Real-World Economics Review

from Dean Baker In their desperation to provide $600 billion in tax cuts to their rich campaign contributors, the Republicans have decided to abandon all the standard rules by which Congress has governed itself. The actions might seem extraordinary, but we know how desperately the richest people in the country need tax cuts, so who can complain if the normal procedures are not being followed? Unfortunately the debate over the “repeal and replacement” of Obamacare is being confused with a...

from Lars Syll Much of current academic teaching and research has been criticized for its lack of relevance, that is, of immediate practical impact … I submit that the consistently indifferent performance in practical applications is in fact a symptom of a fundamental imbalance in the present state of our discipline. The weak and all too slowly growing empirical foundation clearly cannot support the proliferating superstructure of pure, or should I say, speculative economic theory …...

from Lars Syll Ed Leamer’s Tantalus on the Road to Asymptopia is one of my favourite critiques of econometrics, and for the benefit of those who are not versed in the econometric jargong, this handy summary gives the gist of it in plain English: Most work in econometrics and regression analysis is — still — made on the assumption that the researcher has a theoretical model that is ‘true.’ Based on this belief of having a correct specification for an econometric model or running a...

from David Ruccio One of the most pernicious myths in the United States is that higher education successfully levels the playing field across students with different backgrounds and therefore reduces wealth inequality. The reality is quite different—for the population as a whole and, especially, for racial and ethnic minorities.  As is clear from the chart above, the share of wealth owned by the top 1 percent has risen dramatically since the mid-1970s, rising from 22.9 percent in 1976 to...

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from Edward Fullbrook Scientific education entails taming the authority of one’s intuition.  Responsible citizenship in a democracy may entail it as well. Keynes argued that markets often create inaccurate expectations of economic reality which people then act upon thereby changing reality.   This reflexivity that Keynes identified as central to capitalist markets is the opposite of the basic process described by traditional economic theory, both in Keynes’ day and in our own, whereby it...

from Lars Syll So in what sense is this “dynamic stochastic general equilibrium” model firmly grounded in the principles of economic theory? I do not want to be misunderstood. Friends have reminded me that much of the effort of “modern macro” goes into the incorporation of important deviations from the Panglossian assumptions that underlie the simplistic application of the Ramsey model to positive macroeconomics. Research focuses on the implications of wage and price stickiness, gaps and...

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...