nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2023‒09‒25
five papers chosen by
Erik Thomson, University of Manitoba

  1. An Independent European Macroeconomics? A History of European Macroeconomics through the Lens of the European Economic Review By Goutsmedt, Aurélien; Truc, Alexandre
  2. Is it time to reboot welfare economics? Overview By Coyle, Diane; Fabian, Mark; Beinhocker, Eric; Besley, Timothy; Stevens, Margaret
  3. General Constrained Dynamic Models in Economics - General Dynamic Theory of Economic Variables - Beyond Walras and Keynes By Glötzl, Erhard; Glötzl, Florentin; Richters, Oliver; Binter, Lucas
  4. Do Replications Make a Difference? By Tom Coupé; W. Robert Reed
  5. Adam Smith's Perfectly Competitive Market is Not Pareto Efficient: A Dynamic Perspective By Ahmed, Muhammad Ashfaq; Nawaz, Nasreen

  1. By: Goutsmedt, Aurélien (UC Louvain - F.R.S-FNRS); Truc, Alexandre
    Abstract: Economics in Europe has become more international since the 1970s. To a certain extent, this internationalisation is also an ‘Americanisation’ as many European economists have adopted the standards and approaches of US economics. This prompts an important question: amidst this convergence, are there any fields that have managed to retain a distinctively European character? In this article, we use topic modelling and bibliometric coupling to identify European specialties between 1969 and 2002. We focus on macroeconomic articles published in the European Economic Review and compare their bibliographic references and textual content to what has been published in the top 5 journals. Despite economics internationalization since the 1970s, European macroeconomics displayed distinct characteristics across two distinct periods. In the late 1970s and early 1980s, European macroeconomists maintained a certain distance from US debates centered around rational expectations and new classical economics. However, they embraced the concept of microfoundations through the lens of disequilibrium theory, fostering transnational collaborations and offering a unique framework for addressing various macroeconomic issues. Nevertheless, both the prominence of new classical economics in the US and the decline of the disequilibrium approach after the mid-1980s, European macroeconomics shifted towards closer alignment with US approaches. In the 1990s, Political economy, inspired by pioneering US contributions like Kydland and Prescott (1977) and Barro and Gordon (1983a, 1983b), emerged in the 1990s as a new framework offering a common language for many European macroeconomists. However, specific European challenges like high unemployment rates and European integration continued to drive research in distinctive directions.
    Date: 2023–08–07
  2. By: Coyle, Diane; Fabian, Mark; Beinhocker, Eric; Besley, Timothy; Stevens, Margaret
    Abstract: The contributions of economists have long included both positive explanations of how economic systems work and normative recommendations for how they could and should work better. In recent decades, economics has taken a strong empirical turn as well as having a greater appreciation of the importance of the complexities of real-world human behaviour, institutions, the strengths and failures of markets, and interlinkages with other systems, including politics, technology, culture and the environment. This shift has also brought greater relevance and pragmatism to normative economics. While this shift towards evidence and pragmatism has been welcome, it does not in itself answer the core question of what exactly constitutes ‘better’, and for whom, and how to manage inevitable conflicts and trade-offs in society. These have long been the core concerns of welfare economics. Yet, in the 1980s and 1990s, debates on welfare economics seemed to have become marginalised. The articles in this Fiscal Studies symposium engage with the question of how to revive normative questions as a central issue in economic scholarship.
    Keywords: economic welfare; normative; positive; policy
    JEL: I30 I32
    Date: 2023–08–25
  3. By: Glötzl, Erhard; Glötzl, Florentin; Richters, Oliver; Binter, Lucas
    Abstract: For more than 100 years economists have tried to describe economics in analogy to physics, more precisely to classical Newtonian mechanics. The development of the Neoclassical General Equilibrium Theory has to be understood as the result of these efforts. But there are many reasons why General Equilibrium Theory is inadequate: 1. No genuine dynamics. 2. The assumption of the existence of utility functions and the possibility to aggregate them to one “master” utility function. 3. The impossibility to describe situations as in “Prisoners Dilemma”, where individual optimization does not lead to a collective optimum. This book aims at overcoming these problems. It illustrates how not only equilibria of economic systems, but also the general dynamics of these systems can be described in close analogy to classical mechanics. To this end, this book makes the case for an approach based on the concept of constrained dynamics, analyzing the economy from the perspective of “economic forces” and “economic power” based on the concept of physical forces and the reciprocal value of mass. Realizing that accounting identities constitute constraints in the economy, the concept of constrained dynamics, which is part of the standard models of classical mechanics, can be applied to economics. Therefore, it is reasonable to denote such models as General Constraint Dynamic Models (GCD-Models) Such a framework allows understanding both Keynesian and neoclassical models as special cases of GCD-Models in which the power relationships with respect to certain variables are one-sided. As mixed power relationships occur more frequently in reality than purely one-sided power constellations, GCD-models are better suited to describe the economy than standard Keynesian or Neoclassic models. A GCD-model can be understood as “Continuous Time”, “Stock Flow Consistent”, “Microfounded”, where the behaviour of the agents is described with a general differential equation for every agent. In the special case where the differential equations can be described with utility functions, the behaviour of every agent can be understood as an individual optimization strategy. He thus seeks to maximize his utility. However, while the core assumption of neoclassical models is that due to the “invisible hand” such egoistic individual behaviour leads to an optimal result for all agents, reality is often defined by “Prisoners Dilemma” situations, in which individual optimization leads to the worst outcome for all. One advantage of GCD-models over standard models is that they are able to describe also such situations, where an individual optimization strategy does not lead to an optimum result for all agents. In conclusion, the big merit and effort of Newton was, to formalize the right terms (physical force, inertial mass, change of velocity) and to set them into the right relation. Analogously the appropriate terms of economics are economic force, economic power and change of variables. GCD-Models allow formalizing them and setting them into the right relation to each other.
    Keywords: Stephen Smale, Problem 8, macroeconomic models, constraint dynamics, GCD, DSGE, out-of-equilibrium dynamics, Lagrangian mechanics, stock flow consistent, SFC, demand shock, supply shock, price shock, intertemporal utility function
    JEL: A12 B13 B41 B59 C02 C30 C54 C60 E10
    Date: 2023–06–01
  4. By: Tom Coupé (University of Canterbury); W. Robert Reed (University of Canterbury)
    Abstract: This study examines the effect of negative replications on the citation rates of replicated studies. It makes three contributions. First, we explain why previous research has not adequately addressed this subject. Second, we develop a matched difference-in-difference (DID) procedure that does not assume parallel trends (PT). Previous research has shown that studies that fail to replicate have different trends prior to replication than studies that successfully replicate. Given this difference, imposing the assumption of PT biases estimation of citation effects. Our DID procedure avoids this bias. Lastly, we study a set of 204 replicated studies and investigate whether there is a citation penalty associated with negative replications. Replicated studies are matched with non-replicated studies, with the matched controls being used to “predict” the counterfactual citation performance of replicated studies. Our preferred estimates indicate that studies that fail to replicate receive more citations than studies that have positive or mixed replications. Our less preferred estimates, based on looser matching criteria, find evidence of a citation penalty for negative replications, but the estimated effects are small and statistically insignificant. We conclude that replications have not been correcting the scientific record in the manner that proponents might have hoped.
    Keywords: Replications, Citations, Matching, Meta-science, Self-correcting science
    JEL: A11 A14 B41 C18
    Date: 2023–08–01
  5. By: Ahmed, Muhammad Ashfaq; Nawaz, Nasreen
    Abstract: The invisible hand of a perfectly competitive market refers to the self-regulating behavior of the market where if each consumer and producer is allowed to freely make their own choices, the market settles at an efficient outcome which is beneficial to all the individual members of the society and hence to the society as a whole. Two well-known facets of the invisible hand are generally mentioned in the economics literature - the first one is a static picture of a perfectly competitive market, i.e., a competitive market is efficient in an equilibrium; and the second one is that if the competitive market is disturbed from its equilibrium position, in the absence of a market failure and frictions, the market automatically settles at a new efficient equilibrium. Existing literature does not consider the most important dynamic facet of the perfectly competitive market from perspective of Pareto efficiency, i.e., how efficient is a perfectly competitive market on the dynamic adjustment path after an economic shock in the absence of all kinds of frictions and price rigidities, and if all the ideal conditions are maintained. This research models the dynamic facet of the market and concludes that Adam Smith's perfectly competitive market is not Pareto efficient and coordinated actions of economic agents can result in a level of economic efficiency on the dynamic adjustment path which is not achievable by a free market mechanism.
    Keywords: Dynamic efficiency, Adjustment Path, Equilibrium, Coordination
    JEL: D40 D41 D50 E32
    Date: 2023–05–04

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