Economic Forces

Economic Forces explores complex economic concepts, theories, and debates, blending historical context, empirical evidence, and theoretical analysis. It discusses the implications of economic policies on society, the economy's dynamic nature, and the intricacies of price theory, offering insights into both macroeconomic and microeconomic phenomena and their real-world applications.

Economic Theory and Price Theory Monetary Policy and Central Banks Labor Market and Inequality Supply, Demand, and Market Dynamics Technological Advancements and Economic Growth Environmental Economics and Degrowth Trade Policies and Tariffs Economic Policy and Optimal Policy Design Financial Markets and Cryptocurrency Economics Education

The hottest Substack posts of Economic Forces

And their main takeaways

GDP is a good measure. Don't mess with it for political reasons.

14 implied HN points • 03 Mar 25
🇺🇸 U.S. Politics Economics Government Public Policy Political Discourse
  1. GDP measures the total value of goods and services produced in a country, including government activities. It’s not just about private sector spending.
  2. Removing government spending from GDP calculations would create an incomplete picture of the economy and is unnecessary since we already have ways to measure private sector performance separately.
  3. Changing how we measure economic data for political reasons can harm the integrity of statistical agencies and lead to poor decision-making in the economy.

No, DOGE Checks Wouldn’t Cause Inflation

3 implied HN points • 27 Feb 25
💰 Finance Monetary Policy Inflation Government spending Public Policy
  1. Sending out DOGE checks is unlikely to cause inflation. It's because they would probably just raise the price level temporarily, not create ongoing inflation.
  2. The impact of these checks on the economy depends on how spending changes and whether the central bank keeps spending stable.
  3. Whether giving out DOGE checks is a good idea depends on how the saved money could be used instead, like paying off government debt or funding other programs.

Stop blaming rising egg prices on market power

11 implied HN points • 20 Feb 25
💼 Business Market Theory Supply Chain Competition
  1. Rising egg prices don't always mean companies are taking advantage of their market power. Sometimes, they can be explained by supply issues, like avian flu affecting chicken populations.
  2. When there are fewer eggs available due to supply disruptions, prices can rise a lot even if demand doesn’t change much. This is because people still need eggs for cooking and baking.
  3. Just because prices are high doesn't mean there’s unfair competition. It’s important to look at the whole supply chain and how supply changes can affect prices in a competitive market.

Chaos kills coordination

10 implied HN points • 06 Feb 25
🇺🇸 U.S. Politics Policy Analysis Economic Policy Investment Strategies Market Dynamics
  1. Chaos in policies can hurt the economy by making it hard to predict what will happen next. This uncertainty stops businesses from wanting to invest money.
  2. When prices change unpredictably, they become less helpful as signals for making decisions. This means people may hold off on projects that could benefit the economy.
  3. A stable set of rules is important for economic growth. Even if policies aren't perfect, having clear and consistent ones helps businesses and workers plan for the future.

The National Defense Argument

3 implied HN points • 13 Feb 25
🇺🇸 U.S. Politics Economic Policy Defense Policy Trade policy Tariffs Subsidies
  1. The national defense argument is often used to justify tariffs and subsidies. However, many economists view it skeptically, thinking it's a way for special interest groups to gain advantages.
  2. Earl Thompson's theory suggests that during wartime, price controls can distort markets. To fix this, policymakers might provide peacetime subsidies to help industries that would struggle because of these wartime distortions.
  3. Applying this theory today, tariffs on steel and aluminum may be reasonable since these materials are critical for national defense and are hard to import in times of war.
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People act. Markets clear. Everything else is commentary.

10 implied HN points • 23 Jan 25
💼 Business Economics Market Theory Consumer behavior Price theory
  1. Economic models have two main parts: how people behave and how those behaviors interact in the market. Understanding both helps clarify how markets operate.
  2. Equilibrium in economics doesn't mean everything is still. It's about finding a way to make individual choices work together, even in changing situations.
  3. Critiques of economics often focus on rationality, but understanding the constraints, like budgets, is more important in predicting market outcomes.

Inflation is Bad, Actually

7 implied HN points • 30 Jan 25
💰 Finance Inflation Macroeconomics Price theory Taxation Economic Policy
  1. Some people think inflation is good because it helps prevent deflation, but this argument is weak. Deflation can be harmful mainly when caused by poor policies, not just by falling prices.
  2. Inflation is often compared to a hidden tax because it decreases the value of money. Unlike regular taxes, people might not realize their purchasing power is being reduced until they feel the effects.
  3. Overall, inflation can create confusion and make economic decisions harder. It undermines the value of money as a reference point, leading to more mistakes and inefficiencies in both personal and business finances.

What is Going on With These Tariffs?

4 implied HN points • 03 Feb 25
🇺🇸 U.S. Politics Tariffs Economics Policy Analysis Trade Trump administration
  1. Tariffs are often seen as not helpful for goals like reducing trade deficits, so many economists criticize them. However, understanding the different reasons behind tariffs can help us see their impact better.
  2. The motivations of policymakers when using tariffs can be complex and aren’t always clear in traditional economic discussions. If we consider these motivations, we might get a clearer picture of their potential effectiveness.
  3. It's essential to look beyond conventional views in economics to really understand how policies affect the real world. Digging deeper into these ideas can help us think differently about economic policies.

Congestion pricing reduces driving. That doesn't make it a good idea.

8 implied HN points • 09 Jan 25
🇺🇸 U.S. Politics Public Policy Economic Policy Transportation Urban planning Environmental Impact
  1. Congestion pricing reduces the number of cars on the road, but this doesn’t automatically make it a good policy. We need to think about its overall impact on society.
  2. Different drivers react differently to congestion charges. Some can easily switch to other transport options, while others can't, so we see varying effects on traffic.
  3. How the money from congestion pricing is used is really important. If it is spent wisely on things like infrastructure, it can benefit everyone. But if not, it might just be wasted.

Macroeconomics with Price Theoretic Foundations

5 implied HN points • 16 Jan 25
💰 Finance Macroeconomics Price theory Financial Markets Asset Pricing Monetary Policy
  1. Understanding finance is really important for macroeconomics. It helps us figure out how markets work and how different factors impact the economy.
  2. The no-arbitrage principle in finance shows that prices should adjust quickly to eliminate profit opportunities. This means that if something is cheaper in one place, it won't stay that way for long.
  3. We can analyze macroeconomic theories using tools from price theory. This allows us to test predictions and better understand how things like interest rates and asset prices relate to the economy.

Common Chicanery about Competition (from the archives)

6 implied HN points • 02 Jan 25
💼 Business Economics Competition Market Theory Supply and Demand Pricing
  1. You don't need complete knowledge or information for competition to exist. All you need is an understanding of your own likes and the price of the goods.
  2. Competition does not mean that companies make no profit. In fact, if prices are above costs, companies can still earn profits even in a competitive market.
  3. You don't need an endless number of buyers and sellers to have competition. Even a few sellers can compete if their products are good substitutes for each other.

Economics still matters for policy

14 implied HN points • 14 Nov 24
🇺🇸 U.S. Politics Policy Analysis Economics Political theory Market Dynamics Public Administration
  1. Prices show us what's scarce and push us to change our behaviors. They aren't just random numbers—they have meaning.
  2. When something gets more expensive, people usually try to find a cheaper alternative. Higher costs lead to less demand.
  3. Every choice we make comes with trade-offs. If we spend on one thing, we might have to give up something else.

What Is Inflation?

6 implied HN points • 19 Dec 24
💰 Finance Inflation Price theory Monetary Policy Market Dynamics
  1. Inflation is when prices keep going up over time, not just a one-time price hike. This shows that inflation affects the overall economy and not just individual items.
  2. Measuring inflation involves looking at how much purchasing power money loses. When money loses value, prices generally rise, which means inflation is happening.
  3. It's important to consider how supply and demand for money influence inflation. Understanding this can help people assess the real causes behind rising prices and not just blame specific products.

Most Inflation Stories Don't Add Up

10 implied HN points • 21 Nov 24
💰 Finance Inflation Price theory Economic Policy Market Trends
  1. Understanding whether inflation is caused by supply issues or increased demand is key. Supply-driven inflation leads to less output, while demand-driven inflation increases prices and output together.
  2. Nominal GDP growth is a useful measure to determine the cause of inflation. When nominal GDP increases alongside inflation, it usually indicates demand-driven inflation.
  3. Asking sellers why prices are rising often misses the real cause. Increased demand can look similar to supply issues, so it's important to analyze economic data carefully.

Mr. Haltiwanger and the Austrians

6 implied HN points • 12 Dec 24
💼 Business Economics Entrepreneurship Market Dynamics Competition Labor Market
  1. Entrepreneurs play a crucial role in the economy by discovering better ways to use resources. They find price differences and opportunities, which helps move resources to where they can create more value.
  2. Measuring how well resources are being reallocated can show if markets are functioning efficiently. When more productive firms gain market share, it indicates that resources are being used better.
  3. There’s a connection between entrepreneurship and market dynamics. By focusing on how entrepreneurs impact resource use, we can better understand economic growth and competition.

Some tariffs are worse than others

7 implied HN points • 26 Nov 24
💼 Business Economics Trade Policy Manufacturing Supply Chain
  1. Tariffs can hurt jobs and the economy, especially when they target parts instead of finished products. This can raise costs for manufacturers and lead to job losses.
  2. Not all tariffs are created equal; some can actually help domestic industries if designed carefully, but they can also create odd workarounds that waste resources.
  3. Policymakers need to think carefully about how they set tariffs. Simple solutions often lead to complex problems that can waste money and resources.

Transaction Costs and the UCLA Brand of Price Theory

5 implied HN points • 05 Dec 24
💼 Business Economics Price theory Transaction Costs Market Analysis
  1. The UCLA brand of price theory focuses on transactions instead of just markets. This means they look closely at the details of how transactions happen and what impacts those processes.
  2. Transaction costs are key to understanding decision-making in economics. Knowing how transaction costs affect choices helps explain why some actions happen within firms and others happen between them.
  3. Property rights play a significant role in transaction costs. The restrictions and rules around property ownership can impact decisions and the nature of transactions.

Best of Economic Forces: 2024 Edition

3 implied HN points • 26 Dec 24
💰 Finance Economics Policy Inflation Tariffs
  1. The author reflected on the past year's posts, sharing which ones were popular and enjoyable to write. This is a great way to highlight important topics for new and old readers.
  2. The popular topics included misunderstandings about tariffs and inflation, showing that basic economics is relevant in understanding current issues.
  3. The author expressed gratitude for the growing support from readers, emphasizing the joy and importance of sharing knowledge about economics.

Giving Thanks for Price Theory, 2024 Edition

5 implied HN points • 28 Nov 24
💼 Business Economics Market Theory Resource Allocation
  1. Understanding opportunity costs is key. When making decisions, we need to consider not just the money spent, but also what we give up in terms of time and other choices.
  2. Efficiency helps us analyze economic situations. It's not just about being the best, but about understanding how resources can be better allocated and identifying areas needing improvement.
  3. Profits and losses guide resource allocation. They act like signals in the market, showing which businesses are successful and which aren’t, ultimately helping to improve overall economic efficiency.

Economics, Politics, and Institutions

3 implied HN points • 07 Nov 24
🇺🇸 U.S. Politics Political Economy Elections Regulation Institutional change Behavioral Economics
  1. Economists often view politics as a type of exchange, similar to market transactions. This means they see politicians as motivated by personal interests, like getting re-elected, but also recognize that politicians can care about the common good too.
  2. Jack Hirshleifer's insights emphasize that the rules of the game, like laws and property rights, shape how economics and politics function. We need to pay more attention to how these rules change over time.
  3. Applying economic thinking to political behavior can reveal new insights. Understanding how people make decisions outside of markets can enhance our grasp of human behavior overall.

Why Does the State Have a Monopoly on Money?

8 implied HN points • 08 Feb 24
💰 Finance Monetary System Central Banks Inflation Policy Making
  1. The state's monopoly on money is motivated by the ability to generate quick revenue.
  2. One key reason for this lasting monopoly is the state's need for emergency financing, especially during wars.
  3. For the state to maintain the monopoly over money, it needs to commit to long-run price stability, ensuring the currency's purchasing power is preserved over time.

The Fixed Window Fallacy

9 implied HN points • 12 Oct 23
💰 Finance Economics Business Technology Innovation Health
  1. The Fixed Window Fallacy is a concept that highlights flawed reasoning when considering impacts on business and economy
  2. Technological advancement and efficient supply mechanisms are crucial for sustained economic growth
  3. Innovation and advancements, like new drugs, may shift demand but can ultimately lead to more value creation and productivity

Trial By Battle

4 implied HN points • 07 Mar 24
🔬 Science Economics Property Rights Negotiation
  1. In 11th and 12th century England, property disputes were settled through trial by battle, where champions fought for the parties. The process was a mechanism that revealed the true valuations of the property, encouraging settlements based on disclosed information.
  2. The hiring of champions in trial by battle reflected a market system where those valuing the land more were willing to pay higher prices for victory. This 'violent auction' reduced transaction costs and led to negotiations that allocated property to those who valued it most.
  3. Trial by battle, an apparently barbaric practice, can be understood through price theory to show how negotiations, based on revealed valuations during champion hiring, facilitated the resolution of property disputes. The practice was not ultimately about the battle itself, but about revealing the true worth of the property to incentivize settlements.

Should Wendy's Introduce Surge Pricing?

4 implied HN points • 29 Feb 24
💼 Business Economics Pricing Competition Consumer behavior Marketing
  1. Dynamic pricing and price discrimination are complex but can benefit both firms and consumers by adjusting prices based on demand and consumer willingness to pay.
  2. Price discrimination, when done thoughtfully, can lower prices for some consumers while increasing profits for firms, ultimately benefiting both parties.
  3. Despite advancements in digital tools for dynamic pricing, many companies, including Wendy's, are cautious due to the importance of maintaining customer trust and long-term relationships.

What is Price Theory?

7 implied HN points • 05 Oct 23
🚌 Education Economics Models Theory Knowledge Opportunity Cost
  1. Price theory focuses on analyzing how real world agents arrive at agreeable prices through a process of exchange.
  2. Price theory emphasizes that competition is omnipresent and considers how firms strategically respond to rivals in a competitive context.
  3. Prices coordinate economic behavior across markets, carry important information, and contribute to resolving the coordination problem through mechanisms beyond price changes.

Will lab-grown beef raise the price of handbags?

4 implied HN points • 15 Feb 24
💼 Business Economics Market Production Supply and Demand Price theory
  1. Lab-grown beef becoming a closer substitute for conventional beef can impact the supply of hides available for leather, affecting industries like luxury fashion.
  2. The theory of joint production explains the interconnectedness of markets where goods share production inputs, highlighting how changes in demand for one output can affect others.
  3. Understanding joint production in economics goes beyond standard supply and demand models, revealing complex relationships and teaching humility about the real-world supply chains.

Why Armen Alchian is the GOAT 🐐

6 implied HN points • 26 Oct 23
💼 Business Economics Education Macroeconomics
  1. Armen Alchian brought original and important ideas in economics like focusing on property rights, incentives, and information.
  2. Alchian excelled at both economic theory and empirical work, showing expertise in using data and bridging theory with measurement.
  3. Despite being known for microeconomics, Alchian made significant contributions to macroeconomics, especially in areas like transaction costs and macro unemployment.

Has Inequality Risen?

5 implied HN points • 30 Nov 23
💼 Business Economics Inequality Research Data Analysis
  1. There is a debate on whether income inequality has significantly increased since the 1960s.
  2. Different studies suggest varying levels of income inequality growth, leading to uncertainty in the conclusions.
  3. The way income shares are calculated can greatly impact the perceived trends in inequality over time.

Marshall's Second Law of Demand

5 implied HN points • 09 Nov 23
💼 Business Economics Trade Competition Productivity
  1. Economists have many 'laws' but they aren't real laws, like Marshall's Second Law of Demand.
  2. Marshall's Second Law of Demand explains that demand elasticity changes with price and quantity consumed.
  3. Marshall's Second Law is relevant in trade theory, showing how higher productivity leads to higher markups and how competition reallocates production towards more efficient firms.

Why is Gold Such a Reliable Measure of Value?

3 implied HN points • 22 Feb 24
💰 Finance Economics Gold Price theory Monetary Policy
  1. Gold has historically maintained its value, with an ounce consistently able to buy a good suit, showcasing its reliability as a measure of value.
  2. On the gold standard, dollar value was linked to a set amount of gold, ensuring a stable price for gold over time.
  3. Fluctuations in the supply and demand of gold do not impact the long-term value of gold as a reliable measure of value.