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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 asContinue reading “Do Microfoundations address the Lucas Critique?”

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 sometimesContinue reading “S=I: The most misunderstood equation in economics”

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. SupposeContinue reading “Theoretical arguments against decreasing returns to scale”

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, andContinue reading “Increasing returns and decreasing costs”

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.Continue reading “The math behind supply curves”

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 makingContinue reading “Introduction”

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