Real-World Economics Review

from Lars Syll Every dollar of increased government spending must correspond to one less dollar of private spending. Jobs created by stimulus spending are offset by jobs lost from the decline in private spending. We can build roads instead of factories, but fiscal stimulus can’t help us to build more of both. This form of “crowding out” is just accounting, and doesn’t rest on any perceptions or behavioral assumptions. John Cochrane The problem with this view is, of course, that it is...

from Dean Baker We all know how difficult it is for elite economists at places like Harvard to get information about the economy, so perhaps we should excuse him for this little mess up. Of course if he had heard of the Great Recession he would not be writing a piece in the New York Times telling us that trade deficits really don’t matter: “Nations run trade deficits when their spending on consumption and investment, both private and public, exceeds the value of goods and services they...

from Lars Syll New Keynesians use mathematics to ‘prove’ some very odd stuff … Take, for example, a paper by Campbell Leith and Simon Wren-Lewis entitled Electoral Uncertainty and the Deficit Bias in a New Keynesian Economy. The thrust of the paper is that our particular form of party-based democracy naturally leads to ‘deficit bias’ … The authors identify the root problem to be one of ‘heterogeneity’ — the fact that different political parties will have different views about how to run...

from Shimshon Bichler and Jonathan Nitzan and current issue of the RWER At stake here is the connection between the two key quantities of the capitalist nomos – the price of capital and its underlying earnings – so the question is obviously important.  Yet, to the best of our knowledge, that question has never been asked, let alone answered. Indeed, as far as we know, the V­­‑shape pattern of the short-term price-EPS correlation shown in Figures 3 and 4 is a new finding. It is common to...

from John Balder and the current issue of the RWER To explore the origins of the global financial crisis, the first step is to specify the relationship between banking, money and credit. According to the mainstream view, a bank serves as an intermediary between a borrower and a lender. As a pure intermediary, a bank has no impact on real economic activity. This view – taught in most Economics 101 textbooks – implicitly assumes that money is available in finite quantities that are...

from David Ruccio and Jamie Morgan and the current issue of the RWER The premise and promise of capitalism, going back to Adam Smith, have been that global wealth would increase and serve as a benefit to all of humanity.[1] However, the experience of recent decades has challenged those claims: while global wealth has indeed grown, most of the increase has been captured by a small group at the top. This has continued into the “recovery” in the United States and globally. The result is that...

from Lars Syll As a descriptive exercise, all is well. One can compare the average salary of men and women, holding constant potential confounders. The result is a summary of how salaries differ on the average by gender, conditional on the values of one or more covariates. Why the salaries may on the average differ is not represented explicitly in the regression model … Moving to causal inference is an enormous step that needs to be thoroughly considered. To begin, one must ponder …...

from Thomas Palley and current issue of the RWER Economic failings and the rise of politics It has been ten years since the financial crisis. Since then, the global economy has recovered and attention has increasingly shifted to political risks as the trigger for the next economic crisis. That shift of attention has been driven by political events like the UK’s Brexit referendum, the election of President Trump, and the rise of anti-euro populist political parties in Italy. Such events...

from Dean Baker In his escalating trade war with China, Donald Trump is acting increasingly like Captain Queeg in the Caine Mutiny. He has imposed a 10 percent tariff on $200 billion in US imports from China, a rate he proposes to increase to 25 percent at the start of the next year. He also is threatening tariffs on the rest of our imports from China, an additional $300 billion in goods and services. The straight arithmetic tells us that 10 percent of $200 billion is $20 billion on an...