C. T. Kurien’s book Wealth and Illfare is now available in EPUB (for iPad) and MOBI (for Kindle) formats as well as PDF. ($10)
WEALTH and ILLFARE is intended for readers who do not have much knowledge in economics, but are eager to know how economic systems function.
In particular, it deals with the phenomenon that many find disturbing, the soaring affluence of the few and the continuing misery of the many that is increasingly becoming evident globally and in our country.
Ownership and control over resources, different forms of mediation and asymmetry of information are identified as clues for any interested reader to develop skills to study real life economic problems.
It is a unique and timely contribution by a reputed practitioner who, over the past half a century, has influenced generations of students and through his earlier writings the general public as well.
from Dean Baker
The stock market has recovered sharply from the lows hit in the financial crisis. All the major indices are at or near record highs. This has led many analysts to worry about a new bubble in the stock market. These concerns are misplaced.
Before going through the data, I should point out that I am not afraid to warn of bubbles. In the late 1990s, I clearly and repeatedlywarned of the stock bubble. I argued that its collapse was likely to lead to a recession, the end of the Clinton-era budget surpluses, and pose serious problems for pensions. In the last decade I was yelling about the dangers from the housing bubble as early as 2002.
I recognize the dangers of bubbles and have been at the forefront of those calling attention to them. However, it is necessary to view the picture with clear eyes, and not scream “fire” every time someone lights a cigarette. Read more…
This series tries to give a concise oversight of criticisms of neoclassical macro models looking through the lense of statistics. Today: unemployment. Part 1 (money) here. Part 2 (market fundamentalism) here.
On the micro level, the difference between the statistical definition of unemployment and the neoclassical ‘micro-founded’ concept of ‘unemployment’ can not be starker.
1) Economic statisticians count somebody as ‘unemployed’ when he or she actively tries to escape this situation. If you’re not seeking a job and try to change your situation, you’re not counted as ‘unemployed’. But according to Lawrence Christiano, neoclassical macro models (if these include unemployment at all!) assume that “Unemployed workers enjoy higher utility than the employed because they receive the same level of consumption, but without having to work“. Christiano goes on by stating tha this is daft, citing scores of articles which show that, in the real world, unemployed are poorer and not happy – and really, really try to change their situation (see also Lars Syll and Simon Wren-Lewis about this). Read more…
1) In Germany, the number of 1 year olds is less than 50% of the number of fifty year olds.
2) The remarkable decline of Portuguese unemployment has stalled and despite out-migration of 300.000 mainly young and well-educated people the level is still more than twice the pre-Euro level. According to these specialists, the decline was to an extent caused by the creation of loads of unpaid, ‘cosmetic’ jobs, which allowed the government to move the unemployed from the statistics. By the way – even without counting emigration the Portuguese population is shrinking.
from Lars Syll
Piketty uses the terms “capital” and “wealth” interchangeably to denote the total monetary value of shares, housing and other assets. “Income” is measured in money terms. We shall reserve the term “capital” for the totality of productive assets evaluated at constant prices. The term “output” is used to denote the totality of net output (value-added) measured at constant prices. Piketty uses the symbol β to denote the ratio of “wealth” to “income” and he denotes the share of wealth-owners in total income by α. In his theoretical analysis this share is equated to the share of profits in total output. Piketty documents how α and β have both risen by a considerable amount in recent decades. He argues that this is not mere correlation, but reflects a causal link. It is the rise in β which is responsible for the rise in α. To reach this conclusion, he first assumes that β is equal to the capital-output ratio K/Y, as conventionally understood. From his empirical finding that β has risen, he concludes that K/Y has also risen by a similar amount. According to the neoclassical theory of factor shares, an increase in K/Y will only lead to an increase in α when the elasticity of substitution between capital and labour σ is greater than unity. Piketty asserts that this is the case. Indeed, based on movements α and β, he estimates that σ is between 1.3 and 1.6 (page 221). Read more…
from Grazia Ietto-Gillies
En route from London to Rome I read The Superiority of Economists by Marion Fourcade, Etienne Ollion and Yann Algan (Journal of Economic Perspectives, 29, 1: 89-114). https://www.aeaweb.org/articles.php?doi=10.1257/jep.29.1.89
Some travels within Italy – to Pisa and Siena – gave me time for musings and reflections about the content of this paper. Move forward a few weeks and back in London I have decided to turn those reflections into clicks and share them . . . read more
The Greek govenrment is not yet out of money. There is a staggering amount of misinformation about Greece. Again and again we have been told that Greece could not pay off its loans. This might happen in the future – when market parties like the ECB or the European funds, which clearly are part of the market, though not of the private market, continue to refuse to roll over old debts. In such a case, even a sizeable surplus does not Ensure a country the ability to honour its debts. There was however no reason at all to doubt this ability in the past months and even at this very moment, as there still is a lot of deposit money left, especially in the coffers of the central government. Ironically, this money of course also serves to fund Greek banks and if it’s used to pay off loans, the ECB will have to step in |(as Greece honours its debts. By the way – did the people who, at the moment, are furious that the Greek central government forces local governments to shift their money to the central also furious when the Portuguese and Irish governments, two austerity darlings, grabbed pension money of households?
Source: Bank of Greece.
Correction to Mankiw: Economists actually agree, just because you call something “free trade” doesn’t make it free trade
from Dean Baker
Greg Mankiw joined the parade of prominent people saying silly things to help push fast-track trade authority through Congress. He headlined a column:
“Economists actually agree on this point: The Wisdom of Free Trade.”
The piece then goes on to argue for fast-track trade authority to allow for the passage of the Trans-Pacific Partnership (TPP) and the Trans-Atlantic Trade and Investment Pact (TTIP).
It’s nice that Mankiw has apparently gotten out his bag of economist’s holy water and blessed them both as free trade agreements, but that doesn’t make it true. (Hey, I want to have the Congress Gives $1 Trillion to Dean Baker Free Trade Act. As an economist in good standing, Mankiw will have to support this free trade measure.) Read more…
The Real-World Economics Review and the RWER Blog are interested in publishing short reviews (1,000 words) of the following books. Send submissions to email@example.com
- Appreciating Mental Capital: What and Who Economists Should Also Study
Robert R Locke
- Wealth and Illfare: An Expedition into Real Life Economics
C. T. Kurien
- Statistical Foundations for Econometric Techniques
- Developing an economics for the post-crisis world
- Feudalism, Fascism, Neoliberalism and Economics
- Green Capitalism: The God That Failed
- Essays Against Growthism
- Bubble Economics
Paul D. Egan and Philip Soos
- On the use and misuse of theories and models in mainstream economics
Lars Pålsson Syll
from Lars Syll
Robert Lucas is well-known for condemning everything that isn’t microfounded rational expectations macroeconomics as “ad hoc” theorizing.
But instead of rather unsubstantiated recapitulations, it would be refreshing and helpful if the Chicago übereconomist — for a change — endeavoured to clarify just what he means by “ad hoc.”
The standard meaning — OED — of the term is “for this particular purpose.” But in the hands of New Classical–RBC–New Keynesians it seems to be used more to convey the view that modeling with realist and relevant assumptions is somehow equivalent to basing models on “specifics” rather than the “fundamentals” of individual intertemporal optimization and rational expectations.
This is of course pure nonsense, simply because there is no — as yours truly has argued at length e. g. here — macro behaviour that consistently follows from the RBC–New Keynesian microfoundations. The only ones that succumb to ad hoc assumptions here are macroeconomists like Lucas et consortes, who believe that macroeconomic behaviour can be adequately analyzed with a fictitious rational-expectations-optimizing-robot-imitation-representative-agent.
from Alan Harvey
Austerity has delivered obvious suffering to the Greek people and serious burdens to the Greek state, trials that do not need to be enumerated here. The mechanics of austerity drain money and the goods and services it will buy from the economy. Austerity follows from the rule of the primacy of debt, enforced by misguided, coercive and often bizarre policy programs.
The government in Greece is pursuing anti-austerity, pro-recovery policies to the extent it can. There are three primary strictures it faces. The Hellenic Republic cannot (1) use exchange rates to multiply the domestic currency relative to the international currency; (2) employ the fiscal policy demanded by its situation for want of spending power; and (3) use monetary policy, as that is in the hands of the European Central Bank. Read more…
Why is everybody loosing track of the data when it’s about Greece…?
In a recent, interesting blogpost on Voxeu, Charles Wyplosz states about policy options for the Greek government:
In the short run, after a first default, even a partial one, the Greek government will have to balance its books because no one will lend anything any more. ‘Balancing the books’ can mean different things, however.
- One option is to run an overall balanced budget, thus continuing to service the debt after the initial wave of defaults.
Recent forecasts for 2015 are for a deficit of 3.5% of GDP, an improbably huge improvement over last year’s 12.3% deficit.
This is totally odds with the data. Wyplosz is wrong about the years and mistakes a recent estimate with a recent preidction. According to the dataset of the April 2015 World Economic Outlook these are the data for Greece:
Clearly, the government deficit is, according to the IMF, quite a bit smaller than indicated by Wyplosz Read more…
from Lars Syll
The bias toward the superficial and the response to extraneous influences on research are both examples of real harm done in contemporary social science by a roughly Bayesian paradigm of statistical inference as the epitome of empirical argument. For instance the dominant attitude toward the sources of black-white differential in United States unemployment rates (routinely the rates are in a two to one ratio) is “phenomenological.” The employment differences are traced to correlates in education, locale, occupational structure, and family background. The attitude toward further, underlying causes of those correlations is agnostic … Yet on reflection, common sense dictates that racist attitudes and institutional racism must play an important causal role. People do have beliefs that blacks are inferior in intelligence and morality, and they are surely influenced by these beliefs in hiring decisions … Thus, an overemphasis on Bayesian success in statistical inference discourages the elaboration of a type of account of racial disadavantages that almost certainly provides a large part of their explanation.
Is Latvia a lodestar for other distressed countries, like Greece? Has, after a very severe shock, the economy returned to normalcy? Should Greece follow the Latvian example? Chirstop Schmidt, a Brussels based journalist who writes for the Dutch journal Trouw, seems to think so. In an article in last ‘Trouw’ about the recent financial top in Riga (the capital of Latvia) he inserts a ‘box’ with as a title (my translation): ‘Latvia, a guide?’. In the article he states that, after a severe dip, the Latvian economy is in robust health, again (actually, the Dutch ‘blakend’ or ‘glowing’ is even stronger than ‘robust’). But he’s wrong. It’s not. It’s not even catchng up… Read more…
from Asad Zaman
Modern history is largely driven by the battle of the rich (top 0.01%) against the masses (bottom 90%). Over the past few decades, the rich have been tremendously successful in having it all their way. A previous blog post on “Deception and Democracy” illustrates by examples their successful conversion of democracy into plutocracy in the USA. As pointed out by Polanyi, unregulated markets create disastrous outcomes for the majority. Therefore, in a democratic environment, theories which misrepresent facts and justify massive inequalities are essential pillars of support for the plutocrats. Spreading these theories via media and educational channels helps create an environment where people support policies which go against their common interests. Read more…
from Maria Alejandra Madi
The existing international financial architecture, left over institutions from the Bretton Woods period, proved useless to prevent or warn against the 2007-2008 crisis, or even less, solve it. Only when a new presidential grouping (G20) meeting was called for in London in March 2009, the issues of how to coordinate countercyclical policies and inject resources into the economies were discussed. At that time, a UN high level Commission was created to propose reforms to the international financial architecture. The results of what became known as the Stiglitz Commission came to light in April 2010; the Commission’s recommendations were, however, shunned by some large UN member countries due to their rejection of the principle of global solutions for global problems. Indeed, some European countries and the US still insist on national solutions, that is on the use of local regulatory agencies in the international financial field. Read more…
Recently, I coverd the ecomodernist manifesto on this blog. Not everybody is too happy with this manifesto. José Sousa and (in a direct mail) remind us of this rebuttal (which might underestimate the alarmist nature of the manifesto). Below, some excerpts.First, however, 2 cents and 1 Euro from me.
1) The first cent: the first steps to limit global heating are simple and of an economic nature: energy nutcases like the USA and Venezuela have to end energy subsidies and to introduce energy taxes. While all countries have to start to tax kerosene. Water and meat have to become more expensive, too (low income households can be compensated using part of the proceeds). See (via Brad the Long) also this piece about the fast desertification of Texas.
2) The second cent: we are already really living in the ‘anthropocene’, the destiny of the earth is decided by man- and womankind. For better or worse. And there will, relatively fast, be 4 or 5 billion more of us (low scenario). We can’t deny these additional people (as well as the present poor) decent housing, decent food, decent healthcare and the like – which means that we do have to develop technological fixes: energy and water producing houses, better and denser cities which require less traveling by car, more productive agriculture. More and better houses and healthcare will show as ‘economic growth’. Growth is not the solution – it will be the arithmetical consequence of the solution. ‘Pay for levees, or for the ferryman‘. Aside: birth rates in many places of the earth are still way too high. But in a pretty conservative state like Iran it (the total fertility rate) has been below 2 for quite some time while in even more conservative Saoudi-Arabia it has dropped from around 7 in 1980-1985 to around 3 in 2005-2010. Read more…
from Lars Syll
Paul Krugman has often tried to explain why we should continue to use neoclassical hobby horses like IS-LM and Aggregate Supply-Aggregate Demand models. Here’s one example:
So why do AS-AD? … We do want, somewhere along the way, to get across the notion of the self-correcting economy, the notion that in the long run, we may all be dead, but that we also have a tendency to return to full employment via price flexibility. Or to put it differently, you do want somehow to make clear the notion (which even fairly Keynesian guys like me share) that money is neutral in the long run.
Well, this “fairly Keynesian” guy is not impressed. And I doubt that Keynes himself would have been impressed by having his theory being characterized with catchwords like “tendency to return to full employment” and “money is neutral in the long run.” Read more…
from Asad Zaman
My article on the limits of reason was published in Express Tribune recently (Monday April 13, 2015). This essay shows that logic is limited in its ability to arrive at a definite conclusion even in the heartland of mathematics. Pluralism is required to cater for the possibility that both Euclidean and non-Euclidean geometries represent valid ways of looking at the world. The world of human affairs is far more complex. In order to study and understand societies, one must learn to deal with a multiplicity of truths. This argument, which is related to the first, has been made in my article “Tolerance and Multiple Narratives” which was published in Express Tribune earlier (March 29, 2015). These ideas form part of the background for supporting the drive for pluralism in our approaches to economic problems.
Eighteen scientists published an alarmist but optimistic, though pretty ‘western’, ecomodernist manifesto. It’s main message: considering the still growing population of spaceship earth the only solutions of the problem of combining reasonable prosperity with at least a little real nature as well as an end to global warning are urbanization and other kinds of social-economic-technological progress. My 1 cent: I like it, as its analysis and solutions are consistent with what I (an economic historian) know about economic history. Eating localy produced organic fruit is not the solution. Eating less, efficiently produced, meat is (mind however that even ‘organic’ chicken, like label rouge, is much more sustainable than whatever kind of ‘efficiently’ produced beef). Here, a competing alarmist manifesto by seventeen scientists, which, to my liking, contains way too much ‘we should’ (i.e: you should) thinking. The ecomodernist manifesto: Read more…