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What Is Economics?

A good understanding of economics begins with understanding what economics is...and what it isn't.

Economics Spotlight10

This Year's John Bates Clark Medal Recipient Is...

Monday April 21, 2014

The John Bates Clark Medal, awarded by the American Economic Association to who they feel is the most promising economist under the age of 40, is often referred to as the "baby Nobel" due to its high correlation with future Nobel Prize awards. This year's medal goes to Matthew Gentzkow of the University of Chicago's Booth School of Business for his work in analyzing and understanding bias in the media and its effect on society.

In case you're curious, here's a good roundup of many of the favorites to win the prize.

An Economist on that Pesky "Job Creator" Category...

Monday April 21, 2014

Job creators, directly, at least, are obviously those entrepreneurs and business owners that hire workers. Economist Jared Bernstein, however, argues that, in an important indirect sense, consumers and investors are the job creators, since their actions give businesses the incentives to expand output and hire workers.

This works in theory because firms should be willing to hire workers up until their profit-maximizing point, and, as demand for goods increases, this profit-maximizing point gets larger. In practice, however, this principle breaks down if the "job creators" aren't even hiring the profit-maximizing number of employees.

Some New Economics Reading, in Book Form...

Monday April 21, 2014

One topic that is getting a lot of attention both in economics and in politics is the "profitability" of labor versus capital (i.e. financial assets invested and earning a return). The reason for this concern is that, logistically, most people are endowed with the ability to work (and therefore earn money from their labor), but few people are endowed with financial capital that they can use to earn income that way. Therefore, if returns shift towards capital and away from labor, there are going to be very important implications for income inequality.

Given this potential predicament, it's important to understand what has actually been happening regarding the role of capital in business and society. Luckily, Thomas Piketty has a new book (new in English at least) entitled Capital in the Twenty-First Century that sheds a lot of light on this progression.

Some More Evidence on the Effects of Minimum-Wage Increases...

Monday April 14, 2014
In econ 101, we are taught that a minimum wage is a price floor on labor, and, as such, a binding minimum wage will increase unemployment and decrease employment. It's important to note, however, that in econ 101 we assume that both the labor market and the market for whatever the firms are selling are perfectly competitive, when in reality this need not be the case. When those assumptions are taken away, the theoretical conclusions regarding a minimum wage increase are much less clear, so empirical evidence becomes very important. The latest on this front is from San Jose, CA, and it shows that the effect of a minimum wage increase is certainly not always obvious.

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