Upcoming blog changes

Hi everyone.  You may have noticed a flurry of activity in the blog over the last two weeks – this is because I moved two months of planned activity forward so it would be finished by the end of September.

I am going to have to leave the blog for a while in order to focus my attention on other things from today – so for the foreseeable future I will not be writing or commenting here.

However, some students at Victoria University of Wellington have stated that they are keen to set up an Economic Club at Victoria.  As part of this some students are likely to put up posts here – giving the blog a fresh start with some new, more novel, voices.  Once the club is set up there will likely be a post here – you don’t have to be a student to join, and I hear they are looking at setting up monthly presentations from economists on a range of topical issues.

I have had a lot of fun writing here again, and I’m sure that one day I’ll have something to say.  But I like the idea that some Young (Economics) Turks will turn up to disrupt economic thinking on this site – and hopefully help us all think a bit more critically about economics ideas we’ve taken as given.

Good tweet on narratives and morality

Make of this what you will.  I think reading it as Smith underplaying morality is unfair – but reading it as economic language/narratives being used to underplay important moral arguments that may be necessary for important coordination games is fair.

When I was recently asked who my favourite economist was I named my partner, but pointed out Tirole was a close second.  I also discovered my third fav, Dixon, is on twitter.  Both Tirole and Dixon use standard economics models to explain things we observe while focusing on the types of assumptions we make and their credibility – they use models for clarity of exposition, and I love it.

Use value, exchange value, and “cost”

When writing this post I found myself a bit uncomfortable with terminology like “use value” and “exchange value” and so steered away from them – well also because a production function approach to the question is just so much damned clearer!  Exchange value was fine, but use value I found a bit confusing – as I always wanted it to be defined either in terms of the buyer (their utility) or the seller, and even in terms of the seller are we talking about the price they sell at or their full economic cost (which includes the opportunity cost).  This especially frustrated me as I know that 13 year old me used these terms all the time.

Now I think I have a clear idea on it all again, so I’m just noting this down so I can look it up in the future!

Use value:  Read this as utility Matt.  It is the value of the person using it.

Exchange value:  Price.

You’ll notice something is missing here when I talked production functions though … the actual supply of goods and services.

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Heterogeneity matters: Why remembering people are different is important for thinking about outcomes

When I was a student a lecturer said to us “When analysing trade, does it make sense for us to assume everyone is the same?  If everyone was the same why would they trade with each other?“.  This is simultaneous a bit of a silly question and a useful one.

He answered that they wouldn’t, and went on about something – but in truth it is because of his definition of “same” with regards to the model he was describing.  He was looking at a GE model with people with the “same” endowments and preferences – and yeah sure in that model there is no trade.  But this ignores the idea of production entirely – even if we have the same preferences and same “characteristics” (in terms of the hours we are endowed with and our ability to turn those into leisure or output), the existence of a production process with specialisation implies that there is benefit from specialising and then trading.  This division of labour is pretty central to our understanding of trade, so we shouldn’t really look past it.

But it raises something important as well.  We need to describe why people are trading, and what exactly is driving that process, before we can evaluate anything.  Let’s make a quick framework that will help us do that!

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Bleg: The role of unions

I see that Bloomberg is stating that Economists are changing their minds about unions – moving from seeing them negatively to seeing them positively.

Unions are an interesting topic, but are also inseparable from a discussion about the relative welfare state and competition policy embedded in a nation.  Nordic and German trade unions are quite different from the trade unions of the US, UK, and Australiasia – and any evaluation of an institution in this way requires a model that allows us to represent the institution relative to other institutions in the economy, the way individuals behaviour relates to that, and how the outcomes for individuals will vary.

So does anyone want to do some of that in the comments below?  I will hopefully be writing up some things on these issues over time – but as a starting point for discussion I will put up this oversimplification.  Unions help to correct issues of insufficient bargaining power for labour, but like any monopoly their existence leads to deadweight losses which hurt those outside of the unionised industry, and are unfair to capital owners in competitive markets.  Evaluating whether more unionisation is good relies on comparing the costs and benefits given in this oversimplification.

Off we go …

A bad econ model is better than the alternative

Let us talk about this.

https://twitter.com/Noahpinion/status/1041714463060049920

I will be using this model myself next week to talk about migration (opps post timing changed and that was already up), so lets have some fun talking about this.

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