Real-World Economics Review

from Lars Syll [embedded content] A non-trivial part of teaching statistics is made up of learning 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 Asad Zaman In previous parts of this article (Understanding Macro I & Understanding Macro II), we have described how strict financial regulation and Keynesian prescriptions for full employment brought prosperity for the masses, but reduced corporate profits. This last part describes the successful counter-attack by corporations which reversed this state of affairs, causing a massive rise in the income shares of the wealthy 1% and a decline in the fortunes of the bottom 90%. In...

from Dean Baker After handing huge tax cuts to the country’s richest people and taking away health care insurance for millions, Donald Trump took another giant step toward abandoning his populist agenda last week. Instead of having Medicare negotiate to bring drug prices down, Trump put out a plan that is focused on making foreign countries pay more for drugs. The most immediate and direct effect of this effort, insofar as it succeeds, will be to increase the profits of the major US drug...

from Lars Syll Paul Krugman has often been criticized by people like yours truly for getting things pretty wrong on the economics of John Maynard Keynes. When Krugman has responded to the critique, by himself rather gratuitously portrayed as about “What Keynes Really Meant,” the overall conclusion is — “Krugman Doesn’t Care.” Responding to an earlier post of mine questioning his IS-LM-Keynesianism, Krugman write: Surely we don’t want to do economics via textual analysis of the masters....

from David Ruccio The majority of government expenditures in the United States go towards social insurance and means-tested transfers.* And the good news is, they work. According to recent report by Bruce D. Meyer and Derek Wu, Social Security cuts the poverty rate by a third—more than twice the combined effect of the five means-tested transfers. Among those transfers, the Earned-Income Tax Credit and food stamps (officially, the Supplemental Food Assistance Program) are most effective....

from Lars Syll Coupled with downright incompetence in statistics, we often find the syndrome that I have come to call statisticism: the notion that computing is synonymous with doing research, the naïve faith that statistics is a complete or sufficient basis for scientific methodology, the superstition that statistical formulas exist for evaluating such things as the relative merits of different substantive theories or the “importance” of  the causes of a “dependent variable”; and the...

from Dean Baker Paul Krugman had an interesting blog post this morning in which he attributed the continuing weakness of wage growth to an increase in monopsony power. I’m a skeptic on this one, since the collapse in wage growth happens to coincide with the Great Recession. The big issue is whether the labor market is again back to its pre-recession level of tightness, when wages were rising considerably more rapidly. To argue the case that it is, Krugman follows Jason Furman in...

from Asad Zaman In part 1 of this article (Understanding Macro: The Great Depression (1/3), we saw that Keynes challenged classical economics on many fronts. Against the classical idea that free markets will automatically eliminate unemployment, he argued that governments needed to adopt appropriate fiscal and monetary policy in order to create full employment, as a necessary condition for high economic growth. He also argued that money is not neutral, and that there is fundamental...

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from Lars Syll Evidently this phenomenon is peculiar to money and has no analogue in the world of commodities. No claim to sheep increases the number of sheep. But a deposit, though legally only a claim to legal-tender money, serves within very wide limits the same purposes that this money itself would serve. Banks do not, of course, ‘create’ legal- tender money and still less do they ‘create’ machines. They do, however, something—it is perhaps easier to see this in the case of the issue...