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

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.

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.

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.

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.

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.
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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

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.

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.

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.

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

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.

Is Everything Efficient?

2 implied HN points • 31 Dec 20
  1. Efficiency in economics refers to Pareto efficiency, where there are no further gains from trade.
  2. The UCLA brand of price theory sees efficiency as a starting point, focusing on factors like transaction costs.
  3. Economists often interchange efficiency and optimality, but they are not always the same in economic analysis.

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.

What is Wrong with Econ 101?

2 implied HN points • 17 Dec 20
  1. Econ 101 can be improved by focusing on real-world predictions over textbook axioms
  2. Understanding property rights is key to addressing market failures like externalities and public goods
  3. Clarifying the concept of externalities is crucial to avoid confusion and misinterpretation

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.

An argument only a crazy economist would make

2 implied HN points • 08 Oct 20
  1. Teaching often presents shocking arguments to provoke critical thinking.
  2. Shocking arguments should have a lesson or truth behind them to be useful.
  3. Consider the interconnectedness of markets and the impact of policies on low-income families.

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.

Is Bitcoin Destroying the Planet?

1 implied HN point • 20 Jan 22
  1. Bitcoin mining requires a lot of computing power, but the environmental impact may be overblown.
  2. Bitcoin miners often seek cheap electricity, leading to the use of renewable energy sources.
  3. The discussion around Bitcoin mining is more about weighing its benefits against its costs, rather than a direct threat to the planet.

Are there low-skilled workers?

1 implied HN point • 13 Jan 22
  1. Supply and demand play a key role in determining wages for low-skilled workers.
  2. Valuable skills that are transferable across firms drive up wages.
  3. Skill level and effort are not always directly correlated in the job market.

What is the Deal with NFTs?

1 implied HN point • 30 Dec 21
  1. NFTs are unique digital tokens on the Ethereum blockchain, distinguishing them from fungible tokens like bitcoins.
  2. NFT ownership is like owning a property title, providing value through ownership rights and prestige.
  3. The value of NFTs is closely tied to the characteristics of the property rights granted, with fewer restrictions leading to higher value.

Markets Must Become Competitive

1 implied HN point • 09 Dec 21
  1. Markets become competitive through a process over time
  2. Entrepreneurs play a crucial role in how prices emerge
  3. Competitive markets result from open access and free trade, facilitated by multiple market participants

Are Monopolies Ever Good?

1 implied HN point • 28 Oct 21
  1. Having many sellers can be good, but sometimes a single seller, like a monopolist, can actually be more efficient.
  2. In industries with negative externalities, a monopolist may help produce the right amount of goods.
  3. In markets with pecuniary externalities, more sellers can have both positive and negative effects on efficiency.

Do Inflation Expectations Matter?

1 implied HN point • 21 Oct 21
  1. Inflation expectations can influence economic behavior and asset prices.
  2. People's knowledge or ignorance of policy may not affect its impact on economic activity.
  3. Price theory highlights the importance of observing market responses to policy actions.

A Parrot Can Say Supply and Demand

1 implied HN point • 09 Sep 21
  1. When talking about supply and demand, it's an invitation to ask more questions.
  2. Supply and demand is about making comparisons, not just where lines cross on a graph.
  3. It's important to identify what differences in supply and demand are causing market shifts.

One Word: Externality

1 implied HN point • 29 Jul 21
  1. Economists Buchanan and Stubblebine discussed externalities using the example of neighboring property owners with different fence height preferences.
  2. The optimal height in externalities cases may not be socially optimal due to individual preferences and outcomes.
  3. Pigovian taxes may not always lead to socially optimal outcomes in cases of externalities, as Coasean bargains can alter the results.

In Defense of Non-Competes

1 implied HN point • 15 Jul 21
  1. Non-compete clauses in contracts can actually help workers by incentivizing companies to invest more in training.
  2. The voluntary signing of non-competes can create mutually beneficial exchanges between workers and companies.
  3. Non-compete agreements evolved to solve specific problems like IP theft and protecting corporate assets, and should be reformed rather than outright banned.

Transaction Costs, the Family, and Public Policy

1 implied HN point • 08 Jul 21
  1. Economics is about gains from trade - exchanging things you value less for things you value more.
  2. Transaction costs can hinder trade gains, and public policy may reduce these costs.
  3. Public policies like education, child labor laws, and Social Security resemble contractual agreements between family members.

Biases in Economic Theory

1 implied HN point • 01 Jul 21
  1. Economic theory can have a bias towards models where markets work well because they are easier to solve.
  2. There is a 'look how clever I am' bias in economics where solving complicated models is rewarded.
  3. There is a bias in economics against markets and in favor of governments in research focus.

Economics and the Law

1 implied HN point • 24 Jun 21
  1. Exchange involves transferring property rights.
  2. Understanding property rights is crucial for clarifying exchange processes.
  3. Restrictions on property rights can have significant impacts on economic behaviors.

A Competitive Market for Money?

1 implied HN point • 10 Jun 21
  1. Money emerges as a solution to the lack of trust in trade, allowing for more efficient transactions.
  2. A stable unit of account is crucial for setting prices in a competitive market for money.
  3. Competition among different types of money can lead to innovative currency systems, but state influence has shaped modern monetary standards.

Why Do Women's Clothes Cost More Than Men's?

1 implied HN point • 27 May 21
  1. Firms may adjust prices based on feedback to maximize profit.
  2. Uncertainty about consumer preferences can lead to initial higher prices, especially for items with greater variety.
  3. Price adjustments over time can vary based on fashion trends and durability of styles.

When Paris doesn't get fed

1 implied HN point • 20 May 21
  1. Prices work when they are allowed to work and play a crucial role in regulating scarcity.
  2. Gas shortages highlight the importance of letting prices adjust to reflect scarcity.
  3. Price-gouging laws can interfere with the natural response of prices to scarcity and impact consumers negatively.

Costs, Competition, and Prices that Don't Clear the Market

1 implied HN point • 13 May 21
  1. Firms may not raise prices in response to excess demand due to considering present value of costs and the impact on future demand.
  2. Alchian's view on costs in terms of opportunity cost and present value can provide valuable insights for market decisions.
  3. Temporary factors like unemployment benefits can influence firms' decisions on wages, as they consider present value of costs and the future of the labor market.

Competition is about more than prices

1 implied HN point • 06 May 21
  1. Competition involves more than just prices, it also includes factors like reliability.
  2. Price competition is essential in markets, but there are other forms of competition like quality and brand loyalty.
  3. Reliability, like consistency in prices, can be a significant way for businesses to compete for customers.