Real-World Economics Review

from Lars Syll As I see it, a rational predictor should use a combination of theory and empirics. But theory should also be informed by data – there are lots of theories, and in general they can’t all apply to the same situation, so you need evidence to tell you which one(s) to use. So a rational predictor’s predictions should always be tied as closely as possible to empirical evidence. Discounting empirical evidence … seems inevitably to lead to the use of casual intuition (or to even...

from Peter Radford The Congressional Budget Office is the latest victim of the intensity of Washington politics. The CBO is the organization we rely on to “score” legislation so that Congress and the White House know roughly what impact their policies will have on the country. As you can imagine being the CBO during times such as these when alternative facts have become the primary way of explaining things is perilous. Worse: being the CBO when one party wants to cram through some...

from Asad Zaman In my paper entitled “Empirical Evidence Against Neoclassical Utility Theory: A Survey of the Literature,” I have argued that neoclassical utility theory acts as a blindfold, which prevents economists from understanding simple realities of human behavior. The paper provides many examples of this phenomenon, which I will illustrate briefly with one simple example in this post. Consider the two player Ultimatum Game. The Proposer (P) has ten dollars in single dollar bills....

from David Ruccio It’s obvious to anyone who looks at the numbers that the wage share of national income is historically low. And it’s been falling for decades now, since 1970. Before that, during the short Golden Age of U.S. capitalism, the presumption was that the share of national income going to labor was and would remain relatively stable, hovering around 50 percent. But then it started to fall, and now (as of 2015) stands at 43 percent. That’s a precipitous drop for a supposedly...

from Lars Syll A democratic polity is supposed to be based on egalitarian distribution of political power. In a system where virtually all resources are available for a price, economic power can be translated into political power by channels too obvious for mention. In a capitalist society, economic power is very unequally distributed, and hence democratic government is inevitably something of a sham. In a sense, the maintained ideal of democracy makes matters worse, for it adds the...

from Dean Baker Tony Blair, the former Prime Minister of the United Kingdom, who is best known for lying his country into participating in the Iraq War, lectured NYT readers on the evils of populism. Once again he gets many key points wrong. He criticizes the left for abandoning centrist politicians: “One element has aligned with the right in revolt against globalization, but with business taking the place of migrants as the chief evil. They agree with the right-wing populists about...

from David Ruccio It’s true (as I have argued many times on this blog), the number of U.S. manufacturing jobs has been declining for decades now—and they’re not coming back. Instead, they’ve been replaced (as is clear in the chart above) by service-sector jobs.   source And, not surprisingly, most new jobs (during the past year, as in recent decades) have appeared in urban centers. But the idea that service-sector job growth in some urban centers—or “brain hubs,” as The Geography of...

from Lars Syll Causal modeling attempts to maintain this deductive focus within imperfect research by deriving models for observed associations from more elaborate causal (‘structural’) models with randomized inputs … But in the world of risk assessment … the causal-inference process cannot rely solely on deductions from models or other purely algorithmic approaches. Instead, when randomization is doubtful or simply false (as in typical applications), an honest analysis must consider...

What’s happening in India? The people are clearly rolling back the recent move of the Indian government to basically abolish the cash economy: the amount of cash is, at the moment of writing this, increasing at a hyperinflation rate of 8,5% per fortnight (according to the Reservebank of India data). But the amount of cash is still way below last years’level. Bank deposits are 12% higher than last year but have been flat since December. The question is why cash was abolished. Read here,...

from David Ruccio Millions of workers have been displaced by robots. Or, if they have managed to keep their jobs, they’re being deskilled and transformed into appendages of automated machines. We also know that millions more workers and their jobs are threatened by much-anticipated future waves of robotics and other forms of automation. But mainstream economists don’t want us to touch those robots. Just ask Larry Summers. Summers is particularly incensed by Bill Gates’s suggestion that...