The de-digitisation of India

from Jayati Ghosh

So it’s official: cash use is back in almost full force in the Indian economy. Cash withdrawals from ATM machines – a reasonable if incomplete proxy for the use of cash in the economy – are nearly back to the level of just before the demonetisation shock of 8 November 2016. RBI data on use of debit and credit cards to withdraw money from ATMs show that such withdrawals, which had collapsed to only Rs 850 billion in December 2016 largely because of the sheer unavailability of cash with such machines, amounted to Rs 2.27 trillion in July 2017, only slightly below the Rs 2.55 trillion withdrawals recorded for October 2016.

It is worth noting that this reliance on cash is back despite the fact that the RBI is yet to remonetise the economy fully: currency with the public on 15 September 2017 was still 11 per cent below its level of a year earlier. It cannot simply be assumed (as was done in the Economic Survey 2016-17 Volume II) that this reflects lower demand from currency by the public, since there is no evidence that it is not supply-constrained. Rather, the aggressive return of cash use suggests that it has only been the lack of supply of cash that has constrained people from using it in payments and exchange settlement.

Indeed, it is likely that if the RBI does fully remonetise, then cash use will increase further, since the economy is still growing and therefore the volume and value of total transactions must increase. What is more surprising is that total digital payments have not increased more along with economic growth. In fact such payments, which peaked dramatically in December 2016, are also back to the levels broadly seen in September-October 2016, despite the many incentives provided for such payments through official policy.  

The New Paradigm that emerged in economic s after WWII

from Robert Locke

As an historian, I am somewhat appalled at the inability of economists, including those on this blog to get the history of their own discipline straight.  The obsession has been with neoclassical economic’s attempt to turn economics into a physico-mathematical discipline as Walras phrased it, and the economists usually discuss this attempt within the historical context of their discipline pre-1945, with references, to  Walras, Marshall, Keynes, and others.

It  became clear to me over thirty years ago, that the neoclassical  effort to turn economics into a prescriptive science had failed before WWII.  I based this on good authority, when I read the following in the foreword to John von Neumann and Oskar Morgenstern’s now classic book published at Princeton UP in 1944, Theory of Games and Economic Behavior:

“The concepts of economics are fuzzy but even in those parts of economics where the descriptive problems have been handled more satisfactorily, mathematical tools have seldom been used appropriately. Mathematical economics has not achieved very much.”

If the mathematics of preWWII neoclassical economics had not achieved very much as a prescriptive science, then why study their work?  That is what Neumann and Morgenstern were asking.  The mathematics in Game theory, e.g., matrix theory and probability theory were not part of the mathematical toolkit of neoclassical economists prior to WWII. 

ECONOMIC PHILOSOPHY: COMPLEXITIES IN ECONOMICS

A conference from the World Economics Association – 2nd October to 30th November 2017
Conference leaders: John B. Davis and Wade Hands

Keynote papers

Strategies in relation to complexities: From neoclassical Cost-Benefit Analysis to Positional Analysis

Peter Söderbaum

In this essay neoclassical Cost-Benefit Analysis (CBA) is criticized as beinng too simplistic and also too specific in ideological terms. Positional Analysis (PA) is advocated as an alternative based on a definition of economics in terms of multidimensional analysis and …
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A Cognitive Behavioral Modelling for Coping with Intractable Complex Phenomena in Economics and Social Science: Deep Complexity

Robert Delorme

It is argued in this paper that there is an issue of complex phenomenal intractability in economics, in particular, and in social science in general, and that it is unduly neglected in theorizing in these areas. This intractability is complex …
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We need to talk about how female economists are treated

from Caroline Freund

When I was an undergraduate studying economics in the 1980s, I got an early lesson in how men view women in the workforce. I was writing a thesis about the well-known phenomenon of women being paid less than men for the same jobs. One of my professors challenged the basic premise that bias was a possible reason for the wage gap. If women really did get paid less for the same work, he argued, a smart company would hire all women and undercut its competitors.

No female professor would have made such a zealous claim. But I was never taught by a female economics professor. It is no surprise since economics has traditionally been the social science with the lowest share of women. Even today, less than 15 percent of full professors in economics at universities are women.

A remarkable new paper by a female student at Berkeley showed this summer that the problem in economics is so deep that it borders on misogyny. The study explores the terms used most frequently in posts about women and men from an online forum designed to share job information among economics graduate students. Posts about women include words like “hotter”, “lesbian”, “bb”, and “tits”. In contrast, posts about men are more neutral, using terms like “advisor” or “Wharton,” the name of a leading business school.

While the website is known to be crude, and represents only a tiny fraction of economists, it is raising awareness about the treatment of women in economics. Women rarely glimpse such direct hostility—the more common and related manifestation is being excluded from the meetings and social gatherings, where research partnerships are made and promotions are decided.  read more

Economics as science in the world of great power politics (1800-present)

from Robert Locke

Recently there has been a spate of postings and comments in the rwer blog about economics as science; they invariably deal with the relative degree of autism of orthodox economics along the lines that originally spawned the post-autistic economics movement, the rwer and the blog. The subject debated is the relative failure of an economics discipline based on the behavior of individuals in markets to guide policy formulation in the real world.

For historians the birth of classical economics emerged from the great London-centered international trade emporium that developed between 1750-1875.  Without the emporium classical economics would not have come into existence or have made a major contribution itself to the development of the emporium. But, as I wrote in an essay published in the rwer (2012),

“If the historian’s attention shifts from the British Imperial emporium to late eighteenth and early nineteenth century central Europe, he/she finds people preoccupied with a different set of problems that developed into different types of economic postulates from those that preoccupied classical economists as they set economics off on its long journey.  The era of the French Revolution and Napoleon amounted to thirty years of upheaval that brought kingdoms and empires low, and abolished principalities and city states.  Survival of political entities became the problematic.”

The question I raise concerns the ability of a science that stemmed from the British Imperial emporium to explain the economic basis of great power politics, which has been a principal preoccupation of people since 1800.  

Debates in economics

 from The seven sins of economists

Going rogue: economic practice and hitting the orthodox wall

from Andrew Vonnegut and WEA Commentaries

My work over almost 20 years would have pegged me as a pretty mainstream economist. I worked in company and market due diligence and risk analysis in emerging markets finance, then for two large international consulting firms in emerging markets policy advisory. A regular, mainstream, practicing economist.

Then I returned to the United States, started teaching a global economics class, and looked for a text. Like my texts 25 years ago, materials were largely locked into a Samuelson definition and optimization framework, with full chapters devoted to expositions of and extensions on the Heckscher-Ohlin and Rybczynski theorems. The skirmish between mainstream and heterodox economics might have another dog in the fight, or at least one quietly lurking nearby: practitioners in need of useful information and frameworks. Unrepentant Laffer disciples aside, are practitioners driven outside the mainstream in a quest for actionable insight?

Learning the traditional optimization based foundations of the discipline can be beneficial, in particular for students continuing in economics. But, lots of people taking classes are not on an academic track, whether students in undergrad economics programs, business schools, global studies or public policy programs, or as journalists or just curious people. The latter are my students. They need to learn what the global economy looks like, start asking the right questions, and develop a basic, but broad framework for deriving and understanding the merits of different answers. They don’t need to graph the HO theorem. I did that, and it never helped me solve any problems.

So, like many other members of the WEA, I developed my own class materials (then turned them into a book). The themes that I hope will give students a useful background don’t seem anything but mainstream in the practitioner’s world, but many are left out of a traditional economics education. Here are some examples.  read more

Time for critics of economics critics to move on!

from David Orrell and WEA Commentaries

There is a growing trend for economists to write articles criticising the critics of economics. These articles follow a similar pattern. They start by saying that the criticisms are “both repetitive and increasingly misdirected” as economist Diane Coyle wrote, and might complain that they don’t want to hear one more time Queen Elizabeth’s question, on a 2008 visit to the London School of Economics: “Why did nobody see it coming?”

Economist Noah Smith – writing in a blanket critique of an extract from a 140,000 word book by John Rapley – agrees that “blanket critiques of the economics discipline have been standardized to the point where it’s pretty easy to predict how they’ll proceed.” Unlike the crisis then! “Economists will be castigated for their failure to foresee the Great Recession. Some unrealistic assumptions in mainstream macroeconomic models will be mentioned. Economists will be cast as priests of free-market ideology, whose shortcomings will be vigorously asserted.” And so on.

The articles criticising critics then tell critics it is time to adopt a “more constructive tone” and “focus on what is going right in the economics discipline” (Smith) because “only if today’s critics of economics pay more attention to what economists are actually doing will they be able to make a meaningful contribution to assessing the state of the discipline” (Coyle). If the critics being criticised are not economists, the articles often drive their point on tone home by implying that they don’t know what they are talking about, are attacking a straw man¹, or (not these authors, but a popular choice) are like climate change deniers (see also here and here).

Speaking as an early adopter of the Queen Elizabeth story (in my 2010 book Economyths, recently re-released in extended form), allow me to say that I agree completely with these critic critics. Yes, economists failed to predict the most significant economic event of their lifetimes. Yes, their models couldn’t have predicted it, even in principle, based as they were on the idea that markets are inherently self-stabilising. And yes, economists didn’t just fail to predict the crisis, they helped cause it, through their use of flawed risk models which gave a false sense of security.  read more

Two forthcoming online WEA Conferences

1. Economic Philosophy: complexities in economics, 2nd October – 30th November 2017

2. Monetary Policy After The Global Crisis:
How Important Are Economic (Divisia) Monetary Aggregates for Economic Policy?
15th January – 15th February 2018
Deadline for submissions: 15th December
OPEN CALL FOR PAPERS

New issue of WEA Commentaries

The August issue of WEA Commentaries is now available at: https://www.worldeconomicsassociation.org/files/2017/09/Issue7-4.pdf

Content is as follows:

Eveybody can create money Merijn Knibbe	2	html
Adam Smith and Altruism	5
Time for critics of economics critics to move on David Orrell	6	html
Two forthcoming WEA conferences	7
Going rogue: Economic practice and hitting the orthodox wall  Andrew Vonnegutt	8	html
Why economics needs pluralism Edward Fullbrook	9	html
On Hayek, digital currencies and private money Maria Alejandra Madi	11	html
An ongoing WEA conference	12
Announcements and WEA contact details	12

The Indian Economy: 70 years after Independence

from C. P. Chandrasekhar

The defining feature of the economic programme of independent India’s first government was to accelerate the transition to a modern economy dominated by industry. Agriculture and related activities at that time accounted for around half of GDP and modern industry in the form of factory establishments for just above 6 per cent. Thus, colonial rule had made India the victim of the barriers to productivity increase typical of predominantly agrarian economies.

These circumstances influenced the Nehruvian vision that made rapid diversification in favour of manufacturing the principal economic objective. The ‘big planners’ of that time did recognize that this will not deliver the jobs needed to absorb the country’s large underemployed and unemployed labour force and address the extreme poverty and deprivation that colonialism had left behind. But those challenges it was argued could be addressed separately, so long as growth got going.

At first it appeared that success was at hand. The years after 1951, and especially after 1956, did see large and rapidly rising investments in industry and infrastructure. But, it is clear, with hindsight, that the process lost momentum rather early. The share of manufacturing in GDP did rise from around 9 per cent in 1950-51 to 16 per cent in 1961. But it did not cross the 18 per cent mark for a little more than a decade after that, and touched 20 per cent at its peak in 1996. This was well short of what had been achieved in many other comparable economies. In 1971, manufacturing’s share in GDP stood at 29 per cent in Brazil and 35 per cent in China. In 1996, the figure was 27 per cent in Korea, 28 per cent in Malaysia and 26 per cent in Thailand. The contribution of manufacturing to employment in India was, as expected, was even more dismal. 

150 years of ‘Das Kapital’: How relevant is Marx today?

from Jayati Ghosh

It is quite amazing that Karl Marx’s Capital has survived and been continuously in print for the past century and a half. After all, this big, unwieldy book (more than 2000 pages of small print in three fat volumes) still has sections that are evidently incomplete. Even in the best translations, the writing is dense and difficult, constantly veering off into tangential points and pedantic debates with now unknown writers. The ideas are complex and cannot be understood quickly. In any case, the book aims to describe economic and social reality in 19th-century northwestern Europe – surely a context very different from our own.

This is a book that has been pronounced dead or obsolete many times, but it keeps bouncing back, with the latest recovery in interest and sales just after the Global Financial Crisis of 2008. So why do so many people all over the world still read (or try to read) Karl Marx’s Capital today? Obviously, it must have something going for it – and, in fact, it does indeed still provide a useful framework for understanding the essential features of capitalism, no matter how different its contemporary manifestations may be.

Consider only a few of these insights. First is the central point about capital: for Marx, it is not just a resource in itself, a simple factor of production analogous to land and labour, but an expression of very specific social relations of production. The social relation between employer and worker is what enables capitalist production to take place at all. It requires workers to be “free” in a double sense: “free” to sell their own labour power (not bound by other socioeconomic ties and constraints) and “free” of any ownership of the means of production, so that they have no choice but to sell their labour power for their own material survival. Even when matters appear to be more complex because of the emergence of subcontracting and the “gig economy”, this underlying social relation is still critical.  

Ultra sexism on online economics forum

from The Daily Californian (Berkeley)

A recent study on gender stereotypes in the anonymous online forum Economics Job Market Rumors, or EJMR, revealed what appears to be a hostile environment toward women in some circles of the economics field.

Recent campus graduate Alice Wu conducted the study as part of her senior thesis, using EJMR posts from 2014 to 2016. The focus of the study, according to Wu, was to “examine whether people in academia portray and judge women and men differently in everyday ‘conversations’ that take place online.”

Wu, an economics and applied mathematics double major, said in an email that she first learned about EJMR though friends interested in reading about prominent economists on the forum.

“I was very shocked when I saw the gender stereotyping remarks, given that its users are highly-educated graduate students in economics,” Wu said in her email.

Wu used her experience with text analysis from a campus machine learning course to identify and allocate gender classifiers in EJMR posts such as “he” and “she” as strongly predictive of male versus female subjects. Wu’s analysis found that the 30 words most indicative of a discussion about women, in order, were: “hotter,” “lesbian,” “bb,” “sexism,” “tits,” “anal,” “marrying,” “feminazi,” “slut,” “hot,” “vagina,” “boobs,” “pregnant,” “pregnancy,” “cute,” “marry,” “levy,” “gorgeous,” “horny,” “crush,” “beautiful,” “secretary,” “dump,” “shopping,” “date,” “nonprofit,” “intentions,” “sexy,” “dated” and “prostitute.”

The list of words with the strongest predictive power for males contained words more directly associated with economics and academics, including “adviser,” “Wharton,” “Austrian” — a school of economic thought — and “mathematician.” Nine out of the 30 words with the highest predictive power for men were directly related to economics, while almost none of the 30 words in the list for women were directly related to economics.
read more on original site

The fall of the US middle class

from Steve Pressman

As the rich received a bigger piece of the pie, everyone else got relatively less. We can see this in the falling share of income going to the middle-three income quintiles (Figure 1).

An international financial architecture system to deal with persistent trade imbalances and any international financial crisis

from Paul Davidson

An international financial architecture system to deal with persistent trade imbalances and any international financial crisis can be developed to operate under the same economic principles laid down by Keynes at Bretton Woods. But this system does not require the establishment of a supranational central bank of the world as Keynes suggested in his “Keynes Plan” at Bretton Woods. Instead, this new international payment system is aimed at obtaining a more acceptable international agreement (given today’s political climate in most nations) that does not require any nation to surrender the nation’s control of either its domestic banking system or the operation of its domestic monetary and fiscal policies to a supranational authority. Each nation will still be able to use monetary and fiscal policies to determine the domestic economic destiny that is best for its citizens as long as it does not detrimentally affect employment and income earning opportunities in other trading partner nations.

What is required is a closed, double-entry bookkeeping clearing institution to keep the international payments “score” among the various trading nations plus some mutually agreed upon rules to solve the problems of persistent trade and international payment imbalances. It will also require an international agreement and a method to prevent international financial market transactions that can cause a financial market crisis that would be disruptive to the stability of any nation’s economy as well as a threat to the global economy.  

Disappearance of borrowers finally recognized after 2008

from Richard Koo

Until 2008, the economics profession considered this kind of contractionary equilibrium (the world of $500) brought about by a lack of borrowers to be an exceptionally rare occurrence—the only recent example was the Great Depression, which was triggered by the stock market crash in October 1929 and during which the US lost 46 percent of nominal GNP in the process described above. Although Japan fell into a similar predicament when its real estate bubble burst in 1990, its lessons were almost completely ignored by the economics profession until the Lehman shock of 2008.^[1]

Economists failed to consider the case of insufficient borrowers because when macroeconomics was developing as a separate academic discipline starting in the 1940s, investment opportunities for businesses were plentiful as new “must-have” household appliances ranging from washing machines to televisions were invented one after another. With businesses trying to start or expand production of these new products, there were plenty of borrowers in the private sector and interest rates were quite high, at least in comparison with the post-2008 world.  

Progressive mobilization in Europe

from Jayati Ghosh

Meetings of global leaders – such as recently occurred in the G20 meeting at Hamburg – increasingly have a ring of farce about them. The inability to come to agreement on pretty much anything of significance is leavened only by sideshows and media obsession with which global leader met with whom for how long, who sat in for which President at the “high table”, and similar trivia. Meanwhile, there is abject failure on the part of these leaders to recognize the pressing need for urgent and co-ordinated global action to solve so many current problems, ranging from the terrible state of the world economy to wars and conflicts, as well as the instabilities and inequalities created not just by the forces of globalization fostered by these same governments, but their own direct actions.

But such meetings sometimes have at least one positive outcome: they become the occasion for public mobilization and calls for action around the issues that really matter for most people, and thereby help in spreading ideas for a more positive policy agenda. In Hamburg, the second largest city in Germany with a long history of left groups and progressive movements, this was very much in evidence. For several days before the G20 Summit as well as during the official Summit, there were alternative gatherings, processions and protests that were dominantly peaceful and also thoughtful, imaginative and ultimately quite inspiring.  

“Less than 2 °C warming by 2100 unlikely”

from  Nature Climate Change 

Less than 2 °C warming by 2100 unlikely

Adrian E. Raftery, Alec Zimmer, Dargan M. W. Frierson, Richard Startz & Peiran Liu

The recently published Intergovernmental Panel on Climate Change (IPCC) projections to 2100 give likely ranges of global temperature increase in four scenarios for population, economic growth and carbon use¹. However, these projections are not based on a fully statistical approach. Here we use a country-specific version of Kaya’s identity to develop a statistically based probabilistic forecast of CO₂ emissions and temperature change to 2100. Using data for 1960–2010, including the UN’s probabilistic population projections for all countries^{2, 3, 4}, we develop a joint Bayesian hierarchical model for Gross Domestic Product (GDP) per capita and carbon intensity. We find that the 90% interval for cumulative CO₂ emissions includes the IPCC’s two middle scenarios but not the extreme ones. The likely range of global temperature increase is 2.0–4.9 °C, with median 3.2 °C and a 5% (1%) chance that it will be less than 2 °C (1.5 °C). Population growth is not a major contributing factor. Our model is not a ‘business as usual’ scenario, but rather is based on data which already show the effect of emission mitigation policies. Achieving the goal of less than 1.5 °C warming will require carbon intensity to decline much faster than in the recent past.

Problems with Pareto optimality

from Gary Flomenhoft, “The triumph of Pareto”, real-world economics review, issue no. 80, 26 June 2017, pp. 14-31.

There are several serious problems with the use of Pareto Optimality as the central goal of economics. One of the primary implications of “Pareto Optimality” is that it accepts the current distribution of wealth as a given. If any income distribution can lead to an “optimal” outcome, there is no need to be concerned about just distribution. Mainstream economists generally make no distinction between earned or unearned income, and when they do, it is typically to recommend lower taxes on the latter, a policy that has been adopted in the USA. Mainstream economists rarely question the legitimacy of the source of wealth. Fairness or origin of the current distribution is a problem left to politicians and society. It is not considered a legitimate question for economics. As Steven Hackett points out, “Slavery was widely seen in the North as being unethical from a deontological perspective, but a policy alternative of ending slavery would make slave owners worse off than under the status quo, and thus would have failed the Pareto efficiency criterion” (Hackett, 2001: 26).  

Redefining economics in terms of multidimensional analysis and democracy

from Peter Söderbaum, “Do we need a new economics for sustainable development?”, real-world economics review, issue no. 80, 26 June 2017, pp. 32-44.

A proposed new theoretical perspective starts with a partly different definition of economics:
“Economics is multidimensional management of (limited) resources in a democratic society”

Why “multidimensional” management? Multidimensional goes against the one-dimensional analysis of neoclassical theory and method. “Monetary reductionism” is no longer accepted. The idea that we should put a monetary price on all impacts, ecosystem services included, to make them commensurable and tradeable, is abandoned. Instead impacts of different kinds are kept separate throughout analysis. And non-monetary impacts are viewed as being as “economic” as monetary ones. This may make analysis more complex but also more relevant. In relation to environmental issues, Sweden has proposed 16 environmental objectives to monitor the quality and state of the environment as well as possible (Swedish Environmental Agency, 2016). At the UN level, world leaders agreed about 8 Millennium Development Goals in the year 2000. This process of broadening the agenda has continued with 17 Sustainable Development Goals (SDGs) sanctioned at the UN-level in November 2015. They are: