Monthly Archives: January 2018
The Tale of the Two Cobblers (collusive price cuts)
Mostly for fun, and teaching. But I think it might matter. A village had two cobblers. The right-handed cobbler was best at making right shoes. The left-handed cobbler was best at making left shoes. So the villagers would buy one shoe from each cobbler. Other villages were some distance away, so the cobblers had monopoly […]
“Profits = Investment – Saving”
Or, "Profits = Expenditure – Income". Those are just alternative ways of saying the same thing, for a closed economy, if investment and saving include government investment and saving. Most economists will say that's wrong. And it is wrong by standard definitions, where aggregate expenditure and income are the same thing, and investment and saving […]
“Monetary Policy Accommodation” and Upward-sloping IS curves
If you believe that the IS curve slopes up, then what the Bank of Canada says about "monetary policy accommodation" makes sense. If you believe the IS curve slopes down, like in the textbooks, then it doesn't make sense. This is supposed to be a simple teaching post. My own mind is pretty simple anyway. […]
Theory does not say that equilibrium interest rates cannot be below growth rates (Part 1)
First I need to tell you why I am writing this post. I got two emails from Canadian economists saying they agreed with my post against "normalising" interest rates. The first email was from an academic macroeconomist. He asked me if I thought that calls for normalisation from bank economists were motivated by bank profitability. […]
Donald Trump is a Mercantilist
A lot of ink is being spilled on Donald Trump and his America First approach to trade negotiations which has generated considerable trepidation and angst in both Ottawa and Mexico City as NAFTA appears headed for termination. Donald Trump is obsessed with the concept of trade deficits – which the United States does have on […]
The (In)efficiency of Perfect Price Discrimination
I have always thought, and taught, that Perfect Price Discrimination leads to an efficient allocation of resources. I now think that is wrong. It only seems to work if we use partial equilibrium reasoning, for a single monopolist that practices PPD, holding constant consumers' income and the monopolist's Marginal Cost curve. It doesn't work in […]
A Balassa Samuelson theory of negative real interest rates despite productive investment and impatient representative agent
I think this is right (but I can't do the math to work out an example to be sure, though any competent grad student could). The idea is that you can get negative interest rates, despite productive investment and impatient consumers, because the prices of the goods you can invest to produce more of will […]
Worthwhile Canadian Initiative 
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