from Asad Zaman
Modern history is largely driven by the battle of the rich (top 0.01%) against the masses (bottom 90%). Over the past few decades, the rich have been tremendously successful in having it all their way. A previous blog post on “Deception and Democracy” illustrates by examples their successful conversion of democracy into plutocracy in the USA. As pointed out by Polanyi, unregulated markets create disastrous outcomes for the majority. Therefore, in a democratic environment, theories which misrepresent facts and justify massive inequalities are essential pillars of support for the plutocrats. Spreading these theories via media and educational channels helps create an environment where people support policies which go against their common interests. Read more…
from Maria Alejandra Madi
The existing international financial architecture, left over institutions from the Bretton Woods period, proved useless to prevent or warn against the 2007-2008 crisis, or even less, solve it. Only when a new presidential grouping (G20) meeting was called for in London in March 2009, the issues of how to coordinate countercyclical policies and inject resources into the economies were discussed. At that time, a UN high level Commission was created to propose reforms to the international financial architecture. The results of what became known as the Stiglitz Commission came to light in April 2010; the Commission’s recommendations were, however, shunned by some large UN member countries due to their rejection of the principle of global solutions for global problems. Indeed, some European countries and the US still insist on national solutions, that is on the use of local regulatory agencies in the international financial field. Read more…
Recently, I coverd the ecomodernist manifesto on this blog. Not everybody is too happy with this manifesto. José Sousa and (in a direct mail) remind us of this rebuttal (which might underestimate the alarmist nature of the manifesto). Below, some excerpts.First, however, 2 cents and 1 Euro from me.
1) The first cent: the first steps to limit global heating are simple and of an economic nature: energy nutcases like the USA and Venezuela have to end energy subsidies and to introduce energy taxes. While all countries have to start to tax kerosene. Water and meat have to become more expensive, too (low income households can be compensated using part of the proceeds). See (via Brad the Long) also this piece about the fast desertification of Texas.
2) The second cent: we are already really living in the ‘anthropocene’, the destiny of the earth is decided by man- and womankind. For better or worse. And there will, relatively fast, be 4 or 5 billion more of us (low scenario). We can’t deny these additional people (as well as the present poor) decent housing, decent food, decent healthcare and the like – which means that we do have to develop technological fixes: energy and water producing houses, better and denser cities which require less traveling by car, more productive agriculture. More and better houses and healthcare will show as ‘economic growth’. Growth is not the solution – it will be the arithmetical consequence of the solution. ‘Pay for levees, or for the ferryman‘. Aside: birth rates in many places of the earth are still way too high. But in a pretty conservative state like Iran it (the total fertility rate) has been below 2 for quite some time while in even more conservative Saoudi-Arabia it has dropped from around 7 in 1980-1985 to around 3 in 2005-2010.
3) My Euro (most of my publications are about long-term agricultural development): wheat yields in Zeeland, at the time at the efficiency border of the world, were, around 1860, 2300 kg. per hectare. In a very good year, like 1863. Nowadays, wheat yields in the entire Netherlands are in a bad year like 2007, and because of modern technology more than three times as high. Also, the sandy soil areas in the Netherlands were, in the nineteenth century and due to a tradition infield-outfield system of agriculture, prone to desertification. YES, DESERTIFICATION IN THE NETHERLANDS. Read the encyclopedial thesis of Theo Spek about (among many other issues) this process. Here, some pictures of the last remnants of these totally biodegraded areas (which we try to protect as there are some rare species of lichen to be found and because, well, we like them). Modern technology hadapted to local circumstances owever enabled us to turn most of these areas into fertile farmland (non of it has been restored to its former lustre as primeval woods). Thanks to improvements in the productivity of agriculture the Netherlands managed, despite fast population growth (5 millions around 1900, 17 millions now), to keep the per capita production of ‘arable’ calories more or less stable – though it stays dependent on large imports of food like it has (at least the cities in the west of the Netherlands) for about 500 years. The first point: we will need, on a global scale, comparable developments in a large number of countries, just to feed the world (mind that succesful technological fixes are always of a social/economic/technological nature and are often very situation specific). The second point: amazing progress can be achieved (Anybody who does not believe this is advised to investigate the development of infant and child mortality during the last 150 years). But there is no guarantee that amazing progress will take place.
Being an USA think tank, the ‘breakthrough institute’, which published the manifesto, is of course biased and partisan. But they are right to chide suburbs and inefficient agriculture (which does not mean that organic agriculture can’t ben efficient – it can, as long as it uses cutting edge technology adapted to local circumstances).By the way – all this ado about fission and fusion: at this moment fission and fusion is, in an economic sense, totally outdated due to the decline of the cost price of solar which still proceeds (solar panels are now thus cheap that low wage countries are starting to have a large cost advantage, as installment costs are by now often the larger part of total costs). Aside: they have the additional advantage (I’m having solar panels on my roof for thirteen years now) that they are extremely easy to maintain.
The excerpts (remarkably Clive Hamilton, the writer of the rebuttal, seems to see growth much more as a goal than the manifesto):
The world’s best scientists are warning that the world is warming inexorably, the oceans are becoming acidic and have turned into a “plastic soup,” and we are in the middle of the kind of mass extinction event not seen on the planet in millions of years. But don’t worry — a new breed of environmentalists has just released a manifesto declaring that, with a little faith in technology, humanity can move into a “great” new century of prosperity and universal human dignity on a thriving planet. How can this be? … Nuclear power has become an obsession for the institute, a kind of signifier by which players in the environmental debate are allocated to the “good guys” box or the “bad guys” box. In a perfect example of mimesis, the dogmatic stance of some anti-nuclear campaigners is reflected back by these pro-nuclear campaigners.
Describing themselves as “ecomodernists,” those gathered around The Breakthrough Institute are not anti-science; they are after all ecomodernists. But in order to maintain their belief in a bright new future, they must find ways to temper or reinterpret the increasingly dire warnings from the world’s scientists. The preferred strategy is to scan the world for good news stories and from them create an alternative perceptual reality. (The recently launched “Bright Spots” is a similar approach.)…In the end, however, the manifesto’s faith in technological breakthroughs means it substitutes a kind of Californian positivity for the hard reality of climate politics. As a roadmap out of our ecological and social predicaments it leads us nowhere….Yet as the scientific debate about the Anthropocene unfolded, some associated with The Breakthrough Institute began to reframe it in an unexpected way. If we live on an Earth dominated by humans, they reasoned, why not embrace our role as “the God species”? If humans have become the dominant force, why not extend our domination and turn it to the good rather than pull back?
Here the ability to set aside science is on full display. The manifesto does not say how long we will need to wait for the next generation of nuclear plants, or how much of the global carbon budget will be used up while we cool our heels. Perhaps it might take 20 years for the first plants to be built, and 40 before they are making a large dent in global emissions. By then the planet will be, in Christine Lagard’s arresting phrase, “roasted, toasted, fried and grilled,” and there will be no way to rescue the situation.
The ecomoderns’ techno-fetishism is possible only because they don’t think about politics. It is true that thinking about the politics of climate change is depressing. For those who “embrace an optimistic view toward human capacities and the future,” the easiest path is to ignore the messy world of politics and focus one’s gaze on humankind’s amazing technological achievements.
And so in the manifesto, which tells a story of how we got here and where we should go, there is no mention of the forces, national and international, that have given us rising carbon dioxide concentrations, acidifying oceans and all the rest. We look in vain to find reference to the proven power of corporations and lobbyists to stop environmental laws, or to the total victory of money politics in the United States, now entrenched after Citizens United….The roadblock to climate mitigation has never been technological. Nor has it been economic. It has been political. The ecomoderns’ claim that we must wait for new technologies to make serious mitigation possible is not merely untrue, it is irresponsible….The technofix is in…An Ecomodernist Manifesto does not offer a new way out of the climate morass, but only a warmed-over version of the old-fashioned American technofix. Politics has gone AWOL in it. The only place politics intrudes is where the manifesto bewails social and institutional obstacles to the further spread of nuclear power…any reasonable reading rules out a rosy view of what the Anthropocene holds in store for us.
from Lars Syll
Paul Krugman has often tried to explain why we should continue to use neoclassical hobby horses like IS-LM and Aggregate Supply-Aggregate Demand models. Here’s one example:
So why do AS-AD? … We do want, somewhere along the way, to get across the notion of the self-correcting economy, the notion that in the long run, we may all be dead, but that we also have a tendency to return to full employment via price flexibility. Or to put it differently, you do want somehow to make clear the notion (which even fairly Keynesian guys like me share) that money is neutral in the long run.
Well, this “fairly Keynesian” guy is not impressed. And I doubt that Keynes himself would have been impressed by having his theory being characterized with catchwords like “tendency to return to full employment” and “money is neutral in the long run.” Read more…
from Asad Zaman
My article on the limits of reason was published in Express Tribune recently (Monday April 13, 2015). This essay shows that logic is limited in its ability to arrive at a definite conclusion even in the heartland of mathematics. Pluralism is required to cater for the possibility that both Euclidean and non-Euclidean geometries represent valid ways of looking at the world. The world of human affairs is far more complex. In order to study and understand societies, one must learn to deal with a multiplicity of truths. This argument, which is related to the first, has been made in my article “Tolerance and Multiple Narratives” which was published in Express Tribune earlier (March 29, 2015). These ideas form part of the background for supporting the drive for pluralism in our approaches to economic problems.
Eighteen scientists published an alarmist but optimistic, though pretty ‘western’, ecomodernist manifesto. It’s main message: considering the still growing population of spaceship earth the only solutions of the problem of combining reasonable prosperity with at least a little real nature as well as an end to global warning are urbanization and other kinds of social-economic-technological progress. My 1 cent: I like it, as its analysis and solutions are consistent with what I (an economic historian) know about economic history. Eating localy produced organic fruit is not the solution. Eating less, efficiently produced, meat is (mind however that even ‘organic’ chicken, like label rouge, is much more sustainable than whatever kind of ‘efficiently’ produced beef). Here, a competing alarmist manifesto by seventeen scientists, which, to my liking, contains way too much ‘we should’ (i.e: you should) thinking. The ecomodernist manifesto: Read more…
Today, Eurostat published the 2014 regional unemployment data.
A) Very large regional differences in Belgium and Italy (in Spain too, but the lowest rate in Spain is thus high that this is less interesting)
B) These differences used to be very large in Germany, too, but not anymore. Some East German regions even have lower unemployment than some West German regions. But on average, unemployment in East-Germany is still very high (about 10%). I didn’t check 2014 but until 2014 the larger part of the decline of unemployment in East Germany was caused by out-migration, not by job growth.
C) Look at Poland and the remarkable developments in the former German territories.
D) Including France and Slovenia there are 13 countries (13!) with average unemployment of about 10% or higher… Let’s write down those debts (starting with a trillion, or so), or issue helicopter money which people can use to pay these debts and start working again, instead of pushing ideological agenda’s. Yes, part of my pension is invested in these debts. But a prosperous Europe is, as far as I’m concerned, a much better pension guarantee than unsustainable debt levels. Read more…
Annotated links and updates. Flawed (neoclassical) models and flawed (neoclassical) metrics edition.
1) The lack of empirical discipline of ‘micro-founded’ models. Simon Wren-Lewis has an interesting post about the difficulty of reconciling ‘micro founded’ models with data on consumption. But the problem runs a lot deeper than Wren-Lewis thinks. ‘Micro founded’ does not mean ‘founded upon micro relations and data’ but ‘applying the outdated and refuted neoclassical model of the consumer to an entire country, as if this country was an individual being’. Indeed, pretty weird, but when you do this, you have to be consistent and coherent and change your micro definition of consumption. On the (real) micro level, individual consumption (defined as purchases) can be explained by income, availability of credit, consumer confidence (which we do measure) and wealth of a household or individual. Read more…
from Dean Baker
In the week since Secretary Clinton announced she is entering the presidential race, there have been numerous stories asking about the agenda she will adopt in her campaign. In her announcement video, she indicated she wanted to be a champion for the average worker against the wealthy.
While many policies will be needed to improve the situation of the poor and middle class, there are three simple ones that could make a big difference: a more competitive dollar, a Federal Reserve Board committed to full employment, and a financial transactions tax to rein in Wall Street. If Clinton or any other presidential candidate wants to level the playing field, these policies would be a great place to start. Read more…
from David Ruccio
All books $10
On the use and misuse of theories and models in economics
Lars Pålsson Syll
Bubble Economics: Australian Land Speculation 1830 – 2013
Paul D. Egan and Philip Soos
Essays Against Growthism
Green Capitalism: The God that Failed
Feudalism, Fascism, Libertarianism and Economics
Forthcoming Read more…
Ben Bernanke: The revolving door between Wall Street and U.S. government agencies continues to revolve.
from David Ruccio
Apparently, the door between Wall Street and the U.S. government agencies in charge of regulating Wall Street continues to revolve. Former Federal Reserve chair Ben Bernanke is the latest to walk through the door. Read more…
from Lars Syll
In its standard form, a significance test is not the kind of “severe test” that we are looking for in our search for being able to confirm or disconfirm empirical scientific hypothesis. This is problematic for many reasons, one being that there is a strong tendency to accept the null hypothesis since they can’t be rejected at the standard 5% significance level. In their standard form, significance tests bias against new hypotheses by making it hard to disconfirm the null hypothesis. Read more…
Schauble, the German finance minister, did it again. In the New York Times: distorting the facts using a mixture of ignorance and misunderstanding to push an ideological agenda. The finance minister of Germany is clearly is not only the man who kicks the can down the Autobahn by postponing badly needed government investments. To be more precise: who kicks this can towards the banks by (1) postponing investments (2) demonizing any kind of government deficit and (3) at a time when the German state has to pay 0% interest rate, tries to outsource financing of the badly needed maintenance investments to a private/public corporation which has to pay much higher interest rates than the state, did not know his facts. Pub quiz question: which party (the government or the banks) will, according to the present plans, bear the risk of these investments…
Schauble also is – and will be remembered as – the man who wrote inconsistent and wrong, not fact checked nonsense in the New York Times. This newspaper is famous for its fact checking but this opinion piece by a foreign finance minister seems to have slipped through.
* Inconsistent as he states that he despises debt financed spending. But at the same time he accepts that German banks and companies lend tens and even hundreds of billions of euro to counterparts in other countries – to quite an extent to finance spending. The housing bubbles in Spain and Ireland really were related to the German (and Dutch) current account surplus, the Euro and financial integration and all that!
Source: Eurostat, national account series.
* Wrong, Read more…
from David Ruccio
The Wall Street Journal notes that workers wages in the United States are lower today than they were back in 1972.
In particular, both average real weekly earnings and real hourly earnings of production and nonsupervisory workers peaked in October 1972 (“when Richard Nixon won re-election, Eugene Cernan became the last man to walk on the moon and the Dow Jones Industrial Average closed above 1,000 for the first time”) and they still haven’t reached that level more than four decades later. Read more…
Look here for part 1 of this series, about money. Today: market fundamentalism. The posts are supposed to be succinct, to look at the issues from the angle of the economic statistician.
Today: market fundamentalism.
There are, in my view, three main strands of market fundamentalism in DSGE-macro models:
1) The idea that market prices are ‘optimal’, especially when we’re in equilibrium (whatever that is)
2) The idea that non market production, especially government production like lots of education or health care, is essentially worthless
3) The idea that markets are not just very dynamic and creative (which surprisingly does not seem to be very interesting to the DSGE economists) but that a market system leads to some kind of optimal general equilibrium or (taking the models at face value) is at least not totally inconsistent with such a situation. Read more…
from Lars Syll
Abstraction is the most valuable ladder of any science. In the social sciences, as Marx forcefully argued, it is all the more indispensable since there ‘the force of abstraction’ must compensate for the impossibility of using microscopes or chemical reactions. However, the task of science is not to climb up the easiest ladder and remain there forever distilling and redistilling the same pure stuff. Standard economics, by opposing any suggestions that the economic process may consist of something more than a jigsaw puzzle with all its elements given, has identified itself with dogmatism. And this is a privilegium odiosum that has dwarfed the understanding of the economic process wherever it has been exercised.
Bringing economics back into liberal academic life.April 16, 2015.http://www.ft.com/cms/s/0/99799262-e293-11e4-ba33-00144feab7de.html#ixzz3XTazf200
Sir, The moribund orthodoxy that currently exercises such an inflexible grip on university economics departments will, as Wolfgang Münchau comments, inevitably face a challenge, and this “will come from outside the discipline and will be brutal” (“Macroeconomists need new tools to challenge consensus”, April 13). The orthodoxy has brought this dismal prospect on itself through the brutality with which it has purged those departments of any other school of thought than its own.
Indeed, in its extreme version, the orthodoxy’s doctrine holds quite simply that there are “no schools of thought in economics”, a totalitarian assertion all too true in most economics departments today, so ruthless has been the purge of alternatives. As a result, the different approaches to economic issues of Adam Smith, Bentham, Ricardo, Marshall, Keynes, Friedman and so on are all relegated to the fringe subject of the “history of economic thought”.
from Dean Baker
The Labor Department reported the U.S. economy created 126,000 jobs in March. This was a sharp slowdown from the 290,000 average over the prior three months. This relatively weak jobs report led many economic analysts to comment that the economy may not be as strong as they had believed.
This reassessment is welcome, but it really raises the question of why so many professional economists and economic reporters could be so badly mistaken about the strength of the economy. There never was much basis for claiming a boom in the U.S. economy and the people claiming otherwise were relying on a very selective reading of the data.
Just starting with the most basic measure, real GDP in the United States grew at just a 2.2 percent annual rate in the fourth quarter of 2014. This is a pace roughly in line with most estimates of the economy’s potential rate of growth. This means that the economy was just keeping up with the growth in its potential, filling none of the large gap between potential GDP and actual GDP that still persists from the 2008–2009 recession. Read more…
from Lars Syll
In their new book, Mastering ‘Metrics: The Path from Cause to Effect, Joshua D. Angrist and Jörn-Steffen Pischke write:
Our first line of attack on the causality problem is a randomized experiment, often called a randomized trial. In a randomized trial, researchers change the causal variables of interest … for a group selected using something like a coin toss. By changing circumstances randomly, we make it highly likely that the variable of interest is unrelated to the many other factors determining the outcomes we want to study. Random assignment isn’t the same as holding everything else fixed, but it has the same effect. Random manipulation makes other things equal hold on average across the groups that did and did not experience manipulation. As we explain … ‘on average’ is usually good enough.
Angrist and Pischke may “dream of the trials we’d like to do” and consider “the notion of an ideal experiment” something that “disciplines our approach to econometric research,” but to maintain that ‘on average’ is “usually good enough” is an allegation that in my view is rather unwarranted, and for many reasons.
First of all it amounts to nothing but hand waving to simpliciter assume, without argumentation, that it is tenable to treat social agents and relations as homogeneous and interchangeable entities. Read more…