Are the new 2025 National Account measurement guidelines any good?
There´s a draft version, published by the United Nations, of new guidelines for the national accounts. I´m going to comment on these in a series of blogs. We´ll start at the very beginning (the picture below) and end at the last page (1.260).
At first sight, considering the organisations that publish it, it seems to be a ´Washington consensus´ (New York consensus?) endeavour. But is it?
We´ll return to this question in the second blog. For now, just the introduction. The national accounts, which incorporate Flow of Funds data, are the most important macroeconomic statistics. Gross Domestic Product, part of the accounts, is just a keystone. Keystones are important, but are nothing (not even keystones) without the rest of the building. The national accounts are the foundation as well as the walls and the roof, consisting of interrelated sectoral accounts of production, income and expenditure as well as data borrowing and lending and assets, money and international trade.
Why these comments?
- It´s important to know the strengths and weaknesses of the new set of guidelines, as these, slowly, will influence the way macro-economic statistics are gathered. Questions which have to be asked are, for instance, whether these enable a class-based analysis of income distribution. ´Class´ is used in the economic sense here and hence tied to the main source of income of people: wages, profits or the ´mixed income´ of the self-employed (and yes, this is nowadays getting convoluted). Or an analysis of financial fragility. I´ll look at ideological and philosophical aspects, as well as practical underpinnings, and will examine concepts and definitions. The blogs will start at the beginning (literally the picture above) and I´ll work my way through the tome. Also, ´Ideology´ is not meant as a slur. All social statistics have ideological underpinnings. One obvious example: ´national accounts´ are national accounts because of an understandable, practical, but ultimately ideological choice. Behind it is, indirectly, the concept of a national economic and political ´politeia´. Such underpinnings have to be fleshed out. Another one: why is brand building by Tesla considered to be a fixed investment while a new artificial hip is considered to be consumption? But this is an example from the present guidelines. Maybe the new ones will, rightly consider new hips as an investment.
- University macro-economists spend way too little attention on measuring stuff. This leads them to use sloppy concepts and definitions with clear political overtones. It´s necessary to spell out that another, well-defined and well-estimated macroeconomics exists, too. Macro-economists need more conceptual and definitional discipline.
I´ll criticise where criticism is due. But. The national accounts measure the money economy. Therefore, they are not an estimate of well-being. This fact won´t be a part of the criticism. The money economy has to be measured.
Conversations in Real-World Economics
A collection of interviews
by
US $9.99 / $22.00 UK DE FR ES IT NL JP BR CA MX AU IN
The interviews in this collection were conducted with prominent thinkers, such as Steve Keen, Herman Daly and Jayati Ghosh, with important things to say on areas of economy often neglected or distorted by mainstream economics. The subject matter ranges from ecological economics, through to development, methodology, conventions, finance, financialisation and banking. If you want to know why mainstream economics will not solve the climate crisis, if you want to know how development can go wrong or what a hedge fund really does, or how private equity buys companies using debt, then read this book.
Economics education is broken — only a revolution can save it
from Lars Syll
Today, economics education has all but erased courses on the history of economic thought and economic methodology. This is not just an oversight — it is an intellectual crisis. A discipline that fails to reflect on its own foundations, that neglects to question its methods and assumptions, is a discipline in decline. History and methodology matter. Without them, economics risks becoming a hollow technical exercise, detached from the real-world problems it claims to address.
How did we reach this point?
The warning signs have been clear for decades.
Already back in 1991, a commission chaired by Anne Krueger and including people like Kenneth Arrow, Edward Leamer, and Joseph Stiglitz, reported from own experience “that it is an underemphasis on the ‘linkages’ between tools, both theory and econometrics, and ‘real world problems’ that is the weakness of graduate education in economics,” and that both students and faculty sensed “the absence of facts, institutional information, data, real-world issues, applications, and policy problems.” And in conclusion, they wrote that “graduate programs may be turning out a generation with too many idiot savants skilled in technique but innocent of real economic issues.”
Thirty-five years later, little has changed. Economics remains in desperate need of reinvention. If the discipline is to regain its relevance, it must rediscover its roots — not just in mathematical formalism, but in the intellectual traditions, critical debates, and methodological rigour that once made it a vital social science.
Increasingly, young economics students want to see a genuine change in economics and the way it’s taught. They want something other than the same old mainstream catechism. They don’t want to be force-fed with useless mainstream theories and models.
Is poverty in Argentina falling?
As is well known, Javier Milei, president of Argentina, tries to kick start the economy by slashing rules, government spending and bureaucracy, and to get inflation down. To do this, he is pursuing what he portrays as ´chainsaw´ policies, which, however, are more thoughtful than the ´colossal fail´ of the DOGE policies in the US. Some people even state that the policies are wildly successful. For one reason, because poverty went down to, ahem, 38% in the second half of 2024 and (not an official estimate) 32% in the first three months of 2025. Is this true and did turning a -4% of GDP government deficit in no time into a (small) surplus only provoke a short crisis instead of a prolonged slump? Is Argentina rapidly recovering and is poverty down?
What if the stock bubble bursts?
from Dean Baker
That’s the positive story for 2025 and 2026, but suppose the AI-driven stock bubble bursts? As many commentators have pointed out, the stock market today is starting to look a lot like it did in the late 1990s bubble, which peaked in March of 2000. It eventually plummeted with the S&P losing close to half its value by the summer of 2002.
It’s worth noting that it was not just the tech stocks that plummeted in the 2000-2002 crash. Even the stock of long-established companies like McDonalds and GM lost close to half of their value.
I am not going to try to guess the timing of a crash. I was closely following the stock bubble in the late 1990s, as well as the housing bubble in the 00s. Both bubbles lasted far longer than I would have thought possible. Big money types are able to pursue illusions for a long time, and in the case of the housing bubble, commit outright fraud in the form of mass securitization of loans they knew to be bad.
Perhaps the event will be the recognition that China seems to be well ahead of us in developing AI in important ways. Read more…
Explaining the valuable work of the US Bureau of Labor Statistics
The US Bureau of Labor Statistics (BLS) recently published data which made the present US economy look lackluster. The graph below shows the month-on-month (not the year-on-year!) change in the number of US jobs. The July data were quite low, while the May and June data were revised downwards. The total number of jobs is, however, still increasing.
Despite this increase, the new data, including the revisions, led to the replacement of the head of the BLS by the US president. Or did the president of the US sense another, larger and darker, danger, which led him to act? More on this at the end. Officially the US president in charge perceived these revisions as a personal attack. Is this president right, and can these data be perceived as an intentional attack on his person and track-record? This question has to be discussed. Currently, university training of economists pays little attention to the whys and hows of gathering economic statistics. This includes labor market statistics. This regrettable situation enables gaslighting when it comes to stating opinions about the purpose of published data. So, why and how are these data gathered? Spoiler: the president is wrong. But if I were head of the BLS, I would skip the first data release to diminish revisions and to provide the administrative state as well as politicians with more robust data. There is always a trade-off between timely and precise data. And it may be good to be fast and roughly right. But it´s not good to be fast and roughly wrong.
The long term damage of austerity in southern Europe
Did austerity after the Great Financial Crisis lead to permanent damage? Yes, it did, especially in southern Europe. Labour market series for Spain, Italy and Greece show large negative discontinuities that have lasted to today.
Greece. Unemployment in Greece is relatively low at the moment in a historical context. It is also low compared to Scandinavian countries and Spain. But the total number of jobs is still smaller than before the Great Financial Crisis. Mainly due to net emigration, the population between 15 and 74 dwindled. The labour force (15-74 years) has also declined.
Keynes — a notable exception
from Lars Syll
The great difficulty in the social sciences (if we may presume to call them so) of applying scientific method, is that we have not yet established an agreed standard for the disproof of an hypothesis. Without the possibility of controlled experiment, we have to rely on interpretation of evidence, and interpretation involves judgement; we can never get a knock-down answer. But because the subject is necessarily soaked in moral feelings, judgement is coloured by prejudice …
The lack of an agreed and accepted method for eliminating errors introduces a personal element into economic controversies which is another hazard on top of all the rest. There is a notable exception to prove the rule. Keynes was singularly free and generous because he valued no one’s opinion above his own. If someone disagreed with him, it was they who were being silly; he had no cause to get peevish about it.
One could say many things about Keynes, but the epithet “humble” is perhaps not one usually associated with this most eminent of economists …
The “unidimensional” view of development
from Ted Trainer and RWER issue 111
The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2024 (economists like to refer to this as a straight Nobel Prize – it isn’t) was awarded to Daron Acemoglu, Simon Johnson and James Robinson. According to the press release the prize was awarded for helping “us understand differences in prosperity between nations”.
However . . . Read more…
In Trump’s competition with China, China is winning
from Dean Baker
Donald Trump doesn’t have much interest in numbers and the real world, but that is where the rest of us live so it is worth checking in periodically. Trump and many others — including many Democrats — are anxious to see the United States as engaged in a Cold War-type competition with China.
I have argued that this is a foolish way to shape foreign policy. The first Cold War was not a lot of fun. We threw a lot of money in the toilet building weapons, most of which were thankfully never used. But we did have hot wars in Korea and Vietnam, as well as a large number of interventions in various countries around the world. And we did have a number of flashpoints, most notably the Cuban missile crisis, where a wrong step could have annihilated the world.
Anyhow, to my view we should not see the Cold War with the Soviet Union as a model to be emulated. But apart from my personal views, there is a fundamental difference between the Soviet Union and China. At its peak, the Soviet economy was roughly half the size of the U.S. economy. China’s economy is already one-third larger than the U.S. economy and growing far more rapidly. This was true before Donald Trump took office, but the growth gap has been even larger in the first six months of this year.
China’s economy has been growing at more than a 5.0 percent annual rate. Meanwhile the US economy grew at just a 1.2 percent annual rate. Put in dollar terms, China’s economy has grown by roughly $1 trillion in the last six months, while the US economy has grown by just $180 billion. Read more…
A fork in American history
In the United States, income inequality rose steadily from the 1980s onward (as shown by the blue line). But, at least on paper, it’s easy to imagine a version of the US in which this experiment didn’t’ happen. For example, the red line imagines a world in which US income inequality remained fixed at the levels found in 1970. If the United States had taken this alternative path, would there still be a housing crisis today?
Source: Blair Fix: “The American Housing Crisis: A Theft, Not a Shortage”
Debunking mainstream economics
from Lars Syll
An economic theory that does not go beyond proving theorems and conditional ‘if-then’ statements — and does not make assertions and put forward hypotheses about real-world individuals and institutions — is of little consequence for anyone wanting to use theories to better understand, explain or predict real-world phenomena.
Building theories and models on patently ridiculous assumptions that we know people never conform to does not deliver real science. Real and reasonable people have no reason to believe in ‘as-if’ models of ‘rational’ robot-imitations acting and deciding in a Walt Disney-world characterised by ‘common knowledge,’ ‘full information,’ ‘rational expectations,’ zero transaction costs, given stochastic probability distributions, risk-reduced genuine uncertainty, and other laughable nonsense assumptions of the same ilk. Science fiction is not science. Read more…
Well said Ha-Joon Chang!
from Peter Radford
I shouldn’t. But I will
Well, well. Is there life in economics yet?
Not so fast.
My own journey into the swamp of economics began in the late 1980s when, out of the blue, my boss at the bank decided that because I had attended LSE I ought to be conversant with the subject. That I had studied history and politics seemed to carry no weight. So there I was a little later standing in front of large audiences trying to look and sound authoritative on a topic that I was simultaneously trying to catch up on in real time.
A few years later, and now known as the Chief Economist — something I never aspired to be — I turned my thoughts elsewhere.
Well sort of.
By then I had become intrigued by this new thing called the Internet. I was already tinkering with what was then called informations systems — how antique it all seems now. The question I kept returning to was simple: what was the likely impact on business of all this newly assembled and released flood of information? For some reason I could never let that question go. After all it was apparent to me the entire function of banking is to handle information and make decisions based upon it. I began to generalize that thought. If banks are information processors what about other businesses? What about the economy as a whole?
About this time I found myself with a lot of spare time. I had been fired! So I persisted.
And this is when I stepped further into the mire known as economics. Read more…
Credit, capital, and the engine of war:
from Asad Zaman and WEA Pedagogy Blog
Money Transformed in Early Modern Britain
A Guided Reading of Glyn Davies’ A History of Money, Part 3
For millennia, money was anchored in the tangible: silver, gold, cattle, grain. It served religious rituals, enabled imperial taxation, and, above all, funded the machinery of war. But with the arrival of the Industrial Revolution, and in parallel with Britain’s rise as a financial and military power, money itself changed.
In this post, we explore a pivotal transition in Glyn Davies’ A History of Money — from the era of bullion-based empire to the credit-fueled capitalist state. This is also the period Karl Polanyi described as the moment when money became a “fictitious commodity” — something treated as a tradable good, even though it was never produced for sale, and never truly separate from the structures of power and production that created it.
Credit, in this new world, was not simply an economic convenience. It was a weapon of war, a catalyst of revolution, and a new infrastructure of sovereignty. By examining the financial innovations of early modern Britain — especially the founding of the Bank of England — we begin to see how money becomes detached from precious metal and increasingly tied to productive capacity, trust, and expansion.
The Financial Revolution and the Rise of Modern Banking
The possibility of the impossibility of economics
from Lars Syll
Economic models are not expected to be even approximately true, and Hausman’s idea that even the ceteris paribus laws in economics are vague as to what exactly has to be equal makes it clear that economic laws must be abstract rather than idealized. This leads us to the question: What are the criteria of, if not truth, then rightness or legitimacy for such abstract models?
A simple answer would be that abstract models say merely that if there were objects subject to only the forces defined in the model, then from the definition of those forces it follows that the objects would behave in the ways specified by the model. This has momentary appeal in view of the idea that forces must ultimately be defined in terms of the kind of response they produce in appropriate objects to which they are applied. But this reply is plainly too easy to help with our question. On this criterion, any model is legitimate if it is coherent. It cannot, therefore, address the issue of which models have some relevance to the real world. It is tempting, then, to resort to counterfactual claims about real objects. Thus, for example, we might interpret models of consumer behavior as asserting that if people were motivated solely by self-interest, had perfect information, complete transitive preferences, etc., they would.. . . To which a natural response would be, Why should we care about the hypothetical behavior of people so different from ourselves?
Science is made possible by the existence of a reality that transcends our theories and conceptual frameworks. It is this external reality that our theories attempt, however imperfectly, to grasp. Read more…
DeLong steps in it
from Peter Radford
This is second stab at a question that vexes me …
I have been reading too many historians lately. So when I read the usually very smart Brad DeLong say something that seems straight from Hayek I get a greater jolt than I used to. And that’s saying something. This is what he wrote that caught my attention:
“The true genius of the market system lies in its capacity to decentralize decision-making, to push choices and authority out to the periphery—out to the individuals and enterprises who are closest to the ground, who possess the granular, local knowledge that no distant central planner or bureaucratic committee could ever hope to match. In this way, the market harnesses and aggregates the dispersed intelligence of society, transforming millions of individual judgments, preferences, and bits of information into a coherent pattern of production and allocation.”
Pure Hayek.
Notice the enthusiastic use of words like “genius”. Notice too the typical comparison between decentralized decision making based upon “granular, local knowledge” and the implied plodding foolishness of “distant central planners”. Apparently “the market” harnesses dispersed intelligence and so on, thus transforming it all into a wonder of coherence of production and allocation.
Mercifully DeLong does not then go on and argue that “the market” solution arrived at by all that genius is in any way “efficient”. That would have been too much.
The problem I have with such gushing and broad-brush praise of “the market” is that no one seems to be able to tell me what this “market” is. Or where it is. Or who participates in it. Or how it operates. Or …
Let’s just start with basics. Read more…
“Crypto” is Silicon Valley speak for waste, fraud, and abuse
from Dean Baker
The Republicans in Congress, along with many Democrats, are rushing ahead with legislation to promote crypto currencies in various ways. Their motivation is not hard to understand; they got hundreds of millions of dollars in campaign contributions from the industry. In terms of economic policy, the effort to promote crypto is taking the country 180 degrees in the wrong direction. The only real question is how bad the results will be.
When we think of finance, we need to think of trucking. Just as we need the trucking industry to transport items to factories and stores, we need the financial sector to make payments and allocate capital. But both finance and trucking are intermediate goods; they don’t directly make us better off, like healthcare or housing.
The fewer resources (labor and capital) we devote to these sectors, the better. If we have fewer people working in these industries, it means that we have more people available to work in sectors that provide the items we value.
Everyone can understand this with trucking. If the size of the trucking sector had quintupled relative to the size of the economy in the last half century, we would probably all be talking about how incredibly inefficient our trucking industry is.
But almost no one complains about the inefficiency of our financial system, even though the share of some components (the securities and commodities trading sector) has quintupled over the last half century. Maybe this is because people in the financial industry teach at elite institutions, have columns in elite media outlets, and hold top positions in administrations of both parties. Read more…
Prodding Krugman
from Peter Radford
Paul Krugman has been on a mission lately. He has been writing extensively about inequality in America. As we all know it’s an ugly picture, and as we would all expect Krugman has dug out endless statistics to demonstrate just how ugly.
From my perspective inequality is the most salient economic fact that needs addressing: everything else becomes either secondary or derivative of it. So I feel I need to embellish a little on what Krugman’s says when he says this in Part VI of his series:
“Yet soaring U.S. inequality since 1980 hasn’t inspired a major government effort to counter that trend. In fact, policy changes, notably Republican tax cuts for the wealthy, have accelerated the growing disparities. And as I’ll explain later, the current level of inequality in America is much higher than what would be expected in a truly democratic polity, one in which all citizens had an equal voice.”
Let’s unpack that a bit. Read more…
Science, politics, and ideology in economics
from Lars Syll
During my whole career, I have considered myself somewhat of a schizophrenic, which might be a universal characteristic. On the one hand, I was interested in science qua science, and I have tried — successfully I hope — not to let my ideological viewpoints contaminate my scientific work. On the other, I felt deeply concerned with the course of events and I wanted to influence them so as to enhance human freedom. Luckily, these two aspects of my interests appeared to me as perfectly compatible.
Like many mainstream economists, Friedman briefly peers into the deeper implications of the issue — only to retreat just as quickly. The truth, of course, is that the alignment between his market-oriented economics and anti-statist political ideology was anything but accidental. Read more…
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Edward Fullbrook and Jamie Morgan
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Maria Alejandra Madi / Jack Reardon
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