Real-World Economics Review

from Dean Baker The New York Times told us last week that China is running out of people. That might seem an odd concern for a country with a population of more than 1.4 billion, but you can read it for yourself: “Driving this regression in women’s status is a looming aging crisis, and the relaxing of the draconian ‘one-child’ birth restrictions that contributed to the graying population. The Communist Party now wants to try to stimulate a baby boom.” What exactly is supposed to be...

from Lars Syll The unpopularity of the principle of organic unities shows very clearly how great is the danger of the assumption of unproved additive formulas. The fallacy, of which ignorance of organic unity is a particular instance, may perhaps be mathematically represented thus: suppose f(x) is the goodness of x and f(y) is the goodness of y. It is then assumed that the goodness of x and y together is f(x) + f(y) when it is clearly f(x + y) and only in special cases will it be true...

from Joseph Huber  Impaired ability of banks to lend and invest?  One of the concerns that have been expressed about the introduction of digital currency (DC) is that with a growing share of DC “deposit-funded bank credit might be undermined” and that “with too widespread a DC, it might threaten the banks’ lending activity, if banks cannot use deposits for that purpose”. Such statements are totally missing the point. Under fractional reserve banking, deposits are not loanable funds for...

from Ikonoclast The methodological ideology of conventional economics will be destroyed by its failure in the current and ongoing collisions of its recommendations and applications with real systems. This is already happening as Herman Daly illustrates in his paper “Growthism: Its Ecological, Economic and Ethical Limits.” In turn economics, like science, will progress theoretically and methodologically, or else disappear with humans themselves, “one funeral at a time” as not only current...

from deshoebox But mainstream economics must be defended. It must! Can you even imagine what might happen if it were successfully challenged? If people started to doubt the god-like efficiency of markets, the exquisite perfection of economic equilibria, the flawless functioning of billions of transactions conducted on the basis of full information and rational expectations? If people began to ask, “What is the economy really for? What is it supposed to be doing?” and if the new economists...

from Lars Syll When politically “radical” economists like Krugman, Wren-Lewis or Stiglitz confront the critique of mainstream economics from people like me, they usually have the attitude that if the critique isn’t formulated in a well-specified mathematical model it isn’t worth taking seriously. To me that only shows that, despite all their radical rhetoric, these economists – just like Milton Friedman, Robert Lucas Jr or Greg Mankiw – are nothing but die-hard defenders of mainstream...

from Dimitri Papadimitriou, Michalis Nikiforos, and Gennaro Zezza In order to understand the US economy – or for that matter any economy – we need to identify its structural characteristics. These characteristics will allow us to link its precrisis trajectory to the present relatively slow recovery and, most importantly, its future prospects. Through this prism, it is also easier to understand major policy debates and concerns regarding foreign competition, such as the recent...

from Lars Syll In my judgment, the practical usefulness of those modes of inference, here termed Universal and Statistical Induction, on the validity of which the boasted knowledge of modern science depends, can only exist—and I do not now pause to inquire again whether such an argument must be circular—if the universe of phenomena does in fact present those peculiar characteristics of atomism and limited variety which appear more and more clearly as the ultimate result to which material...

from Asad Zaman Last semester I taught an MMT-based Macro course which attempted to re-integrate history into economics. The course was based on the premise that economic theories cannot be understood outside the historical context in which they were born. Standard graduate macro courses attempt to teach a body of theory which has been empirically falsified. My course had the goal of giving the student the ability to understand major economic events of the past century.  A previous post...

from Ikonoclast Conventional economics is a prescriptive discipline pretending to be a descriptive discipline. I find it useful, at a first principles level of thinking, to distinguish between “rules” and “laws”. (1) A “rule” is a prescribed guide for conduct or action by any agent (human or machine). (2) A “law” is a fundamental law of (physical) nature described by the hard sciences after extensive observation, experiment, deduction and mathematical analysis. A “rule” is made in a given...