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Introduction One of the key ideas in contemporary economic theory in general and law and economics in particular is the social welfare function. Law students without a background in economics might be put off by the fact that social welfare...

"On this episode of Liberty Curious, Kate Wand invites Bruce Pardy to discuss the origins of the Woke virus of the mind: critical theory, social justice, postmodernism and critical race theory." ~ Kate Wand

In a recent paper in Journal of Economic Issues, I explore a particularly interesting variant on the problem of unexplored normativity, politicisation and its ethical consequences. Put simply, standard theory of tax evasion inadvertently treats everyone as a criminal. Moreover, while recent work on theory of "tax morale" seems different it is not as different as one might think. Both contribute to a world of biddable neoliberal subjects.
The post How tax theory in economics treats us appeared first on Progress in Political Economy (PPE).

Pat Akey (University of Toronto - Rotman School of Management; European Corporate Governance Institute (ECGI)), Tania Babina (Columbia University - Columbia Business School, Finance; National Bureau of Economic Research (NBER)), Greg Buchak (Stanford University Graduate School of Business), & Ana-Maria...

Marxists tend to like the labor theory of value because it provides a vivid account of exploitation and highlights a basic antagonism at the core of capitalism: capitalists and workers are locked in a battle over the appropriation of the surplus that workers produce. But many commentators assume it is either internally inconsistent or hopelessly outdated. The theory is thus hotly contested, but arguably poorly understood by both critics and advocates alike. The debate has also sometimes been mired in arcane mathematical issues. As a consequence, interesting philosophical and empirical questions have received less attention. We put a number of these questions to Duncan Foley, author of Understanding Capital: Marx's Economic Theory.
The post Reconstructing the Labour Theory of Value: An Interview with Duncan Foley (Part 1: The Commodity Law of Exchange) appeared first on Progress in Political Economy (PPE).

Kate Wand invites Phil Magness to discuss the origins of critical theory, which is a neo-Marxist school of thought born in the Frankfurt School in 1923.

International institutional policy, shaped by a globally entrenched explanatory framework of development and underdevelopment, perpetuates the suppression of knowledge production aimed at challenging social, economic, and political injustices by elites across the global South

Jai Kedia


This week, the International Monetary Fund published a blog post and a working paper that show the contributions of profits, wages, and import prices to the recent inflationary spiral in the Euro area. While the authors note that their analysis represents an "accounting identity [which] does not allow for causal interpretation," it has nevertheless reopened media debate on the "greedflation" theory – the idea that corporate profiteering is responsible for the post‐​Covid inflation spike across the world. At least four mainstream media outlets have published articles that attribute causal interpretation to the greedflation hypothesis, using the IMF's materials as their basis (see these articles from MarketWatch, Huffington Post, Guardian, and Telegraph).
The problem with the greedflation theory is that it is not an explanation for inflation. It is the result of an accounting exercise that simply breaks down inflation into its constituent components. It does not, and cannot, offer an explanation as to why these components are above or below their normal thresholds. Inflation is a short‐​run macroeconomic variable; in that sense it is caused by shocks to the economic system that move prices away from their equilibrium values. By definition, these shocks are exogenous to the economic system and cannot be the result of greedy CEOs, scheming to take advantage of economic turmoil. Inflation has been stable for decades in most advanced economies – from the mid‐​1980s till the pandemic, inflation was close to its 2% target rate. Is it reasonable to assume that corporations were greedy since Covid but were disinterested in profits at any time between 1985 and 2020?
Corporate profits are determined by price markups – the degree to which firms can charge a price that is higher than their costs. Firms cannot charge arbitrary prices. Optimal prices are set based on several market factors including demand, supply, costs, expectations, etc. As such, both cases – price increases and price decreases – may result in lost profits for a firm. Increased price markups are simply evidence of firms responding to economic conditions and reoptimizing prices.
To further understand the dangers of drawing causal inference from accounting exercises, look at Figure 1 below which is a reprint, from page 9 of the IMF paper itself, of the breakdown of Euro area inflation from 1971 onwards. While corporate profits have recently become a majority factor, labor costs have historically dominated the accounting of inflation, especially during the massive inflationary spikes of the 1970s. Attributing current inflation to corporate greed is just as strange as attributing those inflation episodes to greedy workers that demand over‐​inflated wages. During both cases, workers and firms were responding to shocks in the economy that temporarily increased their bargaining power in the market.









Figure 1: Breakdown of Euro Area GDP Deflator Inflation into Accounting Components (Source: Hansen, et. al. 2023. Euro Area Inflation after the Pandemic and Energy Shock: Import Prices, Profits and Wages. IMF Working Paper No. 2023/131. [Link])
Back to current Euro inflation – the key task of an empirical economist is identifying which shocks contributed to both price markups by firms and inflation overall. To that end, the economist should use a structural framework that allows for interactions between various economic variables and shocks so that there may be some causal implications. A seminal paper from 2003 already provides a benchmark analysis that researchers could replicate or extend (I employed a similar method when breaking down inflation in the US). Drawing causal inference from accounting identities only serves to obfuscate the true story of inflation and will not allow policy makers to accurately identify the facets of the economy that will contribute the most to a full recovery.

Many people are familiar with Adam Smith's The Wealth of Nations (WoN), But Smith's ethical thinking was just as important. In fact, it was The Theory of Moral Sentiments (TMS), published 27 years earlier, on 12 April 1759, that made him famous.Just The Wealth of Nations, this book marked a complete break from the thinking of the time. Ethics had until then been widely assumed to be based on God's will (or the clerics' interpretation of it); or something that could be deduced through abstract reason; or even something that could be felt through some 'moral sense' like touch or vision. Replacing this speculative thinking by scientific method, Smith argued instead that morality stemmed from our human nature as social beings, and our natural empathy for others. By observing ourselves and others, he said, we could discover the principles of ethical behaviour. Ethics was a matter of human psychology, stemming from how we form judgements about ourselves and others, and the influence of customs, norms and culture upon it.This scientific approach to ethics was a sensation. It was very much in line with the Scottish Enlightenment, which sought to apply observation and scientific method to the study of human affairs. Old hierarchies were breaking down; industrialisation was eclipsing Scotland's feudal past; radical thinkers like Francis Hutcheson and David Hume were pushing new boundaries, and religious pluralism was creating a more active debate on virtue and morality.Smith's book explained that morality is rooted deeply in human psychology, especially the empathy we have for our fellow humans. By our nature, we understand, and even share the feelings of others. Wanting others to like us, we strive to act such that they do. Even if there is no one else around to see how we behave, we are still impelled to act honestly, says Smith, as if an 'impartial spectator' is judging us all the time, setting the standard by which we rate ourselves and others. And under this imaginary eye, every choice we make helps us appreciate that standard more clearly and act more consistently in accordance with it. It is as if an invisible hand is drawing us to act in ways that promote social harmony.TMS is mainly a descriptive account of human moral action. It examines how people actually make moral choices, and the pressures on them to do so. It also provides a guide on how we can cultivate our morality, emphasising the importance of self-reflection and self-improvement. Smith's radical scientific approach in TMS and WoN provided a foundation for the subsequent development of psychology, sociology, and economics, establishing them as distinct subjects of academic enquiry. And its suggestion that self-interested actions—wanting to be liked by others, or exchanging things we value less for others' things we value more—could produce a cooperative social and economic order, continues to have a central place in liberal thinking.All this makes the themes in The Theory of Moral Sentiments just as relevant today as they were in 1759. Through self-reflection, we can make better moral choices. Through our empathy with others, we can foster understanding and create a more peaceful society. Through an appreciation of our shared feelings and interests, we can live and work and collaborate together for the mutual benefit of the whole of humanity.

Policymakers should heed the lessons from economic theory and real‐​world evidence. Rent control, even in its more moderate forms, is a flawed tool that creates more problems than it solves.

A recent proposal by President Biden's Office for Management and Budget seeks to place politics above commonsense economic theory.
The post OMB’s New Playbook: Economics or Politics in Disguise? appeared first on American Enterprise Institute - AEI.

Have you ever heard the term "regulatory capture"? It's a famous economic theory that the regulation and regulators we create to keep certain industries in check can be captured and bent to the desires of those very industries. This year marks the 50th anniversary of the publication of the paper that first proposed this theory. It's called "The Theory of Economic Regulation" and it was written by none other than the namesake of the center that produces this podcast, George Stigler. We recently hosted a conference of some of the most prominent economists to reflect on why the ideas of this paper are still revered and relevant today.

For economists, r* refers to the “natural rate of interest” that emerges from economic theory. It’s the “Goldilocks” interest rate that is not too high and not too low: that is, the interest rate that would occur “naturally” in the economy when the economy is at potential output and inflation is stable. A “tight” or … Continue reading Follow R-Star?
The post Follow R-Star? first appeared on Conversable Economist.

Chase Foster (SOAS University of London; Munich School of Public Policy at the Technical University of Munich) & Kathleen Thelen (Massachusetts Institute of Technology (MIT) - Department of Political Science) have posted Brandeis in Brussels: Regulated Competition and Economic Coordination...

Most people would be hard‐​pressed to define the "American Dream" without some reference to economic freedom. From Benjamin Franklin's dozens of inventions (bifocals! A flexible catheter!), to self‐​made man Frederick Douglass, to serial inventor Joy Mangano's miracle mop, Americans believe...