This lecture integrates ecological concerns wirth standard economics, providing an overview of how macroeconomists model the economy and how those methods and models relate to climate issues.
Here’s a short quiz to test your knowledge about the sessions:
“Macro 6: DSGE“, Anthony J. Evans (for more depth on Macroeconomic models including my other podcast episodes see here)
Recommended videos:
Here is a fascinating video (in French) on the limits to growth and the World 3 model
Here is more on the doughnut model:
Some spinning donuts (see! it is meant to be measured!):
Yes! At last… Watch national Doughnuts changing over time. Published today: 150 countries, 1992-2015. Eye-opening & powerful work by @AndrewLFanning & coauthors. Check out the website – an incredible teaching resource… https://t.co/8D59jZ9TMppic.twitter.com/PwMYZwHc3g
Here’s a concerning thought: “Half of all scientific papers were published in the last 12 years, but much less than half of all scientific progress has happened in that time” (link).
For a survey of potential breakthrough technologies see:
Weinersmith, K., and Weiner, Z., 2017, Soonish, Penguin
We are seeing unprecedented innovation in payment technologies, with disruptive firms encroaching on activities that many think should be left to central banks. But why not think creatively about the opportunities and threats from decentralised money? What is the proper role of a monetary authority in a system that is fit for the twenty first century? This lecture will equip students with the skills to take a radical looks at contemporary issues such as crypto currencies and central bank activities.
In January 2022 the Fed released a paper on CBDC’s. In response, George Selgin wrote a briefing paper that advocated expanding the set of providers that the Fed deals with, to obtain the competition and innovation that comes from the private sector without the Fed having to issue their own digital currencies. Stablecoin issuers do not require the same regulatory oversight as traditional banks, by providing access to the Fed’s system they simply need to ensure that they fully back their coins with central bank reserves (and possibly short term Treasury certificates). This would require:
Bank licenses should be available to non-traditional banks (i.e. institutions that don’t do all of the activities typically associated with a bank, such as maturity transformation)
If you are totally new to concepts like blockchain, bitcoin and NFTs and want a thorough account of the history and development, in a well produced an informative documentary that takes a highly skeptical and cynical approach, I recommend this:
For a more positive view of NFTs, an identification of the context in which they’ve emerged (post global financial crisis and great stagnation), and subjectivist approach to value, see this Twitter thread.
Learning Objectives: Provide an assessment of central bank responsibilities in the digital currency landscape.
Cutting edge theory: Making assessments of digital and crypto currencies.
Can someone really understand crypto currencies and the future of digital money without having a solid grasp of why money even exists? This topic is a great example of why historic knowledge and theoretical clarity are crucial when involved in fast changing industries – it provides a benchmark to verify the bold claims made by industry practitioners.
The purpose of this lecture is to gain a deep understanding of what money is and how it has evolved.
Background readings:
Menger, C., 1892, “On the Origins of Money” Economic Journal, 2:239-55
Radford, R.A., 1945, “The Economic Organization of a P.O.W. Camp”, Economica, 12(48):189-201
“Pierpaolo Barbieri on Latin American FinTech“, Conversations with Tyler, May 19th 2021 – in particular this shows the importance of knowing financial and economic history for tech founders
Hashpower – Part 1, Investors Field Guide – a fantastic early introduction to blockchain technology and potential of crypto assets
Recommended video:
If you are totally new to concepts like blockchain, bitcoin and NFTs and want a thorough account of the history and development, in a well produced an informative documentary that takes a highly skeptical and cynical approach, I recommend this:
For a more positive view of NFTs, an identification of the context in which they’ve emerged (post global financial crisis and great stagnation), and subjectivist approach to value, see this Twitter thread.
Learning Objectives: Understand the origins of money.
Saez, E., and Zucman, G., 2020, “The Rise of Income and Wealth Inequality in America: Evidence from Distributional Macroeconomic Accounts” Journal of Economic Perspectives, 34(4):3-26
Kopczuk, W., and Zwick, E., 2020, “Business Incomes at the Top” Journal of Economics Perspectives, 34(4):27-51,
Many consider inequality to be a key social problem, and yet economics is all about delving beyond intuitions. Do we have good data on what has happened to inequality over time? What type of inequality matters? Is there an important trade-off to consider when confronting inequality? The answers to these questions may be controversial, but they are relevant and important.
I’ve often seen students link to this graph:
On initial inspection this graph looks highly dubious:
The selection of countries is suspicious (why exclude countries that have more income inequality than the US, and why include Finland but not Singapore)
The “Index of health and social problems” looks arbitrary and prone to manipulation
However I’ve not been able to find the actual source yet. I assume it comes from ‘The Spirit Level‘, which I believe has been quite firmly debunked.
Oxfam are also renowned for using dodgy statistics. For example:
This is also something that Dracula noticed when he encountered a “normal” modern house:
I’ve been a nobleman for 400 years. I’ve lived in castles and palaces among the richest people of any age. Never….never! Have I stood in greater luxury than surrounds me now. This is a chamber of marvels. There isn’t a king, or queen or emperor that I have ever known or eaten who would step into this room and ever agree to leave it again. I knew the future would bring wonders. I did not know it would make them ordinary.
Here is the reason I’m concerned about the link between inequality as a public policy issue and central bank digital transformation:
We realize it’s difficult to pay your wealth tax when much of your wealth is in the form of illiquid assets. As a result, we’ve deducted the amount from your CBDC balance, which is now negative and subject to the central bank’s borrowing rate.
“Claudia Goldin on Inequality“, Conversations with Tyler, Oct 6th 2021 – this conversation focuses on gender inequality and the labour market in particular, and although some of the discussion is aimed at graduate students they pose some excellent questions to reflect on.
I was saddened to learn recently that same amount of time had passed between the first human airplane flight and the first human spaceflight as between the first spaceflight and 2018 (see here).
Here is an example of a business model that sounds very high tech and contemporary… but originates from the 1930s!!
The UK used to have more electric vehicles than anywhere else in the world:
A fleet delivering local, organic produce on a next-day/subscription model, with payment after delivery, zero single-use plastics, and daily recycling pickups. pic.twitter.com/4BsxefcEvH
The lecture provided some pessimistic views on transformative breakthroughs. But every now and then I notice the power of steady, incremental progress. For example:
Textbook Reading: Chapter 1 (Section 1.2, pp. 16-29)
The purpose of this session is to realise that value comes from satisfying people’s needs, and that this leads to a broad and insightful realisation that:
Competition is when anyone else tries to satisfy the same customer needs that you do.
Innovation is trying to find better ways to satisfy your customers needs.
Entrepreneurship is successful when you really understand your customers needs.
Once of my favourite examples of value creation is David Reynold’s model of the Brent Bravo oil rig. He used over 6 million matchsticks and it took him 15 years to create. And yet all this time and effort does not make it valuable. Unless you have a need for a matchstick model of the Brent Bravo oil rig, it is possibly worthless. (You can read more about it here and here). In 2013 Barry King tried to beat Reynold’s record by constructing a model of Salisbury Cathedral (which is a popular tourist destination for KGB agents). You can read more here. Since 2012 Steve Waller has spent around 12 hours a day to create a scale model of the St Hilda district in Middlesbrough. We may respect these creations, but that doesn’t make them valuable.
Here’s a list of items that have caused controversy over their value:
Among Us shaped chicken nugget sold for almost $100,000 (link)
For more on the value of saffron see here. A historic use was as yellow dye for tunics, rather than the alternative (horse urine). Since it is worth more than £5,000 per kilo (in 2021), counterfeit saffron is a highly profitable criminal enterprise. Remember that we should reason from value to cost, not the other way around. As Will Luther said, “Consider medical doctors. Some say they make a lot of money because they spend so many years in school. Wrong! That explanation gets the story backwards. They are willing to spend so many years in school *because* people are willing to pay so much for their medical services.”
Here’s an example of how Starbucks creates value for me:
This concept is closely related to “Jobs to be done“, but here’s my review of ‘Competing Against Luck‘.
A nice account of how Amazon may charge higher prices for the exact same books as their rivals, because they provide additional services, is in McMillan, J., (2002) Reinventing the Bazaar, W.W. Norton & Co. (p.50)
“The internet in fact has not made information free. If shopping were merely a matter of finding the lowest price, the internet’s comparison shopping devices would eventually force all retailers to match their lowest-priced competitors. But a book offered by one retailer may be distinguishable, in a shopper’s perception, from the same book offered by another retailer, even though they are physically identical objects. The shopper is not buying a book, but a package of services of which the book is itself a part – the main part, to be sure, but just a part. In addition, the buyer is getting assurances of various kinds: that the book will be delivered as quickly as promised; that it will be delivered in good condition; that the retailer will allow it to be returned if it is not what was expected; that the retailer’s employees will not fraudulently reuse the buyer’s credit card data. Buyers willingly pay a little more to reduce their uncertainty. Information costs include not only the costs of locating a seller but also the costs of getting assurance. The retailer’s reputation can convey such assurance. A brand name is a device for providing information.” [Emphasis added]
Steve Job’s famous advice was to not listen to your customers. This is in contrast to Tyler Cowen’s “law of interesting content” – which is that interviewers should have the conversation that they want, not what they think their listeners want.
Here’s my bleaker application of value to Apple’s iPhone innovation:
There is a fascinating interview with Rory Sutherland on the links between Austrian economics and marketing, on how value is socially determined and praxeology is the foundation of behavioural science.
For a more traditional, textbook treatment of demand curves, see here:
Can you think of something that delivers a lot of consumer surplus for you? What’s the most consumer surplus you’ve ever received?
Finally, here’s a quick quiz on understanding value.
Learning Objectives: Link a thorough concept of value with implications for competition and innovation. Derive demand curves.
Cutting edge theory: Jobs to be done
Focus on diversity: Economists typically take preferences as given, but we can provide a theory of demand reflecting “the individual’s commitment to an intelligible universe” (p.52), where goods are considered to be a visible reflection of culture. Mary Douglas (1921-2007) was one of the world’s most admired social anthropologists, and her 1979 book, ‘The World of Goods’, provided a rich and compelling illumination of consumption patterns.
The training scene from Rocky IV demonstrates the difference between the USSR (technologically sophisticated but lacking in heart) and the US (backward but free).
What should Widodo do? Indonesia is a large, populous middle-income country. It faces no major near-term security threats. It has a small manufacturing base and no major non-commodity export sectors. What is the best non-bureaucratic 10 page economic development briefing document and set of prescriptions that one could write for Indonesia’s president?
Here’s my analysis of Belarus, using many complementary concepts.
