Economic Reasoning

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By Per Bylund Vote3 2

In a recent blog post at the Wall Street Journal, linked to by Paul Krugman and discussed almost endlessly in social media, we are presented with five reasons to worry about deflation. According to Krugman, the blog post is “a very nice explainer.” Krugman notes that there is only one important piece missing from the blog post: that “zero is not a magic red line,” and the lesson that “too-low inflation has all the adverse effects of outright deflation, just to a lesser degree.” And further, “This means that Europe is already in a lowflationary trap, qualitatively the same as a deflationary trap.” Yet...

By Per Bylund Vote6 1

In a column last week in The Week, Damon Linker does a good job at showing how difficult it can be to understand an uncomplicated (if not simple) idea. Linker's column is some sort of hit piece on libertarianism through attacking an economic concept because it was explicitly discussed by the classical liberal Nobel laureate FA Hayek. "W.W" at The Economist blog responds well to the ridiculousness of Linker's attempted attack, so I don't have to. However, I would like to continue on points brought up by "W.W." that are important - and show a fundamental (yet erroneous) bias that is so common...

By Per Bylund Vote1 0

"Never send me a project e-mail." This was one of the first things the owner-CEO told me after employing me in a small but highly tech-oriented marketing firm. It may seem counterproductive, but he had his reasons. Sending an e-mail, he noted, is akin to dumping tasks on somebody else's desk. It is a way of fleeing responsibility by making it somebody else's - asynchronously. Can this be right? In a heavily tech-oriented business in the computer era, surely e-mails is a great way of communicating. Even if we're in the same office, sharing information and asking questions in an e-mail...

By Per Bylund Vote5 5

In a strangely vague and unspecific opinion piece at Reuters today, economic editor Edward Hadas lauds the CORE initiative to change economics teaching to "what it should be." The only thing obvious about Hadas' column is how well it fits in the same camp as the State Science Institute's assessment of Rearden Metal in Ayn Rand's novel Atlas Shrugged. There is a lot of critique of economics along those lines floating around, which only "notes" that economics has "failed" and that it "must change" and - it is implied - it must change in a certain very politicized (leftist) way. We...

By Per Bylund Vote3 0

This post is by guest blogger Dr. Sarah Ali. As I bought my groceries today in an affluent neighborhood outside of Washington D.C., it was entertaining and surprising to see some people bring in their shopping cloth bags, driving energy efficient cars, sporting clothing attire that screams ‘Green lives on’, and then shopping at Whole Foods, a corporation---it just screams contradiction! How can you oppose capitalism and then shop at a corporation? Why is Whole Foods okay, but not Wal-Mart? Let's explore this further. There’s nothing wrong with capitalism. Opponents of capitalism argue that it marginalizes people resulting in the...

By Per Bylund Vote1 0

Yes, you read that correctly: there is no unemployment. There is only voluntarily chosen leisure. This is not a joke or an outrageous view of "naïve economists" with their common (lacking) sense of empathic. It is actually true. But only under certain circumstances. It is certainly not true today in most western civilizations (and eastern too), as we know all too well. Following the financial crisis, most of us probably know someone who is unemployed, was unemployed, or has been ever since the bubble burst. So obviously there is unemployment in the world. The real question, however, is if this...

By Per Bylund Vote3 0

It is strange how politicized the general perception of science is. One issue is the "scientism" that permeates any discussion on knowledge and research, which claims that there is only The Scientific Method (inductive data analysis). This issue is quite problematic in its own right, but the topic of this post is another: the eagerness with which the ignorant public dismisses certain scientific disciplines and expresses support of others. This is as strange as it is unfortunate - if not harmful. It is understandable that the social sciences are considered "soft" compared to the natural sciences. They are, so this...

By Per Bylund Vote2 0

If there is any knowledge or understanding among researchers that is scarce, it is the understanding for research. What I mean is not that researchers fail to use their methods correctly, that they fail to properly test for whatever biases, or that they fail to consider missing/omitted variables. No, there is a lack of understanding for what science is and can do. The key word here is "understanding," which I mean in a quite Weberian sense. Research is so specialized that it is more about technique than about actual thinking. Sure, a lot of thinking goes into figuring out alternative...

By Per Bylund Vote5 0

From the perspective of the New Institutional Economics, the rather recent stream of research within neoclassical economics where social and market institutions are again put front and center in the analysis, we can adopt Oliver Williamson's "levels" of institutional analysis. Douglass North similarly speaks of the "play of the game" versus the "rules of the game," which is an important distinction. The former consists of the actions carried out in the market and the commonalities, patterns and structures to how people interact; the latter constitutes the demarcation of the market landscape and the "exogenous" limitation to what is permissive market action. Private...

By Per Bylund Vote6 0

Money is generally referred to as the medium of exchange. Thus far most economists agree. Kind of. According to the Wikipedia article on money, which summarizes the common view, the functions of money are generally listed as "a medium of exchange; a unit of account; a store of value; and, occasionally in the past, a standard of deferred payment." This makes it a little more open what "is" a money, but to be a medium of exchange certainly is a core attribute or function. And, one can argue, if it is the generally accepted medium of exchange then it also functions as a unit of...

By Per Bylund Vote4 1

For anyone who has already acquired the skill, economic reasoning appears to be so obvious that it requires no explanation. But to anyone who has not yet learned this logic, it can appear all but intuitive - perhaps even unreasonable. The reason, I have come to understand, is the dynamic nature of any economic setting, which necessitates a process logic. While most people have no trouble with simple logic, where for example x -> y -> z and therefore x -> z, everything is typically interrelated and, to some degree or in some sense, interdependent in an economy. The market process, in...

By Per Bylund Vote4 0

Economists are often accused by members of the general public, political pundits, and others for being overly simplistic, using outrageously foreign assumptions, and being too narrow in scope. It isn't all about money, they (non-economists) tell us (economists). Right, it isn't. Some of this criticism is unfortunately accurate. Looking at what goes as economics nowadays, it is hard to draw a line between economics in practice and the straw man of the discipline. In this sense, the criticism is about as accurate as economists can expect - and deserve. Yet economics is much larger than the mainstream "mathturbation" with formalized models....

By Per Bylund Vote4 0

I have recently experienced a discussion with environmentalists, which was as frustrating as it was educational. The discussion started around the concept of economic growth, to which environmentalists are often ideologically opposed, but quickly turned into a rather cross-paradigmatic attempt at educating the other side really only talking past each other. I, as an economist, was quickly dismissed by the environmentalists for being an economist and for that reason "fundamentally naïve" and "completely in lack of knowledge" of economics. The reason? I did not realize, they claimed, the strictly physical limitations to economic reasoning. While I didn't take their word...

By Per Bylund Vote23 3

In a very long article in today's Forbes, online edition, John Tamny writes on the Closing of the Austrian School's Economic Mind. Tamny finds the "modern evolution" of the school "disappointing" in its "more and more ... statist, monetarist" appearance. He especially addresses the never-ending debate on fractional reserve banking (and manages to find a single misspelling in an article referring to "fractural" such, which he makes fun of), and the "error" of Austrians who see something wrong with it. One cannot create money, Tamny informs us, so banks don't. I must admit that I haven't read all of Tamny's very long...

By Per Bylund Vote2 2

A lot of people seem to believe that economics is the study of how one makes money. It is difficult to understand where this notion comes from, but since the price mechanism is prevalent and fundamental to what makes a market, perhaps the layman's definition isn't completely wide of the mark. However, money is neither necessary nor sufficient for the study of economics. Economics studies value, for which money may be a proxy. But a proxy is not that which it represents, just like a receipt may represent or even prove a purchase but isn't, in itself, the purchase. Wikipedia notes JB Say's...

By Per Bylund Vote7 0

While Israel Kirzner asserts "alertness" as a quality among entrepreneurs that allow them to recognize (and then correct) errors through arbitrage, others (like Nicolai J. Foss and Peter G. Klein) rely on "judgment" as the distinctly entrepreneurial quality that explains success. While the latter is arguably a thicker conceptualization of what entrepreneurship entails than the former, both are supposedly derived from Ludwig von Mises's theorizing on the entrepreneur as the "driving force" of the market - the "creator" of the market process. Kirzner's "alert" entrepreneur has been both adopted and reinterpreted in the mainstream entrepreneurship literature (see here, ungated version...

By Per Bylund Vote5 0

Economists talk about diminishing marginal utility, which is a generic way of saying that we value stuff less the more we already have of that particular "stuff." In other words, if I have three eggs, a fourth egg is worth less to me that the third one (which is worth less than the second one, which is worth less than the first one). Perhaps you buy this without need for further argument, but many don't. And the concept is actually problematic unless we already think as economists. The reason for this is that when illustrating economic problems we tend to use everyday examples...

By Per Bylund Vote6 2

America has become known worldwide for a high-quality failing health care system. As a foreigner moving to the United States, the enormous cost (to consumers) of health care and dental care are mind-boggling. Even with very expensive health care insurance offered through employers (and, lately, by government decree), one ends up paying quite a bit out of pocket. And pretty much all insurance policies include a maximum lifetime benefit amount as well as a cap for treatments. This raises a very interesting - but seldom raised - question: what is insurance? To make sure we are all on the same...

By Per Bylund Vote4 0

Science is becoming ever more politicized. Or perhaps it always was, but we're only now finding out thanks to hyper communication via the Internet. In either case, it makes it necessary for a consumer of ostensibly true (or at least fact-based) reporting to have a critical mind and be careful about the source of a claim or "fact." Unfortunately, it is almost impossible to get a balanced view from someone else, so one must figure some kind of short hand for finding truth. This is vital when consuming debates with political implications (or even claims), and a lot of what is...

By Per Bylund Vote5 0

No Choice Or No Alternatives? Oct 6, 2014

Deflation Hysteria Oct 19, 2014

About the “Terrible, Horrible, No Good, Very Bad Idea” Oct 2, 2014

The Economics of E-mail: Responsibility Dumping Sep 29, 2014

Throwing Babies, Keeping the Bath Water Sep 25, 2014

Guest Post: Capitalism Explored Sep 22, 2014

There Is No Unemployment Sep 18, 2014

“I’m a Total Believer In Gravity Too, Man!” Sep 15, 2014

Taking Science Seriously Sep 11, 2014

Does Private Property Matter? Sep 8, 2014

Money as a Market Institution vs. Money as a Veil Sep 4, 2014

The Process Logic of Economic Reasoning Sep 1, 2014

What It Means to ‘Maximize Profit’ Aug 28, 2014

Understanding Resources Aug 25, 2014

Fractional Thinking about Banking Aug 21, 2014

What Is Economics? Aug 14, 2014

What Is Entrepreneurial Judgment? Aug 11, 2014

Diminishing Marginal Utility – What Does It Mean? Aug 7, 2014

Insurance, What It Really Means Jul 31, 2014

Real Science Is with the Critics Jul 28, 2014