From the comfortable obscurity of academia to become one of the most recognised politicians on the planet
from The Observer
The island of Aegina is just 17 miles from Athens, a mere 40 minutes’ dash on a hydrofoil. Owing to its proximity to the Greek capital, it’s less a tourist island than a second-home sanctuary for wealthy Athenians, but it boasts several impressive classical sites and a distinguished history. Not only was it briefly the capital of a newly liberated Greece in the 19th century but back in the 7th century BC it was the first Greek state to mint its own coins.
Given Greece’s current predicament, trapped in the euro and an ever-expanding debt crisis, that last fact is a monetary irony not lost on one particular wealthy Athenian on Aegina. Sitting on top of a hill a few minutes’ drive from the port is the holiday home of Yanis Varoufakis. He is the former finance minister of Greece, although that’s hardly a description that befits the man’s legend. Gikas Hardouvelis is also a former finance minister of Greece, but no one has heard of him.
It would be more accurate to say that Varoufakis is the former finance minister of Greece who took on the global banking system, the European political elite and, in the minds of many, the great god of capitalism itself. His is a story so full of drama and symbolism that it contains more than a hint of Greek myth.
An economics professor by occupation, he went in a few months from the comfortable obscurity of academia to become one of the most recognised politicians on the planet. read much more
from Maria Alejandra Madi and the WEA Pedagogical Blog
The expansion of neoliberalism in the last four decades has increasingly expressed the tensions between the expansion of the market economy and the consolidation of a new way of life. Indeed, the neoliberal way of life can be apprehended if considering Karl Polanyi´s concern about the way in which the economy relates to social organization and culture and the impacts of social and political institutions in relation to human livelihood. In his opinion, since the proper self-regulation of the market entails that nothing must be allowed to inhibit the formation of markets, the institutional patterns and principles of behavior turn out to adjust perfectly.
Taking into account the current effects of the neoliberal modernization process on the way of life, Karl Polanyi´s critique of the liberal myth and of the disruptive forces inherent to the self-regulated markets it is inspiring to think about the deep impacts of neoliberal policies and institutions on livelihoods. In accordance to Polanyi, the centrality of the market entails that “Nothing must be allowed to inhibit the formation of markets, nor must incomes be permitted to be formed otherwise than through sales” (Polanyi 1944: 69). In other words, labor, land and money turn out to be seen as commodities and are produced for sale. As the commodity fiction proves to be the vital organizing process, the self-regulated markets demand the institutional separation of society into an economic and a political sphere. In other words, the commodity fiction implies that the market economy demands the institutional separation of society into an economic and political sphere, that is, in the market society the social relations are embedded in the economy rather than the economy embedded in social relations. read more
Yesterday alone the italian coastguard saved 4.400 refugees. Germany expects 800.000 asylum seekers in 2015.Are such numbers manageable?
In a purely quantitative way: easily. Let’s take Germany: in 2014 the number of births increased with 5% to 715.000, leaving Germany with a natural decrease of minus 153.000. Subtracting this from the 800.000 refugees and adding about 400.000 people coming in from other EU countries leaves population growth of about a million or 1,3%. many countries have successfully coped with such growth rates, there is no reason why Germany couldn’t (and mind: the natural decrease is set to increase).
The problem is of course that the babies born in Germany will get at least 10 years of education, will speak German and understand German culture. Many of the asylum seekers will have had quite some education – but a not inconsiderable part of them will be illiterate even in their own language. Few of them will speak German. Not all of them will adapt to core western values, for instance in the case of gender relations.
It won’t solve all of these problems. But it seems that investing in these refugees – i.e:for many of them (young, old, men women) years of education in german (or french or Dutch or whatever) and vocational training – is a necessary part of the solution.
And the Italian coast guard is of course doing a good job.
from Lars Syll
“New Keynesian” macroeconomist Simon Wren-Lewis has a post up on his blog, discussing how evidence is treated in modern macroeconomics (emphasis added):
It is hard to get academic macroeconomists trained since the 1980s to address this question, because they have been taught that these models and techniques are fatally flawed because of the Lucas critique and identification problems. But DSGE models as a guide for policy are also fatally flawed because they are too simple. The unique property that DSGE models have is internal consistency. Take a DSGE model, and alter a few equations so that they fit the data much better, and you have what could be called a structural econometric model. It is internally inconsistent, but because it fits the data better it may be a better guide for policy.
Being able to model a credible world, a world that somehow could be considered real or similar to the real world, is not the same as investigating the real world. Read more…
- The explosive influence of mister Luther. The European 16th century reformation is resurfacing as a political and economic watershed. Jeremiah (of all names…) Ditmar and Skipper Seabold show how fast (we knew that already) and, especially how much (that’s new: epic) Luther’s 95 theses, hammered to the door of an obscure church in an obscure place, influenced the content of printing and how fast this led to new rules and laws.
- Ravi Kanbur and Joseph Stiglitz discover than, when we talk about wealth, balance sheets have two sides, one side (liabilities) which basically is about ownership rights and power and another which is the value of real and financial assets. Quote: “what Piketty and others measure as wealth ‘W’ is a measure of control over resources, not a measure of capital K, in the sense that that is used in the context of a production function.“. To estimate this ‘production function capital’ the value of financial capital has of course to be subtracted from total wealth, while inflationary increases of house prices wreak havoc with the idea of ‘one kind of production function capital’. The good thing: the acknowledge the importance of (control over) ‘land’ and other unproduced capital. Aside – if I remember well, debts (liabilities) are used to pressure Greece to sell harbours and railways and the airports and the like (real, land related assets).
- The Bank of Italy discovers that: “the weakness of aggregate demand was contributing significantly to the decline in inflation“, while this weakness also influences inflation expectations’. The point: this means that, contrary to Lucas and Sargent inspired ideas in the Trichet era, the central bank is not the sole and only institution which governs inflation expectations while governing expectations is not enough to control inflation. Draghi is ++smarter than that, but it is good to see that the fight against the Lucas/Sargent paradigm is joined by the Italian central bank. Lucas/Sargent kind of ideas are by the way tempting to the ego of central bankers and therewith dangerous by nature.
- Eurozone small and medium sized enterprises as well as small and medium sized banks still have a hard time when it comes to financing. Small and medium sized enterprises in the Netherlands (which has no small banks left) do especially bad.
- About how bullying Iceland and Greece led to suboptimal negotiations.
from Jamie Morgan’s “Piketty’s Calibration Economics: Inequality and the Dissolution of Solutions?” – an open access paper in current issue of Globalizations
In the neoliberal age, we have naturalised the rich. However, the success of Thomas Piketty’s Capital in the Twenty-First Century has done a great deal to legitimate a rather differently inflected concern. It is now permissible to ask: can we, should we, afford the rich? Growing income and wealth inequality have gradually become areas of public concern, but this concern has become more acute, and more politically febrile, in the wake of the global financial crisis. The election victory by Syriza in Greece, and the Occupy Movement speak directly to this. Austerity responses to the crisis have distributed the fallout costs to the many from the few who benefitted most from the preceding decades. Meanwhile, central bank policy responses have created new opportunities for the global rich to become even richer.1 To a large degree, the idea that the rest of us are dragged along in the wake of the wealthy has been exposed as a myth. Read more…
from Peter Radford
This is not new to most of you of course. You are already steeped in McCloskey’s Rhetoric. Or you ought to be. After all economists are simply telling stories about the economy. Sometimes we are taken in. Sometimes we are not.
Unfortunately McCloskey herself gets a little too caught up in her stories. As in her explanation as to how she can be both a feminist and a free market economist: Read more…
from David Ruccio
from Lars Syll
General equilibrium is fundamental to economics on a more normative level as well. A story about Adam Smith, the invisible hand, and the merits of markets pervades introductory textbooks, classroom teaching, and contemporary political discourse. The intellectual foundation of this story rests on general equilibrium, not on the latest mathematical excursions. If the foundation of everyone’s favourite economics story is now known to be unsound — and according to some, uninteresting as well — then the profession owes the world a bit of an explanation.
Almost a century and a half after Léon Walras founded general equilibrium theory, economists still have not been able to show that markets lead economies to equilibria.
We do know that — under very restrictive assumptions — equilibria do exist, are unique and are Pareto-efficient.
But after reading Frank Ackerman’s article — or Franklin M. Fisher’s The stability of general equilibrium – what do we know and why is it important? — one has to ask oneself — what good does that do? Read more…
from Asad Zaman and the WEA Pedagogical Blog
A recent and amazing article by John H Richardson, titled “When the end of human civilisation is your day-job”, describes how many climate scientists suffer from psychological trauma because their studies lead to the inescapable conclusion that human beings are destroying the planet, and climate change will create conditions making it impossible for the human civilisation to survive. There are two strategies currently being pursued with regard to climate change. One is the ostrich strategy of denial, which claims that there is no such thing, or if there is, it is part of natural geological processes rather than being created by human beings. The second is the band-aid strategy which seeks to make small efforts at relief of major visible problems being caused by climate change. Neither strategy has any hope of success at saving the human civilisation in its current form.
The roots of the problem run deep, and the changes we need to make are very radical. One of the most fundamental teachings of all traditional societies is the subordination of personal interests to the social or collective good. During the “Great Transformation” that led to the creation of modern society, this teaching was turned on its head. Individuals were encouraged to pursue personal interests even at the expense of society. As this philosophy gradually gained strength, many institutions which depended on social commitments were destroyed. Key examples are families and communities, previously built on lifetime commitments, which have been replaced by temporary social relationships based on expediency in advanced societies. The idea that excessive and wasteful consumption was immoral, especially when others were in need has been replaced by the idea of sacredness of property. That is those who have are perfectly justified in flaunting their luxurious lifestyles, while the rest of us struggle to imitate them. The breakdown of barriers to greed led to a mad race to consume more and more without any concern as to the effects on others or on the planet. As a result, income inequalities have become greater than ever seen in human history, and the lifestyles of the super-rich are unimaginably wasteful of planetary resources. read more
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from Dean Baker
In an interesting piece on the decline of the political center, E.J. Dionne wrongly lists globalization as a villain. He tells readers:
“Globalization weakens the ability of moderate governments of both varieties to deliver on their promises. Capital can flee easily to more congenial climes, undercutting a nation’s tax base and its regulatory efforts.”
Globalization should also have the effect of reducing inequality by making it easier to take advantage of lower cost professional services (e.g. physicians services, lawyers’ services, dentists’ services) except that the United States has acted to maintain or even increase barriers to trade in these areas. It should also make it easier to circumvent patent and copyright monopolies that redistribute income upward, except we have consciously pursued policies to strengthen these forms of monopolies to limit the extent to which developing countries might provide vehicles for avoidance (in contrast to tax policy). Read more…
At this moment I’m working on an article on the capital market in Hennaarderadeel, a rural part of Friesland, between 1537 and 1556. Look here for the unbearable flatness of this area, the landscape as shown has not changed too much since 1537. The data are obtained from the excellent transcriptions of hundreds upon hundreds of sixteenth century deeds available on the website of Paul Borghaerts (and there is much more where that came from… ). Interesting questions are: who were the lenders, who were the borrowers, how much did they lend and borrow, why did they lend and borrow and how did lenders and borrowers meet – without banks. And a genuine capital market of course has an interest rate (graph, every dot is a transaction), note the increase after 1550 (interestingly, after 1543 a 20 year pause in the sixteenth century price revolution came to an end).
from Lars Syll
Noah Smith has a post up trying to defend p-values and traditional statistical significance testing against the increasing attacks launched against it:
Suddenly, everyone is getting really upset about p-values and statistical significance testing. The backlash has reached such a frenzy that some psych journals are starting to ban significance testing. Though there are some well-known problems with p-values and significance testing, this backlash doesn’t pass the smell test. When a technique has been in wide use for decades, it’s certain that LOTS of smart scientists have had a chance to think carefully about it. The fact that we’re only now getting the backlash means that the cause is something other than the inherent uselessness of the methodology.
That doesn’t sound very convincing.
Maybe we should apply yet another smell test … Read more…
Kudo’s to the British ONS (Office for National Statistics). They have a new, interesting economic statistic: the Job to Job Flow Rate (JJFR), “the number of people who remained in employment over the quarter but have changed job”. As can be seen, the variable is cyclical sensitive and a downward change of this variable may help to answer questions about why people stay working for Amazone or accept crappy wages or crappy bosses. A high rate of JJFR might however indicate a movement from declining industries into more interesting or more productive jobs or at least into jobs with a better future: from finance to healthcare. The increase of the rate after the spring of 2012 indicates that labour might have gotten more clout during this period. Recently, however, employment in the UK is declining again, the flow out of unemployment is at a post 2009 low and the JJFR is stalling at a level which is clearly below the pre 2008 level. Not good.
During the ‘months of fruitless negotiating’ Varoufakis was one of the few reasonable, levelheaded, well informed and realistic, fact based personalities. I.e.: a heretic. About the third, somewhat Orwellian, Memorandum of Understanding he states on his blog: “Written in troika-speak it is almost impossible to decypher by those not speaking this unappetising language. Click here for the complete MoU text annotated liberally by yours truly.” An excerpt (one link removed, annotations between square brackets, great education resource):
Memorandum of Understanding for a three-year ESM programme
1. Outlook and strategy
Greece has requested support from its European partners, to restore sustainable growth, create jobs, reduce inequalities, and address the risks to its own financial stability and to that of the euro area. This Memorandum of Understanding (MoU) has been prepared in response to a request of 8 July 2015 from the Hellenic Republic to the Chairperson of the Board of Governors of the European Stability Mechanism (ESM) for stability support in the form of a loan with an availability period of three years. In accordance with Article 13(3) of the ESM Treaty, it details the conditionality attached to the financial assistance facility covering the period 2015-18. [Of course the real ‘story’ is that this MoU was prepared to reflect the Greek government’s humiliating capitulation of 12th July, under threat of Grexit put to PM Tsipras by the EuroSummit. …]. The conditionality will be updated on a quarterly basis… [i.e the Greek government will be constantly engaged in the troika process, starting a new ‘review’ just as the previous one ends]…taking into account the progress in reforms achieved over the previous quarter. In each review the specific policy measures and other instruments to achieve these broad objectives outlined here will be fully specified in detail and timeline. Success requires ownership of the reform agenda programme by the Greek authorities. The Government therefore stands ready to take any measures that may become appropriate for this purpose as circumstances change. The Government commits to consult and agree with the European Commission, the European Central Bank and the International Monetary Fund on all actions relevant for the achievement of the objectives of the Memorandum of Understanding before these are finalized and legally adopted. [This is astonishing: A government commits to agreeing with the troika, even if it does not agree! Of course the opposite does not apply: the troika does not commit to “consulting and agreeing with the Greek government”. Note too that the troika considers all legislation to be subject to its approval, including laws on higher education etc. Greek sovereignty is being forfeited wholesale.]. Read more…
Some recent data from Eurostat:
- Quality of life. GDP (Gross Domestic Product) shows the accounting connection between monetary spending, production and income. But it’s only about monetary variables like debt and income. it’s not about happiness or environmental damage. Eurostat however has a new, easy multidimensional scoreboard to estimate aspects of ‘quality of life’ (health, housing conditions, overall life satisfaction, safety, governance, environment, material living conditions, employment, time use, education, social relations). Finland has, for instance, the highest ‘housing satisfaction rate’ of Europe, Bulgaria the lowest. Check it!
- Health. When we look at ‘Amenable and preventable deaths’ Lithuania and Latvia do, according to Eurostat, a bad job. Bulgaria (a poorer country!) does better. Greece does much better (clearly less of a basket case country than often suggested). Turkey does much better, too. Source. Using Turkey as a yardstick it shows that in Europe ‘progress’ can not be taken for granted (click on the graph for a larger version). Graph 1. Sex differences in amenable mortality rates, 2012 (per 100.000 inhabitants)
Links. The financialization of macro economics, growth, unimportant banks, Dijsselbloem loots the Greek state
1. Kudo’s to the ECB. I’m very happy that they have recently included the household debt ratio’ in their new ‘key statistics‘ (down to 95,9% of disposable income). When you click on the item you get a press release which gives information about financial (new houses etcetera) as well as non-financial investments (stocks, bonds) of households and non-financial companies. In his General Theory Keynes called these financial investments ‘investments with a zero elasticity of production’ in the sense that no labour was needed to produce them (or only to keep the printing press running). It is good to see that the ECB includes this information in its key statistics and, like Keynes, emphasises the difference between real investments (which lead to work and to new fixed capital and potentially to a higher level of production and prosperity) and financial investments.
from Lars Syll
The concept of “critical mass” was originally created by Thomas Schelling to explain a variety of different “tipping point” actions and behaviours in society.
The concept was elaborated on in Schelling’s masterful Micromotives and Macrobehavior (1978).
Here’s what it’s (almost) all about …
from Peter Radford
It seems that some people misunderstood my comments regarding neoclassical economics.
Allow me to reiterate and, perhaps, clarify.
I want to say that I regard neoclassical economics as a triumph. A wonderful achievement. Brilliant.
Please read the fine print: that brilliance has nothing to do with relevance, reality, or any other such yardstick.
All I am saying is that within its own confines, with regard to its own rules, and with respect to the limits placed upon it by its multitude of excellent practitioners, neoclassical economics has been an extraordinary success.
Further, and more to the point, I am saying that the number of instances of economies we find within the space of all possible economies described by neoclassical economics is tiny. So tiny we are unlikely ever to experience one. Read more…