Real-World Economics Review

from Dean Baker Word from the grapevine is that the risk of contagion may cause the Fed or the FDIC to engineer some sort of bailout of uninsured deposits, where they get paid back in full, instead of being forced to accept a partial loss on deposits over $250k. That would be unfortunate, since the people who run these companies that have large deposits are supposed to be brilliant whizzes, who should be able to understand things like FDIC deposit insurance limits. Their incessant...

from Blair Fix To manage inflation, governments have a simple tool at their disposal: raise wages as fast as possible.— Milton Fryman For the last few months, I’ve been diving into the economics of inflation. In this post, I’m excited to review some forgotten history. Our journey starts with a basic question: what is the key policy tool for managing the rate of inflation? According to mainstream economics, the key tool is the rate of interest. Hike this rate, economists argue, and you...

Lars Syll   Because statistical analyses need a causal skeleton to connect to the world, causality is not extra-statistical but instead is a logical antecedent of real-world inferences. Claims of random or “ignorable” or “unbiased” sampling or allocation are justified by causal actions to block (“control”) unwanted causal effects on the sample patterns. Without such actions of causal blocking, independence can only be treated as a subjective exchangeability assumption whose justification...

from Jamie Morgan If you think cryptocurrency is priapic capitalism’s latest attempt to dick you, you are probably not alone. In the last year or so most people’s perception of cryptocurrency has fallen about as far as it could. Opinion, much like the value and solvency of the assets, has plummeted from ‘the sky’s the limit’ to a soft sewage-landing. Great swathes of the population of the US and UK invested in cryptocurrency over the pandemic period. Since then, a swift spiral of...

from Lars Syll If you can’t devise an experiment that answers your question in a world where anything goes, then the odds of generating useful results with a modest budget and nonexperimental survey data seem pretty slim. The description of an ideal experiment also helps you formulate causal questions precisely. The mechanics of an ideal experiment highlight the forces you’d like to manipulate and the factors you’d like to hold constant. Research questions that cannot be answered by...

from Peter Radford What am I supposed to make of this? Martin Wolf, someone whose work I always pay attention to, flubs it and leaves us with a partial picture.  That’s unlike him.  Perhaps it was the editing? In any case the notion that the UK needs to generate more savings, which is what Wolf is arguing in his recent Financial Times article, needs a slight augmentation in his basic analysis. The problem begins when he says that “Investment is financed by savings”.  This is a very...

from Lars Syll It is widely recognized but often tacitly neglected that all statistical approaches have intrinsic limitations that affect the degree to which they are applicable to particular contexts … John Maynard Keynes was perhaps the first to provide a concise and comprehensive summation of the key issues in his critique of Jan Tinbergen’s book Statistical Testing of Business Cycle Theories … Keynes’s intervention has, of course, become the basis of the “Tinbergen debate” and is a...

from Dean Baker On a lazy Friday afternoon, a person’s thoughts naturally turn to car price indexes. There is actually a reason that I became interested in this topic. I noticed that in the January Consumer Price Index, the new vehicle index rose 0.2 percent. The December measure was revised up due to new seasonal adjustment factors so that what had been reported as a 0.1 percent decline last month is now reported as a 0.6 percent increase. I was inclined to think this was an aberration...

from Lars Syll Contrary to the tenets of orthodox economists, contemporary research suggests that, rather than seeking always to maximise our personal gain, humans still remain reasonably altruistic and selfless. Nor is it clear that the endless accumulation of wealth always makes us happier. And when we do make decisions, especially those to do with matters of principle, we seem not to engage in the sort of rational “utility-maximizing” calculus that orthodox economic models take as a...

from Duncan Austin . . . it is an empirical matter whether the Hand is stronger than the Foot, or vice-versa.  Unfortunately, various environmental and social trajectories indicate that the Foot is now overpowering the Hand in important ways. Note that the situation is not that markets are outright ‘good’ or ‘bad’ – as polarizing capitalism-versus-socialism debates so often quickly descend to – but rather how helpful or harmful current markets are based on how well they...