Real-World Economics Review

from David Ruccio According to the norms of both neoclassical economic theory and capitalism itself, workers’ wages should increase at roughly the same rate as their productivity.* Clearly, in recent years they have not.  The chart above, which was produced by B. Ravikumar and Lin Shao for the Federal Reserve Bank of St. Louis, shows that labor compensation has grown slowly during the recovery of the U.S. economy from the 2007-09 recession. In fact, real labor compensation per hour in...

from Dean Baker Last week marked the eighth anniversary of the collapse of Lehman Brothers, the huge Wall Street investment bank. This bankruptcy sent financial markets into a panic with the remaining investment banks, like Goldman Sachs and Morgan Stanley, set to soon topple. The largest commercial banks, like Citigroup and Bank of America, were not far behind on the death watch. The cascade of collapses was halted when the Fed and Treasury went into full-scale bailout mode. They lent...

In the USA there is an amusing discussion going on about the decline of the participation rate of (young) men. some people state that this might be caused by digital amusement. Dean Baker rightly points out that we should not restrict this discussion to American not yet dad’s. I want to make the case that we should not even restrict this discussion to the USA. Below three graphs (source: Eurostat) which show that: A) The average participation rate in Europe increased, even after 2008 (the...

from David Ruccio A constant refrain among mainstream economists and pundits since the crash of 2007-08 has been that, while the state of mainstream macroeconomics is poor, all is well within microeconomics. The problems within macroeconomics are, of course, well known: Mainstream macroeconomists didn’t predict the crash. They didn’t even include the possibility of such a crash within their theory or models. And they certainly didn’t know what to do once the crash occurred. What about...

Paul Romer has just published a devastating critique of DSGE (or, in his parlance, ‘Post Real’) macro models. He’s not the first important insider to write an article like this. Look here for Paul Krugman, ‘How did economists get it so wrong‘. Look here for Willem Buiter, ‘The unfortunate uselessness of most ‘state of the art’ academic monetary economics’. Look here for Charles Goodhart, ‘Whatever became of the monetary aggregates‘. And look here for the insider of insiders, Olivier...

Exhibit 10 from The other half of macroeconomics and the three stages of economic development Richard C. Koo 

from David Ruccio You’d think a Harvard economics professor would be able to do better than invoke horizontal equity as the sole argument for reducing the U.S. inheritance tax. But not Gregory Mankiw, who uses the silly parable of the Frugals and the Profligates to make his case for a low tax rate on the estates of the wealthiest 0.2 percent of Americans who actually owe any estate tax.* I’ll leave it to readers to judge whether or not it’s worth spending the time to compose a column on a...

from Cherrie Bucknor and Dean Baker The 4.9 percent unemployment rate is getting close to most economists’ estimates of full employment. In fact, it is below many estimates from recent years and some current ones. Many policy types, including some at the Federal Reserve Board, take this as evidence that it’s necessary to raise interest rates in order to keep the unemployment rate from falling too low and triggering a round of spiraling inflation. The argument on the other side is first...

Light the fires

from David Ruccio I’ve been writing for some years now about the emergence of new technologies, especially automation and robotics, and their potential contribution to raising already-high levels of inequality even further. The problem is not, as I have tried to make clear, technology per se but the way it is designed and utilized within existing economic institutions. In other words, the central question is: who will own the robots? If capital owns the robots, even if their development...