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The fall of the US middle class

March 23, 2017 2 comments

from Steven Pressman and RWER no. 78

According to Thomas Piketty (2014), between 1980 and 2010 the share of total US income going to the top 10% of earners rose from around 30-35%, where it stood for several decades, to nearly 50%. These are very conservative estimates. Piketty’s figures come from the distribution of adjusted gross income (AGI), reported by the US Internal Revenue Service. AGI subtracts from income things like investment losses, retirement account contributions and their returns (see Pressman 2015, Chapter 2). With large adjustments, someone can make a lot of money but have little AGI; or, as in the case of Donald Trump, you can report a negative AGI of nearly $1 billion. In addition, tax-free income (such as unrealized capital gains and interest on municipal bonds), as well as returns on money hidden in tax havens, are not reported to the IRS and do not appear in AGI. Like the adjustments helping Trump avoid taxes, this income mainly goes to the wealthy and has been growing for several decades (Zucman, 2015).

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).

Read more…

Trumponomics: causes and consequences – Part I – RWER issue no. 78

March 22, 2017 1 comment

download whole issue

Preface          download pdf

Trumponomics: everything to fear including fear itself?          3
Jamie Morgan          download pdf                                                                           

Can Trump overcome secular stagnation?          20
James K. Galbraith            download pdf                             

Trump through a Polanyi lens: considering community well-being          28
Anne Mayhew            download pdf                                                                                    

Trump is Obama’s legacy. Will this break up the Democratic Party?          36
Michael Hudson          download pdf

Causes and consequences of President Donald Trump          44
Ann Pettifor               download pdf                                

Explaining the rise of Donald Trump          54
Marshall Auerback          download pdf 

Class and Trumponomics          62
David F. Ruccio          download pdf 

Trump’s Growthism: its roots in neoclassical economic theory          86
Herman Daly          download pdf 

Trumponomics: causes and prospects          98
L. Randall Wray          download pdf 

The fall of the US middle class and the hair-raising ascent of Donald Trump
Steven Pressman          download pdf          112

Mourning in America: the corporate/government/media complex          125
Neva Goodwin          download pdf 

How the Donald can save America from capital despotism          132
Stephen T. Ziliak          download pdf 

Prolegomenon to a defense of the City of Gold          141
David A. Westbrook          download pdf 

Trump’s bait and switch: job creation in the midst of welfare state sabotage
Pavlina R. Tcherneva           download pdf          148

Can ‘Trumponomics’ extend the recovery?          159
Stephanie Kelton           download pdf 

Board of Editors, past contributors, submissions and etc.          173

We’re #1!

March 22, 2017 4 comments

from David Ruccio

wealth

According to calculations by Kenneth Thomas (based on data in the latest Credit Suisse Global Wealth Report), the United States has the most unequal distribution of wealth of any rich nation.   Read more…

To be a good economist one cannot only be an economist

March 21, 2017 8 comments

from Lars Syll

The master-economist must possess a rare combination of gifts …. He must be mathematician, historian, statesman, philosopher—in some degree. He must understand symbols and speak in words. He must contemplate the particular, in terms of the general, and touch abstract and concrete in the same flight of thought. He must study the present in the light of the past for the purposes of the future. No part of man’s nature or his institutions must be entirely outside his regard. He must be purposeful and disinterested in a simultaneous mood, as aloof and incorruptible as an artist, yet sometimes as near to earth as a politician.

John Maynard Keynes

Economics students today are complaining more and more about the way economics is taught. The lack of fundamantal diversity — not just path-dependent elaborations of the mainstream canon — and narrowing of the curriculum, dissatisfy econ students all over the world. The frustrating lack of real world relevance has led many of them to demand the discipline to start develop a more open and pluralistic theoretical and methodological attitude.  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).

Dual economies and the vanishing middle-class

March 21, 2017 3 comments

from David Ruccio

Both Peter Temin and I are concerned about the vanishing middle-class and the desperate plight of most American workers. We even use similar statistics, such as the growing gap between productivity and workers’ wages and the share of income captured by the top 1 percent.

productivity  Read more…

Why Krugman and Stiglitz are no real alternatives to mainstream economics

March 20, 2017 9 comments

from Lars Syll

verso_978-1-781683026_never_let_a_serious_crisis__pb_edition__large_300_cmyk-dc185356d27351d710223aefe6ffad0cLittle in the discipline has changed in the wake of the crisis. Mirowski thinks that this is at least in part a result of the impotence of the loyal opposition — those economists such as Joseph Stiglitz or Paul Krugman who attempt to oppose the more viciously neoliberal articulations of economic theory from within the camp of neoclassical economics. Though Krugman and Stiglitz have attacked concepts like the efficient markets hypothesis … Mirowski argues that their attempt to do so while retaining the basic theoretical architecture of neoclassicism has rendered them doubly ineffective.

First, their adoption of the battery of assumptions that accompany most neoclassical theorizing — about representative agents, treating information like any other commodity, and so on — make it nearly impossible to conclusively rebut arguments like the efficient markets hypothesis. Instead, they end up tinkering with it, introducing a nuance here or a qualification there … Stiglitz’s and Krugman’s arguments, while receiving circulation through the popular press, utterly fail to transform the discipline.

Paul Heideman

Despite all their radical rhetoric, Krugman and Stiglitz are — where it really counts — nothing but die-hard mainstream neoclassical economists. Just like Milton Friedman, Robert Lucas or Greg Mankiw.

Read more…

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?

Neoliberalism and mainstream economics

March 19, 2017 2 comments

from Lars Syll

Oxford professor Simon Wren-Lewis isn’t pleased with heterodox attacks on mainstream economics. One of the reasons is that he doesn’t share the heterodox view that mainstream economics and neoliberal ideas are highly linked.

In a post on his blog, Wren-Lewis defends the mainstream economics establishment against critique waged against it by Phil Mirowski:

Mirowski overestimates the extent to which neoliberal ideas have become “embedded in economic theory”, and underestimates the power that economic theory and evidence can have over even those academic economists who might have a neoliberal disposition. If the tide of neoliberal thought is going to be turned back, economics is going to be important in making that happen.

Wren-Lewis admits that “Philip Mirowski is a historian who has written a great deal about both the history of economics as a discipline and about neoliberalism” and that Mirowski “knows much more about the history of both subjects than I [W-L] do.”

632488Fair enough, but there are simple remedies for the lack of knowledge.

Read this essay, where yours truly try to further analyze — much inspired by the works of Amartya Sen — what kind of philosophical-ideological-political-economic doctrine neoliberalism is, and why it so often comes natural for mainstream economists to embrace neoliberal ideals.

Or maybe — if your Swedish isn’t too rusty … — you could take part of the book-length argumentation in Den dystra vetenskapen (‘The Dismal Science,’ Atlas 2001) for why there has been such a deep and long-standing connection between the dismal science and different varieties of neoliberalism.

USA life expectancy vs. health expenditure 1970-2014 compared to other OECD nations

March 18, 2017 2 comments

from David Ruccio

ftotHealthExp_pC_USD_long-2

It is likely, if some version of Trump/Ryancare is approved in the United States, millions more people will not be able to purchase the insurance necessary to receive adequate healthcare.   Read more…

Budget Topline

March 17, 2017 1 comment

from Peter Radford

We all ought calm down about the Trump budget. Presidential budgets never, ever, get put into practice. They are simply exercises in politics. They simply give us insight into presidential goals.

In Trump’s case there is nothing that we didn’t already know. He wants to slash domestic programs, especially those niggling ones that offend his far right fans, and pile on the offensive weaponry for the Pentagon.

As I said: no big surprise.

Here’s a very short synopsis of the bigger items:

  1. The Environmental Protection Agency takes a really big hit — a 31% cut in spending. Many of its key programs would simply be axed. They range from any and all research into climate change to the very popular Energy Star program that rates energy using products and so gives consumers insight into their probable energy bills. Ironically one program that might survive is the greenhouse emissions monitoring program which is a mandate by Congress so getting rid of it would imply legislation unlikely to pass. So the EPA might still monitor greenhouse gases. It just would n’t be able to do anything about them.
  2. The Energy Department gets hammered too with an almost 18% cut. The biggest target at DOE is its research programs designed to help accelerate the country’s move from a carbon based energy supply to alternative sources. Right wingers have constantly complained about the DOE dabbling in applied rather than pure early stage research. Evidently Trump agrees.
  3. The State Department also gets a beating, especially anything to do with climate change. The cuts don’t indicate that the US is quitting the Paris climate agreement of 2015, but it sure looks as if that is in the cards. The cuts also include anything to do with UN based climate initiatives. Indeed the UN is a heavy target with the US contribution to peace keeping in the cross hairs. State is having its “soft power” capacity severely trimmed. These are the kinds of programs both the hard right and Russia particularly dislike. They are programs that allow the US to project a softer, gentler image to the world and are meant to take the edge off the militaristic image all those wars project. Apparently Trump doesn’t care about the US image. His generals do: they love soft power because it makes their lives easier out in the war zones.
  4. NASA gets its climate watching programs axed or drastically cut.
  5. The National Oceanic and Atmospheric Administration is likewise gutted.

Read more…

Solving the fundamental problem of decision theory (wonkish)

March 17, 2017 Leave a comment

from Lars Syll

Currently the dominant formalism for treating the [general gamble] problem is utility theory. Utility theory was born out of the failure of the following behavioral null model: individuals were assumed to optimize changes in the expectation values of their wealth. We argue that this null model is a priori a bad starting point because the expectation value of wealth does not generally reflect what happens over time. We propose a different null model of human behavior that eliminates, in many cases, the need for utility theory: an individual optimizes what happens to his wealth as time passes …

Our method starts by recognizing the inevitable non- ergodicity of stochastic growth processes, e.g. noisy multiplicative growth. The specific stochastic process implies a set of meaningful observables with ergodic properties, e.g. the exponential growth rate. These observables make use of a mapping that in the tradition of economics is viewed as a psychological utility function, e.g. the logarithm …

The dynamic approach to the gamble problem makes sense of risk aversion as optimal behavior for a given dynamic and level of wealth, implying a different concept of rationality. Maximizing expectation values of observables that do not have the ergodic property … cannot be considered rational for an individual. Instead, it is more useful to consider rational the optimization of time-average performance, or of expectation values of appropriate ergodic observables. We note that where optimization is used in science, the deep insight is finding the right object to optimize … The same is true in the present case  — deep insight is gained by finding the right object to optimize — we suggest time-average growth.

Ole Peters & Murray Gell-Mann

Although the expected utility theory is obviously both theoretically and descriptively inadequate, colleagues in economics, game theory and decision theory, gladly continue to use it, as though its deficiencies were unknown or unheard of.   Read more…

The Wrongest Profession

March 16, 2017 2 comments

from Dean Baker

Over the past two decades, the economics profession has compiled an impressive track record of getting almost all the big calls wrong. In the mid-1990s, all the great minds in the field agreed that the unemployment rate could not fall much below 6 percent without triggering spiraling inflation. It turns out that the unemployment rate could fall to 4 percent as a year-round average in 2000, with no visible uptick in the inflation rate. As the stock bubble that drove the late 1990s boom was already collapsing, leading lights in Washington were debating whether we risked paying off the national debt too quickly. The recession following the collapse of the stock bubble took care of this problem, as the gigantic projected surpluses quickly turned to deficits. The labor market pain from the collapse of this bubble was both unpredicted and largely overlooked, even in retrospect. While the recession officially ended in November 2001, we didn’t start creating jobs again until the fall of 2003. And we didn’t get back the jobs we lost in the downturn until January 2005. At the time, it was the longest period without net job creation since the Great Depression.

When the labor market did finally begin to recover, it was on the back of the housing bubble. Even though the evidence of a bubble in the housing sector was plainly visible, as were the junk loans that fueled it, folks like me who warned of an impending housing collapse were laughed at for not appreciating the wonders of modern finance. After the bubble burst and the financial crisis shook the banking system to its foundations, the great minds of the profession were near unanimous in predicting a robust recovery. Stimulus was at best an accelerant for the impatient, most mainstream economists agreed — not an essential ingredient of a lasting recovery.   Read more…

Understanding economic development and demolishing neoliberal development myths

March 16, 2017 Leave a comment

from Erik Reinert, Jayati Ghosh and Rainer Kattel and WEA Commentaries

We have recently co-edited a book (The Handbook of Alternative Theories of Economic Development, Edward Elgar 2016, also available as an e-book on http://www.ebooks.com/95628740/handbook-of-alternative-theories-of-economic-development/reinert-erik-s-ghosh-jayati-kattel-rainer/) that seeks to bring back the richness of development economics through many different theories that have contributed over the ages to an understanding of material progress. The underlying approach is based on this quotation from nearly four centuries ago: “There is a startling difference between the life of men in the most civilised province of Europe, and in the wildest and most barbarous districts of New India. This difference comes not from the soil, not from climate, not from race, but from the arts.” (Francis Bacon, Novum Organum, 1620)

For centuries, economics was at its very core an art, a practice and a science devoted to ‘economic development’, albeit under a variety of labels: from an idealistic promotion of ‘public happiness’ to the nationalistic creation of wealth and greatness of nations and rulers, and the winning of wars. In some sense, until about 100 years ago, most economists were ‘development economists’. But during the process of formalization of economics into neoclassical economics in the post-World War II period, development economics slowly disappeared from the economic mainstream. ‘Where are their models?’ was one famous battle cry. For example, Jacob Viner made a key contribution to the demise of development economics by removing a fundamental force of uneven development – increasing returns – from international trade theory, on the account that it was not compatible with equilibrium. What would have been more logical would have been to remove equilibrium from economic theory because it is not compatible with an analysis of the real world. Economists’ choice of tools came to trump their interest in reality. Equilibrium became virtually the only game in town.  read more

 

Tale of two depressions

March 15, 2017 3 comments

from David Ruccio

Men Waiting Outside Al Capone Soup Kitchen JNS.FoodGiveaway2

One of the courses I’m offering this semester is A Tale of Two Depressions, cotaught with one of my colleagues, Ben Giamo, from American Studies. It’s a comparison of the conditions and consequences of the two major crises of capitalism during the past hundred years, the 1930s and the period after the crash of 2007-08.*

It just so happens the Guardian is also right now revisiting the 1930s. Readers will find lots of interesting material, from some evocative street photography from the period (including bread lines, hunger marches, and various protests) to classics of political theater (from Bertolt Brecht and Federico García Lorca to John Dos Passos and Clifford Odets).

I’ve been writing about the Second Great Depression, in mostly economic terms, since 2010. For the Guardian, the idea is that the situation then, in the 1930s, offers lessons for us today—partly for economic reasons but, increasingly, given the victory of Donald Trump and the growth of other right-wing populist-nationalist movements in Europe, in political terms.  Read more…

Has economics really become an empirical science?

March 15, 2017 1 comment

from Lars Syll

As I see it, a rational predictor should use a combination of theory and empirics. But theory should also be informed by data – there are lots of theories, and in general they can’t all apply to the same situation, so you need evidence to tell you which one(s) to use. So a rational predictor’s predictions should always be tied as closely as possible to empirical evidence. Discounting empirical evidence … seems inevitably to lead to the use of casual intuition (or to even worse things, like pure ideology).

George-Akerlof-Quotes-3Anyway, just in case you were curious, Seattle went ahead and hiked the minimum wage, and whether you measure by stylized facts or carefully controlled empirical studies, any negative effect on employment was small or zero. Of course, if you want, you can say that the empirical studies weren’t controlled well enough, and the stylized facts are illusions, and the minimum wage hike must have hurt employment because government intervention always hurts employment la la la I can’t hear you, but if you say that, who’s going to respect you intellectually?

Noah Smith

Yes, indeed, who would respect such a person ‘intellectually’?  Read more…

The scorekeeper speaks

March 14, 2017 6 comments

from Peter Radford

The Congressional Budget Office is the latest victim of the intensity of Washington politics. The CBO is the organization we rely on to “score” legislation so that Congress and the White House know roughly what impact their policies will have on the country. As you can imagine being the CBO during times such as these when alternative facts have become the primary way of explaining things is perilous. Worse: being the CBO when one party wants to cram through some legislation  that is already known to be a doozy is more than perilous.

So it is with Trumpcare.

Up until today we were just guessing at how awful the Republican healthcare reform plan is. Now we know. The CBO issued its report today. There isn’t much to say other than this:  Read more…

Behavioral vs Neoclassical Economics

March 14, 2017 Leave a comment

from Asad Zaman

In my paper entitled “Empirical Evidence Against Neoclassical Utility Theory: A Survey of the Literature,” I have argued that neoclassical utility theory acts as a blindfold, which prevents economists from understanding simple realities of human behavior. The paper provides many examples of this phenomenon, which I will illustrate briefly with one simple example in this post.

Consider the two player Ultimatum Game. The Proposer (P) has ten dollars in single dollar bills. He makes an offer of $m to the Responder (R), which allows him to keep $(10-m). The responder can either Accept or Reject. If Responder Accepts than P get $10-m, and R get $m as proposed; it is convenient to denote this outcome as (P:10-m,R:m). If Responder Rejects, then both get $0: (P:0,R:0)

Here are four predictions made by Game Theory, based on utility maximization behavior.

  1. Responder will be indifferent between the two choices Accept and Reject if he is offered $0.
  2. Responder will Accept an offer of $1, resulting in outcome (P:9, R:1). R prefers 1 to 0.
  3. Proposer believes that Responder is a Utility Maximizer; that is, he will behave in accordance with propositions 1 & 2 above.
  4. Proposer will therefore offer $1, as it maximizes his share at $9. If he offers $0, the outcome is uncertain because both responses A and R are possible maximizing responses, which is why an offer of $1 is the unique utility maximizing offer.

All four of these propositions are false. Furthermore, every layman will . . .  read more

Changing the story to hide the problem

March 13, 2017 5 comments

from David Ruccio

wage share

It’s obvious to anyone who looks at the numbers that the wage share of national income is historically low. And it’s been falling for decades now, since 1970.

Before that, during the short Golden Age of U.S. capitalism, the presumption was that the share of national income going to labor was and would remain relatively stable, hovering around 50 percent. But then it started to fall, and now (as of 2015) stands at 43 percent.

Read more…