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

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.

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 happened to markups and dynamism?

2 implied HN points • 14 Mar 24
💼 Business Economics Market Power Competition Industry Analysis
  1. Rising market power and falling business dynamism are being discussed as potential signs of competition decline.
  2. Industry-level evidence does not clearly show a causal relationship between rising markups and falling dynamism. Some industries with higher markups saw less decline in dynamism.
  3. Theoretical perspectives on market barriers to entry and free entry show the complexity of the relationship between markups, competition, and dynamism in economics.
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Will lab-grown beef raise the price of handbags?

4 implied HN points • 15 Feb 24
💼 Business Economics Market Production Supply and Demand
  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 is Gold Such a Reliable Measure of Value?

3 implied HN points • 22 Feb 24
💰 Finance Economics Gold 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.

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

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.

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.

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.

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.

Supply and demand can explain anything. That's not great.

4 implied HN points • 14 Sep 23
💰 Finance Economics Inflation Theories Market Dynamics
  1. Using supply and demand to explain observations can be overly flexible and lead to pure sophistry in economics.
  2. Models based on implicit agreements, folk theorems, and coordination failures can be unfalsifiable and offer no predictive power.
  3. When evaluating economic theories, it's important to consider if they can provide meaningful predictions and not just overlapping explanations.

Giving Thanks for Price Theory, 2023 Edition

2 implied HN points • 23 Nov 23
🚌 Education Economics Theory Lessons Efficiency
  1. Costs involve more than just money, they include opportunity costs and trade-offs that consider various factors like time and value.
  2. Efficiency in economics refers to Pareto efficiency, where all gains from trade are exhausted, and serves as a tool for understanding real-world allocations.
  3. Profits and losses in market economies act as selection mechanisms, with losses signaling inefficiency and prompting resources to be reallocated effectively.

Crime and Punishment

4 implied HN points • 24 Aug 23
🚌 Education Economics Legal system Decision-making Incentives
  1. Economic tools can be applied to both market and non-market activities to analyze decision-making involving costs and benefits.
  2. Designing the optimal punishment for crimes involves balancing the deterrence benefit with the enforcement costs.
  3. Consideration of incentives for law enforcement and decision-makers is crucial in designing effective systems to prevent over-enforcement and extortion.

The Economics of McCormick

3 implied HN points • 07 Sep 23
💼 Business Economics Regulation Crime Demand Theory
  1. Deregulation may not always lead to societal benefits due to factors like rent-seeking and public ignorance of economics.
  2. Increasing the number of referees in college basketball can reduce the rate of fouls, showcasing the impact of policing quality on behavior.
  3. The Alchian-Allen theorem demonstrates how travel costs can impact consumer behavior when it comes to goods of varying quality and transportation modes.

International Cartels

2 implied HN points • 19 Oct 23
🌐 International Cartels Politics Economics Theory Defense
  1. International cartels face challenges in surviving due to incentives to cheat and antitrust laws
  2. One theory suggests that international cartels may be formed to offset wartime distortions and attract investment through higher prices
  3. Another theory proposes that international cartels could serve as a way for countries to prevent alignment with enemies by providing benefits through monopoly profits

You'll have to pry supply and demand from my cold, dead hands (from the archives)

3 implied HN points • 17 Aug 23
💼 Business Economics Education Supply and Demand Market Dynamics
  1. Supply and demand can explain a lot about labor markets, even for introductory economics students.
  2. Workers respond to higher wages predictably, wages reflect productivity, and technology affects worker productivity.
  3. Understanding supply and demand in labor markets can help explain trends like growing returns to education and the increasing cost of education.

Is Market Concentration Actually Rising?

3 implied HN points • 08 Dec 22
  1. Market concentration is a complex issue with mixed views on whether it is rising or bad.
  2. Different measures like CR4 and HHI are used to quantify concentration in product markets.
  3. Research shows that concentration is generally increasing, but there are nuances like global markets impacting the analysis.

Economic Forces in the Classroom

4 implied HN points • 18 Aug 22
  1. Economic Forces provides resources for teaching economics, especially price theory.
  2. The newsletter covers basic price theory applicable to all economics courses.
  3. Recommended posts are categorized for different economics courses like microeconomics and macroeconomics.

What is an FTX?

3 implied HN points • 10 Nov 22
  1. FTX is a cryptocurrency exchange founded in 2019 with notable partnerships and celebrity ambassadors.
  2. FTX consists of two businesses: FTX.com and FTX.us, catering to different customer segments.
  3. The relationship between Alameda Research, a trading firm, and FTX, and the use of FTT tokens, raised concerns about financial transparency and risk management.

Is Inflation Demand or Supply Driven?

4 implied HN points • 16 Jun 22
  1. Inflation is driven by both supply and demand factors.
  2. Identifying if inflation is due to supply or demand requires analyzing price and quantity changes.
  3. In the case of 2021-2022 inflation, both supply and demand played a role, with about half of the inflation attributed to each.

What is Optimal Policy?

3 implied HN points • 01 Sep 22
  1. Economists debate the role they should play in shaping policy.
  2. There are different interpretations of what 'optimal' policy means in economics.
  3. Policy debates are often about means to achieve goals, not just differing goals.

Those Pesky Transaction Costs

3 implied HN points • 11 Aug 22
  1. Understanding disequilibrium is crucial in economics to grasp market behavior.
  2. Focusing on gains from trade helps to consider transaction costs and real-world market complexities.
  3. Eliminating transaction costs needs careful consideration due to their role in facilitating trade.

Inflation and Relative Prices

3 implied HN points • 07 Jul 22
  1. Inflation is always a monetary phenomenon and affects relative prices.
  2. Optimal inflation rate balances marginal benefit and marginal cost.
  3. Inflation has various costs including signal-extraction problems, coping costs, and political responses.