from Maria Alejandra Madi and the WEA Pedagogy Blog
The target of economics education is the comprehension of the reality in its economic dimensions, that is to say, the understanding of the practices and ideas that support the evolution of the reproduction of material life. However, following John Kenneth Galbraith, we can say that economics is overwhelmed by an “uncorrected obsolescence”. Consequently, each generation faces many new economic and social challenges. As Alfred Marshall wrote in the preface to his Principles of Economics, “economic conditions are constantly changing and each generation looks at its own problems in its own way”.
Indeed, the current political, economic and social features of globalization configures a rupture in relation to the Bretton Woods institutions. The contemporary institutional set up is the result of deep transformations that characterized the outcomes of the crisis of the accumulation pattern in the 1970s and 1980s. The financialization of the global economy produced great transformations in the growth dynamics since the decisions related to investment, production and employment are increasingly subordinated to the short-term financial commitments of big corporations. Besides, further deep structural changes have involved increasing capital mobility and the growing importance of institutional investors as managers of “financial savings”. Read more…
from Dean Baker
Paul Krugman questions whether there is an existence of positive relationship between equality and growth. He rightly cautions those on the left against being too quick to accept the existence of such a relationship.
He uses a simple graph showing the relationship between inequality and growth per working age person in the years 1985 to 2007. His takeaway is that there is not much a positive relationship, but there clearly is no negative relationship between equality in growth. In other words, the people who are that we need to have more inequality to support stronger growth have a hard case to make using this simple comparison.
I would suggest taking the analysis one step further. One big difference between countries over this period is the extent to which they opted to take the benefits from growth in more leisure time. There are large differences in the decline in the length of the average work year across countries. Read more…
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Issue no. 71 , 28 May 2015
Download the whole issue here
Two proposals for creating a parallel currency in Greece
A program proposal for creating a complementary currency in Greece
Trond Andresen and Robert W. Parenteau download pdf
Updated proposal for a complementary currency for Greece
Alan Harvey download pdf
China’s communist-capitalist ecological apocalypse
Richard Smith download pdf
Trends in US income inequality
Pavlina R. Tcherneva download pdf
The market economy: Theory, ideology and reality
C. T. Kurien download pdf
Explaining money creation by commercial banks
Ib Ravn download pdf
Realist Econometrics? – Nell and Errouaki’s, Rational Econometric Man
Jamie Morgan download pdf
Who does the state work for? – Geopolitics and global finance
Tijo Salverda download pdf
from Lars Syll
How was it possible, it has to be asked, for the basic Keynesian insights and analyses to be so badly lost in the making of European economic policies that imposed austerity? Some of the dominant figures in the financial world have had a long-standing scepticism of the economic relations on which Keynes focused which is being emended only now, with reality checks being made in observations of the penalty of the neglect of Keynesian relations …
from Asad Zaman (and the WEA Pedagogy Bog)
A long time ago, Ibn-e-Khaldoon noted the tendency of conquered nations to unthinkingly imitate the conquerors in all dimensions of life. After achieving freedom from colonization, the former colonies have tended to imitate or retain the colonial institutions, without reflecting on whether or not these institutions are suitable for them. In his classic, “Small is Beautiful,” Schumacher showed that appropriate technology for developing countries was often small and low-tech production techniques which empowered the people. Imitating the highly capital intensive and large scale industries of labor short capitalist countries is like trying to run before learning to walk. Today, large dams are being built all over the world at enormous financial and environmental costs, while smaller scale agile energy producing technologies which deliver quick results cheaply are being ignored. Similarly, we have retained colonial institutions which were designed to be top-down, hierarchical, and non-democratic; people being heavily taxed and exploited cannot be allowed to have a vote in the matter. Transiting to democratic institutions requires many reforms. For instance, the “police force” which maintains order by force, needs to be re-conceptualized as the police service, responsible for the security and protection of citizens. Read more…
from Lars Syll
When applying deductivist thinking to economics, neoclassical economists usually set up “as if” models based on a set of tight axiomatic assumptions from which consistent and precise inferences are made. The beauty of this procedure is of course that if the axiomatic premises are true, the conclusions necessarily follow. The snag is that if the models are to be relevant, we also have to argue that their precision and rigour still holds when they are applied to real-world situations. They often don’t. When addressing real economies, the idealizations necessary for the deductivist machinery to work — as e. g. IS-LM and DSGE models — simply don’t hold.
If the real world is fuzzy, vague and indeterminate, then why should our models build upon a desire to describe it as precise and predictable? The logic of idealization is a marvellous tool in mathematics and axiomatic-deductivist systems, but a poor guide for action in real-world systems, in which concepts and entities are without clear boundaries and continually interact and overlap. Read more…
1) Greece. According to my Twitterstream the proposal of The Institutions aims for Grexit. An offer you can refuse. In a country where unemployment increased to about 26% and wages have been cut with 15 to 20% the low VAT rate (food, medicine,…) seems to have to increase from 6,5 to 11%. At the same time, pensions have to be cut. Mind that during the last three years banks received government transfers of about 25 billion – and The Institutions only welcomed this. My advise to Greece: transform the country into a bank (latest: seems that the proposal to decrease especially the purchasing power of the poorest Greeks has been refused). miscellaneous Read more…
1) Greece will, eventually, have to raise the pension age. But it’s not urgent. The real threat to pensions is the 25%+ unemployment rate of the country. Rasing the pension age won’t solve this problem. Cutting pensions will also not solve this problem – to the contrary. Though the ECB seems to think otherwise. According to the minutes of the ECB,
Swift and effective implementation of appropriate reforms in the euro area would not only lead to higher sustainable growth in the medium to long term but also raise expectations of permanently higher incomes and encourage households to expand consumption and firms to increase investment already in the near term
In Greece, ‘appropriate reforms’ seem pension cuts (again, or is it ‘again again’ already?). Does the ECB really think that taking money away from poor seventy-somethings will raise their expectations of ‘permanently higher incomes’ and will make them increase their consumption? Or do they mean that lower Greek pensions will directly induce Germans to spend more, therewith (over)compensating the drop in consumption from Greek pensioners? This is ‘rational expectations economics’ gone wild. Read more…
from Lars Syll
Economic models that integrate banking with macroeconomics are clearly of the greatest practical relevance at the present time. The currently dominant intermediation of loanable funds (ILF) model views banks as barter institutions that intermediate deposits of pre-existing real loanable funds between depositors and borrowers. The problem with this view is that, in the real world, there are no pre-existing loanable funds, and ILF-type institutions do not exist. Instead, banks create new funds in the act of lending, through matching loan and deposit entries, both in the name of the same customer, on their balance sheets. The financing through money creation (FMC) model reflects this, and therefore views banks as fundamentally monetary institutions. The FMC model also recognises that, in the real world, there is no deposit multiplier mechanism that imposes quantitative constraints on banks’ ability to create money in this fashion. The main constraint is banks’ expectations concerning their profitability and solvency.
In the traditional loanable funds theory — as presented in mainstream macroeconomics textbooks Read more…
from Peter Radford
There seems to be a lot of angst as to why standard macroeconomics ignores the government in its analysis. Or, rather, that when the government slips into the picture it is almost invariably in the form of an evil presence mucking up the sweet operation of market magic and thus stalling us all on our way to the happy place economists love to call equilibrium.
This is quite simple to answer: economists of the standard ilk are opposed to democracy.
Because, since its very inception, modern economics in most its forms has been the study of the private economy. Listen to Quesnay: Read more…
1) Hans-Werner Sinn, on Project Syndicate, shows that he still does not understand the basic accounting behind Target2. He still seems to think that the Greek Target2 deficit is increasing because Greek citizens are borrowing and bringing this borrowed money abroad. Sigh. Even when a country has a current account surplus (which Greece has) and private credit is shrinking (which, according to the Greek national bank is happening) the Target2 deficit increases when foreign Eurozone banks do not want to roll over legacy private debts anymore and the European Central Bank automatically finances this by letting the Target2 deficit increase. Private debts are offloaded to the central banking system. It’s a shame that Project Syndicate publishes this nonsense. Read more…
from Shimshon Bichler and Jonathan Nitzan
The Scientist and the Church
Shimshon Bichler and Jonathan Nitzan[*]
Human society, one may argue, is propelled by a dynamic clash of two primordial drives: creativity and power. The urge to invent confronts the impulse to conserve, the desire to change contests the quest to impose, the will to transcend conflicts with the impetus to restrict, harness and sabotage. It seems that the ever-present need to create something new always stands against the itch to redistribute and appropriate. Read more…
HUDSON: Well, this is not just a rumor. Varoufakis has written in the last few days that there is no way that Greece is going to stop paying pensions, and there is no way that Greece is going to privatize the economy. In other words, he said, we’re willing to make all sorts of compromises. The usual, it’s called extend and pretend, you lend us the money and we’ll pay you. You pretend to lend us the money, that it’s a good debt, we’ll pretend to pay. But there’s no way that they’re going to commit suicide. And the Central Bank’s saying yes, you have to commit suicide or else have the anarchy of withdrawing from the Euro. What are you going to do?And so they’re trying to figure out, well, wait a minute. We’re not going to be able to pay, so what is the point of trying to pay a debt that can’t be paid? If there’s no money there we can’t pay, so there’s no way that we can meet their conditions. There’s obviously going to be a [break]. So Greece is going to use its money to continue to pay pensions. It’s not going to privatize more of the public domain, it’s not going to sell off its mineral holdings and its gas rights in the Aegean. There’s a complete blockage.And apparently President Obama, which originally had told Europe, wait a minute, you’ve got to stop Greece from withdrawing because otherwise it’ll have to make a deal with [inaud.] for gas or with Russia. It’s going to be absolute anarchy. And that’s the intended result by Europe. I know the Greek negotiators. I’ve spoken to them. I could not do anywhere near as good a job as they’re doing. I’m in full agreement with everything they’re doing. They’re being reasonable. But they’re up against a wall of, the intention is to have economic warfare and to force Greece to continue the privatization program and to continue the war against labor.And there’s no way of knowing what’s going to come out. Some kind of script currency, some kind of artificial currency maybe used as an interim.
from David Ruccio
What most of my students know about and game theory (at least before sitting through my two or three lectures on the topic or taking an entire course in game theory) they derived from the film, A Beautiful Mind, and the stupid example used to illustrate game theory in the film (of a blond woman walking into a bar).
June Sekera has published a new working paper which sets out to “outline the elements of a theory of the public non-market, and suggest a model to explain its forces, flows and dynamics“. She wants to do this because: “More than a century ago, the effective operation of the public economy was a significant, active concern of economics. But, with the rise of market-centrism and rational choice economics, government was devalued and allowed a role only in cases of “market failure.” The very idea of a valid, valuable public non-market almost disappeared from sight. So today we lack a coherent, comprehensive theory of the public economy“.
Sadly, Read more…
According to Mario Draghi, structural reforms should make the Eurozone economies more flexible, to enable them to recover faster from a crisis. A faster decline of wages should have lead to faster economic recovery. Hmmmm…
1) Without directly attacking this point of view Frances Coppola argues (using Latvia as an example) that high inequality increases the volatility of an economy (via a leverage channel) – implying that structural reforms aimed at lower inequality will reduce the need to recover from crises as they might well be less deep. Look here and here .
2) The same idea is stressed by IMF economists Kumhof and Ranciere
from Lars Syll
Neoclassical economic theory today is in the story-telling business whereby economic theorists create make-believe analogue models of the target system – usually conceived as the real economic system. This modeling activity is considered useful and essential. Since fully-fledged experiments on a societal scale as a rule are prohibitively expensive, ethically indefensible or unmanageable, economic theorists have to substitute experimenting with something else. To understand and explain relations between different entities in the real economy the predominant strategy is to build models and make things happen in these “analogue-economy models” rather than engineering things happening in real economies.
Formalistic deductive “Glasperlenspiel” can be very impressive and seductive. But in the realm of science it ought to be considered of little or no value to simply make claims about the model and lose sight of reality. As Julian Reiss writes: Read more…
“As of 2005 Spain had the second highest immigration rates within the EU, just after Cyprus, and the second highest absolute net migration in the World (after the USA). … In fact, booming Spain was Europe’s largest absorber of migrants from 2002 to 2007, with its immigrant population more than doubling as 2.5 million people arrived.”
Contrary to what Mario Draghi tells us in his recent speech ‘structural reforms, inflation and monetary policy’, more ‘flexibility’ is not the answer to the Eurozone woes. Maybe even to the contrary. Flexible labour markets and deregulated financial markets did not just enable the buildup of housing bubbles and an oversized financial sector and unsustainable private debt levels in countries like Spain, Ireland and the Netherlands but also caused them. Fast ‘reallocation of resources between sectors’, lauded by Draghi, like mass immigration of construction workers in Spain and Ireland, mitigated wage increases. Which led to an even larger bubbles Read more…
from Lars Syll
About math: I have an undergraduate degree in physics. I’ve seen clear evidence that math can facilitate scientific progress toward the truth.
About truth and science: My fundamental premise is that there is an objective notion of truth and that science can help us make progress toward truth.
If you do not accept this premise, I’m sure that there are people who would be happy to debate it with you. I’m not interested. I’m busy.
Hmm … Read more…