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How bad is global inequality, really?

16 days ago

From Jason Hickel

Most everyone who’s interested in global inequality has come across the famous elephant graph, originally developed by Branko Milanovic and Christoph Lakner using World Bank data. The graph charts the change in income that the world’s population have experienced over time, from the very poorest to the richest 1%.
We can update the elephant graph using the latest data from the World Inequality Database (WID), which covers the whole period from 1980 to 2016 using a method called “distributive national accounts”. Here’s what it looks like in real dollars (MER), developed in collaboration with Huzaifa Zoomkawala (click through for a series of interactive charts that Huzaifa has created):

The elephant graph has been used by some to argue that neoliberal

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Is inequality within countries getting better or worse?

18 days ago

From Jason Hickel

In a recent Twitter post, Max Roser of Our World In Data claimed that the narrative about rising inequality within countries is incorrect. Inequality has been falling in as many countries as it has been rising, he said, “which should be really embarrassing for many news stories that suggest the opposite with great certainty.”
Roser’s tweet referred to an interesting blog post by Joe Hasell, with a graph illustrating the change in the Gini index within countries from 1990 to 2015. Countries above the 45-degree line have seen rising inequality, while countries below the line have seen falling inequality. It’s a pretty even split (although the majority of the world’s population live in countries that have seen rising, not falling inequality).

This

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Can capitalism feed the world sustainably and fairly?

21 days ago

From Ken Zimmerman
In 1798, just before the beginning of the industrial revolution in the UK, Robert Malthus published “An Essay on the Principle of Population as it Affects the Future Improvement of Society, with Remarks on the Speculations of Mr. Godwin, M. Condorcet, and Other Writers.” The thesis for the book was simple. The natural human urge to reproduce increases human population geometrically (1, 2, 4, 16, 32, 64, 128, 256, etc.). However, food supply, at most, can only increase arithmetically (1, 2, 3, 4, 5, 6, 7, 8, etc.). Thus, since food is a necessity for human life, population growth in any area or on the planet, if unchecked, would lead to starvation. Malthus argued there are preventative checks and positive checks on the population that slow its growth and keep the

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Chain-weighting the base-year problem

22 days ago

From Blair Fix, Jonathan Nitzan and Shimshon Bichler   
To reiterate, the base-year problem leads to uncertainty in the calculation of real GDP. But instead of openly reporting this uncertainty, government economists have devised a “fix”. Rather than using a single base year, they “chain” together many adjacent base years. This is a bit like a moving average. They calculate the growth of real GDP between consecutive years, using the first year in each pair as the base, and then “chain” together the resulting growth measures to calculate real GDP levels. This method claims to “fix” or at least lessen the base-year problem. It doesn’t.
The appeal of chain-weighting, according to economists, is that it gets closer to their theoretical ideal. According to this ideal, the weight of each

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Game Theory and Operations Research lacked substantiated applications in social, political and economic fields.

22 days ago

From Richard Vahrenkamp
Since 1945, the United States had experienced a unique innovation push with the computer, the nuclear weapon, new air combat weapons and the transistor within just a few years. These innovations were accompanied by Game Theory and Operations Research in the academic field. Widely–held is the view that computers supplemented the mathematical concepts of Game Theory and Operations Research and gave these fields a fresh impulse. Together, they established the view of the world as a space of numbers and introduced quantitative methods in economics, political science and in sociology. A series of conferences on these subjects settled this new view. They imparted Cold War science and technology policy with a unique flavour of progress, superiority and modernity.

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Bringing science into economics must necessarily entail measurements in the scientific units.

26 days ago

From Ikonoclast
The only real science is hard science; namely physics, chemistry and biology. The rest is not science. This is not to insist on mere scientism nor is it to insist that other subjects are worthless. It is simply to insist on the precision of definition for which those (mistakenly) arguing for precise science and mathematics in economics are in effect calling. Those calling for precise science and mathematics in economics become hoist on their own petard if they use, at any point in their calculations, dollars or “utils” or “snalts” (socially necessary abstract labor time).
If you are calling for scientific and mathematical precision in economics then you must stick to the scientific units laid out in International System of Units (SI). These are base units;
s second

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There is a sound reason for the growth of statistical theory.

27 days ago

From Gerald Holtham
Econometrics like more casual empiricism can be done well or badly, intelligently or stupidly, dogmatically or with an open mind. But are these gentlemen saying that statistical analysis can never reveal anything in economics that is not obvious to simple observation? Evidently that is untrue. What is revealed is never a “law” and will obviously be contingent in space and time. That follows from the nature of society and economic data. Statistical analysis nevertheless has an indispensable place in social studies whether economics, psychology, medicine or sociology.
Econometrica may be boring and contain articles of no evident application but there is a sound reason for the growth of statistical theory. Physicists do not have to contend with lousy data. They can set

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Which base year?

27 days ago

From Blair Fix, Jonathan Nitzan and Shimshon Bichler   
But there is a slight conceptual problem. It turns out that the growth of real GDP – ostensibly a single, objective quantity – is highly sensitive to our choice of base year.
To illustrate, consider a hypothetical economy that produces only two commodities: 1,000 lb of tomatoes and two laptops. Next, let’s choose 1990 as our base year and assume that tomatoes in that year cost $2/lb while a laptop costs $2,000. In this case, real GDP, denominated in 1990 dollars, would be $6,000 (=1,000  $2 + 2  $2,000). Now, skip to 1991 and imagine that, in that year, the economy grows by producing one additional laptop. This increase means that real GDP in 1991, denominated in 1990 prices, is $8,000 (=1,000  $2 + 3  $2,000). Compared to 1990,

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Attempted endless growth

July 25, 2019

From Ikonoclast
I guess history shows that moral wrongs can continue almost indefinitely. However, being empirically (provably scientifically wrong to a high degree of probability) is another beast altogether. Trends that can’t continue because they approach limits imposed by fundamental laws of nature, won’t continue. It’s as simple as that. We have to change our ways (patterns of production, consumption and attempted endless growth) or civilization will crash and burn, pretty much literally. The opposition of entrenched dominant capital to necessary changes and transitions has seriously delayed necessary change. The situation is now ultra critical. We have ten years, or maybe only five years (as per the old Bowie song).

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Understanding global inequality in the 21st century

July 25, 2019

From Jayati Ghosh
Inequality has increased since it caught the attention of the international community. The claims that global inequality has decreased because of the faster rise in per capita incomes in populous countries like China and India must be tempered by several considerations. National policies are crucial in this worsening state of affairs and the international economic architecture and associated patterns of trade and capital flows encourage such policies. More national policy space is required for governments, especially in developing countries, to pursue policies that would move towards more sustainable and equitable development which in turn requires significant changes in the global architecture. None of this can be done without some international coordination, and

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Problems with the coexistence of digital currency and bankmoney

July 24, 2019

From Joseph Huber 
Impaired ability of banks to lend and invest? 
One of the concerns that have been expressed about the introduction of digital currency (DC) is that with a growing share of DC “deposit-funded bank credit might be undermined” and that “with too widespread a DC, it might threaten the banks’ lending activity, if banks cannot use deposits for that purpose”. Such statements are totally missing the point. Under fractional reserve banking, deposits are not loanable funds for the banks, and banks are not financial inter­mediaries but creators, de- and re-activators and extinguishers of bankmoney.
The proposals published so far do not intend to strip banks of the privilege to create themselves the money on which they operate in their business with nonbanks. The banks’ ability

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The new minds of young people will be open to the new empirical evidence.

July 23, 2019

From Ikonoclast
The methodological ideology of conventional economics will be destroyed by its failure in the current and ongoing collisions of its recommendations and applications with real systems. This is already happening as Herman Daly illustrates in his paper “Growthism: Its Ecological, Economic and Ethical Limits.”
In turn economics, like science, will progress theoretically and methodologically, or else disappear with humans themselves, “one funeral at a time” as not only current conventional economists die but as millions to hundreds of millions or even billions of other humans die due to ecological and civilizational collapse. The latter catastrophic possibility is what people seldom want to think about. Certainly, we should strive to avoid that outcome if we can. The genuine

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Mainstream economics, we will defend you to the death.

July 22, 2019

From deshoebox
But mainstream economics must be defended. It must! Can you even imagine what might happen if it were successfully challenged? If people started to doubt the god-like efficiency of markets, the exquisite perfection of economic equilibria, the flawless functioning of billions of transactions conducted on the basis of full information and rational expectations? If people began to ask, “What is the economy really for? What is it supposed to be doing?” and if the new economists began analyzing it based on its inherent purpose instead of…well, whatever they do now? Why, if more than a handful of people started asking why we continually reproduce a system that leads to greater and greater inequality of wealth and income, facilitates the ruthless exploitation of powerless

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Economists like Krugman, Wren-Lewis or Stiglitz are nothing but die-hard defenders of mainstream economics.

July 22, 2019

From Lars 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. The only economic analysis acceptable to these people is the one that takes place within the analytic-formalistic modelling strategy that makes up the core of mainstream economics. Models and theories that do not live up to the precepts of the mainstream methodological canon are considered

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Four structural characteristics of the US economy

July 21, 2019

From Dimitri Papadimitriou, Michalis Nikiforos, and Gennaro Zezza
In order to understand the US economy – or for that matter any economy – we need to identify its structural characteristics. These characteristics will allow us to link its precrisis trajectory to the present relatively slow recovery and, most importantly, its future prospects. Through this prism, it is also easier to understand major policy debates and concerns regarding foreign competition, such as the recent much-discussed “trade wars”.
In several previous reports we have identified four main structural problems afflicting the US economy: (1) the weak net export demand for US products; (2) the fiscal conservatism that has prevailed for most of the last three decades; (3) the increase in income inequality; and (4) the

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The necessity to change the rules of the current economic system is quite obvious.

July 18, 2019

From Ikonoclast
Conventional economics is a prescriptive discipline pretending to be a descriptive discipline. I find it useful, at a first principles level of thinking, to distinguish between “rules” and “laws”.
(1) A “rule” is a prescribed guide for conduct or action by any agent (human or machine).
(2) A “law” is a fundamental law of (physical) nature described by the hard sciences after extensive observation, experiment, deduction and mathematical analysis.
A “rule” is made in a given way by culture, custom, convention, regulation or legal prescription and could be made in other ways. A fundamental law of nature is unchangeable by humans.
A “rule” may be possible or impossible to obey or execute depending on its relation to natural laws. Rules may also be executable for a period of

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Colonialism’s mindset planted the seeds of today’s climate crisis

July 17, 2019

From Jamie Margolin and The Guardian
Many people trace the origins of today’s climate crisis to the Industrial Revolution, when humans first began to burn large amounts of coal, but the crisis’s true roots extend further back to the onset of colonialism. When European colonizers ventured to Africa, Asia, North and South America, they invariably plundered the local natural resources, damaged habitats, hunted species to extinction and often forced human inhabitants into slavery. Undergirding European colonialism was the assumption that everything on the earth was meant to be extracted, bought and sold – and to make an elite minority very rich. In the eyes of the colonizers, the “new” lands they encountered had no owners – no one had purchased them with a recognizable currency or could

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Crude economism took over our society

July 17, 2019

From Ikonoclast
Democracy is seen mainly as a hindrance to economics. Technology and science are funded (or not funded) mainly at the behest of economics. Production science which assists corporate capitalism gets massive subsidies. Impact science (ecology, climate science etc.) gets pitiful funding by comparison. It is not so much the unintended consequences of technology and science which are causing climate change (for example) but the ignored consequences of technology and science mustered at the behest of and in the manner specified by capital which are causing climate change. This is a crucial distinction.I think people are trying to correct a great distortion which has occurred. Speaking of babies and bathwater, what could we regard as the great advances of the modern era? I

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Elinor Ostrom and common pool resources

July 16, 2019

From John Tomer  
Elinor Ostrom’s (1990; 2009) research focuses on common pool resources (CPR) and the dilemmas they have posed for their users and society. A CPR is a resource such as a fishing ground, an irrigation system, ground water, pasture land for grazing animals, etc. that jointly benefits a group of people (the users) but which provides diminished benefits to the users involved if each individual pursues his or her narrow self-interest without considering other users. The CPR has a definite capacity. The problem is that each individual user has an incentive to overuse the resource. As authors such as Garret Harden (1968) have pointed out, when each user single-mindedly and independently follows the incentives, that will cause depletion of the CPR’s capacity, possibly creating

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Digital currency: cryptocoin or money-on-account?

July 14, 2019

From Joseph Huber
People have become used to hearing about digital currencies (DC) such as Bitcoin. These currencies are based on new technology known as distributed ledger and blockchain technology and are also referred to as cryptocurrencies because of the data encryption involved. Cryptocurrencies represent a radical alternative to the current banking system, in that they bypass retail banks and defy central-bank control from the outset.
Against this background, central banks are now thinking about producing their own DC. Initially, such central-bank issued DC was imagined in the technical form of cryptocurrency. The new technology, however, is still in its infancy. In comparison, tried and tested ways of managing account balances and payments from and to accounts are well suited

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The data now used for “testing economic theories” provide no tests at all.

July 13, 2019

From Salim Rashid
It is plausible that economics slipped into its current difficulty because all earlier theory was framed with agriculture in mind. But we are not in an agricultural world anymore. The number of available products must have expanded a 1000-fold since the 1700s. Unless one looks, it is difficult to grasp the sheer amounts of data that are generated and potentially available – but perhaps impossible to digest because of their magnitude and complexity. Below are two examples, from Trade statistics and from Price indices.
Customs forms provide us with Trade data, one for each export shipment. There were about 22 million export shipments originating in the U.S. in 2005. This suggests that we have information on some 22 million individual decisions. However, there are 229

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“data-free mathematical masturbation”

July 13, 2019

From Imad Moosa
Econometrics is no longer about measurement in economics as it has become too abstract. The word “econometrics” is typically stretched to cover mathematical economics and the word “econometrician” refers to an economist, or otherwise, who is skilled and interested in the application of mathematics, be it mathematical statistics, game theory, topology or measure theory. Baltagi (2002) argues that research in economics and econometrics has been growing more and more abstract and highly mathematical without an application in sight or a motivation for practical use. In most cases, however, mathematization is unnecessary and a simple idea that can be represented by diagrams is made much more complex and beyond the comprehension of the average economist, let alone policy

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issue no. 88 of real-world economics review

July 11, 2019

Real-world economics review​​​​​​​Please click here to support this open-access journal and the WEASubscribers: 26,499     subscribe      RWER Blog      ISSN 1755-9472
A journal of the World Economics Association (WEA) 14,432 members, join
​​​​​​​back issuesIssue no. 88 
​​​​​​​10 July 2019download whole issue
Make-believe empiricism
Is econometrics relevant to real world economics?Imad A. Moosa          download 
The fiction of verifiability in economic “science”Salim Rashid          download 
Nominal science without data – the artificial Cold War content of Game Theory and Operations ResearchRichard Vahrenkamp          download 
Real GDP: the flawed metric at the heart of macroeconomicsBlair Fix, Jonathan Nitzan and Shimshon Bichler          download 
Realism and critique in

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There is no separation between culture and economy.

July 10, 2019

From Ken Zimmerman
There is no separation between culture and economy. They are one another. Historian Richard Hofstadter notes, as have many others that American culture is “…diverse and contradictory” … “visionary and down-to-earth, deeply radical and solidly conservative, coldly prudent and· unexpectedly wild.” As American culture changes, so does American economy. America is Puritanism with its omnipotent God, souls predestined to heaven or hell before birth, and certainty that Christians could do nothing to change their fate. One of their primary duties as Christians, though, was to assess the state of their own souls through devoted self-examination and Bible study. America is also the “natural rights of man” philosophy. The common-law rights of freeborn Englishmen were, for

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Thought experiment: Radical abundance

July 9, 2019

From Jason Hickel
Imagine if we were to even just partially decommoditize London’s housing stock; for example, imagine the government was to cap the price of housing at half its present level. Prices would still be outrageously high, but Londoners would suddenly be able to work and earn significantly less than they presently do without any loss to their quality of life. Indeed, they would gain in terms of time they could spend with their friends and family, doing things they love, improvements to their health and mental well-being, and so on. And by needing to work less they would contribute to less overproduction, and therefore ease concomitant pressures for unnecessary consumption.
The same thought experiment can be applied to all social goods that have either been made to be

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Robert Reich suggests 5 ways to abolish billionaires

July 9, 2019

From Ken Zimmerman
Robert Reich suggests that one thing we could do to deal with these problems is to abolish billionaires. Robert, lays out the ways billionaires are able to accumulate that much money. First, monopoly. We can address this by vigorously enforcing anti-trust laws already on the books. Second, copyrights and patents. Robert suggests shortening these by half or more. Third, insider information. Here we need to both enforce fines to take away all the money gotten in this way, and in egregious cases send those who seek out and use such information to prison. Fourth, pay off politicians. This screams for Congress to take private money out of elections completely. And long prison sentences for those convicted of giving and receiving private money wouldn’t be a bad idea. This

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The lurking dangers in the internet of money

July 7, 2019

From C. P. Chandrasekhar
Facebook has launched a process that would lead to the creation of a new cryptocurrency, “Libra”, in the first half of 2020. Named after a unit of weight used in ancient Rome, Facebook hopes Libra would become the dominant measure of value for transactions, at least on the internet. As is characteristic of the world of digital business that, outside of finance, has delivered the largest number of billionaires in recent decades, the creation of libra is presented as an altruistic mission that would mainstream individuals, businesses and agents who have hitherto been excluded by the financial sector. In Facebook’s newsroom spin: “For many people around the world, even basic financial services are still out of reach: almost half of the adults in the world don’t

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So much for “conservative” economics and economists.

July 6, 2019

From Ken Zimmerman
In 1771 a former barber and wig maker, Richard Arkwright, opened the world’s first water-powered spinning mill at Cromford in Derbyshire. He employed 600 workers, mainly children, who could do the work of ten times that number of hand spinners. In 1775 a Scottish mathematical instrument maker, James Watt, joined forces with the Birmingham engineer Matthew Boulton to produce steam engines which could turn machinery, haul enormous loads and, eventually, propel ships and land vehicles at speeds previously undreamed of. In 1783–84 Henry Cort devised a superior ‘puddling’ method of smelting iron and a rolling mill for processing it. The way was open, through integrating these inventions and others, to develop a whole new way of producing, based upon steam-powered

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Differential inflation and full enclosure

July 6, 2019

From Ikonoclast
After reading “Capital as Power” by Bichler and Nitzan, where they talk about differential accumulation, a key and salient point about our economy appears to me to be a regime of differential inflation. Clearly, differential inflation can enable differential accumulation. Economists often talk about economies as if one average inflation rate affects the entire economy. This does not seem to me to capture the situation at all. The modern (neoliberal / monetarist) economy is notable for its differential inflation rates and the staggered spread of sectoral bubbles over time. (Tech bubble, property bubble etc.)
In terms of the differential inflation rates now embedded in the modern global economy we can note;
(1) Minimal to zero wage inflation (no wage rises).
(2) A long

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