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”.
Ideas Towards a New International Financial Architecture (Wea-Books) Paperback – February 2017
In the short span of a few essays, this book takes the reader on a trip from the historical roots of the current financial architecture to the imaginable futures one can envision for it, only if there is the political will to change it. If we accept that, as put by the editors, financial markets’ marginal imperfections are rather endemic pathologies, the consequences for the financial architecture have Copernican proportions. Every scholar and practitioner interested in the problems posed by the global economy at a critical moment when it has reached what looks like a dead end, will appreciate the refreshing inspiration offered by the authors that a star editing team has put together.
from David Ruccio
The latest Quarterly Report on Household Debt and Credit (pdf) from the New York Fed’s Center for Microeconomic Data showed a substantial increase in aggregate household debt balances in the fourth quarter of 2016 and for the year as a whole. As of 31 December 2016, total household debt stood at $12.58 trillion, an increase of $226 billion (or 1.8 percent) from the third quarter of 2016. Total household debt is now just 0.8 percent ($99 billion) below its third quarter 2008 peak of $12.68 trillion, and 12.8 percent above the second quarter 2013 trough. Read more…
from Lars Syll
If all agents are supposed to have rational expectations, it becomes convenient to assume also that they all have the same expectation and thence tempting to jump to the conclusion that the collective of agents behaves as one. The usual objection to representative agent models has been that it fails to take into account well-documented systematic differences in behaviour between age groups, income classes, etc. In the financial crisis context, however, the objection is rather that these models are blind to the consequences of too many people doing the same thing at the same time, for example, trying to liquidate very similar positions at the same time. Representative agent models are peculiarly subject to fallacies of composition. The representative lemming is not a rational expectations intertemporal optimising creature. But he is responsible for the fat tail problem that macroeconomists have the most reason to care about …
For many years now, the main alternative to Real Business Cycle Theory has been a somewhat loose cluster of models given the label of New Keynesian theory. New Keynesians adhere on the whole to the same DSGE modeling technology as RBC macroeconomists but differ in the extent to which they emphasise inflexibilities of prices or other contract terms as sources of shortterm adjustment problems in the economy. The “New Keynesian” label refers back to the “rigid wages” brand of Keynesian theory of 40 or 50 years ago. Except for this stress on inflexibilities this brand of contemporary macroeconomic theory has basically nothing Keynesian about it.
The obvious objection to this kind of return to an earlier way of thinking about macroeconomic problems is that the major problems that have had to be confronted in the last twenty or so years have originated in the financial markets – and prices in those markets are anything but “inflexible”.
And still mainstream economists seem to be impressed by the ‘rigour’ brought to macroeconomics by New-Classical-New-Keynesian DSGE models and its rational expectations and micrcofoundations! Read more…
from David Ruccio
Mainstream economics presents quite a spectacle these days. It has no real theory of the firm and, even now, more than nine years after the Great Recession began, its most cherished claim to relevance—the use of large-scale forecasting models of the economy that assume people always behave rationally—is still misleading policymakers.
As if that weren’t embarrassing enough, we now have a leading mainstream economist, Havard’s Martin Feldstein, claiming that the “official data on real growth substantially underestimates the rate of growth.”
Mr. Feldstein likes to illustrate his argument about G.D.P. by referring to the widespread use of statins, the cholesterol drugs that have reduced deaths from heart attacks. Between 2000 and 2007, he noted, the death rate from heart disease among those over 65 fell by one-third.
“This was a remarkable contribution to the public’s well-being over a relatively short number of years, and yet this part of the contribution of the new product is not reflected in real output or real growth of G.D.P.,” he said. He estimates — without hard evidence, he is careful to point out — that growth is understated by 2 percent or more a year.
This is not just a technical issue for Feldstein: Read more…
from Lars Syll
Scientific progress … is frequently the result of observation that something does work, which runs far ahead of any understanding of why it works.
Not within the economics profession. There, deductive reasoning based on logical inference from a specific set of a priori deductions is “exactly the right way to do things”. What is absurd is not the use of the deductive method but the claim to exclusivity made for it. This debate is not simply about mathematics versus poetry. Deductive reasoning necessarily draws on mathematics and formal logic: inductive reasoning, based on experience and above all careful observation, will often make use of statistics and mathematics …
The belief that models are not just useful tools but are capable of yielding comprehensive and universal descriptions of the world blinded proponents to realities that had been staring them in the face. That blindness made a big contribution to our present crisis, and conditions our confused responses to it.
The ‘deductivist blindness’ of mainstream economics explains to a larger extent why it contributes to causing economic crises rather than to solving them. But where does this ‘deductivist blindness’ of mainstream economics come from? To answer that question we have to examine the methodology of mainstream economics. Read more…
from Jayati Ghosh
There is a lot of buzz globally around the idea of a Universal Basic Income (or UBI). It is perceived as one way of coping with technology-induced unemployment that is projected to grow significantly in the near future, as well as reducing inequalities and increasing consumption demand in stagnant economies. Certainly there is much to be said for the idea, especially if it is to be achieved by taxing the rich and particularly those activities that are either socially less desirable or are generating larger surpluses because of technological changes.
Indeed, that is precisely the proposal of the French Socialist candidate Benoit Hamon, who just sprang a surprise by topping the first round of the primary race of his party for the Presidential election. Obviously, this idea (which has proved to be more popular even among the young than his other proposal of legalising marijuana) is picking up more supporters across Europe. Elsewhere in the developed world, there have already been pilot projects experimenting with the idea, for example in Finland (but only to around 2000 persons there). The idea has also found expression in several developing countries. In China, there is already a dibao, or minimum livelihood guarantee (set at different levels in urban and rural areas) that adds to the incomes of those categorised as poor, to reach a certain minimum.
Proponents of the UBI see it as a broader, non-targeted provision: a “periodic cash payment unconditionally delivered to all on an individual basis, without means-test or work requirement.” The idea is to ensure that every person in the society has the means to live with a modicum of freedom and dignity, independent of capacity to earn or availability of employment. It is certainly attractive in that, if implemented according to this norm, it would reduce both poverty and inequality. Read more…
from Dean Baker
Ever since Donald Trump was elected there has been a huge backlash among elite-types against those blaming trade for their problems. Major news outlets have been filled with misleading and dishonest stories claiming that the real cause of manufacturing job loss has been automation and that people are stupid to worry about trade.
In fact, people are exactly right to be concerned about the impact of our trade policies on their living standards. It is the fact that people are right that is worrying our elites. Trade is just one of the areas in which politicians of both parties have promoted policies to redistribute income upward. It just happens to be the area in which the impact is most recognizable and therefore people have mounted an effective resistance.
The story with trade is simple. When a manufacturing worker in the US is placed in direct competition with a worker in Mexico, China or some other developing country, who earns one-tenth of their pay, it puts downward pressure on their wages. Either their jobs go away or they are forced to take substantial pay cuts to keep their job.
This competition has cost a huge number of manufacturing jobs in this century. It has also put downward pressure directly on the wages of manufacturing workers and indirectly on the wages of less-educated workers more generally, as displaced manufacturing workers sought jobs in other sectors.
Elite media types have tried to deny these facts by claiming that the source of job loss is automation (i.e. productivity growth), not trade. This claim deserves to be met with the same sort of derision as the claims of climate change deniers.
from David Ruccio
Apparently, the latest attempt to redefine the role of economists is to encourage them to be plumbers.
Maybe it’s just my age but, when I read plumbers, I immediately think of the covert Special Investigations Unit in the Nixon White House—the operation that began with attempting to stop the leak of classified information (such as the Pentagon Papers) and then branched into illegal activities while working for the Committee to Re-elect the President (including the Watergate break-in).
I don’t think that’s what MIT economist Esther Duflo (pdf) had in mind when, in her Ely Lecture to the American Economic Association meeting last month, she suggested that economists seriously engage with plumbing, “in the interest of both society and our discipline.”
As economists increasingly help governments design new policies and regulations, they take on an added responsibility to engage with the details of policy making and, in doing so, to adopt the mindset of a plumber. Plumbers try to predict as well as possible what may work in the real world, mindful that tinkering and adjusting will be necessary since our models gives us very little theoretical guidance on what (and how) details will matter.
I’ll admit, I have a lot of respect for plumbers (especially when they’re able to fix the mess I’ve made trying to repair an existing fixture or install a new one). And I do think anyone involved in designing new policies and regulations should learn more about how they are actually implemented. Read more…
from Peter Radford
There I said it.
There comes a point when we all have to stop banging our heads against the wall and just step back. Why, we ask in such moments, are we wasting our time? The wall is immoveable. It is indifferent to our efforts. It is solid. It has the appearance of permanence. It just won’t shift.
So walk away.
Do something else.
In the case of economics go and study the economy instead.
Too many people are wasting far too much time talking about economists as if they study the economy. They don’t. They really and truly don’t. They live in a post-fact world. Indeed before it became fashionable to toss that phrase around — Trump and his regime pretty much define “post-fact” — economists had been steadfastly denying fact, ignoring reality, and living in a wonderland of their own creation.
Economists study economics. And economics is not the economy. It is a self-contained set of ideas, models, theories, mathematical intricacies, and axioms, that are designed to provide exciting intellectual sport for those so inclined to busy themselves with such activity. It is carefully constructed to look as if it touches reality. It still contains words that make it look as if it relates to reality. Economists intone cogently about real-world topics. And economists fill all the key policy positions that relate to steering, regulating, and measuring the economy.
But that’s all illusion. Read more…
I’m working a bit on (multi-factor) productivity at the moment. Part of this endeavour is taking a hard look at the details which, in my case, means taking a hard look at the productivity of cows (over the long haul). How did farmers, studbooks, veterinarians, (cooperative) factories and the government together manage to increase the productivity of cows? This is not just about the fat content of milk and yields per cow but also about quality improvement, which I operationalize as the eradication of bovine tuberculosis and therewith a better quality of (tbc free) milk. Should such a quality improvement be incorporated into our metric of productivity? Anyway, I found the next interesting quotes about tbc vaccine on Wikipedia:
The BCG vaccine was first used medically in 1921. It is on the World Health Organization’s List of Essential Medicines, the most effective and safe medicines needed in a health system Between 2011 and 2014 the wholesale price was $0.16 to $1.11 USD a dose in the developing world In the United States it costs $100 to $200 USD As of 2004 the vaccine is given to about 100 million children per year globally ..
Global demand increases, but there are problems with production:
In the fall of 2011 the Sanofi Pasteur plant flooded causing problems with mold. The facility, located in Toronto, Ontario, Canada, produced BCG vaccine products, made with substrain Connaught, such as a tuberculosis vaccine ImmuCYST, a BCG Immunotherapeutic -a bladder cancer drug. By April 2012 the FDA had found dozens of documented problems with sterility at the plant including mold, nesting birds and rusted electrical conduits The resulting closure of the plant for over two years resulting in shortages of bladder cancer and tuberculosis vaccines. On October 29, 2014 Health Canada gave the permission for Sanofi to resume production of BCG.
According to the most recent updates, the Oroville dam in California (the highest dam in the USA) might be on the point of collapsing (more precisely: the emergency overflow might collapse). According to Piet Dircke, an engineer of Arcadis (which since 2010 is involved with Californian watermanagement in the San Fransisco-Stockton-Sacramento triangle) there is one overriding reason why this might happen: failing maintenance maintenance. “The overflow should have been replaced 10 years ago. This has not happened because of budgettary reasons“. And yes, people had warned, official reports and all. Do I have to remind anyone that, according to modern neoclassical theory, government investments (including maintenance) are wasteful by definition?
- Lina Kahn wrote an excellent totally Veblenian analysis of Amazone and anti-trust policies. Or: why Chicago style price based anti-trust analysis does not work and we have to look at the nature and structure of the brave new internet markets.
- “Journal of Economic Issues: 50th Anniversary Editor’s Choice Collection”. Until 10 march: ungated. Quite a bit about the nature and structure of markets.
- According to the ECB their QE policy was an astounding success. It got Southern European company and household interest rates down. In my view: this kept the Euro afloat. In the meanwhile government interest rates also declined: win-win.
- M2 is a metric of the amount of money in circulation (the ECB uses M3, a slightly less restrictive metric). Does an increase in M2 money cause inflation? Richard Vague made even my jaw drop: “Cases 5 and 6 underscore the lack of a causal relationship between rapid M2 growth and high inflation, because when we increase the threshold of nominal M2 growth to from 60 percent in five years to 200 percent in five years, it is followed by high inflation even less frequently than in Cases 3 and 4. This is, of course, the opposite of what one would expect if high M2 growth causes high inflation”. Especially surprising: many bouts of high consumer price inflation took place without any kind of fast increase of the amount of money in circulation.
- For the nerds: how did Keynes cope with data about real and nominal wages which did not fit his prediction. At the end of the linked article one can find the original, pretty good, articles from the thirties which presented the results of an investigation of the relation between real wages and money wages suggested by Keynes.
from Lars Syll
There was an unusual degree of consensus among economists about what would happen if Britain voted for Brexit in the referendum on June 23 last year. The language used by the International Monetary Fund was typical: It expressed fears of an “abrupt reaction,” adding that this “may have already begun” …
What happened instead was that Britain enjoyed the best growth of any major advanced economy in 2016 … Andy Haldane compared the pitfalls of economic prediction to the single most famously wrong weather forecast in British history, made on the BBC on Oct. 15, 1987. A woman had called the BBC to say she was worried there was a hurricane on the way. “Don’t worry, there isn’t,” the weatherman responded. That night, 22 people died amid hurricane-force winds …
The reason this poses a deep intellectual crisis for macro-economics is that the entire point of the field, as it has developed since the work of John Maynard Keynes in the 1930s, is to prevent just this sort of severe downturn. Keynes once spoke of a future in which economists would be “humble, competent people on a level with dentists” … It seems to me, though, that what macroeconomists do is really most like bomb disposal. Uniquely in the social sciences and humanities, macroeconomics was developed with a specific, real-world purpose, and a negative purpose to boot: to stop anything like the Great Depression from ever happening again. Given this goal — to avert systemic crises and downturns — the credit crunch and the Great Recession were, for macroeconomics, an intellectual disaster. Read more…
from David Ruccio
It is extraordinary that the hegemonic economic theory in the world today—neoclassical economics—still lacks an adequate theory of the firm.
It beggars belief both because neoclassical economics is the predominant theory that is taught to hundreds of thousands of students every year and used to make sense of the world and formulate policy in countless think thanks and government agencies and because the firm (or enterprise or corporation) is one of the central institutions of capitalism. It’s where many (but of course not all) goods and services are produced, value and surplus-value are created, and profits generated for capitalists.
And yet the neoclassical notion of the firm, even when developed by Nobel Prize-winning economists (such as Oliver Hart and Bengt Holmstrom), is not much more than an empty box—without any real history and, as it turns out, without any links to politics.
Daniel Carpenter, the Allie S. Freed Professor of Government in the Faculty of Arts and Sciences and Director of Social Sciences at the Radcliffe Institute for Advanced Study at Harvard University, certainly thinks that’s a problem in terms of making sense of how firms came to be constituted historically and what their effects are on contemporary society. Read more…
from Mark Weisbrot
President Trump is unlikely to fulfill his dream of forcing Mexico to pay for his proposed wall along the United States’ southern border. If it is built, it would almost certainly be US taxpayers footing the bill, with some estimates as high as $50 billion. But it’s worth taking a step back to look at the economics of US-Mexican relations, to see how immigration from Mexico even became an issue in US politics that someone like Trump could try to use to his advantage.
NAFTA (the North American Free Trade Agreement) is a good starting point. While it has finally become more widely recognized that such misleadingly labelled “free trade” agreements have hurt millions of US workers, it is still common among both liberal and right-wing commentators to assume that NAFTA has been good for Mexico. This assumption is forcefully contradicted by the facts.
If we look at the most basic measure of economic progress, the growth of GDP, or income, per person, Mexico ranks fifteenth out of 20 Latin American countries since it joined NAFTA in 1994. Other measures show an even sadder picture. According to Mexico’s latest national statistics, the poverty rate in 2014 was 55.1 percent ― actually higher than the 52.4 rate in 1994. Read more…
from Lars Syll
The 2017 OECD Economic Survey of Sweden — presented today in Stockholm by OECD Secretary-General Angel Gurría and Sweden’s Minister of Finance Magdalena Andersson — points out that income inequality in Sweden has been rising since the 1990s.
from Peter Radford
While I was checking the inner debates the Republicans are having about health care I came across this quote [in an article written by Tierney Sneed in TPM] from Representative David Brat, an extreme right winger:
“When it comes to how much you want to park in the HSAs for providing catastrophic care, that, when it comes, to the safety net, we have to find the Milton Friedman way of doing that,” Brat said. “The Price bill would do tax credits. I am not a fan of those because it keeps the federal government in the center of that.”
My heart sank.
Milton Friedman? Really.
His version of economics is simply an ideology cloaked in clever language. And it is profoundly anti-democratic.
Friedman’s stalwart libertarianism led him to develop an economics that started, unscientifically, with a built-in bias against communal action. This meant that anything the government did was, a priori, damaging to the magic that Friedman was desperate to ascribe to the workings of something he, and most economists, call markets.
Markets, you see, are wonderlands that always and inevitably lead to efficient outcomes. And it is no good any starry eyed liberal tinkering with those outcomes. They are magically correct. By correct we mean that they cannot be improved upon. Economists have this vice like attachment to certain core beliefs. One of those is that, if left unfettered, markets will zero in on an allocation of stuff that can never be improved, especially by meddlesome governments. Read more…
from David Ruccio
The U.S. economic pie couldn’t be carved up much more unequally. The top 10 percent manages to capture about 47 percent of total pre-tax income, while the bottom 90 gets the rest. The top 1 percent alone walks away with 20 percent of national income. Read more…
from today’s Guardian
In the autumn of 2011, as the world’s financial system lurched from crash to crisis, the authors of this book began, as undergraduates, to study economics. While their lectures took place at the University of Manchester the eurozone was in flames. The students’ first term would last longer than the Greek government. Banks across the west were still on life support. And David Cameron was imposing on Britons year on year of swingeing spending cuts.