Archive

Author Archive

Models and measurement in economics: Wesley Mitchell in 1946

May 15, 2017 2 comments

Noah Smith is not the first one to be puzzled by the rift between theory and measurement in economics. He states:

econ seems too focused on “theory vs. evidence” instead of using the two in conjunction. And when they do get used in conjunction, it’s often in a tacked-on, pro-forma sort of way, without a real meaningful interplay between the two. Of course, this is just my own limited experience, and there are whole fields – industrial organization, environmental economics, trade – that I have relatively limited contact with. So I could be over-generalizing. Nevertheless, I see very few economists explicitly calling for the kind of “combined approach” to modeling that exists in other sciences – i.e., using evidence to continuously restrict the set of usable models”..

But in 1946, in the wake of the war and the Keynesian revolution, Wesley C. Mitchell, long time head of the NBER (National bureau of Economic Research), one of the foremost economists of his time and one of the best students as well as a friend of Thorstein Veblen, held a “read the whole thing” speech (like much of this old stuff made available by the NBER) about “Empirical research and the future of economic science”. Eloquent (though not succinct) it bears in a somewhat depressing way on the ideas stated by Smith  (though Mitchell restricts himself much less to the Ivory Tower than Smith does):

There is better prospect than before that men who think of themselves as theorists will absorb into their work the methods and findings of realistically minded investigators, while the latter will make such free use of the concepts and procedures of theorists that no one will know on which side of the old line of demarcation he stands. In fine, the years near at hand may see the beginnings of an economics worthy to be called a science. Rapid progress toward that goal is not to be expected. The great drawbacks of empirical research in comparison with speculative reasoning are that it is much more laborious, Slower, and more dependent on financial support. The speculative reasoner must think hard; his is no easy task. But if gifted with logical acumen, he can select a set of assumptions interesting to him, and think Empirical Research and the Development of Economic Science out their implications by himself. If he has a funded income, or earns a living salary by work that does not exhaust his energy, he can get on without financial grants. In a relatively short time he can cover much ground, and, barring logical errors, arrive at conclusions incontestably true in the sense that they are necessary consequences of his assumptions. The empirical investigator, on the contrary, requires mass observations and considerable intimacy with actual practices; to extract the meaning from his data he needs assistants whose salaries few scholars can pay out of their own pockets”.

See p. 16 for his institutional stance. I’m afraid the ideas of Noah Smith indicate there still is a problem. Much has been accomplished, be sure of that. But a rift still exits. Here are my takes on models and measurement in economics: the concepts, social worlds and even the language of economic statistics and economic theory are not always congruent. Plus ça change, plus c’est la même chose. Why?

Is there a mismatch between theory and measurement in economics?

May 13, 2017 5 comments

Nobel22

The ‘The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel’ has much more often than the prizes for physics, Chemistry and physiology and medicine been awarded for: theory. It was on a regular basis awarded for analysis of data or the discovery of new events but in these cases ‘discovery’ was contrary to the other sciences much less important than analysis. It was only rarely awarded for the development of measurement techniques.   Read more…

A non-white recovery in the USA

May 7, 2017 1 comment

anic rate employmentrate

First: the elephant in the room: the post 2008 development of the USA white employment rate relative to the black and hispanic rate is, in a historical perspective but also when compared with post 2008 developments in Europe, spectacular. though something seems to have been the matter since 1995. No explanation here but the correlation between the white and the other rates slowly fades away (a hypothesis might be that ‘Blacks’ and ‘Hispanics’ are groups which are characterized by a relatively large subgroup of people belonging to the ‘precariat’, workers depending on low paid unstable jobs, who do relatively better in an increasingly precarious economy).

Second: it’s not inconceivable that the black rate will, within years, also be at par with or higher than the white rate. Note that the decline of white employment in the 2008 crisis was much larger than during other downturns. This pattern is less outspoken for the hispanic and black employment rates. Next to the employment rate we can also look at the participation rate (unemployment plus employment).    Read more…

Deep warming

From: Larry Hamilton and Merijn Knibbe

Following a twitter discussion between him and me about the question if the 2013-2015 warming of the first 700 meters of ocean was above trend or if 2016 was below trend, Larry Hamilton (@ichiloe) produced the next graph (which shows consistent and relentless warming not just of the surface of the earth but also of the first 700 meters of the oceans). These series are as far as I know measured in a totally independent way. ‘2017’ are partial data. We do not rest our case.

both.png

How’s the Eurozone doing?

April 28, 2017 2 comments

On 6 April, Mario Draghi made a speech titled ‘Monetary policy and the economic recovery in the Euro Area’. I would have emphasized the existing disequilibria a little more: unemployment in Germany is not far away from ‘low’ but this comes at the cost of an 8% of GDP surplus of the current account. German domestic demand (investments, public and private consumption) is i.e. about 10% too low to guarantee low unemployment. See also this recent Eurostat press release, which shows that, though some areas are by now characterized by low unemployment (<3,5%) others now levels of over 31% (not even counting ‘broad’ unemployment). But I agree: there is a recovery.

Emp

Read more…

Easter Monday links. (Mis?)measurement

April 17, 2017 1 comment

The ECB buys lots of bonds from large oil companies, not from small and medium enterprises.

Rapid money supply growth does not cause inflation (measurements!)

New UK guidelines on how to estimate natural capital. Surely worth the effort! But some things do not have a price for a good reason. And when you look really, really hard at statistics of the stock of capital it turns out that statisticians measure the value of rights to the monetary yield of ownership of certain items. And not any kind of intrinsic welfare or utility produced by machines or houses (or an Easter Monday trip to the woods). Do not commodify Nottingham Forest!

Economists like me measure productivity. Can we trust these statistics? Only if they are very carefully crafted. From a OECD manual standard methods used to calculate ‘real’ production can even result in estimates of negative production.

“Another issue is the occasional occurrence of negative value added figures when double deflation operates with Laspeyres quantity indices. Nothing ensures that the subtraction of constant-price intermediate inputs from constant-price gross output yields a positive number. The SNA 93 notes that negative real value added can occur when relative prices change: “a process of production which is efficient at one set of prices, may not be very efficient at another set of relative prices. If the other set of prices is very different, the inefficiency of the process may reveal itself in a very conspicuous form, namely negative value added”. … In these circumstances, a different accounting method should be used to estimate an aggregate like value added, such as the methods based on “superlative” index numbers

Read more…

A factual update on global warming

April 10, 2017 3 comments

Graph 2

What do you get when you apply a 13 year smoothing function to the yearly data on global temperature? The graph above. According to ‘climate optimists’ the graph above is misleading, as, for one thing, these surface data are supposed to show a different pattern of development than the ‘satellite data’. The point: they don’t. The graph above shows about 0,7 to 0,8 degrees warming after 1979 and a pattern of relentless increase. The ‘satellite  data’ (graph below) show 0,5 degrees warming after 1979 and a pattern of relentless increase (visualize a 12*13 = 156 months running average, couldn’t track the original data). Yes, that’s a difference. But even the 0,5 degrees is, considering the warming which took place  before 1979, quite a problem. And more so when we consider the 2,0 degrees of ‘acceptable’ warming. Even based upon this rather short period and these conservative data, while not taking 1880-1980 developments into account we’ve already spent *at least* 25% of our wiggle room. The graph below is used by climate optimists to defend their position… Delusional. It’s maybe less alarming than the graph above. But it is alarming, too.  Read more…

Unemployed foreigners, Germany (Ausländerarbeitslosenquote)

April 1, 2017 8 comments

from: Merijn Knibbe
auslander

The graph shows the  ‘Ausländerarbeitslosenquote’ (unemployed foreigners ratio) which is calculated by the ‘Bundesagentur fur Arbeit’ (a kind of German ‘Bureau of Labor Statistics’). Unemployment of Germans in East Germany is, after about a quarter of a century, finally below 10% (but still high). But unemployment among ‘foreigners’ is way higher (foreigners are not necessarily immigrants: refugees and people from the Not Very United Kingdom count but so does the large share of the sizeable second or third generation Turkish minority which does not have German nationality). Fun fact: unemployment of foreigners in Bayern is lower than unemployment of German nationals in Berlin Brandenburg (September 2016). Read more…

Brexit and all that

March 30, 2017 5 comments

Bavariafrom: Merijn Knibbe

 

Update: 14:05. Graph adapted (new, double, timeline)

Brexit should not have happened. But, understandably, it did. Brussels bears a large part of the blame: they could and should have known. The title of this blog is an allusion to the 1992 Wynne Godley article ‘Maastricht and all that’ in which he predicted the present day troubles of the Eurozone. People (in Brussels) should have listened. People (in Brussels) should still listen. If a country does not have its own money it is not really sovereign – unless it has democratic power on a higher level. If that’s not the case it might be treated as a kind of colony. Think Ireland. Think Greece. The EU should not be like that. But it was. And is. And people voted for Brexit.   Read more…

Deaths of Despair. The Case/Deaton paper about mortality of White Americans. Some remarks.

March 25, 2017 5 comments

Anne Case and her husband Angus Deaton have published a new paper about the deteriorating health of non-hispanic Whites in the USA. The use of more refined and more granular data as well as another year of data again shows a grim picture of ever rising ‘Deaths of Despair’. For those familiar with ‘Decline of the USA’, a book written by the editor of this blog Edward Fullbrook,  their findings won’t come as a total surprise. But the situation stays abhorrent.

Deaton graph

Death rates of those white people are going up. And they keep going up. Life expectancy is falling – especially life expectancy of the less educated. Which is totally anomalous in a historical sense as well as compared to other countries, according to the authors (I do not entirely agree, see below). And not because health care is imploding. But because people seem to give up. Some remarks: Read more…

Graphs of the day: vacancies and wages.

Jobs

Costs

 

Via Eurostat (look here and here) information about the labour market: vacancy rates and wages. Vacancies are up, wages are rising at a very moderate rate (and in many countries, like Spain, not at all). Read more…

Graph of the day 3. Turkish and Kurdish fertility

Turkey.png

I made this graph (in fact: map) because of remarks by Erdogan, the Turkish president, that Turkish women in Europe should get more children: 5 instead of 3: wasn’t the birth rate (total fertility rate) in Turkey already way below 3? Thanks to a recent press release of Turkstat I discovered that, surprisingly (at least to me), the birthrate in many western areas of Turkey , about 1,6 or even lower, is as low as in countries like Italy, Spain, Portugal, Greece etcetera. The entire northern part of the Mediterrenean world now knows birthrates which are well below the 2,1 repleacement rate! Remarkably, the Kurdish are in Turkey knows birthrates which are about twice as high as in western Turkey (the Zaza are another minority which more or less identify as Kurds).

Graph of the day 2. How to understand bilateral trade balances.

March 20, 2017 9 comments

Switzerland

 

Today: 2 graphs. And do I really have to write this blog? Yes, I have. At this moment the USA government seems to target bilateral trade balances: these should be more or less balanced. To quote a Trumptweet (January 27, 2017): “The U.S. has a 60 billion dollar trade deficit with Mexico. It has been a one-sided deal from the beginning of NAFTA with massive numbers…”.  But it does not work that way. Bilateral trade deficits are not the right measure to estimate if trade is one-sided deal. Switzerland is an example.

Read more…

Some graphs 1. German unemployment

March 19, 2017 8 comments

Wages

The coming days I will post some graphs. The first I made to answer the question if East German unemployment was finally coming down.  East Germany has experienced sky-high unemployment for decades despite massive transfers and despite a wage level which is supposed to be 25% lower than in West Germany. But at this moment, East German über-unemployment has more or less disappeared, at least compared with the German version of the rust belt (Stainless steel belt? Nutzeisen belt?). Two remarks:

  • German unemployment is developing favorably. But comparison with Bavaria shows that there still is ample labour market slack.
  • If neoliberal wage restraint policies plus massive transfers led to two decades of almost 20% unemployment in East Germany, how long will it take for Greek unemployment to come down? Four decades?

India: cash comes back

March 10, 2017 2 comments

Cash

What’s happening in India? The people are clearly rolling back the recent move of the Indian government to basically abolish the cash economy: the amount of cash is, at the moment of writing this, increasing at a hyperinflation rate of 8,5% per fortnight (according to the Reservebank of India data). But the amount of cash is still way below last years’level. Bank deposits are 12% higher than last year but have been flat since December. Read more…

More ‘NAIRU’ bashing or: does Spain really needs 26,6% unemployment to keep prices stable?

March 4, 2017 2 comments

Below, three sets of graphs from three ‘structural’  seconomic tudies which show that the celebrated concept of NAIRU, as defined in these general equilibrium models is little more than a complicated running average of the level of estimated unemployment (though, quite unscientific, economics does not even seem to have an agreed upon algorithm to calculate this average). This a consequence of the assumption of these models that unemployment is a voluntary state of existence.

Yesterday, Lars Syll had an interesting post about the nonsense of NAIRU, the Non Accelerating Inflation Rate of Unemployment, as defined in ‘structural macro economic models’. I totally agree but have a little to add. The discussion about NAIRU is not about the interesting relation between unemployment and wages (or even inflation), as proponents state. It is about the relation between unemployment and potential output: when does a government has to stop stimulating demand to prevent runaway inflation? Does this has to happen when unemployment is 3%? Or when unemployment is 4%? Or as the European commission wanted to have it when unemployment is, ahem, 26,6%? The answer is clear: NAIRU won’t give us the answer. Or, as Gechert, Rietzler and Tobler recently stated it (emphasis added): Read more…

Da wird jetzt wider in die Hände gespuckt! (Omurgasız sırtını oraya yasla!). Marxloh edition.

February 25, 2017 Leave a comment

img_20170225_0738321

Hi from Marxloh! I’m finding myself with junior in Marloh (to watch Schalke ’04)and it happens to be the most steampunk city I’ve ever been. It is part of Duisberg, a city inside the ‘Ruhrgebiet’, the German equivalent of the USA rust belt except that it’s not rusty but Europe’s largest steelhub (according to a sign along the road). Marxloh, which became a suburb for labourers can nowadays really be called Little Turkey (with capitals. It’s population increased from 352 in 1895 to 35.872 only twenty years later, in 1925. Nowadays, 18.000 people are living here, more than half of them ‘foreigners’ (mainly Turks and on the main street Turkish is omnipresent). But the number of inhabitants is fortunately increasing again. The main street (Wellenstrasse) is great. When there is one bridal shop in town it is probably thriving. When there are two in town, both of them will be struggling. But when you have 20 – people will come flocking to your bridal hub, which seems to have happened to the Wellenstrasse. The bridal shops are Turkish but the style is very much the typically western romantic white gown style (and an occasional suit for the groom, too). Also lots of extreme bling shops (and small supermarkets with a larger array of vegetables than large supermarkets in the Netherlands). The bling contributes with the steel industry to the steampunk feeling.

Read more…

Links. Debt as a social connivance

February 23, 2017 1 comment
  1. Action! ‘the campaign to demand that the ECB publish the legal opinion it commissioned on whether its closure of Greece’s banks in 2015 was… legal’. Sign!
  2. Europe is waking up to its gargantuan, awkward and 100% home made bad private debts problem. Any solution requires writing down hundreds of billions of debt.
  3. Michael Hudson on ‘clean sheet’ debt policies in Mesopotamia. Fun fact: cuneiform records show that clerks had to master compound interest calculations.
  4. Low interest policies of modern central banks are not really ‘clean sheet’policies but they try to deal with the same debt problems as the rulers of Mesopotamia. The 2015 annual report of the Bundesbank shows that Germany earned 0,05% interest on its Target2 assets (p.92). Still, quite a profit: 279 million (p. 93, at the beginning of the year the interest rate was higher).
  5. Positive money has a model which shows that if interest received is spent again people do not necessarily have to borrow more money to be able to pay interest. But the model abstract from the problem that some debts are owed to banks and others to non-banks. If the debts to the banks are paid down – the amount of money will actually decline as borrowing from the banks is what created modern money in the first place.
  6. Nowadays, making a connection between low interest rates and low population growth is in vogue. Samuelson predicted this relation in his 1958 article ‘An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money’.

The Indian ‘no more cash’ experiment

February 22, 2017 2 comments

“Our major competitor is cash. Cash is what we seek to eliminate”

Recently, the Indian government overnight abolished most cash. With dire consequences. What are the economic consequences, why did the Indian government do this?

    1. Economies like those of India have, for a bunch of reasons, often relatively high rates of inflation. After the abolishing of cash, India suddenly experienced ‘ugly’ deflation (‘ugly’ i.e. provoked by a fall in demand as well as contributing to this fall in demand)india2
    2. Norbert Häring convincingly argues that the Indian government was pushed by ‘fintech’ and the USA government, with Bill Gates playing an especially important role. And we haven’t seen the end of this. No quotes, soon a separate blogpost.
    3. Zerohedge shows some of the micro consequences. Money is a ‘social contrivance’, as shown by this quote:

      “It was a booming sunrise industry before November 8th. Not now,” said Vipin Malhan, president of the Noida Entrepreneurs Association, who also runs a business that makes cellphone accessories here. “Many small factories and assembling units, which used to work round-the-clock, with three shifts, have scaled down to just a single shift. We are all in shock now. One word that businesses dread is ‘uncertainty.’ The government has thrown that at us.” Several small- and medium-scale industrial clusters, employing a total of more than 80 million people across India, are reporting declining sales, production slowdowns and layoffs since bills worth 500 and 1,000 Indian rupees were invalidated (500 Indian rupees is worth about $7.40). Towns famous for weavers, lockmakers, power looms, bicycle-parts manufacturers, ready-made garments and handicrafts face rising inventories of unsold goods. …Mishra’s office is conducting 50 training sessions every day in small industrial hubs to help residents transition to cashless transactions. But many business owners in these clusters say it is not easy to change because daily wage laborers do not accept checks and do not have smartphones with Internet”

    4. Here, an article by Kavya Sukamar, an Indian woman, about dowries. She and her husband refuse to pay up $ 500.000,– for her (Illegal!) sister-in-law’s dowry. Which will lead to a family crisis. Dowries are paid in cash. If there is no Indian cash, other cash will be used. The point: abolishing Indian currency won’t lead to the abolishment of the evil of dowry and other crimes (a very and intelligent good article but somehow the end of it strikes me as too polished).

Summarizing: the consequences for India are dire, the reasons why India did it are in the best interests of USA fintech.

Austerity, civil society and statistics

February 20, 2017 3 comments

From The lancet

Remarkably, 8 years after the onset of the global financial crisis, the consequences for health are still being debated, even in Greece, the country most severely affected by the economic downturn. There can be few better indications of the low priority accorded to health within governments than the difference between the concerted efforts dedicated to understanding the state of the economy and the apparent scarcity of concern about the health of populations. Economists are still divided about the causes of the crisis and how to respond to it, although many view austerity as a mistake.

There are several possible reasons for this scant discussion of health consequences of the recession. First, health issues rarely attract much political or media attention unless they threaten privileged elites. For example, the emergence of SARS in east Asia posed a clear threat to the global business community and thus an immediate, coordinated response occurred. By contrast, many months passed before the world paid any attention to the emergence of Ebola virus in west Africa. Only in the past decade have global leaders accepted the need to respond to the increased burden of non-communicable diseases in low-income and middle-income countries whereas the horrendous toll of death and disability from road traffic accidents in those countries remains largely unacknowledged.

Second … we still do not have timely data on mortality from many countries. Consequently, although financial data were available within days or weeks of the onset of the financial crisis, several years passed before corresponding mortality data were published. This delay keeps the effect on health from getting onto the political agenda, and reinforces its low priority. Because of the difficulty in obtaining data about what was happening to health in Greece, dismissal of the early signs of a crisis was easy. In 2011, echoing many reports by journalists, we reported what we considered to be “omens of a Greek tragedy”, describing a rising unmet need for health care, increasing suicides, and an HIV outbreak among injecting drug users.Yet others dismissed our concerns, arguing, for example, that “there is no evidence that it has affected health” or that budget cuts were “a positive result of improvements in financial management efficiency”.

.