Real-World Economics Review

from Lars Syll When applying deductivist thinking to economics, neoclassical economists usually set up ‘as if’ models based on a set of tight axiomatic assumptions from which consistent and precise inferences are made. The beauty of this procedure is, of course, that if the axiomatic premises are true, the conclusions necessarily follow. The snag is that if the models are to be relevant, we also have to argue that their precision and rigour still holds when they are applied to real-world...

from Edward Fullbrook The General Theory of Employment, Interest and Money was the first book I ever read with pleasure.  I was 22. From age five to sixteen the school system had me classified as borderline mentally retarded.  My luck changed in my penultimate year of high school when a non-conformist English teacher gave me the chance to pretend I was not mentally deficient.  She also taught me how to write a sentence, after which, inflated with fantasises of normality, I taught myself...

from Robert Locke Neoclassical economists insist that the formal system of knowledge they create takes precedence over what we learn through experience, on the grounds, as Erich Schneider wrote, “that the sea of facts is dumb and can only be forced to reveal interconnections when properly queried.  Intelligent [sinnvoll] questions can only be derived from theoretical formal analysis.” (Bomback and Tacke, 37)  But what if it were the other way around that formal knowledge systems are dumb...

Bitcoins are a total waste. On this blog, I’ve written some posts on ‘the real costs of making money’ (a summary here). Producing money takes resources: labor, capital, land. One of the ’land’ aspects used to be silver and gold. Digging for gold and silver a social setting: the slaves in the silver mines of Larium (Athens), the native workers which perished in the high altitude silver mines of Cerro Ricco, Peru (the Spanish empire). Or ‘apartheid’, which guaranteed a steady flow of cheap...

from Asad Zaman Building on the analysis of Supply and Demand in Chapter 3 of Hill and Myatt’s Anti-Textbook, this lecture constructs a very simple model of monopoly and duopoly, to show that policy implications in these cases differ dramatically from what conventional textbooks teach. The higher level goal is to teach students Meta-Theoretical thinking. This goes beyond the binary logic which lies behind conventional textbooks, which teach student to think in terms of whether theories...

from David Ruccio Sometimes we just have to sit back and laugh. Or, we would, if the consequences were not so serious. I’ve been reading and watching the presentations (and ensuing discussions) at the Rethinking Macroeconomic Policy conference recently organized by the Peterson Institute for International Economics. Quite a spectacle it appears to have been, with an opening paper by famous mainstream macroeconomists Olivier Blanchard and Larry Summers and a closing session—a “fireside...

from Lars Syll We are told nowadays that since utility cannot be measured it is not an operational concept, and that ‘revealed preference’ should be put in its place. Observable market behaviour will show what an individual chooses … It is just not true that market behaviour can reveal preferences. It is not only that the experiment of offering an individual alternative bundles of goods, or changing his income just to see what he will buy, could never be carried out in practice. The...

Aside: I didn’t know, but the ₹-sign is the official sign for the rupee Why did the Indian economy not succumb under the weight of the sudden demonetization of 8 November 2016? The answer: to an extent because the government and the commercial sector kept borrowing from banks and spent this money. There is overwhelming evidence that at the grassroots level the dearth of cash caused by the financial folly disproportionately hurt the poor and unbanked as rebuilding took time and converting...

from David Ruccio Kevin Hassett and the other members of the president’s Council of Economic Advisers are just like the long-haired preachers Joe Hill sang about more than a century ago. They come out every night to tell us what’s wrong and what’s right. But when asked about something to eat, they answer in voices so sweet: You will eat, bye and bye In that glorious land above the sky Work and pray, live on hay You’ll get pie in the sky when you die. That’s a lie With one notable...

from Lars Syll If a demand function for the economy as a whole is to be estimated, just drawing upon the economy’s overall income and the price system, is it legitimate to use the demand system derived for an individual? In other words, can we estimate demand functions independently of the distribution of income and preferences across consumers? Not surprisingly, the answer is no in general, and the conditions for it to be yes are extremely stringent, indeed unrealistically so....