Real-World Economics Review

Weird: fifty years after Schumpeter and one hundred years after John Stuart Mill they did not mention ‘credit’. Let alone ‘private credit’. Mill’s idea that private credit creation often decisively contributes to bubbles, and bursts, is absent from the whole thing. The Schumpeterian idea that credit financed investments lead to economic growth (and monetary changes) is alien to their concept. Even the Irving Fisher idea that there are different kinds of money with different kinds of...

from Lars Syll It is the somewhat gratifying lesson of Philip Tetlock’s new book that people who make prediction their business — people who appear as experts on television, get quoted in newspaper articles, advise governments and businesses, and participate in punditry roundtables — are no better than the rest of us. When they’re wrong, they’re rarely held accountable, and they rarely admit it, either. They insist that they were just off on timing, or blindsided by an improbable event,...

Nava Ashraf, Edward Glaeser, Abraham Holland, Bryce Millett Steinberg  NBER Working Paper No. 23807 Providing clean water requires maintenance, as well as the initial connections that are typically measured. Frequently, the water supply fails in the developing world, especially when users don’t pay the marginal cost of water. This paper uses the timing of frequent, unexpected water service outages in Lusaka, Zambia to identify the short-term impacts of piped water access on contagious...

A recent meme of the fact free right in my country (the Netherlands) is the idea that the Acid Rain problem spontaneously disappeared. It didn’t. It was the government, stupids! And it is a really serious problem which did and does require attention. Source

from David Ruccio David Brooks should have left well enough alone. Middle-class wage stagnation is the biggest economic fact driving American politics. Over the past many years, so the common argument goes, capitalism has developed structural flaws. Economic gains are not being shared fairly with the middle class. Wages have become decoupled from productivity. Even when the economy grows, everything goes to the rich. But then Brooks spends the rest of his column trying to convince us...

from Maria Alejandra Madi The economist John R. Commons is considered one of the founding fathers of institutional economics. He played a leading role in the developing of the labor economics field by establishing some core principles in his book Institutional Economics: Its Place in Political Economy (1934). Besides, as Kenneth Boulding (1957) stated, Commons’ ideas as a social reformer were very influential in shaping the New Deal and the American labor legislation and social security...

from Lars Syll In his recent article on Where Modern Macroeconomics Went Wrong, Joseph Stiglitz acknowledges that his approach “and that of DSGE models begins with the same starting point: the competitive equilibrium model of Arrow and Debreu.” This is probably also the reason why Stiglitz’ critique doesn’t go far enough. It’s strange that mainstream macroeconomists still stick to a general equilibrium paradigm more than forty years after the Sonnenschein-Mantel-Debreu theorem — SMD —...

 from The seven sins of economists

from David Ruccio Back in June, Kim Hemphill, in her letter to the editor of the Washington Post, challenged pharmaceutical industry claims that it must charge high prices on lifesaving drugs to recover research and development costs. The case detailed in the June 11 Business article “Max’s best hope costs $750,000” was yet another example of how the pharmaceutical industry continues to put profits above morals and humanity. . . Research and development costs are a part of the business...

from Lars Syll DSGE models seem to take it as a religious tenet that consumption should be explained by a model of a representative agent maximizing his utility over an infinite lifetime without borrowing constraints. Doing so is called micro-foundingthe model. But economics is a behavioral science. If Keynes was right that individuals saved a constant fraction of their income, an aggregate model based on that assumption is micro-founded.Of course, the economy consists of individuals who...