Real-World Economics Review

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Financial wizardry recently caused massive problems for UK pension funds and the Bank of England. The Bank of England forces pension funds to take part in ‘LDI’ contracts which aim to insure possible future liquidity problems. These contracts however lead to real liquidity problems, which forced the Bank of England to intervene to prevent a market melt down. The solution became the problem. Deputy Governor John Cunliff of the Bank of England stated: ...

from Peter Söderbaum and WEA Commentaries current issue Introduction In all societies there is a tension between democracy and dictatorship. In some countries democracy is well institutionalized and the threat of dictatorship is successfully kept at a distance. In other societies, a system close to dictatorship is quite established and democracy is regarded as a threat. Today, we witness a confrontation between Russia, a nation close to dictatorship and Ukraine which appears to move...

from Lars Syll This year’s Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel honours Ben Bernanke, Douglas Diamond and Philip Dybvig. In the view of the Royal Swedish Academy of Sciences, the laureates ‘have significantly improved our understanding of the role of banks in the economy’. But what is the role of banks in the economy? The academy describes it this way: ‘To understand why a banking crisis can have such enormous consequences for society, we need to know...

from Tony Lawson and real-world economics review issue no. 101 What is money?  Two sorts of answer to this question can be found in the modern literature.  One locates money’s nature in the organising structure of human communities, the other in intrinsic properties of particular (money) items (like commodities, debts, precious metals and so on). If accounts of money that draw on social positioning theory are instances of the former, a currently very popular and seemingly increasingly...

from Imad A. Moosa and real-world economics review issue no. 101 The spread of the Coronavirus was aided by unpreparedness, the fact that the private sector cannot deal with a pandemic, neoliberal policy makers who could not care less about ordinary people, and years of dismantling public health systems through privatisation. Since the 1980s, belief in the power of the market has led to a status quo where governments take a back seat, allowing the private sector to steer the economy for...

from Lars Syll The impossibility of proper specification is true generally in regression analyses across the social sciences, whether we are looking at the factors affecting occupational status, voting behavior, etc. The problem is that as implied by the three conditions for regression analyses to yield accurate, unbiased estimates, you need to investigate a phenomenon that has underlying mathematical regularities – and, moreover, you need to know what they are. Neither seems true. I have...

from Asad Zaman and the WEA Pedagogy Blog Rejecting Arbitrary Distributional Assumptions In the early 20th Century, Sir Ronald Fisher initiated an approach to statistics that he characterized as follows:: “… the object of statistical methods is the reduction of data. A quantity of data, which usually by its mere bulk is incapable of entering the mind, is to be replaced by relatively few quantities which shall adequately represent the whole …” As he clearly...

from Lars Syll — I will remember that I didn’t make the world, and it doesn’t satisfy my equations. — Though I will use models boldly to estimate value, I will not be overly impressed by mathematics. — I will never sacrifice reality for elegance without explaining why I have done so. — Nor will I give the people who use my model false comfort about its accuracy. Instead, I will make explicit its assumptions and oversights. — I understand that my work may have enormous effects on society...

from Lars Syll [embedded content] It is difficult to understand why mainstream economists keep on using their unreal and irrelevant models! Sure, you get academic accolades and give the impression of having something deep and ‘scientific’ to say, but that should count for nothing if you’re in the truth business. As long as that kind of modelling output doesn’t come with the accompanying warning text “NB! This is model-based results based on tons of more or less unsubstantiated...