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A beautiful idea?

from David Ruccio

What most of my students know about  and game theory (at least before sitting through my two or three lectures on the topic or taking an entire course in game theory) they derived from the film, A Beautiful Mind, and the stupid example used to illustrate game theory in the film (of a blond woman walking into a bar).

As Kenneth Chang explains, the episode in the film is not an example of a Nash equilibrium. Read more…

The fetishism of mathematics

from David Ruccio

I am tempted, in response to Paul Romer, to paraphrase the Old Moor: “The use of mathematics in economics appears, at first sight, a very trivial thing, and easily understood. Its analysis shows that it is, in reality, a very queer thing, abounding in metaphysical subtleties and theological niceties.”

The last time I had the occasion to comment on Romer’s work was in reaction to the neoclassical colonialism of his proposal for “charter cities” in poor countries. Now, in a desperate bid to save the last vestiges of so-called endogenous growth theory, Romer has gone on the attack against what he calls “mathiness” in contemporary growth theory.

What is mathiness? Read more…

Economics and the value of art

from David Ruccio

Les-femmes-dAlger-daprès-Delacroix-XV-Paris-14-Fevrier-1955-huile-sur-toile114-x-146-cm-collection-privée-Europe

Neoclassical economists don’t have a lot to say about the value of art. Read more…

Equality and efficiency in retrospect (3 graphs)

from David Ruccio

I remember my dismay, when I first began teaching economics, how enthralled my colleagues (at least the liberal ones) were with Arthur Okun’s notion of the fundamental tradeoff between equality and efficiency (which they supplemented with John Rawls’s theory of justice). No critique of capitalism, no critique of political economy. They believed the democratic process would find the appropriate balance between market efficiencies and nonmarket interventions to create greater equality.

I was never happy with the idea of such a tradeoff (or, for that matter, with the veil of ignorance), because it was based on denying the fundamental injustice embedded in a capitalist economy—the appropriation and distribution of a surplus produced by the majority for the benefit of a tiny minority at the top. And no amount of celebrating the supposed efficiencies of capitalist markets (which, for the most part, were simply assumed) or tinkering with the distribution of income (with tax-based redistribution) was going to fix that. Read more…

Categories: Uncategorized

A one-chart summary of changes in United States income distribution from 1913 to 2012

April 21, 2015 1 comment

from David Ruccio

Bui

Here, in one chart (by Quoctrung Bui), is a summary of changes in the distribution of income from the early-twentieth century (1913) to the present (2012) in the United States.  Read more…

Categories: income redistribution

Ben Bernanke: The revolving door between Wall Street and U.S. government agencies continues to revolve.

April 19, 2015 5 comments

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…

Categories: corruption, ethics

Chart – Every decile of the Greek population has lost since the crash

April 15, 2015 2 comments

from David Ruccio

Greece

According to the data in the chart by Max Roser, Brian Nolan, and Stefan Thewissen, every decile of the Greek population lost ground after the global financial crash and austerity measures were imposed in that country.

Read more…

Categories: Greece

It’s a wonderful life?

April 12, 2015 1 comment

from David Ruccio

Harvard economics professor Sendhil Mullainathan is worried that too many of his students are taking jobs in finance. He should be worried for other reasons, too.

Mullainathan’s concern stems from the idea that much of the activity in the financial sector involves “rent-seeking”:

Instead of creating wealth, rent seekers simply transfer it — from others to themselves. . .

The economists Eric Budish at the Booth School of Business and Peter Cramton at the University of Maryland, and John J. Shim, a Ph.D. candidate at Booth, have shown in a study how extreme this financial gold rush has become in at least one corner of the financial world. From 2005 to 2011, they found that the duration of arbitrage opportunities in the Chicago Mercantile Exchange and the New York Stock Exchange declined from a median of 97 milliseconds to seven milliseconds. No doubt that’s an achievement, but correcting mispricing at this speed is unlikely to have any real social benefit: What serious investment is being guided by prices at the millisecond level? Short-term arbitrage, while lucrative, seems to be mainly rent-seeking.

This kind of rent-seeking behavior is widespread in other parts of finance. Banks sometimes make money by using hidden fees rather than adding true value. Debt collection agencies may use unscrupulous practices. Lenders to poor people buying used cars can make profits with business models that encourage high rates of default — making money by taking advantage of people’s overconfidence about what cars they can afford and by repossessing vehicles. These kinds of practices may be both lucrative — and socially pernicious.

Read more…

Categories: exploitation

According to the Wall Street Journal takeovers are booming.

April 11, 2015 3 comments

from David Ruccio

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According to the Wall Street Journal, Read more…

Categories: The Economy

Conspicuous construction

March 27, 2015 1 comment

from David Ruccio

skyline

The high times aren’t going away in New York.

The city of just six years from now will be dramatically taller, with a series of luxury high-rises towering above Central Park, a new West Side development and downtown spires.

Read more…

Downton Abbey economics

March 3, 2015 8 comments

from David Ruccio

Henry-Talbot-and-Lady-Mary-Crawley

If you watched the Downton Abbey Season 5 finale, you will have seen the elaborately staged grouse shoot: Read more…

Economic representations and the power of ideas

February 26, 2015 7 comments

from David Ruccio

RO20136402 DonDeLillo_Cosmopolis_2011

As readers know, there are few things I take more seriously than economic representations and the power of ideas.

As I argued in my book, representations of the economy (including, of course, issues of inequality) are produced and disseminated in many different discursive forms and social sites, only one of which is the academic discipline of economics. We also find them in academic disciplines other than economics (such as anthropology, sociology, cultural studies, and so on) and in many places outside the academy (including in literature, from Balzac to DeLillo). Read more…

Categories: methodology

Falling real wages in the USA 2007- 2014

February 25, 2015 2 comments

from David Ruccio

wages-2007-14

As the Economic Policy Institute explains, Read more…

Game theory—in practice

February 17, 2015 4 comments

from David Ruccio

 

Greece-Greek-Games-4

source*

Back when I taught Principles of Microeconomics, I offered a lecture or two on game theory. Given how terrible most textbook presentations are, I used to borrowed heavily from the work of Judith Mehta and Shaun Hargreaves-Heap and Yanis Varoufakis to explain the key assumptions behind and the tensions generated within game theory.

Now, Varoufakis is back—in a very different capacity, of course—to explain the lesson he learned from his studies of game theory: Read more…

Categories: Greece, methodology

The current conflict is not between nations, but between classes (2 graphs)

February 9, 2015 7 comments

from David Ruccio

Most of the commentary on the ongoing euro crisis, especially the current Greek debt negotiations, has been couched in terms of a conflict between nations. This is particularly true of mainstream economists, whose nation-state-based models downplay or ignore class, even as the policies they advocate have tremendous class implications.

So, it’s fallen to—however ironically—financial strategist and professor of finance Michael Pettis to remind us the current conflict is not between nations, but between classes.

The whole piece, beginning with the French indemnity of 1871-73, is worth a careful read. But I want to focus here on what Pettis writes about the class conditions that led to and follow on from the current crisis.

First, Pettis makes the important point that the capital flows from north to south within the euro zone were based on important class changes within Germany (he uses his native Spain throughout as his example in the south but most of his analysis follows for Greece and other countries): Read more…

Decomposing the top decile US income share into 3 groups, 1913-2013

February 4, 2015 Leave a comment

from David Ruccio

top shares

The share of total income captured by the top 1 percent actually shrunk in 2013, falling from 21.22 percent to 18.98.

But, as Emmanuel Saez [pdf] explains, that decline is probably a statistical anomaly: Read more…

Categories: income inequality

Decomposing the top decile US income share into 3 groups, 1913-2013

January 30, 2015 Leave a comment

from David Ruccio

top shares

Read more…

Greek tragedy to triumph (9 charts)

January 27, 2015 2 comments

from David Ruccio

Greece has gone from tragedy to triumph—from the tragedy of austerity-induced suicides to the triumph of the anti-austerity landslide victory of Syriza.

So, before we get lost in the media hysteria of “radical leftists,” “firebrand” leaders, and jittery international financial markets, let’s be clear about what Greek voters rejected on Sunday.

Growth-in-GDP-since-2007-by-Nation

Greek workers rejected an austerity program that has led to a decline of more than 25 percent in Gross Domestic Product since 2007. Read more…

Categories: The Economy

Will market forces solve the problem of stagnant wages and growing inequality?

January 24, 2015 8 comments

from David Ruccio

fredgraph

Will market forces solve the problem of stagnant wages and growing inequality?  Read more…

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