Real-World Economics Review

Below, three sets of graphs from three ‘structural’  seconomic tudies which show that the celebrated concept of NAIRU, as defined in these general equilibrium models is little more than a complicated running average of the level of estimated unemployment (though, quite unscientific, economics does not even seem to have an agreed upon algorithm to calculate this average). This a consequence of the assumption of these models that unemployment is a voluntary state of existence. Yesterday,...

from Lars Syll Again and again, Oxford professor Simon Wren-Lewis rides out to defend orthodox macroeconomic theory against attacks from ‘heterodox’ critics like yours truly. A couple of years ago, it was the rational expectations hypothesis (REH) he wanted to save: It is not a debate about rational expectations in the abstract, but about a choice between different ways of modelling expectations, none of which will be ideal. This choice has to involve feasible alternatives, by which I...

from David Ruccio There doesn’t seem to be anything remarkable about mainstream economists’ rejection of the new populism. Lest we forget, mainstream economists in the United States and Europe (and, of course, around the world) mostly celebrated current economic arrangements. As far as they were concerned, everyone benefits from contemporary globalization (the more trade the better) and from the distribution of income created by market forces (since everyone gets what they deserve). To be...

from Lars Syll In an interview a couple of years ago, Robert Lucas said he now believes that “the evidence on postwar recessions … overwhelmingly supports the dominant importance of real shocks.” So, according to Lucas, changes in tastes and technologies should be able to explain, e.g., the main fluctuations in unemployment that we have seen during the last seven decades. Let’s look at the facts and see if there is any strong evidence for this allegation. Just to take an example, let’s...

from David Ruccio Donald Trump promised to bring back “good” manufacturing jobs to American workers. So did Hillary Clinton. Both, as I argued back in December, were wrong.   What neither candidate was willing to acknowledge is that, while manufacturing output was already on the rebound after the Great Recession, the jobs weren’t going to come back. They were also wrong, as I argued in November, about there being anything necessarily good about factory jobs. But perhaps even more...

from Peter Radford Nothing could possibly give us more insight into the ineptitude and unpreparedness of Trump for high office than his comment yesterday: “It’s an unbelievably complex subject. Nobody knew health care could be so complicated.” Really? Everyone knew. Everyone. Except for Trump who has blithely been assuming that his bully-boy attitude could translate easily from his real estate business into the White House. He, like a lot of others in recent years, reacted to the gridlock...

from David Ruccio Noah Smith is right about one thing: mainstream economists tend to use the word “capital” pretty loosely. It just means “anything you can spend resources to build, which lasts a long time, and which also can be used to produce value.” That’s really broad. For example, it could include society itself. It also typically includes “human capital,” which refers to people’s skills, talents, and knowledge. But then Smith proceeds, like the neoclassical equivalent of Humpty...

from Lars Syll [embedded content] From a more theoretical perspective, Simpson’s paradox importantly shows that causality can never be reduced to a question of statistics or probabilities, unless you are — miraculously — able to keep constant all other factors that influence the probability of the outcome studied. To understand causality we always have to relate it to a specific causal structure. Statistical correlations are never enough. No structure, no causality.   Simpson’s paradox is...

from Dean Baker Last week Bill Gates called for taxing robots. He argued that we should impose a tax on companies replacing workers with robots and that the money should be used to retrain the displaced workers. As much as I appreciate the world’s richest person proposing a measure that would redistribute money from people like him to the rest of us, this idea doesn’t make any sense. Let’s skip over the fact of who would define what a robot is and how, and think about the logic of what...

from Norbert Häring With big fanfare, Deutsche Bundesbank announced on February 9 that ahead of plan they had repatriated 300 tons of gold from New York. This put a positive spin on a rather disturbing fact –1236 tons of gold that is supposed to be part of Germany’s currency reserve will continue to be kept outside of German control in New York – indefinitely. The German gold in question is being kept in storage at the New York Fed, an institution that is owned and controlled by...