Real-World Economics Review

Yanis Varoufakis has written a book which shows that the European Union is, at present, disfunctional and does not live up to the treaties. The EU treaties are clear: “The Union shall establish an internal market. It shall work for the sustainable development of Europe based on balanced economic growth and price stability, a highly competitive social market economy, aiming at full employment and social progress, and a high level of protection and improvement of the quality of the...

from Lars Syll A couple of years ago — in a debate with James Galbraith and Willem Buiter — Paul Krugman made it perfectly clear that he was a strong believer of the ‘loanable funds’ theory. Unfortunately, this is not an exception among ‘New Keynesian’ economists. Neglecting anything resembling a real-world finance system, Greg Mankiw — in his intermediate textbook Macroeconomics — more or less equates finance to the neoclassical thought-construction of a ‘market for loanable funds.’ On...

from David Ruccio Over the years, I’ve reproduced and created many different charts representing the spectacular rise of inequality in the United States during the past four decades. Here’s the latest—based on the work of Thomas Piketty, Emmanuel Saez, and Gabriel Zucman—which, according to David Leonhardt, “captures the rise in inequality better than any other chart or simple summary that I’ve seen.”   I agree. The chart shows the different rates of change in income between 1980 and...

from Steve Pressman As the rich received a bigger piece of the pie, everyone else got relatively less. We can see this in the falling share of income going to the middle-three income quintiles (Figure 1). One standard economic argument for great inequality is that it generates incentives to make money and contributes to economic growth, which increases average living standards. Even if this is true, not everyone benefits from growth. Saez and Piketty (2013) estimate that since the late...

from Lars Syll The loanable funds theory is in many regards nothing but an approach where the ruling rate of interest in society is — pure and simple — conceived as nothing else than the price of loans or credits set by banks and determined by supply and demand — as Bertil Ohlin put it — “in the same way as the price of eggs and strawberries on a village market.” It’s a beautiful fairy tale, but the problem is that banks are not barter institutions that transfer pre-existing loanable...

from David Ruccio [ht: ja] describes the arrival of the first robots at Tenere Inc. in Dresser, Wisconsin: The workers of the first shift had just finished their morning cigarettes and settled into place when one last car pulled into the factory parking lot, driving past an American flag and a “now hiring” sign. Out came two men, who opened up the trunk, and then out came four cardboard boxes labeled “fragile.” “We’ve got the robots,” one of the men said. They watched as a forklift...

from Dean Baker The prescription drug industry ranks as one of the most dysfunctional sectors of the US economy. Martin Shkreli has made himself a celebrity as the “pharma bro”: a hedge fund boy who jacked up prices on drugs produced by a company he controlled by more than 5,000 percent. Unfortunately, this sort of pricing is typical of the industry, even if most companies tend to be a bit less flamboyant in profiting off patients than Mr. Shkreli. The underlying problem is that drug...

from Lars Syll If bonus or “incentive pay” schemes work so well for senior executives and bankers, why does everyone not get them? The conventional answer is that a bonus scheme or incentive plan will indeed encourage the recipients to make more money for the shareholders or clients on whose behalf they act … A classic paper on the “principal-agent problem” … by Bengt Holmstrom and Paul Milgrom pointed out that the conventional answer makes the mistake of assuming that jobs are simple and...

from David Ruccio   At one time, from the late-1970s until the last couple of years, Britain—or at least the British ruling class—was in love with neoliberalism. Neoliberalism was the common sense of both major political parties—the Tories and Labor (plus, the Conservative coalition partner Liberal Democrats)—as well as most large corporations and wealthy individuals. As Andy Beckett explains,   In the early years of the 21st century, the inevitability of an ever more competitive,...

from Paul Davidson An international financial architecture system to deal with persistent trade imbalances and any international financial crisis can be developed to operate under the same economic principles laid down by Keynes at Bretton Woods. But this system does not require the establishment of a supranational central bank of the world as Keynes suggested in his “Keynes Plan” at Bretton Woods. Instead, this new international payment system is aimed at obtaining a more acceptable...