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Arnold Kling

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Telling Bias Stories...

Me in the Economist...

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Here is the complete list. The ever-creative Nobel Laureate George Akerlof writes,

—a realistic norm regarding consumption behavior will make consumption directly dependent on current income, in violation of the neutrality of consumption given wealth;
—a realistic norm will make investment directly dependent on cash flow, in violation of Modigliani-Miller;
—a realistic norm will make wages and prices dependent on nominal considerations and thus violate natural rate theory;
—a realistic norm will make income and employment dependent on systematic monetary policy, and thus violate rational expectations theory; and
—a realistic norm will make current consumption dependent on the current generation’s social security receipts, in violation of Ricardian equivalence.

He discusses social norms, which have economic effects but which seem exogenous from an economic perspective. For example, the social norm for bequests changed from father passing everything to the oldest son to a more egalitarian approach.

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CATEGORIES: Macroeconomics

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Hasan Jafri writes:

Globalization affords an interesting example of an evolving social norm: The practice -- now under challenge -- of pricing oil in US dollars. Historians have noted it was "an accident" that oil prices came to be valued in dollars. In fact, it was a social norm that evolved from the larger postwar context from which the global oil trade was born. That social context was overwhelmingly American.

As Europe becomes a bigger player in the world economy, oil now is being priced more and more in euros. There's a debate under way about whether this is good or bad. Either way, pricing oil in euros is an example of a changing social norm. Valued in more than one currency, oil begins to reflect the pluralistic social values of globalization.

The economic question is, did dollar-priced oil in the end violate a rational expectations model? And was it counteracted as a result by globalization's expansionary social effect of pricing commodities in many currencies?

Posted January 5, 2007 8:53 PM

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