Real-World Economics Review Blog

from Peter Radford

I keep coming upon ideas that seem to make such sense that, surely, they have been imported into economics.  But, no, hubris prevents an expansion of the discipline to include such novelty.  The threat they represent to the entire mainstream edifice is too much of a threat.  The guild closes ranks.  The guild closes its mind.  And gets quite snooty in the process.  Outsiders are seen as simple, lacking in basic understanding, or naively misunderstanding the great explanatory powers hidden in some distant niche of economic theory.   Yes, the guild closes ranks.  It is sensitive to criticism from without.  Perhaps it feels vulnerable?

[Cue a great deal of eye-rolling amongst economies tired of being criticized.  Why can’t we just all leave them alone to get on with whatever it is that they do.]

To understand this ongoing problem we must revisit well-worn history:

The neoliberal project was from its inception about power.  Simple power.  The power to undo the democratic progress represented by the policies of the New Deal and similar efforts around the world. Read more…

According to the Monetary Statistics of the European Central Bank, the credit impulse to the Euro Area economy is getting even weaker (graph 1, the yellow part of the bars). Which not only forbodes a recession but already is a recession.

Graph 1. Monetary developments in the Euro Area. Source.

This interpretation (the EA is in a recession) gains credibility when we realize that most of the remaining net credit is used to finance the purchase of existing houses and not to finance new investment or consumption.

Read more…

from Dean Baker

Like many self-imagined “free-traders,” the Washington Post editorial board cannot even conceive of free trade when it comes to prescription drugs. They demonstrated this fact yet again in discussing ways to deal with the high price of effective weight-loss drugs like Wegovy. These drugs carry price tags of more than $1,000 a month, making them costly for insurers, governments, or individuals who have to pick up the tab themselves.

The Post throws out a couple of ideas that could allow for a lower price, but never considers the fact that these drugs would be cheap without the government-granted patent monopolies that prevent generic manufacturers from entering the market. The monopolies are of course to provide an incentive to undertake the research, but there are other mechanisms for providing incentives, like paying people.

We did this when we wanted Moderna to develop a Covid vaccine, paying the company almost a billion dollars to develop and then test the vaccine. In the standard for our government, we then gave Moderna control over the vaccine, creating at least five Moderna billionaires. (Tell me again how conservatives want less government.) If we adopted the policy of only paying for research once, we would have both had the vaccine and low prices, since it likely could be manufactured and distributed for around $4 or $5 a shot. Read more…

from Maria Alejandra Madi

I am writing today about a new online conference of the World Economics Association ”Capitalism, Socialism and Democracy 80 years later: Looking at capitalism today in light of its past and possible future”.  It runs from 1st February to 28th February, 2024. 

You can find more information about it here: https://capitalismanddemocracy2024.weaconferences.net/

Arturo Hermann and I are aleading the conference and we both feel that your voice on current economic, social and poltiical challenges would be invaluable and very relevant for the conference Discussion Forum.

In order to shed more light on our uncertain times and to keep the practise of undertaking pluralist and multidisciplinary research, we encourage contributions from a wide variety of various theories and schools of thought. We would like to invite you to submit something – it could be an extended abstract, or even a short essay, a work in progress or whatever you would like.

We would be honoured to have your voice in this Conference!

The aspects that might be covered include, but are not limited to, the following
interrelated fields: Read more…

from Lars Syll

In 2022, the U.S. National Institutes of Health (NIH) placed a large bet on an experimental drug developed to limit brain damage after strokes …

The gamble seemed warranted. Lab studies, most by a longtime grantee, prominent University of Southern California (USC) neuroscientist Berislav Zlokovic, had generated promising data. A small safety study of the drug, sponsored by a company Zlokovic co-founded called ZZ Biotech, was also encouraging.

Because of its potential to address an unmet medical need, the U.S. Food and Drug Administration (FDA) gave the compound “fast track” status, with the prospect of “accelerated approval and priority review.” ZZ Biotech says the new trial should start within a few months …

But a 113-page dossier obtained by Science from a small group of whistleblowers paints a less encouraging picture …

The dossier highlights evidence that dozens of papers from Zlokovic’s lab—including many supporting the idea that the compound was ready for human testing—contain seemingly doctored data that suggest scientific misconduct …

Speaking to Science anonymously, four former members of Zlokovic’s lab say the anomalies the whistleblowers found are no accident. They describe a culture of intimidation, in which he regularly pushed them and others in the lab to adjust data. Two of them said he sometimes had people change lab notebooks after experiments were completed to ensure they only contained the desired results. “There were clear examples of him instructing people to manipulate data to fit the hypothesis,” one of the lab members says.

Science

from Norbert Häring

Shortly after it has become known that hackers are offering the identity data of most Indians from the world’s largest digital identity database for sale, the European Parliament and Council have agreed to introduce something similar for Europeans, while Washington praises the Ukrainian version as an export model and Bill Gates wants to impose a biometric digital marker on every newborn child in Kenya for life.

In early October, IT security firm Resecurity announced that hackers had stolen the biometric identity data of over 800 million Indians from the government’s Aadhaar database and were offering it for sale. Resecurity acquired 400,000 data records and verified their authenticity. Those affected had not been informed of the theft by the unknown organisation whose data was stolen. In addition to the Aadhaar number, the data files are said to contain name, father’s name, address, passport number, age and gender.

According to Rescurity, potential buyers can use this data to plunder the online bank accounts of those affected and commit tax refund fraud at their expense.

The incident shows the huge problems for the protection of civil rights associated with such a database, whose data is used for every conceivable identification purpose. The assurances that the system is secure have proven to be grossly false, and not for the first time. The level of security is determined by those platforms with access to the data, which have the least expertise and the sloppiest data handling. Read more…

from Peter Radford

To ignore power is to ignore reality.

How can you construct a theory of economic activity that excludes the power embedded in relationships between the various actors on the stage you are directing?  More to the point why would you?  To ignore power is to ignore reality.

I think, perhaps we need to reverse those two questions.  You see, power matters even in the construction of economic theories.

The reason you ignore power is because the powerful want you to.

It’s that simple.

I have just finished reading the excellent new book by Branko Milanovic.  It’s called “Visions of Inequality” and is a tour through the history of economics since the days of Quesnay.  More specifically it takes a look at how a handful of prominent economists have treated the topic of inequality.  Most of you will have covered this territory before, but examining how people such as Quesnay, Smith, Ricardo, Marx, Pareto and Kuznets discussed the problem of distribution is not only an excellent refresher on their individual thought, but is also a tour through the evolution of economics itself.

We have known all along, have we not, that economics is contingent.  Ideas are created to explain problems that pose themselves in the era under study be individual economists.  Their solutions are designed to explain something they see before them.  It is only more recently that the arrogance of universality has crept in to infect the thinking.  Read more…

Two days ago in a comment, Yoshinori Shiozawa offered the following suggestion.

I have proposed to create a forum in which heterodox economists can inform each other and discuss the future directions of heterodox economics.

The simplest and easiest [way] to start is to organize a series of book reviews (or paper reviews if necessary) in this RWER Blog. If the editors of this blog offer a space (a post for reviewing a book or a paper) once a month, or each two months, for example, it will not be very difficult to realize this proposition. [emphasis added]

I have checked if there are goods candidates for this attempt. Two books seem to be a good candidate for the discussion:

(1) Foundations of Real-World Economics (2019; 2023) by John Komlos.
(2) Economic theory for the real world (2024) by Victor Beker.

. . . .

The reasons to choose these two books for initiating a book review series are rather simple:

(1) Both books have phrase “real world” (economics) in its title.
(2) Both authors are contributors to RWER and RWER Blog.
(3) Both try to present a comprehensive economics in a positive form.
(4) Both are influenced by Real World Economics movement from 2000.

Criticizing mainstream economics is one thing. Obtaining a new alternative economics is another thing. We can easily agree that representative agent, rational expectations, strict logic, etc., are not the methods we should adopt. It is easy to say that we should adopt more realistic assumptions for our theory. Which ones to choose, or how to construct theories concretely, is no easy choice. It will be difficult to get a consensus but this is what we should do for the further development of heterodox economics. [emphasis added]

I agree with what Shiozawa wrote and appreciate and like his suggestion for this blog.  Until various heterodoxies develop a common, interlinking conceptual narrative, they will forever remain powerless islands of thought, rather than a movement that threatens economics increasingly deadly traditional narrative.  With this in mind, I think Shioawa’s proposal defines a potentially valuable community project.  Initially this blog will aim for one review with comments a month.  To get it started ASAP, I invite Shiozawa to review Komlos’s Foundations of Real-World Economics.

Meanwhile, suggestions of other books for someone to review are invited.  But please remember that the purpose of this forum is not to promote a particular heterodoxy, but rather to develop a conceptual framework that brings heterodoxies together to form a new economics that can – before it is too late –  rescue humanity from the old one.

Edward Fullbrook

from Lars Syll

So in what sense is this “dynamic stochastic general equilibrium” model firmly grounded in the principles of economic theory? I do not want to be misunderstood. Friends have reminded me that much of the effort of “modern macro” goes into the incorporation of important deviations from the Panglossian assumptions that underlie the simplistic application of the Ramsey model to positive macroeconomics. Research focuses on the implications of wage and price stickiness, gaps and asymmetries of information, long-term contracts, imperfect competition, search, bargaining and other forms of strategic behavior, and so on. That is indeed so, and it is how progress is made …

There has always been a purist streak in economics that wants everything to follow neatly from greed, rationality, and equilibrium, with no ifs, ands, or buts. Most of us have felt that tug. Here is a theory that gives you just that, and this time “everything” means everything: macro, not micro. The theory is neat, learnable, not terribly difficult, but just technical enough to feel like “science.”

Robert Solow

Yes, indeed, there is a “purist streak in economics that wants everything to follow neatly from greed, rationality, and equilibrium, with no ifs, ands, or buts.” That purist streak has given birth to a kind of ‘deductivist blindness’ of mainstream economics, something that also to a larger extent explains why it contributes to causing economic crises rather than to solving them. But where does this ‘deductivist blindness’ of mainstream economics come from? To answer that question we have to examine the methodology of mainstream economics. Read more…

Will lower central bank interest rates at this moment lead to lower consumer rates? No, they won’t. The, at this moment, low rates on existing debt will continue to increase for years on end, cutting in household spending and hampering the possibility of households to pay down their debt.

Figure 1. Interest rates for new mortgage contracts, the Netherlands.

Read more…

from Maria Alejandra Madi and RWEA pedagogy Blog

2021 marked the 50th anniversary of the “weekend that changed the world”, when US President Richard Nixon suspended the convertibility of the dollar into gold. From a monetary point of view, since then there has been continued dominance of the dollar as a vehicle for international transactions. However, Is the dollar as the world’s reserve currency under attack?

The dollar’s dominance in global markets is still significant, with its role in trade invoicing, international debt, and cross-border non-bank borrowing outstriping that of the US. This dominance has been attributed to the absence of alternatives, such as an inadequate supply of investment-grade government securities or limited liquidity and availability by regulation.

Nevertheless, Barry Eichengreen and other researchers (FMI, WP/22/58, March 2022) argue that the share of reserves held in U.S. dollars by central banks dropped by 12 % since the turn of the century, from 71% in 1999 to 59% in 2021.The decline in the dollar’s share of global foreign exchange reserves is not due to changes in exchange rates, interest rate levels, or differentials, but rather due to active portfolio diversification by central bank reserve managers.

Indeed, the US dollar’s share in official reserve assets worldwide has fallen over the past two decades, with an increase in nontraditional reserve currencies such as the Read more…

from Shimshon Bichler and Jonathan Nitzan [1]

1. The Hamas-Israel War

The 2023 war between Hamas and Israel elicits many different explanations. As with previous regional hostilities, here too, the pundits and commentators have numerous overlapping processes to draw on – from the struggle between the Zionist and Palestinian national movements, to the deep hostility between the Rabbinate and Islamic churches, to the many conflicts between Israel and Arab/Muslim states, the contentions between the declining superpowers (United States and Russia) and their rising contenders (like China, Iran, Turkey), the rift between western and eastern cultures, and so on.

The experts also highlight the growing importance of local militias – from Jewish settler organizations, to ISIS, Hamas, Islamic Jihad, Hezbollah, the Houthi movement, the Wagner Group and Kadyrovites Chechens – groups that operate under different political, religious and criminal guises, with varying financing and support from local, governmental and international sources to proxy and/or challenge different states. [2]

Our article does not deal with these specificities. Instead of focusing on the particular and unique, we concentrate on the general and universal. Concretely, we argue that the current war between Hamas and Israel shares an important common denominator with prior clashes in the region – namely, that it constitutes an energy conflict and that it correlates with the differential nature of capital accumulation. We coined these two terms in the late 1980s and have studied their underpinnings and implications for the Middle East and beyond ever since. [3] Our purpose in this paper is to highlight our theoretical arguments, update some of our key empirical evidence and show how both the theory and findings apply to the current Hamas-Israel war. Read more…

from Dean Baker

The New York Times seems to really love telling readers that China is facing a demographic crisis because its population is falling. It is not clear why the NYT thinks this amounts to a crisis for China, since many other countries have declining populations without experiencing any obvious crisis.

The most obvious examples are two of China’s neighbors, Japan and Korea, both of which are seeing modest drops in population. In both countries, per capita income is continuing to rise, in spite of a shrinking workforce. In fact, in South Korea, per capita income has risen at a 2.0 percent annual rate in the last four years, a faster pace than in the United States.

This growth figure actually understates improvements in living standards, since a smaller population also means less congestion and less pollution, factors that are not picked up in GDP. It is not clear why China should be worried if it experiences a similar decline in population.

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RWER issue no. 105

download whole issue

In Praise of Rebellion?
Peter Radford
2

Professor Stiglitz’s contributions to debates on intellectual property
Dean Baker
12

America’s trade deficits: blame U.S. policies – starting with tax laws
Kenneth E. Austin
25

Extending the concept of inflation beyond consumer prices
Merijn Knibbe
46

History and origin of money in MMT and Austrian Economics:
The difference methodology makes?
Phil Armstrong
57

Ownership illusions: When ownership really matters for economic analysis
Cameron K. Murray
74

From original institutionalism to the economics of conventions and inventing value:
An interview with Dave Elder-Vass
Dave Elder-Vass and Jamie Morgan
87

Some questions to Edward Fullbrook regarding his book
Market-value: Its measurement and metric
Oliver Schlaudt
111

Hopefully Schlaudt’s questions about Market-value are the first of many
Edward Fullbrook
118

End Matter
122

from Lars Syll

Mainstream (neoclassical) economics has always put a strong emphasis on the positivist conception of the discipline, characterizing economists and their views as objective, unbiased, and non-ideological …

Acknowledging that ideology resides quite comfortably in our economics departments would have huge intellectual implications, both theoretical and practical. In spite (or because?) of that, the matter has never been directly subjected to empirical scrutiny.

In a recent study, we do just that. Using a well-known experimental “deception” technique embedded in an online survey that involves just over 2400 economists from 19 countries, we fictitiously attribute the source of 15 quotations to famous economists of different leanings. In other words, all participants received identical statements to agree or disagree with, but source attribution was randomly changed without the participants’ knowledge. The experiment provides clear evidence that ideological bias strongly influences the ideas and judgements of economists. More specifically, we find that changing source attributions from mainstream to less-/non-mainstream figures significantly reduces the respondents’ reported agreement with statements. Interestingly, this contradicts the image economists have of themselves, with 82% of participants reporting that in evaluating a statement one should only pay attention to its content and not to the views of its author …

Economics education, through which economic discourses are disseminated to students and future economists, is one of these important channels. It affects the way students process information, identify problems, and approach these problems in their research. Not surprisingly, this training may also affect the policies they favor and the ideologies they adhere to. In fact, there already exists strong evidence that, compared to various other disciplines, students in economics stand out in terms of views associated with greed, corruption, selfishness, and willingness to free-ride …

We find evidence of a strong ideological bias among economists … For example, when a statement criticizing “symbolic pseudo-mathematical methods of formalizing a system of economic analysis” is attributed to its real source, John Maynard Keynes, instead of its fictitious source, Kenneth Arrow, the agreement level among economists drops by 11.6%. Similarly, when a statement criticizing intellectual monopoly (i.e. patent, copyright) is attributed to Richard Wolff, the American Marxian economist at the University of Massachusetts, Amherst, instead of its real source, David Levine, professor of economics at the Washington University in St. Louis, the agreement level drops by 6.6%.

Mohsen Javdani & Ha-Joon Chang

Read more…

from Peter Radford

The machine makers are restless!

Read more…

from Dean Baker

Read more…

Jamie Morgan: To a member of the public it must seem weird that it is possible to state, as you do, such fundamental criticism of an entire field of study. The perplexing issue from a third party point of view is how do we reconcile good intention (or at least legitimate sense of self as a scholar), and power and influence in the world with error, failure and falsity in some primary sense; given that the primary problem is methodological, the issues seem to extend in different ways from Milton Friedman to Robert Lucas Jr, from Paul Krugman to Joseph Stiglitz. Do such observations give you pause? My question (invitation) I suppose, is how does one reconcile (explain or account for) the direction of travel of mainstream economics: the degree of commonality identified in relation to its otherwise diverse parts, the glaring problems of that commonality – as identified and stated by you and many other critics?

Lars P. Syll: When politically “radical” economists like Krugman, Wren-Lewis or Stiglitz confront the critique of mainstream economics from people like me, they usually have the attitude that if the critique isn’t formulated in a well-specified mathematical model it isn’t worth taking seriously. To me that only shows that, despite all their radical rhetoric, these economists — just like Milton Friedman, Robert Lucas Jr or Greg Mankiw — are nothing but die-hard defenders of mainstream economics. Read more…

from Blair Fix

Economists are not known for their literary imaginations. Flip through any economics textbook and you’ll find a barrage of terms like the ‘Philips curve’ and the ‘Fisher effect’. The jargon is simple enough — empirical relations are usually named after the person who discovered them. But this convention is neither descriptive nor fun.

The exception to this vanilla naming practice is a pattern called the ‘Great Gatsby curve’.¹ It’s named after F. Scott Fitzgerald’s famous book The Great Gatsby, which explores the roiling inequality and tumultuous class dynamics of the 1920s. The Great Gatsby curve is an empirical relation between social inequality and social mobility. As inequality rises, social mobility tends to decline.

In this post, we’ll look at the The Great Gatsby curve among America’s über rich. As it turns out, these folks are not immune from inequality. Nor are they immune from an ossifying social ladder. In other words, among America’s richest people, the Great Gatsby curve is alive and well. Read more…

2024 WEA Online Conference. CAPITALISM, SOCIALISM AND DEMOCRACY 80 YEARS LATER – the relevance of the issues raised by Schumpeter 

 On the WEA Conference website, you can find all the details for submissions
and participation: https://schumpeter2024.weaconferences.net/

Starting from Schumpeter’s book, this WEA Online Conference, led by Arturo Hermann and Maria Alejandra Madi, would promote an open debate on how these concepts of Capitalism, Socialism and Democracy characterise our economies and their possible evolution.

The current state of capitalism, socialism, and democracy presents an opportunity to reexamine the insightful ideas put forth by Schumpeter. Starting from Schumpeter’s book, the conference would promote an open debate on how the concepts of Capitalism, Socialism and Democracy characterise our economies and their possible evolution. Drawing on the controversies around Schumpeter’s great vision, our aim is to call for a reflection in connection with the economic, political and social complex and uncertain futures after the 2008 financial crisis, COVID-19 pandemic and Ukraine war.

In 1942, Joseph Schumpeter published Capitalism, Socialism, and Democracy, a book that may still be read now. It was composed during the Great Depression, fascism and nazism’s early achievements in 1940 and 1941, and in a context of an uncertain future. Schumpeter’s book was easily forgotten or, at the best, considered as an interesting but unrealistic hypothesis. To this situation, some unclear aspects of his analysis may also have played a role. In particular, it is rather unclear why the rise of the modern corporation should lead automatically to socialism and not, as actually took place, to some form of mixed economy. Relatedly, in his analysis of socialism and democracy the adoption of a top-down approach ― in the sense that he considered socialism mainly in its centralised version and democracy mainly as a competition for leadership ― does not allow a fuller appraisal of the role that other forms of socialism and democracy can play in realising the objective of human development and social justice.

However, despite these limitations, we think that the enduring relevance of Schumpeter’s analysis lies in grasping the evolution of modern economic systems, from the individual capitalism to the managed/concerted economies of our time. These economies are characterised by the rise not only of big corporations but also by a growing importance of public action in trying to manage the contradictions of the system.

In this respect, fifty years after Schumpeter’s study, in shedding light on major elements of our economies and societies, it shows fascinating similarities with numerous contributions that, from diverse but complementary viewpoints, assess the mixed economies of our day.

In order to cast a better light on the complex reality of our uncertain times, and in the tradition of a pluralist approach to Economics, we invite contributions that develop relevant issues addressed by Schumpeter’s “Capitalism, Socialism and Democracy”, also by considering other related insights from different theories and schools of thought.

Suggested Topics

Read more…