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Real-World Economics Review

Utopia and the exhaustion of the center

from David Ruccio We’re ten years on from the events the triggered the worst crisis of capitalism since the first Great Depression (although read my caveat here) and centrists—on both sides of the Atlantic—continue to peddle an ahistorical nostalgia. Fortunately, people aren’t buying it. As Jack Shenker has explained in the case of Britain, one of the most darkly humorous features of contemporary British politics (a competitive field) is the ubiquity of parliamentarians, pundits and...

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Some common misunderstandings about randomization

from Lars Syll Randomization is an alternative when we do not know enough to control, but is generally inferior to good control when we do. We suspect that at least some of the popular and professional enthusiasm for RCTs, as well as the belief that they are precise by construction, comes from misunderstandings about … random or realized confounding on the one hand and confounding in expectation on the other … The RCT strategy is only successful if we are happy with estimates that are...

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Economic moats and American capitalism

from David Ruccio In a 1999 interview with Fortune, legendary investor Warren Buffett coined the term “economic moats” to sum up the main pillar of his investing strategy. He described it like this: The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage. The products or services that have wide, sustainable moats...

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Modern economics — a severe case of model Platonism

from Lars Syll That is the great thing about abstraction. Working with what can be called ‘flex price’ models does not imply that you think price rigidity is unimportant, but instead that it can often be ignored if you want to focus on other processes. Simon Wren-Lewis When applying deductivist thinking to economics, mainstream economists like Wren-Lewis usually set up ‘as if’ models based on a set of tight axiomatic assumptions from which consistent and precise inferences are made. The...

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The Transatlantic Alliance will survive Trump

from Mark Weisbrot Every week, and often more than once a week, there is another article in the major media or in foreign policy publications about the demise of the post-World War II Anglo-American world order. These analyses typically single out the Transatlantic Alliance between the US and Europe ― two of the world’s largest economies ― for special concern and anxiety as the underpinning of this world order. Not surprisingly, President Trump’s wildly fluctuating comments on NATO...

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Brave New Money: The trend toward a digital world currency – part 2

from Norbert Häring                                                                                              part 1 The winner takes all is a basic rule of the digital economy. Whoever is ahead has a large advantage, just from being ahead, and has a good chance to end up as a quasi-monopolist. This has two main reasons, called network effects and economies of scale. Network effects make digital services more attractive, if more people use them. This is true for social media or trading...

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Technobabble economics

from Lars Syll Deductivist modeling endeavours and an overly simplistic use of statistical and econometric tools are sure signs of the explanatory hubris that still haunts mainstream economics. In an interview Robert Lucas says the evidence on postwar recessions … overwhelmingly supports the dominant importance of real shocks. So, according to Lucas, changes in tastes and technologies should be able to explain the main fluctuations in e.g. the unemployment that we have seen during the...

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Bad news for Donald Trump, China is already bigger than the United States

from Dean Baker As we know, Donald Trump is not very good with numbers. He gave more evidence of this fact when he told a campaign rally in West Virginia: “When I came, we were heading in a certain direction that was going to allow China to be bigger than us in a very short period of time …That’s not going to happen anymore.” Actually, China’s economy is already considerably bigger than the US economy. Using the purchasing power parity measure, which is recommended by most economists and...

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