Economic Forces: Pondering price theory

Gary Becker

Welcome to Economic Forces, a weekly newsletter on price theory from us, Brian Albrecht and Josh Hendrickson. The weekly format is meant to encourage deeper thinking (for both the writers and audience) than we currently find on social media.

What will you write about?

We are economists. We think in terms of incentives, prices, models, the usual stuff. While we each have a different perspective, there are a few things that we think make our approach unified and unique in contrast to many other economists.

  • Simple economic models teach us a lot: while it has become increasingly popular to trash basic economics as overly simplistic, we disagree. Supply and demand is always the first tool (but not necessarily the last!) to tackle any question.

  • Competition is pervasive: in all areas of life, people are trying to do their best to achieve their goals according to their best guess of how to do that. When people interact, that striving after goals is competitive. However, competition is about more than simply raising bid prices or lowering ask prices. There are unenumerable dimensions upon which people can compete and it is important to consider these different dimensions when advocating for policy reforms.

  • Prices can coordinate behavior: out of all the chaos of competition, prices direct people’s actions in specific ways. Just as competition can take many forms, so can price, as in the implicit price of time.

Why “price theory”?

We are not traditional macroeconomists, although Josh used to play one on TV. We don’t do what most microeconomists do either. Our research interests span both fields; we are economists without a real home. But prices are vital to all economic theorizing, so “price theory” seems like the right term.

Plus, if price theory was a good enough term for Armen Alchian and George Stigler, it’s good enough for us two schlubs.

Why is our approach to economics important?

If you are to believe the popular discourse, economic theory is overrated 👎 and should take on a reduced role in both policy discussions and in the profession. The following statements are fairly representative of the current discourse. Macroeconomic theory is irrelevant to most economists’ work and should be optional in graduate school. Microeconomic theory is overly technical and a waste of time. We can test hypotheses with “credible” new techniques and need not be burdened by defunct hypotheses suggested by simple theories. Economic theory is limited because economists assume that people are rational and anyone who has ever interacted with another human being knows this to be false. You get the idea.

We strongly disagree with these assertions. Economic theory, especially the price theoretic approach, is still a valuable tool. We hope to show you how. That is why we created this newsletter. Our objective is to provide commentary on both contemporary and historical issues using price theory as our guide. In addition, we intend to discuss common misunderstandings associated with economic theory and dig deeper into its implications.

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And stay tuned for the first substantive post this Thursday!

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