Market applications

Group activity:  Market Applications Assignment, December 2022 and complete this Market Applications Form
Instructor resource: Market Applications Solutions, December 2022

This topic is all about how market exchange generates prices, which can be used for information purposes. My favourite examples of using price data to tell a story are the two charts below:


Lecture handout: Progress*
Activity: Transformative Breakthrough Worksheet

⭐ Required readings:

Recommended readings:

Key podcast:

For more on Operation Warp Speed see ‘A Shot to Save the World‘. For a fascinating (but very long) account of Vaccinate CA see The Story of VaccinateCA.

Here is Aubrey De Grey claiming that the first person to live to the age of 1,000 has already been born:

For a survey of potential breakthrough technologies see:

  • Weinersmith, K., and Weiner, Z., 2017, Soonish, Penguin

Or this Wikipedia article:


Or this collaborative slide deck:

In September 2019 Eli Dourado provided a detailed and illuminating look at the sectors most likely to contribute to higher future economic growth, with specific examples of technological possibilities.

In December 2020 Tyler Cowen provided a list of new technologies that may mark the end of the great stagnation. He included:

In February 2022 MIT Technology Review listed their 10 biggest technology breakthroughs in 2022. They are:

  1. Moving away from passwords
  2. Coronavirus variant tracking
  3. A long-lasting grid battery
  4. Artificial intelligence for protein folding
  5. GlaxoSmithKline’s malaria vaccine
  6. Proof of stake
  7. COVID-19 antiviral pills
  8. Practical fusion reactors
  9. Synthetic data for training AI
  10. The world’s largest carbon removal factory in Iceland

Here is an explanation of nuclear fusion:

Here is a podcast with Eli Dourado:

Some of my favourite “no brainer” growth drivers include:

I suspect that future growth requires a cultural shift toward the principle of progress, and this involves a shift to longer term thinking. This post by Max Roser nicely presents the importance of “Longtermism”.

Here is a powerful and fascinating account of why advances in artificial wombs are so important, and I encourage all students to read it and reflect carefully on whether we should:

  • Alter the 14 day rule on keeping embryos in labs.
  • Invest more in Femtech.

Here is a video showing how the pill accelerated female participation in the workforce:

And, if you are blessed with children, don’t beat yourself up about having to breastfeed. The evidence in favour is fairly weak:

For more on Permissionless Innovation:

A good, uplifting account of how creativity can result from not asking permission:

Here is a short quiz activity on the difference between the Precautionary principles and Permissionless innovation.

The importance of ideas:

“Comfort is the enemy of progress” P.T. Barnum:

Key organisations:

Key movements:

Here is a good Economist article surveying “the new tech worldview” exhibited by the likes of Peter Thiel and Patrick Collison.

Recommended podcast:

  • Ep. 76: Steve Horwitz — What Drives Progress?, The Curious Task, Jan 13th 2021 – this interview touches on several themes from my teaching, including rising living standards, permissionless innovation, and the great stagnation. I also find it poingnet to listen to – I knew Steve personally and he passed away just 6 months after this recording.
Learning Objectives: Link technological innovation to growth theory and a broader reflection on the importance of the humanities

Cutting edge theory: A survey of potentially transformative breakthrough technologies.

Focus on diversity: Virginia Postrel’s book, The Future and it’s Enemies, encapsulates the distinctions made at the end of the lecture. 

Central banks and digital transformation

Lecture handout: Central banking and digital transformation*

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 equips students with the skills to take a radical look at contemporary issues that relate crypto currencies and central bank activities.

Prerequisite: I assume that you have some familiarity with basic concepts from money and banking, and know about and understand Blockchain and Bitcoin. If you don’t, see here:

Money and (central) banking

Key readings:
Recommended podcasts:
Current policy relevance:

In response to the 2022 Fed paper, 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)
  • The Fed should allow fintech companies to have master/settlement accounts (which the Bank of England did in 2018)
  • For more see: Selgin, G., “A ‘narrow’ path to efficient digital currency”, Cato Briefing Paper No. 134, February 9th 2022
Other country case studies

Here’s a website that keeps track of interest in CBDCs around the world:

Learning Objectives: Provide an assessment of central bank responsibilities in the digital currency landscape. 

Cutting edge theory: Assessing current policy relevance of central bank activities.

The evolution of money

Lecture handout: The evolution of money*

Textbook Reading: Chapter 7 (Section 7.3; pp. 216-225)

“I’m very interested to watch the crypto community relearn centuries of monetary economics” John Cochrane (Conversations with Tyler, March 10th 2021)

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
Interactive practice

Speaking of Bitcoin:

Here I am at a museum:

Fun fact

Apparently the first person to mention Bitcoin in a congressional hearing was Larry White, in 2011!

The Starbucks hustle:

Starbucks isn’t a bank, but here’s a good Twitter thread on their fintech capabilities:

For more see JP King’s post, “Starbucks, monetary superpower“. And here’s my short video on The Starbucks Hustle:


In May 2022 the stablecoin TerraUSD broke its peg to the dollar. A very good explanation of what happened, and why, is by Josh Hendrickson: When a Dollar Isn’t a Dollar. And so is this thread:

Troubled currencies
  • Steve Hanke runs the Troubled Currencies project which gathers black market data to construct up to date estimates of high inflation environments. You can see more here.
Recommended readings:
Further readings
  • Piecing it together, The Economist, March 11th 2023 – a fascinating theory that the adoption of the silver coin contributed to democracy
Recommended audio:
Recommended video:

Here is a standard historical overview of money:

This is a great lecture video, by the late Steve Horwitz, summarising Carl Menger’s work on the origins of money:

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.

A good article debunking a lot of Web3 hyperbole is here:

Some argue that Bitcoin’s main value is as a focal point for crypto more broadly. In this sense it is like Kerrygold butter. See:

  • Bailey, Andrew M. and Warmke, C., “Bitcoin is King”, Chapter 10 [PDF here]
Further activity

In September 2022 Sequoia Capital published a gushing profile of FTX founder Sam Bankman-Fried. In November they went bankrupt, and Sequoia removed the article. However, you can download a PDF version here.

Points to consider:

  1. Did SBF’s utilitarian philosophy contribute to his willingness to cross ethical boundaries? (His objective was to make as much “risk neutral” money as possible)
  2. If his intention was to contribute to the norms of capitalism, would he have behaved differently?
Learning Objectives: Understand the origins of money and how this can be used to understand the role of central banks in a fiat money system, as well as to navigate the crypto landscape.

Cutting edge theory: Making assessments of digital and crypto currencies.


Activity: Thinking about wealth

Lecture handout: Inequality*

⭐ Required readings:

  • 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 Economic 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.

Imagine trying to answer the following question:

A study by Gimpelson and Treisman (“Misperceiving inequality“, NBER Working Paper 21174) found that:

  • In 29 of the 40 countries a majority of respondents who ventured a guess guessed wrong.
  • In 29 countries, the leading choice attracted fewer than 50 percent of those who guessed.
  • In almost three quarters of countries, most respondents who thought they could identify the general pattern of inequality got it wrong.

As Sam Bowman has argued,

loads of the objections people have to inequality, if there is any truth to them, are probably actually objections to perceptions of inequality, which may be more driven by media coverage than reality. If that’s true, then trying to reduce inequality in fact is a waste of time — you should try to get the media to talk about it less instead

Vincent Geloso has challenged some of the work done by Gabriel Zucman. You can read more here:


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:

Aside: Sometimes I’m asked what I really think about inequality. Really? That the there is no ethical basis for being concerned about inequality per se.  In fact, the best argument to take it seriously is because low educated and xenophobic natives, who have hit the jackpot in where to be born, hold civilised (i.e. cosmopolitan) society to ransom by threatening extremism of various sorts and civil disorder unless their concerns are met. Ideally, we prevent all that from happening by ensuring nominal income stability and productivity growth. But there’s no moral basis for “equalising” arbitrary distributions. Our moral concerns should be focused on eradicating poverty and destitution; and ensuring a competitive market economy that rewards wealth creation and limits rent seeking. If forcing Charles Koch to emigrate improves your metrics of success, then I demur.

For more on Mr Beast see this twitter thread and this interview with Joe Rogan:

Or this one with Lex Fridman:

The lecture tried to show the link between economic growth and rising living standards for the general public.

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.

Similarly, see this quote:

A key point from the lecture is that when assessing inequality it is important to look at consumption (or living standards) as well as income and wealth. In this post Scott Sumner makes the case for why the only sensible way to look at inequality is through consumption.

Wealth tax

In January 2022 a group of high net worth individuals signed a petition to campaign for a wealth tax. Here is an overview and discussion of a wealth tax:

Here is a debrief about the wealth tax quiz. Recently, Norway increased their wealth tax to 1.1%. According to a report in The Guardian, “More than 30 Norwegian billionaires and multimillionaires left Norway in 2022… This was more than the total number of super-rich people who left the country during the previous 13 years, it added. Even more super-rich individuals are expected to leave this year because of the increase in wealth tax in November, costing the government tens of millions in lost tax receipts… Many have moved to Switzerland, where taxes are much lower”

Here is a KPMG report on how Switzerland treats Cryptocurrencies as part of its wealth tax.

Here is the reason I’m concerned about the link between inequality as a public policy issue and central bank digital transformation:

Universal basic income

A universal basic income is a policy programme that provides all citizens with a specified amount of money irrespective of need. This Vox article provides a good summary of different examples of how they work in practice. In 2023 the UK trialled a scheme paying £1,600 per month.

I largely share Martin Wolf’s (2023, p. 283) criticisms of a universal basic income (UBI) in that by being so intentionally ill targeted it creates too much of a waste of limited public funding – “A UBI at a high enough level to render targeted assistance to those who are vulnerable, needy, and deserving would be unaffordable, while a UBI  that is affordable would benefit many people who do not need the money and fail to benefit important services and people who need more than they have now.” I prefer a moderate income tax with generous allowances and incentive compatible welfare payments.

We can think of the state as an “insurer of last resort”, with its access to taxation permitting favourable terms for mitigating risk (p. 274). By being able to compel people it also avoids the “adverse selection” problem that befells individuals in particular need. This helps to explain the main economic justification for a well functioning welfare state (p. 276):

  • Incomplete private insurance
  • Incomplete capital markets

Note though that improving the market in those two areas would reduce the need for widespread social protection.


For an overview of the debate surrounding the role of slavery in the rise of the West see:

📻  Recommended audio:
  • 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.
  • Thomas Piketty on the politics of equality“, Conversations with Tyler, April 20th 2022 – Tyler challenges Piketty on some of the political economy arguments relating to progressivism and does a good job putting Piketty’s work into a history of economic thought perspective.
🎥 Recommended film:

You can see the trailer to Parasite here:

I also recommend the 2021 BBC series Chloe. As this Guardian review demonstrates, when it says “I hope she gets away with everything”, some viewers can actively root for despicable behaviour if it’s presented as a commentary on inequality.

Finally, if you like the plot device from Parasite, with people appearing from underground captivity, confronting a confusing situation as a result of odd costumes, leading to violence and mayhem… then I recommend Emir Kusturica’s Underground (1995):

Learning Objectives: Survey the latest empirical work on inequality and relate this to wider social issues.

Cutting edge theory: Assessment of a wealth tax

Focus on diversity: Thomas Sowell has written extensively on topics such as race and inequality. In this interview he discusses the myths of economic inequality.


Activity: Transformative Innovations
Lecture handout: Stagnation*

⭐ Required readings:

Recommended audio:

Here’s a great image showing a long-term timeline of technology (but notice the gap between smartphones and Now):

According to Max Grossman, as of 2021 half of all scientific papers that had even been published had come in the last 12 years, and yet much less than half of scientific progress had happened in that same period.

Consider the following:

Ad yet, 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’s a photo of Lady Priscilla Norman on her electric scooter, taken in 1917!

To some extent this lecture is about trying to work out what happened in the early 1970s. This website poses the same question:

Some interesting (and possibly related) facts about this period:

  1. Productivity and hourly compensation appear to derail:
  2. Also see here:
  3. Energy consumption flatlines in the 1970s (great news for environmentalists!)
  4. The average age of the US population begins to rise – this is because the US fertility rate falls below the replacement rate… and stays there (source):
  5. Number of beards increases dramatically in the mid 1970s (source):

6. In 1973 Barbara Jordan (Texas) and Andrew Young (Georgia) become the first southern black representatives in congress since 1901 (see DeLong 2022, p. 381).

7. EAP (forerunner to ESCP Business School) is founded in 1973:

8. Life on Mars is set in 1974

Perhaps, in future, people will look back on 2007 and say “what happened??”

9. The 1973 Chilean coup d’etat (Pinochet became President in 1974)

The lecture provided some pessimistic views on transformative breakthroughs. But every now and then I notice the power of steady, incremental progress. For example:

Noah Smith has a nice Twitter thread on progress since 1970.

This website: My Ordinary Life: Improvements since the 1990s 

Here’s a great video showing the progress made in car passenger safety:

Learning Objectives: Understand the scholarly literature on the secular stagnation thesis

Value creation

Lecture handout: Value creation*

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 understand your customers needs better than they do.

For more information about David Reynold’s model of the Brent Bravo oil rig, see 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 unless we have a need that they satisfy, that doesn’t make them valuable.

Here’s a list of items that have caused controversy over their value:

  • The ‘I am rich’ app (link)
  • Among Us shaped chicken nugget sold for almost $100,000 (link)
Activity: Here is short quiz on understanding value.

Here is evidence that kids enjoy going to Ikea:

@drkrupnikIKEA is a kids activity!♬ Happy and fun corporate music for advertising. – TimTaj

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.

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. 

Spotlight on sustainability: Plastic packaging

Wiggle Room

Group activity: The Balkan Wiggle-Room Index, October 2020

Here is a nice dashboard of different positions:

Learning Objectives: Generate a scorecard assessment of different countries macroeconomic position.

Cutting edge theory: Establish current indicators for an under studied location.

Transition economics

Learning Objectives: Understand the socialist calculation debate. Consider the empirical record of different transition economies.
Lecture handout: Transition Calculation*

The training scene from Rocky IV demonstrates the difference between the USSR (technologically sophisticated but lacking in heart) and the US (backward but free).

  • Audio: Planet Money, “Peanuts and Cracker Jack
    • What are the main factors that determine the earnings of a vendor?
    • Why is it better to have the vendors decide on who does what, rather than senior management?
    • How much entrepreneurial profit comes from working harder than others?

One of my favourite ruminations on the differences in economic systems.

  • Further reading: “Havana or Prague” in Hitchens, Christopher, (2010) Hitch-22: A Memoir, New York: Twelve
Lecture handout: Transition Shock*

There’s a big difference between queuing for basic necessities, and queuing in excitement about the first McDonalds in Moscow:

These resources form part of my Managerial Economics course map. You can watch the full YouTube playlist here. This page ties into Chapter 12 of ‘Economics: A Complete Guide for Business‘.

Foreign Investment

Case: Porter, M., and Ketels, C., “Indonesia: Attracting foreign investment” Harvard Business School case no. 9-708-420, January 11th 2013 (£)

Case preparation: Foreign Investment in Indonesia, May 2016

Tyler Cowen wants to fund the following question:

  • 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.

Also see my page on Country Competitiveness Dashboard.

Learning Objectives: Consider the role of foreign investment in economic development. Perform a country competitiveness exercise.

Focus on diversity: Asli Demirguc-Kunt is Chief Economist for Europe and Central Asia at the World Bank.

Spotlight on sustainability: This session reveals how policy makers can incorporate social factors in a development plan