Real-World Economics Review

from David Ruccio Culture, it seems, is back on the agenda in economics. Thomas Piketty, in Capital in the Twenty-First Century, famously invoked the novels of Honoré de Balzac and Jane Austen because they dramatized the immobility of a nineteenth-century world where inequality guaranteed more inequality (which, of course, is where we’re heading again). Robert J. Shiller, past president of the American Economic Association, focused on “Narrative Economics” in his address at the January...

from Gary Flomenhoft, “The triumph of Pareto”, real-world economics review, issue no. 80, 26 June 2017, pp. 14-31. There are several serious problems with the use of Pareto Optimality as the central goal of economics. One of the primary implications of “Pareto Optimality” is that it accepts the current distribution of wealth as a given. If any income distribution can lead to an “optimal” outcome, there is no need to be concerned about just distribution. Mainstream economists generally...

from Asad Zaman As a preliminary demonstration, and an explanation of the “Three Methodologies“, we assess how they work in primitive hunter-gatherer societies. A hunter-gatherer is a human living in a society in which most or all food is obtained by foraging (collecting wild plants and pursuing wild animals), in contrast to agricultural societies, which rely mainly on domesticated species. There are many characteristics of such societies forced by the material conditions of production....

from Lars Syll The production function has been a powerful instrument of miseducation. The student of economic theory is taught to write Q = f(L, K) where L is a quantity of labor, K a quantity of capital and Q a rate of output of commodities. He is instructed to assume all workers alike, and to measure L in man-hours of labor; he is told something about the index-number problem in choosing a unit of output; and then he is hurried on to the next question, in the hope that he will forget...

from David Ruccio We’ve all heard it at one time or another. Why is the price of gasoline so high? Mainstream economists respond, “it’s the market.” Or if you think you deserve a pay raise, the answer again is, “go get another offer and we’ll see if you’re worth it according to ‘the market’.” And then there’s CEO pay, which last year was 271 times the average pay of workers. Ah, it’s what “the market” has determined the appropriate compensation to be. “The market” explains...

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from Lars Syll Yours truly had a post up the other day on John Rapley’s Twilight of the Money Gods. In the main I think Rapley is right in his attack on contemporary economics and its ‘priesthood,’ although he often seems to forget that there are — yes, it’s true — more than one approach in economics, and that his critique mainly pertains to mainstream neoclassical economics. Noah Smith, however, is not too happy about the book: There are certainly some grains of truth in this standard...

from Dean Baker As president, Donald Trump has continued to use the same protectionist rhetoric he used during the campaign, even though he has not done much to date to follow through with protectionist policies. Nonetheless, his comments have prompted outrage among most of the media, which is committed to supporting the trade policies of recent administrations. In this respect it is striking how the media slavishly follow the major features of recent trade agreements as the definition of...

from Peter Söderbaum, “Do we need a new economics for sustainable development?”, real-world economics review, issue no. 80, 26 June 2017, pp. 32-44. A proposed new theoretical perspective starts with a partly different definition of economics: “Economics is multidimensional management of (limited) resources in a democratic society” Why “multidimensional” management? Multidimensional goes against the one-dimensional analysis of neoclassical theory and method. “Monetary reductionism” is no...

from Asad Zaman This is a summary of the introduction/motivation part of Lecture 15 on Advanced Microeconomics II, delivered at PIDE in Spring Semester 2017.  The lecture is about 19th Century European History, and how it is deeply entangled with Modern Economic Theory. We cannot understand one without the other. 19th Century European Economic Ideas In Historical Context. “… the race is not always to the swift, nor the battle to the strong …” Ecclesiastes 9:11 In the late 19th century, a...