Real-World Economics Review

Economic Thought History, Philosophy and MethodologyVol. 7, No. 2  download issue in full A Common Misunderstanding about Capitalism and Communism Through the Eyes of InnovationDirk-Hinnerk Fischer, Hovhannes Yeritsyan Cherchez la Firme: Redressing the Missing – Meso – Middle in Mainstream EconomicsStuart Holland, Andrew Black The Lucas Critique: A Lucas CritiqueChristian Müller-Kademann Quantum EconomicsDavid Orrell Computational Agents, Design and Innovative Behaviour: Hetero...

from Lars Syll The first thing to understand about macroeconomic theory is that it is weirder than you think. The heart of it is the idea that the economy can be thought of as a single infinite-lived individual trading off leisure and consumption over all future time … This approach is formalized in something called the Euler equation … Some version of this equation is the basis of most articles on macroeconomic theory published in a mainstream journal in the past 30 years … The models...

from David Ruccio The historically low black unemployment rate is one of Donald Trump’s favorite applause lines. Even Reuters [ht: ja] declares that Trump is right. It doesn’t seem to matter that most of the decline in the unemployment rate for African American workers (from a high of 16.5 percent in the beginning of 2010 to a low of 6.3 percent today) occurred before Trump was ever elected. What does matter is that, even as the rate has dropped (the purple line in the chart above),...

from Lars Syll Dynamic stochastic general equilibrium (DSGE) models remain the work-horse models employed by many academics and research departments at central banks … Prior to the Global Financial Crisis the financial sector played no role in these DSGE models. That limitation is now widely acknowledged and numerous aspects of the financial sector have been incorporated into second and later generation DSGE models … Unfortunately, these efforts are misguided because they do not address...

from Asad Zaman and the current issue of RWER The outcome of all this discussion can be summarized metaphorically by saying that we all use glasses to see the world. The direct world out there is a jumble of sensations – a matrix of points – which makes no sense by itself, and must be interpreted using our own frameworks, represented by the glasses. This means that ALL observations are tinged with subjectivity, and interpreted within the frameworks created by our past experiences,...

from John Balder and the current issue of RWER In addition to the explosive growth in credit, the manner in which credit was deployed also shifted toward financing transaction in housing and other assets (e.g., equities, bonds, et al). As noted above, up until the early 1980s, credit was used mostly to finance production of goods and services. Growth in credit from 1945 to 1980 was closely linked with growth in incomes. The incomes that were generated were then used to amortize and...

from Lars Syll [embedded content] A non-trivial part of statistics education is made up of teaching students to perform significance testing. A problem I have noticed repeatedly over the years, however, is that no matter how careful you try to be in explicating what the probabilities generated by these statistical tests really are, still most students misinterpret them.  This is not to blame on students’ ignorance, but rather on significance testing not being particularly transparent...

from Lars Syll In a post on his blog, Oxford macroeconomist Simon Wren-Lewis discusses if modern academic macroeconomics is eclectic or not. When it comes to methodology it seems as though his conclusion is that it is not: The New Classical Counter Revolution of the 1970s and 1980s … was primarily a revolution about methodology, about arguing that all models should be microfounded, and in terms of mainstream macro it was completely successful … Mainstream academic macro is very eclectic...

from Asad Zaman This post is Lecture 8B — from 17m to 37m of video lecture linked at bottom of post. It attempts to make sense of the Keynesian explanation of unemployment based on insufficient aggregate demand. It concludes that several elements missing from Keynes must be added to get to a satisfactory explanation.  Friedman’s Methodology  leads to crazy models: In previous post (  Lecture 8A – Microfoundations for Keynesian Economics ), we showed that even small differences in the...

from Thomas Palley and the current issue of the RWER As regards economics, the conventional wisdom interprets globalization through the lens of trade theory, which maintains there are gains for all countries that participate.[1] The narrative is that there have been two globalizations in the modern era. The first began around 1870 and ended in 1914. The second began in 1945 and is still underway. Globalization is identified with the history of trade, and the narrative is constructed...