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Going digital: the forces shaping the future of business and labour – call for papers for a new WEA Conference is open!

September 23, 2019 1 comment

from Malgorzata Dereniowska

Call for Papers

The advent of digital economy creates new challenges for businesses, workers, and policymakers. Moreover, business prospects for artificial intelligence and machine learning are evolving quickly. These technologies have transforming implications for all industries, businesses of all sizes, and societies. The digitalisation of economic activities calls for a deep reflection on the forces that will shape the future of the global economy.

Aims of the Conference

The objective of this conference, led by Prof. Maria Alejandra Madi and Dr. Małgorzata Dereniowska, is to discuss recent contributions to the understanding of digital economy and its consequences for business trends and labour challenges. The conference also focuses on bridging the gap between different economic theoretical approaches and the practical applications of artificial intelligence and machine learning. Related topics include law, ethics, safety, and governance.

Topics include (but are not limited to): read more . . . 

What works? Policy design without theory is useless

from Maria Alejandra Madi

Against a rationalist top down approach to policy making, the evidence-informed policy and practice has rapidly evolved in the last two decades.

In this line of research, a new book What Works Now? Evidence-informed Policy and Practice has been edited by Annette Boaz, Huw Davies, Alec Fraser and Sandra Nutley.  It offers not only a synthesis of the role of evidence in policy making but also an analysis of its use in recent economic models and practices in the UK, Australia, New Zealand, Scandinavia, Canada and the United States. In addition to the diversity of policy and practice settings where evidence is sought and gets applied, the book considers policy examples related to healthcare, social care, criminal justice, education, environment and international development.. At the core of the argument regarding the actual relevance of ‘know-about’, ‘know-what works’, ‘know-how’, ‘know-who’ and ‘know-why’ is the belief that evidence matters.

Considering this policy scenario, the relevant question at stake is  what are the implications of the new policy design practices that mainly rely on the belief that evidence matters?  read more . . .

Do models make economics a science?

September 22, 2019 4 comments

from Lars Syll

Well, if we are to believe most mainstream economists, models are what make economics a science.

economists_do_it_with_models_economics_humor_keychain-re3ab669c9dd84be1806dc76325a18fd0_x7j3z_8byvr_425In a Journal of Economic Literature review of Dani Rodrik’s Economics Rules, renowned game theorist Ariel Rubinstein discusses Rodrik’s justifications for the view that “models make economics a science.” Although Rubinstein has some doubts about those justifications — models are not indispensable for telling good stories or clarifying things in general; logical consistency does not determine whether economic models are right or wrong; and being able to expand our set of ‘plausible explanations’ doesn’t make economics more of a science than good fiction does — he still largely subscribes to the scientific image of economics as a result of using formal models that help us achieve ‘clarity and consistency’.

There’s much in the review I like — Rubinstein shows a commendable scepticism on the prevailing excessive mathematization​ of economics, and he is much more in favour of a pluralist teaching of economics than most other mainstream economists — but on the core question, “the model is the message,” I beg to differ with the view put forward by both Rodrik and Rubinstein. Read more…

Willian Nordhaus can’t keep his “Nobel Prize” because he doesn’t have one.

September 21, 2019 4 comments

Willian Nordhaus can’t keep his “Nobel Prize” because he doesn’t have one. Alfred Nobel never set up a prize for economics because he recognised that it is not a science – not even a “dismal science” – and that most of the research has little to do with the real world, being founded on ideas which are palpably untrue.

What Nordhaus has is a Swedish Banker’s prize for promoting neo-liberal ideas about money for the benefit of the world’s super rich. They call it the “Nobel Prize” despite Nobel’s wishes and the efforts of his family to have the title removed.

This economics prize is routinely dished out to people who promote right-wing ideas in an attempt to give them added respectability. They have been, to the world’s great loss, horribly successful on this endeavour. It is no surprise that Nordhous’s ideas are as bad as they are, firstly because classical economics is not capable of dealing with the sorts of problem climate change poses to the world; and secondly because the purpose of the award is to give the bankers/financiers/capitalists/plutocrats (add more to taste) cover for what they intended to do anyway.

I am sure Steve Keen is aware of all of this but it is sad to see someone of his stature accepting the basis of this fake “Nobel Prize”. We need more political-economic thinkers like Professor Keen to both expose the fake ideas of people like Nordhaus and also to promote real ideas about money and economics with a base in the real world and a concience about the consequences of our current path.

Ken Patterson

Nordhaus dangerous gamble for humanity’s future

September 21, 2019 7 comments

from Lars Syll

Nordhaus’s transgressions are immense. His ‘damage function’ which he uses to estimate global warming damage is incorrect and uses data that has nothing to do with climate change. Despite this, the Intergovernmental Panel on Climate Change (IPCC) uses his model to advise governments about the economic impact of global warming.

Thermometer graphicsNordhaus and other mainstream climate economists certainly have a lot to answer for. Their thinking has seriously delayed action to avert damage done from climate change.

The central problem with Nordhaus’s model is the “damage function”, which is a mathematical fiction that has little to do the real world. Using a spurious method, he calculates that 2°C of warming will only reduce global economic output – GDP – by 0.9 percent, and 4°C would cut GDP by 3.6 percent.

These are trivial changes. If it were true, there would be little to worry about. This is the reason that Nordhaus has repeatedly argued that from the point of view of economic rationality an “optimal” path would be 3.5°C of warming above preindustrial levels. Read more…

American dreams

September 20, 2019 1 comment

from David Ruccio

The American Dream is dead. Long live the American Dream!

Let me explain. The official American Dream, the one that has been produced and disseminated at least as far back as the transition from the farm to the factory (in other words, since the late-nineteenth century), lies in tatters. Americans have long been encouraged to believe that everyone gets what they deserve—and, with equal opportunity, those who start at the bottom have a real chance of working their way to the top. Within generations, all workers had a chance to “make it.” And, between generations, children would likely be better off than their parents.

That promise—let’s call it the capitalist American dream—is now in tatters. It is dead and (almost) buried.

It’s not the first time, of course, that the capitalist American Dream has been called into question. During the Great Depression of the 1930s, American capitalism was not able to deliver the goods, at least for the majority of the population. Widespread unemployment and poverty, as capitalists shuttered their factories were shuttered and banks foreclosed on farms, meant that most Americans were faced with an economic nightmare. And much the same happened after the crash of 2007-08 when, in the midst of the Second Great Depression, millions of Americans were unable to find a decent job or purchase (unless they went further into debt) the necessary goods and services, for themselves and their children. Read more…

The lack of positive results in econometrics

September 17, 2019 3 comments

from Lars Syll

For the sake of balancing the overly rosy picture of econometric achievements given in the usual econometrics textbooks today, it may be interesting to see how Trygve Haavelmo — with the completion (in 1958) of the twenty-fifth volume of Econometrica — assessed the role of econometrics in the advancement of economics.

Haavelmo intro 2We have found certain general principles which would seem to make good sense. Essentially, these principles are based on the reasonable idea that, if an economic model is in fact “correct” or “true,” we can say something a priori about the way in which the data emerging from it must behave. We can say something, a priori, about whether it is theoretically possible to estimate the parameters involved. And we can decide, a priori, what the proper estimation procedure should be … But the concrete results of these efforts have often been a seemingly lower degree of accuracy of the would-be economic laws (i.e., larger residuals), or coefficients that seem a priori less reasonable than those obtained by using cruder or clearly inconsistent methods. Read more…

Economics’ billiard-ball model

September 16, 2019 2 comments

“The social extension of atomistic methods . . . is not, of course, really a scientific project at all, though it uses scientific language.  It is a distortion that tends to discredit the whole idea of science by exploiting it to draw dubious political and moral conclusions.  This distortion itself has become obvious over the very notion of an atom – the idea of an impenetrable, essentially separate unit as the ultimate form of matter.  We know that today’s physicists no longer use this billiard-ball model.  They now conceive of particles in terms of their powers and their interaction with other particles, not as inert separate objects.  The seventeenth-century idea of a world constructed out of ultimately disconnected units has proved to be simply mistake.  Instead, physicists now see many levels of complexity; many different patterns of connection.

At an obvious level it follows that we ought no longer to be impressed by social atomism, or by behaviourism, in the way that we once were.  We can see now that it cannot have been scientific to impose on social affairs a pattern which turns out to have been so inadequate for physics.  But the moral goes much deeper.  It is one that would still hold even if physics had not changed.  That moral is that, quite generally, social and psychological problems cannot be solved by imposing on them irrelevant patterns imported from the physical sciences, merely because they are seductively simple.”

Mary Midgley, p.7-8, Science and Poetry

Central bank independence — institutionalizing monetary handcuffs

September 14, 2019 7 comments

from Lars Syll

hqb813cpgmtyImposing a hard target can bind the central bank, but the government must then act on failures to hit the target. Why would it if it is self-interested? If it does, that amounts to saying it is not selfish, which undermines the argument that independence is needed. The same argument can be used to deconstruct independence itself. Suppose independence is a solution to time inconsistency. Why would a selfish politician ever agree to independence in the first place? If they did, that would be tantamount to saying they are not selfish, in which case independence is not needed. In other words, only non-self-interested politicians choose independence, making independence redundant …

Even if the banker is honest, there still remains the fundamental question of why would selfish politicians go against their own interests and appoint a conservative independent central banker? Doing so is tantamount to proving they are not selfish, in which case there is no need for an independent central bank. Read more…

“Our economic fundamentals are strong.”

September 13, 2019 2 comments

from David Ruccio

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Rigged: How globalization and the rules of the modern economy were structured to make the rich richer

September 12, 2019 3 comments

from Dean Baker

Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich RicherThe richest 1% have done extraordinarily well over the last four decades. But income has stagnated for the majority. This was not an accident. It was by design.

My book, Rigged, highlights five areas where US policies were deliberately structured to redistribute income upwards.

  1. IP laws were strengthened, making patent & copyright monopolies longer and stronger

This hugely increased the share of GDP that goes to sectors like pharmaceuticals, medical equipment, computers, and software. And it made stakeholders in these sectors hugely wealthy.

But it was unnecessary. Alternative mechanisms for financing innovation and creative work – such as direct public funding for pharmaceutical research, with new drugs selling as generics – would not have led to the same sort of upward redistribution.v Read more…

Kitchen sink econometrics

September 11, 2019 11 comments

from Lars Syll

When I present this argument … one or more scholars say, “But shouldn’t I control for everything I can in my regressions? If not, aren’t my coefficients biased due to excluded variables?” This argument is not as persuasive as it may seem initially. First of all, if what you are doing is misspecified already, then adding or excluding other variables has no tendency to make things consistently better or worse … The excluded variable argument only works if you are sure your specification is precisely correct with all variables included. But no one can know that with more than a handful of explanatory variables.
piled-up-dishes-in-kitchen-sinkStill more importantly, big, mushy linear regression and probit equations seem to need a great many control variables precisely because they are jamming together all sorts of observations that do not belong together. Countries, wars, racial categories, religious preferences, education levels, and other variables that change people’s coefficients are “controlled” with dummy variables that are completely inadequate to modeling their effects. The result is a long list of independent variables, a jumbled bag of nearly unrelated observations, and often a hopelessly bad specification with meaningless (but statistically significant with several asterisks!) results. Read more…

WEA Commentaries is looking for a co-editor

September 11, 2019 Comments off

WEA Commentaries

Co-editor required

Are you an early- or mid-career economist?

Do you have, or wish to develop, links with pluralist economists from around the world?

Are you self-motivated, capable of showing initiative, and interested in a wide range of perspectives?

If so, we would like to hear from you. Please email kstuartbirks@gmail.com

Combatting global warming and austerity

September 10, 2019 4 comments

from Dean Baker

In the United States, proposals for a Green New Deal have been getting considerable attention in recent months as activists have pressed both members of Congress and Democratic presidential candidates to support aggressive measures to combat global warming. There clearly is much more that we can and must do in the immediate future to prevent enormous damage to the planet.

However, major initiatives in the United States to combat global warming will almost certainly require some increases in taxes. There is likely some slack in the U.S. economy (perhaps we’ll see more slack as a result of Donald Trump’s misfires in his trade war), but a major push involving hundreds of billions of dollars of additional annual spending (2-3 percent of GDP) will almost certainly necessitate tax increases. This doesn’t mean we shouldn’t move quickly to take steps to save the planet, but these steps will have some cost.

In contrast, most of Europe is in a situation where it could easily make large commitments toward increased spending on clean energy, mass transit, and conservation at essentially no economic cost. In fact, a Green New Deal Agenda in Europe is likely to lead to increased employment and output. The big difference is that Europe is much further from facing constraints on its economy. It has plenty of room to expand output and employment without seeing inflation become a problem.  Read more…

Necessary inventions …

September 10, 2019 25 comments

from Lars Syll

pointless-inventions1

The quasi-peaceable gentleman of leisure, then, not only consumes of the staff of life beyond the minimum required for subsistence and physical efficiency, but his consumption also undergoes a specialisation as regards the quality of the goods consumed. He consumes freely and of the best, in food, drink, narcotics, shelter, services, ornaments, apparel, weapons and accoutrements, amusements, amulets, and idols or divinities.

Thorstein Veblen

Government-granted patent monopolies are driving up drug prices

September 9, 2019 5 comments

from Dean Baker

Most of the leading Democratic presidential contenders have put forward a plan to reduce drug prices. But for some reason, none of them have embraced the simple idea of not making drugs expensive in the first place. Specifically, none of the contenders have proposed moving away from the current system of financing the research and development of new drugs through government-granted patent monopolies.

The point is a simple one that should be obvious to people in policy debates. Drugs are almost invariably cheap to manufacture. Drugs that sell as generics, with free-market competition, are rarely expensive. The drugs that cost tens or hundreds of thousands of dollars annually are almost always subject to patent monopolies or some related form of government protection.

If all drugs were sold in a free market, individual patients would not have to struggle to pay for the drugs they need and there would be enormous savings to the economy. We will spend roughly $460 billion in 2019 on prescription drugs. In a free market, these drugs would likely sell for less than $80 billion.

The annual savings of $380 billion is almost 1.9 percent of GDP. It is more than five times the annual food stamp budget. In other words, it is a significant savings. Read more…

The pretense-of-knowledge syndrome in economics

September 8, 2019 9 comments

from Lars Syll

What does concern me about my discipline … is that its current core — by which I mainly mean the so-called dynamic stochastic general equilibrium approach — has become so mesmerized with its own internal logic that it has begun to confuse the precision it has achieved about its own world with the precision that it has about the real one …

While it often makes sense to assume rational expectations for a limited application to isolate a particular mechanism that is distinct from the role of expectations formation, this assumption no longer makes sense once we assemble the whole model. Agents could be fully rational with respect to their local environments and everyday activities, but they are most probably nearly clueless with respect to the statistics about which current macroeconomic models expect them to have full information and rational information. Read more…

Game theory for humans with hearts

September 7, 2019 14 comments

from Asad Zaman

The following is a slightly revised excerpt of Section 1.2 from my paper on “Empirical Evidence Against Utility Theory“ – Game theorists rule out Humans with hearts by assumption. The excerpt provides some empirical evidence (not needed by anyone except economists) that human actually do have hearts, and this actually affects their behavior! surprise, surprise!

The “Goeree-Holt Humans with Hearts” (GHHwH) Game: Conventional game theory operates under the assumption that both players (A-player labelled Aleena, and B-player labelled Babar) are heartless human beings. They have no emotions; rather, they are disembodied brains floating in vats. For more explanation and discussion, see “Homo Economics: Cold, Calculating, and Callous“. Below we discuss a game described in Goeree, Jacob K. and Charles A. Holt (2001). “Ten Little Treasures of Game Theory and Ten Intuitive Contradictions,” American Economic Review, vol. 91(5): 1402-1422. They do not provide a name for this game, so we will call it the GH Humans with Hearts game; it is a convenient way to prove the human beings do not behave like homo economicus. Furthermore, this assertion is not a surprise to anyone except economists, who are trained to think like economists. This means deep training in learning to model human behaviour as heartless, which blinds them to the complex realities of human behaviour.  read more

A guide to econometrics

September 6, 2019 17 comments

from Lars Syll

kennedyguide1. Thou shalt use common sense and economic theory.
2. Thou shalt ask the right question.
3. Thou shalt know the context.
4. Thou shalt inspect the data.
5. Thou shalt not worship complexity.
6. Thou shalt look long and hard at thy results.
7. Thou shalt beware the costs of data mining.
8. Thou shalt be willing to compromise.
9. Thou shalt not confuse statistical significance with substance.
10. Thou shalt confess in the presence of sensitivity.

“Sociopathic societies”

September 5, 2019 12 comments

from Ken Zimmerman

Greed is a personality disorder. While it is sometimes correct that without greed humans would still be living in caves, it is also correct that left unchecked, the insatiable desire for more and better material things can be destructive. These are the warning signs of uncontrolled greed.

The first sign of the greed syndrome is overly self-centered behavior. Greedy people are always saying “me, me, me” with very little regard for the needs and feelings of others. Envy and greed are like twins. While greed is a strong desire for more and more possessions (such as wealth and power), envy goes one step further as a strong desire by greedy people for the possessions of others.

Greedy people lack empathy. Caring—being concerned about the feelings of others—is not part of their way of life. As such, they have little qualms about causing pain to others. Their inability to empathize, their lack of genuine interest in the ideas and feelings of others, and their unwillingness to take personal responsibility for their behavior and actions makes interaction with them very difficult.

Greedy people are never satisfied. They look at the world as a zero-sum game. Instead of thinking that everyone would benefit as the pie gets larger, they view the pie as a constant and want the largest piece. They truly believe that they deserve more, even if it comes at someone else’s expense. Read more…