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The Fisher – Becker Curio

from Edward Fullbrook

Yesterday evening  Merijn Knibbe put up this comment on Lars Syll’s post Utility maximization — explaining everything and nothing.

One of the features of the utility model is that it ´explains´ the downward sloping demand curve, a cornerstone of economics. Which means that neoclassical demand theory seems a pretty coherent building with sound foundations.

However.

It does not explain the downward sloping demand curve. It is only consistent with this curve. And in 1962 Gary Becker showed, in an article called ´Irrational behavior and economic theory´, that many models can ´explain´ a downward sloping demand curve when money is limited, including the throw of a dice. Ockhams razorblade requires us to use the simplest model… http://mcadams.posc.mu.edu/econ/Becker,%2520Irrational%2520Behavior.pdf

Becker himself seems not to have grasped the implications of his article, which shredded neoclassical demand theory. Accepting that demand curves very often slope downwards does not mean that one has to accept utility theory.

My paper (http://www.paecon.net/Fullbrook/IntersubjectiveTheoryofValue.pdf)  “An Intersubjective Theory of Value”, in Intersubjectivity in Economics: Agents and Structures, editor Edward Fullbrook.  London and New York: Routledge, 2002, pp. 273-299, includes a subsection on the theoretical anomaly noted by Gary Becker in his 1962 paper.  But that anomaly had been noted with somewhat greater depth and sophistication by Irving Fisher in 1920. Neither economist, however, was capable of understanding the profound significance of the anomaly, because to do so requires a bit of abstract algebra, which, unfortunately, is not part of the economist’s standard tool kit.  Below is the relevant section form my 2002 paper.  The first part of that paper includes a gentle introduction to the mathematical ideas missing from Fisher’s book and Becker’s paper.  Read more…

“plunged willy nilly into the study of economics”

February 3, 2016 1 comment

from Edward Fullbrook

Below are some comments by Steve Marglin, Peter Radford and myself that appeared in 2010 in the RWER in response to an essay by Peter Radford and that seem relevant to the discussion that Asad Zaman has recently launched in this blog: Is there a core of heterodox economics that we can all believe in? and Fundamental Flaws of Conventional Economics

Comments and reply on Peter Radford’s “Whither economics? What do we tell the students?”


Steve Marglin
  
[Harvard University, USA]

Dear Mr Radford,

I agree with most of what you say about economics, except that it is not as easy as you suggest to separate the study of economics from the study of economies. Keynes said it very well in the preface to the General Theory: the hardest part of coming to his new ideas was getting rid of the old ones.  The problem is that one needs some kind of framework for studying economies and is thus plunged willy nilly into the study of economics.

Read more…

The 1% Curse: What can be done about it? – Oxfam graphics

January 19, 2016 1 comment

from Edward Fullbrook

The global inequality crisis is reaching new extremes. The richest 1% now have more wealth than the rest of the world combined. Power and privilege is being used to skew the economic system to increase the gap between the richest and the rest. A global network of tax havens further enables the richest individuals to hide $7.6 trillion. The fight against poverty will not be won until the inequality crisis is tackled.
An Economy for the 1%, Oxfam Briefing Paper, 18 January 2016

62 richest vs. poorest 50 percent 2000-15

Read more…

Real-World Economics Review Blog viewer statistics for 2015

December 31, 2015 Leave a comment

from Edward Fullbrook

I read that Blog World, in terms of viewer statistics, has been in a state of rapid collapse for several years now. But not the Real-World Economics Review Blog.  For the past four years its annual number of page views has been around 450,000.  In 2015 there have been 446,520 views, up slightly from the previous year.  To put that figure in some kind of a perspective, it is nearly half the number of downloads in 2015 of individual papers and whole issues of the Real-World Economics Review.

Here is a linked list the of the ten most viewed posts published in 2015.

10.  As it happened – Yanis Varoufakis’ intervention during the 27th June 2015 Eurogroup Meeting
Yanis Varoufakis

9. Randall Wray attacks “debt-free-money cranks” based on sloppy arguments
Norbert Häring

Read more…

The Fed’s corruption of the economics profession

November 1, 2015 4 comments

from Edward Fullbrook

Asad Zaman has called my attention to a long article in the Huffington Post that initially appeared six years ago, but is worth rereading today as a reminder of the task faced by those desiring to turn economics into a more honourable pursuit.  Here are few passages from the article.

Priceless: How The Federal Reserve Bought The Economics Profession

The Federal Reserve, through its extensive network of consultants, visiting scholars, alumni and staff economists, so thoroughly dominates the field of economics that real criticism of the central bank has become a career liability for members of the profession, an investigation by the Huffington Post has found.

…………..

This dominance helps explain how, even after the Fed failed to foresee the greatest economic collapse since the Great Depression, the central bank has largely escaped criticism from academic economists. In the Fed’s thrall, the economists missed it, too.

…………..

One critical way the Fed exerts control on academic economists is through its relationships with the field’s gatekeepers. For instance, at the Journal of Monetary Economics, a must-publish venue for rising economists, more than half of the editorial board members are currently on the Fed payroll — and the rest have been in the past.

Read more…

The Counterintuitive Problem

October 19, 2015 11 comments

from Edward Fullbrook

Keynes argued that markets often create inaccurate expectations of economic reality which they then act upon thereby changing reality. This reflexivity that Keynes identified as central to capitalist markets is the opposite of the basic process described by traditional economic theory, both in Keynes’ day and in our own, whereby it is assumed that market expectations are determined by reality rather than one of reality’s determinants.

For most people Keynes’ theory of market expectations, like his theory of aggregate demand, is counterintuitive, and therefore difficult to elucidate and popularize sufficiently to become part of public discussion.   Read more…

Gender-gap in prime-age employment in advanced economies in 2014

Gender Gap in Prime-Age Employment, Advanced Economies 2014

Nicholas Buffie at the Center for Economic and Policy Research has a blog post about this chart.

Key member of Swedish Academy of Sciences calls for immediate suspension of the “Nobel Prize for Economics”

October 11, 2015 20 comments

Bo Rothstein, an important member of the Royal Swedish Academy of Sciences, has today in Sweden’s most widely read newspaper called for an immediate declaration of a moratorium on the awarding of Sveriges Riksbank Prize for Economics in the name of Nobel and the Nobel Foundation.

Rothstein’s article argues that today with increasing success, economics as commonly taught in universities and endorsed by most winners of the economics prize promotes corruption in societies around the world.  Therefore he concludes that the Nobel Foundation’s awarding the economics prize is “in direct conflict with what Alfred Nobel decreed in his will.”

“I will,” writes Rothstein, “therefore now take the initiative in this matter.”

Below is a Google-translation of Rothstein’s article.  If someone can provide us with a better translation, we will post it.

The Prize in contravention of the spirit of Nobel’s will

Can contribute to increased corruption. Multiple independent research shows that those who study economics are more prone to corruption. And the behavior seems to be an effect of education. A price that risk contribute to increased corruption in the world is in conflict with the spirit of Nobel’s will, writes political science professor Bo Rothstein.   

Read more…

“Is there anything worth keeping in standard microeconomics?”

April 14, 2015 10 comments

from Edward Fullbrook

For me three economists stand out historically as having been the most effective at building resistance to the dominance of scientism in economics.  Keynes of course is one, and the other two are Bernard Guerrien and Tony Lawson, Guerrien because he was the intellectual and moral force behind Autisme Economie which, among other things, gave rise to the RWER; and Lawson because his papers, books and seminars have inspired, joined and intellectually fortified thousands.

It is notable that all three of these economists were or were on their way to becoming professional mathematicians before switching to economics.  When still in his twenties, Keynes’ mathematical genius was already publicly celebrated, most notably by Whitehead and Russell, and he had already published what was to become for his first discipline a classic work.  Guerrien’s first PhD was in mathematics, and Lawson was doing a PhD in mathematics at Cambridge when its economics department lured him over in an attempt to boost its mathematical competence.

The significance for me of Keynes, Guerrien and Lawson being mathematicians first and economists second is that it meant that they were not even for an hour taken in or intimidated by the aggressive scientism of neoclassical economists, and this has enabled them to write analytically about the dominant scientism with a quiet straightforwardness that is beyond the reach of most of us.

An example of this kind of writing that I am talking about is the short essay below that in 2002 Guerrien published in what is now the Real-World Economics ReviewRead more…

French economics needs you to sign this petition

February 26, 2015 1 comment

Where is our economic system going? What about our societies? How did we get here? And what next?

The current situation reveals not only an economic crisis but also a deep crisis of economic thought. There are many causes for this situation, and solutions can only be found through theoretical, practical and political inventiveness with our critical faculties to the fore. But, whilst such voices do exist, they have been silenced as far as orthodox economics is concerned. Simply put, there are profoud institutional barriers to the emergence and presentation of original thinking, but this blocked creativity could be released through a simple and immediate political solution. Establishing in French universities a new section, entitled Economics and Society, would allow a new way of thinking in economics.

Madam Minister, you recently decided to create this new section promoting the study of economic facts with a renewed perspective within rather than apart from social sciences. You did so because you know how much the research in economics and its teaching, but also public debate, are suffocated by the monopoly of ideas imposed by a dominant school of thought that failed to anticipate or even to allow for, let alone understand and respond to this crisis.
The proposal for this new section, and your commendable approval for it, unleashed such a backlash from the established orthodoxy that it seemed to persuade you to withdraw your support.
For these reasons, by reaffirming your support for this petition for pluralism in economics, we demand that you publish the decree that you already signed in order finally to create this new section.

Economics needs pluralism now!

You can sign this petition here http://assoeconomiepolitique.org/petition-pluralism-now/

4,559 people have already signed it, but they need lots more.  You can read the names at the petition sight.

Scholars’ Appeal for Greece – please sign

February 2, 2015 135 comments

from Edward Fullbrook

I have been asked to circulate this appeal.  You may sign it by leaving your name and if appropriate your affiliation as a comment to this post.  Please do not comment further on this post as it will make the collection of the signatures more difficult.

Scholars’ Appeal for Greece.

We the undersigned call on the governments of Europe, the European
Commission, the European Central Bank and the IMF to respect the decision
of the Greek people to choose a new course and to  engage the new
government of Greece in good faith negotiations to resolve the Greek debt.

The government of Greece is correct to insist on new policies because the
previous policies have failed.  They have not brought economic recovery.
They have not brought financial stability.  They have not brought jobs or
foreign investments. They have stressed and damaged Greek society and
weakened Greek institutions. There is therefore no value in that approach
and no progress to preserve. We urge Greece’s European partners to accept
this reality, without which the new government would never have been
elected.  Read more…

“A safe pair of hands”

Nicholas Otty, an artist friend of mine in France, sent me this photo of a painting that he recently finished and which I think is available for purchase.  Click on the image to enlarge.

Greenspan by Nicholas Otty

Seeking short summaries of major works in economics

December 30, 2014 10 comments

from Edward Fullbrook

In 2014 one post on this blog was viewed more than twice as many times as any other post, nearly ten thousand.  It is Asad Zaman’s Summary of the Great Transformation by Polanyi.  Although it was posted back in late 2013, it continues to attract viewers at a rate that every month places it in the ten most viewed posts, and in recent months its download rate has even been growing.

So how do we account for the extraordinary success of Zaman’s post?   Part of the credit is due of course to the quality of Zaman’s writing and to his reputation.  But surely there is more to it than that, and three possibilities have occurred to me.  One, which I reject, is that it is the name Polanyi which attracts so many readers.  Another is that a network of links has been created leading people, most likely students, to Zaman’s post.  But after examining extensive site data I have found no evidence that such links exist.  A third possibility, and the one in which I am inclined to believe, is that it is the idea of a short (blog-post-length) summary of a famous work that attracts the readers and which lends itself to discovery through search engines. I can see how this might especially be appealing to students who education is structured to not only keep them away from all primary sources, but also to deny them direct summaries of important works.

So banking on the third explanation, I am extending a broad invitation.  I would like over the coming year for the RWER Blog to publish a series of short (750 words or less) summaries of famous works in economics.  Initially at least, I am interested in publishing only one such summary per work. So if you are interested in writing one, you should first clear the possibility with me at pae_news@btinternet.com.

If over the coming year we establish a small library of these major work summaries, then there is a good chance that network effects will lead to download rates for individual summaries that exceed that of Zaman’s Polanyi to date.

Launch of the WEA Textbook Commentaries Project

An email this morning from Stuart Birks

This is a brief update on progress with the World Economics Association Textbook Commentaries Project. . . .

The current state of play is as follows. The October issue of the WEA Newsletter has just been made available on the web. Details will be circulated to WEA members shortly. The issue contains an announcement about the project and some other related pieces. It could perhaps be considered as a formal launch of the project to the wider community.

The Newsletter pdf is at: http://www.worldeconomicsassociation.org/files/newsletter/Issue-4-5.pdf

The article on the project is also available at: http://www.worldeconomicsassociation.org/newsletterarticles/wea-tcp

In addition, I have just presented a paper in Buenos Aires explaining some of the background to and reasoning behind the project. The paper is available at: http://ssrn.com/abstract=2515373. I will be giving similar talks elsewhere in the next few weeks. I’ll be in the UK in late November-early December and could fit in one or two additional talks if there is interest.

The success of the project depends on the quality of the material provided and the extent to which it is used. It has been encouraging to see how willing people have been to make their writing available as well as to contribute directly. More commentaries are needed, including alternative ones to supplement or contrast with existing material. Note that the main objective for the WEA is to provide a platform that can be used by others. It is independent from any specific publisher or school of thought.  Read more…

Fred Lee’s “Teaching Heterodox Microeconomics”

The following paper appeared in 2005 in what is now the Real-World Economics Review  http://www.paecon.net/PAEReview/issue31/Lee31.htm  It is worth reading today no less than it was then.

Teaching Heterodox Microeconomics

Frederic S. Lee   (University of Missouri-Kansas City, USA)

Microeconomics is an important, though not a very popular, field of research in heterodox economics. This is due, in part, to the underlaboring role of micro-entities, such as the business enterprises, costs, pricing, profit mark ups, wage rates, markets, and investment, in most of the research conducted by heterodox economists in macroeconomic theory, monetary theory, and economic policy. Given its theoretical importance, it is surprising that the number monographs devoted largely to delineating a heterodox microeconomic theory are so few.1 One reason for this is that some heterodox economists believe that it is necessary for all economic students to learn neoclassical microeconomic theory; and the learning of heterodox microeconomics is of second-order importance.   The unintended consequence of this attitude is that there is little interest among heterodox economists to delineate a comprehensive microeconomic theory. A second reason has to do with the role of microeconomic theory in heterodox economics. In particular, microeconomic theory is correctly viewed by most heterodox economists as providing a non-reductionist foundation to macroeconomic and monetary theory. And it is these theoretic areas that contribute most to macroeconomic policy issues in which they are interested. Given this macro-policy concern, there is little interest among heterodox economists to engage in the near thankless and largely obscure task of foundation building.

Read more…

“Fred Lee’s departing words of wisdom”

World student movement could become major player in the struggle to bring pluralism and freedom of inquiry to economics

August 5, 2014 1 comment

from Edward Fullbrook

An emergent worldwide grassroots movement of economics students, the International Student Initiative, has the potential of becoming a major force that could work alongside the academics’ World Economics Association (now 13,000 strong) to break the neoclassical stranglehold on economics and to bring the real world back into the classroom.  Launched in May, the ISI already boasts 65 associations of economics students from 30 countries, 5 continents and representing 13 languages groups.  For the most part they are based in individual universities.  Together they constitute a coordinated grassroots base that has the potential of serving as the launch pad for a massive worldwide student rebellion in the coming academic year, one that would see 100s more of these associations formed, each focused on reforming the economics curriculum of their university.

The formation of these student associations can be greatly facilitated by encouragement and moral support from faculty members.  If you would like to help please go to http://www.isipe.net/supportus/

Below is the ISI‘s manifesto, a partial list of the student organizations, a partial linked list of their websites, and a linked list (67) of media coverage.  Here to begin with is a world map showing ISI associations to date:  Read more…

“But surely not every member of the profession has sold out?”

Here are some highlights from a strong post from Steve Denning on Forbes blog that condemns Joseph Stiglitz for shielding the “villains”.

Joseph Stiglitz, who this week offers his final entry in the New York Times’ series, The Great Divide, with the conclusion that inequality is not inevitable. The United States that was once a “shining city on a hill” has now become, he writes, “the advanced country with the greatest level of inequality.” In effect, it’s a choice that our society can make one way or the other. As a result of the actions of many individuals, our society has chosen inequality.

And Stiglitz names those responsible for this choice. They include CEOs, bankers, private equity titans, venture capitalists, politicians, deregulators, lobbyists, the Supreme Court, and those who run corporate welfare, the prison system, the high-price justice system and the unequal health system.

 

The missing villains: economists

Yet there is one category of actor curiously missing from Stiglitz’s list of villains: his fellow economists.

Read more…

Piketty phenomena – “Riding a Wave of Growth: Global Wealth 2014” (chart)

from Edward Fullbrook

The Boston Consulting Group (BCG) is a leading player in what is called “the global wealth-management industry” and which in effect is plutonomy’s tactical cavalry in financial markets. BCG have just “released” a report disclosing that in the year 2013 the wealth of the world’s people worth $100 million or more increased 19.7 percent.  That compares, they say, to 3.7 percent for the wealth of sub-millionaires.  Naturally they are overjoyed at this latest redistribution.

“Wealth” meaning what? Like most people and as also with the symbol “capital”, they use “wealth” to stand for two different things, and also like most people, economists especially, they often lose track of which referent they are trying to talk about.  But we can overlook that here because the 19.7 percent and 3.7 percent refer to financial wealth and, with exceptions, that is all plutonomists and their agents really care about.

The report documents how the upward redistribution of wealth to the 0.1 percent and especially to the 0.01 percent is accelerating, in other words, how the plutonomist programme (pre-Piketty it was never reported by mass media)  is now restructuring the world at an even faster rate.  Here is a taster of how they see the next five years.  Read more…

Piketty, plutonomists, and the legal framework

from Edward Fullbrook

Plutonomists, like real-world economists, know that the main determinant of income and wealth distribution is the legal framework in which an economy functions.    The Plutonomy Movement, by far the most powerful political force of our age, is founded on the underground application of this basic principle.  Occasionally this becomes manifest when one of plutonomy’s strategic documents is leaked.   Such an event happened last week when the Bank of American Merrill Lynch report “Piketty and Plutonomy: The revenge of inequality” found its way into non-plutonomist hands.  In addition to posts on this blog, there was coverage in the Chinese and the Australian press and Brad Delong posted an excerpt from the report including three graphs.  Here is another excerpt, very brief, and number 42 of the report’s 45 figures.  Red indicates “regulatory legislation” and green “deregulatory legislation”.  Read more…

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