Latest from the Blog
New Keynesian Macroeconomic Models are worse than you think
I have spent the past several years learning mainstream macroeconomics, in order to be sure that my heterodox views on the topic were justified. When I began this project I expected that many of the predictions of mainstream models that I disagreed with would be a result of some of the unrealistic assumptions such models…
Selgin’s flawed criticism of endogenous money
George Selgin has recently been arguing against the now mainstream view that banks are not intermediaries between lenders and borrowers, and in fact create credit out of nothing. He has criticized this Bank of England working paper, calling the paper rubish. It is somewhat difficult to parse exactly what George is arguing. He appears to…
What is our COVID endgame?
As we enter the second year of the pandemic many people are frustrated with continued restrictions and there is a lot of pressure to ease COVID restrictions. Some people vocally resist such pressure, acting as if it is irresponsible to open up when COVID numbers are still high. Most of the arguments on this topic…
Assumptions in Macroeconomics
Physics models can have a wide variety of different simplifying assumptions. Models in some areas will include a full description of relativistic behaviour, while others will not. Some models describe objects based on the quantum mechanical interactions between particles, some treat gas molecules as essentially point particles that don’t interact. These different models and different…
Do Microfoundations address the Lucas Critique?
Modern macroeconomics has been endlessly criticized, not only by critics of mainstream economics, but also by many prominent mainstream economists. For example, nobel price winners such as Paul Romer, Paul Krugman, and Joseph Stiglitz have written articles in which they disparage modern macroeconomists. Even economists who have been very involved with such models such as…
Casey B. Mulligan and the Competency Problem in Economics
The other day on twitter I had a conversation I’ve had many times. An economist defending price theory said that Usually, this wouldn’t be very notable. I have lost track of the number of PhD economists I have caught making this mistake. But as I looked into this person’s position within the field of economics,…
How increasing returns leads to non-neutrality of money
In 1980 an economist called Yew-Kwang Ng published a paper called Macroeconomics with Non-perfect Competition to little acclaim. The paper was cited a few times, and someone wrote a response that entirely missed the point of his argument. The main argument of his paper was largely ignored. Yew-Kwang Ng has written essentially the same paper…
Competition with increasing returns to scale
When I criticize mainstream economics for neglecting increasing returns to scale there is one argument that is always brought up. In its most basic form the argument goes: an industry with increasing returns to scale is a natural monopoly. Since most companies are not monopolies, increasing returns to scale must not be common. I have…
S=I: The most misunderstood equation in economics
The saving equals investment identity (S=I) is probably the most misunderstood equation in economics. Achieving the top rank in this highly competitive category requires an extraordinary level of miscomprehension, and the S=I identity does not disappoint. PhD students and many professors frequently misunderstand it, and misrepresent when teaching their students. In fact, it is sometimes…
Two Misconceptions about Supply Curves
Often people who go on to study economics are unaware of the misconceptions that Economics 101 leaves them with. In fact, when discussing the problems with introductory economics a few of the defenders of the curriculum will without fail demonstrate these misconceptions. Having recently encountered a few of these misconceptions in the wild I decided…
Theoretical arguments against decreasing returns to scale
There is actually a fairly well known argument against the existence of decreasing returns to scale. The economist Miles Kimball gives an excellent treatment of the argument on his blog. The argument is also briefly mentioned in some graduate microeconomics textbooks, for example Microeconomic Theory by Mas-Colell and Whinston. The argument goes as follows. Suppose…
Increasing returns and decreasing costs
Before discussing evidence for the shape of cost functions it is useful to go over the relationship between cost functions and production functions. The concepts of increasing returns and increasing costs are often confused in these discussions. Empirical studies do not usually attempt to measure cost functions but instead measure properties of production functions, and…
The math behind supply curves
When I took introductory microeconomics towards the end of my undergraduate I expected almost everything in the course to be nonsense. Most of the claims of the economics profession that I had encountered seemed to me to be so far from the world around me that I expected the course to be full of errors.…
Supply and demand: reasons for scepticism
Supply and demand is perhaps the best known concept in economics. Much of undergraduate microeconomic teaching is based on this concept, and there is general agreement that it is one of the foundational concepts of the field. Even professors whose work involves challenging some of the assumptions of the field refer to it as the…
Introduction
This blog, like so many others, will primarily be dedicated to criticising mainstream, or neoclassical economic thought, although I will undoubtedly be unable to resist criticising other schools of economics from time to time. There are of course many bloggers and academics criticising mainstream economics, however I believe many of the criticisms I am making…
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