalists, the fear).

But greedflation has delivered exactly the opposite: workers’ real wages are barely rising while corporate profits are soaring. There’s been no reset at all. That’s exactly what was happening before the coronavirus pandemic hit, and that trend has only continued during the recovery. It should come as no surprise then that the already grotesque levels of inequality in the United States continue to worsen.

And who are the beneficiaries? According to a recent study by the Institute for Policy Studies, it’s the Chief Executive Officers of American corporations who have managed to capture a large share of the resulting surplus.

Read more…

Abduction — beyond deduction and induction

June 9, 2022 5 comments

from Lars Syll

Science is made possible by the fact that there are structures that are durable and independent of our knowledge or beliefs about them. There exists a reality beyond our theories and concepts of it. Contrary to positivism, yours truly would as a critical realist argue that the main task of science is not to detect event-regularities between observed facts, but rather to identify and explain the underlying structures/forces/powers/ mechanisms that produce the observed events.

Given that what we are looking for is to be able to explain what is going on in the world we live in, it would — instead of building models based on logic-axiomatic, topic-neutral, context-insensitive, and non-ampliative deductive reasoning, as in mainstream economic theory — be so much more fruitful and relevant to apply inference to the best explanation. Read more…

Highest CO2 Polluters per capita

June 9, 2022 Leave a comment

The highest CO2 Polluters per capita are dominated by oil producing countries who refine oil and emit CO2 in the oil extraction and refining process.

University departments of economics are degraded to political propaganda centres.

June 8, 2022 2 comments

from Peter Soderbaum

Climate change is perhaps the most threatening aspect of the ecological crisis but not the only one. Reduced biological diversity, reduced water availability and deteriorating water quality in some regions exemplify other relevant dimensions. On the financial side, the ‘market mechanism’ has been unable to come up to expectations.

How can these problems be understood? Many factors have certainly contributed but in my judgment neoclassical economics as disciplinary paradigm and neo-liberalism as ideology are among the most important. If actors in society have failed, this can largely be attributed to the mental maps they have used for guidance and these mental maps are largely connected with dominant ideas about economics (as conceptual framework and ideology) and neo-liberalism as a dominant ideology in many circles. Thousands of students, now in professional positions, have learnt neoclassical micro- and macroeconomics over the years and have supported each other and been supported by their professors to further strengthen the neoclassical perspective.

Studying neoclassical economics would have been less of a problem if also alternative theoretical perspectives had been taught at university departments of economics. But the strategy has instead been to strengthen the neoclassical monopoly. Read more…

Inflation, wages, and profits

from David Ruccio

Inflation continues to run hot—and now, finally, the debate about inflation is heating up.

On one side of the debate are mainstream economists and lobbyists for big business, the people Lydia DePillis refers to as having a simple mantra: “Supply and demand, Economics 101.” In their view, inflation is caused by supply and demand in the labor market, which is allowing workers’ wages to increase at an unsustainable rate (a story that, as I showed in April, has no validity), and supply and demand in the economy as a whole, with too much money chasing too few goods.

Simple, straightforward, and. . .wrong.

Fortunately, there’s another side to the debate, with heterodox economists and progressive activists arguing that increasingly dominant corporations are taking advantage of the current situation (the pandemic, disruptions in global supply-chains, the war in Ukraine, and so on) to jack up prices and rake in even higher profits than they’ve been able to do in recent times.

Josh Bivens, of the Economic Policy Institute, has offered two arguments that challenge the mainstream story: Read more…

Mainstream economics — sacrificing realism at the altar of mathematical purity

June 5, 2022 43 comments

from Lars Syll

e0f5b445c333de539ad33c6a63606b56This critique goes beyond the narrowly technical — that the workhorse neoclassical model of the economy was found to be lame when it came to running a real crisis race. The deeper critique is that these models, and the technical language that accompanies them, have played a role in policy and in society that has been disproportionate in two senses. First, disproportionate relative to our state of knowledge. Existing economic frameworks have shouldered a policy weight that is simply too great for them to bear, given the degree of uncertainty and fragility that surrounds them. Second, disproportionate because these frameworks placed an excessive degree of policy power in the hands of the technocrats wielding them … Read more…

Causal mediation

June 2, 2022 2 comments

from Lars Syll

mediatorIn the real world, it’s my impression that almost all the mediation analyses that people actually fit in the social and medical sciences are misguided: lots of examples where the assumptions aren’t clear and where, in any case, coefficient estimates are hopelessly noisy and where confused people will over-interpret statistical significance …

So how to do it? I don’t think traditional path analysis or other multivariate methods of the throw-all-the-data-in-the-blender-and-let-God-sort-em-out variety will do the job. Instead we need some structure and some prior information.

Andrew Gelman

Most facts have many different, possible, alternative explanations, but we usually want to find — since all real explanation takes place relative to a set of alternatives — the best of all contrastive explanations.

So which is the best explanation? Read more…

Getting rents down, converting vacant office space to residential

from Dean Baker

There is good reason for believing that the prices of many items that drove inflation higher in the last year have stopped rising and are may even be going in the opposite direction. Used cars are the best example. The CPI index for used vehicles rose 40.5 percent from January 2021 to January 2022. In the three months from January to April, the CPI index has fallen by 4.5 percent.

More generally, the supply shortages that drove prices higher in 2021 seem to be replaced by gluts, with major retailers like Amazon and Target complaining about stockpiles of unsold goods. With the stimulus measures from the pandemic fading into the past, and people no longer fearing to travel or go to restaurants, it is likely that we will be seeing serious downward pressure on the prices of many goods.

While inflation may be easing on the goods side, there are questions about prices in the service sector, most importantly rent. Rent accounts for more than 31.0 percent of the overall CPI, and almost 40 percent of the core index.

Rental inflation had been running at close to a 3.5 percent annual rate before the pandemic. It slowed in 2021, but is now running at almost a 5.0 percent annual rate. Read more…

Contextual economics

May 30, 2022 11 comments

from Neva Goodwin

Starting in the early 1990s I have worked with a number of great colleagues to develop a full alternative that we call contextual economics. The name comes from our conviction that an economic system can only be understood when it is seen to operate within a social/psychological context that includes values, ethics, norms, motivations, culture, politics, institutions, and history; and a biophysical context that includes the natural world as well as the built environment.

The starting point for our contextual economics textbooks is an inquiry into goals: What are the appropriate goals for an economy? And, relatedly: What are the appropriate goals for the discipline of economics? Contextual economics emphasizes that most traditionally understood economic goals – efficiency, maximizing production or consumption, earning money – are best understood as intermediate goals, that is, means to other ends. The relevant final goals might include, for example, the satisfaction of basic physical needs (e.g., for food, water and temperature regulation; happiness (including a good balance of comfort and stimulation); self-respect and the respect of others; self-actualization and a sense of meaning; fairness in the distribution of life possibilities; freedom; democracy and participation; and a natural environment that supports healthy human life. These may be summarized as well-being. The scope of consideration is all humans, in the present and in the future, and regardless of the extent of their involvement in market transactions.

Read more…

European life expectancies in times of Covid. A long term story.

May 30, 2022 1 comment

Life expectancies in Europe went down in 2019 and 2020 in all countries bar Norway (figure 1). They tended to go down more in countries with a relatively low life expectancy (figure 2) – strong and outspoken tendency. Correlation is not causation. But it can be argued that health and morbidity and life expectancy are influenced by health outcomes during, especially, childhood, including in the in-utero environment (look here, especially 3.1 b and 3.1 c. Look also here). If that’s right the data suggest that an important way to mitigate the (long term) consequences of Covid-19 is to have a strong long term public health system and policy (including policies aimed at diminishing poverty).

Read more…

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