Real-World Economics Review

from Lars Syll Many mainstream economists – still — think that game theory is useful and can be applied to real-life and give important and interesting results. That, however, is a rather unsubstantiated view. What game theory does is, strictly seen, nothing more than investigating the logic of behaviour among non-existant robot-imitations of humans. Knowing how those ‘rational fools’ play games do not help us to decide and act when interacting with real people. Knowing some game theory...

from Arturo Hermann Dear Randall, I appreciate your article “Alternative Paths to Modern Money Theory” and the novel perspective put forth by MMT in respect to the very narrow views of Austrian and neoclassic theories. Starting from this, I would like to make some constructive remarks around the following aspects:  (I) In the article you stress that (p.6), when there is a “sovereign national currency” (p.5) and flexible exchange rates, “The sovereign currency issuer:  does not face a...

from David Ruccio Yesterday, the winners of the 2019 winners of the so-called Nobel Prize in Economics were announced. Abhijit Banerjee, Esther Duflo, and Michael Kremer were recognized for improving “our ability to fight global poverty” and for transforming development economics into “a flourishing field of research” through their experiment-based approach. The Royal Swedish Academy of Sciences declared: This year’s Laureates have introduced a new approach to obtaining reliable answers...

from Lars Syll There are two basic challenges that confront any account of extrapolation that seeks to resolve the shortcomings of simple induction. One challenge, which I call extrapolator’s circle, arises from the fact that extrapolation is worthwhile only when there are important limitations on what one can learn about the target by studying it directly. The challenge, then, is to explain how the suitability of the model as a basis for extrapolation can be established given only...

from Blair Fix Did you hear the joke about the economists who tested their theory by defining it to be true? Oh, I forgot. It’s not a joke. It’s standard practice among mainstream economists. They propose that productivity explains income. And then they ‘test’ this idea by defining productivity in terms of income. In this post, I’m going to show you this circular logic. Then I’ll show you what productivity differences look like when productivity is measure objectively. They’re far too...

from Anne Mayhew I count myself as one of those friendly critics who applaud several of the major MMT contributions to our understanding of the modern American economy. Among these contributions are the emphasis put on the endogeneity of money; the importance of using of a flow-of-funds approach in analysis of the macroeconomy; detailed descriptions of how the FED (Federal Reserve System) actually operates, details usually missing from texts. And from these three emphases the central...

from Lars Syll One of the limitations with economics is the restricted possibility to perform experiments, forcing it to mainly rely on observational studies for knowledge of real-world economies. But still — the idea of performing laboratory experiments holds a firm grip of our wish to discover (causal) relationships between economic ‘variables.’ If we only could isolate and manipulate variables in controlled environments, we would probably find ourselves in a situation where we with...

from Geoff Davies The point of a theory or model is to provide a useful guide to understanding the world. People like Paul Krugman are fond of claiming simple equilibrium models provide a useful first cut or first approximation to understanding. Others put their faith in more elaborate equilibrium models. But do equilibrium models, simple or elaborate, offer any useful guidance to actual economies, or are they perhaps radically misleading? Is this a useful guide to this? Or this? The...

from Dean Baker Presidential candidate Joe Biden is considering to propose a financial transactions tax as part of his campaign for the Democratic nomination, according to a recent report from The Washington Post. This is big news for those of us who have long advocated such a tax. Sen. Bernie Sanders has taken the lead on this issue among presidential candidates, including a financial transactions tax — also known as an FTT — as part of his plan for making college tuition free. Several...

from L. Randall Wray MMT provides an analysis of fiscal and monetary policy that is applicable to national governments with sovereign currencies. We argue that there are four essential requirements that qualify a national currency as sovereign in the sense in which we use the term: the National government chooses a money of account in which the currency is denominated; the National government imposes obligations (taxes, fees, fines, tribute, tithes) denominated in the chosen money of...