Archive for June, 2010

Mind the gap

from David Ruccio

For those (like Paul Krugman) who are floundering around trying to understand whether or not there’s a link between inequality and capitalist crises, the similarities between 2007 and the situation just before the Great Depression couldn’t be clearer.

The latest study by the Center for Budget and Policy Priorities shows that the gap between the very top and the rest of the recipients of income in the United States increased enormously in the last three decades.  Read more…

How to build a narrative linking the various heterodoxies: Part 1

June 30, 2010 8 comments

It would be good if we could get some discussion going here on how to build a narrative linking the various heterodoxies so as to have an alternative paradigm with which to challenge, both in the media and the classroom, the neoclassical/neoliberal mainstream.  Here, to stimulate comments, are comments from the new RWER issue on Peter Radford’s Whither economics? What do we tell the students?Read more…

Is Advice from the IMF Better than Advice from a Drunk in the Street?

June 29, 2010 4 comments

from Dean Baker

That is the question that people around the world should be asking as the International Monetary Fund dishes out its prescription for austerity. The IMF program calls for cutbacks in government support for health care, pensions and a wide range of other public services. It also calls for weakening labor market regulations that provide workers with job security.

These recommendations are being given in a context where the world economy is suffering from a massive shortfall of demand. In other words, tens of millions of people are unemployed right now because there is not enough spending to keep them employed. The IMF’s program is almost certain to reduce spending further leading to even larger shortfalls in demand and more unemployment.  Read more…

Results of poll of German economists

June 28, 2010 3 comments

From Germany we have received the following message.

You and the readers of RWER may be interested in the results of a recent poll among German economists.

One question in that poll was “To which of the major schools of thought do you feel closest?”

The answers were:  Read more…

The Glass Wall

from Edward Fullbrook

Last week in Paris I had two days of discussions on the state of economics, including two dinners in restaurants of the kind to which my budget does not usually run, with three economists, three trans-disciplinary physicists, one Silicone Valley billionaire, his hedge fund manager and his charitable foundation director who diplomatically refereed our dog fights.  These included numerous squabbles on how mimetic theory should be applied to bubbles, as well as more venomous disagreements such as when in the first session one of the physicists, who appeared to loathe the other two, went for their jugulars, and the moment in the final session when the fund manager revealed himself to be a Freidmanite and pronounced me “superficial”.

Unquestionably I was the shabby man out. The sociology of this mini conference of the Imitatio Economic Forum bears significance to a point I wish to make.  Read more…

Krugman thinks we are looking at a lost decade

June 24, 2010 15 comments

In the New York Times today Paul Krugman writes:

The case for expansionary policies in the face of a slump is intellectually difficult; Keynes described the writing of the General Theory as a painful process of discovery, and so it is. The natural instinct of almost everyone is to think that tough times require tough measures, and that if the economy is suffering, the government should tighten its own belt. It would take a clear consensus from economists to overcome that natural bias. Read more…

Obama’s oil spill

from David Ruccio

Just as the war in Afghanistan is now Obama’s war, so the oil spill in the Gulf of Mexico is now his.

Tim Dickinson explains why, in a remarkable essay on how Obama failed to crack down on the corruption of the Bush years, and let the world’s most dangerous oil company get away with murder.

First, Dickinson traces the activities of Obama and his administration, especially Secretary of the Interior Ken Salazar, in the period leading up to the explosion of the Deepwater Horizon well (when they greenlighted offshore oil drilling and failed to clean up the Minerals Management Service) and after the spill (during which they’ve allowed BP to continue deep-sea production at its Atlantis rig, bowed to BP estimates of the extent of the spill, and attempted to manage the crisis by “supporting” BP efforts to contain the spill and engage in clean-up efforts).

Then, he explains why the Obama administration failed to crack down on BP and to tackle the crisis with the full force of the federal government? Read more…

Why “Heterodox Economics”?

from Edward Fullbrook

Consider the following table.  The left-hand column lists the terms placed between quotation marks that I searched on Google, 20 June, 2010.  The right-hand column lists the number of hits that came up for each term.

heterodox physics                       9
heterodox physicists                   3
heterodox chemistry                   0
heterodox chemists                    0
heterodox biology                       9
heterodox biologists                   1
heterodox anthropology             5
heterodox anthropologists         5
heterodox sociology                   3
heterodox sociologists               2
heterodox political science         4
heterodox political scientists      1
heterodox economics                 29,600
heterodox economists               31,800

“Heterodox”, remember, is a relative word: if no orthodoxy, then no heterodoxy.  These figures point to a radical difference between Read more…

Out of equilbrium

June 19, 2010 2 comments

from David Ruccio

Equilibrium is not the foundation of economics; it’s the foundation of NEOCLASSICAL economics.

That’s what Mark Thoma seems not to understand in his discussion of the macroeconomic foundations of microeconomics [ht: nk].

Microeconomists generally assume that prices move to clear markets. Their main interest is in understanding how equilibrium outcomes change when there are changes in the economic environment. . .

Exactly how prices do this isn’t well specified. Instead microeconomists make use of an abstraction — the Walrasian auctioneer — who calls out prices, assesses the outcome in terms of excess demand or excess supply in all markets, readjusts prices, computes a new assessment of excess supply and demand, and this continues until demand equals supply in all markets.

No, NEOCLASSICAL microeconomists assume that prices move to clear markets and that the auctioneer calls out price vectors until general equilibrium is achieved. Non-neoclassical economists do not make such assumptions. Read more…

Letter from 100 Italian Economists

June 18, 2010 6 comments


To the Members of Italian Government and Parliament
To the Italian representatives in the European Union Institutions
To the representatives of the political parties and the trade unions
To the Italian representatives in the European Union Institutions and the ESCB
To the President of the Republic
The extremely serious global economic crisis, and the related crisis in the euro zone, will not be solved either by Read more…

The Beat the Press Weekly Roundup

June 16, 2010 Leave a comment

from Dean Baker

June 14, 2010

Robert Samuelson Tells Us We Need a High Stock Market to Rescue the Economy

There is a well-known stock wealth effect. Economists usually estimate that annual consumption increases by 3-4 cents for each additional dollar of stock wealth. This was the basis for the strong growth of the late 90s. The stock bubble created $10 trillion of wealth causing consumption to soar and savings to plummet.

Robert Samuelson notes this stock wealth effect in his column today and tells us that we have keep the stock market happy in order to have a recovery. Actually, he’s missed most of the story.   Read more…

Bad economic policy still biggest threat to global economic recovery

June 16, 2010 1 comment

from Mark Weisbrot

The U.S. and European Union together make up about half of the global economy, and recovery is quite uncertain in both of these big economies. Contrary to a lot of folk wisdom and political posturing, the problem is not irresponsible government spending in either case, but a lack of commitment by the authorities in both areas to ensure a robust economic recovery from the world’s deepest recession since the Great Depression. This is true in many other countries as well.

The continued weakness of the U.S. economy was hammered home with the monthly employment report for May. The creation of only 20,000 non-Census jobs in May, down from 217,000 the previous month, sent shock waves through the financial markets.  Read more…

Surprises in store for economists

June 15, 2010 1 comment

from Dean Baker

The commerce department reported that retail sales in May were down by 1.2% from April. This surprised most economists who had expected a modest increase. The media were filled with accounts of economists trying to explain why consumers were still reluctant to open up their wallets and spend in a big way. It would have been much more interesting to hear accounts of why economists were surprised.

There is always a large random element in month-to-month movements in retail sales or any other economic variable. Therefore no one is ever going to be able to explain these changes with any precision. (The data are also subject to large revisions, so it is entirely possible that revised data will look very different from the report released last week (pdf).)

Nonetheless, there is little basis for the surprise shown by so many economic analysts. With few exceptions these analysts failed to see the $8tn housing bubble, the collapse of which sank the economy. Remarkably, even now they apparently cannot understand its importance. Read more…

Republican economics

June 10, 2010 5 comments

from David Ruccio

The more you study economics the more likely you are to be Republican and to hold free-market views.

That’s the less-than-surprising conclusion of a recent study by the New York Fed. Here are some of the authors’ observations:

Those who took more economics classes or who majored in economics or business were more likely to be members of the Republican party and less likely to join the Democratic party.  Read more…

Toronto G-20 Meetings, Robin Hood taxes on banks and Canada

June 10, 2010 2 comments

from Jim Stanford

            One of the most controversial topics that will be addressed at this month’s G-20 meetings in Toronto, Canada will be the proposal for new taxes on banks and other financial institutions.  Unfortunately, the host to the summit, Canada’s strongly neoliberal Conservative government, has already expressed strident opposition to any new tax on banks – whether a Robin Hood-style tax as proposed by Oxfam and other progressive groups, or the milder measures being studied by the IMF.

            While the host government certainly does not have any veto power at these summits, Canada’s vocal opposition to any new taxes (or restrictions of any kind) on private banks certainly throws up another roadblock to get something done.  Indeed, with President Obama adopting (for the time being, anyway) a more populist, finance-bashing tone (symbolized by the lawsuit against Goldman Sachs), Canada’s government – led by Finance Minister Jim Flaherty – has become the leading international voice against new bank taxes.  Read more…

Robbed of Jobs by the Deficit Cultists

June 10, 2010 1 comment

from Dean Baker

Friday’s U.S. jobs report caught most economic analysts by surprise. After touting the strength of the recovery for months, they had to come to grips with the fact that the economy just is not creating very many jobs.

If the temporary jobs generated by the census are pulled out of the count, the economy created just 20,000 jobs in May. The average rate of growth of non-census jobs over the last three months has been just 130,000 a month, only slightly faster than the growth of the workforce. At this rate of job growth, it will take decades, not years, to get back to normal levels of unemployment. It’s time that we stop the happy talk about recovery and get serious about the country’s economic problems.  Read more…

China crashes Cafta’s party

I am writing from the Shanghai Forum, the annual event dubbed as Asia’s version of the World Economic Forum in Davos. A major issue at the forum has been the need to alleviate China‘s impending labour shortage. The implications for Central America and other developing countries loom large.

It might seem inconceivable that a country with more than 1 billion people would have a labour shortage, but it’s true. According to reports in the New York Times, the shortage is due to two factors: the increase in the levels of Chinese people going through higher education and getting absorbed into the emerging high technology, high value-added sectors of the economy; and the decrease in China’s birth rate since its “one child” policy that began in 1977.

At the forum, Min Hua, director of the Institute of World Economy at Fudan University unveiled China’s solution to the problem: Read more…

The specter of uncertainty

from David Ruccio

Uncertainty continues to haunt modern economics.

That’s what Jack Amariglio and I argued back in 2003, in Postmodern Moments in Modern Economics, when we noted a particular irony that has characterized much of modern—late-nineteenth- and twentieth-century—economics.

On one hand, certainty has been an important characteristic of modern economists’ conceptions both of the economy and of the role of economics over the course of the last one hundred years. Oscillations have taken place, especially back and forth between neoclassical and Keynesian economists—on matters of both theory (from microeconomic approaches to macroeconomics and now back again) and policy (from free markets to more state-centered approaches to the current celebration of markets). Read more…

The TARP and the Deficit Hawks

June 4, 2010 2 comments

from Dean Baker

When politicians demand that the public do something because of the dictates of financial markets, it is best to hold on to your wallet. Back in September of 2008, both President Bush and the Democratic leadership in Congress insisted that if we did not immediately hand over $700 billion to the banks, the whole financial system would grind to a halt.

The threat worked – the banks got their $700 billion from Congress and much more from the Fed – with few questions asked. As a result, Goldman Sachs, Citigroup and the rest are now as profitable as ever and once again paying out record bonuses to “top performers.”   Read more…

Chicago petition against Dynamite Prize winner institute

June 3, 2010 2 comments

In May 2008 the University of Chicago announced the intent to establish the Milton Friedman Institute (MFI) with an initial endowment of 200 million dollars.  The proposal to name an institute after Milton Friedman, recent winner of the Dynamite Prize for Economics and supporter of Pinochet’s dictatorship in Chile, aroused objections from many faculty members across campus. This led to the formation of the Committee for Open Research on Economy and Society (CORES). It has now initiated an online petition against the MFI, allowing for signatures from outside the University.  Read more…