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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…
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…
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…
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,…
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…
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…
In praise of government consumption | Real-World Economics Review Blog
DOGE, a new branch of the US government, does not escape the Iron Law of Bureaucracy. It is hiring. It´s also wrecking the US by trying to neuter almost everybody else working for the civil branch of the US Federal government. It reminiscent of the demise of the USSR in 1991. The USSR consisted of…
Donald Trump and the end of U.S. hegemony | Real-World Economics Review Blog
from Dean Baker One outcome of the Donald Trump clown show is that we can safely say the period of U.S. hegemony in the world has come to an end. His erratic policies and bizarre statements have undoubtedly convinced almost everyone that the United States cannot be viewed as a reliable ally, if not actually…
How evidence is treated in mainstream macroeconomics | Real-World Economics Review Blog
from Lars Syll ‘New Keynesian’ macroeconomist Simon Wren-Lewis has a post on his blog discussing how evidence is treated in modern macroeconomics (emphasis added): It is hard to get academic macroeconomists trained since the 1980s to address this question, because they have been taught that these models and techniques are fatally flawed because of the Lucas critique…
Building humane alternatives to homo economicus | Real-World Economics Review Blog
from Asad Zaman Introduction: As discussed in the post on Self-Knowledge: The Key to Understanding Society, the homo economicus model, central to modern economic theory, is deeply flawed. It assumes humans are purely self-interested, rational agents driven by wealth and pleasure, ignoring the profound influence of social relationships, emotions, and moral values. This collection of articles…
Social sciences — a plaidoyer | Real-World Economics Review Blog
from Lars Syll One of the most important tasks of social sciences is to explain the events, processes, and structures that take place and act in society. However, the researcher cannot stop at this. As a consequence of the relations and connections that the researcher finds, a will and demand arise for critical reflection on…
It wasn’t just flawed forecasts, dishonesty has also hurt economists | Real-World Economics Review Blog
from Dean Baker Ben Casselman has an interesting piece in the New York Times about how economists have lost standing with both politicians and the public at large. While he attributes the profession’s problem to flawed forecasts and arcane language, I would argue the problems go much deeper. There has been a major lack of honesty in…
Understanding society via self-discovery | Real-World Economics Review Blog
Asad Zaman If “to know yourself is the beginning of wisdom,” then modern economics might well be the pinnacle of folly. Its foundational assumption—that human beings behave like homo economicus, selfishly pursuing wealth and pleasure—has been repeatedly disproven by empirical evidence. Worse, it would be unwise for real people to act in this way. The self-centered pursuit of…
The greater stagnation. Some stylized facts. | Real-World Economics Review Blog
For about 150 years, productivity, ideally defined as output per hour worked or, less precise, as output per employed person or job, increased. And increased. And increased. Wars? Plagues? Winters of discontent? Productivity either kept increasing or rebounded almost overnight. Not anymore. At least, not anymore in quite some countries. Italy was the first. But…
Welcome to 2025 | Real-World Economics Review Blog
from Peter Radford Welcome to 2025. The first year of Trump 2.0. It promises to be fun — as long as by “fun” we mean chaotic or unpredictable. The dilemma is clear from the torrent of material flooding our various commentariat avenues. Take Janan Ganesh in Thursday’s Financial Times. He has written one of his…
The Moon is a Perfect Square (and other Economic truths) | Real-World Economics Review Blog
from Rajani Kanth and WEA Pedagogy Blog I asked an Economist to explain the moon to me. Just to see what happens. He laughed. Easy, he said. Go on, I urged. Well, we have to first build a model, he said. Naturally, I said, Go ahead. And a model needs assumptions. Why not?, I laughed.…
Stock market and budget projections: Do the Numbers Add Up? | Real-World Economics Review Blog
from Dean Baker It’s been a while since we’ve had Mr. Arithmetic here, but with Donald Trump coming back to the White House, we may need him around. The immediate reason for consulting his expertise is the projections for big stock market gains in 2025. It seems the median forecast is for the S&P 500 to rise…
Debunking the balanced budget superstition | Real-World Economics Review Blog
from Lars Syll The balanced budget paradox is probably one of the most devastating phenomena haunting our economies. The harder politicians — usually on the advice of establishment economists — try to achieve balanced budgets for the public sector, the less likely they are to succeed in their endeavour. And the more the citizens have…
The ECB and the disastrous decline of the purchasing power of EU wages | Real-World Economics Review Blog
The European Central Bank (ECB) published, on December 18, 2024, a new ´wage tracker´ that tracks ´negotiated wages´. The index enables the ECB to understand the ´pressure´ of wages on the price level and to identify turning points. Methodologically, it is challenging to design such an index, and it is quite an accomplishment for the…
Understanding society via self-discovery | Real-World Economics Review Blog
from Asad Zaman If “to know yourself is the beginning of wisdom,” then modern economics might well be the pinnacle of folly. Its foundational assumption—that human beings behave like homo economicus, selfishly pursuing wealth and pleasure—has been repeatedly disproven by empirical evidence. Worse, it would be unwise for real people to act in this way. The self-centered pursuit…
A quick note on trade and inequality | Real-World Economics Review Blog
from Dean Baker Oren Cass, the head economist of Compass, had a column in the New York Times today touting Donald Trump’s proposed tariffs. The gist of the piece is that “free trade” has not worked out as economists’ textbooks promised and we should look to take a different path. As someone who was very critical of…
How inequality causes financial crises | Real-World Economics Review Blog
from Lars Syll One way that inequality precipitates debt bubbles begins with “relative deprivation.” This concept concerns the discontent people feel when they compare their socio-economic status, measured by income, wealth, consumption, or other indicators of perceived economic welfare, with that of their richer counterparts. Economists have suggested several ways that this discontent may translate…
Christmas thoughts about counting the dead in zones of armed conflict. | Real-World Economics Review Blog
In those days Caesar Augustus issued a decree that a census should be taken of the entire Roman world. (This was the first census that took place while Quirinius was governor of Syria.) And everyone went to their own town to register. Luke 1:3 (as will turn out below, this quote is not frivolous) Summary.…
Mainstream distribution myths | Real-World Economics Review Blog
from Lars Syll Pretending that the distribution of income and wealth that results from a long set of policy decisions is somehow the natural workings of the market is not a serious position … Pretending that distributional outcomes are just the workings of the market is convenient for any beneficiaries of this inequality, even those…
Health insurance killing: Economics does have something to say | Real-World Economics Review Blog
from Dean Baker I’m not one to generally tout the wisdom of the economics discipline, but it actually does offer some useful insights into the likely motive for the murder of Brian Thompson, the CEO of United Healthcare (UHC). According to media accounts, the suspect, Luigi Mangione, was angered by his own and others’ experiences…
Debunking mathematical economics | Real-World Economics Review Blog
from Lars Syll It is a great fault of symbolic pseudo-mathematical methods of formalising a system of economic analysis … that they expressly assume strict independence between the factors involved and lose all their cogency and authority if this hypothesis is disallowed; whereas, in ordinary discourse, where we are not blindly manipulating but know all…
´Extra Unordinarily Persistent Large Otput Gaps´ (EU-PLOGs) | Real-World Economics Review Blog
A PLOG is a ´Persistent Large Output Gap´. Read: a long period of high unemployment. Literature about PLOGs tries to mitigate one of the ideas of economic orthodoxy, especially the unsubstantiated idea that lowering high post-economic crisis unemployment will fuel inflation. According to this literature, which is quite empirical, it doesn´t. However, this somewhat older…
The Geology of Economics? | Real-World Economics Review Blog
from Peter Radford This is something I need to get off my desktop. It’s just for fun … Asymmetry is the very beginning and end of an economy. It’s the bumps that matter. Explain them and you explain the economy. After all the very notion of exchange presumes differences between those involved, and difference is…
Money for beginners | Real-World Economics Review Blog
from Lars Syll Economists have sometimes misled us with their belief that it is their job to tell “white lies” to scare the population into “behaving themselves.” We think that is the wrong approach. This book trusts you, the reader, with that truth. We trust you to do what you can to spread the truth…
new issue of RWER | Real-World Economics Review Blog
real-world economics review issue no. 109 download whole issue Culture - the elephant in the roomHardy Hanappi 22 The capitalization of everythingShimshon Bichler and Jonathan Nitzan 18 From the Bretton Woods system to global stagnationLeon Podkaminer 29 The role of internetization in creating sustainable development for the Global SouthConstantine E. Passaris 35 The works of Ha-Joon ChangJunaid B. Jahangir 56 A critique of Saito’s Slow…
Capitalism and Democracy: The market is far more flexible than Christopher Caldwell imagines | Real-World Economics Review Blog
from Dean Baker New York Times columnist Christopher Caldwell devoted his Thanksgiving piece to describing the German sociologist Wolfgang Streeck’s views on capitalism and democracy. I have not read much of Streeck’s work, but as recounted by Caldwell, he gets many of the basic facts about the U.S. economy badly wrong. According to Caldwell’s account, capitalists were…
More ´Natural rate of unemployment´ busting, bad measurement edition. | Real-World Economics Review Blog
The ´natural rate of unemployment´, also called ´Non-Accelerating Inflation Rate of Unemployment´ (NAIRU) or ´Non-Accelerating Wage Rate of Unemployment´ (NAWRU), is as, on this blog, Lars Syll states (here and here), a dangerous tool. According to NAIRU/NAWRU theory, a) When unemployment falls below a certain threshold, an inexorable increase in inflation will start. This is…
Busting the ‘natural rate of unemployment’ myth | Real-World Economics Review Blog
from Lars Syll Sixty years ago Milton Friedman wrote an (in)famous article arguing that (1) the natural rate of unemployment was independent of monetary policy and that (2) trying to keep the unemployment rate below the natural rate would only give rise to higher and higher inflation. The hypothesis has always been controversial, and much…
The political economy of estimating productivity. | Real-World Economics Review Blog
Who decides what statistical offices measure and how they measure it? And what are the implicit values embedded in these decisions? Recently, the ILO issued a new manual on measuring productivity. Below, I´ll discuss the questions posed. But for starters, it is essential to realize that economists measure monetary productivity, not physical productivity, which leads…
Peak babies has been. Young men are not expendable, anymore. | Real-World Economics Review Blog
Peak Babies was in 2012. At this moment, we´re back to the level of forty years ago (and the most recent data may well be an overestimate). For the first time in centuries, cohorts entering the global labour market will soon be smaller than the cohorts preceding them. Even when there are significant differences in…
Monetary developments in the Euro Area, september 2024. Quiet. | Real-World Economics Review Blog
Like John Stuart Mill, I´m more interested in credit than in money. Developments in the amount of credit provided are much more instructive to the economist than data on money. Look at the graph below (no. 2 in the ECB press release) , a highly Post-Keynesian graph that originated from the pre-Euro Bundesbank and is…
NAIRU — a harmful fairy tale | Real-World Economics Review Blog
from Lars Syll The NAIRU story has always had a very clear policy implication — attempts to promote full employment are doomed to fail since governments and central banks can’t push unemployment below the critical NAIRU threshold without causing harmful runaway inflation. Although a lot of mainstream economists and politicians have a touching faith in…
Superinflation in Milei´s Argentina | Real-World Economics Review Blog
Hyperinflation is defined as over 50% inflation per month. Let´s define ´normal´ inflation as anything between 0 and 1% per month and anything between 1 and 50% per month as superinflation (1% a month is still a lot, yearly!). Before President Milei, Argentina already knew superinflation. After Milei, inflation accelerated, and the country almost entered…
Election: Take Four | Real-World Economics Review Blog
from Peter Radford Take four. I continue to listen in on the conversation. The election reverberates loudly around leftish circles. Recriminations mount. Criticisms fly. Finger pointing and over-analysis have become all too common. And this is after just a week. Imagine what a month can produce. So far the central narrative seems to be that…