Archive for August, 2010

The metaphor of the invisible hand

August 31, 2010 4 comments

from David Ruccio

Take a course in neoclassical economics or listen to a neoclassical economist and you’ll soon learn of the magic of the invisible hand. And you’ll learn that the invisible hand was Adam Smith’s great contribution to moden economic thought.

Much of the rest of Smith is discarded or simply ignored. The labor theory of value. The role of trust and sympathy in allowing markets to operate. The need for public education in a world in which labor is often reduced to drudgery. And so much more.

But the invisible hand remains. The problem is, the invisible hand is an idea that Smith only invokes twice in his main texts—once in the Wealth of Nations, and once in the Theory of Moral SentimentsRead more…

Wrong Lessons Drawn From Germany’s Recovery

August 31, 2010 1 comment

from Mark Weisbrot

Germany’s economic recovery has gathered steam lately and is being used – in both the European and the U.S. press – to promote the view that Germany “had the formula right all along” and “made the short-term sacrifices necessary for long-term success.” The formula, it is argued, is one that includes the austerity policies now being shoved down the throats of countries such as Spain and Greece.

Germany certainly has gotten some things right, but their formula has not included pro-cyclical policies – fiscal tightening when the economy is contracting or barely growing – as the European authorities and IMF are requiring of Spain. In fact, Read more…

How to build a narrative linking the various heterodoxies: Part 4 — Evidence Based Economics

August 31, 2010 6 comments

Below is a comment that Merijn Knibbe offered in Part 2 that deserves further consideration.  The discussion so far includes Part 1, Part 2, Part 3 and also complexity theory and building a narrative, 5 suggested common themes, cogent discussion of, and Lawson yes, Lawsonism no

Read more…

NAFTA’s Chapter 11: The Latest Giveaway

August 30, 2010 5 comments

from Jim Stanford

Canada’s federal government made an important announcement this week.  It was kept deliberately quiet: with a news release issued at 4:45 pm on a calm Tuesday in the middle of the late-summer news “dead zone.”  But it should set alarm bells ringing for anyone concerned with the anti-democratic direction of global trade law.   Read more…

To Peer Review or not to Peer Review

August 27, 2010 2 comments

from Grazia Ietto-Gillies

The debate on alternatives to the Peer Review system for the assessment of research has been going on for a little while and it is nice to see it has now hit the New York Times. It was highlighted in this blog by David Ruccio who raises the issue of how tenure and research funds can be allocated in the absence of a Peer Review system.

In  my 2008 paper  ‘A XXI-century alternative to XX-century peer review” real-world economics review, 45: 10-22, March I deal with similar issues and propose an alternative system to Peer Review, one that utilized the digital technologies while avoiding some of the pitfalls of Peer Review.    Read more…

The relation between oil prices and economic activity

August 27, 2010 4 comments

From Lewis L Smith

Recently a longtime Internet correspondent of international repute requested my opinion on the relation between oil prices and economic activity. I was both honored [since he is better known than I am] and somewhat take aback, since the subject is neither an easy one nor one on which I have done any research.

Fortunately I have tried to keep up with the work done by others and also have written quite a bit on closely related matters such as peak oil, “wild cards in the oil deck” and such like. So I was able to piece together the answer which follows, with a few revisions here and there. Read more…

Economist of the day: Frederic Stanley “Rick” Mishkin

August 27, 2010 1 comment

from David Ruccio

Here’s a video interview [ht: eo] with former Fed Governor and current Columbia University professor Frederic Stanley “Rick” Mishkin (apparently a clip from the “Inside Job“) in which he admits to writing a research paper, in return for $124,000 from the Icelandic Chamber of Commerce, celebrating the “prudential regulation and supervision” of Icelandic banks. That was just before the banks crashed and many of the bankers fled the country.

In addition, here’s Mishkin’s 2005 “What Me Worry?” take on Too Big To Fail [pdf]. Then there’s his great housing bottom call in April 2007.

And I’m supposed to teach my students about ethics and intellectual honesty?!!

When Wall Street Rules, We Get Wall Street Rules

August 25, 2010 11 comments

from Dean Baker

The middle class is getting whacked by the Great Recession. Fifteen million people are out of work, another 9 million workers can only find part-time jobs, and millions more have given up looking for work altogether. Those lucky enough to be employed are unlikely to see any substantial wage gains for years to come.

Millions of homeowners are facing the loss of their home and more than 10 million are underwater in their mortgage. Most of the huge baby boom cohort is approaching retirement with little other than Social Security to support them, now that the collapse of the housing bubble has destroyed their home equity and much of the rest of their savings.

This pain is infuriating for two reasons. Read more…

Academic publishing is changing

August 24, 2010 3 comments

from David Ruccio

Academic publishing is changing quickly and involves many different forms of production, from backroom cottage-industries to multinational capitalist corporations. And no one knows exactly where it’s all headed. Publishers themselves (at least in my experience) are as much at a loss as the rest of us.

One of the latest changes is online collaborative reviewing as an alternative to old-style peer reviewing. According to the New York TimesRead more…

Lawson yes, Lawsonism no

August 23, 2010 13 comments

from Edward Fullbrook

I have mixed feelings and misgivings about Nuno Martin’s short essay, “The nature of modern economics, including an account of heterodox unity and coherence”.  

Like Keynes, Lawson is a mathematician – a real mathematician – who turning to economics was shocked by the incompetence with which economists habitually apply mathematics to their subject matter. He has made it his life’s work to turn economics away from scientism.  Read more…

How to build a narrative linking the various heterodoxies: Part 3

August 22, 2010 11 comments

In the seven weeks since its inception, our discussion 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 has generated a lot of thoughtful comment and interchange of ideas.  In addition to Part 1 and Part 2, the discussion includes “Wilde, Radford and Davies on complexity theory and building a narrative”, Bruce Edmonds’ “5 suggested common themes for an Economics that takes its subject matter seriously” and some especially cogent discussion of Edmonds’ suggestions. To start Part 3 here is a brief essay from Nuno Martins.

Read more…

Should we bury macroeconomists at Ground Zero?

August 21, 2010 5 comments

from Dean Baker

That is the question that millions are no doubt asking after the publication of a new study from the Boston Fed. The study examines the arguments from those warning about the housing bubble, as well as the deniers and the agnostics. It concludes by exonerating the economics profession for failing to see the biggest economic catastrophe in 80 years:

“[T]he state-of-the-art tools of economic science were not capable of predicting with any degree of certainty the collapse of U.S. house prices that started in 2006.”

I’m sorry, but this one is really painful. It’s bad enough that these highly paid professionals could not see this disaster coming beforehand, but it turns out that even after the Titanic hit the iceberg they still couldn’t see a problem in the ship’s design.  Read more…

Economics and time

August 19, 2010 6 comments

from David Ruccio

Time poses a real problem in economics, both mainstream and heterodox. Mainstream economists tend to eliminate time entirely from their models, while heterodox economists often invoke time as a continuum, with an uncertain future and a stable, known present and past.

However, recent discoveries in physics require us to rethink our understanding of time. In particular, according to Robert Lanza, “whether events happened in the past may not be determined until sometime in your future—and may even depend on actions that you haven’t taken yet.”  Read more…

Bernanke’s Paralysis and the Need for an Independent Fed

August 17, 2010 3 comments

from Dean Baker

Last week the Fed announced that it would use the proceeds from retired mortgage-backed securities to buy up more government bonds. This may have a very modest effect in keeping long-term interest rates low, thereby giving a small boost to the economy.

Such a measure would be reasonable if the economy was basically fine and just in need of a modest lift. But this is not the case.

The unemployment rate is 9.5 percent and virtually certain to rise in the 2nd half of the year. Job growth has basically stopped and the GDP is likely to be in the range of 1-2 percent in the next four quarters, as state and local governments cut back spending, the stimulus phases down and the housing market resumes its slide.   Read more…

Comments of the Week: Davies, Radford, Gelles, and Knibbe discuss Bruce Edmonds’ 5 suggestions

August 15, 2010 2 comments

This is a series of connected comments on Bruce Edmonds’ post 5 suggested common themes for an Economics that takes its subject matter seriously.  His 5 points were as follows:

1.  Economic phenomena are social phenomena

2.  Evidence should be paramount

3.  Accepting the complexity of economic phenomena

4.  Rejecting analytic formalism where this distorts good analysis

5.  Recognising the need for clusters of related models of many kinds and levels   

Read more…

Borat Economics

August 12, 2010 1 comment

From Dean Baker

The Washington Post and most of the important people in Washington want the United States to be like Kazakhstan. Unfortunately, this is not another Borat movie, this is about the central focus of economic policy in the United States today. 

Kazakhstan has a debt-to-GDP ratio of just 14.2 percent, one of the lowest in the world. By other measures, Kazakhstan doesn’t score so well. Its per-capita income is $11,800, just over one-fourth as much as the United States. Life expectancy for the people of Kazakhstan is just 68.2 years, putting it behind countries like Iraq and Honduras. By most measures, Kazakhstan looks like a rather unappealing place, but factors like the health and wealth of the population don’t matter to the policy elite in Washington. They care about budget deficits and debt, and by that standard Kazakhstan is golden.  Read more…

Obama’s profitable recovery

August 12, 2010 3 comments

from David Ruccio

Obama, his economic team, and the Democratic Party have produced an economic recovery—in profits but certainly not for working people.

These are strange times, in which the White House and the Democratic congress are villified in the right-wing and business press for being anti-business. Yet, business profits are the only thing that have recovered since Obama took office.

A chart provided by Ezra Klein puts it all in perspective:  Read more…

This Economy Stinks, Yes It Does

August 11, 2010 Leave a comment

from Dean Baker

If there were any doubts about the health of the economy, two reports issued in the last ten days should have eliminated them. First the second quarter GDP showed the economy growing at just a 2.4 percent annual rate. Then the Labor Department reported on Friday that the economy created just 12,000 jobs in July after removing the impact of temporary Census employees. Both reports are really bad news about the economy’s near-term prospects.  Read more…

5 suggested common themes for an Economics that takes its subject matter seriously

August 10, 2010 13 comments

from Bruce Edmonds

This is another contribution under the theme of Geoff Davies’ essay “The Nature of the Beast”, which considers the question of how do we build a narrative linking the various heterodoxies.  5 possible uniting themes are suggested.

1.  Economic phenomena are social phenomena

Economics involve all sorts of intelligent, social and adaptive behaviour including: social norms, fashions, identity, context-dependency, trust, friendship etc.  Economic exchange can involve all these things, is embedded in our social and cultural life and can often only be fully understood in its social context.  The deliberate exclusion of “non economically rational” elements of sociology and psychology is simply not supported by evidence.  Economic phenomena is just that part of social phenomena which involves the exchange or transfer of items of value.  Social behaviour undoubtably came before economic behaviour in the development of humankind, it is the more fundamental category.    Read more…

David Hendry’s tale of two cultures

August 9, 2010 2 comments

David Hendry [University of Oxford] recently gave a talk titled “Research and the Academic: A Tale of Two Cultures” at the University of Western Australia.  The full transcript is available at  Here are the first six points of his ten-point description of one of the cultures.

The `Get Ahead’ Model

1] Choosing a subject to research

Any fad or fashion will do, if it is likely to last a couple more years and is a hot topic for Publication.

2] Topic

Within that fashionable field, mainly develop theory, preferably with a catchy title, some abstruse maths (explained as little as possible, so it looks `smart’), possibly with a couple of the key steps missing in reported proofs to make referees feel inferior and worried about their reputation that they cannot check the claims without a lot of time input. Minimise novelty— just enough so your contribution is not totally redundant.  Read more…

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