Real-World Economics Review

from Peter Radford I know, this is one of those more philosophical moments.  In my case prompted by my continued meditation on the deleterious effects of a belief in utopias.  Such beliefs seem always to end up with authoritarian consequences.  People can all too easily get swept up by the illusion of having solved life’s great mysteries.  It’s been going on for ages.  It appears to be a commonly held human attribute.  We need, apparently, to think we understand things that are,...

from Ikonoclast  (originally a comment) The whole idea that economics and the economy exist as a self contained discipline and a self-contained system respectively is absurd. First, there is a natural system, the biosphere, which contains economics activity and upon which economic activity is dependent. Second, there is politics and force (power) which condition economic activity. In relation to the second, Chomsky writes of: “…American Liberalism, reiterated… in the Clinton doctrine,...

from Lars Syll Many economists respond to criticism by saying that ‘all models are wrong’ … But the observation that ‘all models are wrong’ requires qualification by the second part of George Box’s famous aphorism — ‘but some are useful’ … The relevant  criticism of models in macroeconomics and finance is not that they are ‘wrong’ but that they have not proved useful in macroeconomics and have proved misleading in finance. When we provide such a critique, we often hear another mantra to...

from Dean Baker The explosion of inequality over the past four decades is appropriately a major focus of the political agenda for progressives. Unfortunately, policy prescriptions usually turn to various taxes directed at the wealthy and very wealthy. While making our tax structure more progressive is important, most of the increase in inequality comes from greater inequality in before-tax income, not from reductions in taxes paid by the rich. And, if we’re serious about reversing that...

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from Lars Syll Clearly, it is possible to interpret the ‘presuppositions’ of a theoretical system … not as hypotheses, but simply as limitations to the area of application of the system in question. Since a relationship to reality is usually ensured by the language used in economic statements, in this case the impression is generated that a content-laden statement about reality is being made, although the system is fully immunized and thus without content. In my view that is often a...

from Peter Radford I suppose forecasting errors is one of those phrases that needs a bit of explanation.  Are we forecasting errors?  Or are we discussing the errors in forecasting?  I think it’s both. Take the current debate going on about Biden’s $1.9 trillion economic relief package. A few notable economists, including both Larry Summers and Oliver Blanchard, are arguing that Biden is proposing on spending too much.  This criticism is not based on any analysis of the level of...

from Lars Syll Unfortunately, the greater part of economic controversies arise from confronting dogmas. The style of argument is that of theology, not of science … In economics, new ideas are treated, in theological style, as heresies and as far as possible kept out of the schools by drilling students in the habit of repeating the old dogmas, so as to prevent established orthodoxy from being undermined … On the plane of academic theory, the importance of the Keynesian revolution was to...

from Dean Baker It seems that Larry Summers is worried that the stimulus proposed by President Biden is too large. I will say at the onset that he could be right. However, at the most fundamental level, we have to ask what the relative risks are of too much relative to too little. If we actually are pushing the economy too hard, the argument would be that we would see serious inflationary pressures, which could result in the sort of wage-price spiral we saw in the 1970s. As someone who...

from C. P. Chandrasekhar January proved to be an unusual month in the US equity market. The shares of GameStop, a brick-and-mortar retailer of gaming consoles and video games, had in the course of that month risen by close to 2000 per cent. The price of the share rose from around $5 in August 2020 to $350 in late January 2021, with much of the rise occurring towards the end of that period. Besides the fact that no set of fundamentals can justify that rise, this was intriguing because of...