Macro and migration – EU edition.

November 20, 2016 1 comment


So, ‘What’s it going to be then, eh’? Will we let migration wreck the EU or will we opt for sound macro policies?

The non-far right should double down on the present freedom of movement of people inside the EU. But only when credible macro-economic demand and welfare policies are installed. Otherwise, the internal inconsistencies of the present macro-economic set up will fracture the EU. Which means that the freedom of capital flows, one of the other EU freedoms, might have to be curtailed. Caveat: this post is about migration between EU countries. It is not about refugees or about migration between the EU and the rest of the world. But especially the refugee and external immigration mess (about 5.000 refugees/immigrants have drowned in the Mediterranean in 2016 up till now and hundreds of thousands are ‘apprehended’) will not be sorted until we have post-Brexit clarity about internal migration. Latest news: far right group attacks ‘apprehended’ refugees in Greece.

Read more…

Making It Count

November 18, 2016 6 comments

from Lars Syll

Modern econometrics is fundamentally based on assuming — usually without any explicit justification — that we can gain causal knowledge by considering independent variables that may have an impact on the variation of a dependent variable. This is however, far from self-evident. Often the fundamental causes are constant forces that are not amenable to the kind of analysis econometrics supplies us with. As Stanley Lieberson has it in his modern classic Making It Count:

LiebersonOne can always say whether, in a given empirical context, a given variable or theory accounts for more variation than another. But it is almost certain that the variation observed is not universal over time and place. Hence the use of such a criterion first requires a conclusion about the variation over time and place in the dependent variable. If such an analysis is not forthcoming, the theoretical conclusion is undermined by the absence of information …

Moreover, it is questionable whether one can draw much of a conclusion about causal forces from simple analysis of the observed variation … To wit, it is vital that one have an understanding, or at least a working hypothesis, about what is causing the event per se; variation in the magnitude of the event will not provide the answer to that question.

Trygve Haavelmo was making a somewhat similar point back in 1941, when criticizing the treatmeant of the interest variable in Tinbergen’s regression analyses. The regression coefficient of the interest rate variable being zero was according to Haavelmo not sufficient for inferring that “variations in the rate of interest play only a minor role, or no role at all, in the changes in investment activity.” Interest rates may very well play a decisive indirect role by influencing other causally effective variables. And:

Read more…

Mainstream economists, globalization, and Trump

November 17, 2016 9 comments

from David Ruccio


Are mainstream economists responsible for electing Donald Trump?

I think they deserve at least part of the blame. So, as it turns out, does Dani RodrickRead more…

Blame globalization?

November 16, 2016 1 comment

David Ruccio

Chris Dillow is right about one thing: citing globalization as the reason for the success of Donald Trump’s campaign, especially among working-class voters, “suits some people very well for foreigners to get the blame rather than for inequality and the health of capitalism to come under scrutiny.”

But that doesn’t mean that, alongside many other factors (from the decline in labor unions to increasing automation), globalization—to be precise, capitalist globalization—doesn’t deserve some good share of the blame.

There are two main ways the U.S. working-class is affected by globalization: in terms of jobs and in terms of consumption.

As far as jobs are concerned, the combination of cheap imports (e.g., toys and garments) and outsourcing (e.g., to produce motor vehicles and electronics) has led to the reallocation of workers away from high-wage manufacturing jobs into other sectors and occupations, with large declines in wages among workers who have been forced to have the freedom to switch. Those effects are pretty straightforward, at least in terms of the research of Avraham Ebenstein, Ann Harrison, and Margaret McMillan.*   Read more…

Above the rising trend. Update on global temperature

November 16, 2016 6 comments

From: Geoff Davies (reblogged from: Our better nature)

(a comparable graph not including 2016 has been published a few days ago, developments in 2016 are however so extreme and out of sample that this data has to be included, too, M.K.)

A couple of graphs show the extraordinary nature of the present situation.


1998 used to be one of the biggest outliers from the general trend. 2016 is going way beyond that. The second graph shows the deviation from the recent trend more clearly:


It seems the recent 3-year increase, by about 0.36°C, is unprecedented in the 136-year record.

The obfuscators/deniers loved to start their graphs at 1998 to “prove” there was no subsequent global warming. It always was a blatant distortion. There never was a pause. Even if it had been a pause, it was still much hotter than pre-industrial temperatures. Now it is blown out of the water. Conspiracy is the only resort.


Food and Justice

November 15, 2016 Comments off

The WEA online conference
Food and Justice
Ideas for a new global food agenda
is now open

The DISCUSSION FORUM  is open access.

Surviving the Age of Trump

November 15, 2016 6 comments

from Dean Baker

I will claim no special insight into the politics that led to Trump’s election last Tuesday. I was as surprised as anyone else when not just Florida and North Carolina, but also Pennsylvania, Michigan, and Wisconsin started to turn red. But that’s history now. We have to live with the fact of President Trump and we have to figure out how to protect as much as possible of what we value in this country from his presidency.

This won’t be easy when the Republicans control both houses of Congress and will soon be able to appoint a new justice to the Supreme Court to again give them a right-wing majority. But there are still points of pressure.

Most importantly, the people in Congress want to get re-elected. Pushing unpopular policies like privatizing Social Security or Medicare, or taking away insurance by ending Obamacare, will be horrible albatrosses hanging over their heads the next time they face voters. This reality has to constantly be put in their faces. It is easy for politicians to push nonsense stories about eliminating trillions of dollars of waste, fraud, and abuse. It is much harder to get away with taking away your parents’ Social Security check or the health care insurance that pays for your kid’s insulin.

The other point of pressure is that we know (even if the folks who report the news don’t) that Trump got elected by making many promises that he will not be able to keep. Rebuilding an economy in which the benefits of growth are broadly shared is a great idea, but Donald Trump is not going to bring back the coal mining jobs lost in West Virginia, Kentucky, Ohio and elsewhere. These jobs were not lost because of environmentalists concerned about the future of the planet; they were lost because of productivity growth in the industry (think of strip mining replacing underground mining). We should make sure that people regularly are informed about President Trump’s progress in bringing back coal mining jobs to Appalachia.

Before getting into some specific issues, it is worth noting that not everything Trump says he wants to do is bad. He says that he wants a big infrastructure program. This is badly needed both to modernize our infrastructure and also to create jobs. Trump’s proposed tax cuts will provide a boost to demand that will generate jobs as well. It’s horribly targeted in giving most of the benefits to the rich, but it will still lead to more consumption and therefore more demand and jobs. This may finally give the economy enough stimulus to restore the labor market to its pre-recession strength. That will be good, especially since the beneficiaries of the job growth and the stronger labor market will be disproportionately African American and Hispanic and less-educated workers. Now, I will get to some specifics.   Read more…

Two little black swans

November 14, 2016 4 comments


Most tables of the normal distribution stop at 3 standard distributions or, to state this differently, at the point were (assuming a stable world) the chance that an individual estimate of a variable is farther removed from the average of all estimated variables is 1:1000. Let’s call this the black swan point. Estimates further removed from the average are ‘black swans’. Such estimates might indicate that we’ve moved to a new situation with a new average. Ahem: arctic and antarctic sea ice, 13/11/2016, according to the NCIS:



Deregulation, austerity and the polarization of labour markets

November 14, 2016 Leave a comment

from Maria Alejandra Madi

The huge growth of deregulated finance has been associated to a new financial regime and great transformations in the pattern of economic growth. Looking back, there has been  a narrow relationship between the crisis of the post-war accumulation pattern, the evolution of the international monetary system and the process of financial deregulation. In fact, as Bello (2006) warned, in the 1980s, Reaganism and structural adjustment were not successful attempts to overcome the post-war accumulation crisis. One decade later, the Clinton administration embraced globalization as an American strategy. First, this strategy aimed to accelerate the integration of production and markets by transnational corporations. Secondly, it aimed to create a multilateral system of global governance centred on the World Trade Organization, the International Monetary Fund and the World Bank.

In the last decades,  financial capital  exercised control over the structural forms necessary for the continuing cycles of valorisation of productive capital, thanks to the centralized money at  disposal. Different growth models overwhelmed this global scenario: while some countries have presented a consumption-driven growth model fuelled by credit, generally followed by current account deficits, other countries have shown an export-driven growth model, mainly characterized by modest consumption growth and large current account surpluses (Stockhammer, 2009). The growth of financial assets, generated by the new debt cycle, included growing and sophisticated risk management practices. Besides, the financial expansion also proved to subordinate the pace of investment to financial commitments. The overall changes strengthened private and public debt and further social inequalities.  read more

The need for a new economics curriculum without the present suicidal formalism

November 13, 2016 8 comments

from Lars Syll

When the global economy crashed in 2008, the list of culprits was long, including dozy regulators, greedy bankers and feckless subprime borrowers. Now the dismal science itself is in the dock, with much soul-searching over why economists failed to predict the financial crisis. One of the outcomes of this debate is that economics students are demanding the reform of a curriculum they think sustains a selfish strain of capitalism and is dominated by abstract mathematics. It looks like the students will get their way. A new curriculum, designed at the University of Oxford, is being tried out. This is good news. …

heilThe typical economics course starts with the study of how rational agents interact in frictionless markets, producing an outcome that is best for everyone. Only later does it cover those wrinkles and perversities that characterise real economic behaviour, such as anti-competitive practices or unstable financial markets. As students advance, there is a growing bias towards mathematical elegance. When the uglier real world intrudes, it only prompts the question: this is all very well in practice but how does it work in theory? … Read more…

James Meade Redux

November 12, 2016 37 comments

from Peter Radford

Well, that was fun. A rebellion has swept away the establishment. I never thought I would say that the rebellion would be manifested within the GOP and that the establishment would be within the Democrats, but that’s what we just witnessed. We on the left must accept that whatever we were saying just didn’t resonate with enough people. The Democrat’s obsession with identity politics that allowed it to ignore the consequences of its embrace of neoliberal economics has led to its separation from its foundational support. The GOP is not the party of the working class, far from it, but its dysfunction and rupture in recent years has allowed it to be co-opted by a demagogue who saw a route to power by using its base to vault himself to the top. Both parties bear equal blame for the morass and malaise. Both parties need reconstructing. Else the rebellion will continue.

For those of you of a left-of-center bent let me quote from James Meade’s wonderful little book “The Intelligent Radical’s Guide to Economic Policy”. It dates from 1975, but still has relevance as we think about how to ditch neoliberalism:

“The intelligent radical is at heart an incurable egalitarian and is appalled by the gross inequalities she observes in modern society. But she desires to cope with them by methods which are compatible with maintenance of a free and efficient system.”

That was written, of course, before inequality really exploded as neoliberalism took hold.   Read more…

Monopsony, the labor market, and inequality

November 11, 2016 1 comment

from David Ruccio



For decades now, the labor share of U.S. national income (the blue line measured on the left-hand vertical axis in the chart above) has steadily declined, while the shares of income and wealth captured by the top 1 percent (the red and green lines on the right-hand axis) has increased. And in recent years, even as employment has mostly recovered from the Second Great Depression, the wages paid to the majority of workers have continued to stagnate (even while incomes of workers at the very top, especially CEOs and other corporate executives, have risen).

Read more…

The perils of calling your pet cat a dog …

November 10, 2016 2 comments

from Lars Syll

Since econometrics doesn’t content itself with only making optimal predictions, but also aspires to explain things in terms of causes and effects, econometricians need loads of assumptions — most important of these are additivity and linearity. Important, simply because if they are not true, your model is invalid and descriptively incorrect.  And when the model is wrong — well, then it’s wrong.

The assumption of additivity and linearity means that the outcome variable is, in reality, linearly related to any predictors … and that if you have several predictors then their combined effect is best described by adding their effects together …

catdogThis assumption is the most important because if it is not true then even if all other assumptions are met, your model is invalid because you have described it incorrectly. It’s a bit like calling your pet cat a dog: you can try to get it to go in a kennel, or to fetch sticks, or to sit when you tell it to, but don’t be surprised when its behaviour isn’t what you expect because even though you’ve called it a dog, it is in fact a cat. Similarly, if you have described your statistical model inaccurately it won’t behave itself and there’s no point in interpreting its parameter estimates or worrying about significance tests of confidence intervals: the model is wrong.

Andy Field

Polling and nonergodic stochastic processes

November 10, 2016 8 comments

The latest polls showing Clinton would win the presidential election is more evidence to support my argument that trying to predict human behavior  — whether it involves economic decision making or politics decision making — involves dealing with a nonergodic stochastic process.

Pollsters believe that if you take a RANDOM SAMPLE OF THE VOTING POPULATION ON DAY X  BEFORE THE ELECTION  and calculate the probability distribution of voting for the various candidates, then this x day before election probability distribution is equivalent to the probability distribution you will get  from any sample drawn from the same population universe on election day.  This presumption would be correct if the stochastic process generating voters preferences is ergodic.

But as I have argued regarding economic decisions — drawing a sample on day x provides no reliable probability distribution of what economic decision makers will do on day x + y.


When will I convince professional economists and political scientists, that the future is uncertain regarding their discipline???



Global warming: bet on it

November 10, 2016 25 comments

I guess it is time to publish this graph, from the USA site. My prediction: this series will soon be discontinued. I did add some text, as grading has tought me that even intelligent people often have difficulties with the interpretation of graphs. My interpretation: the ‘no warming’ meme, which has been quite influential in climate denial circles, is and Always has been bonkers and climate change is progressing faster than expected. But are these deniers really stupid, or bad at understanding graphs? According to Alex Tabarrok, ‘a bet is a tax on bullshit’. I’ve tried, several times, to make serious long-term bets with vehement deniers… To no avail.


Economic Depression: A commentary on Paul Romer’s The Trouble With Macroeconomics

November 9, 2016 8 comments

By David Orrell

In a previous article for this newsletter, I wrote about the rather long and withdrawn grief process that the economics profession is working through, as it comes to terms with its role in what has become known as the Great Financial Crisis. Initial denial was followed by anger towards critics, which in turn was followed by a bargaining stage. The latter (I used Dani Rodrik’s book Economics Rules as an example) involved claims that there is nothing seriously wrong with economic models, it was just that the wrong ones were used. According to this view, critics are just attacking a simplified straw man. (We will stop attacking the straw man when it stops threatening to blow up the world financial system.)

Signs that we may be proceeding to the next stage of the grief process, depression, are evident in the recent working paper (available online) by Paul Romer, The Trouble With Macroeconomics. The first sentence of the abstract announces that “For more than three decades, macroeconomics has gone backwards.” It goes on to describe the author’s “pessimistic assessment of regression into pseudoscience.” It mentions the “serious failure” of economists such as Robert Lucas, who announced in 2003, a little prematurely, that the “central problem of depression prevention has been solved.” Decidedly non-upbeat section titles include “Post-Real Models”, “Loyalty Can Corrode The Norms of Science”, “Back to Square One”, and “The Trouble Ahead For All of Economics”.

The paper is based on a lecture given in January 2016, and is forthcoming in The American Economist. Just to be clear, this is not a magazine bent on overthrowing the status quo; indeed its web site has an entire section devoted to “Articles from Nobel Laureate Authors”. Typical paper titles are more like “My Life Philosophy” (Paul Samuelson) and “How I Work” (Paul Krugman) and “Some Gleanings From My Mind” (I made that up). So this appears to represent a significant stylistic departure. And as Paul Mason observed in The Guardian, Romer’s paper is important exactly because he is not an outsider or a rebel, but “a doyen of the profession, and from the heart of the US academic mainstream.”

Read more…

There are two price levels in capitalism

November 8, 2016 7 comments

One essential aspect of Minsky’s Financial Instability Hypothesis was the argument that there are two price levels in capitalism: consumer prices, which are largely set by a markup on the costs of production, and asset prices, which are determined by expectations and leverage. This argument originated with Keynes in Chapter 17 of the General Theory, when he noted that investment is motivated by the desire to produce “those assets of which the normal supply-price is less than the demand price” (Keynes 1936, p. 228), and expressed more clearly in “The General Theory of Employment”, where he argued that the scale of production of capital assets “depends, of course, on the relation between their costs of production and the prices which they are expected to realise in the market” (Keynes 1937, p. 217). Minsky significantly elaborated upon this point, and this – as much as his focus upon uncertainty – was a key point of divergence from the neoclassical interpretation of Keynes.

The perception that the quantity of money determines the price level of capital assets, for any given set of expectations with respect to quasi-rents and state of uncertainty, because it affects the financing conditions for positions in capital assets, implies that in a capitalist economy there are two “price levels,” one of current output and the second of capital assets. A fundamental insight of Keynes is that an economic theory that is relevant to a capitalist economy must explicitly deal with these two sets of prices. Economic theory must be based upon a perception that there are two sets of prices to be determined, and they are determined in different markets and react to quite different phenomena. Thus, the relation of these prices-say, the ratio-varies, and the variations affect system behavior. “When economic theory followed Sir John Hicks and phrased the liquidity preference function as a relation between the money supply and the interest rate, the deep significance of Keynesian theory as a theory of behavior of a capitalist economy was lost” (Minsky 1982, p. 79).  Read more…

Crime, starvation and incarceration in America (2 charts)

November 7, 2016 3 comments

Subject to an unregulated free market for labor, Polanyi believed that “workers would die as the victims of acute social dislocation through vice, perversion, crime, and starvation”. The US has the most “flexible” labor market of all OECD countries, meaning the freest market for labor, with the least intervention by government or social institutions, as defined by Polanyi. “Essentially, to get high ratings, a country must have low marginal tax rates, a low minimum wage, a high degree of flexibility in hiring and firing, a small amount of centralized collective bargaining, and low unemployment benefits” (Lawson, Robert A. & Bierhanzl, 2004 p. 122). Advocates of laissez-faire “free market” policies believe that the threat of starvation will motivate people to seek employment. The number of people on food assistance reached an all-time high after the 2008 financial crisis, and currently in the U.S. around one of six people in the country (14% as of Jan 13, 2015, US Dept. Ag[1]), and one in five of children (US Census Bureau, Jan. 28, 2015)[2] are on the Supplemental Nutritional Assistance Program (SNAP), formerly known as food stamps. Polanyi’s claim that without mitigating social institutions, an unregulated free market in labor would result in starvation is proven to be true. Without SNAP these people would starve.  Read more…

The libertarian case against TrumpKKK – I’m waiting

November 6, 2016 9 comments

Deirdere McCloskey should be freaking out. A man called Trump threatens her world. McCloskey is not just the most eloquent but also the most thorough defender of the idea that ‘the bourgeois ethic’ and bourgeois virtues were crucial to the unprecedented prosperity of modern men and women – and improved our ethical standards in the process:

“Give masses of ordinary people equality before the law and equality of social dignity, and leave them alone, and it turns out that they become extraordinarily creative and energetic. … Since Karl Marx, we have made a habit of seeking material causes for human progress. But the modern world came from treating more and more people with respect…We need to inspirit masses of people, not the elite, who are plenty inspirited already. Equality before the law and equality of social dignity are still the root of economic, as well as spiritual, flourishing — whatever tyrants may think to the contrary “

Comes in: TrumpKKK (yes, let’s start a meme). A compulsive, serial insulter who takes pride in taking away the social dignity of people. Who disrespects people. Who dislikes the ordinary guy. Who lies and cheats, a serial embezzler, a fraud and a dangerous, corrupt man who can’t be trusted with the red button. A tyrant in the making. A man nurturing hate. A non-crypto fascist. I surely may have missed something but on the internet I could not find an eloquent libertarian manifesto by Deirdre against this man, who already is destroying everything Deirdre holds dear. Did I really miss something? Did other libertarians write it? What I’m reading on the Bleeding heart libertarians blog doesn’t suffice. Does anybody know?

Euro economies: still out of kilter

November 6, 2016 Leave a comment


According to Eurostat, unemployment differences in the EU are still large (graph). Especially the euro countries do bad. The Netherlands and Germany seem to buck this trend but this must be ascribed to whopping surpluses on their current accounts. As not all countries can, by definition, run current account surpluses at the same time (my surplus is your deficit) this means that total domestic demand in the Euro Area is way to low. Another option: people are working too much and have to retire earlier or (my preference) take more time off. Anyway, Euro economies are either out of kilter because of high unemployment or because of extreme current account surpluses.