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The problem with equilibrium models | Real-World Economics Review Blog
from Lars Syll Economic theory is built on equilibrium assumptions. Perhaps this term once connoted the rest point of a dynamic process. But in modern parlance, an equilibrium assumption posits a relation between the beliefs and behavior of different agents without explicitly describing a process which causes this relation to hold. Competitive equilibrium assumes prices…
So-called reforms reinforced underdevelopment | Real-World Economics Review Blog
from Fidel Aroche Reyes and RWER #110 During the 20th century, many poorer countries adopted economic strategies for development. Europe experienced a rise in living standards; more recently, several Asian nations, such as China, Taiwan, and South Korea, have successfully overcome underdevelopment through focused economic policies, while most other Asian countries have made significant strides…
Big guns on trade: Ricardo via Malkiel | Real-World Economics Review Blog
from Peter Radford Wheeling out the big guns at last! It’s taken a while, but we’ve arrived. At long last we have an article in the Financial Times — our bastion of global financial goings-on — that explains David Ricardo to those who need to know. Better late than never. Even better: the article is…
Neoliberal economics — fiction based on absurd assumptions | Real-World Economics Review Blog
from Lars Syll ‘Rigorous’ and ‘precise’ economic models cannot be considered anything else than unsubstantiated conjectures as long as they aren’t supported by evidence from outside the theory or model. To my knowledge, no in any way decisive empirical evidence has been presented. No matter how precise and rigorous the analysis, and no matter how…
new issue of RWER | Real-World Economics Review Blog
real-world economics review issue no. 110, May 2025 download whole issue The 2024 Nobel Prize for Economics: an example of how conventional economics misrepresents realityTed Trainer 2 Why only innovations based on degrowth principles can stopfurther ecological and social destructionFelix van Hoften and Rob van der Rijt 10 Neoclassical economics drives…
China adds more than $400 billion to GDP in Q1, Trump loses $25 billion | Real-World Economics Review Blog
from Dean Baker Donald Trump is not very good with arithmetic, but that is not a reason the rest of us should not use it. The US economy shrank at 0.3 percent annual rate in the first quarter. This figure needs the usual caveats. This is preliminary data that may be revised substantially in the next two…
The sorry state of economics | Real-World Economics Review Blog
from Lars Syll Page after page of professional economic journals are filled with mathematical formulas leading the reader from sets of more or less plausible but entirely arbitrary assumptions to precisely stated but irrelevant theoretical conclusions … Year after year economic theorists continue to produce scores of mathematical models and to explore in great detail…
What Keynes meant by ‘We simply do not know’ | Real-World Economics Review Blog
from Lars Syll With the words ‘We simply do not know,’ Keynes describes in his General Theory what he calls ‘objective uncertainty.’ There is simply no way in which one can foresee certain events or developments because they are objectively unknown. The past does not predict the future. This constitutes a fundamental break with the dominant neoclassical…
A, belated, response to Wolf | Real-World Economics Review Blog
from Peter Radford It is a question of distribution. A friend of mine, here in Vermont, has disrupted my enjoyment of a pleasant spring morning by reminding me of what Martin Wolf says about populism. Specifically he referred me to pages 180-181 of the Wolf book “The Crisis of Democratic Capitalism”. I wish he…
Weekend read – Economics after empire: Rebuilding the discipline on moral foundations | Real-World Economics Review Blog
from Asad Zaman and WEA Pedagogy Blog Section 1: Introduction — Questioning the Grand Narrative According to the standard narrative, Europe’s rise was driven by superior institutions, rational governance, and scientific advancement. Wealth, power, and modernity are seen as the natural outcomes of internal European virtues—innovation, efficiency, and discipline. Implicitly or explicitly, social sciences –…
Garbage Time: running out the clock on America? | Real-World Economics Review Blog
from Peter Radford “Do you not weep? Other sins only speak, murder shrieks out” Webster is well known for the darkness of his plays. When he says murder shrieks out, I wonder which murder he is referring to. Or, perhaps, what is being murdered? These are dark days for freedom and democratic governance. Yes. I…
Economics textbooks — peddling lies about money and finance | Real-World Economics Review Blog
from Lars Syll For several years now, yours truly has been teaching an introductory economics course every fall for future social studies teachers. Alongside a few of my own books, Klas Eklund’s Vår ekonomi (Our Economy) is also on the reading list. The book was released in its 16th revised edition in December 2024—an impressive feat and…
The deep roots of fascist thought | Real-World Economics Review Blog
from Blair Fix For decades, the word ‘fascist’ existed solely as a hyperbole — a term meant to insult rather than describe. But lately, politics have grown so hyperbolic that the label looks increasingly sincere. For example, when a powerful man advocates far-right politics and brazenly performs Nazi salutes in front of a cheering crowd, it…
Rational expectations, uncertainty, and learning | Real-World Economics Review Blog
from Lars Syll The rational expectations hypothesis presupposes — basically for reasons of consistency — that agents have complete knowledge of all of the relevant probability distribution functions. When trying to incorporate learning in these models — trying to take the heat of some of the criticism launched against it up to date — it…
American plutocracy | Real-World Economics Review Blog
Now to American plutocracy. As the bottom panel in Figure 3 illustrates, the fall and rise of Republican fortunes mirrors another important U-turn: the fall and rise of US income inequality, measured here in terms of the top 1% share of income. Figure 3: In postwar American, the fall and rise of the Republican party mirrors the…
The economic fallout of European rearmament | Real-World Economics Review Blog
from C. P. Chandrasekhar With US President Donald Trump leaning towards Russia when advocating a stop to the war in Ukraine and making clear that the US will no longer foot the bill to ensure Europe’s security, talk of “Russian expansionism” in Europe has become louder. This has fuelled calls for Europe to rearm itself. However, there…
Ignoring patent monopolies: free trade retaliation against Trump | Real-World Economics Review Blog
from Dean Baker Most forms of retaliation that countries are planning in response to Donald Trump’s tariff-fest involved higher tariffs and import restrictions. These measures may hurt the US economy, but they will also hurt the country imposing them. The logic is that the measures will be crafted so that the pain in the US…
Who’s afraid of Trump’s tariffs? | Real-World Economics Review Blog
from C. P. Chandrasekhar and Jayati Ghosh The weaponization of tariffs by US President Donald Trump has clearly generated fear and loathing across the world. These threats are not only purely performative; nor are they just transactional in nature. The logic of these tariff threats in most cases is questionable at best, and the declared…
Patents and the Abundance Agenda | Real-World Economics Review Blog
from Dean Baker I haven’t read Ezra Klein and Derek Thompson’s new book Abundance, but everyone I know seems to be talking about it. Therefore, I thought I would throw in my two cents, not on the book for obvious reasons, but on what a serious Abundance Agenda (AA) should look like. Specifically, I want to…
Trump — uncertainty and chaos | Real-World Economics Review Blog
from Lars Syll Uncertainty and chaos are the final factors in Trump’s operation. The winners, broadly, will be financial speculators with fast fingers and (especially) inside knowledge. Those in position to move quickly in and out of stocks, bonds and real estate—and perhaps even in and out of the dollar from a base in crypto—could be the…
Trump 2.0: An inflection point for global capitalism? | Real-World Economics Review Blog
from C. P. Chandrasekhar If the first month of Donald Trump’s second stint as President of the United States is indicative, then it appears that global capitalism with the US as hegemon is in the process of an endogenously triggered process of restructuring. Among the many early signals from the Trump administration to switch US…
The pretence-of-knowledge syndrome | Real-World Economics Review Blog
from Lars Syll What does concern me about my discipline, however, is that its current core — by which I mainly mean the so-called dynamic stochastic general equilibrium approach — has become so mesmerized with its own internal logic that it has begun to confuse the precision it has achieved about its own world with…
The Trump dream of balanced trade | Real-World Economics Review Blog
from Dean Baker Donald Trump constantly complains about our trade deficit, promising us the good life of balanced trade. I’m not sure exactly how he sees ending our trade deficit as the key to prosperity, but let’s play the game. What does the world look like if Trump, through his tariffs, threats, and promises, gets…
American Monarchy | Real-World Economics Review Blog
from Peter Radford Let’s get to the heart of the situation: the American government is not functioning as a liberal democracy. That much is clear. There is no oversight, no communication, and no process. It is all diktat and tyranny. It is neither liberal in that it now supports tyrants around the world. Nor democratic…
The pretence-of-knowledge syndrome | Real-World Economics Review Blog
from Lars Syll What does concern me about my discipline, however, is that its current core — by which I mainly mean the so-called dynamic stochastic general equilibrium approach — has become so mesmerized with its own internal logic that it has begun to confuse the precision it has achieved about its own world with…
Crypto and Donald Trump’s strategic baseball card reserve | Real-World Economics Review Blog
from Dean Baker The Republicans and Donald Trump seem set on establishing a strategic crypto reserve. They are claiming this will somehow be an important source of economic security for the country. It’s clear that establishing the reserve will be an important way to give tens of billions of dollars to Donald Trump’s campaign contributors,…
How economists forgot the real world | Real-World Economics Review Blog
from Lars Syll The book’s argument is that in straining to peer through the chaos and confusion of the world to the underlying mechanisms, too much economic thinking, both in Ricardo’s day and ours, mistook a small, unrepresentative sample as the whole picture. This has distorted the vision of generations. If your scientific ideal is…
My Father’s Disgust | Real-World Economics Review Blog
from Peter Radford I am in a grim and introspective mood this morning. I have been reflecting on how my father might react to where we are. He was one of those who fought against fascism. His life was shortened by being wounded during that fight. As a result, I never knew him as…
The elites’ big lie on inequality | Real-World Economics Review Blog
from Dean Baker (I saw that Jeff Bezos wants the Washington Post’s editorial page to run pieces touting the merits of free markets. Here’s my submission.) There are not many issues on which there is largely bipartisan agreement, so the story we tell about the origin of economic inequality stands out. Both sides agree that…
Best advice to an aspiring economist — don’t be an economist! | Real-World Economics Review Blog
from Lars Syll A science that fails to reflect on its own history and neglects critical methodological and theoretical questions about its practice is a science in crisis. As early as 1991, a commission led by Anne Krueger—featuring esteemed economists such as Kenneth Arrow, Edward Leamer, and Joseph Stiglitz—highlighted a fundamental weakness in graduate economics…
Newton’s lost revolution: Why his most radical work remains unread | Real-World Economics Review Blog
from Asad Zaman The Puzzle of Newton’s Mind Isaac Newton is often celebrated as the ultimate rationalist, the scientist who unlocked the mysteries of the cosmos and ushered in the modern age. But there is a problem with this image—one that is so inconvenient that it has been quietly brushed aside. Newton, the father of…
Weekend read – An ignorance of merit … I am confused | Real-World Economics Review Blog
from Peter Radford Yes, I am confused. At least I admit it. There’s a lot going on, and someone like me often wallows in the activity as a way of understanding. I like to see the systemic rather than the particular. I am very bad, I admit, at details. I gravitate to the long term. …
Businesses and DEI: Corporations don’t maximize shareholder value | Real-World Economics Review Blog
from Dean Baker CEOs and other top management in the U.S. are far more highly paid than their counterparts in Europe and Asia. NYT columnist Jeff Sommer had an entertaining piece on how many of the business leaders who eagerly embraced DEI a few years back are now being very quick to abandon it. This is not…
What is wrong with game theory | Real-World Economics Review Blog
from Lars Syll Back in 1991, when yours truly earned his first PhD with a dissertation on decision making and rationality in social choice theory and game theory, I concluded that “repeatedly it seems as though mathematical tractability and elegance — rather than realism and relevance — have been the most applied guidelines for the…
Here we are | Real-World Economics Review Blog
from Peter Radford Random thoughts on day one of America’s war on the world. This is my way of summarizing, it is not definitive by any means! I wrote in haste. Here’s a quote to get us started: “What made fascism attractive in Europe and elsewhere was its combination of national autarkic aims, militarism, statism,…
Weekend read: Keynes’ critique of econometrics is still valid | Real-World Economics Review Blog
from Lars Syll Mainstream economists often hold the view that Keynes’ criticism of econometrics resulted from a sadly misinformed and misguided person who disliked and did not understand much of it. This is, however, nothing but a gross misapprehension. To be careful and cautious is not the same as to dislike. Keynes did not misunderstand…
The Greek myth that helps explain the failings of modern economics | Real-World Economics Review Blog
from Nat Dyer Readers of this blog will be well aware of the myriad problems with the mainstream economics that has dominated university and political life for the past few decades. As Lars Syll wrote here last month, too much of the profession "has since long given up on the real world" and is happy to…
The incredible cost of Bitcoin. | Real-World Economics Review Blog
Source AI is not what it is supposed to be. Inspired by my son, who attends higher education, I asked chat-GPT to write an article about the energy use of bitcoin in the style of my blog post series ´The real costs of making money´. Look here. Guess what: chat-GPT did not emulate my style…
Real corruption that could meet republican cost-saving targets | Real-World Economics Review Blog
from Dean Baker The news has been filled with stories in recent days about Republicans desperately hunting for $2.0-$2.5 trillion (2-3 percent of the budget) in budget cuts over the next decade to cover the cost of extending tax cuts to the rich. While Elon Musk and his DOGE team have been screaming about corruption…
Donald Trump is badly nonfused # 67,218: The story of supply and demand | Real-World Economics Review Blog
from Dean Baker Donald Trump is the world’s leading expert in getting things wrong and one thing he gets wrong bigly is the value of the U.S. domestic market. Trump seems to believe that our domestic market is incredibly valuable to the rest of the world and that access to it should allow him to…