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Tony Lawson and the nature of heterodox economics

April 11, 2021 Leave a comment

from Lars Syll

Lawson believes that there is a ‘coherent core’ of heterodox economists who employ methods that are consistent with the social ontology they implicitly advance. However, Lawson also acknowledges that many also use mathematical modelling, a method that presupposes a social ontology that is in severe tension with it. Therefore, I repeat, Lawson proposes that heterodox economists in fact exist in two groups, those who use methods consistent with the social ontology they are committed to, and those who do not. But all are heterodox economists.

Lawson’s hope is that by making the kind of social ontology presupposed by mathematical modelling clear, heterodox economists will increasingly review the legitimacy of the modelling approach. However, Lawson still considers those who make such a methodological mistake to be heterodox economists. For they still, he argues, are committed to the social ontology he defends and always reveal it in some way in their analyses or pronouncements … Read more…

U.S. billionaires profit from 10 months of pandemic

April 10, 2021 2 comments

A vaccine summit: Taking the pandemic seriously

April 10, 2021 2 comments

from Dean Baker

You might think that, after a year in which have seen millions of deaths and tens of millions of infections, and trillions of dollars in economic losses, our leaders would take the pandemic seriously. But apparently, that is too much to ask.

To my view, taking the pandemic seriously means doing everything we can to get the whole world vaccinated as quickly as possible. This is not just an issue of being concerned for the poor people in the developing world, who are being left behind in the vaccination race, it is a recognition of the reality that viruses mutate.

We already know about several mutations that are more contagious than the original coronavirus and are at least somewhat more resistant to some of the vaccines that have been developed. If the pandemic is allowed to spread largely unchecked through the developing world for another year or two, then it is virtually certain that we will see many more mutations. Some of these may be even more contagious and deadly, and most importantly, more vaccine-resistant. Read more…

Weekend Read – Stocks are up. Wages are down. What does it mean?

April 10, 2021 5 comments

from Blair Fix

If you listen carefully, you can hear Jeff Bezos getting richer. There’s the sound again. Another billion in Bezos’ coffers.

Let’s put some numbers to this sound of money. Since 2017, Bezos’ net worth has grown by about $4 million per hour — roughly 500,000 times the US minimum wage.1 This accumulation of wealth would be absurd during normal times. Today, as many workers lose their jobs to a brutal pandemic, it’s obscene.

While Bezos is the pinnacle of capitalist excess, his wealth is part of a larger story. Over the last 40 years, stock prices have surged while wages have stagnated. What does this trend mean?

In this post, I take a deep dive into the stock market. I’ll first tell you what the stock market is not. It’s not an indicator of ‘productive capacity’. Nor is it ‘fictitious capital’. So what is it?

The stock market, argue Jonathan Nitzan and Shimshon Bichler, is how capitalists quantify their power. To understand what Nitzan and Bichler are talking about, we’ll unmask the ritual that defines our social order — the ritual of capitalization. Read on to take the red pill and lift the veil of capitalist ideology.

What do stock prices mean?

When it comes to the stock market, many people believe they have original insight. Often, however, they’re parroting old ideas. Noting this tendency, economist John Maynard Keynes wrote: Read more…

Reasoning in economics

April 9, 2021 18 comments

from Lars Syll

Reasoning: Amazon.co.uk: Scriven, Michael: 9780070558823: BooksReasoning is the process whereby we get from old truths to new truths, from the known to the unknown, from the accepted to the debatable … If the reasoning starts on firm ground, and if it is itself sound, then it will lead to a conclusion which we must accept, though previously, perhaps, we had not thought we should. And those are the conditions that a good argument must meet; true premises and a good inference. If either of those conditions is not met, you can’t say whether you’ve got a true conclusion or not.

Mainstream economic theory today is in the story-telling business whereby economic theorists create make-believe analogue models of the target system – usually conceived as the real economic system. This modeling activity is considered useful and essential. Since fully-fledged experiments on a societal scale as a rule are prohibitively expensive, ethically indefensible or unmanageable, economic theorists have to substitute experimenting with something else. To understand and explain relations between different entities in the real economy the predominant strategy is to build models and make things happen in these ‘analogue-economy models’ rather than engineering things happening in real economies. Read more…

More top-heavy than any other OECD country

April 9, 2021 2 comments

The “trickle down” assumption

April 8, 2021 1 comment

from Ted Trainer and current RWER issue

The basic justification for conventional development is that although it mostly enriches the rich, in time “…wealth will trickle down to benefit all.” There is indeed a tendency for this to happen, but there are several reasons for rejecting this strategy.

Little trickles down

In the global economy the amount of benefit that trickles down is evident in the fact that one-fifth of the world’s people now receive about 70 times the amount of income the poorest one-fifth get, and according to a number of studies such as by Hickel (2017) the ratio is getting worse. Edward and Summer (2013) report that between 1990 and 2010 global consumption increased by $10 – $15 trillion, but 1% of people received 15% of it. The gain for each of them was 637 times as much as the gain for the poorest 53% of the world’s people.

The strongest justification for the trickle down strategy is the claim that poverty has been greatly reduced. The conditions large numbers experience have indeed improved greatly, but the situation is complex and the overall effects are debated.  The reduction in global poverty rates seems to have been due mostly to achievements in China (Hickel, 2017). Edward and Summer (2013) find that if Chinese figures are omitted then there has been little if any improvement in global inequality and poverty rates in recent decades. Read more…

World map of COVID-19 deaths per capita by country

April 8, 2021 1 comment

China’s dash for technological leadership

April 7, 2021 2 comments

from C. P. Chandrasekhar and Jayati Ghosh

For quite some time, China was seen as a ‘threat’ by virtue of being a global manufacturing hub, embedding knowledge in production and riding on its cheap labour force and large volumes of foreign investment, to win a disproportionate share of global markets. But more recent declarations from official Western sources focus on the threat stemming either from China’s illegal appropriation or theft of intellectual property, or knowledge for production to move up the value chain, or from China’s misuse of technology (allegedly illustrated by Huawei) for espionage aimed at advancing its increasingly aggressive security interests.

These allegations are founded on one undeniable aspect of China’s manufacturing eco-system: its control by the Chinese state, despite the substantial increase in private ownership of manufacturing equity. But what is inadequately emphasized in this discourse is that, using power centralized in the State, China is managing what was seen in market systems as impossible without “rivalry”—the planned acceleration of research and development, invention and innovation that advances both market and political objectives. Read more…

World map of the Gini coefficients by country.

April 7, 2021 Leave a comment

Financialisation and bureaucracy have perverted higher education

April 6, 2021 2 comments

from Steve Keen and RWER current issue

Steve: Yes, the financialisation of higher education has gone hand in hand with the growth of bureaucracy. More than all of the money raised from student loans has gone into the black hole of administration, so despite the increase in funding, there is less money going to education now than when universities were fully funded by the state. This has also perverted the educational process, for both administrators and students. Whereas administrators used to support the learning and research process, now they direct the fund-raising process; whereas students used to come for an education, they now come for vocational training. Stuck in the middle, academics are harried by performance targets and measurement metrics from above and “I’ve paid for my degree, so give it to me” pressures from below.

When I started as an academic in 1987, my workload was huge (developing a new course from scratch each of my first 3 years, teaching 12 hours a week of classes, plus marking and 6 hours of consultation, plus doing my Masters full-time), but I was spending the bulk of my time doing interesting stuff under my own direction, and small class sizes let me really interact with the students. Now, academics’ time is dominated by performance monitoring and form filling, while classes are unmanageably large, at least in the low-ranked universities where heterodox economists can get a job. It’s counterproductive, soul-destroying, and certainly in the UK, low-paid. I’m glad to be out of the system.

For students, it has meant Read more…

Econometrics and the problem of unjustified assumptions

April 5, 2021 8 comments

from Lars Syll

There seems to be a pervasive human aversion to uncertainty, and one way to reduce feelings of uncertainty is to invest faith in deduction as a sufficient guide to truth. Unfortunately, such faith is as logically unjustified as any religious creed, since a deduction produces certainty about the real world only when its assumptions about the real world are certain …

economUnfortunately, assumption uncertainty reduces the status of deductions and statistical computations to exercises in hypothetical reasoning – they provide best-case scenarios of what we could infer from specific data (which are assumed to have only specific, known problems). Even more unfortunate, however, is that this exercise is deceptive to the extent it ignores or misrepresents available information, and makes hidden assumptions that are unsupported by data …

Econometrics supplies dramatic cautionary examples in which complex modellin​g has failed miserably in important applications …

Sander Greenland

Yes, indeed, econometrics fails miserably over and over again.

One reason why it does, is that Read more…

Weekend Read – The puzzle of western social science

April 3, 2021 10 comments

from Asad Zaman

1         GENERALIZATIONS FROM EUROPEAN HISTORICAL EXPERIENCE?

Introduction: Briefly, we can state the puzzle as: “Why does Social Science claim to be UNIVERSAL, when it is based on analysis of European historical experience?”. Many authors have recognized this problem, which manifests itself in many ways. For example, Timothy Mitchell (2002) writes: “The possibility of social science is based upon taking certain historical experiences of the West as the template for a universal knowledge.” Many other authors have recognized that Western Social Sciences is founded on European historical experience, and requires radical reconstruction. Our goal in this note is mainly to articulate this puzzle. Some suggestions on possible solutions are sketched in the concluding remarks.

Restatement of the Puzzle: Social Science is study of human experience. CAN we generalize from the European experience to universal laws about mankind? Can the tragic European experience of brutal religious warfare between Protestants and Catholics be generalized to all humanity and all religions? Does it hold for the Amish, Buddhists, Confucians? What were the patterns of war and peace within the Islamic Civilization, The Chinese, African, and South American Empires? Without any study or discussion, can we assume that lessons from European experiences will be valid for these societies? Read more…

Free trade and free taxes: How our intellectuals help the rich

April 2, 2021 3 comments

from Dean Baker

Since I came to Washington in 1992, I have been working alongside friends in the policy community, labor movement, and community organizations in fighting against a series of trade pacts. NAFTA was the immediate issue in 1992, but a couple of years later we had the Uruguay Round of the GATT that created the WTO. At the end of the Clinton administration, we had China’s admission to the WTO and then various other smaller pacts.

Those of us who opposed these deals (which were not really about free trade), argued that they would put downward pressure on the wages of manufacturing workers, by putting these workers in direct competition with low-paid workers in the developing world. This mattered in a big way because manufacturing had historically been a source of comparatively good-paying jobs for workers without college degrees. Therefore, using trade to depress the wages of manufacturing workers would lead to downward pressure on the pay of non-college educated workers more generally, thereby increasing inequality. Read more…

The crooked timber of history

April 2, 2021 11 comments

from Peter Radford

I was lucky enough last week to meet a few friends for the first time in person since the pandemic swept all before it.  We are an eclectic group with more than a fair influence of Wall Street.  Given all that is going on, and has gone on since we last met face-to-face, I expected to be drawn into endless political discussions.  But no, we spent a majority of our time talking about how the pandemic has accelerated the current wave of technological change.  At one point someone asked whether there were lessons from the Industrial Revolution that we could apply to where we are now.  Our conversation evolved from there.

Near the end of the introduction to his history of the British experience between 1700 and 1850 Joel Mokyr gives us his abbreviated perspective on the key ingredients of what he calls the “economic game”:

“The economic game is played at two levels: the level of a game against Nature (technology), and a game of interacting with other people (institutions).  Stripped to its barest essentials, the game against nature is not a social game — though in any practical historical situation it was of course mixed up with social elements. Technology is always and everywhere about utilizing natural phenomena and regularities to extract from Nature something she does not willingly give up.  Production involves harnessing these regularities to further human material needs.”

This is on page twelve of a book that then goes on to span nearly another five hundred pages, but the meat of the discussion is all there.  Somehow a combination of technology and institutional evolution created the conditions for the extraordinary acceleration in human well-being we associate with the industrial era now ending. Read more…

The methods economists bring to their research

April 1, 2021 7 comments

from Lars Syll

There are other sleights of hand that cause economists problems. In their quest for statistical “identification” of a causal effect, economists often have to resort to techniques that answer either a narrower or a somewhat different version of the question that motivated the research.

rcResults from randomized social experiments carried out in particular regions of, say, India or Kenya may not apply to other regions or countries. A research design exploiting variation across space may not yield the correct answer to a question that is essentially about changes over time: what happens when a region is hit with a bad harvest. The particular exogenous shock used in the research may not be representative; for example, income shortfalls not caused by water scarcity can have different effects on conflict than rainfall-related shocks.

So, economists’ research can rarely substitute for more complete works of synthesis, which consider a multitude of causes, weigh likely effects, and address spatial and temporal variation of causal mechanisms. Work of this kind is more likely to be undertaken by historians and non-quantitatively oriented social scientists.

Dani Rodrik / Project Syndicate

Nowadays it is widely believed among mainstream economists that the scientific value of randomisation — contrary to other methods — is totally uncontroversial and that randomised experiments are free from bias. When looked at carefully, however, there are in fact few real reasons to share this optimism on the alleged ’experimental turn’ in economics. Strictly seen, randomisation does not guarantee anything. Read more…

Econometrics versus reality

March 31, 2021 10 comments

from Asad Zaman

Underlying Philosophy of Science

Many important structures of the real world are hidden from view. However, as briefly sketched in previous lecture on Ibnul Haytham: First Scientist, current views say that science is only based on observables. Causation is central to statistics and econometrics, but it is not observable. As a result, there is no notation available to describe the relationship of causation between two variables. We will use X => Y as a notation for X causes Y. Roughly speaking, this means that if values of X were to change, then Y would have a tendency to change as a result. This is not observable for two separate reasons. ONE because it is based on a counterfactual. In another world, where the value of X was different from what was actually observed in our current world, this change would exert pressure on Y to change. TWO X exerts an influence on Y, but there are other causal factors which are also involved. Thus Y might not actually change in the expected direction because the effect of X  might be offset by other causal factors which we have not accounted for. For both of these reasons, causality is not directly observable.

Achieving Conceptual Clarity  read more

Quick, how much is $2 trillion?

March 31, 2021 2 comments

from Dean Baker

Okay, it is more money than even Bill Gates, Elon Musk, and Jeff Bezos have, put together. That probably still doesn’t give people too much information, since most people don’t have much familiarity with these folks fortunes. But it might be helpful if the media made some effort to put the proposed spending in President Biden’s infrastructure package in a context that would make it meaningful.

The spending is supposed to take place over eight years, which means that it would be equal to just over 0.8 percent of projected GDP over this period. At $250 billion a year, it comes to about $750 per person each year over this period. It is less than 40 percent of what we are projected to spend on prescription drugs over this period and less than half of the higher prices that we will be paying as a result of government-granted patent and related monopolies. (For some reason, the money transferred to the drug companies and other beneficiaries of these government-granted monopolies never gets called “big government.”)

Anyhow, instead of reporting $2 trillion as some big scary number, often not even telling people the time period involved, it would be helpful if news outlets tried to put the number in contexts that would make it meaningful to their readers. We get that reporting big numbers is a cool fraternity ritual among budget reporters, but making these numbers meaningful is actually supposed to be their job.

Why do economists never mention power?

March 30, 2021 7 comments

from Lars Syll

Trumpian trickle down | LARS P. SYLLThe intransigence of Econ 101 points to a dark side of economics — namely that the absence of power-speak is by design. Could it be that economics describes the world in a way that purposely keeps the workings of power opaque? History suggests that this idea is not so far-fetched …

The key to wielding power successfully is to make control appear legitimate. That requires ideology. Before capitalism, rulers legitimised their power by tying it to divine right. In modern secular societies, however, that’s no longer an option. So rather than brag of their God-like power, modern corporate rulers use a different tactic; they turn to economics — an ideology that simply ignores the realities of power. Safe in this ideological obscurity, corporate rulers wield power that rivals, or even surpasses, the kings of old.

Are economists cognisant of this game? Some may be. Most economists, however, are likely just clever people who are willing to delve into the intricacies of neoclassical theory without ever questioning its core tenets. Meanwhile, with every student who gets hoodwinked by Econ 101, the Rockefellers of the world happily reap the benefits.

Blair Fix

Inflation: who matters?

March 30, 2021 3 comments

from Peter Radford

There are times when you really don’t need to say much.  The facts make the argument for you.  At such times all that matters is that the largest number of people are aware of those facts and that at least some of them speak to the issues raised.

So too is with a small snippet of news I saw this morning.

I came to it via the New York Times.  The original report being in Business Insider.

Apparently Wall Street bonuses have risen 1,217% since 1985.  Quite what the significance of 1985 is I cannot tell, but the number itself seems to have the right feel.  Having seen a few of those years first hand I can attest to the pace of increase from an anecdotal perspective.

More importantly, if we applied the same rate of increase to the minimum wage over a similar period it would stand at $44 per hour and not the current rather pathetic $7.25.

Imagine the hullabaloo were we to advocate bringing the minimum wage into line with the extraordinary levels of largesse Wall Street lavishes upon itself. Read more…