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Real-World Economics Review

Making firm governance part of the economists’ dialogue

from Robert Locke In a recent article,”The Milton Friedman Doctrine is Wrong.  Here’s How to Rethink the Corporation,” Susan Holmberg and Mark Schmitt intoned: “We won’t fix the problem until we address the nature of the corporation.” at http://economics.com/milton-friedman-doctrine-wrong-heres-rethink-corporation/. Egmont Kakarot-Handtke asserts that sciences of society make no contribution to economics because they are scientifically invalid — to which I replied that his assertion is...

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Flat or falling (5 charts)

from David Ruccio A new report from McKinsey & Company, “Poorer than Their Parents? Flat or Falling Incomes in Advanced Countries” (pdf), confirms many people’s worst fears. As it turns out, the trend in stagnating or declining incomes for most workers (including the middle-class) is not confined to the United States, but is a global phenomenon. Brexit and Trump are just the tip of the iceberg. Because of flat or falling incomes, many workers across the rich countries are...

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Shaky Assumptions

All models by necessity distort reality in one way or another.  A sculptor, when modelling in stone or clay, does not try to clone Nature; he highlights some things, ignores others, idealizes or abstracts some more, to achieve an effect. Likewise a scientist must necessarily pick and choose among various aspects of reality to incorporate into a model.  An economist makes assumptions about how markets work, how businesses operate, how people make financial decisions.  Any one of these...

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Four possible states of borrowers and lenders – Richard Koo

. . . an economy is always in one of four possible states depending on the presence or absence of lenders (savers) and borrowers (investors). They are as follows: (1) both lenders and borrowers are present in sufficient numbers, (2) there are borrowers but not enough lenders even at high interest rates, (3) there are lenders but not enough borrowers even at low interest rates, and (4) both lenders and borrowers are absent. These four states are illustrated in Exhibit 2. Of the four, only...

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Partying like it’s 1848

from Peter Radford This is not a time to dwell on the inconsistencies and even contradictions of the recent uprising of populism in the western world. Treat it as a fact. It just is. For there can be no mistaking the trend: people, large numbers of people, in a large swathe of Europe and America really are unhappy with their lot in life. Really unhappy. Fully 52% of Republican supporters of Donald Trump tell pollsters that they are angry with the way the country is going. Not just unhappy...

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“The continuing tension between Neoliberal economics and democracy” – William R. Neil

Today’s Neoliberalism had nearly silenced serious left dissent by the late 1990s, or successfully isolated it in remote academic corners.  Bill Clinton’s two terms in the 1990s are proof of that. And there is the continuing tension between Neoliberal economics and democracy: notice the desperate, barely concealed attempt by the Republican Right to shrink the franchise, using as one of its main levers the racial stigmas from “The Great Incarceration” and the yet to be proven accusations of...

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Economic Theory as Ideology

from Asad Zaman Ideology and Science are diametrically opposed to each other. An ideology is a set of beliefs that is maintained even in face of strong empirical evidence to the contrary. Science is primarily concerned with explaining the empirical evidence. Theories which conflict with observations are rejected.  This does not mean that ideology is necessarily wrong or bad – we must maintain our belief in justice, morality, honesty, trust, integrity without any empirical evidence;...

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The U.S. supremacy in the age of high finance: expansion and crisis

from Maria Alejandra Madi In the post-war boom era of 1945 to 1971, the U.S. surplus was at the center of the global economic order. Throughout the Bretton Woods period, the United States recycled part of its surplus via foreign direct investment – mainly in Western Europe and also in Japan. Within the system of international economic flows, the U.S. exported goods to the rest of the world and also finance these purchases.  Besides, the United States created demand for the exports of...

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“The two necessary words to describe the dominant economic “regime” of the past 35 years” – William R. Neil

It’s hard not to notice, during the American Presidential election drama, that despite all the debates and speeches, and multiple candidates, the terms “Neoliberalism” and “austerity” have yet to be employed, much less explained, these being the two necessary words to describe the dominant economic “regime” of the past 35 years. And this despite the fact that most observers recognize that a “populist revolt” driven by economic unhappiness is underway via the campaigns of Donald Trump and...

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Paul Krugman’s stock market advice

from Dean Baker Paul Krugman actually did not make any predictions on the stock market, so those looking to get investment advice from everyone’s favorite Nobel Prize winning economist will be disappointed. But he did make some interesting comments on the market’s new high. Some of these are on the mark, but some could use some further elaboration. I’ll start with what is right. First, Krugman points out that the market is horrible as a predictor of the future of the economy. The market...

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