If you say “All models are wrong” then the most important issue is to define the words. “All” is quite clear, “are” also is without much doubt. So, we are left with “models” and “wrong” … The more interesting discussion is the one about the definition of truth. The philosopher Bertrand Russell has written something on truth about a century ago in his book The Problems of Philosophy (ch. XII): “It will be seen that minds do not create truth or falsehood. … More Are all models wrong?
This chart illustrates the share of corporate income received by workers (in the form of wages and benefits) from January 1979 through April 2015. As the Economic Policy Institute explains, Typically, the labor share rises during recessions because profits fall much faster than wages during downturns … More Share of corporate income received by US workers from 1979 to 2015.
s is well-known, New Classical Economists have never accepted Keynes’s distinction between voluntary and involuntary unemployment. According to New Classical übereconomist Robert Lucas, an unemployed worker can always instantaneously find some job. No matter how miserable the work options are … More The ‘bad luck’ theory of unemployment
The essence of this critique of the market lies in insisting on the structural relations that hold among individuals. The classic conception of the market sees individuals atomistically and therefore maintains that an individual’s holding can be justified by looking only at that individual. This was the original appeal of the libertarian picture: that the validity of an agreement could be established by establishing A’s willingness, B’s willingness, and the fact that they are entitled to trade what they are trading. Justification could be carried out purely locally. But this is not the case … More Inequality and the poverty of atomistic reductionism
Employment Rate According to Eurostat, “The employment rate of older people has increased in both in the long term since 2002 and in the short term since 2009. The positive trend has been consistent for both men and women over the entire time period. Because the employment rate for older women has grown faster than for older men, the gap between men and women has narrowed slightly“. Which means that at least part of the dreaded ‘dependency’ crisis has been solved: less 55 to 64 year olds are dependent, more have a job (which means that the denominator of the dependency ratio also increased). … More Graph of the day. Employment of ‘older’ people in the EU
One thing my 28 years as a card-carrying economist have taught me is that conventional economic theory is the best guide to what is likely to happen in the economy. Read whatever it advises or predicts, and then advise or expect the opposite. You (almost) can’t go wrong. Nowhere is this more obvious than in … More Why China had to crash: Part 2 | Real-World Economics Review Blog
ast year, President Obama called for increasing the federal minimum wage to $10.10 an hour by the end of 2015. He argued that after 2015, increases in the minimum wage should be tied to inflation, with the minimum wage rising in line with the consumer price index.
The purchasing power of the minimum wage peaked in the late 1960s at $9.54 an hour in 2014 dollars. That is over two dollars above the current level of $7.25 an hour. While raising the minimum wage to $9.54 would provide a large improvement in living standards for millions of workers who are currently paid at or near the minimum wage, it is worth asking a slightly different question: what if the minimum wage had kept in step with productivity growth over the last 44 years? In other words, rather than just keeping purchasing power constant at the 1968 level, suppose that our lowest paid workers shared evenly in the economic growth over the intervening years. … More An $18.42 Minimum Wage? (graph)
They try to explain business cycles solely as problems of information, such as asymmetries and imperfections in the information agents have. Those assumptions are just as arbitrary as the institutional rigidities and inertia they find objectionable in other theories of business fluctuations … I try to point out how incapable the new equilibrium business cycles … More Why Real Business Cycle models can’t be taken seriously
Just three days before he passed away, a notable Columbia University professor of economics William Vickrey was awarded 1996 Nobel Prize in Economic Sciences for fundamental contribution to the economic theory of incentives under asymmetric information. VickreyThroughout his prolific career, Vickrey developed methods of analyzing the problems of incomplete information and also specialized on welfare, … More Get free from the dogmas of the apostles of austerity: Fifteen Fatal Fallacies of Financial Fundamentalism
The collapse of the old system has already happened and efforts to perpetuate it are only aggravating the problem. People have experienced the reality of this shift in their everyday lives, in their vulnerability to systemic risk and sudden job losses. However governments have remained in denial, trying to apply the ‘one solution’ fits all problems model (i.e. trying to correct a private debt problem by creating more debt). Meanwhile… … More The Rise of the Liquid Society
Neoclassical economics nowadays usually assumes that agents that have to make choices under conditions of uncertainty behave according to Bayesian rules, axiomatized by Ramsey (1931) and Savage (1954) – that is, they maximize expected utility with respect to some subjective probability measure that is continually updated according to Bayes theorem. If not, they are supposed to be irrational, and ultimately – via some “Dutch book” or “money pump”argument – susceptible to being ruined by some clever “bookie”. … More The Keynes-Ramsey-Savage debate on probability
This lecture explains the close relationship between private debt and employment. It draws a picture of what is coming next and proposes a concrete solution to the current debt crisis. … More The true state of our economy and what to expect
Social media analysis reveals a growing trend towards a sense of shared responsibility. This should be a major concern for companies, because what happens when this paradigm makes the leap from humanitarian aid to consumer choice, is that socially responsible practices will become a requirement to stay in business and not an option. Smart brands will be wise to note this change in consumer attitudes, where new information is quickly translating into action. … More Consumer Choice and Growing Shared Responsibility
Originally posted on LARS P. SYLL:
? ? Back in 1992, New Jersey raised the minimum wage by 18 per cent while its neighbour state, Pennsylvania, left its minimum wage unchanged. Unemployment in New Jersey should — according to mainstream economic theory — have increased relative to Pennsylvania. However, when economists Alan Krueger and David Card…
Originally posted on Flip Chart Fairy Tales:
It now seems to have dawned on just about everyone that, if the government really does cut £12 billion from the social security budget, most of the pain will be felt by those in work. There have been some interesting reactions to this from right-of-centre think-tanks. The Institute of Economic…
Originally posted on LARS P. SYLL:
The classical theory of comparative advantage has driven US trade policy for the past fifty years. That policy, in combination with technical innovations that have lowered costs of transportation and communication, has opened the global economy. Yet paradoxically, this opening has rendered classical trade theory obsolete. That in turn…
This paper challenges the notion of “modern economics” demonstrating that existing models are not sufficient to handle the next wave of global economic disruption that will be experienced during the next 40 years. Four examples are presented to illustrate the paradigm shifts in the making. Upcoming monumental challenges require reevaluating societal needs of the 21st century and approaching modeling from a fresh perspective. Technology has moved on, so should fundamental macroeconomic assumptions. … More Modern Economics not Keeping up with Modern Times
The escape from the balance sheet recession. Will the EU make it? … More The difference between a balance sheet recession and an economic recession
We need a new way of modeling macro economics instead of assuming that aggregate action leads to generalized welfare #SmartEconomy #finance #Money #Innovation #RealWorldEconomics … More Economic models — increasingly sophisticated and totally useless
Originally posted on LARS P. SYLL:
Olivier Blanchard, the IMF’s chief economist, recently wrote: “We in the field did think of the economy as roughly linear, constantly subject to different shocks, constantly fluctuating, but naturally returning to its steady state over time. Instead of talking about fluctuations, we increasingly used the term “business cycle.” Even…
re macro-economists doomed to always “fight the last war”? Are they doomed to always be explaining the last problem we had, even as a completely different problem is building on the horizon? Well, maybe. But I think the hope is that microfoundations might prevent this. If you can really figure out some timeless rules that … More Microfoundational cyborg dream
Discover how seemingly contradicting theories can be combined to create a Smart Economy that minimizes systemic risk and fosters innovation. … More Political Paradigms and the Smart Economy
Managing risk in a globalized economy – The London Economic. Take a 10 question survey. Help us build the economic models of the future. Be part of something big. We need your opinion as a consumer!
The term ‘entitlement’ is often used in political discourse to refer to welfare and social net ‘handouts’ that create debate among liberals, realists, socialists and postructuralists alike. These debates focus around the issue of fairness considering that some people work ‘harder’ than others. However, I would like to dissect this term from the definition that … More At What Level does the Culture of Entitlement Becomes Morally Wrong?
“An unlimited pool of ideas lost to a sea of short sighted goals” Innovation in the twenty first century has a very narrow definition that centers on the purpose of creating immediate monetary value. This term can take several shapes, such as creating a new product that people want to buy, finding new ways of … More Where Innovation Should be Headed
With so much time and effort being invested in this goal by NGO’s and governments alike, this is a question worth asking. Can we effectively end poverty at some point? And if so, what will it take? The answer depends on the measuring stick being used to define poverty. In order to mitigate any kind of problem, one must first define the parameters of the problem itself. … More Can we end poverty?