Real-World Economics Review

from David Ruccio Maarten Vanden Eynde, The Invisible Hand (2015)* We hear it all the time. On a regular basis. Having to do with pretty much everything. Why is the price of gasoline so high? Mainstream economists respond, “it’s the market.” Or if you think you deserve a pay raise, the answer again is, “go get another offer and we’ll see if you’re worth it according to ‘the market’.” Alternatively, if you want to solve a particularly pressing problem—such as climate change,...

The neoclassical macro ‘DSGE’ models do not seem to have a rigorous model consistent ‘production boundary’. A ‘prior’ in macro economics is the production boundary: what are we talking about? Famously, Adam Smith more or less excluded services – or at least services from personal servants. While the present national accounts  basically include everything which yields a monetary income, including illegal activities. The phrases ‘more or less’ and ‘basically’ of course indicate that...

Source: https://blog.raulza.me/wealth-and-income-inequality-data/

from Lars Syll Economics is a science of thinking in terms of models joined to the art of choosing models which are relevant to the contemporary world. It is compelled to be this, because, unlike the typical natural science, the material to which it is applied is, in too many respects, not homogeneous through time. The object of a model is to segregate the semi-permanent or relatively constant factors from those which are transitory or fluctuating so as to develop a logical way of...

from David Ruccio The usual suspects have attacked Bernie Sanders’s proposal for the federal government to guarantee a job paying $15 an hour and health-care benefits to every American worker “who wants or needs one.”  According to Robert J. Samuelson, “The proposal would add to already swollen federal budget deficits. . .Then there’s inflation. The extra spending and higher wages might push prices upward.” After listing a number of other “unavoidable” problems, Samuelson concludes:...

from C. P. Chandrasekhar On the morning of April 24, the price of Brent crude, the global benchmark for oil prices, rose above $75 a barrel, touching its highest level since 2014 and signalling the return of an era of high oil prices. That is a $30 per barrel or 66 per cent rise from the previous low of around 10 months ago. As expected, this has made oil importers nervous. But, despite the benefits it would bring US shale producers, even President Donald Trump is rattled. In one more of...

from Lars Syll Even as it became conventional wisdom, the supposed relationship between unemployment and increasing or decreasing rates of inflation was breaking down — notably in the 1990s. Unemployment got below 4 percent in 2000 without inflation taking off. Since the onset of Great Recession, the gap between theory and reality has only grown … Once we see how weak the foundations for the natural rate of unemployment are, other arguments for pursuing rates of unemployment economists...

from Dean Baker I was glad to see Paul’s short post explaining some of the economics of the U.S. government negotiating drug prices with the drug companies; the route Donald Trump rejected. I thought I would add a few more points. First, the monopoly profits earned by the drug companies provide a powerful incentive for rent-seeking. This is the standard story that economists always complain about with trade protection, except instead of talking about a tariff that raises the price of the...

from David Ruccio From the very beginning, the area of mainstream economics devoted to Third World development has been imbued with a utopian impulse. The basic idea has been that traditional societies need to be transformed in order to pass through the various stages of growth and, if successful, they will eventually climb the ladder of progress and achieve modern economic and social development. Perhaps the most famous theory of the stages of growth was elaborated by Walt Whitman...

from Asad Zaman Part 1: Power/Knowledge – How Macro Theory is shaped by the Powerful Why Understand Macro? If we understood macroeconomics, we would be able to understand the reasons for the major economic events currently going on all around us. For instance, increasing inequality, effects of austerity, Brexit, inequities of post-Bretton Woods dollar based financial system, impacts of emerging economy of China on global finance, and many other questions of vital importance for conduct of...