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Real-World Economics Review

The monetary and fiscal design of the Eurozone. New ideas and old mistakes from the EC.

Recently the European Commission (EC) has published a “A possible roadmap towards the completion of the Economic and Monetary Union by 2025”. It is an important report. According to the report once Britain will have left the EU 85% of EU inhabitants will use the Euro. The future of these people is at stake. The report proposes: to introduce at least a bit of Eurozone level fiscal policy to introduce a kind of Eurobonds to introduce a system of unemployment insurance which, during...

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Where will global demand come from? (4 charts)

from C.P. Chandrasekhar and Jayati Ghosh For several decades, the US economy functioned as the principal agent of global demand, sucking in vast amounts of imports from the rest of the world as it built up vast current account deficits. Of course, it was easily able to finance these deficits with capital inflows, benefiting from its status as the holder of the only viable global reserve currency. But just as the US was able to make the rest of the world in effect pay for its own domestic...

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What is Post Keynesian Economics?

from Lars Syll John Maynard Keynes’s 1936 book The General Theory of Employment, Interest, and Money attempted to overthrow classical theory and revolutionize how economists think about the economy. Economists who build upon Keynes’s General Theory to analyze the economic problems of the twenty-first-century global economy are called Post Keynesians. Keynes’s “principle of effective demand” (1936, chap. 2) declared that the axioms underlying classical theory were not applicable to a...

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Intellectual property is real money

from Dean Baker In the last four decades, US policymakers have taken major steps to strengthen and lengthen patents, copyrights, and other forms of intellectual property (IP). The normal duration of patents and copyrights have been extended, and patents have been expanded to cover life forms, software, and business methods. This strengthened IP regime has been supported by both political parties and has gone largely unquestioned in public debate. That’s unfortunate, because there is an...

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Bottom line

from David Ruccio The business press is having a hard time figuring out this one: the combination of unrelenting drama in and around Donald Trump’s White House and the stability (signaled by the very low volatility) on Wall Street. As CNN-Money notes, One of the oldest sayings on Wall Street is that investors hate uncertainty. But that adage, much like other conventional wisdom, is being challenged during the Trump era. Despite enormous question marks swirling around the fate of President...

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Chicago economics — a dangerous pseudo-scientific zombie

from Lars Syll Every dollar of increased government spending must correspond to one less dollar of private spending. Jobs created by stimulus spending are offset by jobs lost from the decline in private spending. We can build roads instead of factories, but fiscal stimulus can’t help us to build more of both. This form of “crowding out” is just accounting, and doesn’t rest on any perceptions or behavioral assumptions. John Cochrane What Cochrane is reiterating here is nothing but Say’s...

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Europe’s third alternative: leapfrogging Putin

from Robert Locke One big problem  in orthodox economics is the inability of its market orientation to cope with strategic implications of economic and political geography. I pointed that out in an article published in the rwer (“Reassessing the basis of economics:  from Adam Smith to Carl von Clausewitz,” #61, 26.09.2012, 100-114), to which nobody responded.  But the issue won’t go away and is especially pertinent today, because of the uproar caused by Trump’s failure to support the...

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Trump and the Neocons: doing the unilateralist waltz

from Thomas Palley The neocon factor dramatically changes the interpretation of the Trump administration’s unilateralist international economic policy chatter. Donald Trump’s first one hundred days have revealed his inclination for unilateralism in international relations. That inclination reflects his opportunistic and bullying disposition, and it also fits well with his anti-globalization pose. Trump’s unilateralism has also spawned a dangerous waltz with Washington’s neocon...

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Modern economics — pseudo-science based on FWUTV

from Lars Syll The use of FWUTV — facts with unknown truth values — is, as Paul Romeer noticed in last year’s perhaps most interesting insider critique of mainstream economics, all to often used in macroeconomic modelling. But there are other parts of ‘modern’ economics than New Classical RBC economics that also have succumbed to this questionable practice: Statistical significance is not the same as real-world significance — all it offers is an indication of whether you’re seeing an...

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