´Fryslan boppe´. An in-depth inspirational analysis of work rewarded with the 2024 Riksbank prize in economic sciences.

Introduction<

The 2024 Sveriges Riksbank Prize for Economic Sciences has been awarded to Daron Acemoglu, Simon Johnson and James Robinson for work on the influence of institutions on long-term economic progress and growth. Much has been written about this, for instance by ´Pseudoerasmus´ here and by Radford here. In this article, an ´in-depth´ analysis of a part of the work leading to the the prize, an analysis of the long-term impact of the Dissolution of the English monasteries (1535) on the economy, will be provided.[1] Developments in England are compared with developments in Fryslan (formerly: Friesland), a province in the northern Netherlands. Contrary to the situation in England, in Fryslan, not the land-owning gentry but land-renting and using farmers were the heroes of agricultural innovation after (and also before) the Dissolution of the Monasteries (1580). After about 1560 the Frysian countryside witnessed a genuine industrial revolution as wind power was used to drain and improve land on a massive scale – the number of wind drainage mills per Frysian parish was about 100 to 200 times as large as the number of textile mills per parish in England. The Dissolution in Fryslan did affect the distribution of agricultural income but had, contrary to the situation in England, little to do with the unleashing of the new powers of production.

AJR, Nobel, and prompt engineering

from Peter Radford

Well done AJR.  A prize deserved.  And remarkably little grumbling.  What’s wrong with that?

In other news, my wife is deep into creating an artificial intelligence application.  One of the great challenges of getting AI to be useful is something called ‘prompt engineering’.  

What have these two snippets of news have in common?

The great thing about our better economists — the triumvirate we know affectionately as AJR being an example — is that they all seem to denigrate economics.  Politely of course.  Soto voce so to speak.  Or, in the case of AJR and Joe Stiglitz in books written for public consumption. 

They key to this criticism is, I think, that once you are suitably credentialed — via tenure, status within the discipline, being well published etc — you can moan about the state of economics without damaging your ability to get those credentials.  It is as if you have to live two lives.  The first being acceptance of the illusion.  The second being the debunking of that illusion.  There are those, of course, who merge the two into one and persist in proselytizing the illusion even after they have achieved job security.  Those are the sort of people who keep telling the public that price gouging is a jolly good thing, and that there is no such thing as involuntary unemployment.

Central bank independence — a convenient illusion

from Lars Syll

Today’s model of delegation has much to recommend it. But it should not be cloaked in euphemism. It is an abrogation of democratic sovereignty for pragmatic reasons, conditioned on the one hand by deeply entrenched and unflattering assumptions about electoral politics and, on the other, on an unquestioning acceptance of the private organization of credit markets and their lack of confidence in democratic control of economic policy. This may be an abrogation that we are willing to accept, but it should be recognized for what it is and the assumptions on which it is based should be subject to scrutiny and, if necessary, to revision …

Independence of central banks was defined in relation to governments and the typical social interest groups of the corporatist era – trade unions and employers associations. But what about financial markets and their key actors?

How independent are central banks of the pressures of global finance? When it comes to financial crises their hands are forced. Central banks seem like hostages, or, eager collaborators of private finance … If independence was devised to guard against fiscal dominance, what it seems to have delivered in recent decades is financial dominance i.e. domination of central bank policy by financial markets …

For central banks to dig in their heels and insist that their only conceivable role is that defined by mandates shaped as part of a conservative counterrevolution half a century ago is not just small-minded or cautious. It is either an abdication of responsibility, a self-imposed immaturity, or, more ominously, a taking of sides with a dangerously unsustainable status quo …

The question bears repeating: independent from what? So long as the financial system retains its current structure, central banks are the hostage of crisis-situations that force their hand. Not just financial regulation, but structural change to the financial system should be seen as integral to the project of creating a more democratically accountable, truly independent central bank.

Adam Tooze

Central banks hold almost unrestricted power over monetary policies, policies that significantly influence inflation, employment, and economic stability. This power should be subject to greater democratic oversight to ensure it aligns with the interests of society’s citizens.

The 2024 economic laureates and more Nobel nonsense

from Steven Klees

I am quite sure that this year’s three Nobel Laureates in economics — Daron Acemoglu, Simon Johnson and James Robinson – are very competent new institutionalist economists.  Lars Syll offers a thoughtful critique of their substantive arguments, but he misses the main point for me.  New institutional economics, by and large, is nonsense.  We used to have many sensible institutional economists who offered a qualitative, sociological-type analysis of the role of economic institutions.  We still have them in the Association of Evolutionary Economics and their Journal of Economic Issues.  They have declined in number after their stronghold in labor economics was folded into neoclassical theory by the advent of human capital theory turning Labor into a tractable commodity.

I suppose the new institutionalists deserve some credit for at least thinking about institutions which has rarely been part of neoclassical thinking and sometimes paying attention to history which is even rarer.  (It is appalling that in many economics PhD programs economic history is not a required subject.)  But new institutionalist economics is firmly rooted in neoclassical economic theory and in the methods of econometrics.

Pathways to sustainability (2): a critical review

from Maria Alejandra and WEA Pedagogy Blog

Jean-Baptiste Fressoz, professor at the School of Advanced Studies in Social Sciences in Paris, challenges our understanding of the current energy transition process.

In his book “The Shock of the Anthropocene: The Earth, History, and Us,” co-authored with Christophe Bonneuil, Fressoz offers a critical history of the Anthropocene, the current geological epoch defined by significant human impact on Earth’s geology and ecosystems. The authors challenge the conventional view of the Anthropocene as a recent phenomenon, arguing that human influence on the environment has deep historical roots. The book explores how industrialism, consumerism, and the manufacture of ignorance have contributed to environmental degradation. The book also scrutinizes the military’s involvement in environmental degradation and challenges the efficacy of the so-called energy transitions. Through a dialogue between science and history, the authors present an ecological balance sheet of our current developmental model and suggest paths for living and acting politically in the Anthropocene.

Falling shares of labour income

from C. P. Chandrasekhar and Jayati Ghosh

The latest World Employment and Social Outlook Report (update for September 2024) from the International Labour Organisation highlights some disturbing trends. Importantly, it identifies a significant decline and then stagnation in the share of labour income in GDP, for the world as a whole, in the past few years. This comes as part of a persistent trend of decline in labour income shares, other than spikes in “crisis years” like 2008-10 and 2020-21. (Note that the IO includes income from self-employment as part of the labour share, which is an important point since self-employment is very important, and indeed often dominated total employment, in poorer countries.)

Figure 1 shows the trend for the world as a whole, with the share of labour income falling by as much as 2 percentage points over two decades, from around 54 per cent in 2004 to just above 52 per cent (estimated) in 2024.

Breaking boundaries in economics: Rediscovering the roots of welfare

from Asad Zaman and WEA Pedagogy Blog

1. The Methodenstreit: How Economics Forgot History

In the late 19th century, economics experienced a deep philosophical debate over methodology, known as the Methodenstreit, or Battle of Methodologies. Geoffrey Hodgson, in his book How Economics Forgot History, emphasizes the critical nature of this debate. The essential conflict was between those who believed that historical context and specificity are crucial for understanding economic phenomena, and those who sought to create universal laws that apply across time and space, much like in the natural sciences.

Economic theories, in their ambition to be scientific, began to strip events of their unique historical context. The goal was to create models and laws that would be valid universally. However, as Hodgson points out, this desire to generalize economic principles meant that economists were forced to ignore the particularities of historical events. As a result, many of the most important economic insights—those tied to specific historical conditions—were lost or marginalized.

For example, Keynesian macroeconomics, which emerged as a response to the Great Depression, was deeply rooted in the historical circumstances of the 1920s and 1930s. Yet modern interpretations of Keynesian economics often abstract away from these historical details, reducing complex phenomena to simplified models. The result is an incomplete and, at times, misleading understanding of economic systems.

Pathways to sustainability (1)

from Maria Alejandra and WEA Pedagogy Blog

Setting the scene

Economists and policymakers continue to dominate headlines with the conceptualization of “sustainability,” “sustainable investing,” and “sustainable finance,” along with their various worldwide geographical manifestations. The prevailing scenario, which is characterized by conflict, economic instability, and political disputes, is not favorable to incorporating sustainability into investment decisions. However, pressing environmental and socioeconomic issues, such as climate change, biodiversity loss, resource depletion, population expansion, urbanization, and health emergencies, are exerting pressure on both short-term and long-term public and private initiatives.

Indeed, the volume expansion of sustainable investment has been sluggish in recent years due to economic and political challenges, as well as stringent regulations. On the economic front, market actors are correcting their early overenthusiasm due to governmental pushes and the COVID-19 pandemic. Investors have encountered challenging market conditions: rising prices, two continuous wars, and uncertainty fueled by multiple high-stakes political races. Uncertainty has prompted investment initiatives to shift to more protective and short-term sectors. Regarding regulation, the growing suspicion of ‘greenwashing’ by regulators has exerted significant pressure on financial actors, particularly in Europe, as they strive to boost market confidence. This implies that financial institutions must, in practice, produce impact measurements when selecting assets.

How to deal with inflation?

In Europe (the Euro area, to be precise), both unemployment and inflation are down, according to Eurostat,. Which, again, shows that the Phillips curve, a crucial concept behind neoclassical macroeconomic thinking that assumes a more or less stable negative relation between unemployment and inflation (high unemployment will bring inflation down), is not the place to go when predicting or analysing inflation. Sometimes, this relation is specified as a relation between wage increases and inflation. But that relationship does not hold either: keeping wage increases below the level of inflation does not curtail international inflation (while it will wreck households and the national economies). And assuming that a country like Spain needed 20% inflation to keep inflation in check (no, this is not a joke, this did happen) was, and is, not just silly and ignorant but outright destructive.

Graph 1. Real wage growth since the pandemic

Source.        

Having stated this, I did not see the inflation surge coming, even when a combination of simple arithmetic with basic economic reasoning would have suggested that 10% plus inflation was totally possible.  A not-even-perfect storm of surging food plus surging energy prices shows that, arithmetically, inflation can easily and rapidly increase above 5 or even 10%. While basic historical analysis yields that a combination of an increase of energy and energy prices is perfectly possible. Since 1973, energy prices have surged on a somewhat regular basis, while, since 2000, we´ve also seen regular bouts of food price inflation. It was a question of time before these two events coincided, causing a rapid erosion of the purchasing power of money incomes. Isabella Weber does better.

              A next price storm might, when on top of price surges in the global market the currency of your country or currency area weakens, be more perfect. This raises the question of how to deal with inflation, considering unpredictable international price surges and the fact that people with low incomes, be it inside or outside the Euro area, spend a relatively large part of their income on food and energy. Isabella Weber suggests (based on input-output analysis of inflation) that we have to look at how price waves travel through the economy and have to develop policies aimed at controlling ´systemically significant´ prices, for instance by price controls in combination with stocks of food and oil. And we have to enable wage increases, to make up for lost purchasing power. Also, economists are often condescending about subsidies for farmers. However, subsidies are one method to square the circle: acceptable incomes for farmers in combination with low food prices. This is especially important for low-income countries, where a relatively large part of the population works in agriculture. Be that as it may, the simplistic ideas about inflation of neoclassical macroeconomics have been proved wrong, again. Better analyses and policies are needed.

The 2024 economic sciences laureates

from Lars Syll

The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2024 is awarded to Daron Acemoglu, Simon Johnson and James Robinson “for studies of how institutions are formed and affect prosperity.” 

Daron Acemoglu and James Robinson’s work, particularly in Why Nations Fail (2012), is widely recognized within new institutional economics for its argument that inclusive political and economic institutions are key determinants of long-run prosperity and wealth, while extractive institutions perpetuate poverty and stagnation. While their framework may offer some valuable insights, a critique that could be directed at their framework is that by attributing a nation’s success or failure almost entirely to its political and economic institutions, they underplay other critical variables, such as geography, culture, and technology.

This is rather typical of new institutional economics, where complex historical processes are often oversimplified and fail to take height for the idiosyncracies of historical development. They also tend to underplay the role of culture and social norms in shaping institutions. By focusing almost exclusively on formal institutions, Acemoglu and Robinson’s framework may miss the importance of these more subtle but influential factors.

CEO-to-worker compensation ratio, 1965-2023

The European Central Bank and the return of history

The end of the post-World War II ´Pax Americana, an almost eighty-year period of peace for European countries allied with the USA, will soon lead the EU to end the prohibition of monetary financing of governments by the European Central Bank (ECB). This might take the shape of the ECB providing credit to an entity purchasing Eurobonds, which will further increases military spending. At this moment, there is based on the Maastricht treaty of 1992 a strict prohibition of monetary financing by the ECB. This prohibition can be understood as part of the peace dividend (graph 1) reaped after the implosion of the USSR in 1991. It is related to post-1991 ideas about ´the end of history´ and the illusion that the Pax Americana would last forever.  

Graph 1.

Source

Automation is called “Productivity Growth”

from Dean Baker

It is more than a bit bizarre reading pieces that talk about automation or job-killing AI as something new and alien. These are forms of productivity growth. They allow more goods and services to be produced for each hour of human labor.

Productivity growth is usually thought of as a good thing. It’s the reason that we don’t have half the U.S. workforce employed in agriculture growing our food. Instead, it is around 1.0 percent of the U.S. workforce, and we grow enough to be huge food exporters.

Productivity growth allows for workers to have higher wages. The period in our history where we had the most rapid productivity growth was in the post-war boom from 1947 to 1973. Productivity growth averaged almost 3.0 percent a year. This was passed on in the form of higher real wages and improved benefits.

Brenner’s satisfactory

from Peter Radford

“Mathematics is the art of the perfect.  Physics is the art of the optimal.  Biology, because of evolution, is the art of the satisfactory”.

That’s Sydney Brenner speaking.  He should know a thing or two.  He won a Nobel Prize.

It’s a shame, is it not?  Economies are always changing.  Not just in terms of innovation and all the normal things we think of as change, but also in more simple terms: in the people making up an economy change.  They are born and they die.  And they change their minds along the way.  Whether you think that evolution is the best description of all that change, you cannot deny the existence of change.  Indeed we applaud change.  It is the very essence of improvement.  It is the heart and soul of all the Great Enrichment that has bestowed our current prosperity upon us.

And yet.

And yet economists prefer to imitate physics and not biology.  They pursue the mythical optimal instead of studying the satisfactory.  And, as a result, they have failed to understand much of real economies.

Apparently no amount off mockery, cajoling, or elegant persuasion can shift economics from its obsession with things that don’t exist.  No matter how many times we observe the nonsense of equilibrium, or maximization, or that mythical optimal, economists set off in hapless pursuit once again.

“15 Best Economics Book Blogs and Websites in 2024”

from Feedspot

The best Economics Book blogs from thousands of Book blogs on the web and ranked by traffic, social media followers & freshness.

Economics Book Blogs

Here are 15 Best Economics Book Blogs you should follow in 2024

1. Real-World Economics Review Blog

The Real-World Economics Review blog serves as a critical platform for economists, scholars, and thinkers who challenge mainstream economic theories and advocate for more realistic, socially relevant approaches. It brings together diverse voices that scrutinize conventional economic models, focusing on issues such as inequality, environmental sustainability, and financial instability. The blog encourages deep analysis of economic practices, questioning dominant paradigms while fostering discussions on alternative frameworks that better reflect the complexities of real-world economies. Engaging with topics from heterodox economics to policy reform, it provides a thought-provoking space for rethinking the foundational assumptions that guide global economic systems today.
Blog rwer.wordpress.com
Twitter Followers 16.9K  Frequency 1 post / week  Domain Authority 55

2. The Enlightened Economist Blog

read more at https://books.feedspot.com/economics_book_blogs/

The Road Not Taken

from Lars Syll

We all heterodox economists who have chosen the road ‘less traveled by’ know that this choice comes at a price. Fewer opportunities to secure ample research funding or positions at prestigious institutes or universities. Nevertheless, yours truly believes that very few of us regret our choices. One doesn’t bargain with one’s conscience. No amount of money or prestige in the world can replace the feeling of looking in the mirror and liking what one sees.

Automation is called “productivity growth”

from Dean Baker

It is more than a bit bizarre reading pieces that talk about automation or job-killing AI as something new and alien. These are forms of productivity growth. They allow more goods and services to be produced for each hour of human labor.

Productivity growth is usually thought of as a good thing. It’s the reason that we don’t have half the U.S. workforce employed in agriculture growing our food. Instead, it is around 1.0 percent of the U.S. workforce, and we grow enough to be huge food exporters.

Productivity growth allows for workers to have higher wages. The period in our history where we had the most rapid productivity growth was in the post-war boom from 1947 to 1973. Productivity growth averaged almost 3.0 percent a year. This was passed on in the form of higher real wages and improved benefits.

There is no guarantee that the benefits of productivity growth will be passed on to workers or shared evenly among workers. From 1980 to 2010, the bulk of the gains from higher productivity went to workers at the top end of the wage distribution (e.g. CEOs, Wall Street types, and doctors and dentists). The wages for workers at the middle and bottom barely kept pace with inflation.

In the last two decades there has been a shift from wages to profits.

Escaping the jungle: Rethinking land ownership for a sustainable Future

from Asad Zaman and WEA Pedagogy Blog

Introduction: Beyond the Jungle

For centuries, capitalism has told us that land is a commodity to be bought, sold, and exploited for profit. It has also sold us a dangerous myth: that humans are inherently competitive, isolated individuals, destined to fight for survival in a brutal world. According to this worldview, land belongs to those who claim it first and use it for personal gain. But this idea is not only destructive—it’s profoundly false.

Capitalism’s view of human nature is rooted in an outdated and simplistic understanding of the world. Far from being competitive, humans and many species have survived through cooperation and mutual support. The way we manage land must reflect this deeper truth. In this post, we will explore how the commodification of land has led to social and environmental destruction and present an alternative model: Green Land Stewardship, which emphasizes cooperation, sustainability, and collective responsibility.

The Destructive Myth of Competition

Capitalism is built on a narrow conception of human nature—that we are animals competing for survival in a hostile world. In this jungle of cut-throat competition, only the fittest survive, and power and wealth are the ultimate markers of success. This idea is not only harmful but also profoundly misguided.

Recent research by evolutionary biologists has shown that cooperation, not competition, is the foundation of human and animal survival. In social species, including humans, working together to share resources has proven to be far more beneficial than hoarding and fighting over them. Capitalism’s emphasis on competition ignores this reality, encouraging the commodification of land and fostering inequality.

Break Up Economics — continued

from Peter Radford

What?  Surely not!  How dare he suggest such a thing.

What, you are correct in asking, am I talking about?

The recent speech by a Department of Justice official who dared suggest that it is getting quite difficult to find a truly neutral technocratic expert to give testimony in court.  Imagine the cheek.  How dare he question ‘expertise’.  Especially economic expertise, which is, surely, the gold standard.

Why did he say what he said?

Because academics are apparently so eager to be bought.  Especially those at so-called ‘top’ schools.  And especially those who engage in teaching either business or economics.  Outside consulting contracts and sponsored research have become such an infection that many of the ‘big names’ are tainted by these activities and are not strictly speaking neutral in their opinions.  Or, at least, have the appearance of bias simply by virtue of their non-academic pursuits.

This is hardly a new problem.

Anyone with a half decent memory can recall the lunacy being passed off as research just prior to the Great Recession.  Many, if not most, of the perpetrators of that research as still happily teaching/consulting as if nothing happened.  Protected, most of them, within the walls of tenure they operate with both immunity and impunity, whilst peddling, amongst other things, the fiction that the only way to cure inflation is to hammer the workers.

What is heterodox economics?

from Lars Syll

Based on our interviews, heterodox economics appears to be a positive project, inevitably defined somewhat in terms of the mainstream but not exhaustively so. It is also efficacious, with policy and real-world impact. It is a complex object, not amenable to definition by a single criterion. Its dimensions are partly intellectual, in terms of what it believes. It holds a realist position. It is concerned with asymmetric power relations, in the economy and in the economics discipline, highlights their negative effects, makes explicit the normative character of economics and the economy, and leans towards action which seeks to improve the state of the economy and the discipline. This means it fosters the capacity to deliberate social and ecological goals and norms openly instead of reducing economic reasoning to mathematics or relinquishing thinking to mechanisms that are insulated from debate. Its members see themselves as agents who act against what they perceive to be the unrealistic and monist structures of the mainstream by building alternative structures. These structures embody pluralism, which must include heterodox economics and, perhaps, elements of mainstream economics where these are consistent with the identified features of heterodoxy; and has several pillars, including pedagogic and epistemological. Furthermore, we find the themes of power and pluralism are interwoven with the concern for realism, what we have called realist pluralism. Hence, power and pluralism seem not to be valued in themselves, but in the pursuit of truth …