Real-World Economics Review

from Lars Syll A couple of years ago, Paul Krugman had a piece up on his blog arguing that the ‘discipline of modelling’ is a sine qua non for tackling politically and emotionally charged economic issues: In my experience, modeling is a helpful tool (among others) in avoiding that trap, in being self-aware when you’re starting to let your desired conclusions dictate your analysis. Why? Because when you try to write down a model, it often seems to lead some place you weren’t expecting or...

from Dean Baker  It is standard for politicians, reporters, and columnists to refer to the United States as the world’s largest economy and China as the second largest. I suppose this assertion is good for these people’s egos, but it happens not to be true. Measuring by purchasing power parity, China’s economy passed the U.S. in 2014, and it is now roughly 25 percent larger.[1] The I.M.F. projects that China’s economy will be nearly 40 percent larger by 2028, the last year in its...

from Asad Zaman  and RWER current issue The intimate connection between economic theory and political power is clearly illustrated by the rise and fall of Keynesian Economics in the 20th Century. Confidence generated by theories glorifying the workings of a market economy led leading economists to predict permanent prosperity, just prior to the Great Depression of 1929. After the crash, Keynes set out to resolve the most glaring contradiction between economic theory and reality. While...

from Dean Baker There has been a lot of concern in recent days about the impact of AI on people’s intellectual property. The latest AI programs screen millions of documents, songs, pictures, and videos posted to the web and freely grab any portion that seems to fit the commands given the program. As it stands, the creators of the material are not compensated, even if a large portion of their work appears in the AI product. This raises serious questions about how AI will affect the future...

from Lars Syll There’s nothing magical about Bayes’ theorem. It boils down to the truism that your belief is only as valid as its evidence. If you have good evidence, Bayes’ theorem can yield good results. If your evidence is flimsy, Bayes’ theorem won’t be of much use. Garbage in, garbage out. The potential for Bayes abuse begins with your initial estimate of the probability of your belief, often called the “prior” … In many cases, estimating the prior is just guesswork, allowing...

from Blair Fix and RWER current issue From the moment the first veins of coal were opened (thousands of years ago), one thing has been certain: the fossil-fuel business would eventually die. But what’s always been uncertain is the when and the how. That’s because there is no law of nature that tells us how much of a non-renewable resource humans will exploit. One possibility is that we will harvest fossil fuels to the point of utter exhaustion. Of course, there will always be some scraps...

from Spencer Graves and RWER current issue To the extent that copyrights and paywalls on academic journals are obstacles to “the progress of science and the useful arts”, there are things that individual researchers, academic administrators, and the public can do to help overcome these obstacles: Researchers can submit their work only to open-access journals and refuse to submit their work to journals that will put their work behind a paywall. (No one who wants to be cited wants their...

from Asad Zaman Cold: we let our emotions influence our behavior. Callous: concern for others causes us to share our good fortune with others, instead of keeping everything for ourselves. Cruel: We feel pain for the suffering of others, and sorrow for the extinction of species, or destruction of their habitat, instead of joy at the resulting profits. Calculating: We are not concerned with maximizing our monetary gains, down to the last penny. The paper “The Empirical Evidence Against...

from C. P. Chandrasekhar and Jayati Ghosh Well over half of all workers in India are self-employed. The proportions of self-employed workers are significantly higher in rural areas, and among women. In rural areas, it is presumed that it is the dominance of small-scale agriculture that leads to more self-employment, but in fact self-employed workers are around half of those engaged in non-agricultural employment as well. Even in urban areas, those working without any defined employer...

from Lars Syll Almost sixty years ago Milton Friedman wrote an (in)famous article arguing that (1) the natural rate of unemployment was independent of monetary policy and that (2) trying to keep the unemployment rate below the natural rate would only give rise to higher and higher inflation. The hypothesis has always been controversial, and much theoretical and empirical work has questioned the real-world relevance of the idea that unemployment really is independent of monetary policy and...