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

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.

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

4 implied HN points • 14 Sep 23
💰 Finance Economics Price theory 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.
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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.

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 Labor markets 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.

Giving Thanks for Price Theory, 2023 Edition

2 implied HN points • 23 Nov 23
🚌 Education Economics Theory Lessons Efficiency Profit
  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.

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

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.

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.

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.

There Is No Such Thing As Supply

4 implied HN points • 23 Dec 21
  1. It's all about demand, not supply.
  2. Producers also have demand for their own goods.
  3. Total demand matters more than the amount of goods exchanged.

Prices and Information

3 implied HN points • 02 Jun 22
  1. Prices in efficient markets reflect all available information.
  2. Prices can also act as substitutes for information, sending signals to buyers and sellers.
  3. Markets function similar to cryptographic hash functions, turning information into price changes that communicate incentives.

Cash, But Electronic

2 implied HN points • 27 Oct 22
  1. Spending cash on the internet poses challenges and risks due to lack of physical exchange and potential trust issues.
  2. Using bank transfers or credit cards for online payments can compromise privacy, leading to concerns about personal information security and government intervention.
  3. Creating electronic cash involves complex considerations such as decentralization, consensus, and maintaining purchasing power.

Economics in The Lord of the Rings: The Rings of Power

2 implied HN points • 20 Oct 22
  1. The author discusses economic themes in The Lord of the Rings and how they relate to real-world economic principles.
  2. One key question is whether guilds in Númenor raised or lowered the GDP.
  3. Another question is why King Durin rejected Elrond's trade offer in the context of economic reasoning.

Why Do Firms Merge?

2 implied HN points • 06 Oct 22
  1. Mergers may not always be about obtaining market power, but could involve other factors like cost savings or efficiency gains.
  2. There is a presumption that monopoly profits exceed duopoly profits, but this may not always hold true in real-world scenarios with multiple potential entrants.
  3. Not all mergers are necessarily anti-competitive; some acquisitions can be procompetitive and benefit consumers by allowing companies to scale and improve productivity.

The Unquestioned Monopoly

2 implied HN points • 29 Sep 22
  1. Monopoly over currency issuance is largely unquestioned.
  2. Traditional justifications for monopolies don't align with currency issuance.
  3. Emergence of cryptocurrencies has sparked questions about the currency monopoly.

Does Anyone Understand Externalities?

2 implied HN points • 22 Sep 22
  1. Externalities are sometimes confused with general equilibrium effects or 'pecuniary externalities'.
  2. Examples like buying the last candy bar or choosing between Ford and Tesla are not true externalities but rather issues of rivalry, competition, and relative prices.
  3. True production externalities impact a third party's production function, not just their profits.

Bitcoin and the Cost Fallacy

2 implied HN points • 28 Jul 22
  1. Price of Bitcoin is determined by supply and demand.
  2. Energy cost doesn't determine Bitcoin's price, price influences energy cost.
  3. Bitcoin's supply is fixed, so its price is demand-driven.

You'll have to pry supply and demand from my cold, dead hands

5 implied HN points • 10 Sep 20
  1. Supply and demand still explains a lot about labor markets and is important to teach in introductory economics courses.
  2. Higher wages lead to predictable responses in labor markets, reflecting productivity and technology advancements.
  3. Understanding the basics of supply and demand can help explain major labor market developments and trends like growing inequality and rising college costs.

Inflation and Time

2 implied HN points • 23 Jun 22
  1. Inflation is about changes in money prices over time, not just a change in the value of currency.
  2. Measuring inflation accurately is challenging due to the complex interplay between supply, demand, and relative prices.
  3. Considering the cost of living in terms of time, by comparing prices to average wages, can provide valuable insights into affordability.

Is Concentration Driving Inflation?

2 implied HN points • 26 May 22
  1. Economists disagree on whether concentration drives inflation.
  2. Using Compustat data for macro analysis may not be reliable.
  3. Recent data challenges the claim of increasing concentration impacting inflation.

Institutions Have Knowledge, Not People

2 implied HN points • 19 May 22
  1. Institutions play a significant role in shaping outcomes more than individuals' beliefs and preferences.
  2. Knowledge is institutionally contingent, meaning it is influenced by the systems and structures in place.
  3. Good institutions can compensate for the lack of individual knowledge or rationality in generating favorable outcomes.

Never Preach from a Price Change

2 implied HN points • 10 Mar 22
  1. High prices benefit sellers but can be bad for buyers.
  2. Both high and low prices can reflect efficiency depending on underlying conditions.
  3. It is crucial to understand the cause of a price change before drawing conclusions about its impact.

Monopolies don't make enough money

4 implied HN points • 24 Sep 20
  1. Monopolies can be inefficient by not extracting enough surplus for society
  2. Price discrimination can lead to efficiency and innovation
  3. Monopolies not making enough money can cause inefficiency

College is a Subsidy to the Rich

2 implied HN points • 17 Feb 22
  1. College students, despite low present incomes, are considered rich because of their high expected lifetime incomes.
  2. Low tuition at state universities can be seen as a subsidy from the poor (taxpayers) to the rich (students).
  3. Even in countries like France with near-zero tuition rates, higher education can still be a subsidy to the rich due to factors like parental income and future earning potential.

Economic Lessons from Veep

2 implied HN points • 27 Jan 22
  1. Politics is often like Veep - everyone is not that smart and often fails
  2. Market behavior can be seen similarly to a Veep model - not super wise or playing chess
  3. Understanding the Veep model of markets is important, as systemic processes can lead to beneficial outcomes

Don't Ask People Why Prices are Rising

2 implied HN points • 25 Nov 21
  1. Nominal GDP targeting can help central banks respond to changes in the economy
  2. Price theory can help understand the reasons behind price changes
  3. People in the supply chain may not provide accurate reasons for price increases

How can price theory help us navigate the minimum wage debate?

3 implied HN points • 21 Jan 21
  1. Price theory helps in navigating the minimum wage debate by looking at how people can adjust at the margins.
  2. Econ's Simplest Model shows that minimum wage can affect hours of labor, not necessarily employment.
  3. Consider that in competitive markets, firms can adjust on multiple margins, not just wages, when minimum wage laws are in place.

Too Much Information

1 implied HN point • 01 Dec 22
  1. Issues with information arise from using the wrong counterfactuals.
  2. Efficient markets hypothesis may not be violated by information costs.
  3. Social value of information depends on the proper comparison.

Giving Thanks for Price Theory, Redux

1 implied HN point • 24 Nov 22
  1. Opportunity costs involve more than just monetary costs; they can include time and other factors.
  2. Efficiency in economics often refers to Pareto efficiency, where no one can be made better off without making someone else worse off.
  3. Profits and losses serve as selection mechanisms in market economies, guiding the allocation of resources.