Generation screwed—and screwed again

May 11, 2020 1 comment

from David Ruccio

You know your generation’s screwed when even Monopoly is mocking you.

Back in 2016, I argued that Millennials were in fact generation screwed.

For example, in 2010 (when some of them were 20 to 24 years of age), their unemployment rate was 17.2 percent, much higher than the already high national average of 9.9 percent.*

Partly because of the difficulty they had finding jobs, but also because they have been saddled with high student and healthcare debt, the typical Millennial family lost ground between 2010 and 2016, falling further behind the typical wealth lifecycle than any other birth cohort. According to the Federal Reserve Bank of St. Louis (pdf), a typical 32-year-old family respondent in 2016 (born in 1984) was 34 percent ($12,000) below the 32-year-old benchmark established by earlier generations. Read more…

Global economic growth in the Post World War II Era and Post COVID-19 Recovery

May 10, 2020 7 comments

source: konema

Gary Becker’s big mistake

May 9, 2020 7 comments

from Lars Syll

The econometrician Henri Theil once said “models are to be used but not to be believed.” I use the rational actor model for thinking about marginal changes but Gary Becker really believed the model. Once, at a dinner with Becker, I remarked that extreme punishment could lead to so much poverty and hatred that it could create blowback. Becker was having none of it. For every example that I raised of blowback, he responded with a demand for yet more punishment …

1399387137298You can see the idea in his great paper, Crime and Punishment: An Economic Approach. In a famous section he argues that an optimal punishment system would combine a low probability of being punished with a high level of punishment if caught …

We have now tried that experiment and it didn’t work … Most spectacularly, the experiment with greater punishment led to more spending on crime control and many more people in prison …  Read more…

Are we all in this together?

from David Ruccio

It must be confessed that though the plague was chiefly among the poor, yet were the poor the most venturous and fearless of it, and went about their employment with a sort of brutal courage; I must call it so, for it was founded neither on religion nor prudence; scarce did they use any caution, but ran into any business which they could get employment in, though it was the most hazardous. Such was that of tending the sick, watching houses shut up, carrying infected persons to the pest-house, and, which was still worse, carrying the dead away to their graves.

— Daniel Defoe, A Journal of the Plague Year

I’m almost sick of hearing the refrain, “We’re all in this together.”

I say almost, because I do think there’s a utopian moment in that phrase in the midst of the current pandemic. It speaks of solidarity, of being in common, of paying attention to and honoring healthcare workers and others who are currently laboring in “essential” activities while the rest of us are instructed to stay at home. In that sense, it betokens—or at least aspires to—a thinking about and caring for others. Read more…

Evolution of economic systems

May 8, 2020 6 comments

from Asad Zaman

Economic systems evolve, sometimes under external dynamic and sometimes under internal dynamics. As they evolve, economic theories co-evolve, however their can be (often are) lags in understanding – so theories relevant to one system are applied to another, with disastrous results.

Human beings started out with tribal societies, and spent the longest period of history in this form. They societes were egalitarian and communal. They were not market oriented. Production and  distribution was done by consensus of the community. Communities were self-sufficient, producing or acquiring basic needs for all members, without any markets or trade. For more details, see “Hunter-Gatherer Societies”.  An essential point to understand is that the economic system shaped the nature of the society – the need for cooperation to survive in a harsh environment shaped social norms. This is again in contrast with the story told by economists that evolution has shaped us to be greedy and competitive, as this is necessary for survival. For the opposite point of view, see “Does Altruism Exist?” by D. S. Wilson, which uses latest findings of evolutionary biology to show that the opposite is true. Evolution has shaped human beings to be cooperative and generous.

In light of these understandings, it is very important for us to study the great transformation in European societies during which traditional societies based on cooperation, social responsibility, and community, were replaced by market societies with competition, individualism, and hedonism. This is because our own identities have been shaped by living in market societies.  read more

Gleaners and us—pandemic edition

from David Ruccio

We already had high food insecurity in this country and now we are putting another layer of need on top of it. — Kevin M. Fitzpatrick

One of the many irrational characteristics of capitalism is that billions of tons of food go to waste while hundreds of millions of people struggle with hunger on a daily basis. And like all the other senseless attributes of the way the economy is currently organized, the mismatch between the enormous quantity of food that is available for human consumption but is not consumed and the vast number of people who are food insecure has been highlighted and heightened by the COVID-19 pandemic—especially in the United States.

Even before the pandemic, the Food and Agriculture Organization of the United Nations reported that approximately 30 percent of food produced for human consumption around the world is either lost (from post-harvest to distribution) or wasted (at retail and consumption levels) each year—while an estimated 821 million people (just below 11 percent of the world’s population) were undernourished (pdf).* And in the United States? According to the National Resources Defense Council (pdf), the degree of food waste was even higher—between 39 and 43 percent of the total U.S. food supply. At the same time, according to the U.S. Department of Agriculture (pdf), more than 37 million Americans (13.9 percent of households) suffered food insecurity—and less than one-third of the food that was thrown out would be enough to feed this population completely. Read more…

Fixing the bailout scammers: The Ten Percent Solution

May 6, 2020 7 comments

from Dean Baker

The pandemic crisis created a rare economic opportunity. In effect, the whole economy was thrown up for grabs, with the winners and losers determined by who had the political power to get a nice bailout. Needless to say, those who were already rich got the big handouts, those at the bottom got crumbs, if anything at all.

Suppose we had let the market work its magic on the airlines, on the hotel chains, the restaurant chains, the aircraft industry (i.e. Boeing), and on the oil industry. With few exceptions, the big actors in these sectors would all have been bankrupt. The companies would have been reorganized, with the ones that were otherwise viable being restructured. Debtors would take large haircuts only collecting a fraction of what they had been owed. Shareholders would be wiped it, losing trillions of dollars of equity. Many top executives would likely been sent packing, and would no longer be able to count on paychecks in the millions or tens of millions.

Of course, things didn’t turn out this way because almost no one in policy circles actually believes in the market. That’s just something they tell children and liberal policy wonks. The people in power believe in using the government to give themselves as much money as possible. Usually they can do this through structuring the market so that money flows upward.  Read more…

Pandemic depression antidote (IX)

May 5, 2020 2 comments

from Lars Syll

Your job or your life

from David Ruccio

WFH1 WFH2

source

When social solidarity is essential, it’s common to hear pious sermons against class warfare. Unfortunately, there is a class war. And its victims, so many of them front-line workers, didn’t start it. — E. J. Dionne Jr.

New research confirms what we’ve all been seeing for the past couple of months: the lowest paid, most precarious workers are the ones who are being forced to face the choice between their jobs and their lives.

And, looking forward, as those in charge push to reopen the economy, the most vulnerable workers are the ones who will most find themselves caught up in the ultimate dilemma of capitalist employment during the COVID-19 pandemic: stay at home without the ability to earn a paycheck or go back to work and increase the chance of getting the dreaded disease. Read more…

Economic theories cannot be understood outside their historical context

May 4, 2020 18 comments

from Asad Zaman

It is an Obvious Truth that economic theories analyze specific historical economic systems.

In nomadic societies, there is no production. Economics would be about finding plants, game, and moving according to seasons.

In agricultural societies, private property becomes important. Those who plant need to have rights to harvest their plantings.

Feudal Societies are mostly self-sufficient in commodities and operate without money. These are barter societies. Money is not a goal, but only a means to get more goods. Karl Marx explained this via the formula: C – M – C’  which means that Commodities are sold for money, which is used to get different commodities.

Market societies: people sell labor for wages to produce commodities. Money is used for purchase. Money is main driver of society. Laborers sell their lives for money. Producers start with money, use money to produce commodities, and sell commodities for more money: M – C – M’  – This inversion of goals is tremendously important in understanding market societies. Both laborers and producers are driven by the desire to make money – not to consume goods. It is important to note the modern economic theory does not recognize this, and treats market societies like barter societies. It is only because of this failure to recognize the motivations that economic theories treat money as a veil, and say that money is neutral.

All of this discussion is to make a very simple point: Economic theories cannot be understood outside their historical context.

To understand Keynes, we must study the Great Depression. What were the theories which failed, and how was Keynes driven to find a new theory? How did his theory explain the Great Depression?

To understand Minsky’s Financial Fragility Theory, we must study the repeated banking crises that occurred since the 1970’s. These led Minsky to think about the causes of these crises, and come up with a theory which explained them.

To understand Mercantilism, we must understand European history driven by wars, and the necessity for accumulating gold to finance them. For modern economies, it make no sense to accumulate gold, but in the 18th Century, gold was of central importance to finance wars.

It is of great interest to understand that the opposite is also true. Just as we cannot understand economic theory without the historical context, so we cannot understand history without understanding economic theory. This is because history is shaped by theories.  read more

Is economics — really — a science?

May 3, 2020 37 comments

from Lars Syll

Nature-of-EconomicsAs yours truly has reported repeatedly during the last couple of years, university students all over Europe are increasingly beginning to question if the kind of economics they are taught — mainstream economics — really is of any value. Some have even started to question if economics is a science.

At least two Nobel laureates in economics have tried to respond.

This is Robert Shiller‘s answer: Read more…

More thoughts on a wealth tax and alternatives

May 1, 2020 10 comments

from Dean Baker

Last week the Boston Review (BR) published an exchange on a wealth tax that included a proposal from Berkeley economists Emmanuel Saez and Gabriel Zucman, with a number of responses, including one from me. I was critical of the proposal for both political reasons and because I think avoidance and evasion will be massive problems.

On the political side, in addition to the difficulty of getting a wealth tax through Congress, there is the virtual certainty that the current Supreme Court will rule it unconstitutional. This is not an abstract question of whether a wealth tax should be viewed as constitutional. I realize that many legal scholars have argued that such a tax is not inconsistent with the power to tax granted to Congress by the constitution. This is a very concrete question as to whether the current Supreme Court would rule that a wealth tax is constitutional. I don’t think anyone with a straight face could argue that it would.

We can of course talk about various plans to pack the court, either by adding new justices or through some rotation scheme of judges across federal courts. These may be interesting and worthwhile strategies to pursue against a corrupt court, but if we’re thinking of a timeline of a presidential term in which we hope to get important legislation passed, they are not likely to be helpful.  Read more…

Structural flaws and COVID-19

from Maria Alejandra Madi

The fundamental structural flaws in the global economy have not been addressed after the 2008 global crisis.  Monopoly-finance capital became increasingly dependent on bubbles that, both in credit and capital markets, proved to be globally the sources of endogenous financial fragility. This process was reinforced, in a vicious circle, by a concentration of income, wealth and power. By negatively influencing labour and working conditions, it became increasingly difficult for effective demand to reach the level of full employment. In response to this situation, credit policies fostered consumers to expand their spending through increasing debt. While public spending on social and infrastructural objectives was severely restricted, it expanded in other areas, sustaining the income and the demand of powerful groups.   Considering this background, in the last two years, serious concern arises that a new global economic crisis of unprecedented magnitude could still happen.

At the beginning of 2020, the outbreak of COVID 19 in Europe and Latin America put in question the dynamics of neoliberal capitalism and its global governance. Moreover, the global health crisis will certainly have negative implications for economic growth and democratic institutions since its evolution is deeply affecting social cohesion and political stability. When taking into account the trade-off between the so called efficient strategies for re-opening the economies and the recommendations on social distancing, the former ones might be only possible in societies that tolerate more inequalities. read more

The Pandemic and the Global Economy

April 29, 2020 2 comments

Unequal Effects        The Aftermath         Averting Catastrophe

 

from Jayati Ghosh

There are still many uncertainties about the COVID-19 pandemic: about the extent of its spread, its severity in different countries, the length of the outbreak, and whether an initial decline could be followed by a recurrence. But some things are already certain: we know that the economic impact of this pandemic is already immense, dwarfing anything that we have experienced in living memory. The current shock to the global economy is certainly much bigger than that of the 2008 global financial crisis, and is likely to be more severe than the Great Depression. Even the two world wars of the twentieth century, while they disrupted supply chains and devastated physical infrastructure and populations, did not involve the restrictions on mobility and economic activity that are in place in the majority of countries today. This is therefore an unprecedented global challenge and requires unprecedented responses.

This very severe economic impact largely stems not from the pandemic itself, but from measures that have been adopted across the world to contain it, which have ranged from relatively mild restrictions on mobility and public gatherings to complete lockdowns (and clampdowns) that have brought to a halt most economic activity. This has meant a simultaneous attack on demand and supply. During lockdowns, people (especially those without formal work contracts) are deprived of incomes and joblessness increases drastically, causing huge declines in consumption demand that will continue into the period after the lockdown is lifted. At the same time, production and distribution are halted for all but essential commodities and services—and even for these sectors, supply is badly affected because of implementation issues and inadequate attention to the input-output linkages that enable production and distribution. Previous regional and global crises have not entailed this near-cessation of all economic activity. The deadly combination of collapses in both demand and supply is why this time is truly different and has to be dealt with differently.  Read more…

Arguments against Central Banks

April 28, 2020 Leave a comment

from Asad Zaman

RG2 (Reading Guide 2) – Continues from previous posts on Reading Course: Central Banking and Readers Guide: Goodhart on Central Banks. Writeup is given following the ten minute video:

Goodhart starts by discussing discontent with Central Banking System. He wrote this book well before the GFC 2007 -8, which has created much greater discontent. There are two different lines of attack on Central Banking:

  1. Free Banking: Private Creation and Provision of Money. Today, this idea would find shape in large scale private creation of money via bitcoins, FB Libra, community money, and many other innovative ideas for creation of money without governments being involved.
  2. Regulated Central Banks: Banks should follow specified rules, like Friedman’s rule of 6% monetary growth, or Taylor rule, or certain other rules. This line of thinking emerges from a rational expectations approach, and will be discussed in greater detail later

Free Market Ideology does not accept Discretionary Monetary Policy.  read more

“Nothing will fundamentally change”

April 28, 2020 13 comments

from David Ruccio

Three and a half weeks ago, Bernie Sanders became the last challenger to drop out of the race, thus clearing the way for Joe Biden to become the Democratic nominee on the November presidential ballot.

Since then, the novel coronavirus has engulfed the country (and, of course, the world), the U.S. economy has mostly come to a standstill, and tens of million American workers have joined the ranks of the unemployed, while “essential” workers are forced to commute to and labor in perilous conditions and jobless families have found it necessary to walk or take to their cars to wait in line by the thousands outside food banks.

Biden therefore has to find a way of presenting a progressive alternative to Trump by articulating some clear ideas, and perhaps eventually a detailed plan, to confront the most dramatic economic and social crises to face the United States since the first Great Depression. Read more…

Haavelmo and modern probabilistic econometrics — a critical-realist perspective (wonkish)

April 27, 2020 4 comments

from Lars Syll

Mainstream economists often hold the view that criticisms of econometrics are the conclusions of sadly misinformed and misguided people who dislike and do not understand much of it. This is a gross misapprehension. To be careful and cautious is not equivalent to dislike.

economThe ordinary deductivist ‘textbook approach’ to econometrics views the modelling process as foremost an estimation problem since one (at least implicitly) assumes that the model provided by economic theory is a well-specified and ‘true’ model. The more empiricist, general-to-specific-methodology (often identified as the ‘LSE approach’) on the other hand views models as theoretically and empirically adequate representations (approximations) of a data generating process (DGP). Diagnostics tests (mostly some variant of the F-test) are used to ensure that the models are ‘true’ – or at least ‘congruent’ – representations of the DGP. The modelling process is here more seen as a specification problem where poor diagnostics results may indicate a possible misspecification requiring re-specification of the model. The objective is standardly to identify models that are structurally stable and valid across a large time-space horizon. The DGP is not seen as something we already know, but rather something we discover in the process of modelling it. Considerable effort is put into testing to what extent the models are structurally stable and generalizable over space and time. Read more…

Saving journalism will require some new thinking

April 26, 2020 8 comments

from Dean Baker

There has been a new wave of despair among journalists in the last couple of weeks as several major news outlets, including the Los Angeles Times and McClatchy News Service, announced layoffs and/or pay cuts. The immediate cause is the coronavirus. Pandemics sharply reduce advertising opportunities, but the underlying model is clearly not viable for most news outlets.

There is a limited amount of money that businesses are willing to pay for web ads, which is now by far the largest form of distribution. This is especially the case when Facebook and Google can offer much better targeted advertising. Subscriptions can raise some money, but apart from the New York Times and a few other elite publications, this source of revenue will not go far in supporting the people who produce and edit content.

While the immediate problem of the coronavirus forced shutdown will eventually abate, the longer-term trends in the industry are not going away. Fewer and fewer journalists will be supported through the current model, leaving us ever more poorly served. We clearly need a new model.

A New Approach  Read more…

Billionaire wealth in the USA

April 25, 2020 7 comments

from David Ruccio

billionaires copy 3

A new report from the Institute for Policy Studies, “Billionaire Bonanza 2020: Wealth Windfalls, Tumbling Taxes, and Pandemic Profiteers,” reveals that the wealth of U.S. billionaires is indeed staying at home.

Read more…

Lucas’ Copernican revolution

April 24, 2020 38 comments

from Lars Syll

In Michel De Vroey’s version of the history of macroeconomics, Robert Lucas’ declaration of the need for macroeconomics to be pursued only within ‘equilibrium discipline’ and declaring equilibrium to exist as a postulate, is hailed as a ‘Copernican revolution.’ Equilibrium is not to be considered something that characterises real economies, but rather “a property of the way we look at things.” De Vroey, approvingly, notices that this — as well as Lucas’ banning of disequilibrium as referring to ‘unintelligible behaviour’ — “amounts to shrinking the pretence of equilibrium theory.”

Mirabile dictu!

Is it really a feasible methodology for economists to make a sharp divide between theory and reality, and then — like De Vroey and Lucas — treat the divide as something recommendable and good? I think not.

Fortunately, there are other economists with a less devoted hagiographic attitude towards Lucas and his nonsense on stilts.

Alessandro Vercelli is one: Read more…