Real-World Economics Review

from Dean Baker The Trump administration’s “infrastructure week” ended whatever hope any of us had that something positive could come out of this administration. It’s clear that his promise for rebuilding the country’s infrastructure is just another Trump scam. During his campaign, Trump had made a point of complaining about the poor state of the country’s infrastructure. He had a point, as both the federal and state and local governments have cut back spending in recent years. In the...

Long story short: labor productivity, as economists define it, is best understood as the amount of ‘stuff’ the income (wages, profits, rents, interest) related to one hour of work can buy (this is a somewhat idiosyncratic take on productivity. Look however here). Productivity is, as economists define it, not any kind of physical entity. It is supposed to be ‘value added’, or total income cq. the nominal value of net production, per hour of work. For about two centuries, give or take some...

from David Ruccio Recently, I showed that conventional thinking about factor shares has been finally overturned: they are not necessarily constant, especially within existing economic institutions. In fact, labor’s shares have been declining for decades now. The opposite is true of capital’s shares: they’ve been rising for almost three decades.   The profit share of national income has, of course, a cyclical (short-term) component. It falls in the period preceding each recession, and...

from Lars Syll A couple of weeks ago yours truly was sent a copy of the new edition of Chad Jones intermediate textbook Macroeconomics (4th ed, W W Norton, 2018). There’s much in the book I like, e. g. Jones’ combining of more traditional short-run macroeconomic analysis with an accessible coverage of the Romer model — the foundation of modern growth theory — and DSGE business cycle models. Unfortunately it also contains some utter nonsense! In chapter 7 — on “The Labor Market, Wages, and...

from Dean Baker In her Washington Post column, Catherine Rampell repeats some ill-founded conventional wisdom in telling readers that French president Emmanuel Macron’s plans to weaken labor unions and reduce restrictions on laying off workers are the path to revitalizing France’s economy. In fact, this claim is not supported by the evidence. There is little evidence that strong unions or labor market protections are associated with high unemployment. The most obvious reason that France...

from Lars Syll What is 0.999 …, really? Is it 1? Or is it some number infinitesimally less than 1? The right answer is to unmask the question. What is 0.999 …, really? It appears to refer to a kind of sum: .9 + + 0.09 + 0.009 + 0.0009 + … But what does that mean? That pesky ellipsis is the real problem. There can be no controversy about what it means to add up two, or three, or a hundred numbers. But infinitely many? That’s a different story. In the real world, you can never have...

from David Ruccio Apparently, Richard Reeves is worried that the top echelons of the U.S. middle class—those earning over $120,000—are separating from the rest of the country, and pulling up the drawbridge behind them. “The upper middle class families have become greenhouses for the cultivation of human capital. Children raised in them are on a different track to ordinary Americans, right from the very beginning,” he writes. The upper middle class are “opportunity hoarding” – making it...

from Dean Baker There has been a strange debate among many liberals and progressives since the election as to whether they should have empathy for the people who voted for Donald Trump. After all, Trump is a pretty reprehensible character who has pledged to do some pretty awful things in the White House. Is there a reason that people should have empathy for the voters who put him there? Whatever answer you pick to that question, there is another set of questions that should be simpler for...

from David Ruccio Most of us pay the taxes we’re required to pay. That’s because there aren’t many ways to avoid them. Sales, property, payroll, or income—the tax is paid at the time of the purchase, the amount is deducted from our paychecks, or the records go directly to the government. There’s no real way around them. And we pay those taxes out of wages and salaries more or less willingly, since that’s how government services are financed. Not so for those who are able to capture the...

from Lars Syll [embedded content] The above vidoe is one in a series of videos where Alex Tabarrok and Tyler Cowen present their economics textbook Principles of Economics. In a later video, ‘ideas’ are introduced into the Solow growth model. But, not with a single word does one acknowledge that this in total contradiction to the Holy Grail of their mainstream economics — the “iron logic of diminishing returns.” In Paul Romer’s Endogenous Technological Change (1990) knowledge is made the...