Real-World Economics Review

from Norbert Häring The governor of the Bank of England, Mark Carney has at least two things in common with Mario Draghi, the president of the European Central Bank (ECB): He worked for Goldman Sachs before becoming a central banker, and he is a member of the Group of Thirty. The EU-Ombudsman has just called it maladministration on the part of the ECB to let Mario Draghi be a member of that secretive bankers’ club. This should invite the question: What about Mark Carney and the Bank of...

from Lars Syll There is something about the way economists construct their models nowadays that obviously doesn’t sit right. The one-sided, almost religious, insistence on axiomatic-deductivist modelling as the only scientific activity worthy of pursuing in economics still has not given way to methodological pluralism based on ontological considerations (rather than formalistic tractability). In their search for model-based rigour and certainty, ‘modern’ economics has turned out to be a...

from Asad Zaman Pride resulting from global dominance and spectacular scientific and technological developments led Europeans to believe that the West was the most advanced and developed of all societies. Other societies were primitive and under-developed. As these other societies matured and grew, they would follow the same stages that were followed by the West, and eventually become like modern Western societies. Early thinkers like Comte described the stages in growth from primitive...

from Lars Syll Econometrics … is an undoubtedly flawed paradigm. Even putting aside the myriad of technical issues with misspecification and how these can yield results that are completely wrong, after seeing econometric research in practice I have become skeptical of the results it produces. Reading an applied econometrics paper could leave you with the impression that the economist (or any social science researcher) first formulated a theory, then built an empirical test based on the...

Eurostat made new data on broad unemployment available. For some countries (Ireland, Greece, Switzerland), these show a less rosy picture than the ‘normal’ unemployment data. Only the Czech Republic has low normal as well as low broad unemployment though Poland, Hungary, Bulgaria (!) and Germany seem to be heading that way. Altogether, labor slack is still immense. At this moment, wage increases are still low in non-Eastern European countries. Considering the slack this might stay so for...

from Donald MacKenzie and the London Review of Books The VIX, or Volatility Index, is Wall Street’s fear gauge. I first started paying attention to it in the late 1990s. Back then, a level of around 20 seemed normal. If the index got to 30, that was an indication of serious market unease; over 40 signalled a crisis. The highest the VIX ever got was during the 1987 stockmarket crash, when it reached 150. In the 2008 global banking crisis, it peaked at just below 90. The US economy has...

from Lars Syll I think that modern neoclassical economics is in fine shape as long as it is understood as the ideological and substantive legitimating doctrine of the political theory of possessive individualism. As long as we have relatively-self-interested liberal individuals who have relatively-strong beliefs that things are theirs, the competitive market in equilibrium is an absolutely wonderful mechanism for achieving truly extraordinary degree of societal coordination and...

Economist Dean Baker talked about his book Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer, in which he argues that government policies, not globalization or the natural workings of the free market, have led to the upward redistribution of wealth seen around the world over the past four decades. JANUARY 16, 2017

Martin Sandbu is, in the Financial Times, wrong about neoclassical macroeconomic models. Let me explain by responding to his text, paragraph by paragraph. No links, I might add these later. What do macroeconomists actually do? Without an answer to that question, it is difficult to articulate what they might be doing wrong. The rebuilding macroeconomic theory project is useful also to non-economists — perhaps especially to them — because it takes the time to dwell on how macroeconomists do...

from David Ruccio Last week, Thomas Frank welcomed Paul Krugman to the ranks of those who believe that the American working-class in recent decades has often voted against its fundamental economic interests by supporting conservative Republicans.   Appropriately enough, Frank then chastises Krugman for having repeatedly used his New York Times column to argue exactly the opposite, denying the idea that working-class Americans had defected to the Republican Party. Frank, the author...