new issue of real-world economic review

real-world economic review

issue no. 101   –   September 2022

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Two conceptions of the nature of money 
Tony Lawson          2

How power shapes our thoughts
Asad Zaman         20

SARS-CoV-2: The Neoliberal Virus
Imad A. Moosa          27

The giant blunder at the heart of General Equilibrium Theory
Philip George          38

A life in development economics and political economy: An interview with Jayati Ghosh
Jayati Ghosh and Jamie Morgan          44

John Komlos and the Seven Dwarfs
Junaid B. Jahangir          65

A three-dimensional production possibility frontier with stress
John Komlos           76

Free trade theory and reality:
How economists have ignored their own evidence for 100 years
Jeff Ferry          83

The choice of currency and policies for an independent Scotland:
A debate through the lenses of different economic paradigms
Alberto Paloni          90

End Matter 107

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WEA Commentaries

WEA Commentaries Volume 12, Issue 2 download the whole issue Can university education in economics contribute to strengthened democracy and peace? Peter Söderbaum The Irish anomaly. Rethinking the concept and operationalization of ‘Gross Fixed Capital Formation’ Merijn Knibbe Benefits of fathers caring for children remain underestimated in several European contexts Mitja Stefancic The WEA Textbook Commentaries Project What’s Capitalism got to do with it? David F Ruccio Please click here to support the World Economics Association

Markets are only a sub-set of economic life

from Ken Zimmerman  (originally a comment)

Economic life is the activities through which people produce, circulate and consume things, the ways that people and societies secure their subsistence or provision themselves. Activities by which communities sustain themselves. ‘[T]hings’ is, however, an expansive term. It includes material objects, but also the immaterial: labor, services, knowledge and myth, poems, religion, names and charms, and so on. In different times and places, different ones of these will be important resources in society, and when they are important they come within the purview of economic anthropologists. That is, where some economists have identified economic life in terms of the sorts of mental calculus that people use and the decisions that they make (for example, utility maximization), which stresses the form of thought of the person being studied (theories), most economic anthropologists would identify it in terms of the substance of the activity; even those who attend to the mental calculus are likely to do so in ways that differ from what is found in formal economics (for example, Gudeman 1986; Gudeman and Rivera 1991). This substance includes markets in the conventional sense, whether village markets in the Western Pacific or stock markets in the First World. However, these markets are only a sub-set of economic life, and in accord with their tendency to see the interconnectedness in social life, economic anthropologists tend to situate things like markets or other forms of circulation, or production or consumption, in larger social and cultural frames, in order to see how markets, to continue the example, affect and are affected by other areas of life.

You might ask, how do top subjects of modern economists such as financialization, stock and commodity markets, hedging, private equity, etc. serve this definition?

A coherent alternative has to be proposed

from Nikolaos Karagiannis and Issue 94 RWER

The practical use of the term “neoliberal” exploded in the 1990s, when it became closely associated with two developments. One of these was financial deregulation, which would culminate in the 2008 financial crash and in the still-lingering euro debacle. The second was economic hyper-globalization, which accelerated thanks to free flows of finance and to new, more ambitious types of trade agreements. Financialization and hyper-globalization have become the most overt manifestations of neoliberalism in today’s world.[1]

That neoliberalism is a highly biased concept does not mean that it is irrelevant or unreal. Who can deny that the world has experienced a decisive shift towards markets from the 1980s on? Or that centre-left politicians – Democrats in the US, socialists and social democrats in Europe – enthusiastically adopted some of the central creeds of Thatcherism and Reaganism, such as deregulation, privatization, financial liberalization and individual enterprise? Much of contemporary policy discussions remain infused with free market principles. However, the looseness of the term neoliberalism also means that criticism of it often misses key points. The real trouble is that neoliberal economics shades too easily into ideology, constraining the choices that different countries appear to have and providing cookie-cutter solutions.[2]

However, neoliberalism decouples political liberalism from economic liberalism and promotes commoditization of everything and the needs of transnational corporations over those of individuals.

The reinjection of empirical ideas

“As a mathematical discipline travels far from its empirical source, or still more, if it is a second and third generation only indirectly inspired from ideas coming from ‘reality’, it is beset with very grave dangers. It becomes more and more purely aestheticizing, more and more purely l’art pour l’art. This need not be bad, if the field is surrounded by correlated subjects, which still have closer empirical connections, or if the discipline is under the influence of men with an exceptionally well-developed taste.

But there is a grave danger that the subject will develop along the line of least resistance, that the stream, so far from its source, will separate into a multitude of insignificant branches, and that the discipline will become a disorganized mass of details and complexities.

In other words, at a great distance from its empirical source, or after much ‘abstract’ inbreeding, a mathematical subject is in danger of degeneration. . . .

In any event, whenever this stage is reached, the only remedy seems to me to be the rejuvenating return to the source: the reinjection of more or less directly empirical ideas. I am convinced that this is a necessary condition to conserve the freshness and the vitality of the subject, and that this will remain so in the future.”

John von Neumann (from The Mathematician)   https://mathshistory.st-andrews.ac.uk/Extras/Von_Neumann_Part_2/

Consumer price inflation: USA, EU and UK

Book Review by Jayati Ghosh : The journey to greater equality

from Jayati Ghosh

Economic inequalities have increased substantially across the world in the past three decades and have deepened during the COVID-19 pandemic. Thomas Piketty and his colleagues at the World Inequality Lab at the Paris School of Economics (PSE), France, have been at the forefront of tracking these changes, providing extremely useful analyses based on careful aggregation of national data on income and wealth inequality from a multitude of sources. They have shown that globally, inequality is now as entrenched as it was during the first part of the 20th century.

Despite this sobering assessment, A Brief History of Equality by Piketty, who is Professor at the École des Hautes Études en Sciences Sociales and the PSE, is, in many ways, an optimistic account of long-term trends in inequality and a possible blueprint for future egalitarian transformation. For a short book, it is also remarkably comprehensive, even encyclopaedic, displaying Piketty’s trademark ability to provide a long historical sweep along with an awareness of sociopolitical complexities in the determination of economic trends. The book distils some of the most important ideas eg, on the causes of trends in inequality in different periods and proposals eg, more progressive taxation and public welfare spending of his earlier influential volumes Capital in the Twenty-First Century and Capital and Ideology into concise and accessible language. 

What is really going on?

Yanis Varoufakis

. . . what is really going on? My answer: A half-century long power play, led by corporations, Wall Street, governments and central banks, has gone badly wrong. As a result, the West’s authorities now face an impossible choice: Push conglomerates and even states into cascading bankruptcies, or allow inflation to go unchecked.

For 50 years, the US economy has sustained the net exports of Europe, Japan, South Korea, then China and other emerging economies, while the lion’s share of those foreigners’ profits rushed to Wall Street in search of higher returns. On the back of this tsunami of capital heading for America, the financiers were building pyramids of private money, such as options and derivatives, to fund the corporations building up a global labyrinth of ports, ships, warehouses, storage yards, and road and rail transport. When the crash of 2008 burned down these pyramids, the whole financialised labyrinth of global just-in-time supply chains was imperiled.

To save not just the bankers but also the labyrinth itself, central bankers stepped in to replace the financiers’ pyramids with public money. Meanwhile, governments were cutting public expenditure, jobs, and services. It was nothing short of lavish socialism for capital and harsh austerity for labour. Wages shrunk, and prices and profits were stagnant, but the price of assets purchased by the rich (and thus their wealth) skyrocketed. Thus, investment (relative to available cash) dropped to an all-time low, capacity shrunk, market power boomed, and capitalists became both richer and more reliant on central-bank money than ever.

It was a new power game. The traditional struggle between capital and labour to increase their respective shares of total income through mark-ups and wage increases continued but was no longer the source of most new wealth. After 2008, universal austerity yielded low investment (money demand), which, combined with plentiful central-bank liquidity (money supply), kept the price of money (interest rates) close to zero. With productive capacity (even new housing) on the wane, good jobs scarce, and wages stagnant, wealth triumphed in equity and real-estate markets, which had decoupled from the real economy.

Then came the pandemic, which changed one big thing: Western governments were forced to channel some of the new rivers of central-bank money to the locked-down masses within economies that, over the decades, had depleted their capacity to produce stuff and were now facing busted supply chains to boot. As the locked-down multitudes spent some of their furlough money on scarce imports, prices began to rise. Corporations with great paper wealth responded by exploiting their immense market power, yielded by their shrunken productive capacity, to push prices through the roof.

After two decades of a central-bank-supported bonanza of soaring asset prices and rising corporate debt, a little price inflation was all it took to end the power game that shaped the post-2008 world in the image of a revived ruling class. So, what happens now?

Probably nothing good. To stabilise the economy, the authorities first need to end the exorbitant power bestowed upon the very few by a political process of paper wealth and cheap debt creation. But the few will not surrender power without a struggle, even if it means going down in flames with society in tow.

Yanis Varoufakis

Economics is always ‘political economics’

from Peter Söderbaum

Mainstream neoclassical economics is attacked by many and from different angles or vantage points. Neither the defendants nor the critics can claim value-neutrality. “Values are always with us” (Myrdal 1978) and economics is always ‘political economics’. The neoclassical attempt to construct a ‘pure’ economics has failed. Neoclassical theory may still survive as a theory that is specific in scientific and ideological terms and useful for some purposes. But this survival has to be accompanied by the admission that neoclassical theory is built on assumptions that are specific in terms of ethics and ideology and that alternatives to these assumptions exist. The future of neoclassical theory is therefore not only a matter of its usefulness to solve economic problems in some sense but also has to do with the ideological preferences of scholars who have become accustomed to neoclassical theory and of other actors in society who may exploit neoclassical theory for their own purposes. Vested interests are involved and in neoclassical language one may argue that even when the conceptual weaknesses are demonstrated and understood there may still be a considerable ‘demand’ for neoclassical theory.

The vision of one logically closed economic theory for all purposes has to be abandoned in favour of an idea that different theories are useful for different purposes and that attempts to reduce these different theories to one single Master theory are no longer meaningful. In a democracy, the continued existence of competing and complementary theories, reflecting different ideological points of view is a necessity and is even positive for the development of economics as a discipline. Monopoly for one theory is not conducive to new thinking and creativity. ‘Competition’ may sometimes be good for individuals and for society at large, to once more use a neoclassical vocabulary.

One often hears actors argue in ways suggesting that Western societies are democracies by definition. But even if these societies perform well in some respects it is equally true that all ‘democracies’ can be strengthened. The existence of monopoly for neoclassical theory at Departments of Economics all over the world exemplifies an element of ‘dictatorship’ that cannot be accepted and has to be replaced by competition and pluralism.

Click to access Soderbaum43.pdf

The magnitude of the required reductions

from Ted Trainer

It is not commonly understood how large the reductions would have to be to enable a society that is globally sustainable and just. The World Wildlife Foundation’s Footprint measure (2018) estimates the average Australian per capita use of productive land at 6–8 ha. Thus, if the 9–10 billion people expected to be on earth by 2050 were to live as Australians do now, up to 80 billion ha of productive land would be needed. But there are only about 12 billion ha of productive land on the planet. If one third of it is set aside for nature then each Australian would be living in a way that would require about 10 times as much productive land as all people could ever have. Some other measures taking into account factors such as materials consumption (Wiedmann et al., 2015) indicate higher multiples.

To this must be added the implications of growth. If the Australian GDP rises by 3% pa and by 2050 all 9–10 billion people rise to the “living standards” Australians would then have, each year the global economy would be producing and consuming about 18 times as much as it does now. Yet the present amounts are unsustainable; the WWF estimates that the global footprint is now 70% higher than the planet could sustain. This indicates that the 2050 global resource and ecological impact would be in the region of 30 times a sustainable level.

Weekend read – Danger signals from the crypto casino

from C. P. Chandrasekhar

The meltdown in May 2022 in the cryptocurrency world, in which the values of digital coins plunged and rendered some near-worthless, is a wake-up call. It once again shows that cryptocurrencies are nothing but a bunch of insubstantial, digital ‘bits’ created by speculators as ‘coins’ for speculation. Over the years since 2009, when the first bitcoin was minted, privately generated cryptocurrencies have failed to live up to the claim that they offer an alternative to government-backed and regulated fiat currencies. They are hardly used as media of exchange in routine economic transactions. They mainly serve as virtual instruments on which speculators, with money to lose and the time and inclination to gamble, place costly bets. And consequently their ‘value’ is volatile.

For example, the value of a single bitcoin rose from a low of less than $30,000 on 20 July 2021 to a high of more than $67,000 in the middle of August 2021 and fell to less than $30,000 in late-May 2022. Yet the promise of high returns in short periods of time is appealing to the speculative instincts of ordinary, poorly-informed citizens. A recent survey by the European Central Bank found that as many as one in 10 EU households “may own cryptoassets”, and a survey by the Federal Reserve revealed that 12 per cent of US adults held cryptocurrencies in 2021. With such penetration what happens in the cryptoworld affects the decisions of those who are embedded in the regular economy. Those who fear that the growing popularity of an asset so fickle could destabilise the rest of the economy are calling for it to be banned or severely regulated.

Yet, there is no shortage of digital currency enthusiasts.

COVID and the broken global order

from C. P. Chandrasekhar

When the COVID pandemic affected every one of the world’s nations, the way forward seemed obvious, even if difficult to traverse. Given the rapid spread of the disease and its severity that overwhelmed long neglected health systems, and the cost to lives and livelihoods that shutdowns of economic and social activity implied, quick access to drugs and vaccines to manage the pandemic were crucial. Fortunately, government support for biotech research, in general, and research on new generation vaccines, in particular, had advanced science to some degree. Many developed country governments and some developing country governments were willing to outlay large sums to accelerate further research on and pre-order potential production of any promising drugs and vaccines, ignoring the risks of possible failure.

As a result, laboratories and companies were able to design, test and launch vaccines and drugs in record time, to reduce the spread and severity of the disease, even if not to prevent it. That done, the task was one of ramping up production and deploying the vaccines and drugs to manage the disease. This should have been seen as urgent, because the persistence of the disease led to mutation of the virus, allowing for breakthrough infections and new waves of the pandemic. In such circumstances, any restriction of access to the technology underlying the drugs would limit production, make distribution unequal and prolong the pandemic.

Unfortunately, despite the essential contribution of public funds to research and development and marketing support, the prevalent global intellectual property regime that gives the patent holder control over the technology did indeed restrict access to it and limit global production.

real-world economics review issue no. 100

real-world economics review

issue no. 100

download whole issue

Introduction to RWER issue 100          3

Real Science Is Pluralist           issue no. 5 – 2001
Edward Fullbrook         5

Is There Anything Worth Keeping in Standard Microeconomics?          issue no. 12 – 2002
Bernard Guerrien          11

How Reality Ate Itself: Orthodoxy, Economy & Trust          issue no. 18 – 2003
Jamie Morgan          14

What is Neoclassical Economics?         issue no. 6 – 2006
Christian Arnsperger and Yanis Varoufakis          20

A financial crisis on top of the ecological crisis: Ending the monopoly of neoclassical economics         issue no. 49 – 2009
Peter Söderbaum          30

U.S. “quantitative easing” is fracturing the Global Economy          issue no. 55 – 2010
Michael Hudson          41

Capitalism and the destruction of life on Earth: Six theses on saving the
humans          issue no. – 64
Richard Smith          53

Secular stagnation and endogenous money          issue no. 66 – 2014
Steve Keen          81

Piketty and the resurgence of patrimonial capitalism          issue no. 69 – 2014
Jayati Ghosh          92

Capital and capital: the second most fundamental confusion          issue no. 69 – 2014
Edward Fullbrook          99

Deductivism – the fundamental flaw of mainstream economics          issue no. 74 – 2016
Lars Pålsson Syll          112

Radical paradigm shifts          issue no. 85 – 2018
Asad Zaman          134

Growthism: its ecological, economic and ethical limits          issue no. 87 – 2019
Herman Daly          139

Producing ecological economy          issue no. 87 – 2019
Katharine N. Farrell          154

Economism and the Econocene: a coevolutionary interpretation          issue no. 87 – 2019
Richard B. Norgaard          164

Inequality challenge in pursued economies          issue no. 92 – 2021
Richard C. Koo          184

What is economics? A policy discipline for the real world          issue no. 96 – 2021
James K. Galbraith          208

Consumerism and the denial of values in economics         issue no. 96 – 2021
Neva Goodwin          224

Of Copernican revolutions – and the suddenly-marginal marginal mind at the dawn of the Anthropocene          issue no. 96 – 2021
Richard Parker          242

Postscript: RWER is for everyone and no one
Jamie Morgan          264

Board of Editors, past contributors, submissions, etc.          26

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Maternal mortality in US compared to . . .

 

Highest CO2 Polluters per capita

The highest CO2 Polluters per capita are dominated by oil producing countries who refine oil and emit CO2 in the oil extraction and refining process.

University departments of economics are degraded to political propaganda centres.

from Peter Soderbaum

Climate change is perhaps the most threatening aspect of the ecological crisis but not the only one. Reduced biological diversity, reduced water availability and deteriorating water quality in some regions exemplify other relevant dimensions. On the financial side, the ‘market mechanism’ has been unable to come up to expectations.

How can these problems be understood? Many factors have certainly contributed but in my judgment neoclassical economics as disciplinary paradigm and neo-liberalism as ideology are among the most important. If actors in society have failed, this can largely be attributed to the mental maps they have used for guidance and these mental maps are largely connected with dominant ideas about economics (as conceptual framework and ideology) and neo-liberalism as a dominant ideology in many circles. Thousands of students, now in professional positions, have learnt neoclassical micro- and macroeconomics over the years and have supported each other and been supported by their professors to further strengthen the neoclassical perspective.

Studying neoclassical economics would have been less of a problem if also alternative theoretical perspectives had been taught at university departments of economics. But the strategy has instead been to strengthen the neoclassical monopoly.

Contextual economics

from Neva Goodwin

Starting in the early 1990s I have worked with a number of great colleagues to develop a full alternative that we call contextual economics. The name comes from our conviction that an economic system can only be understood when it is seen to operate within a social/psychological context that includes values, ethics, norms, motivations, culture, politics, institutions, and history; and a biophysical context that includes the natural world as well as the built environment.

The starting point for our contextual economics textbooks is an inquiry into goals: What are the appropriate goals for an economy? And, relatedly: What are the appropriate goals for the discipline of economics? Contextual economics emphasizes that most traditionally understood economic goals – efficiency, maximizing production or consumption, earning money – are best understood as intermediate goals, that is, means to other ends. The relevant final goals might include, for example, the satisfaction of basic physical needs (e.g., for food, water and temperature regulation; happiness (including a good balance of comfort and stimulation); self-respect and the respect of others; self-actualization and a sense of meaning; fairness in the distribution of life possibilities; freedom; democracy and participation; and a natural environment that supports healthy human life. These may be summarized as well-being. The scope of consideration is all humans, in the present and in the future, and regardless of the extent of their involvement in market transactions.

The useful economist and economic research

from James Galbraith

The useful economist

The common characteristic of almost all of this work, excepting a few who preoccupied themselves with logical skirmishes with the neoclassical orthodoxy – e.g., the Cambridge-Cambridge controversies over the theory of capital (Robinson, 1956; Sraffa, 1960; Harcourt, 1972), or in microeconomics (Keen, 2011) – is that the protagonists were concerned, in the first place, with the practical questions of policy facing their governments or the international community of which they were a part. Whether reformist or revolutionary, their economics was (and still is) the elucidation of problems and the means of dealing with them. The purpose of economic reasoning is to inform and buttress political and social choices. It is not merely to create a simulation that kinda-sorta emulates some run of economic data.

The useful economist is one who engages in the quest for solutions. A truly useful economist does so in an open-minded, informed way, aware of underlying principles but not hypnotized by them, and independent of financial gain and personal ambitions, whether political or for status and celebrity among economists. The behavior of bankers and speculators, the emissions of factories and transport networks, the withdrawal of critical resources from a finite reserve in the crust of the earth, the level and distribution of wages, profits and rents, fair and effective taxation, how to achieve the willing cooperation of free citizens in pursuit of the common good – all these are part of what a useful economist may study. The person who stands outside and aloof from such questions, who purports merely to “model the system” is, for most purposes, an idler, not so much a scientist as a hobbyist.

Hazel Henderson obituaries

Washington Post
Green Economy
The Telegraph

Hazel Henderson attacked economics as “politics in disguise” and demanded economists take account of quality of life.   And for two decades she offered moral support for this blog and the Real-World Economic Review.

“The paradigm of sustainability, with its notions of limitations and carrying capacities confronts dominant paradigms of progress which do not recognize limits to unchecked growth.”

Life expectancy vs. health expenditure

source