The useful economist and economic research

May 29, 2022 5 comments

from James Galbraith

The useful economist

The common characteristic of almost all of this work, excepting a few who preoccupied themselves with logical skirmishes with the neoclassical orthodoxy – e.g., the Cambridge-Cambridge controversies over the theory of capital (Robinson, 1956; Sraffa, 1960; Harcourt, 1972), or in microeconomics (Keen, 2011) – is that the protagonists were concerned, in the first place, with the practical questions of policy facing their governments or the international community of which they were a part. Whether reformist or revolutionary, their economics was (and still is) the elucidation of problems and the means of dealing with them. The purpose of economic reasoning is to inform and buttress political and social choices. It is not merely to create a simulation that kinda-sorta emulates some run of economic data.

The useful economist is one who engages in the quest for solutions. A truly useful economist does so in an open-minded, informed way, aware of underlying principles but not hypnotized by them, and independent of financial gain and personal ambitions, whether political or for status and celebrity among economists. The behavior of bankers and speculators, the emissions of factories and transport networks, the withdrawal of critical resources from a finite reserve in the crust of the earth, the level and distribution of wages, profits and rents, fair and effective taxation, how to achieve the willing cooperation of free citizens in pursuit of the common good – all these are part of what a useful economist may study. The person who stands outside and aloof from such questions, who purports merely to “model the system” is, for most purposes, an idler, not so much a scientist as a hobbyist.

Read more…

Hazel Henderson obituaries

May 27, 2022 Leave a comment

Washington Post
Green Economy
The Telegraph

Hazel Henderson attacked economics as “politics in disguise” and demanded economists take account of quality of life.   And for two decades she offered moral support for this blog and the Real-World Economic Review.

Pod hazel henderson

“The paradigm of sustainability, with its notions of limitations and carrying capacities confronts dominant paradigms of progress which do not recognize limits to unchecked growth.”

Long term changes in the western rate of ‘Gross Fixed Capital Formation’. Patterns and anomalies.

May 25, 2022 3 comments

In 2019, the Irish rate of ‘gross fixed capital formation’ (which I hitherto will call fixed investment), was 54,6%. More than half of total national expenditure… This was over twice the rate in most other European countries. And three times the Irish rate in 2011 or the Italian rate in 2014. What happened? Was this real? Were they building three times as many houses and roads, buying three times as many planes and trucks and doing three times as much Research and Development (which is considered to be ‘gross fixed capital formation’) as only a few years before? Nope. But if that wasn’t the case, what was the case? Below, I’ll show the results of an update of my data on long term rates of fixed investments in a number of countries, adding 4 years to the series already published. This update shows (1) a moderate but welcome uptick of the rate of fixed investment in Europe and (2) a big, fat anomaly in (there we go again…) Ireland, which will be discussed. The piece will be laced with remarks about the (changed) concept of fixed investment

.

Read more…

The impediment to productivity growth: Waste that makes some people rich

May 25, 2022 6 comments

from Dean Baker

The New York Times ran a piece discussing why innovations in cloud computing and artificial technology have not led to more rapid increases in productivity. It raises a number of possibilities, but leaves out an obvious one, increasing waste associated with rent-seeking. We clearly see an increase in waste associated with rent-seeking, the only question is whether it is large enough to have a notable effect on productivity growth.

The piece actually touches on, without commenting on it, one of the major sources of waste. It discusses the practices of a major health insurer.

Health insurance does not directly contribute to GDP. Health care (actually health) is what we care about. Health insurers determines who has access to health care. In principle we want as few people employed in the health insurance industry as possible, we want people to be able to get health care, not to have insurers block their path.

However, we have over 900,000 people employed in health and life insurance companies. Much of what they do is made profitable by the fact that patent monopolies make many drugs and medical equipment expensive. In the absence of these monopolies, no insurer would look to block patients from getting the drugs or medical care recommended by their physician.

There are similar stories in many other sectors. The financial industry employs hundreds of thousands of people shuffling assets in ways that contribute nothing to GDP. The same is true with the lawyers and accountants devoting their efforts to help rich people and corporations avoid paying taxes.

Eliminating, or at least reducing, this waste would be a great way to increase productivity. Unfortunately, the people get rich and richer off this waste prevent it from being addressed politically, or even discussed in the New York Times.

Life expectancy vs. health expenditure

May 24, 2022 9 comments

source

Great and rising inequality

May 23, 2022 2 comments

from Jamie Morgan

An interest in great inequality and rising inequality have become prominent features of our times. According to Oxfam in 2019 the 26 richest people on the planet had equivalent wealth to the 3.8 billion who comprise the lower 50% of the world population. The previous year it required the top 43 to create this equivalence. The 2020 Oxfam report adds a series of statistical claims: the world’s richest 1% have more than twice the wealth of 6.9 billion of the world’s population, the 22 richest men have more wealth than all the women in Africa (and the estimated value of the unpaid work of women in the world is $10.8 trillion); a report from the Institute for Policy Studies, meanwhile, highlights that US billionaire’s tax obligations as a %  of wealth reduced by 79% between 1980 and 2018 (Collins et al., 2020). According to the UK High Pay Centre, the median pay of CEOs in the UK FTSE 100 was £3.9 million in 2017 (11% higher than 2016) and it would take a worker on median pay 125 years to earn this (and the equivalent figures for the Dow in the US are far greater). According to the Equality Trust, FTSE 100 CEO “compensation” as a ratio to their own employees’ pay averaged 145:1 in 2017 (rising from 30:1 in 1970 and 50:1 in 1990).

Ethical criteria which hold the sustainability of life at their core

May 22, 2022 1 comment

from Fernando García-Quero and Fernando López Castellano

Overconfidence in the magical thinking of technification, economic growth, the free market, and neoliberal globalization has led many to forget that the state is the main policy architect and actor when facing a crisis. Successful responses to Covid-19 have shown, once again, the central role of states in organizing political measures that foster and maintain the welfare of their populations, through actions to guarantee quarantine, social distancing, mobility restrictions, as well as extraordinary support to manage losses related to the economic downturn.

The role adopted by the states and politics in countries’ performances when tackling COVID-19 is very different from the perspectives that dominate the current agenda of development. Read more…

The Collapse of the India’s creative Industries

May 21, 2022 3 comments

from Jayati Ghosh

There is no doubt that creative industries, along with care activities, are going to emerge as some of the most significant economic sectors of the future. Broadly speaking, the creative industries consist of advertising, architecture, arts and crafts, design, fashion, film, video, photography, music, performing arts, publishing, research & development, software, computer games, electronic publishing, and TV/radio.

A 2019 report from by UNCTAD (Creative Economy Outlook 2019, Geneva: UNCTAD) notes how these activities are valuable in both cultural and commercial terms. Obviously, they improve human and social well-being, and as expressions of the human imagination, bring joy, meaning and fulfilment to lives. In their finest forms, they can spread important social and cultural values that encourage social cohesion and lift human spirits.

But in addition, they are also crucial for inclusive economic development, not least because of their very large employment potential. Unlike many other sectors, technological changes can affect creative industries positively, creating new jobs and not necessarily reducing existing jobs much. Since the contemporary creative economy thrives at the intersection of culture, technology, business and innovation (think of the 3D animation now flourishing in Hungary and Indonesia as well as in India, or outdoor arts parks like Imhotim in Brazil) it can be a potent source of future innovation as well. These activities are increasingly well-suited to small and medium-sized enterprises, especially when barriers to entry are lowered. And cross-border trade in creative goods and services is buoyant, and remained so even during the pandemic. Read more…

Beveridge Curves – Covid edition

Beveridge curves are graphical representations of the historical relationship between unemployment and the job openings/job vacancy rate. They should be called ‘Beveridge Ellipsoids‘ as they are banana shaped (an ellipsoid with one bent axis, aside of banana-shaped there does not seem to be an official name for such an ellipsoid). Just calling it a ‘curve’ is somewhat misleading as the banana-shape is no coincidence but caused by labor market dynamics: high unemployment leads to an outward shift (away from the origin) of the relation between vacancies and unemployment. Calling it the ‘Beveridge ellipsoid’ (or, when explaining it to students, ‘The Beveridge Banana‘) catches these dynamics much better than calling it a curve. Anyway: How does that work and how is it related to the present, unprecedented labor market and the very large outward shift of the curve in at least the USA (Figure 1 shows USA data, below I’ll also show EU data)?

Figure 1. Beveridge Ellipsoids in the USA

Read more…

Axel Leijonhufvud (1933-2022)

May 20, 2022 1 comment

from Lars Syll

The orthodox Keynesianism of the time did have a theoretical explanation for recessions and depressions. Proponents saw the economy as a self-regulating machine in which individual decisions typically lead to a situation of full employment and healthy growth. The primary reason for periods of recession and depression was because wages did not fall quickly enough. If wages could fall rapidly and extensively enough, then the economy would absorb the unemployed. Orthodox Keynesians also took Keynes’ approach to monetary economics to be similar to the classical economists.

axel_press_highresLeijonhufvud got something entirely different from reading the General Theory. The more he looked at his footnotes, originally written in puzzlement at the disparity between what he took to be the Keynesian message and the orthodox Keynesianism of his time, the confident he felt. The implications were amazing. Had the whole discipline catastrophically misunderstood Keynes’ deeply revolutionary ideas? Was the dominant economics paradigm deeply flawed and a fatally wrong turn in macroeconomic thinking? And if this was the case, what was Keynes actually proposing?

Leijonhufvud’s “Keynesian Economics and the Economics of Keynes” exploded onto the academic stage the following year; no mean feat for an economics book that did not contain a single equation. The book took no prisoners and aimed squarely at the prevailing metaphor about the self-regulating economy and the economics of the orthodoxy. He forcefully argued that the free movement of wages and prices can sometimes be destabilizing and could move the economy away from full employment.

Arjun Jayadev

Fortunately, when you’ve got tired of the kind of macroeconomic apologetics produced by ‘New Keynesian’ macroeconomics, there are still some real Keynesian macroeconomists to read. One of them will always be Axel Leijonhufvud.

Thinking like an Economist?

May 19, 2022 5 comments

from Peter Radford

Thinking like an economist.

What a horrible thought.  Can you imagine anything more restrictive and less imaginative?  It requires you to disengage from reality and enter a world constrained by absurd assumptions, odd definitions, and a lack of foundation.  The entire edifice of economics sits, in all its glory, suspended in mid-air and relying on what the philosopher Daniel Dennett describes as “sky hooks” to hold it up.  Beneath it is only vapor and foggy notions of the phenomena it purports to describe and explain.  Just ask an economist to describe a market in detail and you will understand how vague the enterprise is.  

Perhaps I am wrong.  It takes a lot of imagination to conceive of what passes as economics as being a study of actual economies.  You need a really vivid imagination, for instance, to think that businesses actually calculate or apply marginal productivity on payday.  Or that the dense ignorance of total factor productivity is an actual thing and not simply a definition of how little economists know about how economies grow.  Or that there is something called an equilibrium calling out and pulling us all into a perfect quiet calm stasis devoid of the roughness or hurry-burly that makes theorizing reality so stressful.  Or … well you get the picture.

How about this: did you hear the joke about the economist? Read more…

In economics value-neutrality is an illusion

May 18, 2022 9 comments

from Peter Söderbaum

I am a professor emeritus with many years of experience of the functioning of university departments of economics and other social science disciplines, such as business management. As has already been made clear I consider the close-to-monopoly position of neoclassical theory at university departments of economics as a major problem in relation to aspirations of sustainable development. The two “facts” that (a) values are necessarily involved in research and education and (b) those employed at university departments of economics live in democratic societies – means that economics (in democratic societies) cannot be reduced to a centre of propaganda for those values that are built into the neoclassical paradigm. A degree of pluralism in education and research becomes the natural response. Value-neutrality is an illusion and there are many reasons to listen to the voices of students and other actors, politicians included, who understand that the present monopoly is dysfunctional for society at large. Professors of economics have no right to exclude competing theoretical perspectives connected with other ideological orientations, such as sustainable development. Read more…

Economics Textbooks

May 17, 2022 10 comments

from Steve Keen

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

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

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

The minority which continues on to further academic training is taught the complicated techniques of economic analysis, with little to no discussion of whether these techniques are actually intellectually valid. The enormous critical literature is simply left out of advanced courses, while glaring logical shortcomings are glossed over with specious assumptions. However, most students accept these assumptions because their training leaves them both insufficiently literate and insufficiently numerate. Read more…

Crypto-crash: graph

May 16, 2022 1 comment

Source: Forbes

Formalizing economic theory

May 16, 2022 1 comment

from Lars Syll

Inflation - The New Economics PartyWhat guarantee is there … that economic concepts can be mapped unambiguously into mathematical concepts? The belief in the power and necessity of formalizing economic theory mathematically has thus obliterated the distinction between cognitively perceiving and understanding concepts from different domains and mapping them into each other. Whether the age-old problem of the equality between supply and demand should be mathematically formalized as a system of inequalities or equalities is not something that should be decided by mathematical knowledge or convenience. Surely it would be considered absurd, bordering on the insane, if a surgical procedure was implemented because a tool for its implementation was devised by a medical doctor who knew and believed in topological fixed-point theorems? Yet, weighty propositions about policy are decided on the basis of formalizations based on ignorance and belief in the veracity of one kind of one-dimensional mathematics

K. Vela Velupillai

Weekend read – MMT, post-Keynesians and currency hierarchy: Notes towards a synthesis

May 14, 2022 1 comment

from Luiz Alberto Vieira and current issue of RWER

Introduction

The current moment seems favorable to debate and potential reconsideration of theoretical systems, a situation derived both of developments in the analysis of public financing and the nature of money, but also, largely, due to the particular political and social circumstances observed in many countries. US hegemony is in crisis, as its industrial might decreases and is put in question by China’s development. The Asian country is now responsible for a large part of the world’s industrial output, boasting a complex and innovative economy. Another point worth noticing is former president Trump’s challenge of the basic principles of American politics and society, a situation the US shares with other countries.

Trump’s defeat in the last elections was only made possible due to unity of the Democratic Party around Joe Biden, thus overcoming the divide between “establishment” Dems and the self-proclaimed socialists, a minority which nonetheless gets 20% of voter’s preference. Since any victory by the party will require such unity, Democrats’ long held liberal economic policies are likely to be altered. Biden´s economic plan is a result of the new power balance in the party, in the sense that it embraces some of the left’s agenda, in a context heavily influenced by the ideas of Modern Monetary Theory (MMT).

Read more…

The threat of a pharma-dictatorship

May 12, 2022 Leave a comment

This is an extract from Norbert Häring‘s International Health Regulations: A big step toward a health dictatorship is imminent 12 May 2022 

What the U.S. has in mind here is an authorization for the WHO to immediately take the reins out of the hands of national governments in the event of an actual or alleged health risk from a pathogen and to be able to determine the assessment of the situation and the countermeasures. The US and their allies in this, the EU and Switzerland, are home to most of the major global pharmaceutical companies, To be sure, governments would retain the right to say no. However, this right is greatly devalued by the fact that they can then immediately be pilloried worldwide, either by the WHO or by a single, powerful government, such as that of the USA.

Should it come to the point that the informal sanctions would be augmented by formal sanctions against non-cooperative governments – which is almost to be expected – the governments of all countries, except the strongest, will hardly be able to defend themselves against having foreign teams of experts sent into their country to determine what has to happen.

This dis-empowerment of governments is made all the more dangerous by the fact that the WHO Director-General is allowed to decide on his own authority, based on extremely vague and elastic criteria, when a health emergency of international relevance is declared.

Moreover, the intention, often and clearly expressed by powerful players such as Johns Hopkins University and Bill Gates, to make standard mass testing of all people against all possible known and as yet unknown pathogens the norm, must be taken into the picture. It will then, with the appropriate will, be no problem at all to declare a potential health emergency. With intensive search, new pathogens will often be found that could become dangerous, but by no means have to.

But who could have an interest in declaring health emergencies and initiating – possibly unnecessary – countermeasures? Read more…

Gödel and the limits of mathematics

May 11, 2022 4 comments

from Lars Syll

irrelevant model abstractions
with no bridges to real-world economies

 

Gödel’s incompleteness theorems raise important questions about the foundations of mathematics.

The most important concern is the question of how to select the specific systems of axioms that mathematics is supposed to be founded on. Gödel’s theorems irrevocably show that no matter what system is chosen, there will always have to be other axioms to prove previously unproven truths.

This, of course, ought to be of paramount interest for those mainstream economists who still adhere to the dream of constructing deductive-axiomatic economics with analytic truths that do not require empirical verification. Since Gödel showed that any complex axiomatic system is undecidable and incomplete, any such deductive-axiomatic economics will always consist of some undecidable statements. When not even being able to fulfil the dream of a complete and consistent axiomatic foundation for mathematics, it’s totally incomprehensible that some people still think that could be achieved for economics. Read more…

Can you think of something snappier than “Understanding the Economy – A Learning System”?

The 1300 words below are extracted from an email that Neva Goodwin wrote and copied me into.  It outlines a large new project initiated by the World Economics Association, but which will include numerous other organizations opposed to the dominance of traditional economic thinking.  However, the extract’s first sentence is misleading because it is Neva’s and Pratisha’s names that should be mentioned first since they are the project’s primary sources of creative energy.  And then there is the question of the project’s name.  As the project develops it will seek wide attention, and therefore needs a “snappier” name.  Perhaps after reading Neva’s description, you can suggest one. 

The project: “Understanding the Economy – A Learning System”

Edward Fullbrook, Pratistha Rajkarnikar, and Neva Goodwin have been working for several months to conceptualize a project designed to provide a good understanding of how economies work – and how they might work for greater human and planetary well-being – to people who are not economics students.

We start from acknowledging that humanity today is in an unprecedently dangerous situation which has been largely created by our economies.  The situation has two prime dimensions.  One, economies are redistributing wealth and income in a way that lethally threatens our socio-political systems.  And two, human economies are impacting the biosphere and its ecosystems in a way that is rapidly destroying, maybe totally, the Earth’s capacity to sustain human life.

Given that the economies most responsible for this situation have been guided by the teachings of traditional economics, a fundamentally new discipline (and perhaps not to be called “economics”) must be quickly developed and made available to the public, especially to the young, who are increasingly aware of the crisis and have the most to lose.

The first stage of this project has included conversations with a variety of economists, including Jamie Galbraith, Andrew Mearman, Alicia Puyana Mutis, Bertrand Hamaide, John Komlos, Katherine N. Farrell, and Gar Alperovitz.  Sam de Muijnck and Joris Tieleman, the leaders of Rethinking Economics/Our New Economy are involved with similar goals and activities to ours, and we hope to coordinate with them as well as with others similarly motivated, such as Leslie Harroun and Ted Howard at the Democracy Collaborative, to take advantage of our overlapping interests and activities.  Our conversations to date have resulted in the following strategy statements:

Read more…

The magnitude of the required reductions

May 9, 2022 3 comments

from Ted Trainer and current issue of RWER

It is not commonly understood how large the reductions would have to be to enable a society that is globally sustainable and just. The World Wildlife Foundation’s Footprint measure (2018) estimates the average Australian per capita use of productive land at 6–8 ha. Thus, if the 9–10 billion people expected to be on earth by 2050 were to live as Australians do now, up to 80 billion ha of productive land would be needed. But there are only about 12 billion ha of productive land on the planet. If one third of it is set aside for nature then each Australian would be living in a way that would require about 10 times as much productive land as all people could ever have. Some other measures taking into account factors such as materials consumption (Wiedmann et al., 2015) indicate higher multiples.

To this must be added the implications of growth. If the Australian GDP rises by 3% pa and by 2050 all 9–10 billion people rise to the “living standards” Australians would then have, each year the global economy would be producing and consuming about 18 times as much as it does now. Yet the present amounts are unsustainable; the WWF estimates that the global footprint is now 70% higher than the planet could sustain. This indicates that the 2050 global resource and ecological impact would be in the region of 30 times a sustainable level. (For a detailed derivation of these multiples see Trainer 2021a.)

The common assumption that technical advance can solve the resource and ecological problems without impacting on affluent living standards and economic growth has now been contradicted by a large amount of evidence. Many studies show that despite constant effort to improve productivity and efficiency the growth of GDP continues to be accompanied by growth in resource use.

read more 

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