The eclipse part wo

from Peter Radford

What are we to say of a discipline that steadfastly ignores reality
in its pursuit of ever more formality in its methods?

Wow. Steve Levitt has really shaken me. I come not to mock, but to follow up …

Stand up and take a bow Ben Moll!  You daring soul.

Clearly I need to explain.

No sooner had I finished my comment on the irrelevancy of economics but I had confirmation — albeit unwittingly — in this morning’s Financial Times.  There on the editorial page was a short column by Soumaya Keynes talking about the rise of Hank.

For those of you not on the cutting edge, “Hank” stands for Heterogeneous Agent New Keynesian, as in a complicated model of the economy.

Hank is a whole new way of looking at model economies, with the really big breakthrough being that it includes — roll the drums please — more than one household.

Yes, economists are moving at a rapid pace.  Their research has shown that the economy includes more than one household.

Gasp.

If you are a sociologist or anthropologist you are forgiven at this point for laughing out loud.

Reflect, if you will, on the enormous hubris expressed by Steve Levitt when he criticized economics for becoming too inwardly focused and potentially irrelevant.  His condemnation was absolute.  He said that economics risked falling into the kind of disrepair that, in his mind at least, make sociology and anthropology laughingstocks.  Now, I don’t know sociology or anthropology all that well, but I imagine they don’t base a substantial amount of their theoretical effort on the notion that America has only one household.  Even if that household is “representative”.

Representative of what?  Some Chicago-trained logician masquerading as an economist?

Chang’s “Edible Economics”

from Junaid Jahangir and current issue of RWER

[Ha-Joon] Chang’s latest book Edible Economics (2022) crystallizes the narrative that he has developed through his popular books over the years. . . . I have reviewed the salient ideas as follows in a bid to draw out lessons I could share with my ECON 101 students.

. . . the main ideas of Ha-Joon Chang can be distilled in point form as follows.

1. Neoclassical economics gives precedence to mathematics over real-world issues of inequality and power. It emphasizes markets over democracy.
2. Culture has elements both conducive and detrimental to development. Policy directs economic development, which then shapes culture.
3. Free market advocates focus on the economic freedom of consumers and corporations and not the freedom of workers to push for better jobs.
4. Poor people in poor countries are not poor because of low productivity but because the elites in their countries are unproductive, as they have failed to provide better technology and infrastructure.
5. Comparative advantage is not static and can be developed with temporary protectionism. Britain, the U.S., and East Asian economies of Japan, South Korea, and Taiwan, all used infant industry protection.
6. Entrepreneurship rests on collective efforts; interlocking patents impede technological progress.
7. Free trade is imposed on developing countries by advanced economies that used infant industry protection themselves.
8. The benefits of foreign investment materialize only when public policy ensures technology transfer and management techniques.
9. Neoliberal policies of trade liberalization, deregulation, and privatization have brought slower growth, higher inequality, and financial crises; the secret of economic development is to access advanced technologies and develop high value-added industries.
10. Welfare benefits including pension, healthcare, employment insurance, and housing subsidies are not freebies; they make capitalist economies more dynamic by reducing people’s resistance to technological change.
11. People pay value added taxes and sales taxes that burden the poor, but corporations evade taxes.
12. Equality of opportunity is not sufficient, and some equality of outcome is required, which necessitates equal access to education and healthcare, instituting a minimum wage, and redistributing income.
13. The market does not value based on contribution or need; marketization of care services should be restricted and regulated.
14. Both individual change and government action are required to address climate change, as the private sector is fixated on short term gains.
15. Shareholders and managers focus on short term gains in deregulated markets; multi-stakeholder capitalism recognizes that workers have a long-term stake in the firm.
16. Policy can help address automation with subsidies for retraining and by creating good jobs based on higher number of workers per people in education, healthcare, and senior care.
17. The post-industrial economy is a myth; manufacturing is the main source of technological innovation and the most important determinant of a country’s living standard.

Read more

Chicago economics — nothing but pseudo-scientific cheating

from Lars Syll

Unlike anthropologists … economists simply invent the primitive societies we study, a practice which frees us from limiting ourselves to societies which can be physically visited as sparing us the discomforts of long stays among savages. This method of society-invention is the source of the utopian character of economics; and of the mix of distrust and envy with which we are viewed by our fellow social scientists. The point of studying wholly fictional, rather than actual societies, is that it is relatively inexpensive to subject them to external forces of various types and observe the way they react. If, subjected to forces similar to those acting on actual societies, the artificial society reacts in a similar way, we gain confidence that there are useable connections between the invented society and the one we really care about.

Robert Lucas

Neither yours truly, nor anthropologists, will recognise anything in Lucas’ description of economic theory even remotely reminiscent of practices actually used in real sciences, this quote still gives a very good picture of the methodology used by Lucas and other prominent Chicago economists.

The increasing collusion between . . . . . .

from a comment by Ikonoclast

“A truth is permitted only a brief victory celebration between the two long periods where it is first condemned as paradoxical and later disparaged as trivial.” – Arthur Schopenhauer.

As they break new ground, the Capital as Power theoreticians will encounter the “Schopenhauer Effect” over and over. When you point out something clearly for the first time, or even again after a long interregnum when few could see it, then everyone will say, “Oh, we always knew that.”

To widen the focus, I think a big part of what is happening now is the increasing collaboration, or rather collusion, between big government and big capitalism. I think what we have in the modern neoliberal system is a symbiotic relationship between big government and big corporations. It is common enough for people to believe that under neoliberalism we have been moving to small government. I don’t think that is the case.

The government may be “getting out of people’s lives” but only in the sense that it won’t spend (adequately) to help poor and ordinary people or to protect the environment. When it comes to helping big business with big money (corporate welfare) and tax breaks, the government is right there with the spending spigots wide open and the return valves (for taxes on big business) turned right down.

I doubt that government spending has gone down under this system. It simply has been redirected to aid business (especially big business) above all else. Where welfare spending remains in the system, it occurs under a regime (rental rather ownership, in essence) where the money simply passes rapidly through welfare recipients’ hands for necessities and up to wealth accumulation for the rich. Here, measuring the change in stocks (wealth accumulation) is probably more revealing than measuring flows. It’s not where it flows that matters so much as where it ends up accumulating.

I wonder if this is an area worth looking at from a CasP perspective.

Wealth catapulted up

from Blair Fix and current issue of RWER

Speaking of competition and losers, Ronald Reagan set the tone of the neoliberal era when, in 1981, he fired 11,000 striking air-traffic controllers (Houlihan, 2021). The message? Workers were losers who would be subjected to the discipline of competition. Reagan called it ‘morning in America’. But really, it was ‘morning for American big business’.

Today, we are well into the next-day’s hangover, and we know how the party played out. For workers, it was a disaster. But for the rich, it was an incredible boon. Wealth didn’t trickle down so much as it got catapulted up. The result, as Figure 1A shows, was a relentless rise in the concentration of American wealth.

Figure 1: A neoliberal experiment — rising wealth concentration among Americans, and American elites.

The need for a new economic paradigm

from Giandomenico Scarpelli and current issue of RWER

As documented in the previous paragraph, in recent years it finally seems that most orthodox economists have become more aware of the catastrophic outcomes of climatic disturbances; but at this point the traditional policy they recommend could be insufficient to meet the goals set at international level. In fact, that policy consists mainly of pollution permits and carbon taxes, but if the permits are offered with great generosity and if carbon taxes are low, these policies are ineffective. In order to counter climate change effectively economists should abandon the “… irrational commitment to exponential growth forever on a finite planet subject to the laws of thermodynamics”. This commitment is based on the assumption that GDP growth is always a good thing, and for this idea many distinguished economists for decades did not take into account the warnings of climate scientists, arguing that it was not worth giving up some points of GDP growth to implement an immediate and strong action to stabilize or reduce total output of greenhouse gases.

Also for this reason Herman Daly for a long time advocated a “paradigm shift” in economic theory, suggesting a new paradigm not focused on growth. We need such a paradigm to counter climate change, or a “climate revolution”. Otherwise, as professor Steve Keen wrote, “if climate change does lead to the catastrophic outcomes that some scientists now openly contemplate (…), then these Neoclassical economists will be complicit in causing the greatest crisis, not merely in the history of capitalism, but potentially in the history of life on Earth”.  read more

Weekend read – Enlightenment epistemology and the climate crisis

from Asad Zaman

Introduction

At first glance, it appears that industrialization, with its rampant overproduction and overconsumption, stands as the primary antagonist in our climate crisis narrative. However, this surface-level perception overlooks a more profound shift that lies beneath: an epistemological revolution birthed in the European Enlightenment. This era marked a pivotal transition in our relationship with the planet, from Mother Earth to a dead machine. Turbayne (1962) explores the significance in the change of metaphor in depth. This essay seeks to unravel this transformation in thought and its subsequent paving of the road to our current environmental challenges. Our solution lies not in mere technological or policy changes but in a fundamental revolution in thought—a revolution that reclaims the roles of heart, soul, and lived experience in shaping our knowledge. By embracing these often-neglected dimensions, we can forge a path towards a more harmonious interaction with our world, addressing the root causes of the climate crisis.

Historical Context of the Enlightenment

The genesis of the European Enlightenment can be traced back to the religious wars that ravaged Europe, a turbulent period that starkly illuminated the limitations of theology as the sole foundation for social and political theory. This era of conflict laid bare the urgent need for a new basis upon which to construct societal norms and governance—one that could transcend sectarian divides and offer a stable, peaceful coexistence. This necessity birthed an intellectual revolution, a move away from the scholastic tradition which had long intertwined social theory with biblical teachings.

There ain’t no libertarians, just politicians who want to give all the money to the rich

from Dean Baker

David Wallace-Wells had a column discussing the trip by Javier Milei, Argentina’s new president, to the World Economic Forum (WEF) in Davos, Switzerland. The WEF is an annual gathering of many of the world’s richest people, where they also invite politicians, academics, and others who they think may amuse them. According to Wallace-Wells, Mr. Milei definitely fits into that category.

The piece talked about how Milei calls himself as an anarchist, with the government just doing basic functions, like defending the country and running the criminal justice system. Otherwise, Milei would eliminate any role for government, if he had his choice.

It is humorous to hear politicians make declarations like this. As a practical matter, almost all of these self-described anarchists would have a very large role for the government. What they want to do is to write the rules in ways that sends income upwards and then just pretend it is the natural order of things.

Patent and Copyright Monopolies

The best place to go to start ripping off the phony face of these “anarchists” is with government-granted patent and copyright monopolies. These monopolies, which make folks like Bill Gates incredibly rich, are not part of any natural order. They are explicit government policies designed to promote innovation and creative work.

It is possible to argue for these government-granted monopolies as good policy, but that doesn’t change the fact that they are government policies. It is just a lie to say that you don’t want the government intervening in the market and then support these monopolies.

What’s the use of economics?

from Lars Syll

The simple question that was raised during a recent conference … was to what extent has — or should — the teaching of economics be modified … The simple answer is that the economics profession is unlikely to change. Why would economists be willing to give up much of their human capital, painstakingly nurtured for over two centuries? For macroeconomists in particular, the reaction has been to suggest that modifications of existing models to take account of ‘frictions’ or ‘imperfections’ will be enough to account for the current evolution of the world economy. The idea is that once students have understood the basics, they can be introduced to these modifications …

I would go further; rather than making steady progress towards explaining economic phenomena professional economists have been locked into a narrow vision of the economy. We constantly make more and more sophisticated models within that vision until, as Bob Solow put it, “the uninitiated peasant is left wondering what planet he or she is on” …

Every student in economics is faced with the model of the isolated optimising individual who makes his choices within the constraints imposed by the market. Somehow, the axioms of rationality imposed on this individual are not very convincing, particularly to first-time students. But the student is told that the aim of the exercise is to show that there is an equilibrium, there can be prices that will clear all markets simultaneously. And, furthermore, the student is taught that such an equilibrium has desirable welfare properties. Importantly, the student is told that since the 1970s it has been known that whilst such a system of equilibrium prices may exist, we cannot show that the economy would ever reach an equilibrium nor that such an equilibrium is unique.

The student then moves on to macroeconomics and is told that the aggregate economy or market behaves just like the average individual she has just studied. She is not told that these general models in fact poorly reflect reality. For the macroeconomist, this is a boon since he can now analyse the aggregate allocations in an economy as though they were the result of the rational choices made by one individual. The student may find this even more difficult to swallow when she is aware that peoples’ preferences, choices and forecasts are often influenced by those of the other participants in the economy. Students take a long time to accept the idea that the economy’s choices can be assimilated to those of one individual.

Alan Kirman What’s the use of economics?

An economic theory that does not go beyond proving theorems and conditional ‘if-then’ statements — and does not make assertions and put forward hypotheses about real-world individuals and institutions — is of little consequence for anyone wanting to use theories to better understand, explain or predict real-world phenomena.

Four parking places and a car. Let’s make that a stellar charged wedding.

Graph 1. The increasingly inefficient use of cars

Summary: parking places are a woefully inefficient use of space. And ugly. Cars are a woefully inefficient use of machinery. Using them, in combination with bi-directional charging of cars, to produce solar can amend this. Doing this the right way, parking places can be beautified, costs will go down and life will be more pleasant.

new issue of Real-World Economics Review

Please click here to support this open-access journal and the WEA

 

real-world economic review

issue no. 106

download whole issue

 

How entropy drives us towards degrowth
Crelis Rammelt
2

“It is much too soon to act “ – Economists and the climate change
Giandomenico Scarpelli
8

Addressing the climate and inequality crises:
An emergency market plan simulation
Jorge Buzaglo and Leo Buzaglo Olofsgård
21

Stocking up on wealth … concentration
Blair Fix
40

Back to the past: income distribution in America
Ahmad Seyf
57

Blinded by science: The empirical case for quantum models in finance
David Orrell
68

Critique of Ayn Rand’s Atlas Shrugged political economy and its place in neoliberalism
Rafael Galvão de Almeida and Leonardo Gomes de Deus
80

Twenty-first century money: Huber and the case for CBDC
Jamie Morgan
97

Book review of Chang, Ha-Joon, (2022) Edible Economics
Junaid Jahangir
110

Board of Editors, past contributors, submissions, etc.
116

please support this open access journal

Long Read – Is Bitcoin more energy intensive than mainstream finance?

from Blair Fix

When it comes to Bitcoin, there’s one thing that almost everyone agrees on: the network sucks up a tremendous amount of energy. But from there, disagreement is the rule.

For critics, Bitcoin’s thirst for energy is self-evidently bad — the equivalent of pouring gasoline in a hole and setting it on fire. But for Bitcoin advocates, the network’s energy gluttony is the necessary price of having a secure digital currency. When judging Bitcoin’s energy demands, the advocates continue, keep in mind that mainstream finance is itself no model of efficiency.

Here, I think the advocates have a point.

If you want to argue that Bitcoin is an energy hog, you’ve got to do more than just point at its energy budget and say ‘bad’. You’ve got to show that this budget is worse than mainstream finance.

On this comparison front, there seems to be a vacuum of good information. For their part, crypto promoters are happy to show that Bitcoin uses less energy than the global banking system. But this result is as unsurprising as it is meaningless. Compared to Bitcoin, global finance operates on a vastly larger scale. So of course it uses more energy.

To be meaningful, any comparison between Bitcoin and mainstream finance must account for the different scales of the two systems. So instead of looking at energy alone, we need to look at energy intensity — the energy per unit of circulating currency. That’s what I’ll do here. In this post, I compare the energy intensity of Bitcoin to the energy intensity of mainstream US finance.

Which system comes out on top? The results may surprise you.

Weekend read – The trouble with words

from Peter Radford

Words are not ideas.  They are our means to capture ideas and make them tangible.  The problem is that words are a porous net that inevitably lets some accuracy slip away, but sometimes captures irrelevant detail that shines brightly in the moment and then dulls in the light of later thought.

Trying to define something so a discussion can follow without ambiguity in meaning sliding in and muddying things.  Slippery isn’t it?

How about this:

“I sometimes wish we could take the energy expended on these antimacassar hand-me-down “rules” and apply it to working out a way to use awkwardly broad words like inclusion, equity, liberty and racism more clearly. The ever-evolving meanings of these words has a way of creating genuine misunderstandings — try defining “neoliberalism” — to the point of actually impeding communication.”

That’s John McWhorter in the New York Times a couple of days ago.  He teaches linguistics.

Try defining “neoliberalism”?

He’s been chatting too much with his fellow academics in the economics department.  They are the last people to ask.  Neoliberalism is easy to define.  It’s just that its definition keeps offending people who want to be neoliberal without having the recent taint associated with it rub off on them.  Or, at least that’s my opinion.

And when I say neoliberal is easy to define I must remind you that it is a term used most often in discussions about the political-economy of the past forty to fifty years.

In a free market, drugs are cheap, government-granted patent monopolies make them expensive

from Dean Baker

This simple point was left out of a Washington Post article on the legal battle surrounding the Biden Administration’s efforts to negotiate lower prices for drugs purchased by Medicare. This point is important because the drug companies are definitely not trying to get the government out of the market, as the industry claims.

The industry is effectively insisting that the government is obligated to give it an unrestricted monopoly for the period of its patent duration. Also, since patent monopolies provide enormous incentives for corruption (they are equivalent to tariffs of many thousand percent, or even tens of thousands percent), drug companies often find ways to game the system and extend effective protection beyond the original patent life.

Anyhow, portraying this as a situation where the industry wants the free market and the Biden administration wants government intervention is 180 degrees at odds with reality. The industry wants very strong government intervention so that it can make big profits.

It’s also worth noting that the amount of money at stake here is potentially enormous. We will spend well over $600 billion this year on drugs. These drugs would likely cost less than $100 billion in a free market. The difference of $500 billion is more than eight times as large as President Biden’s requested funding for Ukraine.

I heard there’s some good shit on TV tonight …

from Lars Syll

Time is a scarce resource on television. However, if one still — as is so often the case nowadays — uses precious airtime for trivial matters and meaningless ‘entertainment,’ there must be a reason. Television is — still — for a large part of the population one of the primary sources of information and worldview. Thus, filling program schedules with trivialities becomes an effective means to — instead of functioning as an instrument for shaping opinions and fostering reflection — push aside important information that citizens would need to exercise and develop their democratic capabilities.

Television, through its focus on personalities and banalization of various ‘affairs,’ creates a poor environment for real knowledge dissemination. Instead of serious opinion formation, we get demagogic programs where quick-witted, shallow individuals with limited knowledge expound on everything and nothing, but especially on topics they know nothing about.

Is “greedflation” over?

from Dean Baker

Peter Coy used his column yesterday to beg President Biden not to use the term “greedflation” to explain the runup in inflation since the pandemic. I am sympathetic to much of his argument, most importantly, the idea that corporations suddenly turned greedy is a bit far out.

As Coy notes, corporations are always greedy. The real question is whether something unusual was going on with corporate profits in the pandemic. There clearly was an increase in profit margins in the pandemic. This was largely due to real shortages created by supply chain problems worldwide.

We can say this with a high degree of certainty because inflation was a worldwide story. This means that the idea that it was due to Biden’s “excessive” stimulus is silly.

While the U.S. is a huge part of the world economy, higher demand here could at most only explain a small fraction of the inflation in countries like the U.K. and Germany. The fact that their inflation has been similar to U.S. inflation since the pandemic, undermines the idea that Biden’s recovery package was the main factor in the U.S. inflation surge.

I have made this argument before and been told that people don’t care about inflation in the U.K. and Germany, they care about inflation here. That’s fine, but as an economist I’m trying to explain causation.

Any fool can look out over the horizon and see the earth is flat, the curvature of the planet is not generally visible in our range of vision. But we know the earth is in fact round, and no serious person is going to insist it is flat.

Similarly, we know inflation was a worldwide phenomenon due to the pandemic. If people want to yell at Biden over it, that is their right, but let’s not pretend that complaint is based in reality.

But let’s get back to “greedflation,” or “sellers’ inflation” the term used by Isabella Weber, the most prominent academic proponent of this view. There can be little doubt that there was a big shift to profits in the pandemic. Here’s the picture on the profit share of corporate income.

Why and how economics must change

from Jayati Ghosh

Economics needs greater humility, a better sense of history, and more diversity

The need for drastic change in the economics discipline has never been so urgent. Humanity faces existential crises, with planetary health and environmental challenges becoming major concerns. The global economy was already limping and fragile before the pandemic; the subsequent recovery has exposed deep and worsening inequalities not just in incomes and assets but in access to basic human needs. The resulting sociopolitical tensions and geopolitical conflicts are creating societies that may soon be dysfunctional to the point of being unlivable. All this requires transformative economic strategies. Yet the discipline’s mainstream persists in doing business as usual, as if tinkering at the margins with minor changes could have any meaningful impact.

There is a long-standing problem. Much of what is presented as received economic wisdom about how economies work and the implications of policies is at best misleading and at worst simply wrong. For decades now, a significant and powerful lobby within the discipline has peddled half-truths and even falsehoods on many critical issues for example,

“The Political Economy of COVID-19”

 New book from WEA Books

At the beginning of 2020, the outbreak of Covid-19 and the lockdown practices imposed worldwide generated a global economic crisis that challenges the traditional explanations of economic downturns .  Like the economic crisis of 2008, the Covid-19 pandemic crisis was systemic and global, and this collection of essays examines it in a broad geographical and historical context.

Kindle $6.00                  Paperback $14.99
Amazon US   UK   FR  DE   IN    AU    CA

Utility theory — explaining everything and nothing

from Lars Syll

Despite the rise of behavioral economics, many economists still believe that utility maximization is a good explanation of human behavior. Although evidence from experimental economics and elsewhere has rolled back the assumption that human agents are entirely self-interested, and shown that altruism and cooperation are important, a prominent response has been to modify individual preference functions so that they are “other-regarding”. But even with these modified preference functions, individuals are still maximizing their own utility.

Defenders of utility maximization rightly reject critical claims that specific behavioral outcomes undermine this assumption. They do not. But this is a sign of weakness rather than strength. The problem is that utility maximization is unfalsifiable as an explanation of behavior. As I show more fully in my 2013 book entitled From Pleasure Machines to Moral Communities, utility maximization can fit any real-world evidence, including behavior that appears to suggest preference inconsistency.

But note that utility maximization is not a tautology. Tautologies are true by assumption or definition. Utility maximization is not a tautology because it is potentially false. But empirically it is unfalsifiable.

Where does that leave us? Utility maximization can be useful as a heuristic modelling device. But strictly it does not explain any behavior. It does not identify specific causes. It cannot explain any particular behavior because it is consistent with any observable behavior. Its apparent universal power signals weakness, not strength.

Geoff Hodgson

Interesting post from one of yours truly’s favourite economists. 

Income inequality in the USA increased with each expansion

Pavlina R.Tchemevra is the source of the data for this chart which appeared in September 2014 in the New York Times in an article by Neil Irwin “The Benefits of Economic Expansions Are Increasingly Going to the Richest Americans”.  Can anyone source or provide an updated version of this chart?