Real-World Economics Review Blog

from Maria Alejandra and WEA Pedagogy Blog

Setting the scene

Economists and policymakers continue to dominate headlines with the conceptualization of “sustainability,” “sustainable investing,” and “sustainable finance,” along with their various worldwide geographical manifestations. The prevailing scenario, which is characterized by conflict, economic instability, and political disputes, is not favorable to incorporating sustainability into investment decisions. However, pressing environmental and socioeconomic issues, such as climate change, biodiversity loss, resource depletion, population expansion, urbanization, and health emergencies, are exerting pressure on both short-term and long-term public and private initiatives.

Indeed, the volume expansion of sustainable investment has been sluggish in recent years due to economic and political challenges, as well as stringent regulations. On the economic front, market actors are correcting their early overenthusiasm due to governmental pushes and the COVID-19 pandemic. Investors have encountered challenging market conditions: rising prices, two continuous wars, and uncertainty fueled by multiple high-stakes political races. Uncertainty has prompted investment initiatives to shift to more protective and short-term sectors. Regarding regulation, the growing suspicion of ‘greenwashing’ by regulators has exerted significant pressure on financial actors, particularly in Europe, as they strive to boost market confidence. This implies that financial institutions must, in practice, produce impact measurements when selecting assets. Read more…

from Lars Syll

The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2024 is awarded to Daron Acemoglu, Simon Johnson and James Robinson “for studies of how institutions are formed and affect prosperity.” 

Daron Acemoglu and James Robinson’s work, particularly in Why Nations Fail (2012), is widely recognized within new institutional economics for its argument that inclusive political and economic institutions are key determinants of long-run prosperity and wealth, while extractive institutions perpetuate poverty and stagnation. While their framework may offer some valuable insights, a critique that could be directed at their framework is that by attributing a nation’s success or failure almost entirely to its political and economic institutions, they underplay other critical variables, such as geography, culture, and technology.

This is rather typical of new institutional economics, where complex historical processes are often oversimplified and fail to take height for the idiosyncracies of historical development. They also tend to underplay the role of culture and social norms in shaping institutions. By focusing almost exclusively on formal institutions, Acemoglu and Robinson’s framework may miss the importance of these more subtle but influential factors. Read more…

from Dean Baker

It is more than a bit bizarre reading pieces that talk about automation or job-killing AI as something new and alien. These are forms of productivity growth. They allow more goods and services to be produced for each hour of human labor.

Productivity growth is usually thought of as a good thing. It’s the reason that we don’t have half the U.S. workforce employed in agriculture growing our food. Instead, it is around 1.0 percent of the U.S. workforce, and we grow enough to be huge food exporters.

Productivity growth allows for workers to have higher wages. The period in our history where we had the most rapid productivity growth was in the post-war boom from 1947 to 1973. Productivity growth averaged almost 3.0 percent a year. This was passed on in the form of higher real wages and improved benefits. Read more…

from Feedspot

The best Economics Book blogs from thousands of Book blogs on the web and ranked by traffic, social media followers & freshness.

Economics Book Blogs

Here are 15 Best Economics Book Blogs you should follow in 2024

1. Real-World Economics Review Blog

The Real-World Economics Review blog serves as a critical platform for economists, scholars, and thinkers who challenge mainstream economic theories and advocate for more realistic, socially relevant approaches. It brings together diverse voices that scrutinize conventional economic models, focusing on issues such as inequality, environmental sustainability, and financial instability. The blog encourages deep analysis of economic practices, questioning dominant paradigms while fostering discussions on alternative frameworks that better reflect the complexities of real-world economies. Engaging with topics from heterodox economics to policy reform, it provides a thought-provoking space for rethinking the foundational assumptions that guide global economic systems today.
Blog rwer.wordpress.com
Twitter Followers 16.9K  Frequency 1 post / week  Domain Authority 55

2. The Enlightened Economist Blog

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from Dean Baker

It is more than a bit bizarre reading pieces that talk about automation or job-killing AI as something new and alien. These are forms of productivity growth. They allow more goods and services to be produced for each hour of human labor.

Productivity growth is usually thought of as a good thing. It’s the reason that we don’t have half the U.S. workforce employed in agriculture growing our food. Instead, it is around 1.0 percent of the U.S. workforce, and we grow enough to be huge food exporters.

Productivity growth allows for workers to have higher wages. The period in our history where we had the most rapid productivity growth was in the post-war boom from 1947 to 1973. Productivity growth averaged almost 3.0 percent a year. This was passed on in the form of higher real wages and improved benefits.

There is no guarantee that the benefits of productivity growth will be passed on to workers or shared evenly among workers. From 1980 to 2010, the bulk of the gains from higher productivity went to workers at the top end of the wage distribution (e.g. CEOs, Wall Street types, and doctors and dentists). The wages for workers at the middle and bottom barely kept pace with inflation.

In the last two decades there has been a shift from wages to profits. Read more…

from Lars Syll

Based on our interviews, heterodox economics appears to be a positive project, inevitably defined somewhat in terms of the mainstream but not exhaustively so. It is also efficacious, with policy and real-world impact. It is a complex object, not amenable to definition by a single criterion. Its dimensions are partly intellectual, in terms of what it believes. It holds a realist position. It is concerned with asymmetric power relations, in the economy and in the economics discipline, highlights their negative effects, makes explicit the normative character of economics and the economy, and leans towards action which seeks to improve the state of the economy and the discipline. This means it fosters the capacity to deliberate social and ecological goals and norms openly instead of reducing economic reasoning to mathematics or relinquishing thinking to mechanisms that are insulated from debate. Its members see themselves as agents who act against what they perceive to be the unrealistic and monist structures of the mainstream by building alternative structures. These structures embody pluralism, which must include heterodox economics and, perhaps, elements of mainstream economics where these are consistent with the identified features of heterodoxy; and has several pillars, including pedagogic and epistemological. Furthermore, we find the themes of power and pluralism are interwoven with the concern for realism, what we have called realist pluralism. Hence, power and pluralism seem not to be valued in themselves, but in the pursuit of truth … Read more…

from Peter Radford

Is it a cult?

Is it a guild?

Both perhaps?

I remember reading sometime not long ago that Steve Levitt was leaving Chicago.  Two things stood out in the article bringing that news:  first, Levitt said he was concerned that economics was becoming irrelevant; second, someone had told him he was not doing ‘proper economics’.

Here’s a clue who that someone was: Heckman.

Then, more recently, the Financial Times editorial page accused the economics discipline of becoming a closed shop.  And like most closed shops it was stifling creative thinking, it was resistant to change, and was generally becoming … irrelevant.

What a shock.

Mario Rizzo then had a letter published in the FT hammering the point home.  Economics is, indeed, a closed shop.  He teaches at NYU and has an inside look at things.

These sorts of rumblings suggest that things are not well within the fortress of mainstream economics.

Good.  Because, from the outside, it’s all looking a bit worn, tired, and generally … irrelevant.

Let’s deal with the obvious first. Read more…

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 monetary average) and delve into physical-technological, personalized development. And it´s all about glass (picture: ´Het straatje´ by Vermeer (1658?); at the end for comparison a picture of an 1820 street in Amsterdam).

Read more…

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 growth, increased burdens for subsequent generations, etc., etc.

The standard mainstream textbook argument about budget deficits goes something like this: Assume that total output is given. If government expenditures are increased, then this has to be met by an equally large decrease in investment, which can only come forth by rising interest rates. ‘Crowding out’ reduces public saving and causes interest rates to rise. Then, applying the logic of the Solow growth model, it is concluded that (Mankiw, Macroeconomics, 8th ed., p. 221)

the long-run consequences of a reduced saving rate are a lower capital stock and lower national income. This is why many economists are critical of persistent budget deficits.

Now, what’s wrong with this? Everything! Read more…

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 security and interests”, the restrictions on the exports of these materials from China were viewed with alarm. China accounts for 98 per cent of global production of gallium and for two thirds of imported supplies of germanium in the US market. If these restrictions, requiring prior permission for export based on reporting of likely end uses, results in a shortage of these materials, it could affect the production of strategically important products. Correcting for a shortfall in supply by diversifying to new sources is difficult and definitely time consuming. Seen in the context of the fact that China dominates production in a host of critical minerals the restrictions appeared to be an ominous development. Read more…

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 putting in 40 hours a week for 50 weeks a year.

Getting workers their fair share should be, and to some extent has been, a central issue in political debates. However, there is a continual effort by the media to pull the focus away from within generation inequality, and instead tell young people that their problems stem from their parents and grandparents getting too much money from Social Security, Medicare, and other government programs.

The major media outlets love to highlight absurd stories of generational inequality, with baby boomers ripping off their children and grandchildren through Social Security and Medicare. Read more…

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 over-optimistic and over-bought market, it should fall with sudden and even catastrophic force.

Keynes believed that the financial system — necessary for a vibrant market economy by channelling the entrepreneurs’ animal spirits into investments — is also so unstable and sensitive that it easily falls into crisis. The economy is permeated by genuinely uncertain processes and events that result in decision-making often based on incomplete knowledge. The estimates companies make about the future are usually mere guesses. Therefore, they are quickly and heavily influenced by shifts in economic sentiment. The market is thrown between optimism and pessimism. Faced with this uncertainty, people try to do what everyone else does. It is this herd instinct that contributes to the development of countries, which often resembles a by-product of casino activities. Read more…

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 this a couple of days ago with respect to John Cochrane’s typical in-your-face article praising price gouging.  Cochrane typifies the defiance of a certain sort of economist.  They take pride in being determinedly anti-social and cast aspersions on anyone who dares to cross swords with their wisdom.  Ignorance.  Gimmick.  Populist.  These economists are not short in vocabulary when someone treads heavily on their precious logic.

Which is all it is.  Logic.  Impervious to reality, but impeccable in its coherence.

The current controversy gives us an opportunity to look a bit more carefully at the shortcomings of economics and its obsession with what it calls markets. Read more…