Author Archive

Lessons from the Moonshot for fixing global problems

January 21, 2021 2 comments

from Jayati Ghosh

The World Health Organization appointed economist Mariana Mazzucato to head its Council on the Economics of Health for All in 2020. She is one of the architects of the biggest international research-funding scheme in the world, Horizon Europe, which launched this month. Her book Mission Economy is a timely and optimistic vision of how to fix the world’s “wicked problems” through directed public and private investment.

In two brilliant and accessible books published over the past decade, Mazzucato has established herself as a pre-eminent thinker, debunking myths about how markets function and offering options for more equitable economies. In 2013’s The Entrepreneurial State, she demolished the perception of governments as bureaucratic, corrupt and unwieldy when compared with the supposedly dynamic, nimble and innovative private sector. All that makes a smartphone ‘smart’ was the result of government-funded research, she pointed out; private agents invest in new areas only after governments have made the risky long-term investments. In 2017’s The Value of Everything, Mazzucato challenged how we consider benefit. Corporations trading financial instruments, data, food or oil might present themselves as value creators but, in reality, many are extractors destroyers, even of true value. Read more…

Prepare for a surge in global inequality

January 17, 2021 2 comments

from C.P. Chandrasekhar and Jayati Ghosh

The United States prepares for moving out of the Trump era with the incoming President promising more rounds of stimulus spending to revive an economy ravaged by Covid-19. Other members of the Organisation of Economic Cooperation and Development, a predominantly rich nation’s club, have also been generous with their spending and signalled that they are willing to keep their wallets open to spend more if necessary. The evidence clearly is that the Covid-crisis has upended the fiscal conservatism that has been the hallmark of the neoliberal era since the 1980s.

However, not all nations seem to display this ability to depart from the prevailing orthodoxy. Where this weakness is most visible is the developing world, where governments, with very few exceptions, have not been loosening their purse strings to deal with the health emergency, throw out a safety net to protect devastated citizens, and stall and reverse the recession to restore livelihoods and normal economic activity.

Estimates from the World Bank in the January 2021 edition of its flagship Global Economic Prospects (GEP) report point to stark differences across countries at different levels of development in the level of fiscal support governments have provided in the wake of the Covid-shock (Chart 1). Read more…

Misleading economic signals

January 12, 2021 Leave a comment

from C. P. Chandrasekhar

It’s a paradox that has periodically recurred in recent times. Financial indicators are hugely favourable from the point of view of those who benefit from them, even when the performance of the real economy is poor or dismal. In this Covid-afflicted year, that paradox has manifested itself with greater intensity. And with a difference. Even while the real economy remains in contractionary mode, not only have stock market returns exploded, but India’s stock of foreign exchange reserves, considered a measure of the country’s economic health from Independence to the balance of payments of crisis of 1991, have registered record-breaking increases.

While stock markets are no indicators of economic health, news that the BSE Sensex breached the 48,000 mark on January 4 had to be acknowledged as significant. The figure not only reflected a huge 85 per cent rise relative to the low the Sensex touched in March 2020, when the devastating economic consequences of Covid pandemic had begun to be felt, but is also significantly higher than the pre-pandemic peak of a little over 41,500. More importantly, India’s central bank has been accumulating foreign exchange reserves at an astounding pace. India’s foreign reserves rose by $105 billion between 27 March and 25 December 2020, to touch $580 billion. That increase was more than double the increment of $46 billion recorded in a comparable period of the previous year (29 March to 27 December 2019). Read more…

Sliding doors: The day US democracy almost died

January 11, 2021 3 comments

from Thomas Palley

It is now four days since the January 6 mob attack on the US Congress which President Donald Trump incited. In a manner akin to a combat situation, the numbness induced by the overwhelming nature of the event is giving way to shock and anger. What is also becoming clear is just how close US democracy came to dying.

Sliding Doors

The film Sliding Doors begins with two different scenarios in which the course of the main protagonist’s life depends on whether or not she catches the subway by milliseconds. The events of January 6 have a Sliding Doors quality to them.

It now seems the attack has backfired for Trump and turned into a political fiasco. That fiasco resonates with Adolf Hitler’s failed 1923 Munich Beer Hall putsch (German for coup) – though lest we get carried away, let us not forget Hitler returned and took power ten years later, and we all know what followed.

Hitler’s failed Munich putsch is one scenario. The other scenario is the Bolshevik Party’s seizure of power in St. Petersburg, Russia in October 1917. That coup succeeded and launched a totalitarian dictatorship that was to last almost seventy-five years.

It is easy to imagine a scenario in which Trump’s mob had been better organized and more ruthless, and in which they had seized Congress and summarily executed Democratic Senators and House members – along with Senator Mitt Romney, who has been heroic in his opposition to Trump. That would have left a rump majority of willing accomplice Republicans, plus a smaller group of Vichyssoise Republicans who meekly towed the line.

In that imagined scenario, Trump would have Read more…

Corporate power and the future of U.S. capitalism

January 4, 2021 74 comments

from Shimshon Bichler and Jonathan Nitzan

Corporate power in the United States has risen to unprecedented levels, but the rate at which this power has grown is decelerating. Both facts have important implications for the future of U.S. capitalism.

According to the theory of capital as power (or CasP for short), the quest for capitalized power – and for more and more of it – is the key driving force of modern capitalism. Capitalists, CasP argues, particularly dominant ones, judge their power differentially. They measure it by the size of their earnings and assets – but they do so not absolutely, but relative to others. Driven by power, their goal is not simply to amass more money, but to do so faster than the average. Their ‘bottom line’ is not maximum accumulation, but differential accumulation.

Figure 1 examines this process in the United States. For the sake of presentation, we define ‘dominant capital’ here as the top 200 U.S.-incorporated firms in the North American Compustat dataset, ranked annually by market value. To measure their relative-income-read-differential-power, we compare, for each year, the average earnings before interest and taxes (EBIT) received by a top 200 firm to the same earnings recorded by the average U.S. corporation. Read more…

As 2020 ends, let’s celebrate science

January 2, 2021 2 comments

from Blair Fix

We’ve finally reached the end of 2020, a year that many people are happy to forget. In the history books, 2020 will be known for little besides the Covid pandemic. Fortunately, the end of this disaster is in sight. With multiple vaccines starting to roll out, it looks like 2021 will be a better year.

Speaking of vaccines, I’ve been racking my brain to find things to be thankful for this holiday season. It’s not easy. My wife, daughter and I are in lockdown in Toronto. The rest of our extended families are in lockdown in Alberta and BC. So no family Christmas this year. I suspect it’s the same for many people. Fortunately, the Covid vaccine provides some light at the end of the tunnel. This is something to celebrate. But more than that, we should celebrate the whole enterprise that made the vaccine possible — science.

In the grand scheme of our species, it was not long ago that we believed infectious diseases were caused by ‘bad air’. The idea that germs cause disease became widely accepted only in the late 19th century, thanks largely to the work of Louis Pasteur. Vaccines are a similarly recent invention.

Our knowledge of infectious diseases is certainly something to celebrate. But as a political economist, I can’t help note how vaccination is stubbornly related to social inequalities. Vaccines are the ultimate public good — a life-saving device that is the product of our collective scientific effort. Predictably, though, this public good is not shared equally. In the last mile, vaccines are paywalled by private companies. So while in principle vaccines could be free for every human, in practice they are not. The result is that vaccination rates grow with income. The richer the country, the higher the vaccination rate. Here’s the relation in 1988. Read more…

Climate Change and the Social Contract

December 30, 2020 1 comment

Marcellus Andrews

I am sorry to say that I am about to confirm my marginal status in the economics profession by digging into a most unpleasant aspect of the already far too scary matter of climate change. I am going to consider why climate change will inevitably shred the contemporary American social contract – that evolving mix of markets and violence that creates knowledge and wealth, billionaires and prisoners, opportunity and social death in ways that fascinate and horrify the rest of humanity. I want to explain why climate change will force the United States, and every other market society, to abandon the practice of creating disposable classes of persons whose primary function is to serve as blood and bone buffers who absorb the risks of life at the cost of their bodies and souls. I am suggesting that the market fundamentalism of Milton Friedman and Friedrich Hayek, the inspirational twin intellectual dynamos of the profession for the past three decades or more, will soon slip into oblivion because climate change will push all of us to understand that unlimited capitalism is, in the end, inextricably connected to the disposability of human beings.

First, climate change destroys market fundamentalism by showing why market based inequalities necessarily lead to hierarchies of pleasure and suffering where the well-off regularly sacrifice the well-being and lives of the poor and vulnerable. Second, climate change poses such severe collective risks to societies that polities must explicitly choose whether to reorient national and local economic policy in ways that share these risks in an egalitarian manner or to deliberately shift these risks to the bottom of society, even at the cost of escalating the degree low-intensity civil conflict by broadening the American race/poverty/prison complex beyond the hard black/white color boundary.   read more

Little value from Global Chains

December 28, 2020 3 comments

from C. P. Chandrasekhar

On December 12, in an outburst of suppressed anger, workers employed at a factory assembling iPhones in Narasapura near Bengaluru ransacked its premises and damaged parked vehicles. The facility is a unit of Wistron, a Taiwanese vendor engaged in assembly of Apple iPhones, that had begun commercial operations only recently. This made the worker action surprising to say the least. Workers recently employed in a known foreign-invested firm are not likely to turn against the management in a matter of months. Something was clearly amiss.

The initial response of the administration was to arrest the workers involved for criminal violation and launch an image saving exercise to appease existing and potential foreign investors, whom the NDA governments at the Central and the State levels are desperately wooing. But investigations soon revealed that the workers had been wantonly provoked with the management in the Wistron unit in serious violation of labour laws. Apple, which has been known to turn a blind eye to poor working conditions in factories run by its vendors, had to admit that Wistron had violated its supplier code of conduct, and declare the launch of an enquiry. Interestingly, Wistron too decided to acknowledge serious lapses at this particular unit and sack its vice-president in charge of India operations. The implicit narrative was that the violations were not typical of the company’s operations but the result of errors of judgement or rogue behaviour of some managers responsible for the operations of the Narasapura unit. Read more…

Causes of global financial Crisis: House of debt

December 21, 2020 2 comments

from Asad Zaman

This is a review and a summary of some of the key arguments presented by Mian and Sufi in their recent book “House of Debt.” It highlights the contribution of Mian and Sufi by showing how they have solved the mystery of why there was a huge drop in aggregate demand during the Great Depression of 1929 and also following the recent Global Financial Crisis of 2007-8. The article shows how major economists like Keynes, Friedman, Lucas and others tried and failed to provide an adequate explanation of this mystery. The key to the mystery is the huge amount of levered debt present during both of these economic crises. The solution suggested by Mian and Sufi is to replace interest based debt by equity based contracts in financial markets. This solution resonates strongly with Islamic teachings on finance. The lecture below covers the first three chapters of the book.

Atif Mian and Amir Sufi open their book “House of Debt” with a MYSTERY. It describes the . . . read more

ECONOMIC THOUGHT: History, Philosophy, and Methodology

December 21, 2020 Leave a comment

WEA Commentaries – vol.10, issue 4

December 18, 2020 Leave a comment

Firing a warning shot across big tech’s bows

December 15, 2020 1 comment

from Jayati Ghosh

It was a long time coming, but the day of reckoning for the big digital companies may finally have arrived. Despite the growing monopoly power of big tech and their use of anti-competitive practices, earlier attempts to regulate them (such as an attempt by the U.S. Department of Justice in 1998 to rein in Microsoft) had only limited success. The novel coronavirus pandemic further enhanced the monopoly power of the big tech giants.

Timeline and actions

But now, a rash of lawsuits and regulatory moves in the United States and Europe against the big non-Chinese digital companies (particularly Facebook, Amazon, Apple and Google) suggest that the days of their easy expansion in an unregulated environment may be coming to an end. In October 2020, the U.S. Department of Justice brought a lawsuit against Google for misusing its dominant position as search engine by undermining competitors; favouring its own content in search results; doing deals with other companies to become the default search engine in many browsers and devices; and then using data on its users and competitors to reinforce its dominance and get even more revenue from advertising.

Then, in early December, the U.S. Federal Trade Commission (FTC) and 48 states, the District of Columbia, and Guam, sued Facebook, accusing it of abusing its market power in social networking to crush smaller competitors. Read more…

Neoliberalism must die because it does not serve humanity

December 12, 2020 10 comments

from  Nikolaos Karagiannis and current issue of 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.

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.

However, neoliberalism decouples political liberalism from economic liberalism and promotes
commoditization of everything and the needs of transnational corporations over those of
individuals. A proper understanding of the economics that lie behind neoliberalism would
allow us to identify – and to reject – ideology when it masquerades vexing contemporary
realities: slim economic growth in general, limited job creation, massive production disparities,
transnationalism, increasing socioeconomic inequalities and misery, asymmetry of economic
and political power, and environmental degradation.

What, after all, are Western institutions? The size of the public sector in OECD countries
varies, from a third of the economy in Korea to over 60% in Sweden and nearly 60% in
Finland. In Iceland, 86% of workers are members of a trade union; the comparable number in
Switzerland is just 16%. In the US, firms can fire workers almost at will. French labour laws
have historically required employers to jump through many loops first. Stock markets have
grown to a total value of nearly one-and-a-half times GDP in the US. In Germany, they are
only a third as large, equivalent to just 50% of GDP.

What the history of both Keynesianism and neoliberalism shows is that it’s not enough to
oppose a broken system. A coherent alternative has to be proposed. “. . . read more

issue 94 – real-world economics review

December 10, 2020 Comments off

As we exhaust our oil, it will get cheaper but less affordable

December 4, 2020 7 comments

from Blair Fix

It was a bet heard around the world. Okay, that’s an exaggeration. It was a bet heard mostly by academics and sustainability buffs. But still, it was a bet … and it was important.

The year was 1980. The players were biologist Paul Ehrlich and business professor Julian Simon. The two had conflicting ideas about where humanity was headed. Ehrlich, the author of the 1968 book The Population Bomb, thought humanity was headed for a Malthusian catastrophe. Simon thought the opposite. Humanity, he argued, was itself The Ultimate Resource. Because humanity’s genius knew no bounds, Simon proclaimed that we could think our way out any problem.

The debate between Ehrlich and Simon was fundamentally about resource scarcity. What’s interesting, though, is that their actual wager wasn’t about any physical measure of resource reserves. Their wager was about prices.

Simon challenged Ehrlich to bet on the price of raw materials. Pick any ‘non-government controlled’ resource, Simon said, and he’d bet that the price would decrease over time. Ehrlich chose five metals — copper, chromium, nickel, tin, and tungsten. If their inflation-adjusted prices went down by 1990, Ehrlich would lose. If metal prices went up, Ehrlich would win.

Ehrlich lost.

Actually, Ehrlich lost the bet the moment he entered it. Ehrlich’s was concerned with the physical exhaustion of resources. Had he bet Simon on any physical measure of resource reserves, Ehrlich would have won. (The Earth isn’t making more metal, so we’ve been exhausting our supply since day one.) Instead, Ehrlich fell for a bait and switch. He allowed Simon to frame scarcity in terms of prices. It was a fateful mistake.

The switch from physical scarcity to prices is one of economists’ favorite tricks for dispelling concerns about sustainability. In this post, I’ll show you how to avoid getting hoodwinked. The key is to realize that resources can get cheaper at the same time that they get less affordable. And when it comes to the price of oil, I think this is exactly what’s in store.

Hotelling’s ‘rule’

Read more…

Can regulators avoid a green bubble after the pandemic?

December 2, 2020 2 comments

from Maria Alejandra Madi

Global concerns have increased under the COVID-19 pandemic’s impact on the environmental, social, economic, technological and political relationship between energy systems, growth patterns, the climate and the environment. As a result, many countries are now planning to focus on a green or climate-friendly recovery. Indeed, huge amounts of investments are still needed in energy efficiency and low-carbon technologies up to 2030 to meet the goals of the Paris Agreement.

The case for climate action has never been stronger. Many relevant issues are at stake, including which is the global governance of climate finance and whether it is possible to regulate climate finance in a transnational way. The predicted decrease in CO2 emissions by 8 percent in 2020, according to the International Energy Agency (IEA), is the product of both supply and demand shocks. The future climate finance scenario depends mainly on the outcomes of the global health and economic crisis means, and the creation of just transition financial models within wider “green recovery” policy frameworks. read more

U.S. billionaires and the pandemic

December 1, 2020 2 comments

A valid ontology for economics?

November 26, 2020 5 comments

from Ikonoclast (originally a comment)

The challenge is to develop a valid ontology for economics. In medicine, early theories of disease failed to yield efficacious treatments because their ontology (a theory of basic real existents and how they interact) was wrong. A few of the more common ideas founded on false ontologies were that diseases were caused by evil spirits, miasma and imbalances of the four humors. It was not until the advent of the germ theory of disease that real progress was made. More basic and real biological existents were found, microscopic “germs” or pathogens, and the pathogenic theory of disease was founded. With continued research, further causes of disease were found, namely deficiency disease, hereditary disease and physiological disease. Again, this progress was made possible by basic empirical research into real existents via the disciplines of physics, chemistry, biochemistry, genetics, physiology (a complex system discipline) and neurology (another complex system discipline).

Since conventional economics has made a total mess of things, and it is founded on a demonstrably false ontology, the discipline must be torn down and rebuilt from scratch. The conventional economists are the modern world’s equivalent of the medieval school-men. Read more…

Discrimination and bias in economics, and emerging responses

November 24, 2020 2 comments

from Jayati Ghosh

Recently, mainstream economics has been forced to acknowledge some of the explicit and implicit forms of discrimination and bias that are rampant in the discipline, thanks in particular to some brave interventions by some women economists. The focus of these interventions has been on still-pervasive patriarchal and racist attitudes that are evident within the discipline in the Global North, particularly in the United States – such as the now-famous blog by Claudia Sahm: “Economics is a disgrace.” While these are critical concerns, there are other severe and persistent forms of discrimination and power imbalances in economic analyses that have not been the focus of attention, which have also operated to impoverish the discipline.

I would like to highlight two of these in particular: the hegemony of one particular approach to both theory and applied economics, falling broadly within what can be described as the neoclassical framework and the denigration of alternative approaches; and the neglect of and ignorance about economic research and analysis done by scholars who are not located in the Global North, especially those writing in languages other than English. I believe that there is no other discipline or branch of knowledge—whether in the natural or social sciences or in the humanities—that has been so driven by geographic location and ideological determinism. Read more…

Tech platforms feel the heat

November 18, 2020 2 comments

from C. P. Chandrasekhar

In a move that was expected, the US Justice Department has filed an anti-trust lawsuit against internet search giant Google, alleging that it resorts to anti-competitive practices to ensure its dominance in the search engine space and, through that, over the related online advertising revenues. As a leading example the case cites the successful effort to exclude the competition through a deal, in place since 2005, in which Google pays Apple around $8-12 billion a year in return for pole position as the default search engine in Apple’s devices and the Safari browser. Around half of Google’s search traffic is reportedly mediated by Apple devices. Such practices, Justice holds, help Google attract users and win a substantial share of the internet advertising revenue pie, a part of which is used to pay off Apple and other browser providers who direct users to Google search, completing the circle.

The Justice Department’s move is significant as it has been more than two decades since the institution last moved against a tech major for the misuse of monopoly through its case against Microsoft. Further, signs are that this may be the first in a series of cases against leading firms in the digital economy. In what appears to be a major pushback against the power of the platform companies in their home turf, Amazon, Apple, and Facebook (besides Google) have come under attack. Read more…