Economic models are everywhere. They're used both implicitly and explicitly by politicians, economists, journalists and even the general public. These models somehow manage to wrap entire concepts in beautifully presented mathematics and graphs before presenting clear, concise conclusions. They provide a framework for digesting things such as how wages are determined, the effects of a living wage, how countries can grow after exhausting the gains from capital accumulation, the effects of certain policy decisions and many, many more key economic concepts. What could possibly go wrong when applying them to the real world?
Recently in economic theory Category
Then there are the gas shortages. These are primarily the result of storm damage. But they've been made worse by New Jersey Governor Chris Christie's effort -- joined by New York Attorney General Eric Scheiderman -- to crack down on "price gouging." This politics hurts victims. It's elementary economics that holding prices down depresses supply. If you could sell gasoline for $15 a gallon, lots of people would load pickup trucks with gas cans and drive to the storm area, alleviating shortages. (And at that price, people wouldn't buy more than they needed.) If doing that risks arrest, they won't. Political posturing over "gouging" leads to gas lines, further economic disruption and possibly lost lives.
This semester I have been teaching a class at BYU on
economic growth. One of the
anticlimactic moments in the class comes near the end when I try to summarize
the various theories and models of growth we have covered. We try to determine by an appeal to the
evidence which of these is the best explanation of observed growth
patterns. The bottom line is that we
don't really know.
(Thanks to Scott Findley for pointing me to this.)
Two of my colleagues, Brennan Platt and Joe Price, along with one of our undergraduate students (Henry Tappen), have written a paper entitled, "Pay-to-bid Auctions," that beautifully lays out the economics of these Swoopo-type auctions.
"Habit persistence is a relatively new idea in economics and finance which argues that people's utility or sense of well-being rises with a rise in consumption only in the short-run. In the long-run, people become accustomed to higher levels of consumption and these new higher levels yield the same amount of utility as the lower ones did in the past."
"This is not a new concept, however. Last night while reading The Trojan Women, a play by Euripedes dating from 415 B.C., I ran across the following lines spoken by Andromache, Hector's wife, who is discussing the death of another woman, a former princess of Troy."
Andromache: But if the choice is between a miserable life, mother, if it is between a miserable life and death, death is preferable. Because the dead feel no misery and they know nothing of grief, whereas for the living mortals, if a happy woman falls into misery she must deal with the memory of the joy she previously enjoyed. Her soul seeks the joys of the past.
In response to the increasing computation times required by the complexity of many current economic models, cluster computing and parallel processing are becoming important skills for economists. A new resource for economists in this area has just been made available to the public thanks to a National Science Foundation funded joint project of Russell Cooper (Univ. of Texas at Austin), Kim Ruhl (NYU Stern), and the Federal Reserve Bank of Kansas City. The website is www.clustereconomics.org.
"These complications make the theory of interstellar trade appear at first quite alien to our usual trade models; presumably it seems equally human to alien trade theorists."
"This paper, then, is a serious analysis of a ridiculous subject, which is of course the opposite of what is usual in economics."
The concluding paragraph is great as well. Thanks to Jason for bringing this paper to my attention.