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Chicago economics — in praise of superficiality

April 2, 2020 Leave a comment

from Lars Syll

igTo observe that economics is based on a superficial view of individual and social behaviour does not seem to me to be much of an insight. I think it is exactly this superficiality that gives economics much of the power that it has. Its ability to predict human behaviour without knowing very much about the make up and lives of the people whose behaviour we are trying to understand.

Robert Lucas

The purported strength of Chicago — New Classical — macroeconomics is that it has firm anchorage in preference-based microeconomics, and especially that the decisions are taken by inter-temporal utility maximizing ‘forward-looking’ individuals.

To some of us, however, this has come at too high a price. The almost quasi-religious insistence that macroeconomics has to have microfoundations — without ever presenting neither ontological nor epistemological justifications for this claim — has put a blind eye to the weakness of the whole enterprise of trying to depict a complex economy based on an all-embracing representative actor equipped with superhuman knowledge, forecasting abilities and forward-looking rational expectations.

That anyone should take that kind of stuff seriously is totally and unbelievably ridiculous. Or as Robert Solow has it: Read more…

Daily death tolls

April 2, 2020 2 comments

The shape of the recovery: Those who tell don’t know

April 1, 2020 4 comments

from Dean Baker

There have been a number of pieces in major news outlets telling us what the recovery will look like from this recession. Most have been pretty negative. The important thing to know about these forecasts is that the people making these forecasts don’t have a clue what they are talking about.

The shape of recovery will depend first and foremost on the extent to which the coronavirus is contained or is treatable, areas in which most of our prognosticators have zero expertise. I can think of a scenario in which we have a very robust recovery.

Suppose that in three months we have developed treatments to the point that the disease is not much more deadly than the standard u. In that case, we would look to restart the economy while trying to protect the most vulnerable segments of the population. Read more…

Common sense economics

April 1, 2020 3 comments

from David Ruccio

In the United States and around the world, governments are responding to the twin pandemics—of novel coronavirus and escalating unemployment—with massive bailouts. Not unlike what happened more than a decade ago, after the global crash of 2007-08.

But there seems to be something different this time around—not only because of the speed of both the viral contamination and the economic meltdown, but also as a reaction to the terms of the bailout that was enacted in the midst of the Second Great Depression.

Here, for example, is 

During the last crisis, the global financial catastrophe of 2008, the authorities protected corporate interests above those of ordinary people, many economists assert. Britain and the European Union bailed out financial institutions, then recovered the costs by hacking away at public services, effectively punishing laborers and taxpayers for the sins of wealthy bankers.

Just like that, with no apparent controversy, he drops in the idea that, after the last major crash, those in charge sought to safeguard corporations and neglect the interests of “ordinary people.” That was certainly the stance, in the United States, of groups like the Tea Party and Occupy Wall Street but Goodman now asserts it as a commonly held view, with a gesture to authority (“many economists assert”). Read more…

Covid-19 and the magic money tree

March 31, 2020 1 comment

from Lars Syll

What will be the lasting effects of the covid-19 pandemic? Start with the size of the state. Over the next year government debt will rise sharply, as spending jumps and tax revenues collapse. When the economy recovers, attention will turn to paying it down. “Capital and Ideology”, a new book by Thomas Piketty, shows that after the first and second world wars many governments in the West turned to heavier taxation of the incomes and wealth of the richest to achieve that goal …

treeCentral banks’ innovations will also have lasting consequences. Few economists believe that the explicit co-operation between the fiscal and monetary authorities risks creating runaway inflation … However, just as the use of quantitative easing in 2008-09 opened the door to more of the same down the road, it will become harder to make the argument that the “magic money tree” does not exist … If central banks promised to fund the government during the coronavirus pandemic, they might ask, then why shouldn’t they also fund it to launch an expensive war against a foreign enemy or to invest in a Green New Deal? Read more…

Coronavirus: upward trajectory or flattened curve?

March 31, 2020 1 comment

Here we go

March 30, 2020 3 comments

from Peter Radford

We all thought that this morning’s announcement of the new claims for jobless insurance would be shocking.  The usual scuttle in the financial markets had been that we might see numbers well over 2,000,000, but the actual number soared even beyond that.  At 3,283,000 it is difficult to articulate what this means.  To put it in some sort of perspective, the previous week had seen 282,000 new claims, and the previous all-time record high of 695,000 had been set back in the recession of 1982.

So to say we are in unprecedented territory is something of an understatement.

And yet:

Even as Congress struggles to come to grips with its responsibility there are rumblings of dissent.  The $2 trillion bailout package voted through the Senate yesterday includes a strong addition to unemployment insurance and even extends that insurance to people who work in the so-called “gig” economy.  Gig workers had previously not been qualified for unemployment insurance.  That additional help for the unemployed has drawn a typical right wing Chicago School type of reaction.  Some Senators, including Lindsey Graham and Ben Sasse, are objecting to the  provisions in the legislation that define the new benefits, on the basis that they create disincentives to work.  This is a quote from a Vox article this morning by Li Zhou: Read more…

Historic surge in US unemployment claims – 3.28m

March 30, 2020 1 comment

Country by country coronavirus case trajectories graph – 29/03, 19:00 GMT

March 30, 2020 5 comments

Coronavirus and the “replication crisis” in social science

March 30, 2020 2 comments

from an article by Nassim Nicholas Taleb and Yaneer Bar-Yam in yesterday’s Guardian

Dominic Cummings [Chief Adviser to UK Prime Minister Boris Johnson] loves to
theorise about complexity, but he’s getting it all wrong.

. . . The error in the UK is on two levels. Modelling and policymaking.

First, at the modelling level, the government relied at all stages on epidemiological models that were designed to show us roughly what happens when a preselected set of actions are made, and not what we should make happen, and how.

The modellers use hypotheses/assumptions, which they then feed into models, and use to draw conclusions and make policy recommendations. Critically, they do not produce an error rate. What if these assumptions are wrong? Have they been tested? The answer is often no. For academic papers, this is fine. Flawed theories can provoke discussion. Risk management – like wisdom – requires robustness in models.

But if we base our pandemic response plans on flawed academic models, people die. And they will.

This was the case with the disastrous “herd immunity” thesis. Read more…

Claims in USA for jobless benefits last week rose to 3.28 million from 282,000 a week earlier.

from David Ruccio

initial claims

The Labor Department on Thursday reported the number of American workers filing new claims for jobless benefits last week rose to 3.28 million from 282,000 a week earlier. Nothing in the 53-year history of the series comes close. In the worst week of 2009, when the job market was reeling, initial claims hit 665,000.

Read more…

Coronavirus deaths per million by country

March 29, 2020 1 comment

On the non-neutrality of money

March 28, 2020 18 comments

from Lars Syll

Paul Krugman has repeatedly over the years argued that we should continue to use neoclassical hobby horses like IS-LM and Aggregate Supply-Aggregate Demand models. Here’s one example:

So why do AS-AD? … We do want, somewhere along the way, to get across the notion of the self-correcting economy, the notion that in the long run, we may all be dead, but that we also have a tendency to return to full employment via price flexibility. Or to put it differently, you do want somehow to make clear the notion (which even fairly Keynesian guys like me share) that money is neutral in the long run.

I doubt that Keynes would have been impressed by having his theory being characterized with catchwords like “tendency to return to full employment” and “money is neutral in the long run.”

alfa

One of Keynes’s central tenets — in clear contradistinction to the beliefs of mainstream economists — is that there is no strong automatic tendency for economies to move toward full employment levels in monetary economies. Read more…

Tackle climate crisis and poverty with zeal of Covid-19 fight, scientists urge

March 28, 2020 2 comments

from today’s Guardian

The Covid-19 crisis has revealed what governments are capable of doing and shone a new light on the motivation for past policies and their outcomes, said Sir Michael Marmot, professor of epidemiology and public health at University College London, and chair of the commission of the social determinants of health at the World Health Organisation.

“The overriding objective [of governments for the last decade] has been austerity, and life expectancy for the worst-off has declined,” he told journalists at a virtual meeting organised by Plan B and Extinction Rebellion. “Health tells us something fundamental about the nature of our society. What the government was pursuing was a worse society – that may not have been the objective, but it was what came out.”

But what had happened in response to coronavirus revealed a new way of operating for governments. “With Covid-19, everything [on austerity] went out of the window. It turns out austerity was a choice,” he said. “The government can spend anything [in the context of the coronavirus crisis], and they have socialised the economy.”

The urgency with which the government had acted showed that the response to an emergency could be swift and decisive, he said. But the climate crisis has been viewed as a “slow-burn” issue and had not elicited such a response. “Coronavirus exposes that we can do things differently,” Marmot said. “We must not go back to the status quo ante.”

Corona is like the flu. The Spanish one.

March 28, 2020 7 comments

Yesterday, the number of Corona deaths in Italy rose to 919. In one day. According to Eurostat,  the 2018 total Italian death tally was 633,000. Which translates to on average 1,734 deaths a day meaning that the level of Corona deaths was over half of the ‘normal’ amount of deaths. Already. Despite the lock down. Dear people: this is much worse than a bad flu. And it is as bad as the Spanish flu. Which is supposed to have killed, around 1919,  about 50,000,000 people. FYI: the latest estimate of the number of casualties of the Spanish flu in Italy sets this number at 466.000 in the 1918-1920 period. With 919 deaths a day – Italy will get there. The silver lining: China and South Korea do have it under control. It is possible.

Yesterday’s number of deaths in Italy was of course a record. But with Corona, every day witnesses new records. The world wide number of Corona deaths has been increasing with 10 to 14% A DAY for two weeks now, almost quintupling in this period (from 687 to 3,271 a day). Yeah.

And it’s not just Italy which is at risk. As we’ve all seen, this enemy has the capacity to overwhelm medical systems not in months but in weeks. The Netherlands (which, thanks to neoliberal ‘lean and mean’ changes has a medical system did with very limited redundant physical hospital capacity) already tries to outplace patients to Germany… And they are still not tracking and tracing, the only successful policy thus far. Read more…

Back to work? A modest proposal

March 27, 2020 1 comment

from David Ruccio

By now, many readers will have seen or heard Donald Trump’s call for the country to get back to work within the next couple of weeks, accompanied by a slew of other insidious and irresponsible remarks along the same lines—from business executives, politicians, and pundits, including ex-Goldman Sachs CEO Lloyd Blankfein, Texas Lt. Gov. Dan Patrick, and Fox News

What can one say in response to such a blatant disregard for workers’ lives, all in an attempt to protect capitalism, restore private profits, and goose the stock market? Yesterday, Jack Amariglio, Professor of Economics Emeritus from Merrimack College, came up with the perfect rejoinder. . . 

My modest proposal (no satire implied):  Read more…

Econometric modelling as junk science

March 27, 2020 2 comments

from Lars Syll

Do you believe that 10 to 20% of the decline in crime in the 1990s was caused by an increase in abortions in the 1970s? Or that the murder rate would have increased by 250% since 1974 if the United States had not built so many new prisons? Did you believe predictions that the welfare reform of the 1990s would force 1,100,000 children into poverty?

qs-econometrics-titleIf you were misled by any of these studies, you may have fallen for a pernicious form of junk science: the use of mathematical modeling to evaluate the impact of social policies. These studies are superficially impressive. Produced by reputable social scientists from prestigious institutions, they are often published in peer reviewed scientific journals. They are filled with statistical calculations too complex for anyone but another specialist to untangle. They give precise numerical “facts” that are often quoted in policy debates. But these “facts” turn out to be will o’ the wisps …

These predictions are based on a statistical technique called multiple regression that uses correlational analysis to make causal arguments … The problem with this, as anyone who has studied statistics knows, is that correlation is not causation. A correlation between two variables may be “spurious” if it is caused by some third variable. Multiple regression researchers try to overcome the spuriousness problem by including all the variables in analysis. The data available for this purpose simply is not up to this task, however, and the studies have consistently failed.

Ted Goertzel

Read more…

WEA online conference: Trade Wars after Coronavirus

March 26, 2020 Leave a comment

from Maria Alejandra Madi

The  United States declared an economic war on China in early 2018. Economic warfare is a unilateral action that questions the existence of multilateralism and places the question of what regime we are about to enter after the weakening of the existing multilateral trade agencies. US trade policy opens the door for new relationships between emerging market economies and international financial institutions on issues of liberalisation but mostly it ends a period started in the 1980’s of unregulated international trade and opens a new one. The solution to the structural economic problems of the US, similar to those of Britain in the 1960’s is not tariffs and trade restrictions. The trade war is above all a war that will be won by one side at some point.

The recent outbreak of coronavirus has just added more uncertainties to the global trade war scenario.

This conference calls for a deep reflection to matters related that includes, among other questions: Read more…

Informal workers in the time of Coronavirus

March 26, 2020 2 comments

from C. P. Chandrasekhar and Jayati Ghosh

The global devastation caused by Covid-19 is only just beginning, with the severe threat to public health worsened by the evident inability to cope of most health systems across developing and developed countries. Many states across the world appear to have realised the serious potential of this pandemic and have declared lockdowns, closures, partial curfews and curtailment of all but essential activities in efforts to contain the contagion.

The economic impacts of such lockdown are also just beginning to be felt, and will escalate in the coming months. The discussion on the economics of this pandemic has tended to focus on supply disruptions and the likely financial losses of companies, especially those in travel, transport and other services and manufacturing activities. Precisely because companies have more lobbying power and more political voice in general, they have already started clamouring for (and being offered) incentives, bailouts and other relief measures to allow them to cope with this crisis. Read more…

Country by country coronavirus case trajectories graph – 25/03, 19:00 GMT

March 26, 2020 1 comment