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We wrecked the planet but if the young just read the Washington Post, they will only blame us for the national debt!

May 24, 2019 2 comments

from Dean Baker

You have to love Robert Samuelson. He writes a column noting that baby boomers are leaving the workforce, and some are dying off, leaving the country to our children and grandchildren. He concludes the piece with a comment on the national debt.

“To boot, there’s also a massive federal debt. Good luck.”

Given the enormous damage that we have done to the environment, our children and grandchildren would be enormously forgiving if all they blamed us for is the national debt. Of course, since we (baby boomers) will all be dead at some point, we will also be passing on the bonds that constitute the national debt to our children and grandchildren. Read more…

The world’s most unequal countries

May 23, 2019 4 comments

Data without theory is always treacherous

May 22, 2019 19 comments

from Lars Syll

gary smithData without theory can lead to bogus inferences …

Before being comforted or alarmed, consider whether it makes sense to extrapolate. Is there a persuasive reason why the future can be predicted simply by looking at the past? Or is that wishful thinking? Or nothing at all? …

Remember that even random flips can yield striking, even stunning, patterns that mean nothing at all …

A statistical comparison of two things is similarly unpersuasive unless there is a logical reason why they should be related … Ask yourself whether the people who did the study thought before calculating.

The central problem with the present ‘machine learning’ and ‘big data’ hype is that so many — falsely — think that they can get away with analysing real-world phenomena without any (commitment to) theory. Read more…

American wealth redistribution 1989-2016

May 22, 2019 3 comments

Trump’s trade war with China is waged to make the rich richer

May 21, 2019 4 comments

from Dean Baker

Donald Trump seems determined to double down and keep pressing forward on his trade war with China. He promises more and higher tariffs, apparently not realizing that U.S. consumers are the ones paying these taxes — not China’s government or corporations.

While tariffs clearly impose a cost on people in the United States, this cost could be justified as a weapon to change a trading partner’s harmful practices. During his campaign, Trump pledged to wage a trade war with China over its currency policy. He said he would declare China a “currency manipulator” on day one of his administration, putting pressure on China to raise the value of its currency against the dollar.

The value of China’s currency matters, since it determines the relative price of goods and services produced in China and the United States. Ordinarily, the currency of a rapidly growing country with a large trade surplus like China would be expected to rise against the currency of a country with a large trade deficit like the United States. However, China’s government intervened in currency markets to keep its currency from rising, thereby keeping down the price of China’s goods and services.

This was ostensibly the behavior that Trump was determined to change in his China trade war. But now that we are in the war, the currency issue has largely disappeared from the conversation. According to the published accounts, the big issue is over China’s respect for the intellectual property claims (i.e., patent and copyrights) of U.S. corporations. Read more…

Chicago economics — garbage in, gospel out

May 20, 2019 5 comments

from Lars Syll

Savings-and-InvestmentsEvery dollar of increased government spending must correspond to one less dollar of private spending. Jobs created by stimulus spending are offset by jobs lost from the decline in private spending. We can build roads instead of factories, but fiscal stimulus can’t help us to build more of both. This form of “crowding out” is just accounting, and doesn’t rest on any perceptions or behavioral assumptions.

John Cochrane

The problem with this view is, of course, that it is utter and complete nonsense!

What Cochrane is reiterating here is nothing but Say’s law, basically saying that savings are equal to investments and that if the state increases investments, then private investments have to come down (‘crowding out’). As an accounting identity, there is, of course, nothing to say about the law, but as such, it is also totally uninteresting from an economic point of view. Read more…

U-shape vs. L-shape income redistribution trends – 10 countries

May 20, 2019 4 comments

Women as workers

May 18, 2019 1 comment

from Jayati Ghosh

One of the enduring myths about capitalism that continues to be perpetuated in
mainstream economic textbooks and other economic pedagogy is that labour supply is
somehow exogenous to the economic system. The supply of labour is typically assumed
(especially in standard growth theories) to be determined by the rate of population
growth, which in turn is also seen as “outside” the economic system rather than in
interaction with it. The reality is of course very different: the supply of paid labour has been very much a result of economic processes, not something extraneous to it. Throughout its history, capitalism has proved adept at causing patterns of labour supply to change in accordance with demand. Migration – whether of slaves, indentured labour or free workers – has been instrumental in this regard. The use of child labour similarly has been sanctioned and encouraged or disapproved and suppressed in varying
economic conditions. But nowhere has this particular capacity of capitalism to generate its own labour been more evident than in the case of female labour.  Read more…

Don’t think like a freak

May 17, 2019 5 comments

from Lars Syll

In their latest book, Think Like a Freak, co-authors Steven Levitt and Stephen Dubner tell a story about meeting David Cameron in London before he was Prime Minister. They told him that the U.K.’s National Health Service — free, unlimited, lifetime health care — was laudable but didn’t make practical sense.

“We tried to make our point with a thought experiment,” they write …

1643.Lebowski.jpg-610x0Rather than seeing the humor and realizing that health care is just like any other part of the economy, Cameron abruptly ended the meeting, demonstrating one of the risks of ‘thinking like a freak’ …

So what do Dubner and Levitt make of the Affordable Care Act, aka Obamacare?

“I do not think it’s a good approach at all,” says Levitt … Purchasing health care is almost exactly like purchasing any other good in the economy …”   Aaron Task

Portraying health care as “just like any other part of the economy” is, of course, nothing but total horseshit. Read more…

Employment for all

May 17, 2019 5 comments

from Asad Zaman

Global experience shows that market economies create massive inequalities, enriching the top one per cent, while leaving the bottom of the population far behind. One key to prosperity is to provide productive jobs for all who would like to participate in the production process. Unfortu­nately, contemporary macroeconomics, which was blind to the possibility of the global financial crisis, is not equipped with the ideas and tools required to create full employment.

Conventional macro blames the poor for their poverty, and suggests education and training to fit them into existing jobs. However, the private sector does not naturally create enough jobs to employ everyone. Experience with Keynesian remedies shows that expansionary monetary policy starts to create inflation a long time before full employment is achieved. Modern Monetary Theory provides a genuine alternative, a job guarantee (JG) programme.

Instead of preparing people to fit them into existing or potential private sector jobs by providing them with education and training, we must create jobs tailored to the people. Jobs should be provided to take people as and where they are. Skills should be provided via on-the-job training. There are a huge number of jobs which require low levels of skill and education, and provide enormous benefits to society, but are not profit-making for the private sector.

Planting trees, building roads, cleaning dams, infrastructure projects, a range of social services, all provide benefits to society, and make a measurable impact on appropriate measures of GNP, but may not be privately profitable.   read more . . . 

World stock market composition 2000-2017

May 16, 2019 1 comment

General equilibrium — economics as ideology

May 16, 2019 11 comments

from Lars Syll

what-ifAlthough I never believed it when I was young and held scholars in great respect, it does seem to be the case that ideology plays a large role in economics. How else to explain Chicago’s acceptance of not only general equilibrium but a particularly simplified version of it as ‘true’ or as a good enough approximation to the truth? Or how to explain the belief that the only correct models are linear and that the von Neuman prices are those to which actual prices converge pretty smartly? This belief unites Chicago and the Classicals; both think that the ‘long-run’ is the appropriate period in which to carry out analysis. There is no empirical or theoretical proof of the correctness of this. But both camps want to make an ideological point. To my mind that is a pity since clearly it reduces the credibility of the subject and its practitioners.

Frank Hahn

I can’t but agree. You could, of course, as Brad DeLong has asserted, consider modern mainstream economics to be in fine shape “as long as it is understood as the ideological and substantive legitimating doctrine of the political theory of possessive individualism” and if you Read more…

The MMT debate

May 15, 2019 24 comments

from Lars Syll

The US labor market is deteriorating for black men

May 14, 2019 2 comments

from Dean Baker

The April jobs report was, for the most part, pretty good news. The overall unemployment rate fell to 3.6 percent, a level not seen in almost 50 years. The survey of businesses showed the economy generated more than 260,000 new jobs in the month — a very strong pace of job growth.

While not great, the average hourly wage grew 3.2 percent. That is more than a percentage point above the 2 percent inflation rate, meaning that wages are at least rising faster than prices, and workers are getting their share of the gains from productivity growth. This was not true earlier in the recovery when the labor market was weaker.

But the situation for Black Americans, and especially Black men, is disturbing. While the data are erratic, we now have enough of it to indicate that the employment prospects of Black men may actually be deteriorating even as the overall labor market continues to improve. Read more…

The history of randomness

May 14, 2019 1 comment

from Ken Zimmerman

After the cognitive revolution, Sapiens invented questioning and then questions. And Sapiens questioned everything. What happens next? Why did this happen rather than something else? Will each human die, when, and why? Who invented humans? Why were humans invented? What are the answers? One of the answers humans invented to deal with this and similar questions is randomness. Other inventions to deal with Sapiens’ questioning are chance, mathematics, and probability. Let’ consider the history of randomness.

In the ancient world randomness was intertwined with fate. As it is frequently in Asia and Africa today. Often in these cultures, devices such as dice, animal entrails, smoke, etc. were used to determine what fate would bring. Often summed up in the term divination. The Chinese were perhaps the earliest people to formalize odds and chance 3,000 years ago. Greek philosophers discussed randomness at length, but only in non-quantitative forms. It was only in the 16th century that Italian mathematicians began to formalize the odds associated with various games of chance. And later the odds associated with human life generally. The invention of calculus changed the formal study of randomness. Allowing for consideration of the complexity of the random. In the 19th century the concept of entropy was introduced in physics. In the 20th century Sapiens invented the mathematics of probability, axiomizing it in the 1930s. In the mid-20th century Sapiens invented quantum mechanics, changing the notion of randomness in many ways. A little later Sapiens added even more dimensions to randomness with algorithmic randomness. In the last 50 years computer scientists began to incorporate randomness into the design of computer algorithms, believing this created better performing computers. In some cases, such randomized algorithms outperform the best deterministic methods. Read more…

Income gini coefficient world map

May 14, 2019 2 comments

Income gini coefficient map according to The World Bank (2014)

The age of Doris Day…

May 13, 2019 9 comments

Let’s not forget that she once played a union worker, in ‘The pajama game’. With the song ‘racing with the clock‘. Also, here a blogpost of mine about how in ‘The Age of Doris Day’ apt new institutions enabled everybody to work less and have better lives, in stead of a part of the population being entirely unemployed and miserable.

Modern economics is sick

May 12, 2019 6 comments

from Lars Syll

mark-blaug-900pxModern economics is sick. Economics has increasingly become an intellectual game played for its own sake and not for its practical consequences for understanding the economic world. Economists have converted the subject into a sort of social mathematics in which analytical rigour is everything and practical relevance is nothing …

If there is such a thing as “original sin” in economic methodology, it is the worship of the idol of the mathematical rigour invented by Arrow and Debreu in 1954 …

The result of all this is that we now understand almost less of how actual markets work than did Adam Smith or even Léon Walras … We have even forgotten that markets adjust as often in terms of quantities rather than prices, as in labour markets and customer commodity markets, as Alfred Marshall knew very well but Walras overlooked; so well have we forgotten that fact that a whole branch of economics sprang up in the 1960s and 70s to provide ‘microfoundations’ for Keynesian macroeconomics​ …

Indeed, much of modern microeconomics might be fairly described as a kind of geography that consists entirely of images of cities but providing no maps of how to reach a city either from any other city or from the countryside.

Mark Blaug

Mark Blaug (1927-2011) did more than any other economist to establish the philosophy and methodology of economics a respected subfield within economics. Blaug’s The methodology of economics (1980) is still a landmark — and the first textbook on economic methodology yours truly had to read as a student. Read more…

DSGE models can be even worse in practice

May 12, 2019 4 comments

from David Richardson

There have been numerous postings on this blog that go the problems associated with dynamic stochastic general equilibrium models. Most of these posts have questioned their use in the hands of the high priests of the orthodox economics profession. For example, Lars Syll has said “DSGE models are simply — from both empirical and methodological points of view — not suited for understanding modern monetary economies” (28 Nov 2018). I have no argument at all with this assessment but point out that what is done by the high priests is much ‘cleaner’ than the modelling specifically designed for partisan purposes.

There is a good example in Australia at the moment of the abuse of modelling for political purposes. Australia is in the midst of an election campaign which is mainly fought between the two major parties, the Labor Party and the governing Coalition of the Liberal Party and National Party. The two Coalition parties are shades of conservative and tend to include both climate change deniers and those that believe Australia need do nothing because it is too small to make a global difference. Read more…

Economists have no ears

May 11, 2019 10 comments

from Steve Keen

Thomas Kuhn once famously described textbooks as the vehicle by which students learn how to do “normal science” in an academic discipline. Economic textbooks clearly fulfil this function, but the pity is that what passes for “normal” in economics barely deserves the appellation “science”.

Most introductory economics textbooks present a sanitised, uncritical rendition of  conventional economic theory, and the courses in which these textbooks are used do little to counter this mendacious presentation. Students might learn, for example, that “externalities” reduce the efficiency of the market mechanism. However, they will not learn that the “proof” that markets are efficient is itself flawed.

Since this textbook rendition of economics is also profoundly boring, the majority of those exposed to introductory course in economics do no more than this, and instead go on to careers in accountancy, finance or management – in which, nonetheless, many continue to harbour the simplistic notions they were taught many years earlier. Read more…