Real-World Economics Review

from Stuart Birks and new issue of WEA Commentaries 7(6) From: P.17 of Birks, S. (2015). Rethinking economics: from analogies to the real world. Singapore: Springer. Market failure is defined in comparison to the ideal of perfect competition. An alternative is needed for comparison, and value judgments must be applied to justify one situation being considered superior to another. This raises two questions: (i) Is perfect competition the right ‘ideal’? (ii) If it is, then given that the...

from Lars Syll The unsellability of DSGE models — private-sector firms do not pay lots of money to use DSGE models — is one strong argument against DSGE. But it is not the most damning critique of it. To me the most damning critiques that can be levelled against DSGE models are the following two: DSGE models are unable to explain involuntary unemployment In the basic DSGE models the labour market is always cleared – responding to a changing interest rate, expected lifetime incomes, or...

from Dean Baker With the Republicans having just passed a $1.5 trillion tax cut, the bulk of which goes to the richest one percent, it was inevitable that the generational warriors would come out of the woodwork and resume the attack on Social Security and Medicare. Generational warriors try to divert attention away from how our economy has redistributed income upwards over the last four decades, and convince a large portion of today’s workers that their real problems stem from their...

from David Ruccio There’s no real mystery behind the spectacular gains in the stock market over the course of 2017. Much of it can be explained by the rise in U.S. corporate profits.  But, as is clear from the chart above, the relationship between corporate profits (after tax, in red, measured on the right-hand side) and the stock market (the Dow Jones Industrial Index, in blue on the left) actually goes back almost a decade. Corporate profits have increased, from their low in the fourth...

The economist Dean Baker is Co-Director and co-founder of the Center for Economic and Policy Research (CEPR). His areas of research include housing and macroeconomics, intellectual property, European labor markets, among others. He is the author of several books including Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer, Getting Back to Full Employment: A Better Bargain for Working People, and the United States Since 1980. Baker...

from Lars Syll The fallacies loanable funds theory commits might be explainable by the misapplication​ of some ideas and concepts of neoclassical growth models … to the sphere of money and finance … The Ramsey and Solow models are models of real investment only. Financial markets, financial assets and financial saving do not play any role in those models. There is only one good which, for simplicity, will be called “corn”. Corn has three functions: it can be consumed, invested and used...

from David Ruccio Over the course of the last two days, I’ve discussed mean gifts (which promise significant tax relief only to a small group of corporations and wealthy individuals) and mean exchanges (which leave middle-class Americans with a declining share of national income). Now, thanks to recently completed Reuters investigation, we’re forced to confront the reality in the United States of mean exchanges that transform generous donations into desperate, mean gifts. I’m referring to...

Recently, Eurostat published data on the sharing economy. Its huge (graph, source: Eurostat). And this digital enhanced sharing economy should be (and is) included in GDP. But the private, non-monetary use of digital GPS apps which enhance your life as they enable you to find your way when, after attending a wedding, you get lost in rural Kent, 2:00 AM (happens…): not. There is a discussion going on if GDP tracks the changes in our life caused by the use of all kind of digital gadgets. It...

from Lars Syll Fifty years ago Milton Friedman wrote an (in)famous article arguing that (1) the natural rate of unemployment was independent of monetary policy, and (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 ideas that unemployment really is independent of monetary policy and that...

from Peter Radford Hayek says this: “The problem which we pretend [to] solve is how the spontaneous interaction of a number of people, each possessing only bits of knowledge, brings about a state of affairs in which prices correspond to costs, etc., and which could be brought about by deliberate direction only by somebody who possesses the combined knowledge of all those individuals … “ This is from his essay ‘Economics and Knowledge’ which was published in 1937. Hayek’s thrust is, of...