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from Lars Syll In his recent article on Where Modern Macroeconomics Went Wrong, Joseph Stiglitz acknowledges that his approach “and that of DSGE models begins with the same starting point: the competitive equilibrium model of Arrow and Debreu.” This is probably also the reason why Stiglitz’ critique doesn’t go far enough. It’s strange that mainstream macroeconomists still stick to a general equilibrium paradigm more than forty years after the Sonnenschein-Mantel-Debreu theorem — SMD —...

I came across the following graph: (Click to embiggen) Both the supply curve for labor in the state of California and the demand curve for housing in California are made up of the states residents. In general, if you increase the supply of something, all else being equal you bring down its price. On the other hand, if you increase the demand for something, all else being equal you increase its price. The graph above suggests that in California, two...

 from The seven sins of economists

from David Ruccio Back in June, Kim Hemphill, in her letter to the editor of the Washington Post, challenged pharmaceutical industry claims that it must charge high prices on lifesaving drugs to recover research and development costs. The case detailed in the June 11 Business article “Max’s best hope costs $750,000” was yet another example of how the pharmaceutical industry continues to put profits above morals and humanity. . . Research and development costs are a part of the business...

Last year in Chicago: Among the Sun-Times’ findings, based on a review of police and Cook County medical examiner’s reports, court files and interviews: • The vast majority of those killed in Chicago in the first half of this year — 90 percent —died from a gunshot wound. • Seventy-two percent were African-American men, their average age 29. • Four out of five had faced criminal charges in Cook County at some point, mostly for drug offenses — the leading...

from Lars Syll DSGE models seem to take it as a religious tenet that consumption should be explained by a model of a representative agent maximizing his utility over an infinite lifetime without borrowing constraints. Doing so is called micro-foundingthe model. But economics is a behavioral science. If Keynes was right that individuals saved a constant fraction of their income, an aggregate model based on that assumption is micro-founded.Of course, the economy consists of individuals who...

from Dean Baker Yanis Varoufakis begins his account of his half year as Greece’s finance minister in the left populist Syriza government (Adults in the Room, Farrar, Straus, and Giroux) with a description of a meeting with Larry Summers. According to Varoufakis, Summers explains that there are two types of politicians. There are those who are on the inside and play by the rules. They can just occasionally accomplish things by persuading others in the room to take their advice. Then there...

The story is the weakness is weather related, as was the cpi increase, though not the downward revision for the prior month. (I suppose getting control of the weather would be a useful policy tool for the Fed to hit its targets?) The economy is to some degree path dependent, which in this case means that a slowdown in sales = a slowdown in income which can reduce future sales even after the weather issues clear up, especially given the declining growth rate real disposable...

Trumped up expectations continue even as earnings deteriorate: As U.S. Economy Improves, Cities May Be Headed for Another Downturn Cities may be facing a new period of economic stress — even as the national economy continues to improve. According to a National League of Cities (NLC) report released on Tuesday, municipal finance officers are expecting minimal growth this year — less than 1 percent — after dealing with slower revenue growth last year. If that happens, NLC...