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How do people make decisions? There is a class of models in psychology which seek to answer this question but have received scant attention in economics despite some clear empirical successes. In a previous post I discussed one of these, Decision by Sampling, and this post will look at another: the so-called Fast and Frugal heuristics pioneered by the German psychologist Gerd Gigerenzer. Here the individual seeks out sufficient information to make a reasonable decision. They are ‘fast’ because they do not require massive computational effort to make a decision so can be done in seconds, and they are ‘frugal’ because they use as little information as possible to make the decision effectively.
Bounded Rationality: the Case of ‘Fast and Frugal’ Heuristics
The podcast exposes the concept and principles of co-operatives and the three main types of co-operatives: the consumer, credit and farmers buying and selling co-operatives. Furthermore, the history of the co-operative movement is presented. The authors draw the line from co-operatives to "degrowth" by arguing that these organisations discourage profit maximisation due to their ownership structure, their social purpose and their primacy of people over capital. The value of the members' co-operative share does not increase with the growth of a co-operative and it can not be used for speculation. Finally, the authors give examples for current co-operatives which empower (local) communities fostering social justice and environmentalism.
Co-operatives
First historical instances of colonialism such as the crusades are revisited. Then a lengthy account of the colonial experience of the Spanish Kingdom in South America and of the British Empire in India is given. The Indian case is illustrated with large amounts of archival materials from a colonial administrator. There the workings of the colonial bureaucracy and law and its (positive) achievements as well as the ignorance and arrogance of the external rulers are demonstrated. After narrating the Indian independence to some depth some recent colonial wars (Algeria, Vietnam, Congo, Angola) are briefly examined. In the end, the impact of colonialism on current, i.e. 1970s, (economic) international relations is discussed. The general tenor is that colonialism is a dysfunctional system. Still, agency is mostly placed with the empire rather than with the ruled.
The Age of Uncertainty Episode 4 The Colonial Idea
The dossier first discusses the impact of colonialism on introducing foreign plants and thus disrupting ecosystems. Subsequently the case of the knotweed, a plant introduced from Japan to the UK and now considered a threat to biodiversity is explored. The complex economy built around the plant consisting of regulations, pesticides, experts, and landowners is then explored.
Knotweed – I-PEEL.org
The notion that the demand and supply side are independent is a key feature of textbook undergraduate economics and of modern macroeconomic models. Economic output is thought to be constrained by the productive capabilities of the economy - the ‘supply-side' - through technology, demographics and capital investment. In the short run a boost in demand may increase GDP and employment due to frictions such as sticky wages, but over the long-term successive rises in demand without corresponding improvements on the supply side can only create inflation as the economy reaches capacity. In this post I will explore the alternative idea of demand-led growth, where an increase in demand can translate into long-run supply side gains. This theory is most commonly associated with post-Keynesian economics, though it has been increasingly recognised in the mainstream literature.
It’s Demand All the Way Down
Marx’s theory of the falling rate of profit is not only empirically borne out, but the theory he proposed seems to describe accurately how that happens. Furthermore, the whole process is useful for understanding the history of contemporary capitalism.
On the Rate of Profit
Michael Kalecki famously remarked “I have found out what economics is; it is the science of confusing stocks with flows”. Stock-Flow Consistent (SFC) models were developed precisely to address this kind of confusion. The basic intuition of SFC models is that the economy is built up as a set of intersecting balance sheets, where transactions between entities are called flows and the value of the assets/liabilities they hold are called stocks. Wages are a flow; bank deposits are a stock, and confusing the two directly is a category error. In this edition of the pluralist showcase I will first describe the logic of SFC models – which is worth exploring in depth – before discussing empirical calibration and applications of the models. Warning that there is a little more maths in this post than usual (i.e. some), but you should be able to skip those parts and still easily get the picture.
Stock Flow Consistent Macroeconomics
The documentary recounts the history of the first World War and gives a biography of Lenin. The concept of imperialism is briefly explored and it is concluded that by the end of world war one the old certainties and old ruling alliances between aristocracy and traditional capitalists were broken up.
The Age of Uncertainty Episode 5 Lenin and The Great Ungluing
What does political economy say about the global sugar production? Take a look at global trade regulations, intercountry inequalities, and the role of marketing.
Global sugar production - regulations, intercountry inequalities, and marketing
The dossier explores the nature of care work and the gendered constructions and dichotomies that are associated with it. Drawing from feminist analysis the double burden, the undervaluation of feminised labour, the commodification of affective labour and the remittance economy are inquired into. Moreover, it is discussed how welfare regimes rely on the different organization of care work.
Care – I-PEEL.org
John K. Galbraith tells the economic history of a couple of economies (mostly UK, US and to a lesser extent Germany) from the end of the first world war until the Bretton Woods conference. He also provides a biography of John M. Keynes and outlines some central ideas of Keynes such as the possibility of an underemployment equilibrium. Galbraith complements the historical remarks by the biographical experiences he made in economic management (and in engaging with Keynes) serving as deputy head of the Office for Price administration during the second world war.
The Age of Uncertainty Episode 7 The Mandarin Revolution
Eckhard Hein criticises the mainstream's view of secular stagnation as the result of a negative real equilibrium interest rate. Arguing in a Keynesian spirit with particular reference to Steindl, secular stagnation is considered to be a result of shift in the functional income distribution, and oligopolistic organisation of industries, leading to excess capacity and reluctance to invest. This acts as a drag on effective demand and results in secular stagnation. Distributional policies and public investment can, however, overcome stagnation its tendencies.
Secular Stagnation or stagnation policy? Steindl after Summers
Environmental catastrophe looms large over politics: from the young person’s climate march to Alexandria Ocasio-Cortez’s Green New Deal, increasing amounts of political space are devoted to the issue. Central to this debate is the question of whether economic growth inevitably leads to environmental issues such as depleted finite resources and increased waste, disruption of natural cycles and ecosystems, and of course climate change. Growth is the focal point of the de-growth and zero-growth movements who charge that despite efficiency gains, increased GDP always results in increased use of energy and emissions. On the other side of the debate, advocates of continued growth (largely mainstream economists) believe that technological progress and policies can ‘decouple’ growth from emissions.
To Grow or Not to Grow?
What influence do changes in tax policy or state decisions on expenditure have on economic growth? For decades, this question has been controversially debated.
What is the fiscal multiplier and why is it so controversial?
Özlem Onaran analyses the current problems of secular stagnation from a global perspective. At the core of global economic problems is insufficient demand caused by falling wage shares, because most individual countries, and the world as a whole are “wage-led”. Hence a strategy for global growth is to aim at increasing wages and thus the wage share, and the abandonment of policies focusing purely on national competitiveness. Financialization has broken the link between corporate profitability and investment. Reregulation of finance and higher public investment is required in order to crowd in private investment, in this way, reversing the declining trend of potential output growth.
Current Problems of Secular Stagnation from a Global Perspective
The first keynote speech was given by Sebastian Dullien, current spokesperson of FMM and who is one of the most well-known German economists in applied European economics and a very active contributor to the pluralist debate. Sebastian discusses the strategy of “running with the pack” by using orthodox methods to disseminate pluralist economics and politics. Referring to diverse examples Sebastian addresses the pros and cons of “running with the pack” and proposes alternative approaches to achieve more pluralism in economics.
How to promote alternative macroeconomic ideas: Are there limits to running with the (mainstream) pack?
Irene van Staveren, professor of pluralist development economics, presents her pluralist teaching method for the introductory level. Based on her textbook “Economics After the Crisis: An Introduction to Economics from a Pluralist and Global Perspective” she suggests to focus on real-world problems and pari passu apply economic theories such as Social economics, Institutional economics, Post-Keynesian economics as well as Neoclassical economics without wasting time to single out the latter. Besides pointing out advantages of such a pluralist method Irene illustrates her approach based on interesting topics such as growth or feminist economics.
Beyond stimulus versus Austerity: Pluralist capacity building in Macroeconomics
In the inspiring interview on Economics of Care, Nancy Foblre takes a closer look to the consequences of the marketization of caring activities on those activities and on the societal organization of care. Folbre elaborates on how to value care and how this shifts the perspectives on living standards. She points to the fact, that caring activities are undervalued both in the market sphere and within the family and thereby questions the division between those spheres. Lastly, Folbre answers the question how to reteach Economics when accounting for caring activities.
The Economics of Care
Economic sociology is an entire subfield and one could write an series on it, so I’m going to stick to probably the most prominent economic sociologist and the founder of ‘new economic sociology’, Mark Granovetter.
Economic Sociology: the Contributions of Mark Granovetter
The most successful multialternative theories of decision making assume that people consider individual aspects of a choice and proceed via a process of elimination. Amos Tversky was one of the pioneers of this field, but modern decision theorists – most notably Neil Stewart – have moved things forward. At the current stage the theories are able to explain a number of strictly ‘irrational’ but reasonable quirks of human decision making, including various heuristics and biases. Not only this, but eye movements of participants strongly imply that the decision-making process depicted in the theories is an accurate one.
The Quirks of Human Decisions, Explained
This video animates part of the talk “On Economics” by Ha-Joon Chang in which he states that economics is not a science for experts but for everyone. Chang further argues why it is important to take into account different perspectives on economics – he identifies at least nine school of thoughts which all have their strengths and weaknesses and presents examples on free trade and well-being. Chang further elaborates on the difficulties of changing the economic status quo.
Economics Is For Everyone!
In this radio program, the anthropologist David Graeber, explores the history of debt in (currently) 12 episodes. The program is based on his book Debt: The First 5000 Years. First, Graeber asks the questions of how debt and money are characterized, which meaning and roles they had in different historic episodes and how they were interrelated. In the most recent episodes, Graeber elaborates on how debt shaped society. He argues that debt had a different moral status in different times of history, one session analyses the current financial and economic crisis and the role of credit in this historical context.
Promises, Promises: A history of debt
The Sufficiency Policy Map is an online tool for initiatives, political actors, organisations and individuals. It provides recommendations, strategies and communication tools for realizing projects and policy around the topic sufficiency. Sufficiency projects have the aim to reduce one's own ecological footprint.
Sufficiency Politics Map
The Lecturer Prof. Francesco Lissoni presents basic concepts of the Economics of Innovation. Firstly, he distinguishes between invention, innovation and diffusion and relates innovation to economic growth. Subsequently, he elucidates learning and network effects.
Economics of Innovation 1/2
One method of economic modelling that has become increasingly popular in academia, government and the private sector is Agent Based Models, or ABM. These simulate the actions and interactions of thousands or even millions of people to try to understand the economy – for this reason ABM was once described to me as being “like Sim City without the graphics”. One advantage of ABM is that it is flexible, since you can choose how many agents there are (an agent just means some kind of 'economic decision maker' like a firm, consumer, worker or government); how they behave (do they use complicated or simple rules to make decisions?); as well as the environment they act in, then just run the simulation and see what happens as they interact over time.
Agents, agents everywhere
The general idea of a Job Guarantee (JG) is that the government offers employment to everybody ready, willing and able to work for a living wage in the last instance as an Employer of Last Resort. The concept tackles societal needs that are not satisfied by market forces and the systemic characteristic of unemployment in capitalist societies. Being a central part of the Modern Monetary Theory (MMT), attention for the JG concept rose in recent years.
The Job Guarantee
This video provides a brief introduction to post-keynesian economics and how the school of thought would tackle climate change.
Clips on Climate: Postkeynesian Economics
Gilles Carbonnier, Professor of Development Economics and Director of Studies at The Graduate Institute Geneva, explains the emerging field of Humanitarian Economics. It analyses how economics can help to better grasp and respond to humanitarian crises, and why capturing market dynamics - including the humanitarian market itself, or in relation to e.g. kidnapping and detention in war - has become critical.
The Birth of Humanitarian Economics
This text provides an overview of feminist perspectives on various kinds of work and reproductive labour. The authors start at the intersection of Marxism and Feminism. They, then, give a historical background on the United States feminist movement. They, finally, provide alternative perspectives on work and reproductive labor that are not based on Marxist Feminist theory.
Feminist Perspectives on Class and Work
A multimedia dossier outlining the various dimensions of credit and indebtedness for various actors such as individuals and governments. Special emphasis is put on the reflections of normative and power laden discourse sorrounding the issue of borrowing and on false analogies placed between household and government debt.
Borrowing – I-PEEL.org
At the 2013 Climate, Mind, & Behavior Symposium, Rebecca Adamson of First Peoples Worldwide illustrates alternative economic systems modeled after indigenous worldviews and the power they have in pushing us towards a more sustainable existence.
Rebecca Adamson: Enoughness - Restoring Balance to the Economy
On this episode of the Hayek Program Podcast, Professor Roger Koppl talks with Hayek Program Research Fellow Solomon Stein about his research on experts, evolution, and the dynamics of epistemics, his career, and in what future direction(s) he thinks Austrian economics will go.
Austrian Epistemics
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