Economics is a waste of time

February 15, 2017 22 comments

from Peter Radford

There I said it.

There comes a point when we all have to stop banging our heads against the wall and just step back. Why, we ask in such moments, are we wasting our time? The wall is immoveable. It is indifferent to our efforts. It is solid. It has the appearance of permanence. It just won’t shift.

So walk away.

Do something else.

In the case of economics go and study the economy instead.

Too many people are wasting far too much time talking about economists as if they study the economy. They don’t. They really and truly don’t. They live in a post-fact world. Indeed before it became fashionable to toss that phrase around — Trump and his regime pretty much define “post-fact” — economists had been steadfastly denying fact, ignoring reality, and living in a wonderland of their own creation.

Economists study economics. And economics is not the economy. It is a self-contained set of ideas, models, theories, mathematical intricacies, and axioms, that are designed to provide exciting intellectual sport for those so inclined to busy themselves with such activity. It is carefully constructed to look as if it touches reality. It still contains words that make it look as if it relates to reality. Economists intone cogently about real-world topics. And economists fill all the key policy positions that relate to steering, regulating, and measuring the economy.

But that’s all illusion.   Read more…

The very global supply and demand chain of tuberculosis vaccin

February 14, 2017 2 comments

I’m working a bit on (multi-factor) productivity at the moment. Part of this endeavour is taking a hard look at the details which, in my case, means taking a hard look at the productivity of cows (over the long haul). How did farmers, studbooks, veterinarians, (cooperative) factories and the government together manage to increase the productivity of cows? This is not just about the fat content of milk and yields per cow but also about quality improvement, which I operationalize as the eradication of bovine tuberculosis and therewith a better quality of (tbc free) milk. Should such a quality improvement be incorporated into our metric of productivity? Anyway, I found the next interesting quotes about tbc vaccine on Wikipedia:

The BCG vaccine was first used medically in 1921. It is on the World Health Organization’s List of Essential Medicines, the most effective and safe medicines needed in a health system Between 2011 and 2014 the wholesale price was $0.16 to $1.11 USD a dose in the developing world In the United States it costs $100 to $200 USD As of 2004 the vaccine is given to about 100 million children per year globally ..

Global demand increases, but there are problems with production:

In the fall of 2011 the Sanofi Pasteur plant flooded causing problems with mold. The facility, located in Toronto, Ontario, Canada, produced BCG vaccine products, made with substrain Connaught, such as a tuberculosis vaccine ImmuCYST, a BCG Immunotherapeutic -a bladder cancer drug. By April 2012 the FDA had found dozens of documented problems with sterility at the plant including mold, nesting birds and rusted electrical conduits The resulting closure of the plant for over two years resulting in shortages of bladder cancer and tuberculosis vaccines. On October 29, 2014 Health Canada gave the permission for Sanofi to resume production of BCG.

Breaking: the Oroville dam

February 13, 2017 4 comments

According to the most recent updates, the Oroville dam in California (the highest dam in the USA) might be on the point of collapsing (more precisely: the emergency overflow might collapse). According to Piet Dircke, an engineer of Arcadis (which since 2010 is involved with Californian watermanagement in the San Fransisco-Stockton-Sacramento triangle) there is one overriding reason why this might happen: failing maintenance maintenance. “The overflow should have been replaced 10 years ago. This has not happened because of budgettary reasons“.  And yes, people had warned, official reports and all. Do I have to remind anyone that, according to modern neoclassical theory, government investments (including maintenance) are wasteful by definition?

Links. Wages, interest, money, markets. And free articles.

February 13, 2017 1 comment
  1. Lina Kahn wrote an excellent totally Veblenian analysis of Amazone and anti-trust policies. Or: why Chicago style price based anti-trust analysis does not work and we have to look at the nature and structure of the brave new internet markets.
  2. Journal of Economic Issues: 50th Anniversary Editor’s Choice Collection”. Until 10 march: ungated. Quite a bit about the nature and structure of markets.
  3. According to the ECB their QE policy was an astounding success. It got Southern European company and household interest rates down. In my view: this kept the Euro afloat. In the meanwhile government interest rates also declined: win-win.ecbinterest
  4. M2 is a metric of the amount of money in circulation (the ECB uses M3, a slightly less restrictive metric). Does an increase in M2 money cause inflation? Richard Vague made even my jaw drop: “Cases 5 and 6 underscore the lack of a causal relationship between rapid M2 growth and high inflation, because when we increase the threshold of nominal M2 growth to from 60 percent in five years to 200 percent in five years, it is followed by high inflation even less frequently than in Cases 3 and 4. This is, of course, the opposite of what one would expect if high M2 growth causes high inflation”. Especially surprising: many bouts of high consumer price inflation took place without any kind of fast increase of the amount of money in circulation.
  5. For the nerds: how did Keynes cope with data about real and nominal wages which did not fit his prediction. At the end of the linked article one can find the original, pretty good, articles from the thirties which presented the results of an investigation of the relation between real wages and money wages suggested by Keynes.

Macroeconomic blindspots

February 13, 2017 7 comments

from Lars Syll

There was an unusual degree of consensus among economists about what would happen if Britain voted for Brexit in the referendum on June 23 last year. The language used by the International Monetary Fund was typical: It expressed fears of an “abrupt reaction,” adding that this “may have already begun” …

What happened instead was that Britain enjoyed the best growth of any major advanced economy in 2016 … Andy Haldane compared the pitfalls of economic prediction to the single most famously wrong weather forecast in British history, made on the BBC on Oct. 15, 1987. A woman had called the BBC to say she was worried there was a hurricane on the way. “Don’t worry, there isn’t,” the weatherman responded. That night, 22 people died amid hurricane-force winds …

6a00e551f080038834019affbd1c2a970bThe reason this poses a deep intellectual crisis for macro-economics is that the entire point of the field, as it has developed since the work of John Maynard Keynes in the 1930s, is to prevent just this sort of severe downturn. Keynes once spoke of a future in which economists would be “humble, competent people on a level with dentists” …  It seems to me, though, that what macroeconomists do is really most like bomb disposal. Uniquely in the social sciences and humanities, macroeconomics was developed with a specific, real-world purpose, and a negative purpose to boot: to stop anything like the Great Depression from ever happening again. Given this goal — to avert systemic crises and downturns — the credit crunch and the Great Recession were, for macroeconomics, an intellectual disaster.   Read more…

Once again on the theory of the firm

February 12, 2017 23 comments

from David Ruccio

It is extraordinary that the hegemonic economic theory in the world today—neoclassical economics—still lacks an adequate theory of the firm.

It beggars belief both because neoclassical economics is the predominant theory that is taught to hundreds of thousands of students every year and used to make sense of the world and formulate policy in countless think thanks and government agencies and because the firm (or enterprise or corporation) is one of the central institutions of capitalism. It’s where many (but of course not all) goods and services are produced, value and surplus-value are created, and profits generated for capitalists.

And yet the neoclassical notion of the firm, even when developed by Nobel Prize-winning economists (such as Oliver Hart and Bengt Holmstrom), is not much more than an empty box—without any real history and, as it turns out, without any links to politics.

Daniel Carpenter, the Allie S. Freed Professor of Government in the Faculty of Arts and Sciences and Director of Social Sciences at the Radcliffe Institute for Advanced Study at Harvard University, certainly thinks that’s a problem in terms of making sense of how firms came to be constituted historically and what their effects are on contemporary society.   Read more…

NAFTA has harmed Mexico a lot more than any wall could do

February 11, 2017 5 comments

from Mark Weisbrot

President Trump is unlikely to fulfill his dream of forcing Mexico to pay for his proposed wall along the United States’ southern border. If it is built, it would almost certainly be US taxpayers footing the bill, with some estimates as high as $50 billion. But it’s worth taking a step back to look at the economics of US-Mexican relations, to see how immigration from Mexico even became an issue in US politics that someone like Trump could try to use to his advantage.

NAFTA (the North American Free Trade Agreement) is a good starting point. While it has finally become more widely recognized that such misleadingly labelled “free trade” agreements have hurt millions of US workers, it is still common among both liberal and right-wing commentators to assume that NAFTA has been good for Mexico. This assumption is forcefully contradicted by the facts.

If we look at the most basic measure of economic progress, the growth of GDP, or income, per person, Mexico ranks fifteenth out of 20 Latin American countries since it joined NAFTA in 1994. Other measures show an even sadder picture. According to Mexico’s latest national statistics, the poverty rate in 2014 was 55.1 percent ― actually higher than the 52.4 rate in 1994.  Read more…

The Swedish model is dying

February 11, 2017 7 comments

from Lars Syll

The 2017 OECD Economic Survey of Sweden — presented today in Stockholm by OECD Secretary-General Angel Gurría and Sweden’s Minister of Finance Magdalena Andersson — points out that income inequality in Sweden has been rising since the 1990s.

sweden-2017-oecd-economic-survey-growing-moreequal-12-638 Read more…

Not Friedman!

February 10, 2017 13 comments

from Peter Radford

While I was checking the inner debates the Republicans are having about health care I came across this quote [in an article written by Tierney Sneed in TPM] from Representative David Brat, an extreme right winger:

“When it comes to how much you want to park in the HSAs for providing catastrophic care, that, when it comes, to the safety net, we have to find the Milton Friedman way of doing that,” Brat said. “The Price bill would do tax credits. I am not a fan of those because it keeps the federal government in the center of that.”

My heart sank.

Milton Friedman? Really.

His version of economics is simply an ideology cloaked in clever language. And it is profoundly anti-democratic.

Friedman’s stalwart libertarianism led him to develop an economics that started, unscientifically, with a built-in bias against communal action. This meant that anything the government did was, a priori, damaging to the magic that Friedman was desperate to ascribe to the workings of something he, and most economists, call markets.

Markets, you see, are wonderlands that always and inevitably lead to efficient outcomes. And it is no good any starry eyed liberal tinkering with those outcomes. They are magically correct. By correct we mean that they cannot be improved upon. Economists have this vice like attachment to certain core beliefs. One of those is that, if left unfettered, markets will zero in on an allocation of stuff that can never be improved, especially by meddlesome governments. Read more…

What about that pie?

February 10, 2017 4 comments

from David Ruccio

pie

The U.S. economic pie couldn’t be carved up much more unequally. The top 10 percent manages to capture about 47 percent of total pre-tax income, while the bottom 90 gets the rest. The top 1 percent alone walks away with 20 percent of national income.   Read more…

The Econocracy review – how three students caused a global crisis in economics

February 9, 2017 6 comments

from today’s Guardian

In the autumn of 2011, as the world’s financial system lurched from crash to crisis, the authors of this book began, as undergraduates, to study economics. While their lectures took place at the University of Manchester the eurozone was in flames. The students’ first term would last longer than the Greek government. Banks across the west were still on life support. And David Cameron was imposing on Britons year on year of swingeing spending cuts.

Read more…

Why not make macroeconomics a science?

February 9, 2017 3 comments

from Lars Syll

The trouble is, too many theorists — especially in the mainstream of the discipline — have drifted far from the real world. Their ambition has been to build mathematically elegant and internally consistent models of the economy, even if that requires wholly unrealistic assumptions. Granted, just as maps have to simplify complex terrain, theoretical models must ignore aspects of reality to be any use. But there’s a line between simplification and gross distortion, and modern macroeconomics has crossed it.

64f5d94d9836c6a09b5d2009f0d4634a845bb2d7ba56bbaa16176c2fd0e958c0Before the 2008 financial crisis, for example, the standard models more or less ignored finance. No banks, no indebtedness, no leverage. As a result, they couldn’t make sense of the worst global recession since the 1930s …

Given such spectacular failures, you’d think the profession would have gone back to the drawing board. It hasn’t …

Whenever an economist says “in our model,” beware. Demand to know what assumptions the model makes, and question those assumptions as severely as the theorists test for valid inference — because valid inference from bogus assumptions is useless. Where possible, and in the same spirit, pay closest attention to empirical and historical research.

In just about every branch of science, theoretical research has been crucial to achieving breakthroughs. In macroeconomics, it has held progress back. To stop the discipline fading into irrelevance, this will have to change.

Bloomberg View Editorial Board

The editors of Bloomberg View are, of course, absolutely right.

Unfortunately, there are many kinds of useless ‘post-real’ economics held in high regard within the mainstream economics establishment today. Few — if any — are less deserved than the macroeconomic theory/method called calibration.  Read more…

Spirituality & Development – part 2

February 9, 2017 Leave a comment

from Asad Zaman

Part 2 of Lecture on Spirituality and Development: Friday, 27th Jan 2017 by Dr. Asad Zaman, VC PIDE — for Students of Religion & Development Paper, Center of Development Studies, University of Cambridge. Click here to read outline of lecture and click here to watch the lecture.

Badly confused economics: The debate on automation

February 8, 2017 24 comments

from Dean Baker

The media have been filled with accounts in recent years of how automation is displacing workers and threatening the country with mass unemployment. Even President Obama even made a point of warning about the dangers of mass displacement from automation in his farewell address.

This obsession is bizarre for two reasons. The first is a simple empirical point. In contrast to the concern about automation leading to massive displacement, in recent years the pace of automation has been extremely slow. Productivity growth, which is a measure of the rate at which workers are being displaced by technology, has averaged less than 1.0 percent annually in the United States over the last decade.

By contrast, it averaged almost 3.0 percent annually in the decade from 1995 to 2005. Productivity growth also averaged almost 3.0 percent annually in the long Golden Age from 1947 to 1973. This slowdown has not been restricted to the United States. Virtually every wealthy country has seen very slow productivity growth over the last decade. The United Kingdom even had several years of negative productivity growth. This is equivalent to workers were replacing robots: a situation where it takes more workers to produce the same amount of output.

So at a time when automation is proceeding at an extraordinarily slow pace we are seeing many policy types and politicians worrying about mass displacement from automation. That does not make a great deal of sense.   Read more…

Needed — a dystopian economics

February 8, 2017 2 comments

from Stuart Birks and the WEA Newsletter

Aldous Huxley’s Brave New World (1932) and George Orwell’s Animal Farm (1945) and Nineteen Eighty-Four (1949) are noted examples of dystopian literature. In contrast to idyllic utopian literature, they describe what might be considered to be seriously flawed societies. The authors wished to warn of potential dangers that might arise in the future. Huxley later published a follow-up collection of essays, Brave New World Revisited (1958) (BNWR). In it he warned that, his prophecies in the earlier book were coming true much sooner than he had anticipated. He wrote this in the 1950s, but his points seem particularly pertinent today as I will illustrate below. However, first I will give some context.

While not an economist, in BNWR Huxley made some points of particular relevance to economics:

“Omission and simplification help us to understand – but help us, in many cases, to understand the wrong thing; for our comprehension may be only of the abbreviator’s neatly formulated notions, not of the vast, ramifying reality from which these notions have been so arbitrarily abstracted.” (P. xxi)

And (bearing in mind, rationality, atomism, the efficiency of markets):

“Under the influence of badly chosen words, applied, without any understanding of their merely symbolic character, to experiences that have been selected and abstracted in the light of a system of erroneous ideas, we are apt to behave with a fiendishness and an organized stupidity.” (p.136)

Of course, the 20th Century was not the first time that utopian views have been challenged. A disastrous earthquake struck Lisbon in 1755 accompanied by massive tsunamis and widespread fires. This greatly affected Voltaire, among others, and a few years later he published Candide (1759). This satirical fiction challenged the view of nature and society being orderly and resulting in “the best of all possible worlds”. See here also. Anyone supporting neoliberal views or basing their opinions on the desirability of perfect competition would do well to consider Voltaire’s characterisation of Dr Pangloss.

So what was worrying Huxley in 1958? He argued that:  read more

Scarce workers?

February 7, 2017 1 comment

from David Ruccio

fredgraph

Readers know the old adage: in this world nothing can be said to be certain, except death and taxes.

And, we should add, employers complaining they can’t find enough good workers.

The fact is, if workers were really scarce, their wages would be rising dramatically. That’s how things works in a capitalist labor market: employers who want to hire workers offer higher wages.

But, according to the latest report from the Bureau of Labor Statistics, average hourly earnings of private-sector production and nonsupervisory employees increased by 4 cents to $21.84—and weekly earnings by $1.34. That’s an annual rate of just 2.1 percent, the same as the rate of inflation.  Read more…

Why economists don’t know what every baby knows about scientific methods

February 7, 2017 3 comments

from Lars Syll

scientificmethod__92804.1338919332.1280.1280

Limiting model assumptions in economic science always have to be closely examined since if we are going to be able to show that the mechanisms or causes that we isolate and handle in our models are stable in the sense that they do not change when we “export” them to our “target systems”, we have to be able to show that they do not only hold under ceteris paribus conditions and a fortiori only are of limited value to our understanding, explanations or predictions of real economic systems.   Read more…

Spirituality & Development – part 1

February 6, 2017 Leave a comment

from Asad Zaman

Friday, 26th Jan 2017: Lecture by Dr. Asad Zaman, VC PIDE to students at University of Cambridge, Center of Development Studies for Religion & Development paper. 40 minute video recording of lecture on you-tube.

Part 1: “What Is Spirituality?”:  Modern Secular thought takes spirituality and religion to be diseases which affect weak minds not properly trained in the scientific method. Part I of this lecture explains why this view, which is based on positivist ideas, is seriously mistaken.  Click here to read outline of lecture and click here to watch the lecture.

Spain: fast employment growth (but….)

February 5, 2017 Leave a comment

spainemployment

According to the European Commission, Spain does well. And it does: after 6 years of decline employment has increased with 1,2 million. This is, when it comes to EU job creation, a decisive development! But… well, look at graph 1. Employment is nowhere where it has to be. And double digit increases in the number of tourists won’t last forever – Spain will need a new growth sector (or a more equitable division of labor). When it comes to this:  half of the employment increase took place in the 55-64 age group (second graph). Good. The left wants people, including the middle aged, to work. Which of course includes ‘Ehrenamtliche arbeid’ or ‘Honourable work’, as the Germans call voluntering, as well  and family care. But it also includes paid work.

However – in a situation of less than full employment it also means that employment for the 20-55 groups (the people with families) is still 2,5 million down on the 2008 number (and remember: the 2008 bust was not caused by an overheated labor market). Steve Bannon has a point. We need full employment. Andhe European Elites failed these families. Read more…

Greece: it did not have to be this way

February 5, 2017 Leave a comment

Ashoka Mody on Bloomberg

Then came the cardinal error: At the IMF’s Board, over the fierce opposition of several executive directors, the Europeans and Americans pushed through a bailout program that, contrary to the fund’s rules, did not impose losses on Greece’s private creditors. The decision was based on a spurious claim that “restructuring” private debt would trigger a global financial meltdown.

Thus, European governments and the IMF lent Greece a vast sum to repay its existing creditors. Greece’s debt burden remained unchanged and onerous, and the most vulnerable Greeks were forced to accept crippling austerity to repay the country’s new official creditors. The economy quickly and predictably went into a tailspin.

Even when the IMF recognized the error of its ways, it didn’t change course. An internal “strictly confidential” report,  later made public, acknowledged that the program was riddled with “notable failures,” including the lack of private debt restructuring and excessive austerity.