Real-World Economics Review

from Dean Baker I have largely been in agreement with Paul Krugman in his assessment of the economy over the last dozen years or so, but I think in his latest column he let the promise of a post-Trump era get the better of him. Krugman notes that the distribution of effective vaccines should allow people to return to their normal lives. He argues that this will lead to a spending boom, as consumers have accumulated savings through the slump and will now be in a position to spend lots of...

from Peter Radford That’s the subtitle of Robert Skidelsky’s little book “What’s Wrong With Economics”?.  A primer for the perplexed.  With the U.S. election past us, I decided to start reading some of the books that had accumulated in my “to read” pile.  Skidelsky being one of my favorite authors I started with his.  The problem is that perplexity is insufficient to describe my usual emotion or state of mind whenever I engage with economics.  So, here I am, a mere fifty or so pages in,...

from Lars Syll Radical uncertainty arises when we know something, but not enough to enable us to act with confidence. And that is a situation we all too frequently encounter … The language and mathematics of probability is a compelling way of analysing games of chance. And similar models have proved useful in some branches of physics. Probabilities can also be used to describe overall mortality risk just as they also form the basis of short-term weather forecasting and expectations about...

from Dean Baker The New York Times had an article discussing the prospects for U.S. trade relations with China during Biden’s presidency. At one point it tells readers: “Mr. Biden has given few details about his plans for U.S.-China relations, other than saying he wants to recruit American allies such as Europe and Japan to pressure China to make economic reforms, like protecting intellectual property.” Stronger and longer patent and copyright protections have redistributed enormous...

from C. P. Chandrasekhar In a move that was expected, the US Justice Department has filed an anti-trust lawsuit against internet search giant Google, alleging that it resorts to anti-competitive practices to ensure its dominance in the search engine space and, through that, over the related online advertising revenues. As a leading example the case cites the successful effort to exclude the competition through a deal, in place since 2005, in which Google pays Apple around $8-12 billion a...

from Lars Syll Modern economics has become increasingly irrelevant to the understanding of the real world. In his seminal book Economics and Reality (1997) Tony Lawson traced this irrelevance to the failure of economists to match their deductive-axiomatic methods with their subject. It is — sad to say — as relevant today as it was twenty-three years ago. It is still a fact that within mainstream economics internal validity is everything and external validity nothing. Why anyone should be...

from Dean Baker Washington Post columnist Megan McArdle was anxious to tell readers that drug development in the pandemic has been a great success story. After all, look at all the treatments we have, and now it appears that Pfizer/BioNtech have developed a highly effective vaccine. What could be better than that? Well, first we need a bit of perspective. Yes, we place an enormous value on our health and our lives, so getting effective treatments and vaccines quickly are extremely...

Concepts that have proven useful in ordering things easily achieve such an authority over us that we forget their earthly origins and accept them as unalterable givens.  Thus they come to be stamped as “necessities of thought,” “a priori givens,” etc.  The path of scientific advance is often made impassable for a long time through such errors.  For that reason, it is by no means an idle game if we become practiced in analyzing the long commonplace concepts and exhibiting those...

fromC. P Chandrasekhar and Jayati Ghosh The past year has brought into sharp relief the significant differences between China and the rest of the world. The experience of the pandemic is probably the most extreme and definitive expression of that: the ability of China to contain the spread of the virus and prevent a renewed outbreak of any substantive nature is unmatched by almost all other countries, with the exception of a few outliers. The reasons for this certainly deserve separate...

from Lars Syll The assumption of additivity and linearity means that the outcome variable is, in reality, linearly related to any predictors … and that if you have several predictors then their combined effect is best described by adding their effects together …  This assumption is the most important because if it is not true then even if all other assumptions are met, your model is invalid because you have described it incorrectly. It’s a bit like calling your pet cat a dog: you can try...