Real-World Economics Review

from David Ruccio Everyone, it seems, now agrees that there’s a fundamental problem concerning wages and productivity in the United States: since the 1970s, productivity growth has far outpaced the growth in workers’ wages.* Even Larry Summers—who, along with his coauthor Anna Stansbury, presented an analysis of the relationship between pay and productivity last Thursday at a conference on the “Policy Implications of Sustained Low Productivity Growth” sponsored by the Peterson Institute...

from Asad Zaman Karl Marx said that “The advance of capitalist production develops a working class which by education, tradition and habit looks upon the requirements of that mode of production as self-evident natural laws.” Modern economic theory is a tool of central importance in making the laborers and the poor accept their own exploitation as natural and necessary. As explained in greater detail in the next lecture (AM09), Economic Theory argues that distribution of income is FAIR –...

from Peter Radford Taxes. What a problem. I was going to start by saying something about our current national debate about taxes, but that would have been an untruth. We are not having a debate. Instead we are all sitting on the sidelines whilst the Republican Party desperately tries to cobble together a tax plan in order to fulfill one of the promises it made during last year’s election. That this would be the only major promise thus fulfilled we can ignore for now. Instead, I think I...

from David Ruccio Thanks to the release of the so-called Paradise Papers, and the additional research conducted by Gabriel Zucman, Thomas Tørsløv, and Ludvig Wier, we know that a large share of the surplus captured by corporations is artificially shifted to tax havens all over the world. This, of course, is on top of the conspicuous tax evasion practiced by the individual holders of a large portion of the world’s wealth.   Thus, for example, U.S. multinational corporations now claim to...

from Lars Syll Our admiration for technical virtuosity should never blind us to the fact that we have to have a cautious attitude towards probabilistic inferences in economic contexts. Science should help us disclose causal forces behind apparent ‘facts.’ We should look out for causal relations, but econometrics can never be more than a starting point in that endeavour since econometric (statistical) explanations are not explanations in terms of mechanisms, powers, capacities or causes....

from Edward Fullbrook In public, including in the training of economists, Neoclassical economics usually reads its models backwards. This gives the illusion that they show the behaviour of individual economic units determining sets of equilibrium values for markets and for whole economies. It hides the fact that these models have been constructed not by investigating the behaviour of individual agents, but rather by analysing the requirements of achieving a certain macro state, that is, a...

Did the growth of money caused by QE in the Eurozone (graph) stimulate economic activity? Not enough. According to John Maynard Keynes, in ‘The general theory’ (1936), “The relation of changes in M (money) to Y (income) and r (the interest rate) depends, in the first instance, on the way in which changes in M come about.” Put differently: credit and not money makes the world go round. Money creating lending to enable household purchases of existing homes has a quite different effect on...

from David Ruccio The release of the so-called Paradise Papers confirms, with additional names and more salacious details, what we already knew from the Panama Papers and other sources: the world’s wealthy increasingly use offshore tax havens to engage in conspicuous tax evasion. That’s on top of their participation in conspicuous consumption, conspicuous philanthropy, and conspicuous productivity. According to Annette Alstadsæter, Niels Johannesen, and Gabriel Zucman, in a study...

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 And the tiny little problem? It’s utterly and completely...

from Dean Baker The Bureau of Labor Statistics (BLS) reported that productivity grew at a 3.0 percent annual rate in the third quarter of 2017. While this report got little attention, it is potentially very good news. Before going into the good news part, it is worth briefly saying a bit about what productivity is. Productivity measures the value of the goods and services produced in an hour of work. It is the main determinant of living standards. If we want more or better housing or...