Changing global income distribution

Inter-generational wealth redistribution in the USA 1989 to 2016

Top 10% national income share across the world 1980 to 2016

 

A typology of uncertainties

from J.-C. Spender

There is some heavy stuff in this section – but we cannot get beyond today’s literature on managing as rational decision-making and connect with managers’ practice without engaging uncertainty. All attempts to define uncertainty must fail – by definition, for to define is to take as certain, axiomatic. Those who see uncertainty in terms of probability stand on the certainty of population statistics. Knight saw such modified certainty as ‘risk’. Yes, risk management is important, just as is distinguishing knowing definitively from knowing statistically. But the difference here is methodological and neither mode grasps Knightian uncertainty. Probability is logical/nomothetic, computable. In contrast Knight’s notion was implicitly idiographic, the sense of an absence of certainty arising from an ideographic experience of not-knowing. Something failed, what was expected did not occur – why not? Was the causal sequence (nomothetic) adopted wrong, or did the fault lie with the situation’s ideographic characterization – its initial conditions etc.? Such questions must still be expressed in language, thus standing on what is known. Like us all, Knight struggled with Aristotle’s nomothetic/idiographic distinction, the failure to relate knowing and experiencing, the inevitable separation between the totality and immediacy of living versus explaining it with abstract concepts. 

Dysfunctionalism in US economic departments and business schools

from John Locke

The problem, however, is not the failure of economic departments and business schools to create a prescriptive science, but the refusal of nomothetic neoclassical economists and mathematical modelers in them to admit the failure, and their actions after they gained a monopoly of the sinews of institutional power, that produced dysfunctionality in Anglo American higher education. That dysfunctionalism is expressed in their constant battle with people in academia who realize the prescriptive failure of the nomothetic science project, with which readers of the Real-World Economics Review blog are painfully familiar, and a dysfunctionalism that results in education from their narrow minded refusal (b) to accept the importance of the ideographic tradition in economic and business studies during the current crisis in U.S. management capitalism. 

The relationship of the real investment led economy perspective to existing views

from Michael Joffe

This perspective contrasts with standard neoclassical theory in several respects. That theory puts forward models relating to the decision making of (potential) workers, and of firms – respectively the supply of and the demand for labor. Workers choose whether or not to accept employment, based on a comparison of the offered wage with their reservation wage. Firms’ decision making is seen as a comparison between employing one more or one fewer worker with the difference this would make to production – respectively marginal cost and marginal benefit – given that the firm already exists, and has an established production system with premises, equipment, etc. Neoclassical theory implies that the forces of demand and supply rapidly bring about an equilibrium in which there is neither excess demand for labor, nor excess supply. 

Game theory, Larry Samuelson and one of the most widespread myths in economics

from Bernard Guerrien

 One of the most widespread myths in economics, but also in sociology and political science, is that game theory provides “tools” that can help solve concrete problems in these branches – especially in economics. Introductory and advanced textbooks thus often speak of the “applications” of game theory that are being made, giving the impression that they are revolutionizing the social sciences. But, looking more closely, we see that the few examples given concern mostly the usual “stories” (prisoners’ dilemma, “chiken”, battle of sexes, entry deterrence, store chain paradox, centipede game, etc.) of “old” game theory. Take the four volume set Handbook of Game Theory with Economic Applications – a Handbook that provides an extensive account of what has been done in the field of game theory from its beginning, especially in economics, but not exclusively. Despite its title, there is not the slightest trace of a concrete example of an application, nor do we find any numerical data in its thousands of pages. This is not surprising. Mathematical reasoning requires clear and explicit enunciation of the assumptions used in its demonstrations. In particular, the assumptions concerning the information available to each player – his payoffs and those of the other players for each outcome of the game, the rules of the game, etc. – are so restrictive that there is no concrete situation in the world where they could possibly be verified, not even roughly (Guerrien, 2004, p. 2-3). As Ariel Rubinstein, another renowned game theorist puts it: 

Modern Money Theory (MMT) vs. Structural Keynesianism

from Thomas Palley

A journalist sent me some questions about MMT. My answers are below.

1. What are the major flaws you see within Modern Monetary Theory?

(A) I like to say that MMT is a mix of “old” and “new” ideas. The old ideas are well known among Keynesian economists and are correct, but the new ideas are either misleading or wrong.

The essential old idea, which everybody knows, is government has the power to issue money. We used to talk of “printing” money. In today’s electronic world we talk about “keystroke” money created by electronic credit entries.

Everyone knows that because government has the capacity to create money, it can always pay its bills and debts by printing money. But having the capacity is not the same thing as saying it should, which is the beginning of where MMT goes astray.

In economic debate and economic journalism there is a “demand for difference”. On one side you have extreme budget hawks who see every deficit as a dire existential threat. MMT is the counterpart to the hawks. And here’s the rub. MMT is needed as an anti-dote to austerity hawks, but neither make for good economic theory.

That creates a dilemma for progressive economists. On one hand, there is need for a powerful progressive polemic to counter neoliberal austerity polemic. The basic MMT message that government has a lot more fiscal space than mainstream economists say, is correct. On the other hand, MMT’s theoretical arguments are not novel, and are sometimes incorrect. 

How unequal are world incomes?

from C.P. Chandrasekhar and Jayati Ghosh

In discussions of global inequality, there is general agreement that, whatever else may have happened, within-country inequality has increased in most cases, even as between-country inequality has come down. But overall, because of the recent emergence of countries with large populations like China and India, there has actually been some reduction in global inequality, because of increasing incomes in the  “middle” of the global distribution. Chart 1 shows that, whether measured by the Gini coefficient (a measure of the dispersion of incomes of the population) or the Palma  ratio (the ratio of the share of income of the top ten per cent of the population to the bottom 40 per cent), inequality has declined especially since the turn of the century.

Chart 1: Global income inequality appears to have come down

Source: World Inequality Report 2018. 

The Piketty effect

from Eli Cook  

A few years ago, I opened my review of Thomas Piketty’s Capital in the 21^st Century in the Raritan Quarterly Review with this “bait and switch” vignette. I thought the striking similarities between George and Piketty revealed that while history does not repeat itself, the “Pikettymania” that washed over the world in 2014 might bring forth once more an era in which – much like during the “Gilded Age” of Henry George – economic inequality was at the forefront not only of economic thought but political agitation, social anxiety and cultural discourse.[1]

Looking back now to those heady days in 2014, it is clear that Piketty’s groundbreaking study was just the beginning. The floodgates of inequality studies have been opened. The wave ushered in by Piketty has, in the past few years, come in many shapes and sizes: We now have global analyses such as Branko Milanovich’s Global Inequality, centuries-long histories such as Unequal Gains, and a collected volume dedicated entirely to the economic agenda titled After Piketty. The dramatic titles of other recent books reveal the current mood of inquiry, be it Thomas Shapiro’s Toxic Inequality: How America’s Wealth Gap Destorys Mobility, Deepens the Racial Divide, & Threatens Our Future, Dean Baker’s Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer Steven Teles and Lindsay Brink’s The Captured Economy: How the Powerful Enrich Themselves, Slow Down Growth, and Increase Inequality or Brian Alexander’s Glass House: The 1% Economy and the Shattering of the All-American Town. It appears, that the “1 percent” have not only been gobbling up much of the wealth and income these past few decades but, in recent years, also the attention of economists, journalists and public intellectuals.[2]  

issue no. 83 of the real-world economics review

download whole issue

Ten years after the crisis: a lost decade?          2
Steven Pressman and Robert Scott           download pdf        

The great marginalization: why twentieth century economists neglected inequality          20
Eli Cook           download pdf

Game Theory
On the current state of game theory          35
          Bernard Guerrien           download pdf

Why game theory never will be anything but a footnote in the history of social science          45
          Lars Pålsson Syll           download pdf

Employment
The creation of jobs         65
          Michael Joffe          download pdf

Employment in a just economy          87
          John Komlos          download pdf

Business Studies
Managing the engines of value-creation          99
          J.-C. Spender          download pdf

The effect of academic business studies in Germany and America in the modern era          116
          Robert R. Locke          download pdf

Does the maximization principle break down during recessions?          138
Philip George          download pdf

The political economy of reforms in Europe          147
Yiannis Kokkinakis          download pdf

Book review essay
The Vienna school of ecological economics          163
Katharine N. Farrell          download pdf

Board of Editors, past contributors, submissions, etc.          170

please support this journal and the WEA

“unemployment”: 6 definitions – USA 1950 – 2018

Trump’s trade wars threaten US foreign investment

from Shimshon Bichler and Jonathan Nitzan

There is a lot of buzz about Trump’s recently launched trade wars, but much of this buzz misses the point. The key issue here is not foreign trade, but foreign investment. 

“Let’s pretend that people are like molecules”

“Social researchers of the 19th century were impressed by the success of this branch of science [thermodynamics], and also by its similarity to economics. A gas is a macroscopic thing, characterized by macroscopic properties — temperature, pressure, volume. But it consists of many microscopic constituents (molecules) whose interactions collectively create the macroscopic state. The study of macroscopic properties arising from microscopic interactions is called statistical mechanics. That really does sound like economics: an economy is a macroscopic thing, characterized by macroscopic properties such as GDP and trade balances, and those macroscopic properties arise from myriad microscopic constituents (people) interacting with each other.”  ergodicity economics

 

U.S. Average Household Income, 2015

Source: Emmanuel Saez, UC Berkeley

Scientist qua scientist, scientist qua citizen: Part I

from Malgorzata Dereniowska

That economics is a value-laden science is not a new idea. Most of the prominent economic thinkers were also philosophers, wary of moral and philosophical content of scientific assumptions, models, and theories. That economics needs philosophy, and the separation between these two cannot be maintained any longer, is gaining recognition, and has become a subject of debates in the field of philosophy of economics that brings together (to various extends) philosophers, mainstream, and heterodox economists. For example, Daniel Hausman (1992) discusses that at an analytic level economists do successfully separate the philosophical and ethical content from economic analysis, albeit this separation is possible only at the analytic level. Karl Polanyi (1957), in his discussion on the entanglement of economic activities in the social totality, gives insights from a different perspective how considering the subject of economic study in social vacuum can in fact lead to thinking that scientific practice indeed has disentangled from society.

Today economists of both mainstream (e.g., Jean Tirole) and heterodox approaches more readily admit: economics is a moral and philosophical science. Yet the meaning and scope of the normative components of economics, the epistemic consequences of the social embeddedness of science, and the social consequences of economics are raising so far inconclusive debates. These issues constitute two-tiered dimensions of scientific rationality: external and internal ones. While the criteria of internal rationality (which constitute the standard approach to scientific rationality) refer to disciplinary epistemology and methodology, the criteria of external rationality involve the axiological, ethical, and societal elements of the process of knowledge production and the social consequences of science.  read more

WEA Commentaries – new issue

WEA Commentaries Formerly the World Economics Association Newsletter Volume 8, Issue No. 1  Download the issue as a PDF In this issue How to Inspire and Motivate Students Asad Zaman Redefining Governance in Cooperative Banks Mitja Stefancic, Silvio Goglio, and Ivana Catturani The Biophysical Basis of Production and the Public Economy June Sekera Tesla, Amazon, Bitcoin, Efficient Markets and FTT Dean Baker Keynes and Econometrics Maria Alejandra Madi Corrupted Economic Research—two illustrations Norbert Häring, Edward Fullbrook

U.S. real weekly wages, 1979-2016

Source: Bureau of Labor Statistics.

The void in neoclassical orthodoxy

from Julie Nelson 

Since the 1990s, I and some other feminist economists have been pointing out that the mainstream discipline of economics has a profoundly masculinist bias. That is, aspects of human nature, experience, and behavior that fit a culturally “macho” mold have been emphasized and elevated, while those that are culturally associated with a lesser-valued femininity have been ignored.

The neoclassical orthodoxy focuses on markets and perhaps the public sphere, but categorizes families and unpaid work as “non-economic”. The discipline adheres to exaggerated notions of (strictly logical) reason, while neglecting emotion and embodiment. It sees the economy in terms of autonomous agents, while glossing over all connection, dependency, and interdependency. It elevates self-interest, considering an interest in the well-being of others to be an anomalous and largely unnecessary trait. It defines objective “rigor” in terms of detachment and abstraction, treating normative or moral concerns as overly subjective, and assuming they can be safely denied or excluded. It elevates mathematical proof and fine-tuned econometric methods while downplaying detailed, concrete observation and good, verbal narratives.

These are all legacies of particular, and peculiar, Enlightenment notions of human nature and of science. Susan Bordo wrote, 

U.S. union membership and top 10% income share 1917-2014

Source: Economic Policy Institute