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

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.

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.

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.
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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.

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.

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.

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.

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.

Markups as Residuals

1 implied HN point • 17 Nov 22
  1. Markups are an unexplained gap in economics that have risen over the last 40 years.
  2. Market power is not directly measurable, but markups can be indicators of it.
  3. Markups should be seen as residuals that point to unexplained returns and properties, similar to Solow residuals in economics.

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.

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.

Let's Go for a (Bank) Run

1 implied HN point • 13 Oct 22
  1. Banks serve as intermediaries between borrowers and lenders by matching them up.
  2. Banks stand out from insurance companies because they allow customers to withdraw deposits easily, unlike insurance policies.
  3. The Diamond-Dybvig model explains bank runs and the role of deposit insurance in preventing them.

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.

And The Real Nobel Goes To...

1 implied HN point • 10 Oct 22
  1. The Nobel Prize in Economics was awarded to Bernanke, Diamond, and Dybvig for their research on banks and financial crises.
  2. Ben Bernanke is known for his work on the Great Depression and financial crises through studying banks' roles as intermediaries between savers and borrowers.
  3. Diamond and Dybvig's model explains bank runs and highlights the importance of monitoring in the banking system.

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

Bad Seeds

1 implied HN point • 08 Sep 22
  1. In a scenario where people trade seeds and knowledge, there are gains from beneficial trade.
  2. Seed sellers may have an incentive to cheat by pretending to have knowledge when they don't.
  3. Solutions to dishonesty in trading include letting reputations reveal liars or changing contract enforcement to hold dishonest sellers accountable.

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

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

Monopsony isn't Monopoly Flipped-Upside Down

1 implied HN point • 04 Aug 22
  1. Monopsony and monopoly power are not simply flipped versions of each other.
  2. Antitrust applications need to differentiate between efficiency-enhancing mergers and mergers that increase monopsony power by studying the output market.
  3. The assumptions and models for monopsony and monopoly power differ, particularly in how they relate to the output market and the number of goods being produced.

You Found a Market Failure. So What?

1 implied HN point • 21 Jul 22
  1. Economists identify market failures and propose solutions like taxing carbon or breaking up monopolies.
  2. Efficiency in markets is an ideal but not a realistic standard for all economies.
  3. Improving the world economically is about working within constraints and not achieving impossible perfection.

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.

Bad Repeated Dealings

1 implied HN point • 30 Jun 22
  1. The discipline of repeated dealings in markets can help maintain honesty and quality over time.
  2. Repeated dealings can also sustain collusion and lead to negative outcomes.
  3. Reputations, brands, and repeated interactions are not always a guarantee that markets will function perfectly.

Common Chicanery about Competition

3 implied HN points • 05 Nov 20
  1. Competition does not require complete knowledge for buyers and sellers, just the basics like preferences, production capabilities, and market price.
  2. Competition does not mean zero profits, as there can still be profit margins between market price and supply costs.
  3. Competition does not demand an infinite number of buyers and sellers, even a few players can result in competitive market outcomes.

When A Dollar Isn't a Dollar

1 implied HN point • 12 May 22
  1. Banks create money by issuing liabilities that exceed the physical dollars they hold.
  2. Traditional banks hold physical currency to back up digital deposits, while alternative methods can be asset-free.
  3. The stability of digital assets can be influenced by factors like arbitrage, leading to unexpected consequences.

Rational Frameworks, Not Rational People

3 implied HN points • 01 Oct 20
  1. Economists use rational frameworks, not assume people are rational.
  2. Economic models predict behavior logically, without needing to mirror human thought processes.
  3. Behavioral economics acknowledges cognitive biases but still uses rational frameworks for predictions.

It's Knowledge, Stupid

1 implied HN point • 28 Apr 22
  1. Knowledge plays a crucial role in economic models, but is often overlooked in traditional theories.
  2. The possession and transfer of knowledge in production processes can shape outcomes and influence market dynamics.
  3. Prices in markets do not convey knowledge, but instead allow individuals to make decisions based on private knowledge.

Economists have a useful benchmark and so can you!

3 implied HN points • 17 Sep 20
  1. Economists use competitive models as a vital benchmark for comparison in economic analysis.
  2. Comparing different economic scenarios to a competitive model helps understand implications and inefficiencies.
  3. Competitive models like the Real Business Cycle model serve as benchmarks for judging the validity and implications of economic theories.

Economic Forces: Pondering price theory

3 implied HN points • 08 Sep 20
  1. Simple economic models teach us a lot
  2. Competition is pervasive in all areas of life
  3. Prices can coordinate behavior in specific ways

Subsidize the Worker, Not the Job

1 implied HN point • 14 Apr 22
  1. Protecting jobs can be counterproductive, hindering workers from moving to more productive roles.
  2. Subsidizing workers directly can be more efficient and beneficial than subsidizing jobs or industries.
  3. Subsidizing jobs may be influenced by rent-seeking behavior from interest groups, rather than efficiency.

When Supply Curves Slope Down

1 implied HN point • 24 Mar 22
  1. Standard price theory includes downward-sloping supply, seen in learning-by-doing and human capital models.
  2. Different costs like acquisition and usage costs influence the downward slope of supply curves.
  3. Intangible capital, like data and algorithms, contributes to a downward-sloping supply by reducing costs with increased usage.

Why Didn't They Just Give Up on Gold?

1 implied HN point • 17 Mar 22
  1. Countries often suspended the gold standard during wars to raise money quickly.
  2. Governments had to balance expanding the money supply for war finance while keeping money demand anchored.
  3. The commitment to restore the gold standard after war helped maintain stability in the long run.

Economics Puzzles (If You Don't Know Price Theory)

2 implied HN points • 11 Mar 21
  1. Economics often delves into complex puzzles that challenge simple theories
  2. Behavioral economics can provide insights into human behavior that traditional economic models may overlook
  3. The Law of Demand plays a significant role in understanding economic decision-making and fairness

Planned Obsolescence

1 implied HN point • 24 Feb 22
  1. Non-economists often discuss planned obsolescence, where products are designed to have a limited shelf life to increase profits.
  2. Economists argue that durability has value and quality products can enhance a brand's reputation.
  3. There are cases where planned obsolescence can benefit consumers by reducing costs and increasing value, linked to the concept of private property rights.

Let's Talk About Price Controls

1 implied HN point • 10 Feb 22
  1. Price controls, like ceilings, can be ineffective in fighting inflation.
  2. Price controls can lead to shortages and lower quality goods.
  3. Eliminating price mechanisms can result in alternative, sometimes illicit, methods of resource allocation.