nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2021‒10‒04
fourteen papers chosen by
Erik Thomson
University of Manitoba

  1. Narratives in economics By Roos, Michael W. M.; Reccius, Matthias
  2. Ordinary rationality and Higgs mechanism By Yang, Yingrui
  3. How Do We Choose? Towards an Alternative Theory of Consumer Behavior By Kyle Glenn
  4. Economic entities and history of economic thinking By ANDREI, Dalina
  5. Why Do We Think That Inflation Expectations Matter for Inflation? (And Should We?) By Jeremy B. Rudd
  6. How Economic Ideas Led to Taiwan’s Shift to Export Promotion in the 1950s By Douglas A. Irwin
  7. Happiness in the Lab: What Can Be Learned about Subjective Well-Being from Experiments? By Ifcher, John; Zarghamee, Homa; Goff, Sandra H.
  8. Capital Theory Debates: New Developments and Direction By Tsoulfidis, Lefteris
  9. Can the Federal Reserve Effectively Target Main Street? Evidence from the 1970s Recession By John Kandrac
  10. Social Labor vs Human Capital: Competing Theories of Skills By Kyle Glenn
  11. Should Economics Play a Greater Role in the Adjudication of Human Rights Claims? The Examples of Injury to Dignity and the Duty to Accommodate By David Lewis; Ian Currie
  12. The Boltzmann fair division for distributive justice By Ji-Won Park; Jaeup U. Kim; Cheol-Min Ghim; Chae Un Kim
  13. What Can We Learn from the UK’s Post-1945 Economic Reforms? By Crafts, Nicholas
  14. Human Frictions in the Transmission of Economic Policies By Francesco D’Acunto; Daniel Hoang; Maritta Paloviita; Michael Weber

  1. By: Roos, Michael W. M.; Reccius, Matthias
    Abstract: There is growing awareness within the economics profession of the important role narratives play in the economy. Even though empirical approaches that try to quantify economic narratives are getting increasingly popular, there is no theory or even a universally accepted definition of economic arratives underlying this research. First, we review and categorize the economic literature concerned with narratives and work out the different paradigms that are at play. Only a subset of the literature considers narratives to be active drivers of economic activity. In order to solidify the foundation of narrative economics, we propose a definition of collective economic narratives, isolating five important characteristics. We argue that, for a narrative to be economically relevant, it must be a sense-making story that emerges in a social context and suggests action to a social group. We also systematize how a collective economic narrative differs from a topic and from other kinds of narratives that are likely to have less impact on the economy. With regard to the popular use of topic modeling as an empirical strategy, we suggest that the complementary use of other canonical methods from the natural language processing toolkit and the development of new methods is inevitable to go beyond identifying topics and be able to move towards true empirical narrative economics.
    Keywords: Narrative economics,complexity economics,narrative turn,textual analysis,NLP
    JEL: D91 E44 E71 B55 B41
    Date: 2021
  2. By: Yang, Yingrui
    Abstract: There are two major rationality theories in social sciences, such as in economics and psychology, namely, economic rationality and bounded rationality. In terms of theoretical physics, these rationality theories are about accelerated states. This paper proposes a new theory, called ordinary rationality, which refers to ground states. Ordinary rationality theory is a principled theory that includes eight principles. Ordinary rationality also shares three meta-properties with Higgs fields, and its function is modeled by the Higgs mechanism in the standard model of particle physics. The present paper also discusses the relation between the notion of mass in physics and the notion of mass in social sciences: namely, it addresses the issue about P-mass vs. S-mass.
    Keywords: ordinary rationality, Higgs mechanism, mass, degenerated states, Goldstone mode
    JEL: A10 A12 C6 C60
    Date: 2021–09–22
  3. By: Kyle Glenn (Department of Economics, Adams State University)
    Abstract: In this paper we explore how economists have addressed consumer behavior. We begin by analyzing the fundamental underpinning of neoclassical consumer behavior, utility maximization. We show how the contributions of behavioral economics, which prides itself on finding moments of nonconformity within the theory of consumer behavior, has put into question the validity of mainstream consumer choice modeling Accepting that the orthodox theory provides a poor model, the question remains: What alternative theories of consumer behavior exist? We discuss two alternative frameworks for consumer behavior: the endogenous preferences literature and the post-Keynesian notion of consumer choice. While both frameworks have provided valuable insights into consumer behavior, we argue that neither theory fully captures the complexities of consumer behavior. As such, we turn to literature in Business and Psychology surrounding how consumers actually behave. We find three common principles in the literature: consumer cannot process all information, preferences are malleable, and preferences are categorized eliciting varied behaviors dependent upon the category. We posit a basic neural network model that captures the three principles and illuminates some of the complexities of consumer behavior.
    Keywords: Consumer behavior, network models
    JEL: B50 D11 D90
    Date: 2021–09
  4. By: ANDREI, Dalina
    Abstract: This below paper focuses on the economic entity concept. Difficult to find that (part of) economic literature not dealing with economic entities and afferent issues. But there won’t be the definition the paper’s starting point – this, assumable as followed by a whole description then inclining to a rather didactic text attitude --, but, on the contrary, there will be what is supposed to come out previously of all definitions. Or, this will be the history of economic thinking and here that part of history ‚giving birth’ to micro- and macroeconomic. And this will more precisely be about the JM Keynes’ capital paper of 1936’ focus that is what was called the ‚Macro-Model’.
    Keywords: economic entity, firms, banks & banking system, State & Government, flows and stocks
    JEL: B12 C0 C00 D0 D00
    Date: 2019–11–10
  5. By: Jeremy B. Rudd
    Abstract: Economists and economic policymakers believe that households' and firms' expectations of future inflation are a key determinant of actual inflation. A review of the relevant theoretical and empirical literature suggests that this belief rests on extremely shaky foundations, and a case is made that adhering to it uncritically could easily lead to serious policy errors.
    Keywords: Phillips curve; Expectations; Inflation; Wage determination; Wage-price spiral
    JEL: E31 E52
    Date: 2021–09–24
  6. By: Douglas A. Irwin
    Abstract: Taiwan was perhaps the first developing country to adopt an export-oriented trade strategy after World War II. The factors usually associated with big shifts in policy—a macroeconomic crisis, a change in political power or institutions, lobbying by export interests, pressure from international financial institutions—were not present; it was ideas that were key. In 1954, economist S. C. Tsiang proposed that Taiwan boost export earnings rather than squeeze import spending to deal with its chronic shortage of foreign exchange. He recommended a currency devaluation to establish a realistic exchange rate and a market-based system of foreign exchange allocation to end the inefficient rationing by the government. Four years later, a leading policymaker, K. Y. Yin, fought for the adoption of Tsiang’s proposal, helping clear the way for Taiwan’s phenomenal growth in trade.
    JEL: F13 F31 N75
    Date: 2021–09
  7. By: Ifcher, John; Zarghamee, Homa; Goff, Sandra H.
    Abstract: The recent surge in analyses of subjective well-being (SWB) and the economics of happiness using large observational datasets has generated stylized facts about the relationship between SWB and various correlates. Because such studies are mostly concerned with the determinants of SWB, the modeling utilized assumes SWB to be the dependent variable. Often, selection effects, reverse causality, and omitted variable bias cannot adequately be controlled for, calling many of the stylized facts into question. This chapter explores the important contributions that happiness-in-the-lab experiments can make to the debates about stylized facts by testing the causality of the relationship between SWB and its correlates. A distinction is made between happiness-in-the-lab experiments in which SWB is a dependent versus independent variable, and methods for both types of experiments are discussed, along with a discussion of the limitations inherent in such experiments. The extant happiness-in-the-lab literature is reviewed and future directions for happiness-in the-lab research are proposed. The important role that happiness-inthe- lab experiments can play in the development of national SWB accounting is emphasized.
    Keywords: Subjective Well-Being,Happiness,Positive Affect,Randomized Controlled Trials (RCT),Economic Experiments & Causation
    JEL: C9 I31
    Date: 2021
  8. By: Tsoulfidis, Lefteris (University of Macedonia)
    Abstract: In recent years, the research on capital theory has shifted from reverse capital deepening and reswitching in techniques to a new direction, which goes beyond the near-linearities of price-rates of profit trajectories and wage-rates of profit curves and explicates the reasons behind them. The reswitching issue remains in the background of these studies as a remote, albeit ever-present, possibility. The article contributes some more evidence to the extant literature by utilizing data from the last available benchmark input-output table of the US economy of the year 2012. The derived near-linearities of price trajectories and wage-rate of profit curves are explained by the low effective rank of the economy’s input-output matrices and not from their seemingly random character. These findings shed additional light on a new and more meaningful direction in the research agenda; that is, the possibility of molding the essential features of the economy through dimensionality reduction.
    Keywords: price rate of profit trajectories; capital controversies; effective rank; eigendecomposition; eigenvalues
    JEL: B24 B51 C67 D46 D57 E11 E32
    Date: 2021–09–22
  9. By: John Kandrac
    Abstract: Modern central bankers confront a challenge of providing economic stimulus even when the policy rate is constrained by a lower bound. This challenge has led to substantial innovation by policymakers and a proliferation of new policy tools. In this paper, I offer evidence on the efficacy of a new tool known as funding for lending, which provides banks with subsidized funding to make additional loans. I focus on a historical episode from the United States in which the Federal Reserve provided banks with steeply subsidized loans to promote the expansion of credit within their local communities. I show that the cheap funding succeeded in generating more lending by countering banks' excessive liquidity preference. The additional credit benefited the real economy. Local areas enjoyed higher rates of small business formation and more rapid employment growth. Finally, I show that the cost of the subsidy provided by the government was more than offset by the additional payroll taxes paid out of higher wages and salaries. These results suggest that funding for lending programs deserve consideration for the modern central banker's toolkit and demonstrate that certain unconventional tools can offer monetary policymakers the means to pursue more targeted objectives.
    Keywords: Monetary policy; Funding for lending; Bank lending; Countercyclical policy; Discount window
    JEL: G28 G21 E58 E52
    Date: 2021–09–24
  10. By: Kyle Glenn (Department of Economics, Adams State University)
    Abstract: Wage theory has long relied upon Human Capital theory as an explanation of skilled wages with labor economists attempting to find the appropriate specification for the return to education. Shaikh and Glenn (2018) construct an alternative model of skilled wages called the Social Labor hypothesis. Instead of returns to education, the Social Labor hypothesis posits wages as a function of social costs of education. This paper tests the empirical validity of the Social Labor hypothesis comparing it against the Human Capital model, finding a remarkable fit to empirical data. The paper also provides a theoretical approach to, and empirical evidence of, labor market discrimination.
    Keywords: Skills, wage di erentials, classical theory, human capital theory
    JEL: B51 J24 J31
    Date: 2021–09
  11. By: David Lewis; Ian Currie
    Abstract: This paper examines whether economic analysis can help provide firmer foundations for the adjudication of human rights claims in establishing monetary awards for injury to dignity and, in accommodation cases, better capturing benefits for society. In relation to injury to dignity, it explores the prospects for establishing an objective evidentiary baseline through a program of independent economic research. In the area of accommodation, the paper considers if the wider use of Cost-Benefit Analysis could help prevent undervaluation of accommodation and whether governments should help cover the incremental cost of accommodation in some cases.
    Keywords: Human Rights, Cost-Benefit Analysis, Adjudication, Dignity
    JEL: D63 I38 I31 J18 J24 J15 J6 K37
    Date: 2021–08
  12. By: Ji-Won Park; Jaeup U. Kim; Cheol-Min Ghim; Chae Un Kim
    Abstract: Fair division is a significant, long-standing problem and is closely related to social and economic justice. Cake-cutting is a common metaphor for fair division, and it has attracted significant attention from economists, mathematicians, computer scientists, and political scientists. There are widely studied division methods based on certain notions of fairness such as envy-freeness and proportionality. However, these methods are hardly applicable to real-world problems in which heterogeneous goods should be fairly divided between multiple players, and the players have different key factors such as contributions, needs, or preferences with respect to certain portions of the goods. Here, we propose a fair division method from a completely different perspective, using the Boltzmann distribution. The celebrated Boltzmann distribution gives the most probable and unbiased distribution derived from a goods-centric, rather than a player-centric, division process. The mathematical model of the Boltzmann fair division was developed for both homogeneous and heterogeneous cake-cutting problems, and the players' key factors (contributions, needs, and preferences) could be successfully integrated. Then the optimal Boltzmann fair division was searched by total utility maximization. Empirical data analysis shows that the Boltzmann fair division is a division method well balanced between the conventional division methods. We believe the Boltzmann fair division could be easily fine-tuned and applicable to complex real-world problems such as income/wealth redistribution or international negotiations on fighting climate change.
    Date: 2021–09
  13. By: Crafts, Nicholas (CAGE, University of Warwick and University of Sussex)
    Abstract: This paper reviews the claim that economic policymakers in the post-Covid UK should learn the lessons of the 1940s. Post-1945 policies relating to delivering full employment, levelling up, upgrading social security, dealing with the public debt legacy, and addressing the productivity puzzle are considered. The paper finds many reasons to criticize 1940s’ policies. Although, superficially, outcomes appear to have been good, a closer look reveals significant failings notably concerning design of the welfare state and supply-side policy for growth. The main lesson from the 1940s is not to repeat the policy errors of those days.
    Date: 2021
  14. By: Francesco D’Acunto; Daniel Hoang; Maritta Paloviita; Michael Weber
    Abstract: Many consumers below the top of the distribution of a representative population by cognitive abilities barely react to monetary and fiscal policies that aim to stimulate consumption and borrowing, even when they are financially unconstrained and despite substantial debt capacity. Differences in income, formal education levels, economic expectations, and a large set of registry-based demographics do not explain these facts. Heterogeneous cognitive abilities thus act as human frictions in the transmission of economic policies that operate through the household sector and might imply redistribution from low- to high-cognitive-ability agents. We conclude by discussing how our findings inform the microfoundation of behavioral macroeconomic theory.
    JEL: D12 D84 D91 E21 E31 E32 E52 E65 E70 E71
    Date: 2021–09

This nep-hpe issue is ©2021 by Erik Thomson. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.