“Wageless growth” not “Jobless growth” the new conundrum

December 17, 2018 1 comment

from C. P. Chandrasekhar

The so-called ‘synchronised recovery’ that global policy makers periodically refer to, seems to have bypassed much of the world’s working people. According to the just released Global Wage Report 2018/19 of the International Labour Organisation (ILO), the rate of growth of average monthly earnings adjusted for inflation of workers across 136 countries registered in 2017 its lowest growth since crisis year 2008, and was well below figures recorded in the pre-crisis years 2006 and 2007. What is more, if China, where wage growth has been rapid and whose workforce size substantially influences the weighted average global figure, is excluded, the level wage growth in 2017 (1.1 per cent) is much lower than the figure for all countries including China (1.8 per cent). The deceleration in wage growth outside of China appears true of both developed and developing countries.

A similar trend in the OECD countries had been flagged in the OECD Employment Outlook 2018 released in July this year. It noted that: “On average, hourly wage growth in the OECD countries was still 0.4 percentage points lower in last quarter of 2017 than it was in late 2008.” That report, in an editorial tellingly titled “Wageless growth: Is this time different?”, went even further and suggested that the current recovery is different from those that followed previous crises, since falling unemployment has not been accompanied by comparable increases in wages.  Read more…

Disconfirming rational expectations

December 16, 2018 9 comments

from Lars Syll

56238100Empirical efforts at testing the correctness of the rational expectations hypothesis have resulted in a series of empirical studies that have more or less concluded that it is not consistent with the facts. In one of the more well-known and highly respected evaluation reviews made, Michael Lovell (1986) concluded:

it seems to me that the weight of empirical evidence is sufficiently strong to compel us to suspend belief in the hypothesis of rational expectations, pending the accumulation of additional empirical evidence.

And this is how Nikolay Gertchev summarizes studies on the empirical correctness of the hypothesis:  Read more…

MasterCard, Bill Gates and their “war on cash”

December 15, 2018 8 comments

from Norbert Haering and the current issue of RWER

If people write about a war on cash, even well-meaning readers will tend to think of them as doomsayers with paranoid tendencies. However, many will have second thoughts if they hear that there is indeed a Better Than Cash Alliance, which has the goal of replacing cash by digital payments on a global scale, and that this Alliance is doing this with the explicit support of the government of the 20 most powerful countries. The term “war on cash” was coined not by critics, but by key members of this Better Than Cash Alliance, as a rallying cry in their drive to increase their profits.

At a conference on payments in 2005, representatives of credit card company MasterCard talked about a new generation of card solutions, with which they wanted to “go to war”. Competitor Visa was confident, that they would “win the war on cash”. Together, they wanted to “eliminate cash from the financial system”. In a friendly report on the conference in the industry-journal European Card Review with the title War on Cash, the author says that while banks and governments have a shared desire to eliminate cash, governments prefer to let the card companies take the initiative, because they are afraid that the public would not like the war on cash.[1] A department head of the EU-Commission is quoted saying: “We agree with the war on cash” and continuing with a plea to lower prices for card payments in order to be more successful in this war.  Read more…

Econometrics — analysis with incredible​ certitude​

December 14, 2018 8 comments

from Lars Syll

9780199679348There have been over four decades of econometric research on business cycles …

But the significance of the formalization becomes more difficult to identify when it is assessed from the applied perspective …

The wide conviction of the superiority of the methods of the science has converted the econometric community largely to a group of fundamentalist guards of mathematical rigour … So much so that the relevance of the research to business cycles is reduced to empirical illustrations. To that extent, probabilistic formalisation has trapped econometric business cycle research in the pursuit of means at the expense of ends.

The limits of econometric forecasting have, as noted by Qin, been critically pointed out many times before. Trygve Haavelmo assessed the role of econometrics — in an article from 1958 — and although mainly positive of the “repair work” and “clearing-up work” done, Haavelmo also found some grounds for despair:  Read more…

Hickel response on degrowth

December 14, 2018 5 comments

from Dean Baker

[This is the last piece in an exchange with Jason Hickel on growth.My last piece is here.]

Baker says “I am at a loss to understand why we would have a war on growth.”  I don’t know why he is at a loss.  I explained the reasons for this in my previous post.  There are two I focus on.

(1) Because growing the GDP means growing energy demand, and this makes the task of switching to renewable energy significantly more difficult (nearly three times more difficult between now and 2050, which virtually rules out success).

(2) Because our preoccupation with growth makes it extremely difficult to get the regulations we need to avert ecological breakdown.  Politicians resist such measures precisely because of the risks they pose to growth

Baker has, unfortunately, not engaged with these arguments.

Next, Baker says that “if we spend enough in other areas, it is possible to offset sharp reductions in the sectors of the economy that are heavy users of fossil fuels.”  This argument is central to the standard vision of the Green New Deal (i.e., massive public investment in clean energy, which will generate millions of well-paid jobs and increase GDP growth).  Again, there are two problems with this.

(1) Even if we do manage to switch the entire energy system over to renewables, that might help us with emissions but it doesn’t help us with resource use.  If we keep growing GDP, resource use will keep going up – even if the economy is powered by clean energy.  And let’s not kid ourselves: to the extent that resource use is driving mass species extinction, this is an existential threat that we have to take seriously.  Read more…

Dollarization in the United States

December 14, 2018 2 comments

from David Ruccio


The United States is increasingly becoming dollarized. That’s because, for decades now, those at the bottom have been left behind, forced to attempt to get by in ever more precarious conditions.  Read more…

Your model is internally consistent? So what!

December 13, 2018 22 comments

from Lars Syll

‘New Keynesian’ macroeconomist Simon Wren-Lewis has a post on his blog discussing how evidence is treated in modern macroeconomics (emphasis added):

quote-Oscar-Wilde-consistency-is-the-last-refuge-of-the-58The unique property that DSGE models have is internal consistency. Take a DSGE model, and alter a few equations so that they fit the data much better, and you have what could be called a structural econometric model. It is internally inconsistent, but because it fits the data better it may be a better guide for policy.

Being able to model a credible world, a world that somehow could be considered real or similar to the real world is not the same as investigating the real world. Even though all theories are false, since they simplify, they may still possibly serve our pursuit of truth. But then they cannot be unrealistic or false in any way. The falsehood or unrealisticness has to be qualified (in terms of resemblance, relevance, etc.). At the very least, the minimalist demand on models in terms of credibility has to give away to a stronger epistemic demand of appropriate similarity and plausibility. One could of course also ask for a sensitivity or robustness analysis, but the credible world, even after having tested it for sensitivity and robustness, can still be far away from reality – and unfortunately often in ways we know are important. Robustness of claims in a model does not per se give a warrant for exporting the claims to real world target systems.

Yours truly and people like Tony Lawson have for many years been urging economists to pay attention to the ontological foundations of their assumptions and models. Sad to say, Read more…

Trade: It’s still about class, not country

December 13, 2018 3 comments

from Dean Baker

While Donald Trump keeps taking wild shots in his trade wars with China and other countries, the media have been cheering him on in at least one aspect of his campaign. All the elite types agree that “we” have an interest in clamping down on China’s alleged theft of our intellectual property. While some “we” might share that interest, most of the country does not.

Just to be clear on the agenda here, the alleged theft takes three forms. The first is what passes for actual theft. It is when a Chinese company, possibly with help from the Chinese government, literally takes technology from a US company. This can happen, for example, if they infiltrate its internal computer system.

While this is undeniably a bad practice, it is not unique to Chinese companies. In fact, many US companies also engage in such practices. Uber famously agreed to pay Waymo $245 million for stealing some of its software for self-driving cars. It would be hard to know if China’s companies are more guilty in this area than anyone else, but we can agree it is a bad practice that should be stopped.

The second area is forced technology transfers. This is when China requires that US companies, like Boeing or GE, take on a Chinese partner when they set up operations in China. This allows the Chinese companies to gain expertise in the technology used by US companies and then become potential competitors.  Read more…

issue no. 86 of the real-world economics review

December 12, 2018 Leave a comment

real-world economics review
issue no. 86

download whole issue

Who is behind the campaign to rid the world of cash?
Norbert Haering      download


The trouble with human capital theory
Blair Fix       download


A progressive trade policy
Dean Baker      download


The transformational role of the Great Recession
Constantine E. Passaris      download
Realizing nudging’s potential
John F. Tomer      download


A comment on corporations
Peter Radford      download


The enigmatization of economic growth
Bernard C. Beaudreau      download


Inequality in non-capitalist economies during the 20th century
Michael Ellman      download



The Public Economy in Crisis:
A Call for a New Public Economics 
by June Sekera
W. Milberg      download


Technology and Isolation:
Clive Lawson on the impact of technology on the economy and society
Nuno Ornelas Martins      download


Heterodox economics and economic methodology:
an interview with John Davis
Jamie Morgan and John Davis      download


A tale of two Germanies. Any lessons for Central Europe? A note
Leon Podkaminer download


Board of Editors, past contributors, submissions, etc.


click here to support this journal and the WEA


Demise of the Dollar?

December 11, 2018 Leave a comment

from Asad Zaman

SADLY, it is true that ‘money makes the world go round’. But, it is also true that very few people understand how. This article is an attempt at explaining the basics of our global trading system.

A good starting point is the Bretton-Woods conference which took place in 1944, while the Second World War was still raging. The two World Wars had drained the treasuries of the European states, making the gold standard impossible to maintain. An entirely new system had to be created to enable global trade for the post-War era. At the Bretton-Woods conference, the most sensible proposal for the global trading system was created and advocated by John Maynard Keynes. Unfortunately, the political power of the United States enabled it to quash this proposal. Instead, gold was replaced by the dollar standard, with the proviso that dollars could be exchanged for gold.

When the Vietnam War forced the US to print an excessive amount of dollars, president Richard Nixon declared in 1971 that dollars would no longer be backed by gold, creating a brave new world of currencies without any backing. Just like a fixed exchange rate is the natural consequence of pegging currencies to dollar or gold, so too a floating exchange rate system emerges naturally when there are no pegs for any currency

Today, the dollar is at the centre of the global trading system, and is as good as gold once was. Everyone needs dollars as reserves to back up their currencies. To acquire dollars, all countries other than the US, must strive to increase exports — this is how one earns dollars. The US can increase imports just by printing dollars, while the rest of world exports goods and services to earn dollars. Because dollars are the gold of the modern financial system, the US can print money without adverse consequences. For instance, the US printed trillions of dollars to finance the Iraq war, and other trillions to bail out the financial sector from the global financial crisis that was created by it. read more

‘Controlling for’ — a methodological urban legend

December 10, 2018 2 comments

from Lars Syll

Trying to reduce the risk of having established only ‘spurious relations’ when dealing with observational data, statisticians and econometricians standardly add control variables. The hope is that one thereby will be able to make more reliable causal inferences. But — as Keynes showed already back in the 1930s when criticizing statistical-econometric applications of regression analysis — if you do not manage to get hold of all potential confounding factors, the model risks producing estimates of the variable of interest that are even worse than models without any control variables at all. Conclusion: think twice before you simply include ‘control variables’ in your models!

The gender pay gap is a fact that, sad to say, to a non-negligible extent is the result of discrimination. And even though many women are not deliberately discriminated against, but rather self-select into lower-wage jobs, this in no way magically explains away the discrimination gap. As decades of socialization research has shown, women may be ‘structural’ victims of impersonal social mechanisms that in different ways aggrieve them. Wage discrimination is unacceptable. Wage discrimination is a shame.   Read more…

Will degrowthing save the planet?

December 9, 2018 8 comments

from Dean Baker

[This is the third piece in an exchange with Jason Hickel on growth. Hickel’s response will be the last piece in the series.]

Jason Hickel responded to my earlier piece on degrowth arguing that in fact economic growth is inconsistent with a sustainable environment and that we have to get people to reject growth as an economic goal if we are going to limit the damage from climate change and excessive resource use more generally.

First, let me point out where we do agree. It is necessary to take drastic measures to reduce greenhouse gas emissions quickly. The world is falling far behind a path of emissions reductions (they are still rising) that will prevent excessive damage to the planet. Going beyond the issue of greenhouse gas emissions, we also have to take steps to reduce resource use more generally. The planet is rapidly losing habitat and species in ways that are irreversible.

I’m sure Hickel knows the data in these areas better than me, but I would not argue on the basic point. The question is whether degrowth needs to somehow fit into the picture. I will raise two points, one a question of logic and one a practical political issue.

On the logical point, I am at loss to understand why we would have a war on growth. Granted, we need to massively reduce our consumption of fossil fuels and over time other material inputs, but I am afraid I don’t see how that this precludes growth.  Read more…

DSGE — models built on shaky ground

December 8, 2018 9 comments

from Lars Syll

In most aspects of their lives humans must plan forwards. They take decisions today that affect their future in complex interactions with the decisions of others. When taking such decisions, the available information is only ever a subset of the universe of past and present information, as no individual or group of individuals can be aware of all the relevant information. Hence, views or expectations about the future, relevant for their decisions, use a partial information set, formally expressed as a conditional expectation given the available information.

vraylar-shaky-ground-large-4Moreover, all such views are predicated on there being no un-anticipated future changes in the environment pertinent to the decision. This is formally captured in the concept of ‘stationarity’. Without stationarity, good outcomes based on conditional expectations could not be achieved consistently. Fortunately, there are periods of stability when insights into the way that past events unfolded can assist in planning for the future.

The world, however, is far from completely stationary. Unanticipated events occur, and they cannot be dealt with using standard data-transformation techniques such as differencing, or by taking linear combinations, or ratios. In particular, ‘extrinsic unpredictability’ – unpredicted shifts of the distributions of economic variables at unanticipated times – is common. As we shall illustrate, extrinsic unpredictability has dramatic consequences for the standard macroeconomic forecasting models used by governments around the world – models known as ‘dynamic stochastic general equilibrium’ models – or DSGE models …  Read more…

Stability without growth: Keynes in an age of climate breakdown

December 7, 2018 7 comments

from Dean Baker

[This post is by Jason Hickel. He is responding to a post I did on the possibility of having growth in a sustainable economy. I will post a rejoinder later in the week. Jason will then get the last word in this exchange.]

What do Keynesian Democrats think about the movement for post-growth and de-growth economics? Dean Baker, a senior economist at the Center for Economic Policy Research in Washington, DC, has given us some insight into this question. In a recent blog post, republished by Counterpunch, he takes aim at two articles that I wrote for Foreign Policy in which I argue that it is not feasible to reduce our emissions and resource use in line with planetary boundaries while at the same time pursuing exponential GDP growth.

Baker agrees — thankfully — that we need to dramatically reduce emissions and resource use to prevent ecological collapse. But he thinks that this is entirely compatible with continued GDP growth.

Let’s imagine, he says, that a new government imposes massive taxes on greenhouse gas emissions and resource extraction while at the same time increasing spending on clean technologies, with subsidies for electric vehicles and mass transit systems. Baker believes that this will shift patterns of consumption toward goods that are less emissions and resource intensive. People will spend their money on movies and plays, for example, or on gyms and nice restaurants and new computer software. So GDP will continue growing forever while emissions and resource use declines.  Read more…

A little knowledge

December 7, 2018 4 comments

from Peter Radford

A little knowledge goes a long way.  That’s the saying, correct?  Well you’d never know it by looking at economics.  It’s hard to find knowledge anywhere.

Now I’m not being facetious about the gaps in economic theory.  Let’s all give the discipline its due and say that it has done a masterful job of getting as far as it has based on the limitations it bounds itself with.

It’s just that sometimes those limitations are glaring and can stop someone in their tracks if they’re not steeped in the dark arts themselves.

The results of those limitations are often a stunning avoidance of topics that are crucial to understanding a real economy.  Or at least they’re crucial to someone less determined to be so willingly limited.

I know, this is all vague.  Let me explain.

I have been re-reading an excellent book by Cesar Hidalgo.  It’s called “Why Information Grows”.  It was first published in 2015, and is well worth the time it takes to read through it.  Hidalgo is another of those apparently endless line of MIT types who wander all over topics in an unconstrained manner.  In his case he sets out a wonderfully clear account of what information is — as opposed to the usual rather cramped version built solely on Shannon’s communication theory.

I read the book back when it first came out.  My eye had been caught by it’s subtitle: “The Evolution of Order, from Atoms to Economies”.  How could I possibly pass that up?  Obviously I was not alone it being captivated by that innocent line because Paul Romer, someone far more august than me, also read it upon its publication.  I know this because he blogged about it in 2015.  Read more…

Micro-Meso-Macro: Redressing Micro-Macro Syntheses

December 7, 2018 Leave a comment

from Stuart Holland and Andrew Black and the current issue of Economic Thought

When Janet Yellen questioned in her address to the Boston Fed in 2016 why there had been a lack of rethinking in economic theory since the financial crisis, she cited a host of
macroeconomic analyses yet did not even refer to ‘too big to fail’. Whereas one of the
reasons for seeking to redress the missing middle in mainstream economics relates to the
increased concentration of banks in the US since the repeal of the Glass-Steagall Act in 1999 that not only aided the 2007-08 financial crisis, but has increased since it occurred (Grullon, Larkin and Michaely, 2017). Which also has been paralleled by ongoing concentration in global industry, with 100 corporations now representing half of world manufacturing output (UNCTAD, 2016) while 100 of them source over 70%, and 25 over 50% of global carbon emissions (CDP, 2017).  Read more…

Economic crises and uncertainty

December 6, 2018 8 comments

from Lars Syll

The financial crisis of 2007-08 hit most laymen and economists with surprise. What was it that went wrong with our macroeconomic models, since they obviously did not foresee the collapse or even make it conceivable?

There are many who have ventured to answer this question. And they have come up with a variety of answers, ranging from the exaggerated mathematization of economics to irrational and corrupt politicians.

0But the root of our problem goes much deeper. It ultimately goes back to how we look upon the data we are handling. In ‘modern’ macroeconomics — Dynamic Stochastic General Equilibrium, New Synthesis, New Classical and New ‘Keynesian’ — variables are treated as if drawn from a known ‘data-generating process’ that unfolds over time and on which we, therefore, have access to heaps of historical time-series. If we do not assume that we know the ‘data-generating process’ – if we do not have the ‘true’ model – the whole edifice collapses. And of course, it has to. I mean, who really honestly believes that we should have access to this mythical Holy Grail, the data-generating process?

‘Modern’ macroeconomics obviously did not anticipate the enormity of the problems that unregulated ‘efficient’ financial markets created. Why? Because it builds on the myth of us knowing the ‘data-generating process’ and that we can describe the variables of our evolving economies as drawn from an urn containing stochastic probability functions with known means and variances.  Read more…

Is shadow banking a serious threat in emerging markets?

December 5, 2018 Leave a comment

from C. P. Chandrasekhar and Jayati Ghosh

Everyone seems to have woken up to the fact that global debt levels are too high and portent difficulties ahead. As Figure 1 indicates, the levels of credit to GDP, which were so high as to be unsustainable and resulted in the big crisis of 2008, have increased even more since then. There was a phase of deleveraging in the advanced economies until around 2014, and in developing countries and emerging markets until 2011, but since then, credit/debt has been expanding again. So much so that the credit GDP levels in 2017 were 15 per cent higher than in 2008 in the advanced economies, and more than 80 per cent higher for emerging markets (Figure 1).

Figure 1: Since the GFC, credit to GDP ratios have increased significantly in both advanced economies and emerging markets                                     Source for all figures and tables: BIS online database

Read more…

Climate change: threats and challenges

from Maria Alejandra Madi

Global warming and global CO2 emissions are interconnected. In 2018, heatwaves were observed in Europe, Asia, North America and northern Africa, while the extent of Arctic sea ice has been continuously dropping. According to the World Meteorological Organization (WMO), the last four years (2015-2018) have been the warmest years on record. In particular, between January and October 2018, global average temperature increased 0.98 degrees Celsius above the levels of 1850-1900. If this trend continues, temperatures may rise by 3-5 degrees Celsius by 2100.

Global CO2 emissions have also been increasing in the last years. China and the US together account for more than 40% of the global total CO2 emissions, according to 2017 data from the European Commission’s Joint Research Centre and the PBL Netherlands Environmental Assessment Agency. After the withdrawal from the Paris climate change agreement, the US’s environmental policy shifted to a pro-fossil fuels agenda on behalf of the need to overcome the disadvantage of American businesses and workers. Trump called climate change a “very, very expensive form of tax”. Fossil fuel lobbies in Saudi Arabia, Russia and Canada are powerful forces against government climate policies.  read more

Tale of two depressions

December 4, 2018 5 comments

from David Ruccio


Mainstream economists continue to discuss the two great crises of capitalism during the past century like the pillars of society in the brothel—a “house of infinite mirrors and theaters”—in Jean Genet’s The Balcony.* The order they represent is indeed threatened by an uprising in the streets, and the only question is: can they reestablish the illusion of control?

Read more…