Real-World Economics Review

This post was written because of a tweet by David Andalfatto, who wondered why medieval and early modern Europe, a society that built cathedrals, did not show any per capita growth. Per capita growth is an average, and when the rich get richer, it can increase even when the number of poor and destitute increases. The question is: was something like this the case in the time of the cathedrals? I won’t give a definite answer. But I will go beyond ´real´ GDP per capita (ultimately a...

from Lars Syll Few issues in politics and economics are nowadays more discussed — and less understood — than public debt. Many raise their voices to urge for reducing the debt, but few explain why and in what way reducing the debt would be conducive to a better economy or a fairer society. And there are no limits to all the — especially macroeconomic — calamities and evils a large public debt is supposed to result in — unemployment, inflation, higher interest rates, lower productivity...

from C. P. Chandrasekhar and Jayati Ghosh It is more than a year since China, reportedly in retaliation to US-driven restrictions on exports of advanced semiconductors and related manufacturing equipment, imposed export controls on two crucial materials—germanium and gallium—that enter into the production of semiconductors and military and communications equipment (advanced microprocessors, fibre-optic products and night-vision goggles). Imposed in the name of safeguarding “national...

from Dean Baker In the last-half century, productivity has outpaced the growth of real compensation for the median worker by more than 40 percent. This means that if workers’ pay had kept pace with productivity, as it did in the three decades after World War II, it would be roughly 40 percent higher than it is today. This would mean that instead of a typical worker earning $34 an hour, they would be earning close to $48 an hour. That implies an annual wage of $96,000 a year for a worker...

from Lars Syll According to Keynes, financial crises are a recurring feature of our economy and are linked to its fundamental financial instability: It is of the nature of organised investment markets, under the influence of purchasers largely ignorant of what they are buying and of speculators who are more concerned with forecasting the next shift of market sentiment than with a reasonable estimate of the future yield of capital-assets, that, when disillusion falls upon an...

from Peter Radford When you are only concerned with one thing and have only one tool things can go awry quite easily.  So it is with our price theory friends.  They bask in the rigor of their thinking and look askance at the inability of regular folks to grasp the point of the logic of their so-called price mechanism — note the mechanical nature of it all.  The recent spate of snooty commentary aimed at Kamala Harris and her ideas about price gouging are a case in point.  I talked about...

from Lars Syll At a first glance, DSGE models seem to imply total ignorance because representative agents (or representative groups of agents with limited heterogeneity) featuring objective utility functions populate the literature. At a second glance, however, it becomes obvious that “methodological individualism” prevails and even dominates. To understand this dominance one only has to once again note that the representative agent has fixed properties only within any given model, or...

from Peter Radford Price-gouging is now a topic in politics.  Kamala Harris has put it there.  Naturally there has been the predictable outcry of opposition coupled with and equally predictable sneer of disapproval: how could she say something so uneducated?  Has she no grasp of Econ.101?  Oh the illiteracy! Perhaps even more predictable is that someone like John Cochrane has felt it necessary to write an article in praise of price-gouging.  After all, hard core libertarian economists are...

from Asad Zaman and current issue of RWER Our current environmental predicament is fundamentally a crisis of knowledge, rooted in the Enlightenment’s narrow conceptualization of epistemology. This shift fostered an illusion of objectivity that has since permeated our understanding of the world, particularly in the context of societal dynamics. The Enlightenment’s emphasis on objective knowledge marginalized the subjective realms of emotional intelligence, moral intuition, and diverse...

from Lars Syll To be fair to academia, it has realized that the pure DSGE model is incapable of explaining observable phenomena so they have introduced numerous amendments, known, oddly, as “imperfections” in the model. Long-term nominal contracts, other labour market frictions, imperfection in credit markets, all these and more are prayed in aid and, either rigorously or more usually ad hoc, introduced into the model, generating lags that mean it can be represented as fitting the data....