Showing posts from November, 2013

The End of Endless Growth?

In my assigned role as the (anti) Thomas Robert Bannister (Malthus), I thought I would return to the blog after a far-too-long hiatus with this post to share recent work. Note that this work is the other main area of research beyond my dissertation interest of the role of energy revolutions in economic history. I'll return to that one given recent posts here, but for now:

This work asks many questions, the fundamental one being do we really need to radically change behaviours to attain zero growth, or, what do we really mean by zero growth?

The conditional answer is that our world can achieve zero total growth (in the expected lifetimes of some of us) while still having per-capita GDP growth. The key, wearing my anti-Malthus hat, is population-conditional. To introduce the topic, here is a figure from my model that shows GDP levels peak at about 2080. I think that is a very radical outcome, with many implications. It is based on several forecasts, including the current UN low popu…

Lars P. Syll On How to Get Away With Scientific Fraud With Economics Textbooks

By Lars P. Syll
As is well-known, Keynes used to criticize the more traditional economics for making the fallacy of composition, which basically consists of the false belief that the whole is nothing but the sum of its parts. Keynes argued that in the society and in the economy this was not the case, and that a fortiori an adequate analysis of society and economy couldn’t proceed by just adding up the acts and decisions of individuals. The whole is more than a sum of parts. This fact shows up already when orthodox – neoclassical – economics tries to argue for the existence of The Law of Demand – when the price of a commodity falls, the demand for it will increase – on the aggregate. Although it may be said that one succeeds in establishing The Law for single individuals it soon turned out – in the Sonnenschein-Mantel-Debreu theorem firmly established already in 1976 – that it wasn’t possible to extend The Law of Demand to apply on the market level, unless one made ridiculously unreal…

James Galbraith Lectures Peter Schiff About Fiat Money

A part of the video was previously posted here.

Marie Duggan on Steven Kates and the role of History of Economic Thought

Marie has reviewed Kates' recent book on the role of history of economic thought in what he correctly sees as a crisis in the profession. She tells us:
Steven Kates warns us that if the history of economic thought (HET) leaves the field of economics, economics will lose a good bit of its theoretical heart (p. 27). He makes this argument against two opposing straw men. The first is those who define an economist as someone who can apply sophisticated econometric techniques to data. The other is the view among HET practitioners that since HET has been shunted aside within economics by mathematics, the wise make allies with historians. He views this latter as dangerous to economics as a discipline: “The core issue is whether the subject area of the history of economic thought adds to the study of economics. The question is not whether there are a thousand other uses of HET” (p. 67).  This book acts as a wake-up call that practitioners in HET may have an honorable role to play in…

More on The Sociology of Development - Reposted by Hampton Institute

More on The Sociology of Development: Towards A Re-articulation of Dependency Theory see here. For the original post see here.

Crooks, Liars, Idiots, and Plutocrats: Again on the effects of the Debt Ceiling Limit

A modified and updated version of the previous post has been published in the last number of Dollars & Sense Magazine here. The main addition is a discussion of the 'solution' to the last crisis, and a very brief discussion of the brewing storm for early next year.
The Default Prevention Act of 2013, included in the continuing resolution, reinstated government funding at pre-shutdown levels through January 15, 2014, and authorized suspension of the debt limit through February 7, 2014, at which point we would be basically in the same situation we were in October. Under the agreement reached to end the shutdown and to avoid breaching the debt-ceiling limit, the House of Representatives and the Senate agreed to hold negotiations to reach an accord by December 13 on a plan for fiscal policy for the next ten years.

This is not very different from the previous debt-ceiling crisis in 2011, when the so-called “Super Committee” was charged with finding $1.5 trillion in savings ov…

Paul Davidson and the good old days for workers

Letter from Paul published in The Economist edition of November 2nd.
* SIR – “Labour pains” (November 2nd) pointed out that the share of wages in national income has fallen after being nearly constant for decades after the second world war. During the post-war decades the middle class prospered because of the full-employment policies started by Franklin Roosevelt and continued by both Democratic and Republican presidents and Conservative and Labour governments in Britain.

In this period the growth of union power, enshrined in legislation and policies, pursued the sharing of monopoly rents and profits of corporations with their workers. By the 1970s, however, the seeds were sown for the beginning of the end of middle-class prosperity. The anti-union policies of Ronald Reagan and Margaret Thatcher made it socially and politically popular to see unions as the villains in the economy. This was quickly supplemented by firms outsourcing to foreign countries where an hour’s worth of labour w…

Lars P. Syll: Krugman dismisses heterodox economics students

By Lars P. Syll
Paul Krugman today rides out — like his brother in arms, Simon Wren-Lewis — to defend mainstream economics. According to Krugman, yours truly and others of that ilk are wrong in blaming mainstream economics for not being relevant and not being able to foresee the crisis. To Krugman there is nothing wrong with “standard theory” and “economics textbooks.” If only policy makers and economists stick to “standard economic analysis” everything would be just fine. I’ll be dipped! If there’s anything the last five years have shown us, it is that economists have gone astray in their shed of tools. Krugman’s “standard theory” — neoclassical economics – has contributed to causing todays’s economic crisis rather than to solving it. [...] So now all you young economics students that want to see a real change in economics and the way it’s taught — now you know where you have Krugman & Co. If you really want something other than the same old neoclassical catechism, if you really …

The deep causes of the Great Divergence: or why China fell behind

In the last post, I suggested that Kenneth Chase's explanation of why China invented, but did not pursue the development of gunpowder and guns to its ultimate consequences, could be seen as the very deep cause of the so-called Big Divergence, i.e. of the rise to dominance by Western Europe. Chase explains the lack of interest in the development of firearms in China as the result of geographical conditions and how they affected warfare. He argues that two types of warfare developed after the invention of firearms.
"Where there were technologically advanced agrarianate societies that were not threatened by steppe or desert nomads, we find the combination of firearms and pikemen, with an emphasis upon infantry (western Europe, Japan). Where there were technologically advanced agrarianate societies that were threatened by steppe or desert nomads, we find the combination of firearms and wagons, with an emphasis upon cavalry (eastern Europe, the Middle East, India, north China).&q…

The Fiscal-Military State and Western Hegemony

An often neglected, at least in economics, argument for the rise of the West (leaving the debate of when the Big Divergence took place, if around 1800 or before, for another post), is its fiscal advantage when compared to the Oriental Empires (Mughal, Ottoman, Safavid and Qing). Patrick O'Brien, the prominent author of the idea of Western fiscal exceptionalism, suggests that the smaller and more urbanized polities of the West found it easier to tax their populations than the Eastern empires with more extensive territories, larger populations and less urbanized economies, even if the latter were in many respects more advanced than the former. The figure below shows that to some extent the Dutch dominance, and then the English ascension, go hand in hand with and increase of tax revenue as a share of GDP.
The figure shows only the Ottoman empire, at the bottom of the graph, as a comparison to the Western economies, but it gives a sense of the stark differences after the mid-17th cen…

Dean and Cole vs. Crafts on the Industrial Revolution

My understanding of the debate on how fast, or revolutionary if you prefer (Rondo Cameron suggested it shouldn't be called a Revolution), was the Industrial Revolution is that a lot hinges on how much weight one puts on the cotton sector, in which most of the increase in productivity and growth took place in the early stages. Dean and Cole (review here) presented the traditional notion of a relatively fast growing economy, while Crafts and Harley argued for a gradualist transformation in which only a few sectors grew fast (cotton, iron and transportation) and the transformations were slow at best. The graph below by Wrigley shows nicely the difference in both views.
Note that Wrigley assumes that the estimates for GNP and GNP per head for the early 1830s are accurate, hence the differences in rates of growth imply diverse initial levels. Wrigley does not challenge the consensus view that is increasingly dominated by Crafts and Harley's numbers, but the graph below, also from …

More on The Sociology of Development: Towards A Re-articulation of Dependency Theory

The sociology of development as a field of study, a structure of knowledge, providing an interpretive grid through which to render impoverished regions of the world intelligible has its roots after the completion of Second World War with the crystallization of ‘Modernization theory', which constituted an ideation that societies are understood to move from social positions of tradition to modernity polar ends of an evolutionary continuum. At some point, incremental changes give way to a qualitative jump into modernity, marked by the essence of industrialism. In this sense, the Third world is perceived to be below the threshold of modernity, with a preponderance of traditional-like features such as an extended kinship social structure and, due to the lack of progress towards political differentiations, similar to that of Western forms of democratization, strict hierarchical sources of authority, altogether negating the possibilities to move beyond disintegrated autarkic primary eco…

Lars Syll on Loanable Funds Theory

By Lars Syll
The classical theory of the rate of interest [the loanable funds theory] seems to suppose that, if the demand curve for capital shifts or if the curve relating the rate of interest to the amounts saved out of a given income shifts or if both these curves shift, the new rate of interest will be given by the point of intersection of the new positions of the two curves. But this is a nonsense theory. For the assumption that income is constant is inconsistent with the assumption that these two curves can shift independently of one another. If either of them shift, then, in general, income will change; with the result that the whole schematism based on the assumption of a given income breaks down … In truth, the classical theory has not been alive to the relevance of changes in the level of income or to the possibility of the level of income being actually a function of the rate of the investment.

There are always (at least) two parts in an economic transaction. Savers and in…

Economic History blog dedicates space to the Great Depression

Echoes is an Economic History blog worth visiting. Here Philip Scranton's take on the early phase of the recovery and how FDR and the often forgotten Hugh Johnson wanted a wage-led recovery. As in earlier economic recoveries, in 1933, U.S. production began increasing more quickly than workers could find jobs. A 50 percent increase in industrial output from March to July generated just 14 percent more factory employment. With orders rising, manufacturers commonly extended current employees’ weekly hours instead of rehiring those who had been laid off.

Hugh "Iron Pants" Johnson, director of the National Recovery Administration, focused on closing this gap as President Franklin D. Roosevelt's first 100 days in office came to an end in June. The purpose of the National Industrial Recovery Act was simple: "Wages are to be increased and hours of work curtailed in order to distribute more widely the available employment," according to the Economist.

"The Admin…

Central Banking in Historical Perspective

The whole talk here. I posted before about it, but there was no link to the talk back then. And yes do NOT read Hayek. It's a waste of time.

Academics back students in protests against economics dogma

From The Guardian: A prominent group of academic economists have backed student protests against neo-classical economics teaching, increasing the pressure on top universities to reform courses that critics argue are dominated by free market theories that ignore the impact of financial crises.The academics from some of the UK's most prestigious institutions, including Cambridge and Leeds universities, said students were being short-changed by their courses, and they accused higher education funding bodies of being a barrier to reforms.In a startling attack on the agencies that provide teaching and research grants, they said an "intellectual monoculture" is reinforced by a system of state funding based on journal rankings "that are heavily biased in favour of orthodoxy and against intellectual diversity".Read rest here.

It’s the System Stupid!

By Hans Despain
On Thursday, December 13, 2012, The Guardian announced Queen Elizabeth finally received an answer to her question—“Did nobody see this coming?”—about the 2008 financial crisis.1 While she was touring the Bank of England, Sujit Kapadia, one of the bank’s economists, informed Her Majesty that financial crises are a bit like earthquakes and flu pandemics: rare and difficult to predict. An impressive answer indeed. Brilliant for its vagueness, spuriousness, and obtuseness.  However, Kapadia is simply wrong not to have explained that many economists, financiers, and regulators anticipated and predicted the financial collapse. Additionally, metaphors of natural disasters are highly misleading. Financial crises are not inevitable occurrences, but historical, human-created, and contingent phenomena. Her Majesty had asked: “Did nobody see this coming?” Perhaps she could have also asked three more questions: Does nobody see the suffering and socioeconomic injustices of oligopol…

Steve Pressman on the origins of the Review of Political Economy (ROPE)

Of particular is Steve's discussion of the scope of the journal, and why it became dedicated to the old political economy tradition. In his words:
Someone suggested that we broaden the scope of the new journal. A first thought was to add institutional economics. I had long been an admirer of John Kenneth Galbraith, someone who bridged the gap between Post Keynesian and institutionalist thought, and supported the suggestion. Geoff Hodgson, who was there and slated to be the Book Review Editor of the new journal, had a strong institutional bent (Hodgson, 1988) and also supported this idea. Such a journal would overlap with both the JPKE and theJournal of Economic Issues to some extent. This suggestion had the benefit of not stepping on anyone's toes. It would provide authors with an opportunity to explore similarities and differences between these two schools of thought as well as to publish papers taking either perspective or criticizing either perspective. Still, there was co…