market clearing

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pages: 1,535 words: 337,071

Networks, Crowds, and Markets: Reasoning About a Highly Connected World by David Easley, Jon Kleinberg

Albert Einstein, AltaVista, AOL-Time Warner, Apollo 13, classic study, clean water, conceptual framework, Daniel Kahneman / Amos Tversky, Douglas Hofstadter, Dutch auction, Erdős number, experimental subject, first-price auction, fudge factor, Garrett Hardin, George Akerlof, Gerard Salton, Gerard Salton, Gödel, Escher, Bach, incomplete markets, information asymmetry, information retrieval, John Nash: game theory, Kenneth Arrow, longitudinal study, market clearing, market microstructure, moral hazard, Nash equilibrium, Network effects, Pareto efficiency, Paul Erdős, planetary scale, power law, prediction markets, price anchoring, price mechanism, prisoner's dilemma, random walk, recommendation engine, Richard Thaler, Ronald Coase, sealed-bid auction, search engine result page, second-price auction, second-price sealed-bid, seminal paper, Simon Singh, slashdot, social contagion, social web, Steve Jobs, Steve Jurvetson, stochastic process, Ted Nelson, the long tail, The Market for Lemons, the strength of weak ties, The Wisdom of Crowds, trade route, Tragedy of the Commons, transaction costs, two and twenty, ultimatum game, Vannevar Bush, Vickrey auction, Vilfredo Pareto, Yogi Berra, zero-sum game

This is far from obvious, and we will turn shortly to a method for constructing market-clearing prices that, in the process, proves they always exist. Before doing this, we consider another natural question: the relationship between market-clearing prices and social welfare. Just because market-clearing prices cause all buyers to resolve their contention and get different houses, does this mean that the total valuation of the resulting assignment will be good? In fact, there is something very strong that can be said here as well: market-clearing prices (for this buyer-seller matching problem) always provide socially optimal outcomes: Optimality of Market-Clearing Prices: For any set of market-clearing prices, a perfect matching in the resulting preferred-seller graph has the maximum total valuation of any assignment of sellers to buyers.

Therefore, to maximize the total payoffs to all participants, we want prices and a matching that lead to the maximum total valuation, and this is achieved by using market-clearing prices and a perfect matching in the resulting preferred-seller graph. We can summarize this as follows. Optimality of Market-Clearing Prices (equivalent version): A set of market-clearing prices, and a perfect matching in the resulting preferred-seller graph, produces the maximum possible sum of payoffs to all sellers and buyers. 10.4 Constructing a Set of Market-Clearing Prices Now let’s turn to the harder challenge: understanding why market-clearing prices must always exist. We’re going to do this by taking an arbitrary set of buyer valuations, and describing a procedure that arrives at market-clearing prices.

There are many possible sets of market-clearing 15.9. ADVANCED MATERIAL: VCG PRICES AND THE MARKET-CLEARING PROPERTY473 prices, but with some checking, we can see that in our examples, the VCG prices have corresponded to prices that are as small as possible, subject to having the market-clearing property. So let’s consider the following way to make this precise. Over all possible sets of market-clearing prices, consider the ones that minimize the total sum of the prices. (For example, in Figure 15.9, the total sum of prices is 3 + 1 + 0 = 4.) We will refer to such prices as a set of minimum market-clearing prices. In principle, there could be multiple sets of minimum market-clearing prices, but in fact we will see that there is only one such set, and they form the VCG prices.


pages: 348 words: 99,383

The Financial Crisis and the Free Market Cure: Why Pure Capitalism Is the World Economy's Only Hope by John A. Allison

Affordable Care Act / Obamacare, Alan Greenspan, American ideology, bank run, banking crisis, Bear Stearns, Bernie Madoff, business cycle, clean water, collateralized debt obligation, correlation does not imply causation, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, disintermediation, fiat currency, financial innovation, Fractional reserve banking, full employment, Greenspan put, high net worth, housing crisis, inverted yield curve, invisible hand, life extension, low skilled workers, market bubble, market clearing, minimum wage unemployment, money market fund, moral hazard, negative equity, obamacare, open immigration, Paul Samuelson, price mechanism, price stability, profit maximization, quantitative easing, race to the bottom, reserve currency, risk/return, Robert Shiller, subprime mortgage crisis, The Bell Curve by Richard Herrnstein and Charles Murray, too big to fail, transaction costs, Tyler Cowen, yield curve, zero-sum game

When government arbitrarily raises the wage rate above the market-clearing price, labor will go unsold, exactly as in the previous milk example. Minimum-wage laws raise the wage rate above the market-clearing price and thereby create unemployment. From immediately before the financial crisis until today, the minimum wage has been raised from $5.15 per hour to $7.25 per hour, or 41 percent. The prices for practically all other goods and services have either fallen or risen only a little. So in the face of a severe economic correction, the government has raised the price of labor far above the market-clearing price. The minimum-wage laws are the primary cause of the high unemployment levels in the United States today.

The law of supply and demand is not negotiable, any more than the laws of thermodynamics are. This is true whether the politicians like it or not. The law of supply and demand demonstrates that there is a market-clearing price at which supply and demand are equal. At this price, the producers of a good or service (supply) will provide exactly the amount of the good or service that the users (demand) want to purchase. The market will clear; that is, all the production will be sold to willing buyers. If the price is forced below the market-clearing price by government policy (price controls), the users of the good or service will want to purchase more than the providers of the good or service are willing to provide at that price.

There is another set of state laws that has played an important role in keeping the housing market from correcting rapidly and has increased the losses and the destruction of wealth in the housing correction, the state home foreclosure laws. There are price corrections in all types of markets; stock markets and commodity markets are clear examples of markets in which price corrections are rapid and sometimes dramatic. Even though the price corrections may be challenging if you are on the wrong side of the bet, markets clear and everyone can get on with his business based on the new prices that more properly value the commodity or stock. For example, I started my career as a farm lender. Every spring, some of our farm clients would plant a soybean crop. Some of them would hedge the price they were to receive in the fall; some would not.


pages: 1,164 words: 309,327

Trading and Exchanges: Market Microstructure for Practitioners by Larry Harris

active measures, Andrei Shleifer, AOL-Time Warner, asset allocation, automated trading system, barriers to entry, Bernie Madoff, Bob Litterman, book value, business cycle, buttonwood tree, buy and hold, compound rate of return, computerized trading, corporate governance, correlation coefficient, data acquisition, diversified portfolio, equity risk premium, fault tolerance, financial engineering, financial innovation, financial intermediation, fixed income, floating exchange rates, High speed trading, index arbitrage, index fund, information asymmetry, information retrieval, information security, interest rate swap, invention of the telegraph, job automation, junk bonds, law of one price, London Interbank Offered Rate, Long Term Capital Management, margin call, market bubble, market clearing, market design, market fragmentation, market friction, market microstructure, money market fund, Myron Scholes, National best bid and offer, Nick Leeson, open economy, passive investing, pattern recognition, payment for order flow, Ponzi scheme, post-materialism, price discovery process, price discrimination, principal–agent problem, profit motive, proprietary trading, race to the bottom, random walk, Reminiscences of a Stock Operator, rent-seeking, risk free rate, risk tolerance, risk-adjusted returns, search costs, selection bias, shareholder value, short selling, short squeeze, Small Order Execution System, speech recognition, statistical arbitrage, statistical model, survivorship bias, the market place, transaction costs, two-sided market, vertical integration, winner-take-all economy, yield curve, zero-coupon bond, zero-sum game

Various national treasuries use them to sell their bills, and the Arizona Stock Exchange offers them for trading U.S. equities. In a single price auction, all trades take place at the same market-clearing price. The last match that leads to a feasible trade determines the clearing price. If the buy and sell orders in this match specify the same trade price, that price must be the market-clearing price. Any other price would be either too high to satisfy the buy order or too low to satisfy the sell order. Matching by price priority ensures that this market-clearing price is also feasible for all previously matched orders. These matches involve buy and sell orders with higher (or at least equal) price priority.

These matches involve buy and sell orders with higher (or at least equal) price priority. Since all buyers with higher price priority are willing to trade at higher prices than the market-clearing price, and all sellers with higher price priority are willing to trade at lower prices than the market-clearing price, all matches can trade at the market-clearing price. If the buy and sell orders in the last feasible trade specify different prices, the buy order will bid a higher price than the sell order offers. The market can clear at either of these two prices or at any price between them. The market rules will specify the clearing price in this unusual event. 6.3.1 Single Price Auction Example Suppose that the auction of the previous example is a single price auction.

Because prices and quantities are discrete, single price auctions often have excess supply or demand at the market-clearing price. If there is excess supply, all buyers at that price have their orders filled, and the secondary precedence rules determine which sell orders fill. If there is excess demand, all sellers have their orders filled, and the secondary precedence rules determine which buy orders fill. Of course, ranking by price priority ensures that all buy orders placed above the market-clearing price and all sell orders placed below the market-clearing price also fill. 6.3.2.1 Supply and Demand Schedules The supply and demand schedules for the orders in our example appear in table 6-5 and figure 6-1.


The Rise and Decline of Nations: Economic Growth, Stagflation, and Social Rigidities by Mancur Olson

barriers to entry, British Empire, business cycle, California gold rush, collective bargaining, correlation coefficient, David Ricardo: comparative advantage, full employment, income per capita, Kenneth Arrow, market clearing, Norman Macrae, Pareto efficiency, Phillips curve, price discrimination, profit maximization, rent-seeking, Robert Solow, Sam Peltzman, search costs, selection bias, Simon Kuznets, The Wealth of Nations by Adam Smith, trade liberalization, transaction costs, urban decay, working poor

In the seminal book in this tradition, Robert Barro and Herschel Grossman emphasized this uneasiness with exemplary scientific candor: One other omission from our discussion is especially embarrassing and should be explicitly noted. Although the discussion stresses the implications of exchange at prices which are inconsistent with general market clearing, we provide no choice-theoretic analysis of the market-clearing process itself. In other words, we do not analyze the adjustment of wages and prices as part of the maximizing behavior of firms and households. Consequently, we do not really explain the failure of markets to clear, and our analyses of wage and price dynamics are based on ad hoc adjustment equations.6 Perhaps this admirable uneasiness about a theory built on an unexplained ad hoc premise explains why the authors, heralded as leaders of the Keynesian-disequilibrium counterrevolution, by the evidence of subsequent works have joined the flight from Keynesian economics.

Though Malinvaud and the other disequilibrium theorists simply assumed some non-market-clearing prices and wages, their analyses of the process now being described is quite similar. Malinvaud most usefully has pointed out that in such circumstances there is "Keynesian" involuntary unemployment as well as "classical" involuntary unemployment.22 The former, very loosely speaking, is the additional unemployment brought about because the quantity of goods purchased in the product market has fallen off due to non-market-clearing prices in those markets, which in turn reduces firms' demands for labor and multiplies the loss in employment due to wages that are above marketclearing levels.

The greater these variations, the more it pays to search for the higher returns. This extra search, however, is not a socially efficient expenditure on the gathering of information, and it is required only because of the special-interest groups, so it also generates involuntary unemployment. Some time is spent in job queues because of the non-market-clearing prices and wages, which further increases involuntary unemployment. IX We shall soon see that the above approach has some surprising and testable implications when placed in a general equilibrium context, but it will first be necessary to refer back to Implication 6 in chapter 3. That implication was that distributional coalitions generate slow decisionmaking, crowded agendas, and cluttered bargaining tables.


pages: 272 words: 83,798

A Little History of Economics by Niall Kishtainy

Alvin Roth, behavioural economics, British Empire, Capital in the Twenty-First Century by Thomas Piketty, car-free, carbon tax, central bank independence, clean water, Corn Laws, Cornelius Vanderbilt, creative destruction, credit crunch, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, Dr. Strangelove, Eugene Fama: efficient market hypothesis, first-price auction, floating exchange rates, follow your passion, full employment, George Akerlof, Great Leap Forward, greed is good, Hyman Minsky, inflation targeting, invisible hand, John Nash: game theory, John von Neumann, Joseph Schumpeter, Kenneth Arrow, loss aversion, low interest rates, market clearing, market design, means of production, Minsky moment, moral hazard, Nash equilibrium, new economy, Occupy movement, Pareto efficiency, Paul Samuelson, Phillips curve, prisoner's dilemma, RAND corporation, rent-seeking, Richard Thaler, rising living standards, road to serfdom, Robert Shiller, Robert Solow, Ronald Reagan, sealed-bid auction, second-price auction, The Chicago School, The Great Moderation, The Market for Lemons, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, trade route, Vickrey auction, Vilfredo Pareto, washing machines reduced drudgery, wealth creators, Winter of Discontent

Lucas also believed that markets quickly got to an equilibrium: there’d rarely be too little demand or supply of a good. Prices adjust to make sure of it. Economists call it ‘market clearing’. Lucas said that it applied in the labour market too: the price of labour (wages) would adjust so that the supply of labour (the number of people looking for a job) equalled the demand (the number of people firms wanted to hire). There’d rarely be a shortage of labour. There’d rarely be a shortage of jobs, either. Unemployment couldn’t happen, at least not for any significant length of time – wages would quickly fall and firms hire more workers. Market clearing, combined with rational expectations, was a strong attack on Keynes.

Market clearing, combined with rational expectations, was a strong attack on Keynes. He’d argued that economies could get stuck in situations where many people were looking for jobs but couldn’t find one. Market clearing meant that anyone who wanted a job at the going wage could get one; workers without jobs were unemployed out of choice. And rational expectations meant that the government could do nothing to increase employment. Lucas’s school of thinking was called ‘new classical economics’. It revived ideas that Keynes had fought against, those of the classical school which had said that the economy would always quickly adjust to eliminate unemployment and that there was no point in the government trying to boost it further.

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economic man (i), (ii), (iii), (iv), (v) rational expectations (i), (ii), (iii), (iv), (v) real wages (i), (ii), (iii) recession (i) and governments (i), (ii), (iii) Great Recession (i) Keynes on (i), (ii) Mexican (i) redistribution of wealth (i) reference points (i) relative poverty (i) rent on land (i), (ii), (iii) rents/rent-seeking (i) resources (i), (ii) revolution (i), (ii), (iii), (iv) Cuban (i) French (i), (ii), (iii), (iv) Russian (i), (ii) Ricardo, David (i), (ii), (iii) risk aversion (i) Road to Serfdom, The (Hayek) (i) robber barons (i) Robbins, Lionel (i) Robinson, Joan (i) Roman Empire (i) Romer, Paul (i) Rosenstein-Rodan, Paul (i) Roth, Alvin (i), (ii) rule by nature (i) rules of the game (i) Sachs, Jeffrey (i) Saint-Simon, Henri de (i) Samuelson, Paul (i), (ii) savings (i), (ii) and Say’s Law (i) Say’s Law (i) scarcity (i), (ii), (iii), (iv), (v), (vi) Schumpeter, Joseph (i), (ii) sealed bid auction (i) second price auction (i) Second World War (i) securitisation (i) self-fulfilling crises (i) self-interest (i) Sen, Amartya (i), (ii) missing women (i), (ii), (iii) services (i) shading bids (i), (ii) shares (i), (ii), (iii), (iv), (v), (vi) see also stock market Shiller, Robert (i), (ii) signalling (i) in auctions (i) Smith, Adam (i), (ii), (iii), (iv), (v) social costs and benefits (i) Social Insurance and Allied Services (Beveridge) (i) social security (i), (ii) socialism (i), (ii), (iii), (iv), (v) socialist commonwealth (i) Socrates (i) Solow, Robert (i) Soros, George (i), (ii), (iii) South Africa, war with Britain (i) South Korea, and the big push (i) Soviet Union and America (i) and communism (i), (ii) speculation (i) speculative lending (i) Spence, Michael (i) spending government (fiscal policy) (i), (ii), (iii), (iv), (v), (vi), (vii) and recessions (i), (ii) and Say’s Law (i) see also investment stagflation (i), (ii) Stalin, Joseph (i) standard economics (i), (ii), (iii), (iv) Standard Oil (i) Stiglitz, Joseph (i) stock (i) stock market (i), (ii), (iii), (iv), (v) stockbrokers (i) Strassmann, Diana (i), (ii) strategic interaction (i), (ii) strikes (i) subprime loans (i) subsidies (i), (ii) subsistence (i) sumptuary laws (i) supply curve (i) supply and demand (i), (ii), (iii), (iv) and currencies (i) and equilibrium (i), (ii) in recession (i), (ii), (iii) supply-side economics (i) surplus value (i), (ii) Swan, Trevor (i) tariff (i) taxes/taxation (i) and budget deficit (i) carbon (i) and carbon emissions (i) and France (i) and public goods (i) redistribution of wealth (i) and rent-seeking (i) technology as endogenous/exogenous (i) and growth (i) and living standards (i) terms of trade (i) Thailand (i) Thaler, Richard (i) theory (i) Theory of the Leisure Class, The (Veblen) (i) Theory of Monopolistic Competition (Chamberlain) (i) Thompson, William Hale ‘Big Bill’ (i) threat (i) time inconsistency (i), (ii) time intensity (i) Tocqueville, Alexis de (i) totalitarianism (i) trade (i), (ii), (iii) and dependency theory (i) free (i), (ii), (iii) trading permit, carbon (i) traditional and modern economies (i), (ii) transplant, organ (i) Treatise of the Canker of England’s Common Wealth, A (Malynes) (i) Tversky, Amos (i), (ii) underdeveloped countries (i) unemployment in Britain (i) and the government (i) and the Great Depression (i) and information economics (i) and Keynes (i) and market clearing (i) and recession (i) unions (i), (ii) United States of America and free trade (i) and growth of government (i) industrialisation (i) and Latin America (i) Microsoft (i) recession (i), (ii) and the Soviet Union (i) and Standard Oil (i) stock market (i) wealth in (i) women in the labour force (i) unpaid labour, and women (i) usury (i), (ii), (iii) utility (i), (ii), (iii), (iv) utopian thinkers (i), (ii) Vanderbilt, Cornelius (i), (ii) Veblen, Thorstein (i), (ii), (iii) velocity of circulation (i), (ii) Vickrey, William (i) wage, minimum (i) Walras, Léon (i) Waring, Marilyn (i) wealth (i) and Aristotle (i), (ii) and Christianity (i) Piketty on (i) and Plato (i) Smith on (i) Wealth of Nations, The (Smith) (i), (ii) welfare benefits (i), (ii), (iii), (iv) welfare economics (i) Who Pays for the Kids?


Virtual Competition by Ariel Ezrachi, Maurice E. Stucke

"World Economic Forum" Davos, Airbnb, Alan Greenspan, Albert Einstein, algorithmic management, algorithmic trading, Arthur D. Levinson, barriers to entry, behavioural economics, cloud computing, collaborative economy, commoditize, confounding variable, corporate governance, crony capitalism, crowdsourcing, Daniel Kahneman / Amos Tversky, David Graeber, deep learning, demand response, Didi Chuxing, digital capitalism, disintermediation, disruptive innovation, double helix, Downton Abbey, driverless car, electricity market, Erik Brynjolfsson, Evgeny Morozov, experimental economics, Firefox, framing effect, Google Chrome, independent contractor, index arbitrage, information asymmetry, interest rate derivative, Internet of things, invisible hand, Jean Tirole, John Markoff, Joseph Schumpeter, Kenneth Arrow, light touch regulation, linked data, loss aversion, Lyft, Mark Zuckerberg, market clearing, market friction, Milgram experiment, multi-sided market, natural language processing, Network effects, new economy, nowcasting, offshore financial centre, pattern recognition, power law, prediction markets, price discrimination, price elasticity of demand, price stability, profit maximization, profit motive, race to the bottom, rent-seeking, Richard Thaler, ride hailing / ride sharing, road to serfdom, Robert Bork, Ronald Reagan, search costs, self-driving car, sharing economy, Silicon Valley, Skype, smart cities, smart meter, Snapchat, social graph, Steve Jobs, sunk-cost fallacy, supply-chain management, telemarketer, The Chicago School, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, Travis Kalanick, turn-by-turn navigation, two-sided market, Uber and Lyft, Uber for X, uber lyft, vertical integration, Watson beat the top human players on Jeopardy!, women in the workforce, yield management

Instead, if Uber possesses market power, the surge price enables both Uber and its drivers to simply earn extra profits, at consumers’ expense, all under the guise of a “market-clearing” price. A Privately Planned Economy? Notice here that Uber is in effect an uber–price regulator. Uber does not own the cars. Nor does Uber employ the drivers, who are “independent contractors.”18 Nor does Uber allow individual drivers and passengers to negotiate prices in each city. Uber sets the price. It also increases and lowers the price based on its capturing all the relevant market information. So if Uber captures the sum of all knowledge to set the market-clearing price, why can’t other platforms and super-platforms do the same?

One scenario, as we saw, will be the gradual demise of a uniform market price, as pricing algorithms individualize price and product offerings as they approach near-perfect behavioral discrimination. Another set of scenarios involve pricing algorithms tacitly colluding in a transparency-enhanced environment. In either case, the market involves many competitors who, following the path of Uber, can also claim that they are harnessing Big Data and Big Analytics to set the market-clearing price. If they have market power, then their marketclearing price may exceed the competitive price, that is, the average price if left to negotiation between individual buyers and sellers. Is Smart Regulation Back? If companies can harness Big Data and Big Analytics to effectively set the market price, should governments use the same tools to monitor industry prices (or even determine a competitive price)?

And the government could determine a competitive price and identify what amounts to an excessive price. So if Uber, as an intermediary, can calculate the surcharge for its many drivers and passengers during periods of congestion, why couldn’t the government’s pricing algorithms monitor industry pricing or simply set the market-clearing price. One could argue that price regulation in the post-Hayekian world of Big Data is feasible, once industry data on individual consumer preferences and firm costs are collected and analyzed. The rise of the digitalized hand makes this possible. One could go a step further. If companies can harness Big Data to set the market price, can the combination of large volumes of data and sophisticated pricing algorithms make a centrally planned economy viable?


pages: 153 words: 12,501

Mathematics for Economics and Finance by Michael Harrison, Patrick Waldron

Brownian motion, buy low sell high, capital asset pricing model, compound rate of return, discrete time, incomplete markets, law of one price, market clearing, Myron Scholes, Pareto efficiency, risk tolerance, riskless arbitrage, short selling, stochastic process

They maximise ‘utility’ given a budget constraint, based on prices and income. What do firms do? They maximise profits, given technological constraints (and input and output prices). Microeconomics is ultimately the theory of the determination of prices by the interaction of all these decisions: all agents simultaneously maximise their objective functions subject to market clearing conditions. What is Mathematics? This section will have all the stuff about logic and proof and so on moved into it. Revised: December 2, 1998 NOTATION xi NOTATION Throughout the book, x etc. will denote points of <n for n > 1 and x etc. will denote points of < or of an arbitrary vector or metric space X.

The payoffs of a typical complex security will be represented by a column vector, yj ∈ <M , where yij is the payoff in state i of security j. The set of all complex securities on a given finite sample space is an M -dimensional vector space and the M possible Arrow-Debreu securities constitute the standard basis for this vector space. State contingent claims prices are determined by the market clearing equations in a general equilibrium model: Aggregate consumption in state i = Aggregate endowment in state i. Each individual will have an optimal consumption choice depending on endowments and preferences and conditional on the state of the world. Optimal future consumption is denoted  ∗  x1  x∗   x∗ =   2 . (5.4.1)  ...  x∗N If there are N complex securities, then the investor must find a portfolio w = (w1 , . . . , wN ) whose payoffs satisfy x∗i = N X yij wj .

It follows that the expected return on the market portfolio must exceed rf . Q.E.D. Now we can calculate the risk premium of the market portfolio. CAPM gives a relation between the risk premia on individual assets and the risk premium on the market portfolio. The risk premium on the market portfolio must adjust in equilibrium to give market-clearing. In some situations, the risk premium on the market portfolio can be written in terms of investors’ utility functions. Assume there is a riskless asset and returns are multivariate normal (MVN). Recall the first order conditions for the canonical portfolio choice problem: 0 = E[u0i (W̃i )(r̃j − rf )] ∀ i, j (6.5.17) h = E[u0i (W̃i )]E[r̃j − rf ] + Cov u0i (W̃i ), r̃j i h = E[u0i (W̃i )]E[r̃j − rf ] + E[u00i (W̃i )]Cov W̃i , r̃j (6.5.18) i (6.5.19) using the definition of covariance and Stein’s lemma for MVN distributions.


pages: 209 words: 13,138

Empirical Market Microstructure: The Institutions, Economics and Econometrics of Securities Trading by Joel Hasbrouck

Alvin Roth, barriers to entry, business cycle, conceptual framework, correlation coefficient, discrete time, disintermediation, distributed generation, experimental economics, financial intermediation, index arbitrage, information asymmetry, interest rate swap, inventory management, market clearing, market design, market friction, market microstructure, martingale, payment for order flow, power law, price discovery process, price discrimination, quantitative trading / quantitative finance, random walk, Richard Thaler, second-price auction, selection bias, short selling, statistical model, stochastic process, stochastic volatility, transaction costs, two-sided market, ultimatum game, zero-sum game

The arrival intensity for sellers is λSell (p), a function of the price they receive. These functions are depicted in figure 11.1. They describe demand and supply, but not in the usual static sense. Market clearing in this context means that buyers and sellers arrive at the same average rate, that is, with the same intensity. If the dealer were to quote the same price to buyers and sellers, market clearing would occur where the intensity functions cross. This is defined by λBuy (pEq ) = λSell (pEq ) = λEq . As long as the intensities are the same, the dealer is on average buying and selling at the same rate.

One common and important mechanism is the continuous limit order market. The full range, though, includes search, bargaining, auctions, dealer markets, and a variety of derivative markets. These mechanisms may operate in parallel: Many markets are hybrids. 1.1.3 Multiple Characterizations of Prices The market-clearing price, at least at it arises in usual Walrasian tatonnement, rarely appears in microstructure analyses. At a single instant there may be many prices, depending on direction (buying or selling), the speed with which the trade must be accomplished, the agent’s identity or other attribute, and the agent’s relationship to the counterparty (as well as, of course, quantity).

Liquidity (“noise”) traders submit a net order flow u ∼ N (0, σu2 ), independent of v . The market maker (MM) observes the total demand y = x + u and then sets a price, p. All of the 61 62 EMPIRICAL MARKET MICROSTRUCTURE trades are cleared at p. If there is an imbalance between buyers and sellers, the MM makes up the difference. Nobody knows the market clearing price when they submit their orders. Because the liquidity trader order flow is exogenous, there are really only two players we need to concentrate on: the informed trader and the MM. The informed trader wants to trade aggressively, for example, buying a large quantity if her information is positive.


Where Does Money Come From?: A Guide to the UK Monetary & Banking System by Josh Ryan-Collins, Tony Greenham, Richard Werner, Andrew Jackson

bank run, banking crisis, banks create money, Basel III, Big bang: deregulation of the City of London, book value, Bretton Woods, business cycle, capital controls, cashless society, central bank independence, credit crunch, currency risk, double entry bookkeeping, en.wikipedia.org, eurozone crisis, fiat currency, financial innovation, fixed income, floating exchange rates, Fractional reserve banking, full employment, global reserve currency, Goodhart's law, Hyman Minsky, inflation targeting, interest rate derivative, interest rate swap, Joseph Schumpeter, low skilled workers, market clearing, market design, market friction, Modern Monetary Theory, Money creation, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, Northern Rock, offshore financial centre, Post-Keynesian economics, price mechanism, price stability, proprietary trading, purchasing power parity, quantitative easing, Real Time Gross Settlement, reserve currency, Ronald Reagan, seigniorage, special drawing rights, the payments system, trade route, transaction costs

Under the conditions of ‘perfect information’ that are assumed for markets to ‘clear’, where the quantity supplied meets the quantity demanded, people ‘automatically’ exchange goods and services, without delay or friction, according to the production costs of the commodity and people’s ‘marginal utility’ – that is, the balance between the convenience obtained and the risk avoided from its possession.15 This approach posed a question for how to include money. French economist Leon Walras created a hypothetical numeraire, a symbolic representation of existing commodity values, to enable him to model an exchange economy in which the market ‘clears’ under conditions of equilibrium. To do so, Walras had to postulate the existence of an omnipotent ‘auctioneer’ capable of knowing all exchange and utility values at all times. This deity enabled Walras to happily ignore money. But other economists were not happy with the ‘imaginary auctioneer’.

You will probably find that most of them started out with very little money and had to get loans from the bank, friends, or family before they could begin selling their services or products on the market. As Marx pointed out, in the capitalist system, money (or capital/financing) is required prior to production,26 rather than naturally arising after production as a way of making exchange more convenient. This is why it is called ‘capital-ism’. So building a model that starts with market clearing and allocation and then tries to fit in money as a veil on top of this makes little sense. As American economist Hyman Minsky argues: ...we cannot understand how our economy works by first solving allocation problems and then adding financing relations; in a capitalist economy resource allocation and price determination are integrated with the financing of outputs, positions in capital assets, and the validating of liabilities.

The demand for credit, and hence money, appears far less subject to diminishing marginal utility.35 Under the endogenous money theory, it is assumed that banks make loans, and credit ‘clears’ at a given interest rate. A riskier loan will incur a higher rate of interest but if the demand for credit is always very high (or even infinite), the theoretical market-clearing interest rate would be so high as to leave banks with only risky projects, while sensible projects could not generate sufficient returns to service the loans.36 It is therefore more important for a bank to avoid defaults on its loans than it is to earn a higher rate of interest. Higher rates may bring an extra few percentage points’ profit, but a default could lead to a 100 per cent loss.


pages: 363 words: 107,817

Modernising Money: Why Our Monetary System Is Broken and How It Can Be Fixed by Andrew Jackson (economist), Ben Dyson (economist)

Alan Greenspan, bank run, banking crisis, banks create money, Basel III, Bretton Woods, business cycle, call centre, capital controls, cashless society, central bank independence, credit crunch, David Graeber, debt deflation, double entry bookkeeping, eurozone crisis, financial exclusion, financial innovation, Financial Instability Hypothesis, financial intermediation, floating exchange rates, Fractional reserve banking, full employment, Greenspan put, Hyman Minsky, inflation targeting, informal economy, information asymmetry, intangible asset, land bank, land reform, London Interbank Offered Rate, low interest rates, market bubble, market clearing, Martin Wolf, means of production, Money creation, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, negative equity, Northern Rock, Post-Keynesian economics, price stability, profit motive, quantitative easing, Real Time Gross Settlement, regulatory arbitrage, risk-adjusted returns, Savings and loan crisis, seigniorage, shareholder value, short selling, South Sea Bubble, technological determinism, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, too big to fail, total factor productivity, unorthodox policies

Credit rationing implies that banks respond to a situation whereby they have imperfect information (i.e. they cannot tell good borrowers from bad) by setting interest rates below the market clearing rate (to a level which maximises their profits – i* on figure 3.3) and ration credit instead.12 In conclusion, the credit rationing theory sees causality in the banking system occurring in the following way (shown overleaf). Faced with a large demand for credit, banks set interest rates below the market clearing rate and ration credit instead (by rejecting some loan applications). When banks lend, deposits are created. This increases demand for reserves in order to settle payments.

Credit rationing What then determines the level of bank lending, and therefore the money supply? Faced with a huge demand for credit, and little limit on how much they are able to supply, banks could simply supply as much lending as is demanded, by granting a loan to everyone who applied for one. With such high demand, however, the market-clearing rate of interest would be very high. As Stiglitz and Weiss (1988) point out this will create two problems. First: “among those who are most likely to bid high interest rates are risk lovers (who are willing to undertake very risky projects, with a small probability of success, but high returns if successful); optimists (who overestimate the probability of projects succeeding and the return if successful); and crooks (who, because they do not plan to pay back the money anyway, are virtually indifferent to the interest rate which they promise).

(Smith, 1776) fig. 3.3 – Relationship between interest rate charged on loans and profits The second problem is that in order to compensate for the higher loan cost, “there may be an adverse incentive effect; borrowers take riskier actions, which increases the probability of default.” (Stiglitz & Weiss, 1988) Therefore, if banks charge interest rates at the market clearing level they will drive the less risky borrowers out of the market, leaving only the high-risk borrowers. Higher risk implies a higher number of defaults on loans, which will adversely affect bank profits. The relationship between bank profits and the interest rate charged on loans is shown in figure 3.3.


pages: 346 words: 90,371

Rethinking the Economics of Land and Housing by Josh Ryan-Collins, Toby Lloyd, Laurie Macfarlane

agricultural Revolution, asset-backed security, balance sheet recession, bank run, banking crisis, barriers to entry, basic income, book value, Bretton Woods, business cycle, Capital in the Twenty-First Century by Thomas Piketty, collective bargaining, Corn Laws, correlation does not imply causation, creative destruction, credit crunch, debt deflation, deindustrialization, falling living standards, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, foreign exchange controls, full employment, garden city movement, George Akerlof, ghettoisation, Gini coefficient, Hernando de Soto, housing crisis, Hyman Minsky, income inequality, information asymmetry, knowledge worker, labour market flexibility, labour mobility, land bank, land reform, land tenure, land value tax, Landlord’s Game, low interest rates, low skilled workers, market bubble, market clearing, Martin Wolf, means of production, Minsky moment, Money creation, money market fund, mortgage debt, negative equity, Network effects, new economy, New Urbanism, Northern Rock, offshore financial centre, Pareto efficiency, place-making, Post-Keynesian economics, price stability, profit maximization, quantitative easing, rent control, rent-seeking, Richard Florida, Right to Buy, rising living standards, risk tolerance, Robert Solow, Second Machine Age, secular stagnation, shareholder value, subprime mortgage crisis, the built environment, The Great Moderation, The Market for Lemons, The Spirit Level, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thomas Malthus, transaction costs, universal basic income, urban planning, urban sprawl, working poor, working-age population

The fixed supply of land for particular uses means it does not fit easily in mainstream economic theories where supply and demand set prices in a free market. If the demand for iPhones increases, Apple can increase the quantity of phones produced – at a cost to themselves – until an equilibrium is reached, whereby demand meets supply and the market ‘clears’. Apple may instead choose to increase the price of iPhones; however they then face the risk that some consumers may choose to buy a different brand of phone. The idea is that market competition generates an efficient trade-off between quantity and price and economic rents are minimised. But the quantity of land cannot be increased in the way the quantity of iPhones can.

This sustained relatively high land and house prices, and preserved the developers and banks, but at the price of transactions and output plummeting. There was no clearing of the market, no rebasing of land and house prices as after the last three booms, no opportunities for new entrants to enter the market, or for a new cohort of owner-occupiers to buy. In the absence of a market clear-out, the new government resorted to ever more massive demand-side subsidies to help push a few more middle-income households over the line into homeownership. The new land economy settlement that had emerged by the end of the 1980s – minimal supply-side intervention and demand-side support for homeownership – was being pushed to its limits.

Evidence from the UK and Australia suggests that rather than spending their accumulated wealth in later life, households have been passing it on to their children as inheritance, while younger cohorts have increasingly been making use of mortgage equity withdrawal (see section 5.5) to fund large, one-off expenditures (Parkinson et al., 2009). Unrealistic assumptions are also made about the financial sector and banks in the lifecycle model. Banks are assumed to willingly lend at the market rate of interest where the supply of mortgage credit meets demand (where the market ‘clears’). This is based on the assumption that both households and financial intermediaries (banks) have very high – if not perfect – levels of information and are able to make accurate judgements about the future based upon a range of knowable probabilities (the ‘rational expectations’ hypothesis).


pages: 471 words: 97,152

Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism by George A. Akerlof, Robert J. Shiller

affirmative action, Andrei Shleifer, asset-backed security, bank run, banking crisis, Bear Stearns, behavioural economics, business cycle, buy and hold, collateralized debt obligation, conceptual framework, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, Daniel Kahneman / Amos Tversky, Deng Xiaoping, Donald Trump, Edward Glaeser, en.wikipedia.org, experimental subject, financial innovation, full employment, Future Shock, George Akerlof, George Santayana, housing crisis, Hyman Minsky, income per capita, inflation targeting, invisible hand, Isaac Newton, Jane Jacobs, Jean Tirole, job satisfaction, Joseph Schumpeter, junk bonds, Long Term Capital Management, loss aversion, market bubble, market clearing, mental accounting, Michael Milken, Mikhail Gorbachev, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, Myron Scholes, new economy, New Urbanism, Paul Samuelson, Phillips curve, plutocrats, Post-Keynesian economics, price stability, profit maximization, public intellectual, purchasing power parity, random walk, Richard Thaler, Robert Shiller, Robert Solow, Ronald Reagan, Savings and loan crisis, seminal paper, South Sea Bubble, The Chicago School, The Death and Life of Great American Cities, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, tulip mania, W. E. B. Du Bois, We are all Keynesians now, working-age population, Y2K, Yom Kippur War

In contrast, however, when the unemployment rate rises quits invariably go down.10 Indeed a simple relation between quits and unemployment explains three-quarters of the variation. When unemployment goes up by 1 percentage point, the monthly quit rate per hundred employees falls by 1.26.11 These changes in the quit rate suggest that unemployment is exactly caused by wages in excess of market clearing. That of course exactly corresponds to the predictions of efficiency wage theory. In its view, when unemployment goes up the gap between the supply of and demand for labor increases. Workers with jobs at existing wages realize that they are lucky. They see how they would fare elsewhere, and they are therefore highly reluctant to quit their jobs.

Why? Because economists who consider themselves yet smarter than Shapiro and Stiglitz have pointed out that if workers only care about money and how hard they work, employers could devise incentive schemes that are yet more profitable for themselves, and that do not result in wages in excess of market clearing. For example, Edward Lazear, who was a successor to Stiglitz as the chair of the Council of Economic Advisers, has shown that seniority rights give an alternative incentive to keep workers from shirking.13 If you get caught shirking and have to find a new job, you lose all those privileges you may have earned from working at your job for so long.

It is more complex because we ascribe to the employee motives that are more realistic than those of the strictly economic model. It is simpler because we think that we can represent the wage as depending at least in part on what workers think would be fair, and those fair wages are almost always above the market clearing wage. They are also slow to change. It is an explanation for unemployment that seems to hit the sweet spot. It is simple and realistic, and it also fits the facts. In particular it explains easily and naturally why quits go up as unemployment falls. This is a fundamental building block of the economy.


pages: 500 words: 145,005

Misbehaving: The Making of Behavioral Economics by Richard H. Thaler

3Com Palm IPO, Alan Greenspan, Albert Einstein, Alvin Roth, Amazon Mechanical Turk, Andrei Shleifer, Apple's 1984 Super Bowl advert, Atul Gawande, behavioural economics, Berlin Wall, Bernie Madoff, Black-Scholes formula, book value, business cycle, capital asset pricing model, Cass Sunstein, Checklist Manifesto, choice architecture, clean water, cognitive dissonance, conceptual framework, constrained optimization, Daniel Kahneman / Amos Tversky, delayed gratification, diversification, diversified portfolio, Edward Glaeser, endowment effect, equity premium, equity risk premium, Eugene Fama: efficient market hypothesis, experimental economics, Fall of the Berlin Wall, George Akerlof, hindsight bias, Home mortgage interest deduction, impulse control, index fund, information asymmetry, invisible hand, Jean Tirole, John Nash: game theory, John von Neumann, Kenneth Arrow, Kickstarter, late fees, law of one price, libertarian paternalism, Long Term Capital Management, loss aversion, low interest rates, market clearing, Mason jar, mental accounting, meta-analysis, money market fund, More Guns, Less Crime, mortgage debt, Myron Scholes, Nash equilibrium, Nate Silver, New Journalism, nudge unit, PalmPilot, Paul Samuelson, payday loans, Ponzi scheme, Post-Keynesian economics, presumed consent, pre–internet, principal–agent problem, prisoner's dilemma, profit maximization, random walk, randomized controlled trial, Richard Thaler, risk free rate, Robert Shiller, Robert Solow, Ronald Coase, Silicon Valley, South Sea Bubble, Stanford marshmallow experiment, statistical model, Steve Jobs, sunk-cost fallacy, Supply of New York City Cabdrivers, systematic bias, technology bubble, The Chicago School, The Myth of the Rational Market, The Signal and the Noise by Nate Silver, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, transaction costs, ultimatum game, Vilfredo Pareto, Walter Mischel, zero-sum game

In this example, that means that subjects 7, 8, and 11 will buy tokens from subjects 2, 5, and 6, as illustrated in panel C. We can figure out the price that will make this market “clear,” meaning equate supply and demand, by working from the two ends of the distribution toward the middle. Subject 11 will have no trouble finding a price at which Subject 2 will give up his token, so they are bound to make a deal. The same applies to Subjects 8 and 5. But to get Subject 7 to buy a token from Subject 6, the price will have to be between their two reservation prices. Since we only allowed prices in increments of 50 cents, the market-clearing price will be $3. FIGURE 7 Since both the values and the tokens are being handed out at random, the particular outcome will differ each time, but on average the six people with the highest valuations will have been allocated half of the tokens, and as in this example, they will have to buy three tokens to make the market clear.

FIGURE 7 Since both the values and the tokens are being handed out at random, the particular outcome will differ each time, but on average the six people with the highest valuations will have been allocated half of the tokens, and as in this example, they will have to buy three tokens to make the market clear. In other words, the predicted volume of trading is half the number of tokens distributed. Now suppose we repeat the experiment, but this time we do it with some good such as a chocolate bar. Again we could rank the subjects from high to low based on how much they like the chocolate bar, but in this case we are not telling the subjects how much they like the good; they are determining that themselves.

“Altruistic Punishment in Humans.” Nature 415, no. 6868: 137–40. Fehr, Ernst, and Lorenz Goette. 2007. “Do Workers Work More If Wages re High? Evidence from a Randomized Field Experiment.” American Economic Review 97, no. 1: 298–317. Fehr, Ernst, George Kirchsteiger, and Arno Riedl. 1993. “Does Fairness Prevent Market Clearing? An Experimental Investigation.” Quarterly Journal of Economics 108, no. 2: 437–59. Fehr, Ernst, and Klaus M. Schmidt. 1999. “A Theory of Fairness, Competition, and Cooperation.” Quarterly Journal of Economics 114, no. 3: 817–68. Fischbacher, Urs, Simon Gächter, and Ernst Fehr. 2001. “Are People Conditionally Cooperative?


pages: 469 words: 132,438

Taming the Sun: Innovations to Harness Solar Energy and Power the Planet by Varun Sivaram

"World Economic Forum" Davos, accelerated depreciation, addicted to oil, Albert Einstein, An Inconvenient Truth, asset light, asset-backed security, autonomous vehicles, bitcoin, blockchain, carbon footprint, carbon tax, clean tech, collateralized debt obligation, Colonization of Mars, currency risk, decarbonisation, deep learning, demand response, disruptive innovation, distributed generation, diversified portfolio, Donald Trump, electricity market, Elon Musk, energy security, energy transition, financial engineering, financial innovation, fixed income, gigafactory, global supply chain, global village, Google Earth, hive mind, hydrogen economy, index fund, Indoor air pollution, Intergovernmental Panel on Climate Change (IPCC), Internet of things, low interest rates, M-Pesa, market clearing, market design, Masayoshi Son, mass immigration, megacity, Michael Shellenberger, mobile money, Negawatt, ocean acidification, off grid, off-the-grid, oil shock, peer-to-peer lending, performance metric, renewable energy transition, Richard Feynman, ride hailing / ride sharing, rolling blackouts, Ronald Reagan, Silicon Valley, Silicon Valley startup, smart grid, smart meter, SoftBank, Solyndra, sovereign wealth fund, Ted Nordhaus, Tesla Model S, time value of money, undersea cable, vertical integration, wikimedia commons

So, once bids from the low-cost plants, such as nuclear reactors, were accepted, the market would have to accept higher-cost bids, such as from natural gas turbines that would charge an arm and a leg to burn expensive fuel and boost output quickly when demand surged. Markets also paid every power plant the same, “market-clearing” price—that is, the price charged for the last bid accepted (that of the expensive natural gas turbine). This practice was a relief for the nuclear reactors because, despite the low cost of producing power, the plants relied on high ongoing revenues to pay off the hugely expensive construction costs of the plant.

Together, cheap renewable energy and natural gas have turned that old market paradigm on its head. As the penetration of solar and wind power rises, these generators are happy to offer to sell their power at zero cost to the grid because they have zero fuel costs. Their influence, along with that of cheap natural gas, drags down the market-clearing price. In other words, solar and wind generators compete with nuclear power to have their low-cost bids accepted by the market. Whoever wins ends up getting paid only a pittance. And nuclear plants that can no longer pay off their capital costs go bust. The same thing would happen to the economics of solar and wind generators, except that they are protected by policy or contract structures.

Wholesale electricity market    A market for competing generators of electricity to sell their output to retailers, who then sell it on to customers. In the United States, wholesale electricity markets often span multiple states and follow an auction process in which bids to sell electricity are accepted in ascending order until all electric demand is met, and the highest accepted bid sets the market-clearing price. Wind power    A form of renewable energy that uses air flow through wind turbines to produce electricity. Like solar power, wind power is intermittent and depends on wind speeds. Wind turbines can be sited on land or at sea; offshore wind turbines are becoming increasingly economical.


pages: 443 words: 98,113

The Corruption of Capitalism: Why Rentiers Thrive and Work Does Not Pay by Guy Standing

"World Economic Forum" Davos, 3D printing, Airbnb, Alan Greenspan, Albert Einstein, Amazon Mechanical Turk, anti-fragile, Asian financial crisis, asset-backed security, bank run, banking crisis, basic income, Ben Bernanke: helicopter money, Bernie Sanders, Big bang: deregulation of the City of London, Big Tech, bilateral investment treaty, Bonfire of the Vanities, Boris Johnson, Bretton Woods, business cycle, Capital in the Twenty-First Century by Thomas Piketty, carried interest, cashless society, central bank independence, centre right, Clayton Christensen, collapse of Lehman Brothers, collective bargaining, commons-based peer production, credit crunch, crony capitalism, cross-border payments, crowdsourcing, debt deflation, declining real wages, deindustrialization, disruptive innovation, Doha Development Round, Donald Trump, Double Irish / Dutch Sandwich, ending welfare as we know it, eurozone crisis, Evgeny Morozov, falling living standards, financial deregulation, financial innovation, Firefox, first-past-the-post, future of work, Garrett Hardin, gentrification, gig economy, Goldman Sachs: Vampire Squid, Greenspan put, Growth in a Time of Debt, housing crisis, income inequality, independent contractor, information retrieval, intangible asset, invention of the steam engine, investor state dispute settlement, it's over 9,000, James Watt: steam engine, Jeremy Corbyn, job automation, John Maynard Keynes: technological unemployment, labour market flexibility, light touch regulation, Long Term Capital Management, low interest rates, lump of labour, Lyft, manufacturing employment, Mark Zuckerberg, market clearing, Martin Wolf, means of production, megaproject, mini-job, Money creation, Mont Pelerin Society, moral hazard, mortgage debt, mortgage tax deduction, Neil Kinnock, non-tariff barriers, North Sea oil, Northern Rock, nudge unit, Occupy movement, offshore financial centre, oil shale / tar sands, open economy, openstreetmap, patent troll, payday loans, peer-to-peer lending, Phillips curve, plutocrats, Ponzi scheme, precariat, quantitative easing, remote working, rent control, rent-seeking, ride hailing / ride sharing, Right to Buy, Robert Gordon, Ronald Coase, Ronald Reagan, Sam Altman, savings glut, Second Machine Age, secular stagnation, sharing economy, Silicon Valley, Silicon Valley startup, Simon Kuznets, SoftBank, sovereign wealth fund, Stephen Hawking, Steve Ballmer, structural adjustment programs, TaskRabbit, The Chicago School, The Future of Employment, the payments system, The Rise and Fall of American Growth, Thomas Malthus, Thorstein Veblen, too big to fail, Tragedy of the Commons, Travis Kalanick, Uber and Lyft, Uber for X, uber lyft, Y Combinator, zero-sum game, Zipcar

Yet, in contrast to the stated justification for minimum wages, governments have been weakening the bargaining power of employees and trade unions. Defenders of ‘free market’ capitalism justify curbing unions’ bargaining strength on the grounds that they push wages above market-clearing and productivity-driven levels. Defenders of unions argue that without them employers can and do take advantage of workers’ vulnerability to force wages below market-clearing levels and even below the cost of subsistence. Governments have lowered wages by more indirect means as well. Thus they have allowed and encouraged the spread of unpaid or low-paid interns which, through substitution and threat effects, drives down the wages of others doing similar labour in regular jobs.36 A more systemic intervention has been the use of tax credits, discussed in Chapter 3, which enable firms to pay very low wages.

But they are being used to undermine professional qualifications, further marginalising the time-honoured concept of the professional and craft community. This is what platform corporations want, and what neo-liberals have always wanted, because they depict all collective bodies as distorting the market and preventing market clearing.30 The platforms are reducing the rental income gained by those inside occupational communities and transferring that to themselves, further reducing the returns to labour and work. One of the least analysed aspects of the neo-liberal agenda has been the re-regulation of occupations, including all the great professions.


pages: 261 words: 103,244

Economists and the Powerful by Norbert Haring, Norbert H. Ring, Niall Douglas

accounting loophole / creative accounting, Affordable Care Act / Obamacare, Alan Greenspan, Albert Einstein, asset allocation, bank run, barriers to entry, Basel III, Bear Stearns, Bernie Madoff, book value, British Empire, buy and hold, central bank independence, collective bargaining, commodity trading advisor, compensation consultant, corporate governance, creative destruction, credit crunch, Credit Default Swap, David Ricardo: comparative advantage, diversified portfolio, financial deregulation, George Akerlof, illegal immigration, income inequality, inflation targeting, information asymmetry, Jean Tirole, job satisfaction, Joseph Schumpeter, Kenneth Arrow, knowledge worker, land bank, law of one price, light touch regulation, Long Term Capital Management, low interest rates, low skilled workers, mandatory minimum, market bubble, market clearing, market fundamentalism, means of production, military-industrial complex, minimum wage unemployment, Money creation, moral hazard, new economy, obamacare, old-boy network, open economy, Pareto efficiency, Paul Samuelson, pension reform, Ponzi scheme, price stability, principal–agent problem, profit maximization, purchasing power parity, Renaissance Technologies, Robert Solow, rolodex, Savings and loan crisis, Sergey Aleynikov, shareholder value, short selling, Steve Jobs, The Chicago School, the payments system, The Wealth of Nations by Adam Smith, too big to fail, Tragedy of the Commons, transaction costs, ultimatum game, union organizing, Vilfredo Pareto, working-age population, World Values Survey

This quote may explain why his new theory was met with such enthusiastic support and had such lasting impact, despite a few rather fundamental shortcomings and contradictions that we will further explore in Chapter 4. His theory says that the workings of the market make sure that workers and capital are paid exactly what they contribute to the value of the product at the margin, i.e. by what they contribute to the last unit of the good that can gainfully be produced (Clark 1899/2001). Finding market-clearing prices for goods, labor and capital is tricky both in theory and reality. They have to be found not only for each market separately, but for all markets at the same time. Leon Walras (1834–1910) was the first to tackle this problem. He formulated a large number of equations describing the whole economy.

The name of the game refers to an influential theoretical paper by Nobel Memorial Prize winner George Akerlof, called “Labor Contracts as a Partial Gift Exchange.” In the gift exchange model, the effort of workers depends on whether they consider their pay as fair. Therefore many firms pay more than the market clearing wage in order to elicit more effort. One consequence of this policy is that the market does not clear and there is involuntary unemployment (Akerlof 1982). The typical results of such experiments confirm that higher wage offers by firms, on average, induce workers to provide more effort. This contradicts a fundamental neoclassical assumption that the quality of the labor unit is independent of what is paid for it.

This means that low-wage workers in the secondary market are supposed to cut their wages even more in order to create enough demand for their own labor and for the labor of those descending from the primary labor market. Most modern neoclassical theorists will admit that the wage cuts needed to achieve this can be steep. There is no guarantee at all that you can live on the market-clearing wage (Kaufman 2009). In an open economy with exports, external demand might eventually solve the problem at low enough wages, but there is certainly no guarantee. With flexible exchange rates, the exchange rate often appreciates if wages and prices go down. This can cancel out the improvement in competitiveness brought about by lower wages.


pages: 376 words: 101,759

Shorting the Grid: The Hidden Fragility of Our Electric Grid by Meredith. Angwin

airline deregulation, California energy crisis, carbon credits, carbon footprint, congestion pricing, corporate governance, Credit Default Swap, crony capitalism, David Brooks, decarbonisation, demand response, distributed generation, electricity market, en.wikipedia.org, energy security, green new deal, Hans Rosling, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Jones Act, Just-in-time delivery, load shedding, market clearing, Michael Shellenberger, Negawatt, off-the-grid, performance metric, plutocrats, renewable energy credits, rolling blackouts, Silicon Valley, smart grid, smart meter, the map is not the territory, Tragedy of the Commons, uranium enrichment, vertical integration, washing machines reduced drudgery, zero-sum game

However, whatever the authors of the paper conclude, I would point out that RTO retail electricity prices have stayed higher than non-RTO retail prices for twenty-five years. I would not personally conclude that retail markets have saved money for the consumer. Utilities and FERC orders IN 1997, FERC ISSUED Orders 888 and 889, designed to give open access to transmission lines, and to “encourage the creation of a separate Price Exchange to reveal market-clearing prices in the new competitive market.” Two years later, in 1999, FERC issued Order 2000 to foster participation in Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs).28 The model for the deregulation was similar to the one for phone deregulation. One service (your local phone company, your local distribution utility) would be in charge of the wires to your house.

If its bid is accepted (its bid isn’t too high), it can bank on capacity payments when it comes online. As mentioned before, capacity payments are the major way that many gas-fired plants are funded, so a guarantee of such payments can encourage bank loans for building the power plant. The capacity payments also encourage profitability once the plant has been built. However, if the market clearing price for capacity payments is too low, perhaps this new plant won’t be promised enough funding, and it won’t be built. Perhaps no new gas-fired plants will be built. To fix this, ISO-NE proposed the MOPR rule to FERC. The idea of MOPR is to keep capacity payments high enough to encourage CONE (new power plants).

Grid reliability and resource adequacy remain within the purview of the regional grid operator, and it is the Commission’s responsibility to ensure that this objective is accomplished at just and reasonable rates. The CASPR proposal appears attractive because it … presents a solution to this complicated situation. However, the major flaw in the proposal … is that the “competitively based” market clearing price will not provide a meaningful signal to the marketplace. I am further concerned about the signals that today’s decision sends to New England stakeholders. Instead of incentivizing developers to compete for market revenues, the message the Commission is sending to market participants is that the best way to ensure the future viability of a particular resource is to seek state support.


pages: 365 words: 56,751

Cryptoeconomics: Fundamental Principles of Bitcoin by Eric Voskuil, James Chiang, Amir Taaki

bank run, banks create money, bitcoin, blockchain, break the buck, cashless society, cognitive dissonance, cryptocurrency, delayed gratification, en.wikipedia.org, foreign exchange controls, Fractional reserve banking, Free Software Foundation, global reserve currency, Joseph Schumpeter, market clearing, Metcalfe’s law, Money creation, money market fund, Network effects, peer-to-peer, price stability, reserve currency, risk free rate, seigniorage, smart contracts, social graph, time value of money, Turing test, zero day, zero-sum game

This implies that production must be restricted by the cartel in order to raise unit price [321] for non-partners. Limiting production leaves an opportunity for other producers to capture customers with a lower marginal utility [322] for the product, as those customers would otherwise be unserved. Thus competition lowers price until the market clears. A free market seeks the clearing price that produces the global return on capital (interest ). A current price above this level increases production and below decreases production. It is time preference [323] that determines the rate of interest. Unless production is disproportionately subject to anti-market forces, such as tax or subsidy, everyone enjoys the same opportunity to raise capital and compete in production.

It is a levy on the taxpayers of the subsidizing state, typically applied to establish market share for the product. In the case where demand is elastic [456] , the subsidy increases sales volume for the product by reducing price relative to the otherwise market price. The lower price increases demand, by capturing buyers with lower marginal utility [457] for the product, until the market clears. In contrast to dumping, trading at market price doesn’t reduce price because it is not subsidized. Finally, there is a related theory that reduction of hoarding [458] generally reduces exchange prices of the hoarded property. This is true [459] , however a transfer is not a reduction to hoarding levels unless the buyer of the hoarded property subsequently hoards it less than the seller.


pages: 576 words: 105,655

Austerity: The History of a Dangerous Idea by Mark Blyth

"there is no alternative" (TINA), accounting loophole / creative accounting, Alan Greenspan, balance sheet recession, bank run, banking crisis, Bear Stearns, Black Swan, book value, Bretton Woods, business cycle, buy and hold, capital controls, Carmen Reinhart, Celtic Tiger, central bank independence, centre right, collateralized debt obligation, correlation does not imply causation, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency peg, debt deflation, deindustrialization, disintermediation, diversification, en.wikipedia.org, ending welfare as we know it, Eugene Fama: efficient market hypothesis, eurozone crisis, financial engineering, financial repression, fixed income, floating exchange rates, Fractional reserve banking, full employment, German hyperinflation, Gini coefficient, global reserve currency, Greenspan put, Growth in a Time of Debt, high-speed rail, Hyman Minsky, income inequality, information asymmetry, interest rate swap, invisible hand, Irish property bubble, Joseph Schumpeter, Kenneth Rogoff, liberal capitalism, liquidationism / Banker’s doctrine / the Treasury view, Long Term Capital Management, low interest rates, market bubble, market clearing, Martin Wolf, Minsky moment, money market fund, moral hazard, mortgage debt, mortgage tax deduction, Occupy movement, offshore financial centre, paradox of thrift, Philip Mirowski, Phillips curve, Post-Keynesian economics, price stability, quantitative easing, rent-seeking, reserve currency, road to serfdom, Robert Solow, savings glut, short selling, structural adjustment programs, tail risk, The Great Moderation, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, Tobin tax, too big to fail, Two Sigma, unorthodox policies, value at risk, Washington Consensus, zero-sum game

Figure 2.2 The Keynesian Phillips Curve The new instruction sheet, which came to be known as “neoclassical,” or more popularly, “neoliberal” economics, was quite technical, but basically it started from the premise that individuals were not the shortsighted, animal-sprit, driven businessmen lampooned by Keynes, but were instead supersmart processors of information.31 The new approach distrusted anything bigger than the individual, insisting that accounts of the behavior of aggregates such as “financial markets” had to be based in prior accounts of the behavior of the individuals (investors, firms, funds) that made them up, and that any theory of the behavior of aggregates must be generated from the two main assumptions of this new neoclassical economics, that individuals are self-interested agents who maximize the pursuit of those interests, and that markets clear.32 According to this new view, the Keynesian instruction sheet must, in some sense, see individuals as being deluded all the time by government policy; otherwise, they would see the policy coming and anticipate it in their decisions, thus cancelling out its effects on real variables—so-called expectations or “Ricardian equivalence” effects.

As Keynes demonstrated, there is no reason for an economy to “naturally” return to a full-employment equilibrium after a shock. It can settle into a state far from full employment for a very long time.53 The Austrian explanation of sustained unemployment after a bust—the inability of the economy to self-heal as it should—is that trade unions are holding up the market-clearing wage. But in the United States, for example, where unions cover less than one in eight workers, such an explanation is simply not credible.54 Moreover, Germany and Sweden, countries with much higher unemployment rates through the business cycle, also have far higher unionization rates. Second, if the only policy on offer is to get the government out of economic affairs completely, then its not clear how one does it short of engaging in a kind of “year zero” purge of the modern economy and polity.

With inflation rising and unemployment not improving, Keynesianism, according to monetarists, eventually eats itself. Friedman’s monetarism pushed hard against one of the key ideas of the postwar economic instruction sheet—the Phillips curve—that we also discussed in chapter 2.61 Crucial was his idea that there is a natural rate of unemployment, an evolutionary throwback to classical ideas about labor markets clearing at the equilibrium wage, with the amount of employment generated being a function of structural supply-side factors plus the degree of trade-union militancy. As Michael Bleaney once observed, accepting Milton’s monetarism ensures that “ideas concerning a lack of effective demand have disappeared out the window … we are back in a completely classical world where … full employment follows automatically.”62 Indeed, monetarism was in many ways simply a restatement of the quantity theory of money that goes all the way back to David Hume.


pages: 206 words: 70,924

The Rise of the Quants: Marschak, Sharpe, Black, Scholes and Merton by Colin Read

Abraham Wald, Albert Einstein, Bayesian statistics, Bear Stearns, Black-Scholes formula, Bretton Woods, Brownian motion, business cycle, capital asset pricing model, collateralized debt obligation, correlation coefficient, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, discovery of penicillin, discrete time, Emanuel Derman, en.wikipedia.org, Eugene Fama: efficient market hypothesis, financial engineering, financial innovation, fixed income, floating exchange rates, full employment, Henri Poincaré, implied volatility, index fund, Isaac Newton, John Meriwether, John von Neumann, Joseph Schumpeter, Kenneth Arrow, Long Term Capital Management, Louis Bachelier, margin call, market clearing, martingale, means of production, moral hazard, Myron Scholes, Paul Samuelson, price stability, principal–agent problem, quantitative trading / quantitative finance, RAND corporation, random walk, risk free rate, risk tolerance, risk/return, Robert Solow, Ronald Reagan, shareholder value, Sharpe ratio, short selling, stochastic process, Thales and the olive presses, Thales of Miletus, The Chicago School, the scientific method, too big to fail, transaction costs, tulip mania, Works Progress Administration, yield curve

Up to that point, economics at the macro level was considered a trivial extension of economics of the small, or microeconomics. In the microeconomics of a market, a price that is too high results in supply that exceeds demand and a reduction in the price until the surpluses in the market clear. The trivial extension to the macroeconomy commends that such symptoms of excess supply as unemployment should result in lower wages and market clearing. In other words, individual 18 The Rise of the Quants markets are either at or converging toward equilibrium at all times, and so must the aggregation of all markets at the macroeconomic level. The Kiel School also recognized that aggregates of markets do not behave as simplistically as classically trained microeconomists might wish.


pages: 243 words: 77,516

Straight to Hell: True Tales of Deviance, Debauchery, and Billion-Dollar Deals by John Lefevre

airport security, Bear Stearns, blood diamond, buy and hold, colonial rule, credit crunch, fixed income, Goldman Sachs: Vampire Squid, high net worth, income inequality, jitney, junk bonds, lateral thinking, market clearing, Occupy movement, Sloane Ranger, the market place

The book-building process varies significantly from a single-day drive-by to a heavily marketed two-week roadshow. The simple idea is to work with the sales force to bring in orders and solicit price sensitivities and feedback from the investors. This “market color” is reflected by me to the issuer. It’s then my job to convince the issuer to agree to a price that reflects where a market-clearing deal works. Once we get the issuer to sign off on the deal terms, we’re ready to allocate bonds to investors, get the deal across the finish line, and then move on to the next one. The allocation process is one of the most nuanced and contentious aspects of the execution process, and probably the most important.

After several catastrophic days on the road, the relationship bankers delicately convince the chairman to come back to Hong Kong and allow the rest of the deal team—including his highly impressive, Western-educated CFO—to complete the remainder of the roadshow on the company’s behalf. Not only have we been telling the deal team that market conditions have weakened and investor appetite for risk has diminished for first-time issuers, things really have deteriorated. We’re now looking at a market-clearing transaction in the context of 10.5%, or 100 basis points higher than what we promised—not an immaterial difference in the context of a $300 million deal. The time has finally come for us to drop the hammer; we’re already late on providing formal price guidance to the market. We’ve been whispering “low/mid-10s” to investors, and even that doesn’t get them too excited.


pages: 225 words: 11,355

Financial Market Meltdown: Everything You Need to Know to Understand and Survive the Global Credit Crisis by Kevin Mellyn

Alan Greenspan, asset-backed security, bank run, banking crisis, Bernie Madoff, bond market vigilante , bonus culture, Bretton Woods, business cycle, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, cuban missile crisis, deal flow, disintermediation, diversification, fiat currency, financial deregulation, financial engineering, financial innovation, financial intermediation, fixed income, foreign exchange controls, Francis Fukuyama: the end of history, George Santayana, global reserve currency, Greenspan put, Home mortgage interest deduction, inverted yield curve, Isaac Newton, joint-stock company, junk bonds, Kickstarter, liquidity trap, London Interbank Offered Rate, long peace, low interest rates, margin call, market clearing, mass immigration, Money creation, money market fund, moral hazard, mortgage tax deduction, Nixon triggered the end of the Bretton Woods system, Northern Rock, offshore financial centre, paradox of thrift, pattern recognition, pension reform, pets.com, Phillips curve, plutocrats, Ponzi scheme, profit maximization, proprietary trading, pushing on a string, reserve currency, risk tolerance, risk-adjusted returns, road to serfdom, Ronald Reagan, shareholder value, Silicon Valley, South Sea Bubble, statistical model, Suez canal 1869, systems thinking, tail risk, The Great Moderation, the long tail, the new new thing, the payments system, too big to fail, value at risk, very high income, War on Poverty, We are all Keynesians now, Y2K, yield curve

It might occur at an open-air fair that meets from time to time. The larger and more frequently the market between trappers and farmers happens, the more trades will happen. These trades will set the ‘‘price’’ between pelts and corn after anyone who wants to swap one for the other has done so. This is how markets set prices. The markets ‘‘clear,’’ as economists put it, when all the stuff brought to a market gets exchanged or swapped, so nobody wanting corn is still holding out for more pelts and vice versa. This establishes what corn is worth in terms of pelts and what pelts are worth in terms of corn. Introduction Commodity Money The question not solved by this system is, what are corn and pelts worth relative to other ‘‘stuff ’’?

It has been the largest single cause of financial crises over the last forty years, from the U.S. banking crisis of 1974, triggered by collapsing real estate investment trusts, the collapse of the U.S. savings and loan industry in the 1980s, the collapse of the Japanese bubble economy in 1990, the Swedish and Finnish banking crises of the same period, and the Asian banking crisis of 1997. The only response to this inconvenient fact that the U.S. Congress seems capable of is to throw money at the collapsing U.S. housing market instead of simply letting the market clear at prices that attract buyers who can actually afford a house. To protect distressed homeowners, our political masters have felt quite free to violate centuries of contract law and property rights essential to a functioning market economy. There is nothing to stop them from doing so. They have effectively deflected public anger away from themselves and succeeded in demonizing not only the whole financial world but free market capitalism itself.


pages: 290 words: 76,216

What's Wrong With Economics: A Primer for the Perplexed by Robert Skidelsky

additive manufacturing, agricultural Revolution, behavioural economics, Black Swan, Bretton Woods, business cycle, carbon tax, Cass Sunstein, central bank independence, cognitive bias, conceptual framework, Corn Laws, corporate social responsibility, correlation does not imply causation, creative destruction, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, degrowth, disruptive innovation, Donald Trump, Dr. Strangelove, full employment, George Akerlof, George Santayana, global supply chain, global village, Gunnar Myrdal, happiness index / gross national happiness, hindsight bias, Hyman Minsky, income inequality, index fund, inflation targeting, information asymmetry, Internet Archive, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Arrow, knowledge economy, labour market flexibility, loss aversion, Mahbub ul Haq, Mark Zuckerberg, market clearing, market friction, market fundamentalism, Martin Wolf, means of production, Modern Monetary Theory, moral hazard, paradox of thrift, Pareto efficiency, Paul Samuelson, Philip Mirowski, Phillips curve, precariat, price anchoring, principal–agent problem, rent-seeking, Richard Thaler, road to serfdom, Robert Shiller, Robert Solow, Ronald Coase, shareholder value, Silicon Valley, Simon Kuznets, sunk-cost fallacy, survivorship bias, technoutopianism, The Chicago School, The Market for Lemons, The Nature of the Firm, the scientific method, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, Thomas Malthus, Thorstein Veblen, Tragedy of the Commons, transaction costs, transfer pricing, Vilfredo Pareto, Washington Consensus, Wolfgang Streeck, zero-sum game

The French economist Léon Walras (1834–1910) extended the notion of equilibrium in a local market to the idea of the general equilibrium (GE) of a system of markets. He reasoned that if the whole economy consisted of perfectly competitive markets, supply and demand would be simultaneously balanced in all markets, a balance which can be expressed in a set of simultaneous equations. In Walrasian GE each market establishes its equilibrium or market-clearing price through a process Walras called tatonnement or ‘groping’. At the point of trade all prices in the economy have been perfectly adjusted to the supply and demand conditions in each market. It is important to note that all markets in the Walrasian system are auction markets, in which contracts to buy and sell are made simultaneously – prices are known to both buyers and sellers.

Duncan Foley believes in the ‘immense scientific value’ of equilibrium concepts.7 I would argue rather that it has a baleful influence, by encouraging economists to think that the market system is automatically self-correcting and therefore not requiring policy intervention. Formally, equilibrium represents a state of affairs in which resources are so allocated that market-clearing prices prevail all round, and no one has any incentive to change their position. This is an ‘optimum’ equilibrium, in the sense that the economy is at its production possibility frontier (PPF) and all are satisfied with ‘what they’ve got’. However, within this equilibrium framework, economists toy with several different concepts of equilibrium, depending on what they want to explain.


pages: 483 words: 141,836

Red-Blooded Risk: The Secret History of Wall Street by Aaron Brown, Eric Kim

Abraham Wald, activist fund / activist shareholder / activist investor, Albert Einstein, algorithmic trading, Asian financial crisis, Atul Gawande, backtesting, Basel III, Bayesian statistics, Bear Stearns, beat the dealer, Benoit Mandelbrot, Bernie Madoff, Black Swan, book value, business cycle, capital asset pricing model, carbon tax, central bank independence, Checklist Manifesto, corporate governance, creative destruction, credit crunch, Credit Default Swap, currency risk, disintermediation, distributed generation, diversification, diversified portfolio, Edward Thorp, Emanuel Derman, Eugene Fama: efficient market hypothesis, experimental subject, fail fast, fear index, financial engineering, financial innovation, global macro, illegal immigration, implied volatility, independent contractor, index fund, John Bogle, junk bonds, Long Term Capital Management, loss aversion, low interest rates, managed futures, margin call, market clearing, market fundamentalism, market microstructure, Money creation, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, Myron Scholes, natural language processing, open economy, Pierre-Simon Laplace, power law, pre–internet, proprietary trading, quantitative trading / quantitative finance, random walk, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, risk/return, road to serfdom, Robert Shiller, shareholder value, Sharpe ratio, special drawing rights, statistical arbitrage, stochastic volatility, stock buybacks, stocks for the long run, tail risk, The Myth of the Rational Market, Thomas Bayes, too big to fail, transaction costs, value at risk, yield curve

I’m only interested in the market makers generating consistent profits. But even within this group there is a variety of prices and also differences in the positions they have built up. You might argue that the differences in prices are going to be pretty small, and some kind of average or market-clearing price is the best estimate of probability. One issue with this is none of the prices directly measure probability; all of them blend in utility to some degree. A person who locks in a price for future oil may not believe the price of oil is going up. She may be unable to afford higher prices if that does happen, and is willing to take an expected loss in order to ensure survival of her business.

The probability we care about is that of a hypothetical risk-neutral oil market maker who makes consistent money in stand-alone oil futures trading averaging over all future scenarios. That turns out to give significantly different probabilities than our subjective estimates, or long-term frequency, or market-clearing prices; even if we agree on numeraire and the identity of the bettors on the other side. The result of all this is rocket scientists invented their own notion of probability. A probability distribution can only be defined with respect to a numeraire, and therefore cannot be defined for all possible outcomes.

Therefore, there is no need for a pool of loans or pile of gold to support their value. The net value is zero. What is important is that the derivatives will pay off as promised. That payoff is secured by the initial margin and daily mark-to-market payments made by derivative holders. That security, in turn, depends on two things: that we can establish a daily market-clearing price for the derivative and that the price doesn’t change in any day more than the amount of initial margin required. Accurate, transparent prices and smooth price changes are both features of liquidity. Futures markets often have daily price change limits; the price is not allowed to move more than a certain amount in a day.


pages: 459 words: 138,689

Slowdown: The End of the Great Acceleration―and Why It’s Good for the Planet, the Economy, and Our Lives by Danny Dorling, Kirsten McClure

"World Economic Forum" Davos, Affordable Care Act / Obamacare, Anthropocene, Berlin Wall, Bernie Sanders, Boeing 747, Boris Johnson, British Empire, business cycle, capital controls, carbon tax, clean water, creative destruction, credit crunch, Donald Trump, drone strike, Elon Musk, en.wikipedia.org, Extinction Rebellion, fake news, Flynn Effect, Ford Model T, full employment, future of work, gender pay gap, global supply chain, Google Glasses, Great Leap Forward, Greta Thunberg, Henri Poincaré, illegal immigration, immigration reform, income inequality, Intergovernmental Panel on Climate Change (IPCC), Internet of things, Isaac Newton, It's morning again in America, James Dyson, Jeremy Corbyn, jimmy wales, John Harrison: Longitude, Kickstarter, low earth orbit, Mark Zuckerberg, market clearing, Martin Wolf, mass immigration, means of production, megacity, meta-analysis, military-industrial complex, mortgage debt, negative emissions, nuclear winter, ocean acidification, Overton Window, pattern recognition, Ponzi scheme, price stability, profit maximization, purchasing power parity, QWERTY keyboard, random walk, rent control, rising living standards, Robert Gordon, Robert Shiller, Ronald Reagan, School Strike for Climate, Scramble for Africa, sexual politics, Skype, Stephen Hawking, Steven Pinker, structural adjustment programs, Suez crisis 1956, the built environment, Tim Cook: Apple, time dilation, transatlantic slave trade, trickle-down economics, very high income, wealth creators, wikimedia commons, working poor

Even patenting, after building up a head of steam, appears to have flatlined. A continual steady increase in innovation now requires ever-greater investment to produce any substantial results.17 Much of the current slowdown is still being described as creative destruction, and as the process of “market clearing,” wherein the obsolete is perpetually replaced by the new, as if the capitalist transition were some end-of-history process that we will always be stuck in. Financial analysts make arrogant claims based on the 1980s and 1990s economics they learned at school, failing to spot the new reality. They repeat a particular mantra in the hope that they will be taken seriously as great soothsayers.

(Dick), 214 dot.com bubble, 255–56, 257, 260 drones, 356n18 Dyson, James, 267 East Bradford Socialist Sunday School banner, 299, 301, 365n27 East Timor, fertility rates, 204–5, 206 economics and economic indicators: capitalism, as transitional/temporary, 10–11, 188, 230–32, 235–37, 283, 284, 317–18; creative destruction, 11, 296–97, 317; GDP (see gross domestic product); gold prices, 251, 251–53; house prices, 247–51, 249, 253–55; inequalities (see inequalities); market clearing, 296–97; money illusion, 250; quality of life, 242–47, 245; share prices, 255–61, 257, 260; speculation, 254–55; top-ranking financial centers, 263–64; vulnerable employment, 294; wages, 244–47, 245 Economist, 22, 23 ecotourism, 17–18, 19, 23 education: fake university degrees, 236; and fertility rates, 160; and rate of change, 121; tertiary, 270, 271, 315–16.

See debt Lockett, William, 269 London: as center of selfishness, 263; conditions in (1901), 185; decline of marriage in, 274; population, 323; poverty in, 280–81; rise of anti-conservative forces in, 279 Lührmann, Anna, 276–77 Lutz, Wolfgang, 141 Luy, Marc, 320 machine learning, 85 Maddison, Angus, 149–50, 155, 233, 347n11. See also Angus Maddison Project Database 2018 Malaysia, 247 Malthus, Thomas Robert, 162 Marin, Sanna, 312 market clearing, 296–97 marriage, 273–76, 361n31; England and Wales, 218, 273–74, 275; Japan, 211 Marx, Karl, 230, 294 Massey, Douglas, 153–54 mastic harvest, 16–18 maternity leave, 310–11 McClure, Kirsten, 183 measure of domestic progress (MDP), 242–43 Mexico: automobile production, 115, 118; migration, 153 microprocessor efficiency, 85 migration, 21; and birth rates, 312; British Isles, 161–65; control, 21, 341n6; to London, 185; rural, 16–18, 22–25; and slowdown, 19, to United States, 152–54 miraculous spiral, 19–21, 20 Monbiot, George, 217, 243 money illusion, 250 Moore’s law, 85, 87 Morawetz, Nancy, 153 mortgages, 49–56, 54; and house prices, 254 Music While You Work (BBC), 322–23 NASA, 123, 127–28, 129, 130–31, 348n5 NASDAQ Composite Index, 257, 260 Nationwide Building Society, 248, 250 Native Americans, 150 natural gas, 112 Netherlands: Amsterdam, 248, 249, 263; production and consumption of books, 73, 74–77, 75, 81–85, 83 New Straits Times, 247 Newton, Isaac, 4 New York: city, 263–64, 274; state voting, 277–79, 278 New Zealand, 175, 176, 177 Niger, 201–4, 203 Nixon, Richard, 25, 278, 279 NOAA.


pages: 258 words: 83,303

Why Your World Is About to Get a Whole Lot Smaller: Oil and the End of Globalization by Jeff Rubin

addicted to oil, air freight, banking crisis, Bear Stearns, big-box store, BRICs, business cycle, carbon footprint, carbon tax, collateralized debt obligation, collective bargaining, creative destruction, credit crunch, David Ricardo: comparative advantage, decarbonisation, energy security, food miles, Ford Model T, hydrogen economy, illegal immigration, immigration reform, Intergovernmental Panel on Climate Change (IPCC), invisible hand, James Watt: steam engine, Jevons paradox, Just-in-time delivery, low interest rates, market clearing, megacity, megaproject, North Sea oil, oil shale / tar sands, oil shock, peak oil, profit maximization, reserve currency, South Sea Bubble, subprime mortgage crisis, the market place, The Wealth of Nations by Adam Smith, trade liberalization, work culture , zero-sum game

The two fundamental axioms of the dismal science are that the demand curve slopes down and the supply curve slopes up. That is, the more people want something, the more it should cost. And the more it costs, the more of it there should be. Find the point of intersection between those two curves, and voilà, you have found the market clearing price. If Porsche Carreras were given away to all ticket holders at NFL games, they would be worth a lot less than they are today. If we started running out of, say, shampoo, the price would go up. Manufacturers would have an incentive to ramp up shampoo production, and the price would come back down.

Warren has already announced that he will only operate the fishing lodge business every other year. At least for now, I can still come back in 2010. But he also tells me there are seven salmon-fishing lodges for sale on one river alone in Alaska. Basic economics tells me that if seven fishing lodges suddenly come on the market at the same time, the market clearing price for an Alaskan fishing lodge is going to be falling. In short, there are more sellers than buyers of Alaskan fishing lodges. And for good reason. Who is going to come in and buy what are hugely oil-intensive businesses when the price of delivering oil to the lodge amounts to as much as $420 per barrel?


pages: 310 words: 90,817

Paper Money Collapse: The Folly of Elastic Money and the Coming Monetary Breakdown by Detlev S. Schlichter

bank run, banks create money, British Empire, business cycle, capital controls, Carmen Reinhart, central bank independence, currency peg, fixed income, Fractional reserve banking, German hyperinflation, global reserve currency, inflation targeting, Kenneth Rogoff, Kickstarter, Long Term Capital Management, low interest rates, market clearing, Martin Wolf, means of production, Money creation, money market fund, moral hazard, mortgage debt, open economy, Ponzi scheme, price discovery process, price mechanism, price stability, pushing on a string, quantitative easing, reserve currency, rising living standards, risk tolerance, savings glut, the market place, The Wealth of Nations by Adam Smith, Thorstein Veblen, transaction costs, We are all Keynesians now, Y2K

Additionally, rising uncertainty in the crisis may lift the demand for cash holdings, which, in the absence of further money injections, will lead to a rise in the purchasing power of money. These deflationary processes must be allowed to proceed. They are part of a necessary readjustment of prices away from money-induced distortions and back toward market-clearing levels. However, no specific policies are necessary, such as shrinking the money supply or lowering prices to return to a specific price average or a previous gold price. All that is needed is simply a complete stop to money injections followed by the abstention from any interference with the market process.

The antideflation policy that has been adopted is largely a policy of price fixing, a policy of preventing the market from exposing capital misallocations and then liquidating them. The root causes of the crisis remain in place and the underlying problems unaddressed. For example, mortgage-backed securities worth billions have still not been placed at market-clearing levels with private investors but are being artificially supported either directly by the Federal Reserve or indirectly by the banking sector that has been encouraged with vast amounts of free money from the Fed to hold onto these securities. Without a free market and uninhibited price formation, there is simply no way of telling what the true demand for these securities is and which of them are supported by private capital and true savings.


pages: 98 words: 27,609

The American Dream Is Not Dead: (But Populism Could Kill It) by Michael R. Strain

Bernie Sanders, business cycle, centre right, creative destruction, deindustrialization, Donald Trump, feminist movement, full employment, gig economy, Gini coefficient, income inequality, job automation, labor-force participation, market clearing, market fundamentalism, new economy, opioid epidemic / opioid crisis, public intellectual, Robert Gordon, Ronald Reagan, social intelligence, Steven Pinker, The Rise and Fall of American Growth, Tyler Cowen, upwardly mobile, working poor

At lower wages, fewer people want to work, but firms want to hire relatively more workers. The market settles on an equilibrium wage rate at which every firm can hire as many workers as it wants (knowing it has to pay the equilibrium wage) and every worker who wants to work (for the equilibrium wage) can find a job. The labor market clears. Labor supply equals labor demand. This model leaves out quite a bit. Importantly, in actual labor markets, firms have some control over the wages they pay their workers. Wages may need to be higher than the “equilibrium market wage” in order to induce workers to switch employers or move to a new city.


pages: 411 words: 108,119

The Irrational Economist: Making Decisions in a Dangerous World by Erwann Michel-Kerjan, Paul Slovic

"World Economic Forum" Davos, Alan Greenspan, An Inconvenient Truth, Andrei Shleifer, availability heuristic, bank run, behavioural economics, Black Swan, business cycle, Cass Sunstein, classic study, clean water, cognitive dissonance, collateralized debt obligation, complexity theory, conceptual framework, corporate social responsibility, Credit Default Swap, credit default swaps / collateralized debt obligations, cross-subsidies, Daniel Kahneman / Amos Tversky, endowment effect, experimental economics, financial innovation, Fractional reserve banking, George Akerlof, hindsight bias, incomplete markets, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Isaac Newton, iterative process, Kenneth Arrow, Loma Prieta earthquake, London Interbank Offered Rate, market bubble, market clearing, money market fund, moral hazard, mortgage debt, Oklahoma City bombing, Pareto efficiency, Paul Samuelson, placebo effect, precautionary principle, price discrimination, price stability, RAND corporation, Richard Thaler, Robert Shiller, Robert Solow, Ronald Reagan, Savings and loan crisis, social discount rate, source of truth, statistical model, stochastic process, subprime mortgage crisis, The Wealth of Nations by Adam Smith, Thomas Bayes, Thomas Kuhn: the structure of scientific revolutions, too big to fail, transaction costs, ultimatum game, University of East Anglia, urban planning, Vilfredo Pareto

GENERAL EQUILIBRIUM AND CREDIT INSTRUMENTS The concept of general equilibrium was always implicit in any serious use of standard economic analysis, but it became explicit in the work of French economist Léon Walras (1874, 1877). The elements of the analysis are competitive markets in the individual commodities, each characterized by a large number of participants on both sides, all facing the same price, and by market clearing (buyers purchase the commodity from the sellers at this market price). Under these assumptions, there is no question of liquidity; any individual, taken to be small compared with the total market, can buy or sell at the unique market price. Money plays no essential role, except as a useful tool of accounting.

The markets are linked because the same individuals appear in all or at least many markets, and make choices as consumers or producers based on all prices. Hence, the price of one commodity affects market behavior on all other markets. Under these and other conditions, some remarkable theoretical results have been obtained. There will be a set of prices (possibly not unique) such that equilibrium (market clearing) can be achieved on all markets (with a suitable meaning for clearing when there is excess supply at zero price). Further, assume that individual behavior is rational, in the sense that individuals in these markets are maximizing the utility they derive from the goods they acquire. Then the allocation achieved at a competitive equilibrium is efficient in the sense that there is no other allocation in which some other individual is better off and no individual is worse off.


pages: 470 words: 107,074

California Burning: The Fall of Pacific Gas and Electric--And What It Means for America's Power Grid by Katherine Blunt

An Inconvenient Truth, benefit corporation, buy low sell high, California energy crisis, call centre, commoditize, confounding variable, coronavirus, corporate personhood, COVID-19, electricity market, Elon Musk, forensic accounting, Google Earth, high-speed rail, junk bonds, lock screen, market clearing, market design, off-the-grid, price stability, rolling blackouts, Silicon Valley, vertical integration

The Power Exchange would calculate total expected demand in any given hour and sort supply bids by price, from lowest to highest. It would first accept the lowest-priced bid and work up the list until it had secured enough supply to satisfy demand. The most expensive bid accepted through that process set what’s known as the market clearing price, the amount paid to any supplier who offered to sell at or under that threshold. Any bid above that threshold would be rejected as unnecessary. The Power Exchange would then relay the schedules to the grid operator, which would oversee power delivery and monitor supply and demand in real time.

See also specific hedge funds Heffern family, 4 Henderson, Thelton, 157, 180, 189 Hoffman, Hallie, 151, 158–59, 168–70, 198–99 Hoffman, Tom, 178, 179 Hofmann, David, 215–16, 274 Howells, Julius, 24, 28–29, 30, 31, 36, 45 hydroelectric power, 25–28 mechanics of, 25 nation’s first power plant in Appleton, 26–27 hydropower, 25 I An Inconvenient Truth (Gore), 96 Insull, Samuel, 39, 40 International Brotherhood of Electrical Workers Local 1245, 92–93 inverse condemnation, 100–101, 188 Investor Summit on Climate Risk, 2008, 98–99 Iranian Revolution, 55 J Johnson, Bill blackouts of 2019 and, 229–31 named CEO of PG&E, 211–12 PG&E guilty plea to homicide for Camp Fire and, 279–80, 283–84 questioned by Abrams at bankruptcy hearing, 2–5 rejects San Francisco’s purchase offer, 235–36 resignation from PG&E of, 6, 286 K Keenan, Jack, 134 KeySpan Corporation, 110–11 Kincade Fire, 231–32 Klarman, Seth, 244 Knighthead Capital Management, 212–13, 244, 280, 281 L Latham & Watkins LLP, 158, 159 Lay, Ken, 71 Liccardo, Sam, 238–39 Lloyd’s Register, 119–20, 121 Los Angeles Department of Water and Power, 101 M Manegold, Bill, 171–75, 269 market clearing price, 66 market power, 41 Martin, John, 32, 33–35, 45 megawatt hours, 65 Middle East oil supplies, 54 Mirant, 63 Mojave Solar, 127–30 Monday Night Football game, blackouts at, 118–19 monopolies, 39–40 Montali, Dennis, 202–3, 245–47 Moody’s, 281 Musk, Elon, 97 N National Transportation Safety Board (NTSB), 109–10, 117–18 natural gas, 56 Natural Gas Pipeline Safety Act (1968), 148, 153, 168 natural monopolies, 39–40 Newsom, Gavin, 202, 213–14 appoints Batjer to head CPUC, 228 blackouts of 2019 and, 228, 232–33 state fund for utilities’ future liabilities cost and, 217–18 supports PG&E bankruptcy plan, 240–41 Niagara Falls hydroelectric plant, 27 Nixon, Richard, 55 Noel, Marc Camp Fire investigation of, 14–15, 198, 267–70 Dixie Fire investigation of, 290 request PG&E send evidence to FBI, 19–20 North American Company Great Western Power Company acquired by, 45–46 PG&E and Great Western merger and, 46–47 North American Electric Reliability Corporation (NERC), 117, 137 NRG Energy, 63 NTSB.


pages: 436 words: 114,278

Crude Volatility: The History and the Future of Boom-Bust Oil Prices by Robert McNally

"World Economic Forum" Davos, Alan Greenspan, American energy revolution, Asian financial crisis, banking crisis, barriers to entry, Bear Stearns, Bretton Woods, collective bargaining, credit crunch, energy security, energy transition, geopolitical risk, housing crisis, hydraulic fracturing, Ida Tarbell, index fund, Induced demand, interchangeable parts, invisible hand, joint-stock company, market clearing, market fundamentalism, megaproject, moral hazard, North Sea oil, oil rush, oil shale / tar sands, oil shock, peak oil, price discrimination, price elasticity of demand, price stability, sovereign wealth fund, subprime mortgage crisis, Suez canal 1869, Suez crisis 1956, transfer pricing, vertical integration

Meanwhile, prices on crude and refined products remained frozen for the big oil producers and importers accounting for 95 percent of the market, constrained in their ability to expand production.41 Customers of the big companies—independent marketers, fuel oil distributors, and other large fuel purchasers—found themselves unable to get the supply they needed at controlled prices. This is not surprising, since basic economics tells us when prices are held below market–clearing level, producers suffer losses if they produce or expand. Physical shortages result. Rising prices and shortages thrust the oil industry into the public’s crosshairs. Claims that the big firms were “holding back” supplies began to surface. Political pressure rose for the federal government to expand regulation beyond prices onto supply via the direct allocation (in other words, rationing) of supplies of crude and refined products.

Domestic production fell, which increased dependence on imports.45 Second, the price controls increased incentives to import oil which in turn emboldened OPEC and made the U.S. more likely to see higher prices.46 The famous gas lines and shortages of the mid-1970s originated partly from price controls47 (to the extent controls held prices below market—clearing levels, they stimulated consumption), but mainly from allocation programs, state regulations, and consumer panic. Allocation programs, which stipulated the geographic allotment of fuel and were based on historical consumption patterns, denied oil companies the flexibility to move supplies from ample to lacking parts of the country.


pages: 413 words: 115,274

Paved Paradise: How Parking Explains the World by Henry Grabar

A Pattern Language, Adam Neumann (WeWork), Airbnb, Albert Einstein, autonomous vehicles, availability heuristic, big-box store, bike sharing, Blue Bottle Coffee, car-free, congestion pricing, coronavirus, COVID-19, digital map, Donald Shoup, edge city, Ferguson, Missouri, Ford Model T, Frank Gehry, General Motors Futurama, gentrification, Google Earth, income inequality, indoor plumbing, Jane Jacobs, Lewis Mumford, Lyft, mandatory minimum, market clearing, megastructure, New Urbanism, parking minimums, power law, remote working, rent control, restrictive zoning, ride hailing / ride sharing, Ronald Reagan, Seaside, Florida, side hustle, Sidewalk Labs, Silicon Valley, SimCity, social distancing, Stop de Kindermoord, streetcar suburb, text mining, the built environment, The Death and Life of Great American Cities, TikTok, traffic fines, Uber and Lyft, uber lyft, upwardly mobile, urban planning, urban renewal, urban sprawl, Victor Gruen, walkable city, WeWork, white flight, Yogi Berra, young professional

You paid for parking with every breath of dirty air, in the flood damage from the rain that ran off the fields of asphalt, in the higher electricity bills from running an air conditioner through the urban heat-island effect, in the vanishing natural land on the outskirts of the city. But you almost never paid for it when you parked your car, which created a localized supply-and-demand crisis. You could read the whole postwar parking history of U.S. cities this way: it was because cities had been reluctant to free up curb space with market-clearing pricing that they had to resort to more extreme measures, such as demolitions, money-losing public garages, and parking requirements. Shoup did a little back-of-the-napkin calculation. He took an estimate for how much a new parking space cost in 1998 ($4,000) and multiplied it by a conservative estimate of how many spaces existed per car (three) to conclude that there existed $12,000 in parking for every one of the country’s 208 million cars.

Finally, in April 2013, with Chestnut Street parking at $3.50 an hour and Lombard Street at $1 an hour, Lombard Street became the parking destination of choice for visitors to the Marina District. (The prices have continued to fluctuate since, in an effort to keep the neighborhood occupancy in equilibrium—if anything, the program has been criticized for taking too long to reach market-clearing prices.) Curbs opened; garages filled. Citations in pilot areas fell by 23 percent—maybe people finally felt they were getting a service worth paying for. Price changes reduced the time San Franciscans spent looking for parking by 43 to 50 percent in pilot areas (and by 13 percent elsewhere).


pages: 416 words: 112,159

Luxury Fever: Why Money Fails to Satisfy in an Era of Excess by Robert H. Frank

Alan Greenspan, business cycle, clean water, company town, compensation consultant, Cornelius Vanderbilt, correlation coefficient, Daniel Kahneman / Amos Tversky, full employment, Garrett Hardin, germ theory of disease, global village, haute couture, hedonic treadmill, impulse control, income inequality, invisible hand, job satisfaction, Kenneth Arrow, lake wobegon effect, loss aversion, market clearing, McMansion, means of production, mega-rich, mortgage debt, New Urbanism, Pareto efficiency, Post-Keynesian economics, RAND corporation, rent control, Richard Thaler, rising living standards, Ronald Reagan, Silicon Valley, Tax Reform Act of 1986, telemarketer, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, Tragedy of the Commons, trickle-down economics, ultimatum game, winner-take-all economy, working poor

During the energy crises of the 1970s, for example, concern for the well-being of the poor led to the imposition of gasoline price controls, and a resulting need to ration short supplies. The lines of cars queued up for gas at many urban stations stretched for several blocks, each car belching fumes and wasting fuel as it inched toward the pumps. Far better for all would have been allowing gasoline prices to rise to their market-clearing levels, and then increasing the monetary supplement to ease the burden on the poor. Rent controls and subsidized public housing are similarly clumsy and wasteful ways of trying to deliver services that the poor could better purchase for themselves in the open market, if only they had more income.

Fatsis, Stefan. “Boomers Return to the Ski Slopes—To Nest,” Wall Street Journal, January 17, 1997: B1, B10. Fehr, Ernst, and G. Kirchsteiger “Insider Power, Wage Discrimination, and Fairness,” Economic Journal 104, 1994: 571-83. Fehr, Ernst; G. Kirchsteiger; and A. Riedl. “Does Fairness Prevent Market Clearing? An Experimental Investigation,” Quarterly Journal of Economics 108, 1993: 439-59. Feldstein, Martin. “Taxing Consumption,” New Republic, February 28, 1976: 14-17. Feldstein, Martin. “The Effect of Marginal Tax Rates on Taxable Income: A Panel Study of the 1986 Tax Reform Act,” Journal of Political Economy 103, June 1995: 551-72.


pages: 147 words: 41,256

Letters to My Palestinian Neighbor by Yossi Klein Halevi

ghettoisation, market clearing, mass immigration, Mount Scopus, one-state solution

We politely asked vendors to close. Most of us were older recruits, and we were abashed before these men, fathers like us who only wanted to feed their families. Sensing our reluctance, the vendors ignored us. An officer appeared. Wordlessly he approached a stand selling lemons and emptied the contents on the ground. The market cleared. A chubby teenage Palestinian boy, accused of stone throwing, was brought, blindfolded, into our tent camp. A group of soldiers from the Border Police unit gathered around. One said to him in Arabic, Repeat after me: One order of hummus, one order of fava beans, I love the Border Police. The young man dutifully repeated the rhymed Arabic ditty.


The Economics Anti-Textbook: A Critical Thinker's Guide to Microeconomics by Rod Hill, Anthony Myatt

American ideology, Andrei Shleifer, Asian financial crisis, bank run, barriers to entry, behavioural economics, Bernie Madoff, biodiversity loss, business cycle, cognitive dissonance, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, different worldview, electricity market, endogenous growth, equal pay for equal work, Eugene Fama: efficient market hypothesis, experimental economics, failed state, financial innovation, full employment, gender pay gap, Gini coefficient, Glass-Steagall Act, Gunnar Myrdal, happiness index / gross national happiness, Home mortgage interest deduction, Howard Zinn, income inequality, indoor plumbing, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Arrow, liberal capitalism, low interest rates, low skilled workers, market bubble, market clearing, market fundamentalism, Martin Wolf, medical malpractice, military-industrial complex, minimum wage unemployment, moral hazard, Paradox of Choice, Pareto efficiency, Paul Samuelson, Peter Singer: altruism, positional goods, prediction markets, price discrimination, price elasticity of demand, principal–agent problem, profit maximization, profit motive, publication bias, purchasing power parity, race to the bottom, Ralph Nader, random walk, rent control, rent-seeking, Richard Thaler, Ronald Reagan, search costs, shareholder value, sugar pill, The Myth of the Rational Market, the payments system, The Spirit Level, The Wealth of Nations by Adam Smith, Thorstein Veblen, ultimatum game, union organizing, working-age population, World Values Survey, Yogi Berra

Many years ago Imre Lak­ atos (1978) explained that we should expect this to be the case – at least the ‘incapable of refutation’ part. out of the question. To conduct a test, a complete model of supply, demand, and price adjustment must be specified, estimated, and used to derive a quantitative measure of the speed at which the market-clearing price moves. Then actual price movements can be compared to this norm. This … is one of the ways that econometricians have demonstrated that prices and wages are sticky. But, of course, any such demonstration is conditional on the validity of the many maintained hypotheses used as the framework for estimation.

In the mad scramble to sell, prices fall precipitously. Fundamental values suddenly don’t matter. Individuals and companies that borrowed heavily to participate in the real estate boom find themselves with negative net asset values. When the loans are called in, bankruptcy looms. Interest rates aren’t always at their market clearing level Bankruptcies highlight an important point: the destruction of wealth in the downturn isn’t limited to decreases in asset prices – real wealth is also destroyed. Machines are mothballed, factories are closed. Some may never reopen. Financial institutions find themselves not only short of liquidity, but also short of capital.


pages: 161 words: 44,488

The Business Blockchain: Promise, Practice, and Application of the Next Internet Technology by William Mougayar

Airbnb, airport security, Albert Einstein, altcoin, Amazon Web Services, bitcoin, Black Swan, blockchain, business logic, business process, centralized clearinghouse, Clayton Christensen, cloud computing, cryptocurrency, decentralized internet, disintermediation, distributed ledger, Edward Snowden, en.wikipedia.org, Ethereum, ethereum blockchain, fault tolerance, fiat currency, fixed income, Ford Model T, global value chain, Innovator's Dilemma, Internet of things, Kevin Kelly, Kickstarter, market clearing, Network effects, new economy, peer-to-peer, peer-to-peer lending, prediction markets, pull request, QR code, ride hailing / ride sharing, Satoshi Nakamoto, sharing economy, smart contracts, social web, software as a service, too big to fail, Turing complete, Vitalik Buterin, web application, Yochai Benkler

Legally binding governance-related matters will be easily implemented across distributed teams. Remote voting will be trusted, even at national levels, in legally binding political elections. Trading exchanges (stocks, commodity, financial instruments) will adopt blockchain-based trust services for validating transactions, and streamlining their market-clearing activities. Most banks will support routine bi-directional cryptocurrency transactions (between regular currency and cryptocurrency). Most merchants will accept cryptocurrency as a payment option. Accounting, billing and financial packages will include cryptocurrency as standard choices, including crypto-equity.


pages: 436 words: 76

Culture and Prosperity: The Truth About Markets - Why Some Nations Are Rich but Most Remain Poor by John Kay

Alan Greenspan, Albert Einstein, Asian financial crisis, Barry Marshall: ulcers, behavioural economics, Berlin Wall, Big bang: deregulation of the City of London, Bletchley Park, business cycle, California gold rush, Charles Babbage, complexity theory, computer age, constrained optimization, corporate governance, corporate social responsibility, correlation does not imply causation, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, Donald Trump, double entry bookkeeping, double helix, Dr. Strangelove, Dutch auction, Edward Lloyd's coffeehouse, electricity market, equity premium, equity risk premium, Ernest Rutherford, European colonialism, experimental economics, Exxon Valdez, failed state, Fairchild Semiconductor, financial innovation, flying shuttle, Ford Model T, Francis Fukuyama: the end of history, George Akerlof, George Gilder, Goodhart's law, Great Leap Forward, greed is good, Gunnar Myrdal, haute couture, Helicobacter pylori, illegal immigration, income inequality, industrial cluster, information asymmetry, intangible asset, invention of the telephone, invention of the wheel, invisible hand, John Meriwether, John Nash: game theory, John von Neumann, junk bonds, Kenneth Arrow, Kevin Kelly, knowledge economy, Larry Ellison, light touch regulation, Long Term Capital Management, loss aversion, Mahatma Gandhi, market bubble, market clearing, market fundamentalism, means of production, Menlo Park, Michael Milken, Mikhail Gorbachev, money: store of value / unit of account / medium of exchange, moral hazard, Myron Scholes, Naomi Klein, Nash equilibrium, new economy, oil shale / tar sands, oil shock, Pareto efficiency, Paul Samuelson, pets.com, Phillips curve, popular electronics, price discrimination, price mechanism, prisoner's dilemma, profit maximization, proprietary trading, purchasing power parity, QWERTY keyboard, Ralph Nader, RAND corporation, random walk, rent-seeking, Right to Buy, risk tolerance, road to serfdom, Robert Solow, Ronald Coase, Ronald Reagan, Savings and loan crisis, second-price auction, shareholder value, Silicon Valley, Simon Kuznets, South Sea Bubble, Steve Jobs, Stuart Kauffman, telemarketer, The Chicago School, The Market for Lemons, The Nature of the Firm, the new new thing, The Predators' Ball, The Wealth of Nations by Adam Smith, Thorstein Veblen, total factor productivity, transaction costs, tulip mania, urban decay, Vilfredo Pareto, Washington Consensus, women in the workforce, work culture , yield curve, yield management

The lights stay on, the flowers that arrive at San Remo at the beginning of the morning leave it at the end. This solves part of the coordination problem, but only part. The remarkable feature of the market economy is that it seems to solve a large variety of coordination problems simultaneously. The flower market clears, and at the same time electricity demand balances supply. There are enough trucks at the market, but not too many; enough gas for power stations, but not too much. Central planners always found it easy to deal with any particular coordination failure. By switching resources you can always relieve a shortage or a surplus: this is what we do when we plan our households or our businesses, and it is what the people who ran the Soviet { 174} John Kay economy did all the time.

The employer is concerned about the abilities and commitment of his staff; the worker wants a pleasant environment and congenial and capable colleagues. Concepts of the "going rate" are important to the decisions of employers and employees. And since prices have an informational function as well as a market-clearing function, there are good reasons for this. But a consequence is that in the labor market, as in the property market, prices will adjust only slowly to changing economic conditions. So there is unemployment in slumps, and labor shortages in booms. 11 And so the Arrow-Debreu model can be no more than a partial explanation of how market economies solve coordination problems.


pages: 464 words: 139,088

The End of Alchemy: Money, Banking and the Future of the Global Economy by Mervyn King

Alan Greenspan, Andrei Shleifer, Asian financial crisis, asset-backed security, balance sheet recession, bank run, banking crisis, banks create money, behavioural economics, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, bitcoin, Black Monday: stock market crash in 1987, Black Swan, Boeing 747, Bretton Woods, British Empire, business cycle, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, centre right, classic study, collapse of Lehman Brothers, creative destruction, Credit Default Swap, crowdsourcing, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, distributed generation, Doha Development Round, Edmond Halley, Fall of the Berlin Wall, falling living standards, fiat currency, financial engineering, financial innovation, financial intermediation, floating exchange rates, foreign exchange controls, forward guidance, Fractional reserve banking, Francis Fukuyama: the end of history, full employment, German hyperinflation, Glass-Steagall Act, Great Leap Forward, Hyman Minsky, inflation targeting, invisible hand, Japanese asset price bubble, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Meriwether, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, labour market flexibility, large denomination, lateral thinking, liquidity trap, Long Term Capital Management, low interest rates, manufacturing employment, market clearing, Martin Wolf, Mexican peso crisis / tequila crisis, Money creation, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, Myron Scholes, Nick Leeson, no-fly zone, North Sea oil, Northern Rock, oil shale / tar sands, oil shock, open economy, paradox of thrift, Paul Samuelson, Ponzi scheme, price mechanism, price stability, proprietary trading, purchasing power parity, quantitative easing, rent-seeking, reserve currency, Richard Thaler, rising living standards, Robert Shiller, Robert Solow, Satoshi Nakamoto, savings glut, secular stagnation, seigniorage, stem cell, Steve Jobs, The Great Moderation, the payments system, The Rise and Fall of American Growth, Thomas Malthus, too big to fail, transaction costs, Tyler Cowen: Great Stagnation, yield curve, Yom Kippur War, zero-sum game

When bidding in the auction, consumers must bid not only for the good they want – lunch in their favourite Manhattan restaurant, say – and the date on which they want it – next Tuesday – but also for the ‘state of the world’ in which they wish to purchase it. For example, if the restaurant is outdoors you might bid high for a table if next Tuesday were to be sunny and perhaps zero for a table if it were cold or wet. Market-clearing prices are likely to be high in the former ‘state of the world’ and low in the latter. The key point is that all transactions can be made in advance because it is possible, in this theoretical view, to identify all relevant states of the world and make the auction contingent on them. In other words, radical uncertainty is ruled out by assumption.

Pre-agreed instructions embedded in computer algorithms would determine the sequence in which financial assets belonging to the purchaser were sold and used to augment the financial assets of the vendor, also in a pre-agreed sequence. Assets used in this way could be any for which there were market-clearing prices in ‘real time’. Someone buying a meal in a restaurant might use a card, as now, but the result would not be a transfer from their bank account to that of the restaurant; instead there would be a sale of shares from the diner’s portfolio and the acquisition of different shares, or other assets, to the same value by the restaurant.


pages: 1,088 words: 228,743

Expected Returns: An Investor's Guide to Harvesting Market Rewards by Antti Ilmanen

Alan Greenspan, Andrei Shleifer, asset allocation, asset-backed security, availability heuristic, backtesting, balance sheet recession, bank run, banking crisis, barriers to entry, behavioural economics, Bernie Madoff, Black Swan, Bob Litterman, bond market vigilante , book value, Bretton Woods, business cycle, buy and hold, buy low sell high, capital asset pricing model, capital controls, carbon credits, Carmen Reinhart, central bank independence, classic study, collateralized debt obligation, commoditize, commodity trading advisor, corporate governance, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency risk, deal flow, debt deflation, deglobalization, delta neutral, demand response, discounted cash flows, disintermediation, diversification, diversified portfolio, dividend-yielding stocks, equity premium, equity risk premium, Eugene Fama: efficient market hypothesis, fiat currency, financial deregulation, financial innovation, financial intermediation, fixed income, Flash crash, framing effect, frictionless, frictionless market, G4S, George Akerlof, global macro, global reserve currency, Google Earth, high net worth, hindsight bias, Hyman Minsky, implied volatility, income inequality, incomplete markets, index fund, inflation targeting, information asymmetry, interest rate swap, inverted yield curve, invisible hand, John Bogle, junk bonds, Kenneth Rogoff, laissez-faire capitalism, law of one price, London Interbank Offered Rate, Long Term Capital Management, loss aversion, low interest rates, managed futures, margin call, market bubble, market clearing, market friction, market fundamentalism, market microstructure, mental accounting, merger arbitrage, mittelstand, moral hazard, Myron Scholes, negative equity, New Journalism, oil shock, p-value, passive investing, Paul Samuelson, pension time bomb, performance metric, Phillips curve, Ponzi scheme, prediction markets, price anchoring, price stability, principal–agent problem, private sector deleveraging, proprietary trading, purchasing power parity, quantitative easing, quantitative trading / quantitative finance, random walk, reserve currency, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, risk/return, riskless arbitrage, Robert Shiller, savings glut, search costs, selection bias, seminal paper, Sharpe ratio, short selling, sovereign wealth fund, statistical arbitrage, statistical model, stochastic volatility, stock buybacks, stocks for the long run, survivorship bias, systematic trading, tail risk, The Great Moderation, The Myth of the Rational Market, too big to fail, transaction costs, tulip mania, value at risk, volatility arbitrage, volatility smile, working-age population, Y2K, yield curve, zero-coupon bond, zero-sum game

., if price is equal to value), the expected return on the market portfolio, the return forecast for the equity market or any other market, should equal that market’s required return. The expected return determines how high a return the market can feasibly supply, while the required return determines how high a return market participants (as a group) demand (in order to hold the amount of an asset that is on offer, so that markets clear and all assets are held). As always, market prices adjust to balance supply and demand. For example, if all investors suddenly require higher risk premia, current market prices of risky assets must fall. Time variation in objectively feasible future returns may reflect mispricing caused by irrational expectations or sentiment fluctuations—but its origins could also be fully rational, reflecting risk premia that are time varying due to variation in the amount of risk in the market or in market participants’ tolerance for risk.

These assumptions ensure that every investor holds the same portfolio of risky assets, combining it with some amount, positive or negative, of the riskless asset (this latter amount depends on the specific risk aversion of a given investor). Moreover, these assumptions lead to the conclusion that the holdings just described are optimal. Finally, in equilibrium, market clearing requires that the risky asset portfolio demanded in common by all investors equals the market portfolio of risky assets. The CAPM’s asset-pricing implication is that assets with a higher sensitivity to the market [2] should offer a higher expected return—see equation (5.2), which is a simple rendition of the CAPM.

The prototypical case involves time-separable utility (only current and future consumption matter, not past consumption) and constant relative risk aversion (the same proportion of wealth is invested in the risky asset at all wealth levels). In equilibrium, asset prices are set so that the consumer holds all the assets (market clearing) and is indifferent to buying or selling a small unit of any asset. Such optimizing behavior implies the fundamental valuation equation (5.3), that asset price is equal to the expected product of a future payoff and the SDF. [6] A common formal specification assumes a representative agent and time-separable utility of consumption.


pages: 172 words: 54,066

The End of Loser Liberalism: Making Markets Progressive by Dean Baker

Alan Greenspan, Asian financial crisis, banking crisis, Bear Stearns, Bernie Sanders, business cycle, collateralized debt obligation, collective bargaining, corporate governance, currency manipulation / currency intervention, Doha Development Round, financial innovation, full employment, Glass-Steagall Act, Home mortgage interest deduction, income inequality, inflation targeting, invisible hand, low interest rates, manufacturing employment, market clearing, market fundamentalism, medical residency, patent troll, pets.com, pirate software, price stability, public intellectual, quantitative easing, regulatory arbitrage, rent-seeking, Robert Shiller, Silicon Valley, too big to fail, transaction costs

This sort of charade has allowed both the Obama and Bush administrations to claim that they are concerned about the overvaluation of the dollar and that they are doing what they can to rectify the situation. Yet the United States has the power to unilaterally take steps to lower the value of the dollar against other currencies. It can be difficult or even impossible to keep the price of a currency above the market-clearing level, but it is always possible to push down the value of a currency, through relatively simple mechanisms. One route, which is completely legal under all U.S. trade agreements, would be to tax the interest earnings of a country that we believe is maintaining an undervalued currency against the dollar.


pages: 194 words: 56,074

Angrynomics by Eric Lonergan, Mark Blyth

AlphaGo, Amazon Mechanical Turk, anti-communist, Asian financial crisis, basic income, Ben Bernanke: helicopter money, Berlin Wall, Bernie Sanders, Big Tech, bitcoin, blockchain, Branko Milanovic, Brexit referendum, business cycle, Capital in the Twenty-First Century by Thomas Piketty, central bank independence, collective bargaining, COVID-19, credit crunch, cryptocurrency, decarbonisation, deindustrialization, diversified portfolio, Donald Trump, Erik Brynjolfsson, Extinction Rebellion, fake news, full employment, gig economy, green new deal, Greta Thunberg, hiring and firing, Hyman Minsky, income inequality, income per capita, Jeremy Corbyn, job automation, labour market flexibility, liberal capitalism, lockdown, low interest rates, market clearing, Martin Wolf, Modern Monetary Theory, precariat, price stability, quantitative easing, Ronald Reagan, secular stagnation, self-driving car, Skype, smart grid, sovereign wealth fund, spectrum auction, The Future of Employment, The Great Moderation, The Spirit Level, universal basic income

ERIC: Now, if Polanyi gives us the first piece of the puzzle regarding where today’s angrynomics comes from – from the fiction that labour is just another commodity, which is politically unsustainable in practice – then the second piece of the puzzle comes from our friend John in our opening parable. John is, of course, John Maynard Keynes, who wrote a book in 1936 that was also a reflection on the failure of Capitalism v.1.0 called The General Theory of Employment, Interest and Money. Prior to Keynes, economists thought that left on their own markets clear (buyers find sellers and workers find employment), and through free competition full employment would be produced. Keynes argued against this view, drawing on his understanding of the then on-going Great Depression, arguing that most of the time we don’t actually inhabit a world where markets always clear and the poorest improve along with the richest.


pages: 475 words: 155,554

The Default Line: The Inside Story of People, Banks and Entire Nations on the Edge by Faisal Islam

"World Economic Forum" Davos, Alan Greenspan, Asian financial crisis, asset-backed security, balance sheet recession, bank run, banking crisis, Basel III, Ben Bernanke: helicopter money, Berlin Wall, Big bang: deregulation of the City of London, bond market vigilante , book value, Boris Johnson, British Empire, capital controls, carbon credits, carbon footprint, carbon tax, Celtic Tiger, central bank independence, centre right, collapse of Lehman Brothers, credit crunch, Credit Default Swap, crony capitalism, Crossrail, currency risk, dark matter, deindustrialization, Deng Xiaoping, disintermediation, energy security, Eugene Fama: efficient market hypothesis, eurozone crisis, Eyjafjallajökull, financial deregulation, financial engineering, financial innovation, financial repression, floating exchange rates, forensic accounting, forward guidance, full employment, G4S, ghettoisation, global rebalancing, global reserve currency, high-speed rail, hiring and firing, inflation targeting, Irish property bubble, junk bonds, Just-in-time delivery, labour market flexibility, light touch regulation, London Whale, Long Term Capital Management, low interest rates, margin call, market clearing, megacity, megaproject, Mikhail Gorbachev, mini-job, mittelstand, Money creation, moral hazard, mortgage debt, mortgage tax deduction, mutually assured destruction, Myron Scholes, negative equity, North Sea oil, Northern Rock, offshore financial centre, open economy, paradox of thrift, Pearl River Delta, pension reform, price mechanism, price stability, profit motive, quantitative easing, quantitative trading / quantitative finance, race to the bottom, regulatory arbitrage, reserve currency, reshoring, Right to Buy, rising living standards, Ronald Reagan, savings glut, shareholder value, sovereign wealth fund, tail risk, The Chicago School, the payments system, too big to fail, trade route, transaction costs, two tier labour market, unorthodox policies, uranium enrichment, urban planning, value at risk, WikiLeaks, working-age population, zero-sum game

Although it is borrowed money, it doesn’t count as public-sector borrowing but as a ‘financial transaction’ instead. The banks fund 75 per cent, a less risky and therefore cheaper mortgage, and the buyer pays a 5 per cent deposit. It basically opens up affordable mortgages to buyers with small deposits. Was there not a simpler solution to jump-start the market? Why not let the market clear, and prices fall to reflect falling real incomes, weak economic growth? Indeed, why doesn’t Taylor Wimpey just cut the prices of its homes? ‘Life’s not that simple,’ Redfern tells me. He mentions the impact on local existing homes if new home prices were cut. ‘I don’t think it’s very desirable for people who have already bought from us, and people in the surrounding village.

DEFAULT LINE #6: The role of economics Economics has developed into something of a state-backed theology in public policy. It is social science that has become a language for the calculation of costs and benefits. Its magical powers have been overstated, however. Many of these economic analyses are just extrapolations and the only accurate analysis is provided with hindsight. Conventional market-clearing equilibrium economics inculcates a mindset of econofatalism: a belief that nothing can be done to change the inevitable financial fate of a nation’s economy. Milton Friedman developed the concept of the ‘superneutrality’ of money. Superneutrality is an apt description of the approach to public policy that arises out of the overuse of economics.


pages: 202 words: 58,823

Willful: How We Choose What We Do by Richard Robb

activist fund / activist shareholder / activist investor, Alvin Roth, Asian financial crisis, asset-backed security, Bear Stearns, behavioural economics, Bernie Madoff, Brexit referendum, capital asset pricing model, cognitive bias, collapse of Lehman Brothers, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, delayed gratification, diversification, diversified portfolio, effective altruism, endowment effect, Eratosthenes, experimental subject, family office, George Akerlof, index fund, information asymmetry, job satisfaction, John Maynard Keynes: Economic Possibilities for our Grandchildren, lake wobegon effect, loss aversion, market bubble, market clearing, money market fund, Paradox of Choice, Pareto efficiency, Paul Samuelson, Peter Singer: altruism, Philippa Foot, principal–agent problem, profit maximization, profit motive, Richard Thaler, search costs, Silicon Valley, sovereign wealth fund, survivorship bias, the scientific method, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, transaction costs, trolley problem, ultimatum game

But Diogenes argues that the merchant is not obligated to reveal this information because there is a significant difference between not revealing and actively concealing. Antipater favors disclosure on the basis that “it is your duty to consider the interests of your fellow-men and to serve society.”4 The primary impact of disclosure would be on the market-clearing price and hence on the merchant’s profit. Either way, the people of Rhodes, taken as a whole, will end up with the same amount of grain on the same schedule.5 Thus the question is really, how much money should the Rhodians transfer to the merchant? And how important is the principle that honesty is the best policy?


pages: 247 words: 60,543

The Currency Cold War: Cash and Cryptography, Hash Rates and Hegemony by David G. W. Birch

"World Economic Forum" Davos, Alan Greenspan, algorithmic management, AlphaGo, bank run, Big Tech, bitcoin, blockchain, Bretton Woods, BRICs, British Empire, business cycle, capital controls, cashless society, central bank independence, COVID-19, cross-border payments, cryptocurrency, Diane Coyle, disintermediation, distributed ledger, Donald Trump, driverless car, Elon Musk, Ethereum, ethereum blockchain, facts on the ground, fault tolerance, fiat currency, financial exclusion, financial innovation, financial intermediation, floating exchange rates, forward guidance, Fractional reserve banking, global reserve currency, global supply chain, global village, Hyman Minsky, information security, initial coin offering, Internet of things, Jaron Lanier, Kenneth Rogoff, knowledge economy, M-Pesa, Mark Zuckerberg, market clearing, market design, Marshall McLuhan, mobile money, Money creation, money: store of value / unit of account / medium of exchange, moral hazard, Network effects, new economy, Northern Rock, one-China policy, Overton Window, PalmPilot, pattern recognition, Pingit, QR code, quantum cryptography, race to the bottom, railway mania, ransomware, Real Time Gross Settlement, reserve currency, Satoshi Nakamoto, seigniorage, Silicon Valley, smart contracts, social distancing, sovereign wealth fund, special drawing rights, subscription business, the payments system, too big to fail, transaction costs, Vitalik Buterin, Washington Consensus

However, as de Bono explains in ‘The IBM dollar’, in an always-on networked world this complexity is no barrier to trade: Pre-agreed algorithms would determine which financial assets were sold by the purchaser of the good or service depending on the value of the transaction. And the supplier of that good or service would know that incoming funds would be allocated to the appropriate combination of assets as prescribed by another pre-agreed algorithm. Eligible assets would be any financial assets for which there were market clearing prices in real time. The same system could match demands and supplies of financial assets, determine prices and make settlements. Note his adumbration of Bitcoin’s lack of intermediaries and settlement. Remember, he was writing this before there was a Google or a Netscape, let alone a PayPal or an M-Pesa.


pages: 544 words: 168,076

Red Plenty by Francis Spufford

Adam Curtis, affirmative action, anti-communist, Anton Chekhov, asset allocation, Buckminster Fuller, clean water, cognitive dissonance, computer age, double helix, Fellow of the Royal Society, John von Neumann, Kickstarter, Kim Stanley Robinson, Kitchen Debate, linear programming, lost cosmonauts, market clearing, MITM: man-in-the-middle, New Journalism, oil shock, Philip Mirowski, plutocrats, profit motive, RAND corporation, scientific management, Simon Kuznets, the scientific method

., Mathematics and Computers in Soviet Economic Planning (New Haven CT: Yale University Press, 1967), and Martin Cave, Computers and Economic Planning: The perience (Cambridge: CUP, 1980). 6 The recording clerks sally out from the Ministry of Trade’s little booths: among other things, as an information-gathering exercise, to collect a set of market-clearing prices which could then be used to help establish the price level for the bulk of food trade, in state stores. The state price was always cheaper, guaranteeing that food at the state price would always be in shortage relative to the money available to pay for it, but how much cheaper it was varied, depending both on the irregular jumps of the official prices and the more continuous adjustment of the market prices.

., Mathematics and Computers in Soviet Economic Planning (New Haven CT: Yale University Press, 1967), and Martin Cave, Computers and Economic Planning: The Soviet Experience (Cambridge: CUP, 1980). 6 The recording clerks sally out from the Ministry of Trade’s little booths: among other things, as an information-gathering exercise, to collect a set of market-clearing prices which could then be used to help establish the price level for the bulk of food trade, in state stores. The state price was always cheaper, guaranteeing that food at the state price would always be in shortage relative to the money available to pay for it, but how much cheaper it was varied, depending both on the irregular jumps of the official prices and the more continuous adjustment of the market prices.


pages: 261 words: 70,584

Retirementology: Rethinking the American Dream in a New Economy by Gregory Brandon Salsbury

Alan Greenspan, Albert Einstein, asset allocation, Bear Stearns, behavioural economics, buy and hold, carried interest, Cass Sunstein, credit crunch, Daniel Kahneman / Amos Tversky, diversification, estate planning, financial independence, fixed income, full employment, hindsight bias, housing crisis, loss aversion, market bubble, market clearing, mass affluent, Maui Hawaii, mental accounting, mortgage debt, mortgage tax deduction, National Debt Clock, negative equity, new economy, RFID, Richard Thaler, risk tolerance, Robert Shiller, side project, Silicon Valley, Steve Jobs, the rule of 72, Yogi Berra

It’s equally difficult to find out exactly when the healthcare menagerie we have now came into existence. When did employer-provided health insurance become the norm? Did the need for insurance ever really intersect with market forces? And if they did intersect, did they simply collide and cause a big mess rather than bring together the buyer and seller of a service at a market-clearing price? That’s the way it works in every other segment of our economy: A product or service is offered at a price, and people decide whether that price is worthwhile for the product or service. But when it comes to healthcare, there’s been a disruption in that consumer/producer relationship. Something has kept marketers from directly meeting the needs of the consumers who want or need the product.


pages: 257 words: 13,443

Statistical Arbitrage: Algorithmic Trading Insights and Techniques by Andrew Pole

algorithmic trading, Benoit Mandelbrot, constrained optimization, Dava Sobel, deal flow, financial engineering, George Santayana, Long Term Capital Management, Louis Pasteur, low interest rates, mandelbrot fractal, market clearing, market fundamentalism, merger arbitrage, pattern recognition, price discrimination, profit maximization, proprietary trading, quantitative trading / quantitative finance, risk tolerance, Sharpe ratio, statistical arbitrage, statistical model, stochastic volatility, systematic trading, transaction costs

Here, however, the rules are defined by human modelers and not the laws of the physical universe, and they are changeable. Noise is omnipresent as human traders still directly preempt a sizable chunk of market activity and originate all transactions. Notwithstanding the noise, the new forces for equilibrium are searching not for fair relative prices but fair (mutually accepted by participating entities) market clearing. This new paradigm may be a reversion (!!!) to an age-old paradigm of economics: perfect competition. Now, on that train of thought one might conjure ideas of dynamic cobweb algorithms, game theoretic strategies, and perhaps a necessary repositioning of research into behavioral finance. Volatility will remain consumed by the algorithms.


pages: 246 words: 68,392

Gigged: The End of the Job and the Future of Work by Sarah Kessler

"Susan Fowler" uber, Affordable Care Act / Obamacare, Airbnb, Amazon Mechanical Turk, basic income, bitcoin, blockchain, business cycle, call centre, cognitive dissonance, collective bargaining, crowdsourcing, data science, David Attenborough, do what you love, Donald Trump, East Village, Elon Musk, financial independence, future of work, game design, gig economy, Hacker News, income inequality, independent contractor, information asymmetry, Jeff Bezos, job automation, law of one price, Lyft, Mark Zuckerberg, market clearing, minimum wage unemployment, new economy, opioid epidemic / opioid crisis, payday loans, post-work, profit maximization, QR code, race to the bottom, ride hailing / ride sharing, Salesforce, Second Machine Age, self-driving car, shareholder value, sharing economy, Silicon Valley, Snapchat, TaskRabbit, TechCrunch disrupt, Travis Kalanick, Uber and Lyft, Uber for X, uber lyft, union organizing, universal basic income, working-age population, Works Progress Administration, Y Combinator

On average, it estimated they were making $10.75 per hour in the Houston area, $8.77 per hour in Detroit, and $13.17 in Denver, which was slightly less than Walmart’s average full-time hourly rate in 2016.13 Based on the pricing model data, BuzzFeed determined that gas, insurance, and other costs of doing business amounted to about 22% of full-time drivers’ gross pay in Denver, 24% in Houston, and 31% in Detroit.14 Wages in all three markets cleared the minimum-wage, but not by much. And unlike a minimum- wage job, driving for Uber came without any paid breaks or benefits like health insurance. What it paid could change any time. As Uber was pitching its company as a way to start a mini-business, internal presentations (which would eventually also leak to the press) showed that it considered the biggest competitor to its gig-based jobs to be McDonald’s.15 In January 2017, the company agreed to pay the Federal Trade Commission (FTC) $20 million to settle charges that it misled prospective drivers by exaggerating how much money they would make.16 Some drivers were still content with the service, despite the gap between its advertised opportunity and its actual pay.


pages: 662 words: 180,546

Never Let a Serious Crisis Go to Waste: How Neoliberalism Survived the Financial Meltdown by Philip Mirowski

"there is no alternative" (TINA), Adam Curtis, Alan Greenspan, Alvin Roth, An Inconvenient Truth, Andrei Shleifer, asset-backed security, bank run, barriers to entry, Basel III, Bear Stearns, behavioural economics, Berlin Wall, Bernie Madoff, Bernie Sanders, Black Swan, blue-collar work, bond market vigilante , bread and circuses, Bretton Woods, Brownian motion, business cycle, capital controls, carbon credits, Carmen Reinhart, Cass Sunstein, central bank independence, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, complexity theory, constrained optimization, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, dark matter, David Brooks, David Graeber, debt deflation, deindustrialization, democratizing finance, disinformation, do-ocracy, Edward Glaeser, Eugene Fama: efficient market hypothesis, experimental economics, facts on the ground, Fall of the Berlin Wall, financial deregulation, financial engineering, financial innovation, Flash crash, full employment, George Akerlof, Glass-Steagall Act, Goldman Sachs: Vampire Squid, Greenspan put, Hernando de Soto, housing crisis, Hyman Minsky, illegal immigration, income inequality, incomplete markets, information asymmetry, invisible hand, Jean Tirole, joint-stock company, junk bonds, Kenneth Arrow, Kenneth Rogoff, Kickstarter, knowledge economy, l'esprit de l'escalier, labor-force participation, liberal capitalism, liquidity trap, loose coupling, manufacturing employment, market clearing, market design, market fundamentalism, Martin Wolf, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, Naomi Klein, Nash equilibrium, night-watchman state, Northern Rock, Occupy movement, offshore financial centre, oil shock, Pareto efficiency, Paul Samuelson, payday loans, Philip Mirowski, Phillips curve, Ponzi scheme, Post-Keynesian economics, precariat, prediction markets, price mechanism, profit motive, public intellectual, quantitative easing, race to the bottom, random walk, rent-seeking, Richard Thaler, road to serfdom, Robert Shiller, Robert Solow, Ronald Coase, Ronald Reagan, Savings and loan crisis, savings glut, school choice, sealed-bid auction, search costs, Silicon Valley, South Sea Bubble, Steven Levy, subprime mortgage crisis, tail risk, technoutopianism, The Chicago School, The Great Moderation, the map is not the territory, The Myth of the Rational Market, the scientific method, The Theory of the Leisure Class by Thorstein Veblen, The Wisdom of Crowds, theory of mind, Thomas Kuhn: the structure of scientific revolutions, Thorstein Veblen, Tobin tax, tontine, too big to fail, transaction costs, Tyler Cowen, vertical integration, Vilfredo Pareto, War on Poverty, Washington Consensus, We are the 99%, working poor

Geanakoplos likes to phrase his commentary in terms of “cycles,” but in fact, general equilibrium forces him to posit separate and unconnected sequential states of equilibrium, driven in a Rube Goldberg fashion by the arbitrarily sequenced arrival of asset issuance→“news”→valuation. Each state along the way is in “equilibrium,” as defined by constrained optimization and market clearing. Because everything is always already in equilibrium, the only reason anything changes is the deus ex machina imposed from outside by the model builder. Worse, the sequence itself is completely arbitrary, dictated more by the math than by anything that happens in the world: for instance, each player has only one chance to issue assets, is proscribed from trading them on secondary markets, and consumption can happen only at the initial issuance and at the end of time.108 It seems that, however proud he may be of hewing to Walrasian heuristics, the suite of models he has constructed rarely do much to actually illuminate the actual crisis and aftermath.

One immediate consequence of this view was that the imposing magnitude of the toxic asset problem was not necessarily worrisome, nor was the possibility that the TARP program would be unable to remove the vast majority of the toxic assets from banks’ balance sheets: The “losers” are not left high and dry. By determining the market clearing price, the auction increases liquidity . . . The auction has effectively aggregated information about the security’s value. This price information is the essential ingredient needed to restore the secondary market for mortgage backed securities.130 What mattered, they insisted, was “information”: information would summon forth funds from private actors, thereby thawing frozen secondary markets.


pages: 246 words: 116

Tyler Cowen-Discover Your Inner Economist Use Incentives to Fall in Love, Survive Your Next Meeting, and Motivate Your Dentist-Plume (2008) by Unknown

"World Economic Forum" Davos, airport security, Andrei Shleifer, big-box store, British Empire, business cycle, cognitive dissonance, cross-subsidies, fundamental attribution error, gentrification, George Santayana, haute cuisine, low interest rates, market clearing, microcredit, money market fund, pattern recognition, Ralph Nader, retail therapy, Stephen Hawking, The Wealth of Nations by Adam Smith, trade route, Tragedy of the Commons, transaction costs, Tyler Cowen

People want their sex to consist of peaks, rather than seeking to Avoiding the Seven Deadly Sins (or Not) I 181 maximize lifetime pleasure. Thomas Schelling once told me he does not always listen to Bach, even when he feels like doing so. He wants to keep it as a special experience. 7. The market-clearing price for more sex is positive. Overall men want sex more than women do, plus many women are more selective in their choice of partner. Many men are bidding, implicitlyor explicitly, for a smaller number of women. Yet people feel shame about paying or receiving money in too explicit a fashion (see also #4).


pages: 270 words: 73,485

Hubris: Why Economists Failed to Predict the Crisis and How to Avoid the Next One by Meghnad Desai

3D printing, Alan Greenspan, bank run, banking crisis, Bear Stearns, Berlin Wall, Big bang: deregulation of the City of London, Bretton Woods, BRICs, British Empire, business cycle, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, correlation coefficient, correlation does not imply causation, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, deindustrialization, demographic dividend, Eugene Fama: efficient market hypothesis, eurozone crisis, experimental economics, Fall of the Berlin Wall, financial innovation, Financial Instability Hypothesis, floating exchange rates, full employment, German hyperinflation, Glass-Steagall Act, Gunnar Myrdal, Home mortgage interest deduction, imperial preference, income inequality, inflation targeting, invisible hand, Isaac Newton, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, laissez-faire capitalism, liquidity trap, Long Term Capital Management, low interest rates, market bubble, market clearing, means of production, Meghnad Desai, Mexican peso crisis / tequila crisis, mortgage debt, Myron Scholes, negative equity, Northern Rock, oil shale / tar sands, oil shock, open economy, Paul Samuelson, Phillips curve, Post-Keynesian economics, price stability, purchasing power parity, pushing on a string, quantitative easing, reserve currency, rising living standards, risk/return, Robert Shiller, Robert Solow, Ronald Reagan, savings glut, secular stagnation, seigniorage, Silicon Valley, Simon Kuznets, subprime mortgage crisis, The Chicago School, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Wealth of Nations by Adam Smith, Tobin tax, too big to fail, women in the workforce

Samuelson’s student Lawrence Klein, who had coined the term “the Keynesian Revolution,” became known for translating Keynesian ideas into econometric models, which could then be used for policy purposes.10 There was, however, a problem at the heart of economics. In microeconomics, the theory of single markets taken individually (partial equilibrium) or taken simultaneously (general equilibrium) was taught. Economists learnt that the market works, that is, that all markets clear and there is no excess supply left unsold or excess demand left unsatisfied at the end of the day. In macroeconomics, they learnt that the labor market often failed to clear and hence public policy was needed to correct that anomaly. The two strands seemed incompatible. Walrasian or Marshallian economics did not face this problem.


pages: 252 words: 73,131

The Inner Lives of Markets: How People Shape Them—And They Shape Us by Tim Sullivan

Abraham Wald, Airbnb, airport security, Al Roth, Alvin Roth, Andrei Shleifer, attribution theory, autonomous vehicles, barriers to entry, behavioural economics, Brownian motion, business cycle, buy and hold, centralized clearinghouse, Chuck Templeton: OpenTable:, classic study, clean water, conceptual framework, congestion pricing, constrained optimization, continuous double auction, creative destruction, data science, deferred acceptance, Donald Trump, Dutch auction, Edward Glaeser, experimental subject, first-price auction, framing effect, frictionless, fundamental attribution error, George Akerlof, Goldman Sachs: Vampire Squid, Gunnar Myrdal, helicopter parent, information asymmetry, Internet of things, invisible hand, Isaac Newton, iterative process, Jean Tirole, Jeff Bezos, Johann Wolfgang von Goethe, John Nash: game theory, John von Neumann, Joseph Schumpeter, Kenneth Arrow, late fees, linear programming, Lyft, market clearing, market design, market friction, medical residency, multi-sided market, mutually assured destruction, Nash equilibrium, Occupy movement, opioid epidemic / opioid crisis, Pareto efficiency, Paul Samuelson, Peter Thiel, pets.com, pez dispenser, power law, pre–internet, price mechanism, price stability, prisoner's dilemma, profit motive, proxy bid, RAND corporation, ride hailing / ride sharing, Robert Shiller, Robert Solow, Ronald Coase, school choice, school vouchers, scientific management, sealed-bid auction, second-price auction, second-price sealed-bid, sharing economy, Silicon Valley, spectrum auction, Steve Jobs, Tacoma Narrows Bridge, techno-determinism, technoutopianism, telemarketer, The Market for Lemons, The Wisdom of Crowds, Thomas Malthus, Thorstein Veblen, trade route, transaction costs, two-sided market, uber lyft, uranium enrichment, Vickrey auction, Vilfredo Pareto, WarGames: Global Thermonuclear War, winner-take-all economy

Congestion pricing is related to Uber’s surge pricing, where prices go up when there are fewer cars or more people looking for a ride. But the rationale is a bit different. Vickrey was focused on preventing the negative externalities that occur when a system is overloaded by too many customers. Uber just wants to reequilibrate supply and demand in real time to let markets clear—to make sure supply meets demand—by the minute. 7. A classic result in auction theory, the Revenue Equivalence Theorem, shows that, with appropriate assumptions on buyer and seller attributes like risk preferences, first- and second-price auctions can be expected to generate the same revenues for the seller, on average.


pages: 183 words: 17,571

Broken Markets: A User's Guide to the Post-Finance Economy by Kevin Mellyn

Alan Greenspan, banking crisis, banks create money, Basel III, Bear Stearns, Bernie Madoff, Big bang: deregulation of the City of London, bond market vigilante , Bonfire of the Vanities, bonus culture, Bretton Woods, BRICs, British Empire, business cycle, buy and hold, call centre, Carmen Reinhart, central bank independence, centre right, cloud computing, collapse of Lehman Brothers, collateralized debt obligation, compensation consultant, corporate governance, corporate raider, creative destruction, credit crunch, crony capitalism, currency manipulation / currency intervention, currency risk, disintermediation, eurozone crisis, fiat currency, financial innovation, financial repression, floating exchange rates, Fractional reserve banking, Glass-Steagall Act, global reserve currency, global supply chain, Home mortgage interest deduction, index fund, information asymmetry, joint-stock company, Joseph Schumpeter, junk bonds, labor-force participation, light touch regulation, liquidity trap, London Interbank Offered Rate, low interest rates, market bubble, market clearing, Martin Wolf, means of production, Michael Milken, mobile money, Money creation, money market fund, moral hazard, mortgage debt, mortgage tax deduction, negative equity, Nixon triggered the end of the Bretton Woods system, Paul Volcker talking about ATMs, Ponzi scheme, profit motive, proprietary trading, prudent man rule, quantitative easing, Real Time Gross Settlement, regulatory arbitrage, reserve currency, rising living standards, Ronald Coase, Savings and loan crisis, seigniorage, shareholder value, Silicon Valley, SoftBank, Solyndra, statistical model, Steve Jobs, The Great Moderation, the payments system, Tobin tax, too big to fail, transaction costs, underbanked, Works Progress Administration, yield curve, Yogi Berra, zero-sum game

There was the opportunity to simultaneously increase temporary income support while making pro-growth reforms in the tax code and providing a road map to sustainable public finances, something the bipartisan Simpson-Bowles Commission sketched out. Even an increase in direct government purchases of military hardware might have helped, as it did after 1940. So would a plan to let the financial, especially the mortgage, markets clear through actually finding a bottom at which assets would find ready buyers.The window for bold action with bipartisan support was there, as it was in 1933. Whatever one thinks of the New Deal, Roosevelt treated the Depression as a national emergency equivalent to war and focused on nothing else in his famous 100 days.


pages: 286 words: 79,305

99%: Mass Impoverishment and How We Can End It by Mark Thomas

"there is no alternative" (TINA), "World Economic Forum" Davos, 2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, additive manufacturing, Alan Greenspan, Albert Einstein, anti-communist, autonomous vehicles, bank run, banks create money, behavioural economics, bitcoin, business cycle, call centre, Cambridge Analytica, central bank independence, circular economy, complexity theory, conceptual framework, creative destruction, credit crunch, CRISPR, declining real wages, distributed ledger, Donald Trump, driverless car, Erik Brynjolfsson, eurozone crisis, fake news, fiat currency, Filter Bubble, full employment, future of work, Gini coefficient, gravity well, income inequality, inflation targeting, Internet of things, invisible hand, ITER tokamak, Jeff Bezos, jimmy wales, job automation, Kickstarter, labour market flexibility, laissez-faire capitalism, Larry Ellison, light touch regulation, Mark Zuckerberg, market clearing, market fundamentalism, Martin Wolf, Modern Monetary Theory, Money creation, money: store of value / unit of account / medium of exchange, Nelson Mandela, Nick Bostrom, North Sea oil, Occupy movement, offshore financial centre, Own Your Own Home, Peter Thiel, Piper Alpha, plutocrats, post-truth, profit maximization, quantitative easing, rent-seeking, Robert Solow, Ronald Reagan, Second Machine Age, self-driving car, Silicon Valley, smart cities, Steve Jobs, The Great Moderation, The Wealth of Nations by Adam Smith, Tyler Cowen, warehouse automation, wealth creators, working-age population

In the words of another Nobel Prize-winning economist, Joseph Stiglitz, ‘not only did the model fail to predict the Crisis; it effectively said that it couldn’t happen. Under the core hypotheses (rational expectations, exogenous shocks), a crisis of that form and magnitude simply couldn’t occur.’5 In the same way, long-term unemployment is impossible in a model in which all markets clear quickly. And of particular interest to this book, mass impoverishment can never be an issue in an economy where there is a single representative household. If these features of the real-world are important problems – which they clearly are – policymakers have no hope of deriving any relevant insight from DSGE models as they are currently constructed.


pages: 275 words: 84,980

Before Babylon, Beyond Bitcoin: From Money That We Understand to Money That Understands Us (Perspectives) by David Birch

"World Economic Forum" Davos, agricultural Revolution, Airbnb, Alan Greenspan, bank run, banks create money, bitcoin, blockchain, Bretton Woods, British Empire, Broken windows theory, Burning Man, business cycle, capital controls, cashless society, Clayton Christensen, clockwork universe, creative destruction, credit crunch, cross-border payments, cross-subsidies, crowdsourcing, cryptocurrency, David Graeber, dematerialisation, Diane Coyle, disruptive innovation, distributed ledger, Dogecoin, double entry bookkeeping, Ethereum, ethereum blockchain, facts on the ground, fake news, fault tolerance, fiat currency, financial exclusion, financial innovation, financial intermediation, floating exchange rates, Fractional reserve banking, index card, informal economy, Internet of things, invention of the printing press, invention of the telegraph, invention of the telephone, invisible hand, Irish bank strikes, Isaac Newton, Jane Jacobs, Kenneth Rogoff, knowledge economy, Kuwabatake Sanjuro: assassination market, land bank, large denomination, low interest rates, M-Pesa, market clearing, market fundamentalism, Marshall McLuhan, Martin Wolf, mobile money, Money creation, money: store of value / unit of account / medium of exchange, new economy, Northern Rock, Pingit, prediction markets, price stability, QR code, quantitative easing, railway mania, Ralph Waldo Emerson, Real Time Gross Settlement, reserve currency, Satoshi Nakamoto, seigniorage, Silicon Valley, smart contracts, social graph, special drawing rights, Suez canal 1869, technoutopianism, The future is already here, the payments system, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, tulip mania, wage slave, Washington Consensus, wikimedia commons

In his original work de Bono puts it quite nicely when he says: Pre-agreed algorithms would determine which financial assets were sold by the purchaser of the good or service depending on the value of the transaction. And the supplier of that good or service would know that the incoming funds would be allocated to the appropriate combination of assets as prescribed by another pre-agreed algorithm. Eligible assets will be any financial assets for which there were market clearing prices in real time. The same system could match demands and supplies of financial assets, determine prices and make settlements. I cannot resist pointing out that de Bono also wrote that the key to any such developments ‘is the ability of computers to communicate in real time to permit instantaneous verification of the creditworthiness of counterparties’: this is an early vision of what we might now call the reputation economy, which I explored in my previous book, where I noted that identities and credentials are easy to create and destroy but reputations are much harder to subvert since they depend not on what anyone thinks but on what everyone thinks (Birch 2014).


pages: 282 words: 80,907

Who Gets What — and Why: The New Economics of Matchmaking and Market Design by Alvin E. Roth

Affordable Care Act / Obamacare, Airbnb, algorithmic trading, barriers to entry, behavioural economics, Berlin Wall, bitcoin, Build a better mousetrap, centralized clearinghouse, Chuck Templeton: OpenTable:, commoditize, computer age, computerized markets, crowdsourcing, deferred acceptance, desegregation, Dutch auction, experimental economics, first-price auction, Flash crash, High speed trading, income inequality, Internet of things, invention of agriculture, invisible hand, Jean Tirole, law of one price, Lyft, market clearing, market design, medical residency, obamacare, PalmPilot, proxy bid, road to serfdom, school choice, sealed-bid auction, second-price auction, second-price sealed-bid, Silicon Valley, spectrum auction, Spread Networks laid a new fibre optics cable between New York and Chicago, Steve Jobs, The Wealth of Nations by Adam Smith, two-sided market, uber lyft, undersea cable

Xiaolin Xing and I studied the labor market for professional psychologists at a time when they tried to implement something like the deferred acceptance algorithm by telephone. It was too congested for them to get to a stable matching: trying to conduct all the steps of the deferred acceptance algorithm through long chains of phone calls took too long. See A. E. Roth and X. Xing, “Turnaround Time and Bottlenecks in Market Clearing: Decentralized Matching in the Market for Clinical Psychologists,” Journal of Political Economy 105 (April 1997): 284–329. Today they use the same kind of computerized clearinghouse that we designed for the medical Match. [>] counterexample: Gale and Shapley’s proof that a stable matching always exists when no couples are present is what mathematicians call a theorem, while an example that shows that conclusion no longer follows when couples are present is called a counterexample, because it is an example that goes counter to what we might have expected from the theorem.


pages: 279 words: 87,910

How Much Is Enough?: Money and the Good Life by Robert Skidelsky, Edward Skidelsky

banking crisis, basic income, Bertrand Russell: In Praise of Idleness, Bonfire of the Vanities, call centre, carbon credits, creative destruction, critique of consumerism, David Ricardo: comparative advantage, death of newspapers, Dr. Strangelove, financial innovation, Francis Fukuyama: the end of history, full employment, Great Leap Forward, guns versus butter model, happiness index / gross national happiness, Herbert Marcuse, income inequality, income per capita, informal economy, Intergovernmental Panel on Climate Change (IPCC), invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Joseph Schumpeter, market clearing, market fundamentalism, Meghnad Desai, Paul Samuelson, Philippa Foot, planned obsolescence, precautionary principle, profit motive, purchasing power parity, Ralph Waldo Emerson, retail therapy, Robert Solow, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, Tobin tax, union organizing, University of East Anglia, Veblen good, wage slave, wealth creators, World Values Survey, zero-sum game

More recent proposals, such as Milton Friedman’s “negative income tax”—a single cash payment to all those whose incomes fell below a certain threshold—have been seen as cheaper way of providing social security.16 Something called “basic income” has also been promoted as a way of topping up wages when the market-clearing wage fell below subsistence, and in this form has been widely adopted in the form of tax credits. Most of the earlier arguments were rights-, or entitlement-, based, a typical one being that each citizen had a right to a share of the nation’s patrimony—its stock of assets, natural or inherited—in compensation for the original act of property despoliation.


pages: 561 words: 87,892

Losing Control: The Emerging Threats to Western Prosperity by Stephen D. King

"World Economic Forum" Davos, Admiral Zheng, Alan Greenspan, asset-backed security, barriers to entry, Berlin Wall, Bernie Madoff, Bretton Woods, BRICs, British Empire, business cycle, capital controls, Celtic Tiger, central bank independence, collateralized debt obligation, corporate governance, credit crunch, crony capitalism, currency manipulation / currency intervention, currency peg, David Ricardo: comparative advantage, demographic dividend, demographic transition, Deng Xiaoping, Diane Coyle, Fall of the Berlin Wall, financial deregulation, financial innovation, fixed income, foreign exchange controls, Francis Fukuyama: the end of history, full employment, G4S, George Akerlof, German hyperinflation, Gini coefficient, Great Leap Forward, guns versus butter model, hiring and firing, income inequality, income per capita, inflation targeting, invisible hand, Isaac Newton, junk bonds, knowledge economy, labour market flexibility, labour mobility, liberal capitalism, low interest rates, low skilled workers, market clearing, Martin Wolf, mass immigration, Meghnad Desai, Mexican peso crisis / tequila crisis, Naomi Klein, new economy, old age dependency ratio, Paul Samuelson, Ponzi scheme, price mechanism, price stability, purchasing power parity, rent-seeking, reserve currency, rising living standards, Ronald Reagan, Savings and loan crisis, savings glut, Silicon Valley, Simon Kuznets, sovereign wealth fund, spice trade, statistical model, technology bubble, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Market for Lemons, The Wealth of Nations by Adam Smith, Thomas Malthus, trade route, transaction costs, Washington Consensus, We are all Keynesians now, women in the workforce, working-age population, Y2K, Yom Kippur War

China, for example, has a level of income inequality similar to that of the US, an ironic result given the countries’ differing political systems. In an attempt to deliver social cohesion in the light of rising commodity prices, many fast-growing emerging markets choose to subsidize the prices of staples such as food and energy. This effectively raises consumption over and above the market clearing level. Higher consumption in the emerging world must, though, imply lower consumption elsewhere: the developed world ends up paying an even higher price for access to the world’s raw materials. Inflation in the emerging markets may tend to drift higher as a result of economic catch-up accompanied by fixed nominal exchange rates, but there is also a danger of nasty inflation surprises that stem from emerging-market linkages to the US dollar.


pages: 263 words: 80,594

Stolen: How to Save the World From Financialisation by Grace Blakeley

"Friedman doctrine" OR "shareholder theory", activist fund / activist shareholder / activist investor, asset-backed security, balance sheet recession, bank run, banking crisis, banks create money, Basel III, basic income, battle of ideas, Berlin Wall, Big bang: deregulation of the City of London, Big Tech, bitcoin, bond market vigilante , Bretton Woods, business cycle, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, capitalist realism, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, collective bargaining, corporate governance, corporate raider, credit crunch, Credit Default Swap, cryptocurrency, currency peg, David Graeber, debt deflation, decarbonisation, democratizing finance, Donald Trump, emotional labour, eurozone crisis, Extinction Rebellion, extractivism, Fall of the Berlin Wall, falling living standards, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, fixed income, full employment, G4S, gender pay gap, gig economy, Gini coefficient, global reserve currency, global supply chain, green new deal, Greenspan put, housing crisis, Hyman Minsky, impact investing, income inequality, inflation targeting, Intergovernmental Panel on Climate Change (IPCC), Jeremy Corbyn, job polarisation, junk bonds, Kenneth Rogoff, Kickstarter, land value tax, light touch regulation, low interest rates, low skilled workers, market clearing, means of production, Modern Monetary Theory, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, negative equity, neoliberal agenda, new economy, Nixon triggered the end of the Bretton Woods system, Northern Rock, offshore financial centre, paradox of thrift, payday loans, pensions crisis, Phillips curve, Ponzi scheme, Post-Keynesian economics, post-war consensus, price mechanism, principal–agent problem, profit motive, quantitative easing, race to the bottom, regulatory arbitrage, reserve currency, Right to Buy, rising living standards, risk-adjusted returns, road to serfdom, Robert Solow, savings glut, secular stagnation, shareholder value, Social Responsibility of Business Is to Increase Its Profits, sovereign wealth fund, the built environment, The Great Moderation, too big to fail, transfer pricing, universal basic income, Winter of Discontent, working-age population, yield curve, zero-sum game

In the inter-war period, Keynes had mounted a challenge to the economics profession by developing a theory of economic demand that challenged the central tenet of classical economics — Say’s law, the idea that supply creates its own demand.8 According to Jean-Baptiste Say — a Napoleonic-era French economist — prices in a free market will rise and fall to ensure that the market “clears”, leaving no goods or services left once everyone has had the chance to bid. If the market fails to clear — i.e. if businesses have products to sell but no one wants to buy them — it is because something is getting in the way of the price mechanism, like taxes or regulation. The law applied to workers as well as commodities, which reinforced the idea that there could be such a thing as involuntary unemployment.


pages: 265 words: 80,510

The Enablers: How the West Supports Kleptocrats and Corruption - Endangering Our Democracy by Frank Vogl

"World Economic Forum" Davos, active measures, Alan Greenspan, Asian financial crisis, bank run, Bear Stearns, Bernie Sanders, blood diamond, Brexit referendum, Carmen Reinhart, centre right, corporate governance, COVID-19, crony capitalism, cryptocurrency, Donald Trump, F. W. de Klerk, failed state, Global Witness, Greensill Capital, income inequality, information security, joint-stock company, London Interbank Offered Rate, Londongrad, low interest rates, market clearing, military-industrial complex, moral hazard, Nelson Mandela, offshore financial centre, oil shale / tar sands, profit maximization, quantitative easing, Renaissance Technologies, Silicon Valley, Silicon Valley startup, stock buybacks, too big to fail, WikiLeaks

Their countries need to be part of the global economic system, not ostracized. The costs of banning them from the bond markets would be shouldered, above all, by their citizens. It is not an option. Klepto-borrowers in the sovereign debt markets need to be warned that their anti-corruption performance will be critical in determining their access to the markets. Clear warnings to this effect need to be made by the stock exchanges that list the bonds, by the investment bankers who manage the bond issues, and the ratings agencies that assign risk levels to the bonds. Investors need far better education about the corruption risks in this context. Bond prospectuses need to contain clear statements by the borrowers as to how they plan to use the funds to benefit their citizens.


pages: 823 words: 220,581

Debunking Economics - Revised, Expanded and Integrated Edition: The Naked Emperor Dethroned? by Steve Keen

accounting loophole / creative accounting, Alan Greenspan, banking crisis, banks create money, barriers to entry, behavioural economics, Benoit Mandelbrot, Big bang: deregulation of the City of London, Black Swan, Bonfire of the Vanities, book value, business cycle, butterfly effect, capital asset pricing model, cellular automata, central bank independence, citizen journalism, clockwork universe, collective bargaining, complexity theory, correlation coefficient, creative destruction, credit crunch, David Ricardo: comparative advantage, debt deflation, diversification, double entry bookkeeping, en.wikipedia.org, equity risk premium, Eugene Fama: efficient market hypothesis, experimental subject, Financial Instability Hypothesis, fixed income, Fractional reserve banking, full employment, Glass-Steagall Act, Greenspan put, Henri Poincaré, housing crisis, Hyman Minsky, income inequality, information asymmetry, invisible hand, iterative process, John von Neumann, Kickstarter, laissez-faire capitalism, liquidity trap, Long Term Capital Management, low interest rates, mandelbrot fractal, margin call, market bubble, market clearing, market microstructure, means of production, minimum wage unemployment, Money creation, money market fund, open economy, Pareto efficiency, Paul Samuelson, Phillips curve, place-making, Ponzi scheme, Post-Keynesian economics, power law, profit maximization, quantitative easing, RAND corporation, random walk, risk free rate, risk tolerance, risk/return, Robert Shiller, Robert Solow, Ronald Coase, Savings and loan crisis, Schrödinger's Cat, scientific mainstream, seigniorage, six sigma, South Sea Bubble, stochastic process, The Great Moderation, The Wealth of Nations by Adam Smith, Thorstein Veblen, time value of money, total factor productivity, tulip mania, wage slave, zero-sum game

In considering why the data so strongly contradicted the theory, Fama admitted two points that I labored to make in this chapter: that the theory assumes that all agents have the same expectations about the future and that those expectations are correct. Though they put this in a very awkward way, this is unmistakably what they said in this paragraph: Sharpe (1964) and Lintner […] add two key assumptions to the Markowitz model to identify a portfolio that must be mean-variance-efficient. The first assumption is complete agreement: given market clearing asset prices at t-1, investors agree on the joint distribution of asset returns from t-1 to t. And this distribution is the true one – that is, it is the distribution from which the returns we use to test the model are drawn. (Ibid.: 26; emphasis added) A whole generation of economists has thus been taught a theory about finance that assumes that people can predict the future – without that being admitted in the textbook treatments to which they have been exposed, where instead euphemisms such as ‘investors make use of all available information’ hide the absurd assumptions at the core of the theory.

As a New Keynesian model it allows for various ‘imperfections,’ and tellingly they remark that without ‘short-run nominal wage rigidity’ and a stylized but trivial role for money (‘Money is introduced into the model through a restriction that households require money to purchase goods’), the model would simply predict that full-employment equilibrium would apply at all times: The model also allows for short-run nominal wage rigidity (by different degrees in different countries) and therefore allows for significant periods of unemployment depending on the labor-market institutions in each country. This assumption, when taken together with the explicit role for money, is what gives the model its ‘macroeconomic’ characteristics. (Here again the model’s assumptions differ from the standard market-clearing assumption in most CGE models.) […] Although it is assumed that market forces eventually drive the world economy to neoclassical steady-state growth equilibrium, unemployment does emerge for long periods owing to wage stickiness, to an extent that differs between countries owing to differences in labor-market institutions.


pages: 322 words: 87,181

Straight Talk on Trade: Ideas for a Sane World Economy by Dani Rodrik

3D printing, airline deregulation, Asian financial crisis, bank run, barriers to entry, behavioural economics, Berlin Wall, Bernie Sanders, blue-collar work, Bretton Woods, BRICs, business cycle, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, carbon tax, Carmen Reinhart, carried interest, central bank independence, centre right, collective bargaining, conceptual framework, continuous integration, corporate governance, corporate social responsibility, currency manipulation / currency intervention, David Ricardo: comparative advantage, deindustrialization, Donald Trump, endogenous growth, Eugene Fama: efficient market hypothesis, eurozone crisis, export processing zone, failed state, financial deregulation, financial innovation, financial intermediation, financial repression, floating exchange rates, full employment, future of work, general purpose technology, George Akerlof, global value chain, income inequality, inflation targeting, information asymmetry, investor state dispute settlement, invisible hand, Jean Tirole, Kenneth Rogoff, low interest rates, low skilled workers, manufacturing employment, market clearing, market fundamentalism, meta-analysis, moral hazard, Nelson Mandela, new economy, offshore financial centre, open borders, open economy, open immigration, Pareto efficiency, postindustrial economy, precautionary principle, price stability, public intellectual, pushing on a string, race to the bottom, randomized controlled trial, regulatory arbitrage, rent control, rent-seeking, Richard Thaler, Robert Gordon, Robert Shiller, Ronald Reagan, Sam Peltzman, Silicon Valley, Solyndra, special economic zone, spectrum auction, Steven Pinker, tacit knowledge, The Rise and Fall of American Growth, the scientific method, The Wealth of Nations by Adam Smith, Thomas L Friedman, too big to fail, total factor productivity, trade liberalization, transaction costs, Tyler Cowen, unorthodox policies, Washington Consensus, World Values Survey, zero-sum game, éminence grise

Their first-order effect is to level the bargaining relationship between employers and employees, rather than to raise overall costs of production. And even when costs are affected, any adverse effects could be easily offset by improved morale, better incentives, and reduced turnover of the workforce. Minimum wages are somewhat different in that they directly raise the cost of labor. Minimum wages that are not too far from the market-clearing competitive level may not do much damage to overall employment while improving labor conditions somewhat. The same cannot be said of minimum wages that are far above this level. The danger then is that many job-seekers will be denied opportunities of employment by being priced out of the market.


pages: 324 words: 90,253

When the Money Runs Out: The End of Western Affluence by Stephen D. King

Alan Greenspan, Albert Einstein, Apollo 11, Asian financial crisis, asset-backed security, banking crisis, Basel III, Bear Stearns, Berlin Wall, Bernie Madoff, bond market vigilante , British Empire, business cycle, capital controls, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, congestion charging, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, cross-subsidies, currency risk, debt deflation, Deng Xiaoping, Diane Coyle, endowment effect, eurozone crisis, Fall of the Berlin Wall, financial innovation, financial repression, fixed income, floating exchange rates, Ford Model T, full employment, George Akerlof, German hyperinflation, Glass-Steagall Act, Hyman Minsky, income inequality, income per capita, inflation targeting, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, junk bonds, Kickstarter, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, London Interbank Offered Rate, loss aversion, low interest rates, market clearing, mass immigration, Minsky moment, moral hazard, mortgage debt, Neil Armstrong, new economy, New Urbanism, Nick Leeson, Northern Rock, Occupy movement, oil shale / tar sands, oil shock, old age dependency ratio, price mechanism, price stability, quantitative easing, railway mania, rent-seeking, reserve currency, rising living standards, risk free rate, Savings and loan crisis, seminal paper, South Sea Bubble, sovereign wealth fund, technology bubble, The Market for Lemons, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, Tobin tax, too big to fail, trade route, trickle-down economics, Washington Consensus, women in the workforce, working-age population

If economies are incapable of healing on their own, we put our faith in the policy-maker's magic wand. The debate on the ability or otherwise of economies to ‘self-adjust’ is long and tortuous. Before the Weimar Republic's hyperinflation in the early 1920s and the Great Depression of the 1930s, there had been few recognized instances of major macroeconomic calamities. The assumption was that markets ‘cleared’. A rise in unemployment would be met by a fall in wages, thereby allowing workers to price themselves back into the market. An excessive increase in consumer demand would lead to higher prices: wage earners would end up worse off in real terms, bringing demand back on track. A sudden reduction in capital spending would lead to lower interest rates – the supply of savings would now be greater than the demand for loans – thus encouraging households to spend rather than save.


pages: 293 words: 88,490

The End of Theory: Financial Crises, the Failure of Economics, and the Sweep of Human Interaction by Richard Bookstaber

asset allocation, bank run, Bear Stearns, behavioural economics, bitcoin, business cycle, butterfly effect, buy and hold, capital asset pricing model, cellular automata, collateralized debt obligation, conceptual framework, constrained optimization, Craig Reynolds: boids flock, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, dark matter, data science, disintermediation, Edward Lorenz: Chaos theory, epigenetics, feminist movement, financial engineering, financial innovation, fixed income, Flash crash, geopolitical risk, Henri Poincaré, impact investing, information asymmetry, invisible hand, Isaac Newton, John Conway, John Meriwether, John von Neumann, Joseph Schumpeter, Long Term Capital Management, margin call, market clearing, market microstructure, money market fund, Paul Samuelson, Pierre-Simon Laplace, Piper Alpha, Ponzi scheme, quantitative trading / quantitative finance, railway mania, Ralph Waldo Emerson, Richard Feynman, risk/return, Robert Solow, Saturday Night Live, self-driving car, seminal paper, sovereign wealth fund, the map is not the territory, The Predators' Ball, the scientific method, Thomas Kuhn: the structure of scientific revolutions, too big to fail, transaction costs, tulip mania, Turing machine, Turing test, yield curve

Mencken wrote that there is “always an easy solution to every human problem—neat, plausible, and wrong.” And neoclassical economics has been wrong. Its main result, so far, has been to demonstrate the futility of trying to build a bridge between axiomatic, deductive models and the real world. Assuming, for example, perfect knowledge and instant market clearing simply misses the point. Economists cast aside the very subject we want to study: crises that are wrapped in uncertainty, that alter our views of the world in surprising ways beyond the scope of our precrisis probabilities and worldview, that create an instability that is not merely a local aberration but is running off the tracks and careening down the mountain.


pages: 350 words: 103,988

Reinventing the Bazaar: A Natural History of Markets by John McMillan

accounting loophole / creative accounting, Albert Einstein, Alvin Roth, Andrei Shleifer, Anton Chekhov, Asian financial crisis, classic study, congestion charging, corporate governance, corporate raider, crony capitalism, Dava Sobel, decentralized internet, Deng Xiaoping, Dutch auction, electricity market, experimental economics, experimental subject, fear of failure, first-price auction, frictionless, frictionless market, George Akerlof, George Gilder, global village, Great Leap Forward, Hacker News, Hernando de Soto, I think there is a world market for maybe five computers, income inequality, income per capita, independent contractor, informal economy, information asymmetry, invisible hand, Isaac Newton, job-hopping, John Harrison: Longitude, John Perry Barlow, John von Neumann, Kenneth Arrow, land reform, lone genius, manufacturing employment, market clearing, market design, market friction, market microstructure, means of production, Network effects, new economy, offshore financial centre, ought to be enough for anybody, pez dispenser, pre–internet, price mechanism, profit maximization, profit motive, proxy bid, purchasing power parity, Robert Solow, Ronald Coase, Ronald Reagan, sealed-bid auction, search costs, second-price auction, Silicon Valley, spectrum auction, Stewart Brand, The Market for Lemons, The Nature of the Firm, The Wealth of Nations by Adam Smith, trade liberalization, transaction costs, War on Poverty, world market for maybe five computers, Xiaogang Anhui farmers, yield management

Companies wanting to sell submit offers of quantity and price. A bank of computers array the bids and offers and, hour by hour, calculate the price at which supply meets demand. (Such an auction would not have been feasible a few years earlier, by the way, for powerful computers are needed to instantly compare the bids, compute the market-clearing price, and allocate the quantity orders to the buyers and sellers.) The auction prices rose higher and higher. “We are so far into the realm of extraordinary gouging we are orders of magnitude off the chart,” California Assembly Speaker Fred Keeley told the Federal Energy Regulatory Commission in 2001.


pages: 348 words: 97,277

The Truth Machine: The Blockchain and the Future of Everything by Paul Vigna, Michael J. Casey

3D printing, additive manufacturing, Airbnb, altcoin, Amazon Web Services, barriers to entry, basic income, Berlin Wall, Bernie Madoff, Big Tech, bitcoin, blockchain, blood diamond, Blythe Masters, business process, buy and hold, carbon credits, carbon footprint, cashless society, circular economy, cloud computing, computer age, computerized trading, conceptual framework, content marketing, Credit Default Swap, cross-border payments, crowdsourcing, cryptocurrency, cyber-physical system, decentralized internet, dematerialisation, disinformation, disintermediation, distributed ledger, Donald Trump, double entry bookkeeping, Dunbar number, Edward Snowden, Elon Musk, Ethereum, ethereum blockchain, failed state, fake news, fault tolerance, fiat currency, financial engineering, financial innovation, financial intermediation, Garrett Hardin, global supply chain, Hernando de Soto, hive mind, informal economy, information security, initial coin offering, intangible asset, Internet of things, Joi Ito, Kickstarter, linked data, litecoin, longitudinal study, Lyft, M-Pesa, Marc Andreessen, market clearing, mobile money, money: store of value / unit of account / medium of exchange, Network effects, off grid, pets.com, post-truth, prediction markets, pre–internet, price mechanism, profit maximization, profit motive, Project Xanadu, ransomware, rent-seeking, RFID, ride hailing / ride sharing, Ross Ulbricht, Satoshi Nakamoto, self-driving car, sharing economy, Silicon Valley, smart contracts, smart meter, Snapchat, social web, software is eating the world, supply-chain management, Ted Nelson, the market place, too big to fail, trade route, Tragedy of the Commons, transaction costs, Travis Kalanick, Turing complete, Uber and Lyft, uber lyft, unbanked and underbanked, underbanked, universal basic income, Vitalik Buterin, web of trust, work culture , zero-sum game

Intermediate goods that would otherwise be encumbered by a pre-established chain of unsettled commitments can instead be put out to bid to see if other buyers want to take on the rights and obligations associated with them. This would attract alternative sources of impromptu demand, which could have a market-clearing effect on resource management. Enhanced visibility on business processes, when coupled with the ability to find liquid markets for goods-linked digital assets, means that industrial actors could be incentivized, like never before, to be both environmentally responsible and profitable. It’s similar to the principle, explored above, of using price signals to optimize a solar microgrid.


Lectures on Urban Economics by Jan K. Brueckner

accelerated depreciation, affirmative action, Andrei Shleifer, behavioural economics, company town, congestion charging, Edward Glaeser, invisible hand, market clearing, mortgage tax deduction, negative equity, New Economic Geography, profit maximization, race to the bottom, rent control, rent-seeking, Ronald Coase, The Nature of the Firm, transaction costs, urban sprawl

In other words, the cap-and-trade system ensures that the chosen total pollution level will be generated with the lowest possible total abatement costs.4 Note that the operation of the pollution-rights market will ensure that sales and purchases of rights exactly balance, an outcome that requires a market-clearing level for the price s. Another observation is that the (conditional) social optimum will also emerge if polluters start out with no pollution rights and must buy them from the government. Then every polluter will be a buyer, and each equal will set MB equal to the price s in choosing its level of pollution (and its purchase of pollution rights).


Free Money for All: A Basic Income Guarantee Solution for the Twenty-First Century by Mark Walker

3D printing, 8-hour work day, additive manufacturing, Affordable Care Act / Obamacare, basic income, Baxter: Rethink Robotics, behavioural economics, Capital in the Twenty-First Century by Thomas Piketty, commoditize, confounding variable, driverless car, financial independence, full employment, guns versus butter model, happiness index / gross national happiness, industrial robot, intangible asset, invisible hand, Jeff Bezos, job automation, job satisfaction, John Markoff, Kevin Kelly, laissez-faire capitalism, late capitalism, longitudinal study, market clearing, means of production, military-industrial complex, new economy, obamacare, off grid, off-the-grid, plutocrats, precariat, printed gun, profit motive, Ray Kurzweil, rent control, RFID, Rodney Brooks, Rosa Parks, science of happiness, Silicon Valley, surplus humans, The Future of Employment, the market place, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, universal basic income, warehouse robotics, working poor

So, Rawls seems to be assuming a false dilemma, either the Malibu surfer must work a 40-hour week and is entitled to the full $30,000, or the Malibu surfer is entitled to nothing. But, as we have seen in the case of Sara and Freddie, this is a very unRawlsian view. The third point is that there are further advantages to perennial surfers not working that Rawls does not seem to consider. One benefit is that for every perennial surfer, the market clearing rate for labor rises. That is, for the US economy as a whole, there is a surplus of workers, there are more people seeking work than there are jobs. Since this point applies to the economy as a whole, it is consistent with shortages of workers in certain segments of the economy. If some drop out of the competitive pool looking for work, this means there will be more competition among employers for employees.


pages: 326 words: 106,053

The Wisdom of Crowds by James Surowiecki

Alan Greenspan, AltaVista, Andrei Shleifer, Apollo 13, asset allocation, behavioural economics, Cass Sunstein, classic study, congestion pricing, coronavirus, Daniel Kahneman / Amos Tversky, experimental economics, Frederick Winslow Taylor, George Akerlof, Great Leap Forward, Gregor Mendel, Howard Rheingold, I think there is a world market for maybe five computers, interchangeable parts, Jeff Bezos, John Bogle, John Meriwether, Joseph Schumpeter, knowledge economy, lone genius, Long Term Capital Management, market bubble, market clearing, market design, Monkeys Reject Unequal Pay, moral hazard, Myron Scholes, new economy, offshore financial centre, Picturephone, prediction markets, profit maximization, Richard Feynman, Richard Feynman: Challenger O-ring, Richard Thaler, Robert Shiller, Ronald Coase, Ronald Reagan, seminal paper, shareholder value, short selling, Silicon Valley, South Sea Bubble, tacit knowledge, The Nature of the Firm, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Toyota Production System, transaction costs, ultimatum game, vertical integration, world market for maybe five computers, Yogi Berra, zero-sum game

If no one accepted the bid, then you’d presumably raise it until you were able to find someone to accept your price. Smith was doing this experiment for a simple reason. Economic theory predicts that if you let buyers and sellers trade with each other, the bids and asks will quickly converge on a single price, which is the price where supply and demand meet, or what economists call the “market-clearing price.” What Smith wanted to find out was whether economic theory fit reality. It did. The offers in the experimental market quickly converged on one price. They did so even though none of the students wanted this result (buyers wanted prices to be lower, sellers wanted prices to be higher), and even though the students didn’t know anything except the prices on their cards.


pages: 378 words: 110,518

Postcapitalism: A Guide to Our Future by Paul Mason

air traffic controllers' union, Alan Greenspan, Alfred Russel Wallace, bank run, banking crisis, banks create money, Basel III, basic income, Bernie Madoff, Bill Gates: Altair 8800, bitcoin, Bletchley Park, Branko Milanovic, Bretton Woods, BRICs, British Empire, business cycle, business process, butterfly effect, call centre, capital controls, carbon tax, Cesare Marchetti: Marchetti’s constant, Claude Shannon: information theory, collaborative economy, collective bargaining, commons-based peer production, Corn Laws, corporate social responsibility, creative destruction, credit crunch, currency manipulation / currency intervention, currency peg, David Graeber, deglobalization, deindustrialization, deskilling, discovery of the americas, disinformation, Downton Abbey, drone strike, en.wikipedia.org, energy security, eurozone crisis, factory automation, false flag, financial engineering, financial repression, Firefox, Fractional reserve banking, Frederick Winslow Taylor, fulfillment center, full employment, future of work, game design, Glass-Steagall Act, green new deal, guns versus butter model, Herbert Marcuse, income inequality, inflation targeting, informal economy, information asymmetry, intangible asset, Intergovernmental Panel on Climate Change (IPCC), Internet of things, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Perry Barlow, Joseph Schumpeter, Kenneth Arrow, Kevin Kelly, Kickstarter, knowledge economy, knowledge worker, late capitalism, low interest rates, low skilled workers, market clearing, means of production, Metcalfe's law, microservices, middle-income trap, Money creation, money: store of value / unit of account / medium of exchange, mortgage debt, Network effects, new economy, Nixon triggered the end of the Bretton Woods system, Norbert Wiener, Occupy movement, oil shale / tar sands, oil shock, Paul Samuelson, payday loans, Pearl River Delta, post-industrial society, power law, precariat, precautionary principle, price mechanism, profit motive, quantitative easing, race to the bottom, RAND corporation, rent-seeking, reserve currency, RFID, Richard Stallman, Robert Gordon, Robert Metcalfe, scientific management, secular stagnation, sharing economy, Stewart Brand, structural adjustment programs, supply-chain management, technological determinism, The Future of Employment, the scientific method, The Wealth of Nations by Adam Smith, Transnistria, Twitter Arab Spring, union organizing, universal basic income, urban decay, urban planning, vertical integration, Vilfredo Pareto, wages for housework, WikiLeaks, women in the workforce, Yochai Benkler

In its first major macro-economic study of the internet, in 2013, the OECD admitted: ‘While the internet’s impact on market transactions and value added has been undoubtedly far-reaching, its effect on non-market interactions … is even more profound. Non-market interactions on the internet are broadly characterised by the absence of a price and market-clearing mechanism.’ Marginalism supplies no metric, no model to understand how a price economy becomes a substantially non-price economy. As the OECD team put it: ‘Little attention has been paid to non-market interactions since few, if any, well-defined and well-grounded measurements have been commonly adopted.’33 Let’s admit, then, that only marginalism enables us to build price models in a capitalist society where everything is scarce.


pages: 339 words: 109,331

The Clash of the Cultures by John C. Bogle

Alan Greenspan, asset allocation, buy and hold, collateralized debt obligation, commoditize, compensation consultant, corporate governance, corporate social responsibility, Credit Default Swap, credit default swaps / collateralized debt obligations, diversification, diversified portfolio, estate planning, Eugene Fama: efficient market hypothesis, financial engineering, financial innovation, financial intermediation, fixed income, Flash crash, Glass-Steagall Act, Hyman Minsky, income inequality, index fund, interest rate swap, invention of the wheel, John Bogle, junk bonds, low interest rates, market bubble, market clearing, military-industrial complex, money market fund, mortgage debt, new economy, Occupy movement, passive investing, Paul Samuelson, Paul Volcker talking about ATMs, Ponzi scheme, post-work, principal–agent problem, profit motive, proprietary trading, prudent man rule, random walk, rent-seeking, risk tolerance, risk-adjusted returns, Robert Shiller, seminal paper, shareholder value, short selling, South Sea Bubble, statistical arbitrage, stock buybacks, survivorship bias, The Wealth of Nations by Adam Smith, transaction costs, two and twenty, Vanguard fund, William of Occam, zero-sum game

I wince when the Federal Reserve states its intention to raise asset prices—including “higher stock prices”—apparently irrespective of the level of underlying intrinsic stock values. Substantive limits on short selling are another nonstarter for me. The overriding principle should be: Let the markets clear, at whatever prices that willing and informed buyers agree to pay to willing and informed (but often better-informed) sellers. Individual investors need to wake up. Adam Smith–like, they need to look after their own best interests. Of course, that would mean that individual investors must demand much better, clearer, and more pointed disclosures.


pages: 571 words: 106,255

The Bitcoin Standard: The Decentralized Alternative to Central Banking by Saifedean Ammous

"World Economic Forum" Davos, Airbnb, Alan Greenspan, altcoin, bank run, banks create money, bitcoin, Black Swan, blockchain, Bretton Woods, British Empire, business cycle, capital controls, central bank independence, Charles Babbage, conceptual framework, creative destruction, cryptocurrency, currency manipulation / currency intervention, currency peg, delayed gratification, disintermediation, distributed ledger, Elisha Otis, Ethereum, ethereum blockchain, fiat currency, fixed income, floating exchange rates, Fractional reserve banking, full employment, George Gilder, Glass-Steagall Act, global reserve currency, high net worth, initial coin offering, invention of the telegraph, Isaac Newton, iterative process, jimmy wales, Joseph Schumpeter, low interest rates, market bubble, market clearing, means of production, military-industrial complex, Money creation, money: store of value / unit of account / medium of exchange, moral hazard, Network effects, Paul Samuelson, peer-to-peer, Peter Thiel, price mechanism, price stability, profit motive, QR code, quantum cryptography, ransomware, reserve currency, Richard Feynman, risk tolerance, Satoshi Nakamoto, scientific management, secular stagnation, smart contracts, special drawing rights, Stanford marshmallow experiment, The Nature of the Firm, the payments system, too big to fail, transaction costs, Walter Mischel, We are all Keynesians now, zero-sum game

If the contractor realizes the mistake early on, the capital wasted on starting 120 houses might be very little, and a new contractor will be able to take the remaining bricks and use them to produce 90 houses. If the developer remains ignorant of the reality until the capital runs out, he will only have 120 unfinished homes that are worthless as nobody will pay to live in a roofless house. When the central bank manipulates the interest rate lower than the market clearing price by directing banks to create more money by lending, they are at once reducing the amount of savings available in society and increasing the quantity demanded by borrowers while also directing the borrowed capital toward projects which cannot be completed. Hence, the more unsound the form of money, and the easier it is for central banks to manipulate interest rates, the more severe the business cycles are.


pages: 362 words: 108,359

The Accidental Investment Banker: Inside the Decade That Transformed Wall Street by Jonathan A. Knee

AOL-Time Warner, barriers to entry, Bear Stearns, book value, Boycotts of Israel, business logic, call centre, cognitive dissonance, commoditize, corporate governance, Corrections Corporation of America, deal flow, discounted cash flows, fear of failure, fixed income, Glass-Steagall Act, greed is good, if you build it, they will come, iterative process, junk bonds, low interest rates, market bubble, market clearing, Mary Meeker, Menlo Park, Michael Milken, new economy, Ponzi scheme, pre–internet, proprietary trading, risk/return, Ronald Reagan, shareholder value, Silicon Valley, SoftBank, technology bubble, young professional, éminence grise

Unlike issuing equity, underwriting highly leveraged companies in competitive markets can involve significant financial as well as reputational risks. Frequent issuers often demanded and received commitments from underwriters to “buy” an entire issue, something that never happened in an IPO where an offering simply prices where the market clears.5 For a debt security, the counterpart to a share price is the interest rate. Just as an issuer looking for the lowest cost of capital hopes for the highest share price in an IPO, he or she prays for a low interest rate on their junk bonds. “Buying” an issue involves an underwriter putting a backstop on the possible interest rate payable by the issuer: the bank will guarantee to absorb whatever portion of the offering the market will not accept at the specified rate.


pages: 376 words: 109,092

Paper Promises by Philip Coggan

accounting loophole / creative accounting, activist fund / activist shareholder / activist investor, Alan Greenspan, balance sheet recession, bank run, banking crisis, barriers to entry, Bear Stearns, Berlin Wall, Bernie Madoff, Black Monday: stock market crash in 1987, Black Swan, bond market vigilante , Bretton Woods, British Empire, business cycle, call centre, capital controls, Carmen Reinhart, carried interest, Celtic Tiger, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, currency risk, debt deflation, delayed gratification, diversified portfolio, eurozone crisis, Fall of the Berlin Wall, falling living standards, fear of failure, financial innovation, financial repression, fixed income, floating exchange rates, full employment, German hyperinflation, global reserve currency, Goodhart's law, Greenspan put, hiring and firing, Hyman Minsky, income inequality, inflation targeting, Isaac Newton, John Meriwether, joint-stock company, junk bonds, Kenneth Rogoff, Kickstarter, labour market flexibility, Les Trente Glorieuses, light touch regulation, Long Term Capital Management, low interest rates, manufacturing employment, market bubble, market clearing, Martin Wolf, Minsky moment, Money creation, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, Myron Scholes, negative equity, Nick Leeson, Northern Rock, oil shale / tar sands, paradox of thrift, peak oil, pension reform, plutocrats, Ponzi scheme, price stability, principal–agent problem, purchasing power parity, quantitative easing, QWERTY keyboard, railway mania, regulatory arbitrage, reserve currency, Robert Gordon, Robert Shiller, Ronald Reagan, savings glut, short selling, South Sea Bubble, sovereign wealth fund, special drawing rights, Suez crisis 1956, The Chicago School, The Great Moderation, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Wealth of Nations by Adam Smith, time value of money, too big to fail, trade route, tulip mania, value at risk, Washington Consensus, women in the workforce, zero-sum game

During the Great Depression of the 1930s, orthodox (or classical) economists argued that the economy would eventually right itself. Unemployment was the result of an excessive price for labour: if wages were allowed to fall, workers would be priced back into jobs. Governments should balance the budget and not interfere with the market-clearing process, since any budget deficit would simply ‘crowd out’ private-sector spending. But the long period of stagnation, and the massed ranks of unemployed, undermined the classical economists’ case. Keynes offered a reasoned rebuttal. A recession was caused by a shortfall in demand, or to put it another way, an excess of saving (income can only be spent or saved).


pages: 385 words: 111,807

A Pelican Introduction Economics: A User's Guide by Ha-Joon Chang

"there is no alternative" (TINA), Affordable Care Act / Obamacare, Alan Greenspan, Albert Einstein, antiwork, AOL-Time Warner, Asian financial crisis, asset-backed security, bank run, banking crisis, banks create money, Bear Stearns, Berlin Wall, bilateral investment treaty, borderless world, Bretton Woods, British Empire, call centre, capital controls, central bank independence, Charles Babbage, collateralized debt obligation, colonial rule, Corn Laws, corporate governance, corporate raider, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, deindustrialization, discovery of the americas, Eugene Fama: efficient market hypothesis, eurozone crisis, experimental economics, Fall of the Berlin Wall, falling living standards, financial deregulation, financial engineering, financial innovation, flying shuttle, Ford Model T, Francis Fukuyama: the end of history, Frederick Winslow Taylor, full employment, George Akerlof, Gini coefficient, Glass-Steagall Act, global value chain, Goldman Sachs: Vampire Squid, Gordon Gekko, Great Leap Forward, greed is good, Gunnar Myrdal, Haber-Bosch Process, happiness index / gross national happiness, high net worth, income inequality, income per capita, information asymmetry, intangible asset, interchangeable parts, interest rate swap, inventory management, invisible hand, Isaac Newton, James Watt: steam engine, Johann Wolfgang von Goethe, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, knowledge economy, laissez-faire capitalism, land bank, land reform, liberation theology, manufacturing employment, Mark Zuckerberg, market clearing, market fundamentalism, Martin Wolf, means of production, Mexican peso crisis / tequila crisis, Neal Stephenson, Nelson Mandela, Northern Rock, obamacare, offshore financial centre, oil shock, open borders, Pareto efficiency, Paul Samuelson, post-industrial society, precariat, principal–agent problem, profit maximization, profit motive, proprietary trading, purchasing power parity, quantitative easing, road to serfdom, Robert Shiller, Ronald Coase, Ronald Reagan, savings glut, scientific management, Scramble for Africa, search costs, shareholder value, Silicon Valley, Simon Kuznets, sovereign wealth fund, spinning jenny, structural adjustment programs, The Great Moderation, The Market for Lemons, The Spirit Level, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thorstein Veblen, trade liberalization, transaction costs, transfer pricing, trickle-down economics, Vilfredo Pareto, Washington Consensus, working-age population, World Values Survey

The best way to impose such discipline on workers, according to this argument, is to make job loss costly to them by raising their wages above the market rate – if workers can get another job with equal pay easily, they will not be afraid of the threat of being fired. However, since all capitalists do the same, the result is that the overall wage rate is pushed above the ‘market-clearing’ level and unemployment is created. It is on the basis of this reasoning that Marx called the unemployed workers the reserve army of labour, who can be called upon any time if the hired workers become too unwieldy. It is on this ground that Michal Kalecki (1899–1970), the Polish economist who invented Keynes’s theory of effective demand before Keynes, argued that full employment is incompatible with capitalism.


pages: 403 words: 119,206

Toward Rational Exuberance: The Evolution of the Modern Stock Market by B. Mark Smith

Alan Greenspan, bank run, banking crisis, book value, business climate, business cycle, buy and hold, capital asset pricing model, compound rate of return, computerized trading, Cornelius Vanderbilt, credit crunch, cuban missile crisis, discounted cash flows, diversified portfolio, Donald Trump, equity risk premium, Eugene Fama: efficient market hypothesis, financial independence, financial innovation, fixed income, full employment, Glass-Steagall Act, income inequality, index arbitrage, index fund, joint-stock company, junk bonds, locking in a profit, Long Term Capital Management, Louis Bachelier, low interest rates, margin call, market clearing, merger arbitrage, Michael Milken, money market fund, Myron Scholes, Paul Samuelson, price stability, prudent man rule, random walk, Richard Thaler, risk free rate, risk tolerance, Robert Bork, Robert Shiller, Ronald Reagan, scientific management, shareholder value, short selling, stocks for the long run, the market place, transaction costs

Defenders of the efficient market hypothesis protested that this critique was not fair, in that the discounts that seemed to exist were at least in part illusory, since they were calculated using stock price indices that included many stocks that were not trading because of order imbalances. Had these stocks actually traded at market-clearing levels, the inclusion of their prices in the index would have resulted in an overall index value that was much lower, and much closer to the futures prices that actually prevailed. The efficient market advocates also pointed to the decision by New York Stock Exchange authorities to cut off the automated order system after Tuesday morning, October 20.


pages: 464 words: 116,945

Seventeen Contradictions and the End of Capitalism by David Harvey

accounting loophole / creative accounting, Alvin Toffler, bitcoin, Branko Milanovic, Bretton Woods, BRICs, British Empire, business climate, California gold rush, call centre, central bank independence, Charles Babbage, classic study, clean water, cloud computing, collapse of Lehman Brothers, colonial rule, company town, cotton gin, creative destruction, Credit Default Swap, David Ricardo: comparative advantage, death from overwork, deindustrialization, demographic dividend, Deng Xiaoping, deskilling, drone strike, end world poverty, falling living standards, fiat currency, first square of the chessboard, first square of the chessboard / second half of the chessboard, Food sovereignty, Frank Gehry, future of work, gentrification, global reserve currency, Great Leap Forward, Guggenheim Bilbao, Gunnar Myrdal, Herbert Marcuse, income inequality, informal economy, invention of the steam engine, invisible hand, Isaac Newton, Jane Jacobs, Jarndyce and Jarndyce, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Just-in-time delivery, knowledge worker, low skilled workers, Mahatma Gandhi, market clearing, Martin Wolf, means of production, microcredit, military-industrial complex, Money creation, Murray Bookchin, new economy, New Urbanism, Occupy movement, peak oil, phenotype, planned obsolescence, plutocrats, Ponzi scheme, quantitative easing, rent-seeking, reserve currency, road to serfdom, Robert Gordon, Ronald Reagan, Savings and loan crisis, scientific management, short selling, Silicon Valley, special economic zone, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, transaction costs, Tyler Cowen, Tyler Cowen: Great Stagnation, wages for housework, Wall-E, women in the workforce, working poor, working-age population

This meant that the capitalist state had to internalise limitations upon its autocratic powers and devolve the production of consensus to freely functioning individuals who internalised notions of social cohesion around the nation state. Above all, they had to consent to the regulation of activity through the procedures of the market. Clear limits were placed upon centralised power. The politics of the Tea Party as well as those of the autonomistas and the anarchists in the United States converge in seeking to limit or even to destroy the state, though in the name of pure individualism on the right and some sort of individualistically anchored associationism on the left.


pages: 446 words: 117,660

Arguing With Zombies: Economics, Politics, and the Fight for a Better Future by Paul Krugman

affirmative action, Affordable Care Act / Obamacare, Alan Greenspan, Andrei Shleifer, antiwork, Asian financial crisis, bank run, banking crisis, basic income, behavioural economics, benefit corporation, Berlin Wall, Bernie Madoff, bitcoin, blockchain, bond market vigilante , Bonfire of the Vanities, business cycle, capital asset pricing model, carbon footprint, carbon tax, Carmen Reinhart, central bank independence, centre right, Climategate, cognitive dissonance, cryptocurrency, David Ricardo: comparative advantage, different worldview, Donald Trump, Edward Glaeser, employer provided health coverage, Eugene Fama: efficient market hypothesis, fake news, Fall of the Berlin Wall, fiat currency, financial deregulation, financial innovation, financial repression, frictionless, frictionless market, fudge factor, full employment, green new deal, Growth in a Time of Debt, hiring and firing, illegal immigration, income inequality, index fund, indoor plumbing, invisible hand, it is difficult to get a man to understand something, when his salary depends on his not understanding it, job automation, John Snow's cholera map, Joseph Schumpeter, Kenneth Rogoff, knowledge worker, labor-force participation, large denomination, liquidity trap, London Whale, low interest rates, market bubble, market clearing, market fundamentalism, means of production, Modern Monetary Theory, New Urbanism, obamacare, oil shock, open borders, Paul Samuelson, plutocrats, Ponzi scheme, post-truth, price stability, public intellectual, quantitative easing, road to serfdom, Robert Gordon, Robert Shiller, Ronald Reagan, secular stagnation, Seymour Hersh, stock buybacks, The Chicago School, The Great Moderation, the map is not the territory, The Wealth of Nations by Adam Smith, trade liberalization, transaction costs, universal basic income, very high income, We are all Keynesians now, working-age population

The map is not the territory, and it’s O.K. to use different kinds of maps depending on what you’re trying to accomplish: if you’re driving, a road map suffices, if you’re going hiking, you really need a topo. But economists were bound to push at the dividing line between micro and macro—which in practice has meant trying to make macro more like micro, basing more and more of it on optimization and market-clearing. And if the attempts to provide “microfoundations” fell short? Well, given human propensities, plus the law of diminishing disciples, it was probably inevitable that a substantial part of the economics profession would simply assume away the realities of the business cycle, because they didn’t fit the models.


pages: 490 words: 117,629

Unconventional Success: A Fundamental Approach to Personal Investment by David F. Swensen

asset allocation, asset-backed security, Benchmark Capital, book value, buy and hold, capital controls, classic study, cognitive dissonance, corporate governance, deal flow, diversification, diversified portfolio, equity risk premium, financial engineering, fixed income, index fund, junk bonds, law of one price, Long Term Capital Management, low interest rates, market bubble, market clearing, market fundamentalism, money market fund, passive investing, Paul Samuelson, pez dispenser, price mechanism, profit maximization, profit motive, risk tolerance, risk-adjusted returns, Robert Shiller, Savings and loan crisis, shareholder value, Silicon Valley, Steve Ballmer, stocks for the long run, survivorship bias, technology bubble, the market place, transaction costs, Vanguard fund, yield curve, zero-sum game

ETFs largely avoid the stale pricing problem that haunts standard mutual funds, as continuous pricing of ETF shares during trading hours affords investors the opportunity to trade at fresh market prices. Table 11.3 includes core-asset-class ETF ticker symbols for both market price and fair value. Even though demand or supply imbalances for particular ETFs may cause the market-clearing price to deviate from fair value, when deviations between market price and fair value reach sufficient magnitude, an arbitrage mechanism allows certain large investors to profit by redressing the imbalances. As a result, markets generally operate effectively throughout the trading day. So-called authorized participants perform the arbitrage function by buying or selling institutional blocks of ETF shares, usually sized at 50,000 shares for equity ETFs and 100,000 shares for fixed-income ETFs.


pages: 453 words: 122,586

Samuelson Friedman: The Battle Over the Free Market by Nicholas Wapshott

2021 United States Capitol attack, Alan Greenspan, bank run, basic income, battle of ideas, Bear Stearns, Berlin Wall, Bretton Woods, business cycle, California gold rush, collective bargaining, coronavirus, corporate governance, COVID-19, creative destruction, David Ricardo: comparative advantage, Donald Trump, double helix, en.wikipedia.org, fiat currency, financial engineering, fixed income, floating exchange rates, full employment, God and Mammon, greed is good, Gunnar Myrdal, income inequality, indoor plumbing, invisible hand, John von Neumann, Joseph Schumpeter, Kenneth Arrow, laissez-faire capitalism, light touch regulation, liquidity trap, lockdown, low interest rates, Machinery of Freedom by David Friedman, market bubble, market clearing, mass immigration, military-industrial complex, Money creation, money market fund, Mont Pelerin Society, moral hazard, new economy, Nixon shock, Nixon triggered the end of the Bretton Woods system, paradox of thrift, Paul Samuelson, Philip Mirowski, Phillips curve, price mechanism, price stability, public intellectual, pushing on a string, quantitative easing, rent control, road to serfdom, Robert Bork, Robert Solow, Ronald Coase, Ronald Reagan, school vouchers, seminal paper, Simon Kuznets, social distancing, Tax Reform Act of 1986, The Chicago School, The Great Moderation, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, Thorstein Veblen, too big to fail, trickle-down economics, universal basic income, upwardly mobile, urban renewal, War on Poverty, We are all Keynesians now, Works Progress Administration, zero-sum game

If there was a resulting stampede for higher wages and prices, to catch up for the loss of increases during the freeze, hyperinflation was likely to take root, Friedman argued. Friedman was offended by Nixon interfering with the free working of the price mechanism, in which the “natural” price was arrived at and supply and demand were matched as the market “cleared.” He had warned fifteen years before that “even open hyperinflations [periods of high inflation] are less damaging to output than suppressed inflations in which a wide range of prices are held well below the levels that would clear the market.” In the October 18 Newsweek column Friedman argued that there were only two remedies for hyperinflation, neither of which he found palatable: “The re-imposition of controls, this time far more widespread, detailed and stringent; or sharply deflationary monetary and fiscal measures.


pages: 505 words: 127,542

If You're So Smart, Why Aren't You Happy? by Raj Raghunathan

behavioural economics, Blue Ocean Strategy, Broken windows theory, business process, classic study, cognitive dissonance, deliberate practice, do well by doing good, en.wikipedia.org, epigenetics, fundamental attribution error, hedonic treadmill, job satisfaction, longitudinal study, Mahatma Gandhi, market clearing, meta-analysis, Neil Armstrong, new economy, Phillip Zimbardo, placebo effect, science of happiness, Skype, sugar pill, TED Talk, The Fortune at the Bottom of the Pyramid, Thorstein Veblen, Tony Hsieh, work culture , working poor, zero-sum game, Zipcar

J. De Quervain, et al., “The Neural Basis of Altruistic Punishment,” Science 305(5688) (2004): 1254–58; C. Camerer and K. Weigelt, “Experimental Tests of a Sequential Equilibrium Reputation Model,” Econometrica 56(1) (1988): 1–36; E. Fehr, G. Kirchsteiger, and A. Riedl, “Does Fairness Prevent Market Clearing? An Experimental Investigation,” The Quarterly Journal of Economics 108(2) (1993): 437–59; and I. Bohnet and R. Zeckhauser, “Trust, Risk and Betrayal,” Journal of Economic Behavior & Organization 55(4) (2004): 467–84. 95 percent . . . don’t walk away: See www.theguardian.com/science/2012/jul/15/interview-dr-love-paul-zak; for a review of this research, see P.


pages: 504 words: 139,137

Efficiently Inefficient: How Smart Money Invests and Market Prices Are Determined by Lasse Heje Pedersen

activist fund / activist shareholder / activist investor, Alan Greenspan, algorithmic trading, Andrei Shleifer, asset allocation, backtesting, bank run, banking crisis, barriers to entry, Bear Stearns, behavioural economics, Black-Scholes formula, book value, Brownian motion, business cycle, buy and hold, buy low sell high, buy the rumour, sell the news, capital asset pricing model, commodity trading advisor, conceptual framework, corporate governance, credit crunch, Credit Default Swap, currency peg, currency risk, David Ricardo: comparative advantage, declining real wages, discounted cash flows, diversification, diversified portfolio, Emanuel Derman, equity premium, equity risk premium, Eugene Fama: efficient market hypothesis, financial engineering, fixed income, Flash crash, floating exchange rates, frictionless, frictionless market, global macro, Gordon Gekko, implied volatility, index arbitrage, index fund, interest rate swap, junk bonds, late capitalism, law of one price, Long Term Capital Management, low interest rates, managed futures, margin call, market clearing, market design, market friction, Market Wizards by Jack D. Schwager, merger arbitrage, money market fund, mortgage debt, Myron Scholes, New Journalism, paper trading, passive investing, Phillips curve, price discovery process, price stability, proprietary trading, purchasing power parity, quantitative easing, quantitative trading / quantitative finance, random walk, Reminiscences of a Stock Operator, Renaissance Technologies, Richard Thaler, risk free rate, risk-adjusted returns, risk/return, Robert Shiller, selection bias, shareholder value, Sharpe ratio, short selling, short squeeze, SoftBank, sovereign wealth fund, statistical arbitrage, statistical model, stocks for the long run, stocks for the long term, survivorship bias, systematic trading, tail risk, technology bubble, time dilation, time value of money, total factor productivity, transaction costs, two and twenty, value at risk, Vanguard fund, yield curve, zero-coupon bond

In summary, short-selling can be difficult as it requires locating a lendable share, it requires posting margin collateral, it is associated with a loan fee, and it evolves recall risk and funding liquidity risk (the risk that you run out of capital before the trade converges). 8.2. SHORT SALE FRICTIONS MEAN THAT COMPANIES CAN BE OVERVALUED Dedicated short bias managers sell short to profit from stocks being overvalued. If short sellers could do so without all the costs and risks discussed above, the market clearing price would incorporate both the views of pessimists and optimists, thus reflecting more information. The difficulties in shorting, however, make it harder to express negative views, opening the potential for stocks to be overvalued in an efficiently inefficient way. To understand the effect of short sale frictions, suppose that people have different opinions about a stock: Some are very optimistic, and others are skeptical.


The Trade Lifecycle: Behind the Scenes of the Trading Process (The Wiley Finance Series) by Robert P. Baker

asset-backed security, bank run, banking crisis, Basel III, Black-Scholes formula, book value, Brownian motion, business continuity plan, business logic, business process, collapse of Lehman Brothers, corporate governance, credit crunch, Credit Default Swap, diversification, financial engineering, fixed income, functional programming, global macro, hiring and firing, implied volatility, interest rate derivative, interest rate swap, locking in a profit, London Interbank Offered Rate, low interest rates, margin call, market clearing, millennium bug, place-making, prediction markets, proprietary trading, short selling, statistical model, stochastic process, the market place, the payments system, time value of money, too big to fail, transaction costs, value at risk, Wiener process, yield curve, zero-coupon bond

CCPs are financial market infrastructures that can reduce and ‘mutualise’ – that is, share between their members – counterparty credit risk in the markets in which they operate. Their origins as clearing houses can be traced back to the late 19th century, when they were primarily used to net payments in commodities futures markets. Clearing via CCPs initially grew through exchange-traded products including bonds, equities, futures and options contracts. During the first decade of this century, clearing became important for OTC products as well as those traded on exchanges. The use of CCP tightens up the trading of OTCs and reduces systemic risk: CCP takes over counterparty risk CCP enforces strict risk control and collateral Use of netting reduces overall exposure.


pages: 545 words: 137,789

How Markets Fail: The Logic of Economic Calamities by John Cassidy

Abraham Wald, Alan Greenspan, Albert Einstein, An Inconvenient Truth, Andrei Shleifer, anti-communist, AOL-Time Warner, asset allocation, asset-backed security, availability heuristic, bank run, banking crisis, Bear Stearns, behavioural economics, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Black Monday: stock market crash in 1987, Black-Scholes formula, Blythe Masters, book value, Bretton Woods, British Empire, business cycle, capital asset pricing model, carbon tax, Carl Icahn, centralized clearinghouse, collateralized debt obligation, Columbine, conceptual framework, Corn Laws, corporate raider, correlation coefficient, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, Daniel Kahneman / Amos Tversky, debt deflation, different worldview, diversification, Elliott wave, Eugene Fama: efficient market hypothesis, financial deregulation, financial engineering, financial innovation, Financial Instability Hypothesis, financial intermediation, full employment, Garrett Hardin, George Akerlof, Glass-Steagall Act, global supply chain, Gunnar Myrdal, Haight Ashbury, hiring and firing, Hyman Minsky, income per capita, incomplete markets, index fund, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invisible hand, John Nash: game theory, John von Neumann, Joseph Schumpeter, junk bonds, Kenneth Arrow, Kickstarter, laissez-faire capitalism, Landlord’s Game, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, Louis Bachelier, low interest rates, mandelbrot fractal, margin call, market bubble, market clearing, mental accounting, Mikhail Gorbachev, military-industrial complex, Minsky moment, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, Myron Scholes, Naomi Klein, negative equity, Network effects, Nick Leeson, Nixon triggered the end of the Bretton Woods system, Northern Rock, paradox of thrift, Pareto efficiency, Paul Samuelson, Phillips curve, Ponzi scheme, precautionary principle, price discrimination, price stability, principal–agent problem, profit maximization, proprietary trading, quantitative trading / quantitative finance, race to the bottom, Ralph Nader, RAND corporation, random walk, Renaissance Technologies, rent control, Richard Thaler, risk tolerance, risk-adjusted returns, road to serfdom, Robert Shiller, Robert Solow, Ronald Coase, Ronald Reagan, Savings and loan crisis, shareholder value, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, statistical model, subprime mortgage crisis, tail risk, Tax Reform Act of 1986, technology bubble, The Chicago School, The Great Moderation, The Market for Lemons, The Wealth of Nations by Adam Smith, too big to fail, Tragedy of the Commons, transaction costs, Two Sigma, unorthodox policies, value at risk, Vanguard fund, Vilfredo Pareto, wealth creators, zero-sum game

Is there any reason to suppose that a set of market prices exists at which all of these goods will be supplied in exactly the quantities that people demand? Yes, there is. As long as each industry contains many competing suppliers, and firms aren’t able to lower their unit costs merely by raising output, it can be mathematically demonstrated that a market-clearing set of prices exists. Once these prices are posted, supply will equal demand in every industry, and no resources will be idle. There are two more bits of good news. At this “equilibrium” set of prices, labor, land, and other inputs will be directed to their most productive uses. It won’t be possible, by rearranging production, to produce more output.


pages: 466 words: 127,728

The Death of Money: The Coming Collapse of the International Monetary System by James Rickards

"World Economic Forum" Davos, Affordable Care Act / Obamacare, Alan Greenspan, Asian financial crisis, asset allocation, Ayatollah Khomeini, bank run, banking crisis, Bear Stearns, Ben Bernanke: helicopter money, bitcoin, Black Monday: stock market crash in 1987, Black Swan, Boeing 747, Bretton Woods, BRICs, business climate, business cycle, buy and hold, capital controls, Carmen Reinhart, central bank independence, centre right, collateralized debt obligation, collective bargaining, complexity theory, computer age, credit crunch, currency peg, David Graeber, debt deflation, Deng Xiaoping, diversification, Dr. Strangelove, Edward Snowden, eurozone crisis, fiat currency, financial engineering, financial innovation, financial intermediation, financial repression, fixed income, Flash crash, floating exchange rates, forward guidance, G4S, George Akerlof, global macro, global reserve currency, global supply chain, Goodhart's law, Growth in a Time of Debt, guns versus butter model, Herman Kahn, high-speed rail, income inequality, inflation targeting, information asymmetry, invisible hand, jitney, John Meriwether, junk bonds, Kenneth Rogoff, labor-force participation, Lao Tzu, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, Long Term Capital Management, low interest rates, mandelbrot fractal, margin call, market bubble, market clearing, market design, megaproject, Modern Monetary Theory, Money creation, money market fund, money: store of value / unit of account / medium of exchange, mutually assured destruction, Nixon triggered the end of the Bretton Woods system, obamacare, offshore financial centre, oil shale / tar sands, open economy, operational security, plutocrats, Ponzi scheme, power law, price stability, public intellectual, quantitative easing, RAND corporation, reserve currency, risk-adjusted returns, Rod Stewart played at Stephen Schwarzman birthday party, Ronald Reagan, Satoshi Nakamoto, Silicon Valley, Silicon Valley startup, Skype, Solyndra, sovereign wealth fund, special drawing rights, Stuxnet, The Market for Lemons, Thomas Kuhn: the structure of scientific revolutions, Thomas L Friedman, too big to fail, trade route, undersea cable, uranium enrichment, Washington Consensus, working-age population, yield curve

This belief causes buyers to lower the prices they are willing to pay. Sellers of high-quality used cars might reject the extra-low prices offered by buyers and refuse to sell. In an extreme case, there might be no market at all for used cars because buyers and sellers are too far apart on price, even though there would theoretically be a market-clearing price if both sides to the transaction knew all the facts. Used cars are just one illustration of the asymmetric information problem, which can apply to a vast array of goods and services, including financial transactions. Interestingly, gold does not suffer this problem because it has a uniform grade.


The New Enclosure: The Appropriation of Public Land in Neoliberal Britain by Brett Christophers

Alan Greenspan, book value, Boris Johnson, Capital in the Twenty-First Century by Thomas Piketty, Corn Laws, credit crunch, cross-subsidies, Diane Coyle, estate planning, Garrett Hardin, gentrification, ghettoisation, Hernando de Soto, housing crisis, income inequality, invisible hand, Jeremy Corbyn, land bank, land reform, land tenure, land value tax, late capitalism, market clearing, Martin Wolf, New Journalism, New Urbanism, off grid, offshore financial centre, performance metric, Philip Mirowski, price mechanism, price stability, profit motive, radical decentralization, Right to Buy, Skype, sovereign wealth fund, special economic zone, the built environment, The Wealth of Nations by Adam Smith, Thorstein Veblen, Tragedy of the Commons, Tyler Cowen, urban sprawl, wealth creators

‘Monopoly power over the use of land’, Harvey notes, ‘can never be entirely stripped of its monopolistic aspects, because land is variegated in terms of its qualities of fertility, location, etc.’.3 Or, as Churchill famously put it: ‘Land monopoly is not the only monopoly, but it is by far the greatest of monopolies – it is a perpetual monopoly, and it is the mother of all other forms of monopoly.’1 Combine these two qualities – the necessity of speculation in land and the endemic nature of monopoly control over it – and you have, Harvey concludes, a recipe for trouble. As we have seen, effective coordination of capitalist production through the land market requires landowners to charge market-clearing rents: those that discipline producers to be competitive, and that therefore help keep productive forces in balance. As Harvey says, however, ‘there is no way to ensure that the appropriators of rent take their due and only their due’. The way in which markets typically ensure that market participants only take ‘their due’ – the amount designed to keep the system as a whole in balance – is through competition.


Mastering Private Equity by Zeisberger, Claudia,Prahl, Michael,White, Bowen, Michael Prahl, Bowen White

Alan Greenspan, asset allocation, backtesting, barriers to entry, Basel III, Bear Stearns, book value, business process, buy low sell high, capital controls, carbon credits, carried interest, clean tech, commoditize, corporate governance, corporate raider, correlation coefficient, creative destruction, currency risk, deal flow, discounted cash flows, disintermediation, disruptive innovation, distributed generation, diversification, diversified portfolio, family office, fixed income, high net worth, impact investing, information asymmetry, intangible asset, junk bonds, Lean Startup, low interest rates, market clearing, Michael Milken, passive investing, pattern recognition, performance metric, price mechanism, profit maximization, proprietary trading, risk tolerance, risk-adjusted returns, risk/return, Savings and loan crisis, shareholder value, Sharpe ratio, Silicon Valley, sovereign wealth fund, statistical arbitrage, time value of money, transaction costs, two and twenty

This clause can be waived by LPs to reduce the complexity of a sales process. Similar terms can protect the interests of other shareholders in a direct secondary transaction, where shareholder syndication agreements often include pre-emption rights that provide existing investors in a PE-backed company the right to acquire a selling shareholder’s stake at a market-clearing price. OTHER TRANSFER RESTRICTIONS: The LPs’ ability to sell stakes in a fund may be limited by other clauses defining the terms under which interests in the fund can be transferred. These may include clauses that limit the transferability to specific dates—such as month-end or quarter-end—for accounting and administrative purposes or that require specific legal validation before proceeding.


pages: 601 words: 135,202

Limitless: The Federal Reserve Takes on a New Age of Crisis by Jeanna Smialek

Alan Greenspan, bank run, banking crisis, Bear Stearns, Berlin Wall, Bernie Sanders, bitcoin, Black Lives Matter, blockchain, Bretton Woods, business cycle, Capital in the Twenty-First Century by Thomas Piketty, central bank independence, Colonization of Mars, coronavirus, COVID-19, crowdsourcing, cryptocurrency, decarbonisation, distributed ledger, Donald Trump, Fall of the Berlin Wall, fiat currency, financial engineering, financial innovation, financial intermediation, Fractional reserve banking, full employment, George Akerlof, George Floyd, Glass-Steagall Act, global pandemic, Henri Poincaré, housing crisis, income inequality, inflation targeting, junk bonds, laissez-faire capitalism, light touch regulation, lockdown, low interest rates, margin call, market bubble, market clearing, meme stock, Modern Monetary Theory, money market fund, money: store of value / unit of account / medium of exchange, moral hazard, mortgage debt, Nixon shock, offshore financial centre, paradox of thrift, price stability, quantitative easing, race to the bottom, risk tolerance, Robinhood: mobile stock trading app, Ronald Reagan, secular stagnation, short squeeze, social distancing, sovereign wealth fund, The Great Moderation, too big to fail, trade route, Tragedy of the Commons, working-age population, yield curve

They envisioned a fifteen-branch central bank that would have power over money printing and bank regulation and that could support troubled banks in crises.[46] Each branch would be governed by boards elected by member banks in their district; bigger banks would have more votes and thus more representation. The branches would hold reserves, issue currency, support the short-term business debt market, clear checks, and keep money moving around the country. What the bankers designed was not an arm of government so much as a private, government-sponsored organizing body, one that could halt panics and make sure that reserves—so often stuck in far-flung places and frozen entirely amid panics—would be centralized.


pages: 514 words: 152,903

The Best Business Writing 2013 by Dean Starkman

Alvin Toffler, Asperger Syndrome, bank run, Basel III, Bear Stearns, call centre, carbon tax, clean water, cloud computing, collateralized debt obligation, Columbine, computer vision, Credit Default Swap, credit default swaps / collateralized debt obligations, crowdsourcing, Erik Brynjolfsson, eurozone crisis, Evgeny Morozov, Exxon Valdez, Eyjafjallajökull, factory automation, fixed income, fulfillment center, full employment, Future Shock, gamification, Goldman Sachs: Vampire Squid, hiring and firing, hydraulic fracturing, Ida Tarbell, income inequality, jimmy wales, job automation, John Markoff, junk bonds, Kickstarter, late fees, London Whale, low interest rates, low skilled workers, Mahatma Gandhi, market clearing, Maui Hawaii, Menlo Park, Occupy movement, oil shale / tar sands, One Laptop per Child (OLPC), Parag Khanna, Pareto efficiency, price stability, proprietary trading, Ray Kurzweil, San Francisco homelessness, Silicon Valley, Skype, sovereign wealth fund, stakhanovite, Stanford prison experiment, Steve Jobs, Stuxnet, synthetic biology, tail risk, technological determinism, the payments system, too big to fail, Vanguard fund, wage slave, warehouse automation, warehouse robotics, Y2K, zero-sum game

I was going to sell the doors, the windows, the gates if I could, but they told me I couldn’t.” She decided not to file for bankruptcy: It would have cost her thousands of dollars and require her to give up her van, which she was determined to keep. When she had nothing left to sell to make her mortgage payments, she was forced to put her home on the market, clearing only $4,000 on the sale. “I was spinning out of control,” she says. “I was starting to lose my wits. It’s very surreal being at a level of depression where it’s easier to think about suicide and dying than it is to bend over and pick something up you’re stepping over. It was getting bad enough that my friends started looking at me, going, ‘You better get out of here.’


pages: 582 words: 160,693

The Sovereign Individual: How to Survive and Thrive During the Collapse of the Welfare State by James Dale Davidson, William Rees-Mogg

affirmative action, agricultural Revolution, Alan Greenspan, Alvin Toffler, bank run, barriers to entry, Berlin Wall, borderless world, British Empire, California gold rush, classic study, clean water, colonial rule, Columbine, compound rate of return, creative destruction, Danny Hillis, debt deflation, ending welfare as we know it, epigenetics, Fall of the Berlin Wall, falling living standards, feminist movement, financial independence, Francis Fukuyama: the end of history, full employment, George Gilder, Hernando de Soto, illegal immigration, income inequality, independent contractor, informal economy, information retrieval, Isaac Newton, John Perry Barlow, Kevin Kelly, market clearing, Martin Wolf, Menlo Park, money: store of value / unit of account / medium of exchange, new economy, New Urbanism, Norman Macrae, offshore financial centre, Parkinson's law, pattern recognition, phenotype, price mechanism, profit maximization, rent-seeking, reserve currency, road to serfdom, Ronald Coase, Sam Peltzman, school vouchers, seigniorage, Silicon Valley, spice trade, statistical model, telepresence, The Nature of the Firm, the scientific method, The Wealth of Nations by Adam Smith, Thomas L Friedman, Thomas Malthus, trade route, transaction costs, Turing machine, union organizing, very high income, Vilfredo Pareto

While unions sometimes attempted through intimidation to prevent local officials from enforcing injunctions, these efforts, too, were seldom successful. Even the most violent strikes were usually suppressed within days or weeks by military means. Blackmail Made Easy There is a lesson to be learned for the Information Age in the fact that union attempts to achieve wages above market-clearing levels were seldom successful when firm size was small. Not even those lines of business that were clearly vulnerable to sabotage, such as canals, railways, streetcars, and mines, were easily brought under control. This is not because the unions shrank from using violence. To the contrary. Violence was lavishly employed, sometimes against high-profile individuals.


pages: 566 words: 155,428

After the Music Stopped: The Financial Crisis, the Response, and the Work Ahead by Alan S. Blinder

Affordable Care Act / Obamacare, Alan Greenspan, asset-backed security, bank run, banking crisis, banks create money, Bear Stearns, book value, break the buck, Carmen Reinhart, central bank independence, collapse of Lehman Brothers, collateralized debt obligation, conceptual framework, corporate governance, Credit Default Swap, credit default swaps / collateralized debt obligations, currency risk, Detroit bankruptcy, diversification, double entry bookkeeping, eurozone crisis, facts on the ground, financial engineering, financial innovation, fixed income, friendly fire, full employment, Glass-Steagall Act, hiring and firing, housing crisis, Hyman Minsky, illegal immigration, inflation targeting, interest rate swap, Isaac Newton, junk bonds, Kenneth Rogoff, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, low interest rates, market bubble, market clearing, market fundamentalism, McMansion, Minsky moment, money market fund, moral hazard, naked short selling, new economy, Nick Leeson, Northern Rock, Occupy movement, offshore financial centre, Paul Volcker talking about ATMs, price mechanism, proprietary trading, quantitative easing, Ralph Waldo Emerson, Robert Shiller, Robert Solow, Ronald Reagan, Savings and loan crisis, shareholder value, short selling, South Sea Bubble, statistical model, the payments system, time value of money, too big to fail, vertical integration, working-age population, yield curve, Yogi Berra

When the highest price bid for an asset is $20, and the lowest asking price is $60—and gaps like that were common at the time—discerning the “true” market value becomes a question for philosophers, not for economists, and certainly not for traders. The big hazard for the original TARP idea was therefore this: If Treasury offered to buy that asset at, say, $40, would it be overpaying or underpaying? How would it even know? BID-ASK SPREADS You remember your first Economics 101 lesson, right? Free markets clear at the point where the demand curve and the supply curve cross. Well, that’s not exactly right. In any given market at any given time, there normally will be a gap, or spread, between the highest price any demander is willing to pay (“the bid”) and lowest price any supplier is willing to accept (“the ask”).


pages: 524 words: 143,993

The Shifts and the Shocks: What We've Learned--And Have Still to Learn--From the Financial Crisis by Martin Wolf

air freight, Alan Greenspan, anti-communist, Asian financial crisis, asset allocation, asset-backed security, balance sheet recession, bank run, banking crisis, banks create money, Basel III, Bear Stearns, Ben Bernanke: helicopter money, Berlin Wall, Black Swan, bonus culture, break the buck, Bretton Woods, business cycle, call centre, capital asset pricing model, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, collateralized debt obligation, corporate governance, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency manipulation / currency intervention, currency peg, currency risk, debt deflation, deglobalization, Deng Xiaoping, diversification, double entry bookkeeping, en.wikipedia.org, Erik Brynjolfsson, Eugene Fama: efficient market hypothesis, eurozone crisis, Fall of the Berlin Wall, fiat currency, financial deregulation, financial innovation, financial repression, floating exchange rates, foreign exchange controls, forward guidance, Fractional reserve banking, full employment, Glass-Steagall Act, global rebalancing, global reserve currency, Growth in a Time of Debt, Hyman Minsky, income inequality, inflation targeting, information asymmetry, invisible hand, Joseph Schumpeter, Kenneth Rogoff, labour market flexibility, labour mobility, Les Trente Glorieuses, light touch regulation, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, Long Term Capital Management, low interest rates, mandatory minimum, margin call, market bubble, market clearing, market fragmentation, Martin Wolf, Mexican peso crisis / tequila crisis, Minsky moment, Modern Monetary Theory, Money creation, money market fund, moral hazard, mortgage debt, negative equity, new economy, North Sea oil, Northern Rock, open economy, paradox of thrift, Paul Samuelson, price stability, private sector deleveraging, proprietary trading, purchasing power parity, pushing on a string, quantitative easing, Real Time Gross Settlement, regulatory arbitrage, reserve currency, Richard Feynman, risk-adjusted returns, risk/return, road to serfdom, Robert Gordon, Robert Shiller, Ronald Reagan, savings glut, Second Machine Age, secular stagnation, shareholder value, short selling, sovereign wealth fund, special drawing rights, subprime mortgage crisis, tail risk, The Chicago School, The Great Moderation, The Market for Lemons, the market place, The Myth of the Rational Market, the payments system, The Wealth of Nations by Adam Smith, too big to fail, Tyler Cowen, Tyler Cowen: Great Stagnation, vertical integration, very high income, winner-take-all economy, zero-sum game

In this way, internal balance – full employment – was achieved, albeit temporarily, at the price of a huge external imbalance – excess demand for tradeables and so trade and current-account deficits. The global market for the US dollar is rigged. It is one in which governments are prepared to buy massively, to prevent prices from reaching natural market clearing levels. We do not know how much lower the dollar would have been if there had been no such intervention, but surely it would have been substantially weaker and US monetary policy would have consequently needed to be less expansionary. As Pettis puts it, ‘Excessive use of the US dollar internationally actually forces up either American debt or American unemployment.’31 Inevitably, the Fed chose debt over unemployment.


pages: 566 words: 160,453

Not Working: Where Have All the Good Jobs Gone? by David G. Blanchflower

90 percent rule, active measures, affirmative action, Affordable Care Act / Obamacare, Albert Einstein, bank run, banking crisis, basic income, Bear Stearns, behavioural economics, Berlin Wall, Bernie Madoff, Bernie Sanders, Black Lives Matter, Black Swan, Boris Johnson, Brexit referendum, business cycle, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Clapham omnibus, collective bargaining, correlation does not imply causation, credit crunch, declining real wages, deindustrialization, Donald Trump, driverless car, estate planning, fake news, Fall of the Berlin Wall, full employment, George Akerlof, gig economy, Gini coefficient, Growth in a Time of Debt, high-speed rail, illegal immigration, income inequality, independent contractor, indoor plumbing, inflation targeting, Jeremy Corbyn, job satisfaction, John Bercow, Kenneth Rogoff, labor-force participation, liquidationism / Banker’s doctrine / the Treasury view, longitudinal study, low interest rates, low skilled workers, manufacturing employment, Mark Zuckerberg, market clearing, Martin Wolf, mass incarceration, meta-analysis, moral hazard, Nate Silver, negative equity, new economy, Northern Rock, obamacare, oil shock, open borders, opioid epidemic / opioid crisis, Own Your Own Home, p-value, Panamax, pension reform, Phillips curve, plutocrats, post-materialism, price stability, prisoner's dilemma, quantitative easing, rent control, Richard Thaler, Robert Shiller, Ronald Coase, selection bias, selective serotonin reuptake inhibitor (SSRI), Silicon Valley, South Sea Bubble, The Theory of the Leisure Class by Thorstein Veblen, Thorstein Veblen, trade liberalization, universal basic income, University of East Anglia, urban planning, working poor, working-age population, yield curve

The paper argued that macroeconomics was going through a period of great progress and excitement: “A macroeconomic article today often follows strict, haiku-like rules. It starts from a general equilibrium structure, in which individuals maximize the expected present value of utility, firms maximize their value, and markets clear. Then, it introduces a twist, be it an imperfection or the closing of a particular set of markets, and works out the general equilibrium implications. It then performs a numerical simulation based on calibration, showing that the model performs well. It ends with a welfare assessment.” I have no idea what “haiku-like” rules are or how they can help us understand how an economy works.


pages: 542 words: 145,022

In Pursuit of the Perfect Portfolio: The Stories, Voices, and Key Insights of the Pioneers Who Shaped the Way We Invest by Andrew W. Lo, Stephen R. Foerster

Alan Greenspan, Albert Einstein, AOL-Time Warner, asset allocation, backtesting, behavioural economics, Benoit Mandelbrot, Black Monday: stock market crash in 1987, Black-Scholes formula, Bretton Woods, Brownian motion, business cycle, buy and hold, capital asset pricing model, Charles Babbage, Charles Lindbergh, compound rate of return, corporate governance, COVID-19, credit crunch, currency risk, Daniel Kahneman / Amos Tversky, diversification, diversified portfolio, Donald Trump, Edward Glaeser, equity premium, equity risk premium, estate planning, Eugene Fama: efficient market hypothesis, fake news, family office, fear index, fiat currency, financial engineering, financial innovation, financial intermediation, fixed income, hiring and firing, Hyman Minsky, implied volatility, index fund, interest rate swap, Internet Archive, invention of the wheel, Isaac Newton, Jim Simons, John Bogle, John Meriwether, John von Neumann, joint-stock company, junk bonds, Kenneth Arrow, linear programming, Long Term Capital Management, loss aversion, Louis Bachelier, low interest rates, managed futures, mandelbrot fractal, margin call, market bubble, market clearing, mental accounting, money market fund, money: store of value / unit of account / medium of exchange, Myron Scholes, new economy, New Journalism, Own Your Own Home, passive investing, Paul Samuelson, Performance of Mutual Funds in the Period, prediction markets, price stability, profit maximization, quantitative trading / quantitative finance, RAND corporation, random walk, Richard Thaler, risk free rate, risk tolerance, risk-adjusted returns, risk/return, Robert Shiller, Robert Solow, Ronald Reagan, Savings and loan crisis, selection bias, seminal paper, shareholder value, Sharpe ratio, short selling, South Sea Bubble, stochastic process, stocks for the long run, survivorship bias, tail risk, Thales and the olive presses, Thales of Miletus, The Myth of the Rational Market, The Wisdom of Crowds, Thomas Bayes, time value of money, transaction costs, transfer pricing, tulip mania, Vanguard fund, yield curve, zero-coupon bond, zero-sum game

Sharpe viewed his equilibrium model as a natural extension of his dissertation. “I then did in the dissertation, and subsequently expanded on, what anybody trained in microeconomics would do: [ask the question] if everybody does this, what happens when they all come to market, and prices adjust and the markets clear … [,] referred to as equilibrium. And what I found was that under some very, very rigid simplifying assumptions, that ‘Yes, Virginia,’ there would be higher expected return for higher risk … but not just any risk … [;] the risk for which there will be a reward if the markets are functioning at all well … is risk that … cannot be diversified away.”31 By the fall of 1961, Sharpe’s work on the CAPM had progressed sufficiently for him to draft a working paper that was then shared with other academics at workshops and seminars.


pages: 512 words: 162,977

New Market Wizards: Conversations With America's Top Traders by Jack D. Schwager

backtesting, beat the dealer, Benoit Mandelbrot, Berlin Wall, Black-Scholes formula, book value, butterfly effect, buy and hold, commodity trading advisor, computerized trading, currency risk, Edward Thorp, Elliott wave, fixed income, full employment, implied volatility, interest rate swap, Louis Bachelier, margin call, market clearing, market fundamentalism, Market Wizards by Jack D. Schwager, money market fund, paper trading, pattern recognition, placebo effect, prediction markets, proprietary trading, Ralph Nelson Elliott, random walk, Reminiscences of a Stock Operator, risk tolerance, risk/return, Saturday Night Live, Sharpe ratio, the map is not the territory, transaction costs, uptick rule, War on Poverty

To me, it seemed ridiculous that people were pricing stocks that way. You make it sound like you completely shrugged off the panic that engulfed the markets that week. I don’t think I underestimated the risk of the trade when I bought ten S&P futures on the day of the crash. However, in retrospect, I certainly was naive in having faith that the markets, clearing firms, and banks 304 / The New Market Wizard would continue to function. The subsequent realization that if the Fed had been less aggressive, my clearing firm, along with many others, could have gone bankrupt, obliterating my account equity in the process, really shook me up. Does it ever bother you when you lose?


pages: 442 words: 39,064

Why Stock Markets Crash: Critical Events in Complex Financial Systems by Didier Sornette

Alan Greenspan, Asian financial crisis, asset allocation, behavioural economics, Berlin Wall, Black Monday: stock market crash in 1987, Bretton Woods, Brownian motion, business cycle, buy and hold, buy the rumour, sell the news, capital asset pricing model, capital controls, continuous double auction, currency peg, Deng Xiaoping, discrete time, diversified portfolio, Elliott wave, Erdős number, experimental economics, financial engineering, financial innovation, floating exchange rates, frictionless, frictionless market, full employment, global village, implied volatility, index fund, information asymmetry, intangible asset, invisible hand, John von Neumann, joint-stock company, law of one price, Louis Bachelier, low interest rates, mandelbrot fractal, margin call, market bubble, market clearing, market design, market fundamentalism, mental accounting, moral hazard, Network effects, new economy, oil shock, open economy, pattern recognition, Paul Erdős, Paul Samuelson, power law, quantitative trading / quantitative finance, random walk, risk/return, Ronald Reagan, Schrödinger's Cat, selection bias, short selling, Silicon Valley, South Sea Bubble, statistical model, stochastic process, stocks for the long run, Tacoma Narrows Bridge, technological singularity, The Coming Technological Singularity, The Wealth of Nations by Adam Smith, Tobin tax, total factor productivity, transaction costs, tulip mania, VA Linux, Y2K, yield curve

According to survey studies reported by Kahneman, Knetsch, and Thaler [227], people indicate that it is unfair for firms to raise prices and increase profits in response to certain changes in the environment that are not justified by an increase in costs. Thus, respondents report that it is “unfair” for firms to raise the price of snow shovels after a snowstorm or to raise the price of plywood after a hurricane. In these circumstances, economic theory predicts shortages, an increase in prices toward the new market clearing levels, and, eventually, an increase in output. In other words, the increase of price is the equilibrium solution associated with the new supply–demand relationship, 88 chapter 4 but this is considered unfair by people. How this perception impacts the real dynamics of the price and the behavior of firms and buyers to give rise to efficient or inefficient markets remains a subject of research. 5.


pages: 614 words: 168,545

Rentier Capitalism: Who Owns the Economy, and Who Pays for It? by Brett Christophers

"World Economic Forum" Davos, accounting loophole / creative accounting, Airbnb, Amazon Web Services, barriers to entry, Big bang: deregulation of the City of London, Big Tech, book value, Boris Johnson, Bretton Woods, Brexit referendum, British Empire, business process, business process outsourcing, Buy land – they’re not making it any more, call centre, Cambridge Analytica, Capital in the Twenty-First Century by Thomas Piketty, Cass Sunstein, cloud computing, collective bargaining, congestion charging, corporate governance, data is not the new oil, David Graeber, DeepMind, deindustrialization, Diane Coyle, digital capitalism, disintermediation, diversification, diversified portfolio, Donald Trump, Downton Abbey, electricity market, Etonian, European colonialism, financial deregulation, financial innovation, financial intermediation, G4S, gig economy, Gini coefficient, Goldman Sachs: Vampire Squid, greed is good, green new deal, haute couture, high net worth, housing crisis, income inequality, independent contractor, intangible asset, Internet of things, Jeff Bezos, Jeremy Corbyn, Joseph Schumpeter, Kickstarter, land bank, land reform, land value tax, light touch regulation, low interest rates, Lyft, manufacturing employment, market clearing, Martin Wolf, means of production, moral hazard, mortgage debt, Network effects, new economy, North Sea oil, offshore financial centre, oil shale / tar sands, oil shock, patent troll, pattern recognition, peak oil, Piper Alpha, post-Fordism, post-war consensus, precariat, price discrimination, price mechanism, profit maximization, proprietary trading, quantitative easing, race to the bottom, remunicipalization, rent control, rent gap, rent-seeking, ride hailing / ride sharing, Right to Buy, risk free rate, Ronald Coase, Rutger Bregman, sharing economy, short selling, Silicon Valley, software patent, subscription business, surveillance capitalism, TaskRabbit, tech bro, The Nature of the Firm, transaction costs, Uber for X, uber lyft, vertical integration, very high income, wage slave, We are all Keynesians now, wealth creators, winner-take-all economy, working-age population, yield curve, you are the product

Indeed, Brotherstone argues that the monumental shifting of the balance between capital and labour that occurred in early-1980s Britain was exactly what the then energy minister, later chancellor of the exchequer, Nigel Lawson was referring to when he claimed in a 1982 speech that North Sea oil had arrived on the scene when it was of ‘unprecedented value and strategic importance’.88 It was, in other words, no mere accident that rising unemployment costs in that period were more or less matched by rising government revenues from hydrocarbon taxation.89 Anticipation of the latter, suggests Brotherstone, had been crucial to the strategy of actively fomenting the former. The North Sea was both breeding ground and operating theatre, then, for the ‘massive “market clearing” operation’ planned and executed by Tory strategists: ‘The oil money would provide the safety net while [the government] applied the shock therapy of mass unemployment.’90 What ensued was not failure; it was resounding, calculated success. Laissez-faire, and everything that went with it, was, as Karl Polanyi famously insisted, planned – and in the UK, natural-resource rentierism underwrote the Tory blueprint.91 In recent years, of course, there has been increasing talk of a new threat to the business of natural-resource rentiers – and especially to those, like the UK’s leading protagonists, for whom mineral fuels represent a significant source of rents.


pages: 1,202 words: 424,886

Stigum's Money Market, 4E by Marcia Stigum, Anthony Crescenzi

accounting loophole / creative accounting, Alan Greenspan, Asian financial crisis, asset allocation, asset-backed security, bank run, banking crisis, banks create money, Bear Stearns, Black-Scholes formula, book value, Brownian motion, business climate, buy and hold, capital controls, central bank independence, centralized clearinghouse, corporate governance, credit crunch, Credit Default Swap, cross-border payments, currency manipulation / currency intervention, currency risk, David Ricardo: comparative advantage, disintermediation, distributed generation, diversification, diversified portfolio, Dutch auction, financial innovation, financial intermediation, fixed income, flag carrier, foreign exchange controls, full employment, Glass-Steagall Act, Goodhart's law, Greenspan put, guns versus butter model, high net worth, implied volatility, income per capita, intangible asset, interest rate derivative, interest rate swap, inverted yield curve, junk bonds, land bank, large denomination, locking in a profit, London Interbank Offered Rate, low interest rates, margin call, market bubble, market clearing, market fundamentalism, Money creation, money market fund, mortgage debt, Myron Scholes, offshore financial centre, paper trading, pension reform, Phillips curve, Ponzi scheme, price mechanism, price stability, profit motive, proprietary trading, prudent man rule, Real Time Gross Settlement, reserve currency, risk free rate, risk tolerance, risk/return, Savings and loan crisis, seigniorage, shareholder value, short selling, short squeeze, tail risk, technology bubble, the payments system, too big to fail, transaction costs, two-sided market, value at risk, volatility smile, yield curve, zero-coupon bond, zero-sum game

The perception that the Fed’s independence is limited once influenced Fed policy, but it has been over two decades since there has been any meaningful degree of such influence. In particular, during the late 1970s and early 1980s when the Fed was tightening and it appeared that interest rates might reach unacceptable levels, the Fed attempted to force a contraction in bank lending while simultaneously preventing interest rates from rising to market-clearing levels. During one such period, 1977, a banker commented. “It is not always politically feasible for the Fed, when it wants to curtail bank lending, to allow interest rates to go where they must to do so. The Fed would never admit this, but they know they are a creature of Congress, and Congress would never let the prime go to 15%—one way or another it would remove in one fell swoop the so-called independence of the Fed.”

As noted in chapter 9, there are good grounds for doubting whether the Fed was ever a serious convert to monetarism; more likely, it viewed a public profession of monetarism as a sort of temporary expedient. By declaring that its goal was to control money supply, the Fed was able to fight inflation by allowing interest rates to rise to market-clearing levels—levels that proved so high that they would have been politically unacceptable had not politicians, too, bought into monetarism. Once inflation was quelled, the Fed gradually moved away from its monetarist stance. Having changed its definition of money supply as gasoline prices have increased these days—there was M1 to M5, M1A, M1B, and L—the Fed more or less admitted that, in a constantly changing world, there was no measure of money supply that it could control and, more important, no measure that it made sense, theoretically or practically, to control.


pages: 584 words: 187,436

More Money Than God: Hedge Funds and the Making of a New Elite by Sebastian Mallaby

Alan Greenspan, Andrei Shleifer, Asian financial crisis, asset-backed security, automated trading system, bank run, barriers to entry, Bear Stearns, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Big bang: deregulation of the City of London, Bonfire of the Vanities, book value, Bretton Woods, business cycle, buy and hold, capital controls, Carmen Reinhart, collapse of Lehman Brothers, collateralized debt obligation, computerized trading, corporate raider, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, currency manipulation / currency intervention, currency peg, deal flow, do well by doing good, Elliott wave, Eugene Fama: efficient market hypothesis, failed state, Fall of the Berlin Wall, financial deregulation, financial engineering, financial innovation, financial intermediation, fixed income, full employment, German hyperinflation, High speed trading, index fund, Jim Simons, John Bogle, John Meriwether, junk bonds, Kenneth Rogoff, Kickstarter, Long Term Capital Management, low interest rates, machine translation, margin call, market bubble, market clearing, market fundamentalism, Market Wizards by Jack D. Schwager, Mary Meeker, merger arbitrage, Michael Milken, money market fund, moral hazard, Myron Scholes, natural language processing, Network effects, new economy, Nikolai Kondratiev, operational security, pattern recognition, Paul Samuelson, pre–internet, proprietary trading, public intellectual, quantitative hedge fund, quantitative trading / quantitative finance, random walk, Renaissance Technologies, Richard Thaler, risk-adjusted returns, risk/return, Robert Mercer, rolodex, Savings and loan crisis, Sharpe ratio, short selling, short squeeze, Silicon Valley, South Sea Bubble, sovereign wealth fund, statistical arbitrage, statistical model, survivorship bias, tail risk, technology bubble, The Great Moderation, The Myth of the Rational Market, the new new thing, too big to fail, transaction costs, two and twenty, uptick rule

The firm’s government-bond trader, Paul Mozer, had cheated repeatedly in the auctions; Meriwether, who was responsible for overseeing Mozer, resigned from the firm and paid a $50,000 fine imposed by the Securities and Exchange Commission.6 After scouting about for opportunities, Meriwether resolved to set up on his own. He would reassemble his team of rocket scientists and would do it without the unnecessary trappings of a big bank: Functions like marketing, clearing, settling, and operations would be outsourced, so that there would be no need to spread the professors’ trading profits through undeserving back-office departments. The way Meriwether saw it, he was inventing a new kind of financial institution for a new age. A world in which a small brotherhood of academics could earn more than a large bank required a fresh kind of setup.


pages: 603 words: 182,826

Owning the Earth: The Transforming History of Land Ownership by Andro Linklater

agricultural Revolution, Alan Greenspan, anti-communist, Anton Chekhov, Ayatollah Khomeini, Bear Stearns, Big bang: deregulation of the City of London, British Empire, business cycle, colonial rule, Corn Laws, Cornelius Vanderbilt, corporate governance, creative destruction, Credit Default Swap, crony capitalism, David Ricardo: comparative advantage, electricity market, facts on the ground, flying shuttle, Ford Model T, Francis Fukuyama: the end of history, full employment, Gini coefficient, Glass-Steagall Act, Google Earth, Great Leap Forward, income inequality, invisible hand, James Hargreaves, James Watt: steam engine, John Perry Barlow, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, Kibera, Kickstarter, land reform, land tenure, light touch regulation, market clearing, means of production, megacity, Mikhail Gorbachev, Mohammed Bouazizi, Monkeys Reject Unequal Pay, mortgage debt, Northern Rock, Peace of Westphalia, Pearl River Delta, plutocrats, Ponzi scheme, profit motive, quantitative easing, Ralph Waldo Emerson, refrigerator car, Right to Buy, road to serfdom, Robert Shiller, Ronald Reagan, spinning jenny, Suez canal 1869, The Chicago School, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, three-masted sailing ship, too big to fail, trade route, transatlantic slave trade, transcontinental railway, ultimatum game, wage slave, WikiLeaks, wikimedia commons, working poor

In 1818, it was formally enclosed within a single customs union, the Zollverein, later extended in 1834 to include most of Germany. The first beneficiaries of reform were, therefore, the bourgeoisie, meaning the traders, small manufacturers, and commercial businesses, set free from the constriction of urban guilds and suddenly presented with a vastly expanded market cleared of tariff restrictions. The bourgeoisie flourished especially in the west, where urban prosperity spilled over into a countryside where French influence had ensured that peasant holdings were already held virtually as property. Further east, in traditional Prussia’s deeply conservative society, the changes caused widespread anxiety.


Money and Government: The Past and Future of Economics by Robert Skidelsky

"Friedman doctrine" OR "shareholder theory", Alan Greenspan, anti-globalists, Asian financial crisis, asset-backed security, bank run, banking crisis, banks create money, barriers to entry, Basel III, basic income, Bear Stearns, behavioural economics, Ben Bernanke: helicopter money, Big bang: deregulation of the City of London, book value, Bretton Woods, British Empire, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, collective bargaining, constrained optimization, Corn Laws, correlation does not imply causation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, David Graeber, David Ricardo: comparative advantage, debt deflation, Deng Xiaoping, Donald Trump, Eugene Fama: efficient market hypothesis, eurozone crisis, fake news, financial deregulation, financial engineering, financial innovation, Financial Instability Hypothesis, forward guidance, Fractional reserve banking, full employment, Gini coefficient, Glass-Steagall Act, Goodhart's law, Growth in a Time of Debt, guns versus butter model, Hyman Minsky, income inequality, incomplete markets, inflation targeting, invisible hand, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Kenneth Rogoff, Kondratiev cycle, labour market flexibility, labour mobility, land bank, law of one price, liberal capitalism, light touch regulation, liquidationism / Banker’s doctrine / the Treasury view, liquidity trap, long and variable lags, low interest rates, market clearing, market friction, Martin Wolf, means of production, Meghnad Desai, Mexican peso crisis / tequila crisis, mobile money, Modern Monetary Theory, Money creation, Mont Pelerin Society, moral hazard, mortgage debt, new economy, Nick Leeson, North Sea oil, Northern Rock, nudge theory, offshore financial centre, oil shock, open economy, paradox of thrift, Pareto efficiency, Paul Samuelson, Phillips curve, placebo effect, post-war consensus, price stability, profit maximization, proprietary trading, public intellectual, quantitative easing, random walk, regulatory arbitrage, rent-seeking, reserve currency, Richard Thaler, rising living standards, risk/return, road to serfdom, Robert Shiller, Ronald Reagan, savings glut, secular stagnation, shareholder value, short selling, Simon Kuznets, structural adjustment programs, technological determinism, The Chicago School, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, tontine, too big to fail, trade liberalization, value at risk, Washington Consensus, yield curve, zero-sum game

What he aimed to show was that, even without these frictions, a market economy would not be optimally self-adjusting. There was no ‘automatic tendency’ for the rate of interest to fall sufficiently to employ all intended saving, nor for real wages to fall sufficiently to employ all those looking for work. Whether or not equilibrium or market-clearing prices for saving or work existed, they were not known, or knowable, to those whose decisions determined prices in the market. In a competitive market system, uncertainty attaching to such prices was inherent and ineradicable. The counterattack started not with a rejection of Keynesian policy prescriptions, but with an assault on Keynes’s theory.


pages: 829 words: 187,394

The Price of Time: The Real Story of Interest by Edward Chancellor

"World Economic Forum" Davos, 3D printing, activist fund / activist shareholder / activist investor, Airbnb, Alan Greenspan, asset allocation, asset-backed security, assortative mating, autonomous vehicles, balance sheet recession, bank run, banking crisis, barriers to entry, Basel III, Bear Stearns, Ben Bernanke: helicopter money, Bernie Sanders, Big Tech, bitcoin, blockchain, bond market vigilante , bonus culture, book value, Bretton Woods, BRICs, business cycle, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, carried interest, cashless society, cloud computing, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, commodity super cycle, computer age, coronavirus, corporate governance, COVID-19, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, cryptocurrency, currency peg, currency risk, David Graeber, debt deflation, deglobalization, delayed gratification, Deng Xiaoping, Detroit bankruptcy, distributed ledger, diversified portfolio, Dogecoin, Donald Trump, double entry bookkeeping, Elon Musk, equity risk premium, Ethereum, ethereum blockchain, eurozone crisis, everywhere but in the productivity statistics, Extinction Rebellion, fiat currency, financial engineering, financial innovation, financial intermediation, financial repression, fixed income, Flash crash, forward guidance, full employment, gig economy, Gini coefficient, Glass-Steagall Act, global reserve currency, global supply chain, Goodhart's law, Great Leap Forward, green new deal, Greenspan put, high net worth, high-speed rail, housing crisis, Hyman Minsky, implied volatility, income inequality, income per capita, inflation targeting, initial coin offering, intangible asset, Internet of things, inventory management, invisible hand, Japanese asset price bubble, Jean Tirole, Jeff Bezos, joint-stock company, Joseph Schumpeter, junk bonds, Kenneth Rogoff, land bank, large denomination, Les Trente Glorieuses, liquidity trap, lockdown, Long Term Capital Management, low interest rates, Lyft, manufacturing employment, margin call, Mark Spitznagel, market bubble, market clearing, market fundamentalism, Martin Wolf, mega-rich, megaproject, meme stock, Michael Milken, Minsky moment, Modern Monetary Theory, Mohammed Bouazizi, Money creation, money market fund, moral hazard, mortgage debt, negative equity, new economy, Northern Rock, offshore financial centre, operational security, Panopticon Jeremy Bentham, Paul Samuelson, payday loans, peer-to-peer lending, pensions crisis, Peter Thiel, Philip Mirowski, plutocrats, Ponzi scheme, price mechanism, price stability, quantitative easing, railway mania, reality distortion field, regulatory arbitrage, rent-seeking, reserve currency, ride hailing / ride sharing, risk free rate, risk tolerance, risk/return, road to serfdom, Robert Gordon, Robinhood: mobile stock trading app, Satoshi Nakamoto, Satyajit Das, Savings and loan crisis, savings glut, Second Machine Age, secular stagnation, self-driving car, shareholder value, Silicon Valley, Silicon Valley startup, South Sea Bubble, Stanford marshmallow experiment, Steve Jobs, stock buybacks, subprime mortgage crisis, Suez canal 1869, tech billionaire, The Great Moderation, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, Thorstein Veblen, Tim Haywood, time value of money, too big to fail, total factor productivity, trickle-down economics, tulip mania, Tyler Cowen, Uber and Lyft, Uber for X, uber lyft, Walter Mischel, WeWork, When a measure becomes a target, yield curve

By the time of the global financial crisis, however, its economy was beset by a number of severe imbalances – asset price bubbles and credit booms, excess savings and wasteful investments. These imbalances were the product of financial repression, according to McKinnon. In a 2012 paper written shortly before his death, McKinnon suggested that negative real interest rates on Chinese bank deposits had reduced household income. Benchmark rates kept below the market-clearing rate were creating an excessive demand for credit, he added. State-owned enterprises, which received preferential access to credit, were crowding out private businesses, McKinnon suggested. Low interest rates had boosted investment, but the general quality of lending was poor. Furthermore, savings were moving out of banks into an opaque shadow banking system.13 Financial repression had tilted China’s economy away from consumption towards low-quality investment and fostered asset price bubbles.


pages: 772 words: 203,182

What Went Wrong: How the 1% Hijacked the American Middle Class . . . And What Other Countries Got Right by George R. Tyler

"Friedman doctrine" OR "shareholder theory", "World Economic Forum" Davos, 8-hour work day, active measures, activist fund / activist shareholder / activist investor, affirmative action, Affordable Care Act / Obamacare, Alan Greenspan, bank run, banking crisis, Basel III, Bear Stearns, behavioural economics, benefit corporation, Black Swan, blood diamond, blue-collar work, Bolshevik threat, bonus culture, British Empire, business cycle, business process, buy and hold, capital controls, Carmen Reinhart, carried interest, cognitive dissonance, collateralized debt obligation, collective bargaining, commoditize, company town, compensation consultant, corporate governance, corporate personhood, corporate raider, corporate social responsibility, creative destruction, credit crunch, crony capitalism, crowdsourcing, currency manipulation / currency intervention, David Brooks, David Graeber, David Ricardo: comparative advantage, declining real wages, deindustrialization, Diane Coyle, disruptive innovation, Double Irish / Dutch Sandwich, eurozone crisis, financial deregulation, financial engineering, financial innovation, fixed income, Ford Model T, Francis Fukuyama: the end of history, full employment, George Akerlof, George Gilder, Gini coefficient, Glass-Steagall Act, Gordon Gekko, Greenspan put, hiring and firing, Ida Tarbell, income inequality, independent contractor, invisible hand, job satisfaction, John Markoff, joint-stock company, Joseph Schumpeter, junk bonds, Kenneth Rogoff, labor-force participation, laissez-faire capitalism, lake wobegon effect, light touch regulation, Long Term Capital Management, low interest rates, manufacturing employment, market clearing, market fundamentalism, Martin Wolf, minimum wage unemployment, mittelstand, Money creation, moral hazard, Myron Scholes, Naomi Klein, Northern Rock, obamacare, offshore financial centre, Paul Samuelson, Paul Volcker talking about ATMs, pension reform, performance metric, Pershing Square Capital Management, pirate software, plutocrats, Ponzi scheme, precariat, price stability, profit maximization, profit motive, prosperity theology / prosperity gospel / gospel of success, purchasing power parity, race to the bottom, Ralph Nader, rent-seeking, reshoring, Richard Thaler, rising living standards, road to serfdom, Robert Gordon, Robert Shiller, rolling blackouts, Ronald Reagan, Sand Hill Road, Savings and loan crisis, shareholder value, Silicon Valley, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, sovereign wealth fund, Steve Ballmer, Steve Jobs, stock buybacks, subprime mortgage crisis, The Chicago School, The Spirit Level, The Theory of the Leisure Class by Thorstein Veblen, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, transcontinental railway, transfer pricing, trickle-down economics, tulip mania, Tyler Cowen, Tyler Cowen: Great Stagnation, union organizing, Upton Sinclair, upwardly mobile, women in the workforce, working poor, zero-sum game

His rivals were horrified. The Wall Street Journal accused him of injecting ‘Biblical or spiritual principles into a field where they do not belong.’ The New York Times correspondent who traveled to Detroit to interview him that week asked him if he was a socialist.”11 Ford could pay higher than market-clearing wages, because the productivity of his workers was relatively high; a Model T was produced every twenty-four seconds, compared to 12 hours previously.12 Better productivity performance also enabled Ford to grow fabulously rich, despite paying better wages than his competitors. Malcolm Gladwell has concluded that Ford is the most successful auto man ever and the seventh richest person in history, resting between Andrew Mellon and the Roman Senator Marcus Crassus.13 He was no fool, producing 15.5 million model Ts and revolutionizing the global auto industry; Ford certainly didn’t become wealthy overpaying for anything.


pages: 678 words: 216,204

The Wealth of Networks: How Social Production Transforms Markets and Freedom by Yochai Benkler

affirmative action, AOL-Time Warner, barriers to entry, bioinformatics, Brownian motion, business logic, call centre, Cass Sunstein, centre right, clean water, commoditize, commons-based peer production, dark matter, desegregation, digital divide, East Village, Eben Moglen, fear of failure, Firefox, Free Software Foundation, game design, George Gilder, hiring and firing, Howard Rheingold, informal economy, information asymmetry, information security, invention of radio, Isaac Newton, iterative process, Jean Tirole, jimmy wales, John Markoff, John Perry Barlow, Kenneth Arrow, Lewis Mumford, longitudinal study, machine readable, Mahbub ul Haq, market bubble, market clearing, Marshall McLuhan, Mitch Kapor, New Journalism, optical character recognition, pattern recognition, peer-to-peer, power law, precautionary principle, pre–internet, price discrimination, profit maximization, profit motive, public intellectual, radical decentralization, random walk, Recombinant DNA, recommendation engine, regulatory arbitrage, rent-seeking, RFID, Richard Stallman, Ronald Coase, scientific management, search costs, Search for Extraterrestrial Intelligence, SETI@home, shareholder value, Silicon Valley, Skype, slashdot, social software, software patent, spectrum auction, subscription business, tacit knowledge, technological determinism, technoutopianism, The Fortune at the Bottom of the Pyramid, the long tail, The Nature of the Firm, the strength of weak ties, Timothy McVeigh, transaction costs, vertical integration, Vilfredo Pareto, work culture , Yochai Benkler

More importantly, as aspects of performance that are harder to fully specify in advance or monitor--like creativity over time given the occurrence of new opportunities to be creative, or implicit know-how--become a more significant aspect of what is valuable about an individual's contribution, market mechanisms become more and more costly to maintain efficiently, and, as a practical matter, simply lose a lot of information. 218 People have different innate capabilities; personal, social, and educational histories; emotional frameworks; and ongoing lived experiences, which make [pg 111] for immensely diverse associations with, idiosyncratic insights into, and divergent utilization of existing information and cultural inputs at different times and in different contexts. Human creativity is therefore very difficult to standardize and specify in the contracts necessary for either market-cleared or hierarchically organized production. As the weight of human intellectual effort increases in the overall mix of inputs into a given production process, an organization model that does not require contractual specification of the individual effort required to participate in a collective enterprise, and which allows individuals to self-identify for tasks, will be better at gathering and utilizing information about who should be doing what than a system that does require such specification.


pages: 1,242 words: 317,903

The Man Who Knew: The Life and Times of Alan Greenspan by Sebastian Mallaby

airline deregulation, airport security, Alan Greenspan, Alvin Toffler, Andrei Shleifer, anti-communist, Asian financial crisis, balance sheet recession, bank run, barriers to entry, Bear Stearns, behavioural economics, Benoit Mandelbrot, Black Monday: stock market crash in 1987, bond market vigilante , book value, Bretton Woods, business cycle, central bank independence, centralized clearinghouse, classic study, collateralized debt obligation, conceptual framework, corporate governance, correlation does not imply causation, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, currency peg, Dr. Strangelove, energy security, equity premium, fiat currency, financial deregulation, financial engineering, financial innovation, fixed income, Flash crash, forward guidance, full employment, Future Shock, Glass-Steagall Act, Greenspan put, Hyman Minsky, inflation targeting, information asymmetry, interest rate swap, inventory management, invisible hand, James Carville said: "I would like to be reincarnated as the bond market. You can intimidate everybody.", junk bonds, Kenneth Rogoff, Kickstarter, Kitchen Debate, laissez-faire capitalism, Lewis Mumford, Long Term Capital Management, low interest rates, low skilled workers, market bubble, market clearing, Martin Wolf, Money creation, money market fund, moral hazard, mortgage debt, Myron Scholes, Neil Armstrong, new economy, Nixon shock, Nixon triggered the end of the Bretton Woods system, Northern Rock, paper trading, paradox of thrift, Paul Samuelson, Phillips curve, plutocrats, popular capitalism, price stability, RAND corporation, Reminiscences of a Stock Operator, rent-seeking, Robert Shiller, Robert Solow, rolodex, Ronald Reagan, Saturday Night Live, Savings and loan crisis, savings glut, secular stagnation, short selling, stock buybacks, subprime mortgage crisis, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, Tipper Gore, too big to fail, trade liberalization, unorthodox policies, upwardly mobile, We are all Keynesians now, WikiLeaks, women in the workforce, Y2K, yield curve, zero-sum game

However, since productivity gains also create deflationary pressure, and since that deflationary pressure is easier to see than the rise in the natural interest rate, an inflation-targeting central bank will tend to cut interest rates. Monetary authorities, therefore, will tend to push interest rates below the stable, market-clearing level. The result will be too much leverage and soaring asset prices: in short, a bubble. This argument was made by Richmond Fed president Al Broaddus during the May 1997 FOMC meeting. For a more recent version, see David Beckworth, “Inflation Targeting.” 38. The debate over the costs and merits of inflation targeting continues until the time of writing, but there is evidence that central banks should target the stability of growth and asset prices rather than the stability of inflation when confronted by a supply shock.