Archive for August, 2012

Unemployment: the real Eurozone problem (Spain: more than 25%…)

August 31, 2012 1 comment

from Merijn Knibbe
1. New Eurostat data on unemployment (which are based on a unified methodology and which therefore may differ from the national data).The graph I made every month is now produced by Thomson Reuters:


Read more…

Poverty: The new growth industry in America

August 31, 2012 4 comments

from Dean Baker

Recent trends in poverty rates should have the country furious at its leaders. When we get the data for 2011 next month, we are likely to see yet another uptick in poverty rates, reversing almost 50 years of economic progress. The percentage of people in extreme poverty, with incomes less than half of the poverty level, is likely to again hit an all-time high since the data has been collected.

The situation is made even worse by the fact that so many of those in poverty are children. In 2010, 27 percent of all children in the country were reported as living below the poverty level. For African-American children, the share in poverty is approaching 40 percent.

Many will blame the welfare reform law in 1996 that passed with bipartisan support. That is appropriate. This bill involved a great deal of political grandstanding and removed guarantees that could have protected millions of families in a severe downturn like what we are now seeing. Read more…

Economists This Week: What is neoclassical economics? Glasner, Krugman, Vernengo, Knibbe and Pilkington

August 30, 2012 17 comments

David Glasner

Keynes’s work was not neoclassical economics, and it has been an ongoing project ever since Keynes published the General Theory to determine whether, and to what extent, Keynes’s theory could be reconciled with neoclassical economic theory. Here is how Hayek summed up his essay.

It seems to me that signs can already be discerned of a revival of interest in the kind of theory that reached its first high point a generation ago – at the end of the period during which Menger’s influence had mainly been felt. His ideas had by then, of course, ceased to be the property of a distinct Austrian School but had become merged in a common body of theory which was taught in most parts of the world. But though there is no longer a distinct Austrian School, I believe there is still a distinct Austrian tradition form which we may hope for many further contributions to the future development of economic theory. The fertility of its approach is by no means exhausted and there are still a number of tasks to which it can profitably be applied.

So we are all (or almost all) neoclassical economists, and none more so than Hayek,  Read more…

Doctors remove bullet from victim’s head, seek to determine cause of death

August 30, 2012 3 comments

from Dean Baker

Washington is the mecca for people across the country and around the world who have difficulty seeing the obvious. The economy tanked because the country had a huge housing bubble that burst. The collapse sent the economy into a long and severe recession because there was nothing that could replace the $1.4 trillion in annual demand that was generated by the housing bubble.

In the absence of a stimulus program that was 2-3 times the size of the one President Obama put forward and considerably longer lasting, the economy was doomed to a prolonged period of unemployment. None of this is 20-20 hindsight; some of us said it repeatedly as clearly as possible in advance (e.g. here, here and here).

So, naturally, in Washington, when events turn out exactly as predicted, leading policy wonks turn to alternative explanations. Read more…

For income equality the USA ranks 28th out of 29

Limiting the debate

August 29, 2012 3 comments

from David Ruccio

Mainstream thought has failed. But that doesn’t stop mainstream thinkers from attempting to limit the terms of debate.

It doesn’t take much in the way of argument or evidence to demonstrate that mainstream thinking has failed. Mainstream economics has failed—in not being able to predict the current crises, in creating the conditions for these crises to occur, and in not knowing what to do once the crises did occur. Similarly, mainstream political thought has failed—in celebrating a set of protocols and conventions whereby democracy is limited to a particular set of political institutions and decisions, and is excluded from other areas such as the enterprises in which people spend their working lives.

These ideas have failed but then Paul Krugman and Timothy Snyder step forward to demonstrate they’re the only game in town. There is no alternative.  Read more…

For share of income received by richest 10% the USA ranks 26th out of 28

In 1992 external devaluation might have been the better option, for Germany (3 graphs)

August 29, 2012 3 comments

from Merijn Knibbe
Re-unification caused mayor economic challenges to Germany which partly were met by a policy of mild austerity – mild compared with the present slash and burn economics in southern Europe. And at this moment the German economy is doing remarkably well, even taking the slowdown of the last nine months into account (see paragraph 1). Is this success due to austerity? Or did austerity actually postpone it, as it restricted domestic demand and made Germany too dependend on exports? Read more…

Money, loans and economics

August 28, 2012 3 comments

from Merijn Knibbe

In a blogpost, Paul Krugman asks, while defending the heuristic use of neo-classical economics : “What would truly non-neoclassical economics look like? It would involve rejecting both the simplification of maximizing behavior, going for full behavioral, and rejecting the simplification of equilibrium, going for a dynamic story with no end state.” Well, I personally do agree very much with the last part of the sentence – it’s also called ‘history’. But that’s not the point. There is more the matter with neo-classical economics. Lets give the floor to Charles Goodhart and his lament and amazement about why neo-classical economists did not even took notice of ‘money’ anymore, in his lecture “Whatever became of the monetary aggregates”

Let me turn, finally, to my main point. Read more…

The nutty GOP games commence

August 28, 2012 2 comments

from Peter Radford

Today’s leak of the Republican part election platform – the closest thing we ever get here to the manifestos published in the UK – is both revealing and far from shocking. At its core it is a radical right wing document that seeks to undo the American social contract in place since the 1930′s and replace it with an earlier version. Depending on how you view it that earlier version could be from anywhere between the 1850′s up to the 1890′s. Apparently they were better times in the GOP view and we need to return there.

Among the planks of modernity to be trashed is Medicare. The Republicans are hell bent on getting rid of it. Their far right elements, who now dominate the party, choked on it back at its inception and have longed for the day when America can be rid of providing health care to its citizens. In these heady days of libertarian dreaming the extremists now dictate Republican thinking, and so it is no shock to see them seize the opportunity to impose their Rand fueled hatred of society on the rest of us. If they win of course. Which I doubt they will.

Nonetheless we ought to take the extremists seriously. Not only have they plunged us all into endless wars about entirely non-political cultural issues – abortion and gay rights – but now they have taken aim at the precarious defenses of the middle class.  And let’s be serious too about the consequences of their plan: the elimination of social programs is, effectively, the elimination of the US middle class. Read more…

Academic precariat: How is it possible to hide 75 percent of professors in the United States?

August 28, 2012 7 comments

from David Ruccio

How is it possible to hide 75 percent of professors in the United States?

It seems crazy but that’s what happens until someone like Sarah Kendzior [ht: dl & db] steps forward and describes what it’s like to be an adjunct professor living below the poverty line in the U.S. system of higher education.

In most professions, salaries below the poverty line would be cause for alarm. In academia, they are treated as a source of gratitude. Volunteerism is par for the course – literally. Teaching is touted as a “calling”, with compensation an afterthought. One American research university offers its PhD students a salary of $1000 per semester for the “opportunity” to design and teach a course for undergraduates, who are each paying about $50,000 in tuition. The university calls this position “Senior Teaching Assistant” because paying an instructor so far below minimum wage is probably illegal.

But her concern is not just with adjunct professors. It’s a much larger issue: Read more…

For share of income received by poorest 20% the USA ranks 27th out of 28

Niall Ferguson is the gift that just keeps giving

August 27, 2012 4 comments

from Dean Baker

Niall Ferguson is really upset. He heard about the conspiracy among progressive bloggers to pay Newsweek to print his error filled piece trashing President Obama. He fires back with this piece in the Daily Beast. It’s just as much fun as the last one.

To start with, Ferguson is intent on digging himself deeper into a hole on his original claims:

“The president pledged that health-care reform would not add a cent to the deficit. But the CBO and the Joint Committee on Taxation now estimate that the insurance-coverage provisions of the ACA will have a net cost of close to $1.2 trillion over the 2012–22 period.”

Ordinary people would presumably read the second sentence to be a refutation of the first. Obama said his plan would not add to the deficit, but two authoritative sources say the insurance provisions would cost $1.2 trillion. That’s pretty damning, except that Krugman and others have pointed out that the CBO estimates show that the ACA will reduce the deficit, not increase it.  Read more…

For GDP per hour worked the USA ranks 7th out of 30

August 27, 2012 1 comment

Who are the 1 percent in the USA and how much do they make? (2 charts)

August 25, 2012 17 comments

Interests and ideas

August 24, 2012 8 comments

from David Ruccio

Self-interest is central to neoclassical economics.

My students certainly know that. According to the neoclassical economics they’ve learned, all choices made by economic agents can be reduced to and explained in terms of self-interest.

But Dani Rodrik [ht: kd] is right:

Interests are not fixed or predetermined. They are themselves shaped by ideas – beliefs about who we are, what we are trying to achieve, and how the world works. Our perceptions of self-interest are always filtered through the lens of ideas.

And, according to Rodrik, neoclassical economics has played a key role in shaping interests:  Read more…

Percentage distribution of U.S. aggregate household income, by income tier, 1970-2010 (Graph)

August 24, 2012 3 comments

from David Ruccio

In the below chart, the middle tier is defined as those living in households with an annual income that is 67 percent to 200 percent of the national median; the upper tier is made up of those in households above the 200 percent threshold, and the lower tier is made up of those below the 67 percent threshold.

What the Pew Research Center analysis finds is that upper-income households accounted for 46 percent of U.S. aggregate household income in 2010, compared with 29 percent in 1970. Middle-income households claimed 45 percent of aggregate income in 2010, compared with 62 percent in 1970. Lower-income households had 9 percent of aggregate income in 2010 and 10 percent in 1970.  Read more…

Power Politics vs. American Prosperity

August 23, 2012 6 comments

from Ian Fletcher

“every idea in this article is stolen straight from Thorstein Veblen.”

I had one of those “Aha!” moments recently.

I was engaged in an e-mail dialogue with a moderately prominent individual active in America’s international trade relations. He’s a former high-ranking public official, important enough to matter but not a household name. You might recognize him if you follow trade politics closely. Democrat, left-of-center, but nothing radical.

Anyhow, what I realized, in the course of this discussion, was that we were, in fact, arguing at cross purposes.

I viewed the American economy as a thing whose purpose is to provide income and a living standard to Americans.

He viewed it as a thing whose purpose was to provide a platform for projecting power in the world.

I mean, he didn’t say it quite so explicitly, but that was the bottom line of every train of argument we pursued. It was the only interpretation of his words under which they made any sense.

I can’t give you any more details because of my need to respect confidentiality. But I think his attitude explains a lot about how we are governed, because I think this is how America’s ruling elite really thinks.

I believe our ruling elite isn’t merely greedy for money. I believe they’re also greedy for something far worse. I believe they’re also greedy for world power beyond any extent to which this either serves American national security—or, for that matter, makes them richer.

I believe they privately view this country as their horse, upon which they ride in a global jousting tournament with rival elites. And they only really care about America, and the strength of its economy, insofar as it gives them a better horse to ride on. Read more…

Economists tend not to be very good at economics

August 22, 2012 14 comments

from Dean Baker

The $ 1.2 Trillion Health Care Tax
Economists tend not to be very good at economics, which is one of the main reasons that the world is facing such a prolonged downturn. Few economists were able to recognize the enormous imbalances created by housing bubbles in the United States and elsewhere, nor to understand that the collapse of these bubbles would lead to a prolonged period of stagnation in the absence of a vigorous response by governments.

Economists’ grasp of economics has not improved since the start of the downturn. There is little agreement within the profession on the appropriate way to bring the economy back to its potential level of output. Nor is there even agreement as to whether this is possible. Read more…

World map comparing income inequality in the USA to other countries

August 21, 2012 2 comments