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Real-World Economics Review

Economic models and reality

from Lars Syll The abandonment of efforts to match real structures has led to disaster, as models of economic theory have grown progressively distant from reality. Attempts to fix the problem have failed to address the cause. Economists look at bad models, and say we should replace these by better models. But the process by which models are evaluated, the underlying methodology, is not examined. The real problem lies much deeper than bad models and ludicrous assumptions. Bad assumptions...

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Rational choice theory — an abysmal failure

Lars Syll Though an enthusiast of reason, I believe that rational choice theory has failed abysmally, and it saddens me that this failure has brought discredit upon the very enterprise of serious theorizing in the field of social study … Rational choice theory is far too ambitious. In fact, it claims to explain everything social in terms of just three assumptions that would hold for all individuals in all social groups and in every historical period. But a Theory of Everything does not...

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The sure way to end concerns about China’s “theft” of a vaccine: Make it open

from Dean Baker In the last couple of weeks both the New York Times and National Public Radio have warned that China could steal a vaccine against the coronavirus, or at least steal work in the U.S. done towards developing a vaccine. Both outlets obviously thought their audiences should view this as a serious concern. As I wrote previously, it is not clear why those of us who don’t either own large amounts of stock in drug companies or give a damn about Donald Trump’s ego, should be upset...

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How economic models became substitutes for reality

from Asad Zaman The problem at the heart of modern economics is buried in its logical positivist foundations created in the early twentieth century by Lionel Robbins. Substantive debates and critiques of the content actually strengthen the illusion of validity of these methods, and hence are counterproductive. As Solow said about Sargent and Lucas, you do not debate cavalry tactics at Austerlitz with a madman who thinks he is Napoleon Bonaparte, feeding his lunacy.  Modern macroeconomic...

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Who’s been laid off?

David Ruccio If we needed any more confirmation of who’s been laid off during the current crisis, all we need to do is examine the change in average hourly wages in the United States. In the past month (so, April 2020), the year-over-year increase in hourly wages jumped to 7.9 percent. That’s more than three times the average increase since 2008 (2.5 percent) and more than two and half times the increase since Donald Trump took office (3 percent). That doesn’t mean American workers are...

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Econometrics — a Keynesian perspective

from Lars Syll It will be remembered that the seventy translators of the Septuagint were shut up in seventy separate rooms with the Hebrew text and brought out with them, when they emerged, seventy identical translations. Would the same miracle be vouchsafed if seventy multiple correlators were shut up with the same statistical material? And anyhow, I suppose, if each had a different economist perched on his a priori, that would make a difference to the outcome. J M Keynes Mainstream...

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New fronts in the US-China trade war

from C. P. Chandrasekhar and Jayati Ghosh While everyone was busy looking at the Covid-19 numbers across the world, other “stuff was happening” in international trade: the US-China trade war, which started as far back July 2018, just got significantly worse. This on-again-off-again war has been a feature of the Trump Presidency, with the man who became president of the US in January 2017 vowing to prevent the US from being “exploited” by other countries, notably China, that had benefited...

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Public health business models

from Jamie Morgan Part 4 of Pandemic aware economies, public health business models and (im)possible futures One optimistic point of view hopes our economies bounce back (a deep sharp ‘v’ shape). But this seems increasingly unlikely and is now a minority position. This is partly because of a path-dependency governments are not well-equipped to quickly or easily shift. No  effective treatments are available yet for Covid-19 and even as some become available we will still be living in more...

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How the model became the message in economics

from Lars Syll In The World in the Model Mary Morgan gives a historical account of how the model became the message in economics. On the question of how the models provide a method of enquiry where they can function both as “objects to enquire into” and as “objects to enquire with”, Morgan argues that model reasoning involves a kind of experiment. She writes: It may help to clarify my account of modelling as a double method of enquiry in economics if we compare it with two of the other...

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Corruption and the Pandemic Bailout

from Dean Baker Neil Irwin had an interesting New York Times piece on how concerns about moral hazard in the bailout may damage the recovery. The gist of the article is that the fear that bad actors will be wrongly rewarded will prevent us from spending enough money to get the economy back on its feet. Irwin’s point is very important, but it does require some further examination. We might agree for example, that it is silly to oppose an airline bailout because it will help shareholders if...

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