I occasionally dip into EconSpark, an interactive blog sponsored by the American Economic Association. Recently I noticed that a participant posed the question: What is labor economics? That query is important and goes to the heart of the GEM Project. …
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Smith, Okun, and Chandler
In his masterwork, Adam Smith (1776) provides two particularly deep insights about economic activity: the spontaneous organization of self-interested market exchange (the “invisible hand”) and the nature and implications of production specialization (the “pin factory”). Smith sought to explain decentralized …
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What Macro Theorists Don’t Know
Perusing what macro theorists publish and teach reveals shockingly large gaps in what they appear to know about how modern, highly specialized economies actually work. Given that macroeconomists are generally satisfied with the state of their art, something pretty interesting …
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Original Efficiency-Wage Theorists
This post places the research of Arthur Okun, the subject of last week’s essay, in the larger context of what came to be known as efficiency-wage (EW) theory. The workplace venue of price-mediated exchange was introduced into macroeconomics by original …
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Recalling Arthur Okun
Arthur Okun’s name came up. It happened in a conversation with a friend from the high-wire policymaking days at the Fed when stagflation – simultaneously high unemployment and high inflation – was generating an instability crisis second only to the …
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Replacement Theory Part II
This post continues my brief summary of why generalized-exchange theory should replace general-market equilibrium as the profession’s dominate macro model. This concluding instalment focuses on when and how market-centric macroeconomics became inadequate to explain mass market instability. The crucial event …
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The GME Replacement Theory: Part I
General market equilibrium (GME), pioneered by Walras and infused with the genius of Arrow and Debreu, is a towering scholarly achievement that has long provided a valuable model of rational price-mediated exchange. Like the succession of beautiful theories in physics, …
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Two-Venue Theorem
Involuntary job loss is at the heart of the mainstream stabilization-theory muddle. For policymakers, the socioeconomic problems of employment and income loss are central to business-cycle pathology. Many critics of modern macro modeling argue the failure of New Keynesians (NK) …
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The Centrality of Nominal Wage Rigidities
Macroeconomic stability is a cornerstone of the modern social compact. Our capacity to under-stand, and design policies to beneficially influence, the cyclical behavior of employment, output, income, and inflation is entrusted to macroeconomists. It is a responsibility for which mainstream …
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Malinvaud’s High Bar
“[T]he characteristics of great theoretical achievements are clear foundations, consistency with many observed facts, unification of theories which previously appeared as fundamentally distinct.” That high bar was set Edmond Malinvaud (1977), the late, greatly admired French macro theorist. Mainstream New …
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