RealWorldEconomicsReviewBlog

Fromyournominationsoverthepastmonth,ashortlistof50bookshasbeencomplied.Thepollwill
remainopenfortwoweeks.Youmayvotefortenbooks.Thebooksarelistedinalphabeticalorderby
authoronyourballotbelow.Readmore

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Remembertheoldtimes?HereisaquotefromECBPresidentJeanClaudeTrichetonSeptember
3rd,2010:
Weencourageallcountriestobeabsolutelydeterminedtogobacktoasustainablemodefortheir
fiscalpolicies,Trichetsaid,speakingaftertheECBratedecisiononThursday.Ourmessageisthe
sameforall,andwetrustthatitisabsolutelydecisivenotonlyforeachcountryindividually,butfor
prosperityofall.
Notbecauseitisanelementaryrecommendationtocareforyoursonsanddaughterandnot
overburdenthem,butbecauseitisgoodforconfidence,consumptionandinvestmenttoday.
Well,thinkagain.HereistheabstractofECBWorkingPaperno1770,March2015:
Weexplorehowfiscalconsolidationsaffectprivatesectorconfidence,apossiblechannelforthefiscal
transmissionthathasreceivedparticularattentionrecentlyasaresultofgovernmentsembarkingon
austeritytrajectoriesintheaftermathofthecrisisTheeffectsarestrongerforrevenuebased
measuresandwheninstitutionalarrangements,suchasfiscalrules,areweakConsumerconfidence
fallsaroundannouncementsofconsolidationmeasures,aneffectdrivenbyrevenuebasedmeasures.
Moreover,theeffectsaremostrelevantforEuropeancountrieswithweakinstitutionalarrangements,as
measuredbythetightnessoffiscalrulesorbudgetarytransparency.
Theconfidencefairyseemstohaveturnedintoaconfidencewitch.Onemorevictimofthecrisis.But
thisonewillnotbemissed.
Slavelabourisstillpartofsomeglobalvaluechains.Chocolateisanexample.Itcanbeshownand
measuredthatinsuchacasebutalsoinothercasesincreasesintradecanactuallylowerproductionand
incomeforcountrieslowerinthechain.Takecocoafarmerswhoareforcedtouseextensiveimported
inputs.Butcantradehoweveralsobebeneficialforsuppliers?Alternativesarepossible.Chocolonelyan
extremist,perfectionist,consumerandproducerorientedaswellhighlysuccesfulproducerofslavefree
chocolatetriestoshowthisispossible.Usingthelatestproductiontechnologyandmarketinggimmicks.
Fromtheannualreport(whichcontainsmuch,muchmoreinformationwhich,bytheway,makesyoudoubt
thewisdomofTTIPtreaties):

Principle:Followthecocoabean
Traceabilityisanessentialstepinordertogeneraterealandlastingimpact.Almostnochocolatebrand
inthesupermarketknowsexactlywhere,howandbywhomtheircocoaisproduced.Andthatscrazy,
becauseitholdstrueforthevastmajorityofcertifiedandsustainablecocoa.Readmore

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fromAsadZamanandtheWEAPedagogyBlog
AwellknownhistorianandphilosopherofsciencePierreDuhemreflectsthetypicalEurocentricattitude:
ThereisnoArabianscience.ThewisemenofMohammedanismwerefaithfuldisciplesoftheGreeks,
(and)destituteofalloriginality.Itisamazinghowprejudicecanblindhistorianstothevastoriginal
Islamiccontributionstomathematics,medicine,chemistry,optics,astronomy,aswellasawiderangeof
technologicaldevelopments.Incontrast,BriffaultinTheMakingofHumanity,writesthatThe
experimentalmethodofArabswasbyBaconstimewidespreadthroughoutEurope.Scienceisthemost
momentouscontributionofArabcivilizationtothemodernworld.Ourfocusinthisessayisnotonthe
injustice,butonthemisunderstandingofsciencethatresultspartlyfromminimizingtheMuslim
contributions.
Byastrangeparadox,whiletheaccomplishmentsofmodernsciencearebrightasthesun,philosophical
attemptstounderstandthenatureofscienceandthescientificmethodremindusoftheparableofthe
blindmenandtheelephant.Differentschoolsofthoughtcontendwitheachother,andeachschoolhasa
fragmentofthetruth,butthereisnocoherentoverallpicture,andmassiveconfusionprevails.readmore

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ViaJuneSekeraandthePublicGoodsPostwebsite(seealsobelow).ThispostisofcourseUSA
centered,butIllbegladtoputupcomparablepostsforothercountries.Ideasanybody?
The2016SamuelJ.HeymanServicetoAmericaMedalfinalistswereannouncedthismonth.As
describedrecentlyinTheWashingtonPost,thesemedalshonorcivilservantswhohaveperformed
breakthroughworkinthepublicsector,resolvingformidablechallengestopublicwellbeing.Youare
likelyfamiliarwiththesechallenges.Especiallyastheyimpactpublichealthandtheenvironment,they
havemadenationalheadlines.Butyouprobablyhavenotheardabouthowaproblemwassolvedora
publicneedmet,becausesolutionsarenotconsiderednewsworthy.Formanyofthepublicworkerson
thislist,theircontributionsarebeingrecognizedforthefirsttime..
SELECTED2016FINALISTS
Dr.BurkeHealeyDepartmentofAgriculture
HaltedthespreadofthelargestanimaldiseaseoutbreakinU.S.history,anavianinfluenzavirusthat
threatenedhumanhealth,thepoultryindustryandthejobsof1.8millionpeople.

ThomasA.Mariani,Jr.,StevenORourke,SarahHimmelhochDepartmentofJustice
Securedarecord$20.8billionlegalsettlementagainstBPReadmore

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fromDavidRuccio
JosephStiglitzusefullyexplainsthattheresmorethanonetheoryofthedistributionofincome.One
theory,hewrites,focusesoncompetitivemarkets(accordingtowhichfactorsofproductionreceivetheir
marginalcontributionstoproduction,thejustdesertsofcapitalism)theother,onpower(includingthe
abilitytoexercisemonopolycontrolor,inlabormarkets,toassertauthorityoverworkers).
IntheWestinthepostWorldWarIIera,theliberalschoolofthoughthasdominated.Yet,asinequalityhas
widenedandconcernsaboutithavegrown,thecompetitiveschool,viewingindividualreturnsintermsof
marginalproduct,hasbecomeincreasinglyunabletoexplainhowtheeconomyworks.So,today,the
secondschoolofthoughtisascendant.
IthinkStiglitzisright:withtheobscenelevelsofinequalityweveseenemergeoverthecourseofthepast
fourdecades,thenotionofjustdesertsisbeingcalledintoquestion,therebycreatingspaceforother
theoriesofthedistributionofincometoberecognized.
TheonlymajorproblemwithStiglitzsaccountisheleavesoutathirdpossibility,anapproachthat
combinesafocusonmarketswithpower,thatis,aclassanalysisofthedistributionofincome.Read
more

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fromLarsSyll
Tinbergensresultscannotbejudgedbyordinarytestsofstatisticalsignificance.Thereasonisthatthe
variableswithwhichhewindsup,theparticularseriesmeasuringthesevariables,theleadsandlags,
andvariousotheraspectsoftheequationsbesidestheparticularvaluesoftheparameters(whichalone
canbetestedbytheusualstatisticaltechnique)havebeenselectedafteranextensiveprocessoftrial
anderrorbecausetheyyieldhighcoefficientsofcorrelation.Tinbergenisseldomsatisfiedwitha
correlationcoefficientlessthan0.98.Buttheseattractivecorrelationcoefficientscreatenopresumption
thattherelationshipstheydescribewillholdinthefuture.Themultipleregressionequationswhichyield
themaresimplytautologicalreformulationsofselectedeconomicdata.Takenatfacevalue,Tinbergens
workexplainstheerrorsinhisdatanolessthantheirrealmovementsforalthoughmanyoftheseries
employedinthestudywouldbeaccorded,evenbytheircompilers,amarginoferrorinexcessof5per
cent,Tinbergensequationsexplainwellover95percentoftheobservedvariation.
AsW.C.Mitchellputitsomeyearsago,acompetentstatistician,withsufficientclericalassistanceand

timeathiscommand,cantakealmostanypairoftimeseriesforagivenperiodandworktheminto
formswhichwillyieldcoefficientsofcorrelationexceeding.9.Soworkof[this]sortmustbe
judged,notbythecoefficientsofcorrelationobtainedwithintheperiodsforwhichtheyhave
manipulatedthedata,butbythecoefficientswhichtheygetinearlierorlaterperiodstowhichtheir
formulasmaybeapplied.ButTinbergenmakesnoattempttodeterminewhetherhisequationsagree
withdataotherthanthosewhichtheytranslate
ThemethodsusedbyTinbergendonotandcannotprovideanempiricallytestedexplanationof
businesscyclemovements.
fromDeanBaker
TheminutesfromthemostrecentFederalReserveBoardOpenMarketCommittee(FOMC)meeting
indicatethatmanyofitsmembersareanxioustomoveforwardwithmoreinterestratehikes.Thenexthit
couldcomeassoonasJune.Thisshouldhavethecountryveryworried.
Justforsomebasicorientation,thepointofraisinginterestratesistoslowtheeconomyandkeepitfrom
creatingtoomanyjobs.ThemembersoftheFOMCareworriedthatthelabormarketisbecomingtoo
tight,withtheunemploymentratefallingtoolow.Thiswouldgiveworkersmorebargainingpower,allowing
themtogetlargerwagegains,whichcouldbepassedoninhigherprices,kickingoffaninflationaryspiral.
Ifthatdoesntsoundliketheeconomyyousee,thenitsprobablybecauseyouhaveabetterideaofthe
datathanthefolksattheFOMC.
Startingatthebasics,bymanymeasuresthelabormarketisstillfarfromrecoveringtoitsprerecession
level,inspiteofarecoverythatwillsoonbeenteringitseighthyear.Mostnotablytheemploymentto
populationratio(EPOP),whichisthepercentageofadultswithjobs,isstillmorethan3percentagepoints
belowitsprerecessionlevel.Readmore

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fromMariaAlejandraMadi
TheWEAOnlineConferencesformat,designedbyEdwardFullbrookandGraziaIettoGillies,makesfull
useofthedigitaltechnologiesinthepursuitofthecommitmentsincludedintheWorldEconomics
AssociationManifesto:plurality,competence,realityandrelevance,diversity,openness,outreach,ethical
conduct,andglobaldemocracy.TheWEAOnlineConferencesseektoalsoengagegraduateand
undergraduatestudentsconsidering:(a)thevarietyoftheoreticalperspectives(b)therangeofhuman
activitiesandissueswhichfallwithinthebroaddomainofeconomicsand(c)thestudyoftheworlds
diverseeconomies.
ThecurrentconferenceisCAPITALACCUMULATION,PRODUCTIONANDEMPLOYMENT:CanWe
BendtheArcofGlobalCapitalTowardJustice?ItisbeingledbydistinguishedprofessorsGerson

LimaandJackReardon.Thisconferencefocusesonvariousaspectsofglobalaccumulation,production
andemploymentfromabroaderperspectiveofexaminingtheirinterlinkageswithothereconomic,social,
andpoliticalprocesses.Concernswithsocialinclusionextendwellbeyondpurelyeconomicaccountof
justiceandfairness,sincethedegreeofeconomicinequalityalsoaffectssocialcohesionandpolitical
stability,andcanalsohavenegativeimplicationsforeconomicgrowthanddemocraticinstitutions.
Consideringthecurrentsocialandeconomicchallenges,PeterRadfordhassuggestedtheneedto
constraincapitalandmakeitworkforallpeople.Inhisownwords:Wecanbendthearcofcapitalismto
ourwillifwewish.
Intruth,thisconferencecallsforadeepexaminationofcurrentpower,politicsandeconomicsinasocial
contextwheredemocraticinstitutionsarebeingthreatened.readmore

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fromHaJoonChang
ItsbeingblamedontheBrexitjitters.Butthethatthelatestfiguresrevealisactuallyasymptomofamuch
deepermalaise.Britainhasneverproperlyrecoveredfromthe.Attheendof2015,inflationadjusted
incomepercapitaintheUKwasonly0.2%higherthanits2007peak.Thistranslatesintoanannual
growthrateof0.025%peryear.Howpatheticthisperformanceiscanbeputintoperspectivebyrecalling
thatJapanspercapitaincomeduringitssocalledlosttwodecadesbetween1990and2010grewat1%
ayear.
Attherootofthisinabilitytostagearealrecoveryistheseriousimbalancethathasdevelopedinthepast
fewdecadesnamely,theoverdevelopmentoftheUKfinancialsectorandtheatrophyofmanufacturing.
Rightafterthe2008financialcrisistherewasawidespreadrecognitionthattheballooningfinancialsector
neededtobereinedin.EvenGeorgeOsbornetalkedexcitedlyforawhileaboutthemarchofthe
makers.Thatmarchnevermaterialised,however,andmanufacturingsshareofGDPhasstagnatedat
around10%.Readmore

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fromAsadZamanandtheWEAPedagogBlog
{Continuationofpreviouspost:MisconceivedProjectofSocialScience}
WEAPedagogyBlog|Wewelcomepostsaboutyourexperiencesandsuggestionsonteachingand
learningeconomics,withastrongfocusonmethodsleadingtodeepunderstandingofcurrentrealworld
economicissues.
Historicalaccidentshaveshroudedtheemergenceofscienceandthescientificmethodbehindmultiple
veilsofmystery.Misunderstandingthenatureofsciencehasledtoseriouslydefectivemethodologiesin
modernsocialscience,especiallyeconomics.ThefirstbarriertounderstandingiscreatedbyEurocentric

historywhichstatesthatrootsofmodernsciencesoriginatewiththeGreeks.Accordingtothisaccount,the
MuslimspreservedGreekknowledge,andpasseditontoEurope,withoutmakinganysignificant
improvements.TheEuropeanstookupthemantleoftheirGreekancestorsandhavesincemadefantastic
progress.ThemyththatEuropeansareuniqueintheircapacityforrationalandscientificthoughthas
beendebunkedeffectivelybymanyhistorians,notablyBlautinEightEurocentricHistorians.
Nonetheless,theseideashavebeenwidelypropagated,andpermeatepublicconsciousness.readmore

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fromLarsSyll
PaulKrugmanhasoftenbeencriticizedbypeoplelikeyourstrulyforgettingthingsprettywrongonthe
economicsofJohnMaynardKeynes.
WhenKrugmanhasrespondedtothecritique,byhimselfrathergratuitouslyportrayedasaboutwhat
Keynesreallymeant,theoverallconclusionisKrugmandoesntcare.
Respondingtoapostuphereontheblog,Krugmanwrites:
Surelywedontwanttodoeconomicsviatextualanalysisofthemasters.Thequestionsoneshouldask
aboutanyeconomicapproacharewhetherithelpsusunderstandwhatsgoingon,andwhetherit
providesusefulguidancefordecisions.
SoIdontcarewhetherHicksianISLMisKeynesianinthesensethatKeyneshimselfwouldhave
approvedofit,andneithershouldyou.
ThereasonforthisratherdebonairattitudeseemstobethathistoryofeconomicthoughtmaybeOK,but
whatreallycountsisifreadingKeynesgivesbirthtonewandinterestinginsightsandideas.
Noseriouseconomistwouldquestionthatexplainingandunderstandingwhatsgoingoninour
economiesisthemostimportanttaskeconomistscansetthemselvesbutitisnottheonlytask.Andto
compareonesfavouriteeconomicgadgetmodeltowhatausteriansandothermadmenfromChicago
haveconjuredup,well,thatslikeplayingtenniswiththenetsdown,andwehavetohavehigher
aspirationsasscientists.Readmore

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ThiscommentfromourRobertLockewaspostedafewminutesago.
Edwardandcolleagues,ifyouwanttoknowwhyRanaForooharsubscribedtotherwerandtookalot
ofinterestinourgroup,readthefollowingemailexchangebetweenmeandher:
OnMay17,2016,at5:19PM,RobertLockewrote:

Touchingbases.Sometimeagowecorrespondedaboutthestateofeconomics.Doyouremember?I
thinkIadvisedyouthentomakesurethatyoulookatthedissidenteconomists,likethosewritingforthe
RealWorldEconomicReview,andnotjustatorthodoxeconomists,andIampleasedtoseefromyour
book,thatyourespondedtothisoldprofessorsadvice.Hurrah!
RobertLocke
Foroohar,RanaTimeU.S.
6:59AM(3hoursago)
tome
Icertainlydid!Andinfactyouarementionedinthelovenotes(akaacknowledgements)andfootnotes.
Youwereakeypartofthebirthofthisbook,whichhadalreadyreachednumber17ontheamazonkist
afterdayone.ThankyouforsharingyourknowledgeandIhopewegettomeetinpersonatsome
point!BestR

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fromSteveKeen
CERNhasjustannouncedthediscoveryofanewparticle,calledtheFERIR.
ThisisnotafundamentalparticleofmatterliketheHiggsBoson,butaninventionofeconomists.CERNin
thisinstancestandsnotforthefamousparticleacceleratorstraddlingtheFrenchandSwissborders,but
foraneconomicresearchlabatMITwhoseinitialsarecoincidentallythesameasthoseofitsfarmore
famouscousin.
Despiteitsrelativeanonymity,MITsCERNisfarmoreimportantthanitsphysicalnamesake.Thelatter
merelyinformsusaboutthefundamentalnatureoftheuniverse.MITsCERN,ontheotherhand,shapes
ourlivestoday,becausethediscoveriesitmakesdramaticallyaffecteconomicpolicy.
CERN,whichinthiscasestandsforCrazyEconomicRationalizationsforaNomalies,hasdiscovered
manyimportantsubeconomicparticlesinthepast,withitsmostfamousdiscoverytodatebeing
theNAIRU,orNonAcceleratingInflationRateofUnemployment.Todaysnewlydiscoveredparticle,
theFERIR,orFullEmploymentRealInterestRate,istheantiparticleoftheNAIRU.Readmore

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fromEdwardFullbrook
AfewyearsagoItookoutasubscriptiontoTimemagazine,notbecauseIwantedtoreaditsweekly
versionofthenews,butbecauseitprovidedmewithongoingaccesstothemagazinesdigitalarchives

whichIneededforalongtermwritingproject.SoeverySaturdaythemagazinewithitsiconiccovers
founditswayintomyhome.Initiallymostissuesendedupintherecyclingboxwiththeirtransparent
plasticenvelopesunremoved.Butsometimeswhilewaitingforthekettletoboil,lwouldunwrapandleaf
throughanissue,andthenittookmeafewmonthsIbecameawarethattherewasanunexpectedand
admirabledimensiontotodaysTime.Ithasaname:RanaForoohar.ShewasandisTimeseconomics
editor,andthankstoherreportagemycopiesofTimearenolongerrecycledstillwrapped.

TimeMagazineisofcoursebothtraditionalandconventional,butwhenitcomestoeconomicsForooharis
neither.IntermsofEcon101sarticlesoffaith,bothForooharsselectionofsignificantfactsandher
analysisofthemarefrequentlyprofane.ReadingForoohar,Iwasrepeatedlysurprisedtofindmyself
remindedofbooksandpapersbyMichaelHudson,SteveKeen,JamesGalbraith,EmmanuelSaezand
otherRWERcontributors.ButasItendtobeslowaboutsuchthings,sixmonthspassedbeforethepenny
droppedandIthoughttochecktheRealWorldEconomicsReviewsubscriberlist.Sureenough,Rana
Forooharwasasubscriber.Readmore

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fromDeanBaker
ManypeoplemightthinkthatDonaldTrumpcanonlyteachthecountryhowtooffendwomen,African
AmericansandarangeofnonEuropeanethnicgroups.Whilethatmaybehisareaofexpertise,itseems
thathisrantsondealingwithdebtmayactuallyprovideateachablemoment.Asaresult,thecountry,and
possiblyeventhepolicyelites,maygetabetterunderstandingofwhenandhowdebtcanposeaproblem.
Trumpfirstraisedthedebtissueacoupleofweeksagowhenheimpliedthataspresidenthewould
negotiatediscountsonUSdebtjustlikehedidwithmanyofhisbusinessesthatfacedbankruptcy.Inthose
cases,Trumpcouldtellhiscreditorsthatiftheydidntmakeconcessions,likeaccepting50centsoneach
dollarofdebt,thenhewouldgointobankruptcy.IfaTrumpbusinesswentintobankruptcy,thecreditors
mighthavetowaityearstogetanythingandmayendupwithmuchlessthanthediscountTrump
proposed.Readmore

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AsadZaman

StatisticalFoundationsforEconometricTechniques

C.T.Kurien

WealthandIllfare:AnExpeditionthroughRealLifeEconomics

RobertLocke
AppreciatingMentalCapital:WhatandWhoEconomistsShouldAlsoStudy

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RWERBoardofEditors
NicolaAcocella(Italy,UniversityofRome)RobertCostanza(USA,PortlandStateUniversity)Wolfgang
Drechsler(Estonia,TallinnUniversityofTechnology)KevinGallagher(USA,BostonUniversity)JoMarie
Griesgraber(USA,NewRulesforGlobalFinanceCoalition)BernardGuerrien(France,UniversitParis1
PanthonSorbonne)MichaelHudson(USA,UniversityofMissouriatKansasCity)FredericS.Lee(USA,
UniversityofMissouriatKansasCity)AnneMayhew(USA,UniversityofTennessee)GustavoMarqus
(Argentina,UniversidaddeBuenosAires)JulieA.Nelson(USA,UniversityofMassachusetts,Boston)Paul
Ormerod(UK,VolterraConsulting)RichardParker(USA,HarvardUniversity)AnnPettifor(UK,Policy
ResearchinMacroeconomics)AliciaPuyana(Mexico,LatinAmericanSchoolofSocialSciences)Jacques
Sapir(France,coledeshautestudesensciencessocials)PeterSderbaum(Sweden,Schoolof
SustainableDevelopmentofSocietyandTechnology)PeterRadford(USA,TheRadfordFreePress)
DavidRuccio(USA,NotreDameUniversity)ImmanuelWallerstein(USA,YaleUniversity)