economic theory

What does the future hold for capitalism?

“Since the financial crisis in 2008 there has been both a growing sense of hope and despair amongst progressive civil society that global neoliberal capitalism is finally unravelling. The atmosphere is somewhat like the late 1980s/early 1990s … There is serious concern around a changing geopolitical order—not only the rise of China, India, Brazil on the global economic stage but also the experiences of Ecuador and Bolivia in Latin America, the Arab revolutions and the rise of the Occupy movements. There is a questioning of systemic faults in economic thinking and practice in the wake of the interlocked crises of food, climate and finance, as well as the equally intertwined though far less visible global crisis of care work. There is a search for new value systems responding to today’s realities that current global political and economic institutions are failing to understand and govern.”

The future of capitalism: a consideration of alternatives”, recently published in Cambridge Journal of Economics, looks at alternative visions for a different world order based on the values of ecological, gender, and social justice. These alternatives to neoliberal capitalism are based on the experiences of networks of people in different places around the world seeking to imagine how to move to a more sustainable, harmonious, liveable, and just world order. The paper is included in the special issue, “Contemporary capitalism and progressive political economics”, and is free to read online until March, 2015.

Image: ‘We are the 99%’ by lindscars via iStock Photo.

Economists are self-confident, regularly wrong, with masturbatory quality arguments - admits Columbia economics professor.

From the horse’s mouth.

“My gripe with economists is not that their models don’t work well – they don’t, look at the role of central banks in the financial crisis – but that they seem so reluctant to acknowledge the riskiness of their advice… As a result their public arguments have an incestuous yet masturbatory quality that is exhausting to follow. The only field more self-confidently but just as regularly wrong as economics is nutrition, whose recommendations to shun butter/margarine or red meat/carbohydrates regularly reverse themselves. Natural scientists […] at least can more or less agree about truth and efficacy. Economists cannot, except by using statistical regressions which are often flawed and prove little.” (Emanuel Derman, Economics Professor at Columbia University)

See here more economists sincere quotes on economics. Be ready to be surprised – actually, not so much :-)

Considerations on
in Latin America

by Claudio Katz

In recent years, exponents of radical thought have formulated deep criticisms of developmental theories, questioning extraction and growth-at-any-cost models. They have especially underlined the devastating effects of agro-export and open-pit mining in Latin America.

Both of these activities constitute central pillars of the regressive economic policies implemented in the second half of the 1980s. This pattern of accumulation reinforces the region’s dependent condition and its peripheral (or semi-peripheral) insertion into the international division of labor. It consolidates the dispossession of the majority of the population, reinforces unemployment, and favors those businesses that profit from making labor more and more precarious.

The ongoing depredation of the environment reinforces innumerable social conflicts. Many opponents of development actively participate in popular resistance against plundering the subsoil, desertification, the destruction of rainforests, and the disappearance of woodlands, offering detailed denunciations of the consequences of this destruction. Popular mobilizations to preserve natural resources have largely begun in earnest over the course of the last five years. Roughly one-third of social movement actions have been related to the environment, and in 2012 alone, more than 184 confrontations of this type were recorded in the region. Five of these protests achieved cross-border dimensions.

Criticism of extractive policies has been offered from a wide variety of ideological positions. Some theorists question the disasters based on a reformist point of view, promoting stricter regulations from the state. Others see the deterioration of the environment from a Marxist perspective, as a side effect of competition for profits arising from exploitation. A third group of authors postulate postdevelopmental ideas.

Objections to development

Many critics in the fight against extractive policies utilize the generic term “postdevelopment.” They identify this concept with an alternative project opposed to the current model of accumulation that comes at a cost to nature. But from the beginning of the 1990s, this notion also carries a different connotation, questioning all concepts of development. ….

Read on at:-


Whether it was Descartes’s scientific approach to perceiving the world, Bernard Mandeville’s theory of the invisible hand, John Locke's defense of property rights, David Hume’s contribution to economic anthropology, or Adam Smith’s idea of a basic social principle of sympathy, these five economic philosophers all shaped the way we view the world today

Images credit: Public domain via Wikimedia
Big Mac Index

The Big Mac Index is published by The Economist as an informal way of measuring the purchasing power parity (PPP) between two currencies and provides a test of the extent to which market exchange rates result in goods costing the same in different countries. It “seeks to make exchange-rate theory a bit more digestible”. (via defrost)
On the Invention of Money – Notes on Sex, Adventure, Monomaniacal Sociopathy and the True Function of Economics | David Graeber

Economists always ask us to ‘imagine’ how things must have worked before the advent of money. What [anthropological] examples bring home more than anything else is just how limited their imaginations really are. When one is dealing with a world unfamiliar with money and markets, even on those rare occasions when strangers did meet explicitly in order to exchange goods, they are rarely thinking exclusively about the value of the goods. This not only demonstrates that the Homo Oeconomicus which lies at the basis of all the theorems and equations that purports to render economics a science, is not only an almost impossibly boring person—basically, a monomaniacal sociopath who can wander through an orgy thinking only about marginal rates of return—but that what economists are basically doing in telling the myth of barter, is taking a kind of behavior that is only really possible after the invention of money and markets and then projecting it backwards as the purported reason for the invention of money and markets themselves. Logically, this makes about as much sense as saying that the game of chess was invented to allow people to fulfill a pre-existing desire to checkmate their opponent’s king.

* * *

At this point, it’s easier to understand why economists feel so defensive about challenges to the Myth of Barter, and why they keep telling the same old story even though most of them know it isn’t true. If what they are really describing is not how we ‘naturally’ behave but rather how we are taught to behave by the market—well who, nowadays, is doing most of the actual teaching? Primarily, economists. The question of barter cuts to the heart of not only what an economy is—most economists still insist that an economy is essentially a vast barter system, with money a mere tool (a position all the more peculiar now that the majority of economic transactions in the world have come to consist of playing around with money in one form or another) [10]—but also, the very status of economics: is it a science that describes of how humans actually behave, or prescriptive, a way of informing them how they should? (Remember, sciences generate hypothesis about the world that can be tested against the evidence and changed or abandoned if they don’t prove to predict what’s empirically there.)

Or is economics instead a technique of operating within a world that economists themselves have largely created? Or is it, as it appears for so many of the Austrians, a kind of faith, a revealed Truth embodied in the words of great prophets (such as Von Mises) who must, by definition be correct, and whose theories must be defended whatever empirical reality throws at them—even to the extent of generating imaginary unknown periods of history where something like what was originally described ‘must have’ taken place?

Dollar Shop Economic Theory

I’ve had this one baking on the back burner for quite some time. And since I have nothing else in my head but brewing brony tales, I figured I’d best get this out of my head to make some room.

The Dollar Shop is a phenomenon out my way, where you can walk into a shop and get an item [or a number of items] for a dollar a piece. Some cost more than a dollar. Many cost up to five. You can get a rare few for more than that, but not normally. Dollar shops sell cheap gimcrackery, gadgets and gewgaws. Some, but definitely not all, are useful. Some only catch dust. Almost every last item in a dollar shop is made to last less than a week. A month if you treat it carefully.

They also sell gadgets and gizmos amazingly like the ones you see on TV for five easy instalments of $99.95… for a hell of a load less than damn near $500.

It is so very, very easy to walk into a dollar shop and blow $100. Even if you go in with the intent to purchase just one item, you are guaranteed to find five more that are both tempting and affordable.

And since the cleverer ones stock food and house maintenance necessities, they make money hand over fist.

That’s not the theory. That’s the exposition.

You know these shops. You probably have one or two in your area. Unless you’re in a super-rich gated community, in which anything that’s not worth at least twenty is not worth handing over Daddy’s credit card for.

The theory is this: You can instantly read the state of a community’s economy by counting the dollar shops in a particular area.

At the depths of our own economic pit, four or five years ago, there were seven in my immediate shopping zone. There’s still four surviving, but they’re comfortably apart. It’s when they *cluster* that you know things have gone far up that famous creek. In a barbed-wire boat. Minus the paddle.

When you have competing dollar shops clustering in a shopping zone, you know the folks who live there are populous poor. Or at the very least, populous impoverished. They barely have enough to make ends meet, so they go to the dollar shops to skimp a few cents here and there. The populous comes from the fact that three or more dollar shops can exist in the same zone without driving one another out of business.

When too many people can’t make ends meet, the dollar shops thrive. People can no longer afford to go to the advertised and branded big box mart, and only go there when they can’t find what they need in the dollar shops.

Worse news for box marts, Dollar shops train shoppers to only look for what they need. Seriously, if you want to save your money in a dollar shop, go in with one objective and a definite allowance: “I will only buy X and if I am tempted, I will only spend Y”. That way, shoppers walk out of there without a shitton of useless crap. Or quasi-useful crap.

Dollar shops train shoppers to avoid the trolley-snagging “hot spots” of crap you just can’t sell, Boxmart. It’s in your personal best interest to make sure your shoppers can afford your overpriced crap and not go to somewhere cheaper.

“How?” I hear you cry. “The economy’s about to crash! We have to hang on to our money!”

Well… you have to spend money to make money. No, not on executive bonuses. No, not on clever marketing campaigns. On jobs. Spend money on wages for people who live in the area. Generous wages. Give them a small employee discount. It will generate loyalty and most of their wages will come straight back to you.

Yes, you lose a little on the deal, but it’s got to be better than the money going straight to Mexico (or wherever) by hiring illegal immigrants for less.

The thing is, people who have more money spend it on more expensive things. People with less, take what little they have and use it for their own “selfish” advantage. Which means that Boxmart winds up with nothing.

And that’s the Dollar Shop Theory. See if you can use it in your area.

What’s in a name?

“Surnames are almost always inherited from one’s father. Thus, they can serve as markers. They are intrinsically irrelevant for the determination of economic well-being, but they get passed from one generation to the next, alongside other characteristics that do matter. The more important are these characteristics in determining outcomes, the more inheritable are the outcomes, and, therefore, the more information the surnames will contain on the values of outcomes. In this way, surnames can be used to measure the importance of inheritance and thus identify the degree of mobility.”

Intergenerational mobility focuses on how children inherit aspects of economic well-being from their parents. The empirical challenges to understanding intergenerational mobility are large. A new study entitled ’The Informational Content of Surnames, the Evolution of Intergenerational Mobility and Assortative Mating’, published in The Review of Economic Studies, attempts to make headway by introducing a new source of data: how surnames vary with measures of economic well-being. It is freely available online until the end of March.

The nature of the evidence on which the praxeological axiom rests is, moreover, fundamentally similar to that accepted by the self-proclaimed empiricists. To them, the laboratory experiment is evidence because the sensory experience involved in it is available to each observer; the experience becomes “evident” to all. Logical proof is in this sense similar; for the knowledge that B follows from A becomes evident to all who care to follow the demonstration. In the same way, the fact of human action and of purposive choice also becomes evident to each person who bothers to contemplate it; it is just as evident as the direct sense experience of the laboratory.
—  Murray N. Rothbard, “Praxeology as the Method of the Social Sciences
Economics in a nutshell:
  • Economist 1:I can state with total certainty that this coin-toss will result in the coin coming up heads. Because Gremlins!
  • Economist 2:Balderdash! The coin is absolutely going to come up tails! Because Pixies!
  • Coin:*is flipped*
  • Coin:*lands tails*
  • Economist 2:*Does world tour speaking about their empirically supported discovery of pixies*
Trickle Down Theory a Fallacy

Because it’s based on a false premise– that the riches at the top will filter down to the lower masses.  The idea that the wealthy will keep the economy healthy through generousity and industrial levels of spending is propagated by those looking to avoid giving anything away. This theory was a Reagan keystone and from the beginning I knew it to be pure bunkum, because I grew up among the rich, and on the whole, they are a miserly lot. There are and were some philanthropists, but few.

The rich  are like dogs with a bone, guarding it even from passing glances.  It’s taken decades, but now there’s something more than anecdotal evidence to back my opinion

“The tendency for the rich to hoard their resources was of particular interest to researchers, who conclude that "the idea of noblesse oblige or trickle-down economics … is bull” because the upper classes aren’t reliably giving back.

Statistics Canada reports that while wealthier families donate more money to charity in absolute terms, those earning less money donate a higher percentage of their income.

In 2007, donors with annual household incomes of less than $20,000 gave an average 1.6 per cent of their pre-tax earnings to charity, compared to just 0.5 per cent for donors with household incomes topping $100,000.“

Perhaps we could make some efforts now towards closing the appalling wage gap in North America and Europe. Perhaps.

You know when you’re writing a doctoral dissertation you have to get it done. You have to get a job. I didn’t have as much time to reflect. I don’t think it was worthless. I think it was a useful exercise. But I don’t believe the model I presented there.
—  Robert Shiller on writing a paper that supported the efficient-markets hypothesis only to later discredit his own work

“It is becoming increasingly clear that the apparent energy efficiency gap has multiple explanations whose relative contributions differ across groups of energy users and types of energy uses.”

Why don’t people invest in seemingly attractive energy efficiency improvements? It turns out that there are many explanations, ranging from market failures to inaccurate engineering estimates to systematic behavioral biases in decision-making. Understanding these biases may hold the key to solving the “energy efficiency paradox.” 

Kenneth Gillingham and Karen Palmer are the authors of “Bridging the Energy Efficiency Gap: Policy Insights from Economic Theory and Empirical Evidence,” from Review of Environmental Economics and Policy, which you can read free online.

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It is indisputable that a theory that is inconsistent with empirical data is a poor theory.  No theory should be accepted merely because of the beauty of its logic or because it leads to conclusions that are ideologically welcome or politically convenient.  Yet it is naive in the extreme to suppose that facts – especially the facts of the social sciences – speak for themselves.  Not only is it true that sound analysis is unavoidably a judgment-laden mix of rigorous reasoning (“theory”) with careful observation of the facts; it is also true that the facts themselves are in large part the product of theorizing.
Theory and History (by Hans-Hermann Hoppe) - Introduction to Austrian Economics, 9of11
Recorded September 2005, Klampenborg - Denmark. Courtesy of Copenhagen Institute and Liberator. Download podcasts of thi...

Why economic principles are key to understanding and analyzing history. Using economics for interpretation of historical data.