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Weekend read – Inflation! The battle between creditors and workers

6 days ago

From Blair Fix

I’ve been writing about inflation for the better part of three months. It’s been exhausting. Most of my time has been spent debunking misconceptions promoted by mainstream economists. Fortunately, I’m ready to move on.
What’s interesting about inflation is not the fact that prices rise. What matters is that prices rise at different rates. In other words, inflation creates winners and losers — it redistributes income.
In this post, I’ll dive into the redistribution dynamics between wage workers and creditors.1 When inflation rears its head, both groups try to bolster their income. But they rarely have equal success.
Looking at over two centuries of US price history, I find (perhaps surprisingly) that inflation tended to benefit workers at the expense of creditors. Since

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Weekend satire: The key to managing inflation? Higher wages

18 days ago

From Blair Fix
To manage inflation, governments have a simple tool at their disposal:
raise wages as fast as possible.— Milton Fryman

For the last few months, I’ve been diving into the economics of inflation. In this post, I’m excited to review some forgotten history.
Our journey starts with a basic question: what is the key policy tool for managing the rate of inflation?
According to mainstream economics, the key tool is the rate of interest. Hike this rate, economists argue, and you will cool an overheated economy, solving the problem of inflation. As you probably know, I don’t think much of this idea. (Criticism here and here.) And so I’ve been looking for alternative theories of inflation management.
After months spent in the library stacks, I’m happy to report that I’ve

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Cryptocurrency after FTX

25 days ago

From Jamie Morgan
If you think cryptocurrency is priapic capitalism’s latest attempt to dick you, you are probably not alone. In the last year or so most people’s perception of cryptocurrency has fallen about as far as it could. Opinion, much like the value and solvency of the assets, has plummeted from ‘the sky’s the limit’ to a soft sewage-landing. Great swathes of the population of the US and UK invested in cryptocurrency over the pandemic period. Since then, a swift spiral of contagions and bankruptcies has hit the headlines and FTX is only the highest profile of these. The anodyne mainstream economics term ‘market correction’ scarcely does justice to what has gone on.
At the heart of the problem were crypto exchanges. These provided customers with ‘accounts’, paid interest on

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Invisible hand and unmentionable foot

February 21, 2023

From Duncan Austin

. . . it is an empirical matter whether the Hand is stronger than the Foot, or vice-versa.  Unfortunately, various environmental and social trajectories indicate that the Foot is now overpowering the Hand in important ways. Note that the situation is not that markets are outright ‘good’ or ‘bad’ – as polarizing capitalism-versus-socialism debates so often quickly descend to – but rather how helpful or harmful current markets are based on how well they reflect known reality.
A critical factor in evaluating the relative strength of the Hand and the Foot is how broadly one chooses to look. If the world becomes ‘smaller’ because population grows and communications technologies connect everyone so that we become more aware of inequalities, and if the world becomes

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Further growth has become uneconomic: The diagram the World Bank refused

February 20, 2023

From Herman Daly and RWER issue 102

Let’s draw a big circle around the rectangle and label it “”Environment”.  The Earth-environment, let us say, has one input from space, solar energy, and one output back to space, waste heat. No significant material inputs from or outputs to space.[1] Materials circulate as energy flows through the environment. The inputs to the economy come from the containing finite environment and constitute depletion, a cost. The final outputs return to the environment as wastes and constitute pollution, also a cost.
For now, focus on the upper “empty world” part of the diagram. The economy (brown stuff, consisting of human bodies and manmade artifacts) is made from matter and energy taken from the environment (green stuff). Thanks to the first law of

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The changing frequency of biblical and economics jargon

February 7, 2023

From Blair Fix
We’re now in a position to look at the changing ideological landscape that is written in the English language. To quantify ideological change, I measure how the frequency of biblical/economics jargon has changed with time in the Google English corpus.
Figure 10 shows my results. Here the blue line shows the annual frequency of biblical jargon. The red line shows the annual frequency of economics jargon. Note that the frequency is expressed per thousand words, so you can interpret it like a batting average. For example, during the 1950s, for every 1000 words contained within the Google corpus, about 130 of them were economics jargon. (If our economics jargon ‘batted’ 1000, it would mean that English writing consisted entirely of economics jargon.)
Figure 10: The changing

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Externality-downplaying economics

February 5, 2023

From Duncan Austin
A major first response to our sustainability challenges has been to try and turn profit to more sustainable ends. Alas, even ‘purposeful profit’ seems unable to overcome the deeper momentum of what might be termed ‘externality-denying capitalism’ – ‘externality-denying’ in that billions of daily investment and consumption decisions ignore certain of their social and environmental consequences.
As just one example, the World Bank reports that less than 4 percent of global carbon emissions are currently priced at levels consistent with the Paris Agreement’s temperature goals, endorsed by 194 nations.[1] Hence, hardly any of today’s market transactions are fully costed, in terms of reflecting their contribution to climate change. The same neglect repeats to varying

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Weekend read – The cause of stagflation

February 3, 2023

From Blair Fix
In my last post, I looked at the relation between economic growth and inflation. As per usual, the evidence didn’t sit well with mainstream economics.
According to standard theory, there is a trade off between low inflation and high economic growth. The idea is that you can have one or the other, but not both. So if you want to keep inflation low, you have to ‘cool off’ the economy by slowing economic growth. (Like many things in economics, this idea comes from the totem of supply and demand.)
The trouble is, the empirical evidence shows that the opposite is true. Rather than being driven by ‘excessive’ economic growth, inflation tends to come during periods of stagnation. So despite what mainstream economists proclaim, there is little evidence for a ‘growth-inflation

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Ecological reasoning demands perspectives that economics is designed to obliterate

January 31, 2023

From Gregory A. Daneke 
Given the numerous disasters exhibited of late involving Mainstream Economics, various heterodox economists have called for much greater consideration of ecological processes (both natural and social, see Fullbrook & Morgan, 2001).  Such processes, in turn, have become increasingly illuminated through the burgeoning science of complex adaptive systems (e.g., Preiser, et al, 2018). What some of these earnest observers fail to fully appreciate, however, is that ecological reasoning demands perspectives that economics as a policy enterprise is specifically designed to obliterate.  Merely invoking alternative perspectives without first exploring the stranglehold that mainstream economists have over specific institutions and the culture at large is mostly a fool’s

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An age of crisis

January 30, 2023

From Oxfam

An age of crisis, causing huge suffering for most of humanity
As billionaires, government leaders and corporate executives jet in to meet atop their mountain in Davos, Switzerland, the world faces a dramatic, dangerous and destructive set of simultaneous crises. These are having a terrible impact on the majority of people, something Oxfam sees in its work across the world.
In 2022, the World Bank announced that we will fail to meet the goal of ending extreme poverty by 2030, and that ‘global progress in reducing extreme poverty has come to a halt,’ amid what it said was likely to be the largest increase in global inequality and the largest setback in addressing global poverty since World War II.
The IMF is forecasting that a third of the global economy will be in recession

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How not to deal with a debt crisis

January 23, 2023

In the 1920s and early 30s, John Maynard Keynes was embroiled in a controversy with the ‘austerians’ of his time, who believed that balancing the government budget, even in a time of economic volatility and decline and financial fragility, was necessary to restore ‘investor confidence’ and therefore provide stability. Keynes was horrified by the idea.
Zachary Carter’s brilliant biography notes that Keynes felt a package of government spending cuts and tax increases would be ‘both futile and disastrous’. It would be an affront to social justice to ask teachers and the unemployed to carry the burden of deflating a doomed currency, in the name of balanced budgets. Even worse would be imposing austerity on debtor countries, as American banks were then demanding of several European

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Victoria Chick (1936-2023) – RWER 2018 paper “Industrial policy, then and now”

January 17, 2023

After 40 years of neoliberalism, even governments believe that they are inefficient when compared to the private sector. And economics, in its swing to the right, reinforces this view. The philosophy behind public expenditure for social purposes and the criteria for judging such projects has not been a subject for public debate until recently. In particular, industrial policy was very simple: leave it to the private sector to allocate resources as the market prompts. In Keynes’s time this was not the case. This article reviews some of the issues concerning industrial policy that were aired in the interwar period. The debate needs to be revived, revisited and, where appropriate, revised to suit the present day, but on basic principles there is much to learn from the

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Inflation in an unequal world economy: How the Fed’s policies are doubly perverse for the Global South

January 16, 2023

From C. P. Chandrasekhar and Jayati Ghosh 
Tight monetary policies in rich countries obviously affect people in the countries where they are applied, but they also cause ripple effects across the world. We were already in a very unequal world before the most recent global price increases. Most developing countries were not able neutralize the damage inflicted by the pandemic, largely because they had much weaker fiscal stimuli. Of nearly $14 trillion in additional fiscal spending by the end of 2021, more than 80 percent was from just ten advanced economies, and more than half was from the U.S.
This fiscal inequality worsened after the start of the Ukraine War. Governments of low- and middle-income countries were constrained by declining revenues and externally or self-imposed

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Social protection for the self-employed

January 10, 2023

The Covid-19 pandemic highlighted the urgent need for a universal social protection floor—something that has been talked about and even internationally accepted for more than a decade now, but has still received relatively little serious attention from policy makers in most countries. The challenge is to ensure basic levels of food, health, income and livelihood security, not only in periods of crisis like the pandemic or economic shocks but also in the “normal” course of economies and societies.

This has become a major concern because of the dramatically increased economic inequality and greater vulnerability of people to adverse events and processes, as well as the heightened fragility of material life. It has been compounded by the large (and growing) share of informal workers in

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The debt-trap and self-reliance

December 28, 2022

From Asad Zaman and the WEA Pedagogy Blog
Why does “Sovereign Default” become a hot topic with annoying regularity in Pakistan? The fundamental problem is the huge imbalance between our exports and imports. In 2021, our exports were USD 30 Billion, while our imports were around USD 62 Billion. In general, since 1960 onwards, our imports have averaged about 18%, while exports have been around 12% of the GNP. After reaching a high of 16.9% in 1996, the export ratio has been declining steadily, varying between 8% to 10% over the past five years. The dollar difference between the imports and exports is the ever-increasing amounts that we must borrow. This trade-gap serves as a brake on any growth spurt. As soon as the economy grows, the trade gap grows even faster, and we are forced to

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new issue of RWER

December 20, 2022

Real-world economics review
 Please click here to support this journal and the WEA 
Issue no. 10218 December 2022
download whole issue
Ecological Economics in Four ParablesHerman Daly          2
The Paradigm in the Iron Mask: Toward an Institutional Ecology of Ecological EconomicsGregory A. Daneke         16 
The Towering Problem of Externality-Denying CapitalismDuncan Austin          30 
Have We Passed Peak Capitalism?Blair Fix          55
A Probabilistic Theory of Supply and DemandJohn Komlos          89
Unicorn, Yeti, Nessie, and Neoclassical Market – Legends and Empirical EvidenceIbrahim Filiz, Jan René Judek, Marco Lorenz, Markus Spiwoks          97
On the Efficacy of SavingGeorge H. Blackford          119
Occupation Freedoms: Comparing Workers and SlavesM. S.

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Neoliberal economics, Big Pharma and pandemics

December 9, 2022

From Imad Moosa  

The spread of the virus has been aided by the neoliberal drive to privatise everything under the sun, including healthcare. Forty years of the privatisation of public health institutions (allegedly in the name of efficiency and for the benefit of consumers) has resulted in a disastrous situation as private healthcare providers have no commercial interest in preparing for or preventing emergencies. The spread has been aided by the lack of staff and material capacities in underfunded public hospitals, and the complete inability of the private, profit-motivated healthcare industry to provide even the most basic medical equipment and treatment when they are needed. The followers of neoliberal thinking disagree with this proposition and suggest that only the private

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Stress, a negative externality, is ubiquitous

December 7, 2022

From John Komlos 

Stress, the body’s biological response to external threats, is generated in the economic system as a negative externality through countless pathways, that include long working hours, being underpaid, being evicted, income insecurity, unhealthy work environments, tight deadlines, being fired, long spells of unemployment, underemployment, low income relative to the median, reduction of earnings, unexpected medical expenses, college tuition, being victim of predatory loans, financial pressure, inadequate work-life balance, being underinsured, excessive child-care costs, inflation, incarceration, and inadequate government safety net programs, to name some contributing factors.
The relevant literature is humongous: a search of the National Library of Medicine (PubMed)

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The real economy is never in equilibrium

December 5, 2022

From Philip George

What are vectors?
. . . we defined a vector as a quantity having both magnitude and direction and represented it by an arrow. This makes sense in Euclidean 3-dimensional space. But in higher dimensions the idea of direction is not intuitive and we need a more formal definition that is consistent with the definition in three dimensions. In mathematics, an object is defined as a vector if it is an element in a vector space. This seems a circular definition but the additional requirements make it clear why it is defined in this way. Thus, when a vector is multiplied by a scalar (a real number, for our purpose) the result must be an element of the vector space, i.e., another vector. And a vector added to another vector must also be a vector in that vector space.

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Knowledge and growth

December 4, 2022

From Lars Syll

If you have an apple and I have an apple and we exchange these apples then you and I will each have one apple.
But if you have an idea and I have an idea and we exchange these ideas, then each of us will have two ideas.
George Bernard Shaw

Adam Smith once wrote that a really good explanation is “practically seamless.” Is there any such theory within one of the most important fields of social sciences — economic growth?
In Paul Romer’s Endogenous Technological Change (1990) knowledge is made the most important driving force of growth. Knowledge (ideas) are presented as the locomotive of growth — but as Allyn Young, Piero Sraffa and others had shown already in the 1920s, knowledge is also something that has to do with increasing returns to scale and therefore not

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Free trade theory fails to correspond to reality

December 3, 2022

From Jeff Ferry 

For the last 90 years, the United States has pursued and advocated free trade. For the last 60 of those 90 years, American workers and other observers have watched America lose high-paying jobs to imports and asked: can this really be good for the American economy?
Professional economists have answered, virtually unanimously, that yes, it is good, due to something called the Law of Comparative Advantage.
They are wrong. Their free trade theory, based on the so-called Law of Comparative Advantage, does not work for the U.S. or for many other countries.  We know this because dozens of economists have published studies of the empirical results of import penetration showing that the Law of Comparative Advantage, and the modern economic theory built around it is

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Twitter temporarily suspends Dean Baker’s account after his “right-wing jerk” article

December 2, 2022

Dean Baker’s article is two posts below this post. 
Here is an article from CEPR about the suspension.

Washington, DC — The Center for Economic and Policy Research (CEPR) expresses concern at the sudden and disturbing temporary suspension of Dean Baker’s Twitter account today. Baker, who co-founded CEPR with Mark Weisbrot in 1999, and who currently works with CEPR as a senior economist, had his Twitter account, @DeanBaker13, “permanently suspended” without warning earlier today, only to see it reinstated a short time later, but with only a small fraction of the over 66,800 followers it had before it was suspended. Baker was not given any explanation for the suspension other than a boilerplate notification, and had never been warned that he had violated any of Twitter’s rules of

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The monetary policy fallout for developing countries

November 16, 2022

From C.P. Chandrasekhar and Jayati Ghosh
The monetary policies of the major advanced economies have been obsessively nationalist for more than two decades now, with hardly any genuine international cooperation beyond some coordination among G7 economies. These policies in turn have had all sorts of impacts—often very negative—in the rest of the world, and particularly in the low and middle income countries referred to collectively as emerging and developing economies (EMDEs).
After the Global Financial Crisis, the advanced economies unleashed historically loose monetary policies, with major liquidity expansion and very low or even negative interest rates of their central banks. This enabled and encouraged massive increases in debt both within their own economies and in the rest of the

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new from WEA Books – “Heterodox Economics: Legacy & Prospects”

November 8, 2022

Kindle edition $5.99   US UK DE FR ES IT NL JP BR CA MX AU IN
paperback $14.99    US UK DE FR ES IT NL PL SE JP CA AU
“The pressing need for alternative approaches in economics that is evident in the wake of the global pandemic, has also signalled an opening of space for the ideas and prescriptions of heterodox economics. This timely volume interrogates the rich diversity of the legacy of the heterodox economics, the institutional context and constraints that determine its influence, while addressing important questions about appropriate and desirable strategies and practices for fostering a vibrant constructive heterodox tradition . . .”
Edited by Lynne Chester & Tae-Hee Jo

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Weekend read – How to be an Academic Hyper-Producer

November 4, 2022

From Blair Fix 
Are you an aspiring academic? If so, this manual will reveal the secret to maximizing your scholarly output. Follow my advice, and you too can become an academic hyper-producer.

The golden rule: Don’t do research
Newcomers to the academy typically think that the recipe for success is to ‘do high-quality research’. Nothing could be more false. ‘Doing research’ (and writing papers about your ‘results’) is a tedious waste of time. It is no way to be hyper-productive. Savvy academics know that their true goal is to have their name stamped (as author) on stacks of published papers.
Here is a jingle to help you remember the golden rule:

Productive academics neither research nor write,
That is their subordinates’ plight.
To inflate their way up the productivity ramp,

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Weekend read – Can university education in economics contribute to strengthened democracy and peace?

October 21, 2022

From Peter Söderbaum and WEA Commentaries current issue
In all societies there is a tension between democracy and dictatorship. In some countries democracy is well institutionalized and the threat of dictatorship is successfully kept at a distance. In other societies, a system close to dictatorship is quite established and democracy is regarded as a threat. Today, we witness a confrontation between Russia, a nation close to dictatorship and Ukraine which appears to move toward strengthened democracy.
In this essay it is assumed that a strengthened democracy is preferable to dictatorship if one aims at a sustainable and peaceful relationship between single nations and regional assemblies of nations. Does the economics taught in universities play a positive role in

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What is money?

October 17, 2022

From Tony Lawson and real-world economics review issue no. 101
What is money?  Two sorts of answer to this question can be found in the modern literature.  One locates money’s nature in the organising structure of human communities, the other in intrinsic properties of particular (money) items (like commodities, debts, precious metals and so on). If accounts of money that draw on social positioning theory are instances of the former, a currently very popular and seemingly increasingly influential version of the latter takes the form of modern money theory (MMT). Notably, however, whilst contributors to social positioning theory have regularly concerned themselves with elaborating explicitly a conception of money’s nature, proponents of MMT rarely address the matter explicitly; mostly

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