Tag Archives: Economics

Photo by: Matt Clark. First things first: the U.S. already has a border wall with Mexico. This is a widely-documented fact, illustrated in detail by National Geographic. If Trump supporters had bothered to do so much as a Google search, they would realize that — whatever one might think of illegal immigration — it isn’t going to be stopped by a border wall. A border wall already exists, and illegal immigration continues. But what about replacing the current border wall with a bigger one?...

Krugman’s modeling flim flam Paul Krugman has a piece up on his blog this week arguing that the ‘discipline of modeling’ is a sine qua non for tackling politically and emotionally charged economic issues: You might say that the way to go about research is to approach issues with a pure heart and mind: seek the truth, and derive any policy conclusions afterwards. But that, I suspect, is rarely how things work. After all, the reason you study an issue at all is usually that you care about...

Taking part of the debate on microfoundations among macroeconomists these days, I wonder if Heinz-Peter Spahn isn’t more on the right track than those who desperately offer more or less contrived defenses of the microfoundationalist programme: The crucial point however is: market conditions, which are presupposed in the model of intertemporal choice, are not given in reality. Distributing consumption optimally over time depends on the possibility of individuals to lend money on their...

The last time I saw universal basic income discussed on television, it was laughed away by a Conservative MP as an absurd idea. The government giving away wads of cash responsibility-free to the entire population sounds entirely fantastical in this austerity-bound age, where “we just don’t have the money” is repeated endlessly as a mantra. Money, they say, does not grow on trees. (Only as figures on the screen of a computer). In this world, universal basic income seems like a rather distant...

The money multiplier – neat, plausible, and utterly wrong The neoclassical textbook concept of money multiplier assumes that banks automatically expand the credit money supply to a multiple of their aggregate reserves.  If the required currency-deposit reserve ratio is 5%, the money supply should be about twenty times larger than the aggregate reserves of banks.  In this way the money multiplier concept assumes that the central bank controls the money supply by setting the required reserve...

A small ray of hope I overheard a conversation between two high school students this morning. The first person was asking about which classes the second was going to take next. One of those mentioned was microeconomics. “Oh, that’s easy” said the first, “You just have to remember that it’s all rubbish – they want you to believe that people are rational, and that there’s all this perfection in the world.” “Really?” responded the second, “That’s really dumb. I wonder why they do that?” “It...

Long run demand effects In the standard mainstream economic analysis — take a quick look in e.g. Mankiw’s or Krugman’s textbooks — a demand expansion may very well raise measured productivity in the short run. But in the long run, expansionary demand policy measures cannot lead to sustained higher productivity and output levels. In some non-standard heterodox analyses, however, labour productivity growth is often described as a function of output growth. The rate of technical progress...

Axel Leijonhufvud on the road not taken The orthodox Keynesianism of the time did have a theoretical explanation for recessions and depressions. Proponents saw the economy as a self-regulating machine in which individual decisions typically lead to a situation of full employment and healthy growth. The primary reason for periods of recession and depression was because wages did not fall quickly enough. If wages could fall rapidly and extensively enough, then the economy would absorb the...

Macroeconomic just-so stories you really do not want to buy Thus your standard New Keynesian model will use Calvo pricing and model the current inflation rate as tightly coupled to the present value of expected future output gaps. Is this a requirement anyone really wants to put on the model intended to help us understand the world that actually exists out there? Thus your standard New Keynesian model will calculate the expected path of consumption as the solution to some Euler equation...