Real-World Economics Review

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...

from Dean Baker It’s standard practice in news stories to refer to France’s economy as a basket case. The NYT went this route in an article on President Emmanuel Macron’s efforts to rewrite the country’s labor laws. The article refers to Macron’s efforts to “revitalize” the French economy and then tells readers: “The code is regarded by many as the wellspring of the country’s malaise and the chief obstacle to generating jobs, leaving the country with an unemployment rate that...

from Lars Syll Markets are never just given. Neither God nor nature hands us a worked-out set of rules determining the way property relations are defined, contracts are enforced, or macroeconomic policy is implemented. These matters are determined by policy choices. The elites have written these rules to redistribute income upward. Needless to say, they are not eager to have the rules rewritten — which means they also have no interest in even having them discussed. But for progressive...

from Richard Koo Until 2008, the economics profession considered this kind of contractionary equilibrium (the world of $500) brought about by a lack of borrowers to be an exceptionally rare occurrence—the only recent example was the Great Depression, which was triggered by the stock market crash in October 1929 and during which the US lost 46 percent of nominal GNP in the process described above. Although Japan fell into a similar predicament when its real estate bubble burst in 1990, its...