Economic Ideas You Should Forget

Description

Reporting on cutting-edge advances in economics, this book presents a selection of commentaries that reveal the weaknesses of several core economics concepts. Economics is a vigorous and progressive science, which does not lose its force when particular parts of its theory are empirically invalidated; instead, they contribute to the accumulation of knowledge. By discussing problematic theoretical assumptions and drawing on the latest empirical research, the authors question specific hypotheses and reject major economic ideas from the “Coase Theorem” to “Say’s Law” and “Bayesianism.” Many of these ideas remain prominent among politicians, economists and the general public. Yet, in the light of the financial crisis, they have lost both their relevance and supporting empirical evidence. This fascinating and thought-provoking collection of 71 short essays written by respected economists and social scientists from all over the world will appeal to anyone interested in scientific progress and the further development of economics. Contents Capitalism 1 Daron Acemoglu Sola Protestantism in Economics 5 Rüdiger Bachmann Economics Has Nothing to Do with Religion 9 Sascha O. Becker More Choice Is Always Better 11 Christine Benesch People Are Outcome Oriented 13 Matthias Benz Deriving People’s Trade Policy Preferences from Macroeconomic Trade Theory 15 Thomas Bernauer Size (of Government) Doesn’t Matter 17 Tim Besley Bayesianism 21 Ken Binmore The Return on Equity 23 Urs Birchler vii Contents Peak Oil Theory 27 Charles B. Blankart More Choice Is Always Better 29 Alan S. Blinder (Un)Productive Labor 31 Monika Bütler Volatility Is Risk 33 Peter Cauwels Robots Will Take All Our Jobs 35 Reto Cueni Economic Growth Increases People’s Well-Being 37 Richard A. Easterlin Big Data Predictions Devoid of Theory 39 Thomas Ehrmann Government Debts Are a Burden on Future Generations 43 Reiner Eichenberger Public Spending Reduces Unemployment 45 Lars P. Feld The Capital Asset Pricing Model 47 Pablo Fernandez Innovation Programs Lead to Innovation 51 Gerd Folkers Factors of Production Are Homogenous Within Categories 55 Nicolai J. Foss Individual Utility Depends Only on Absolute Consumption 57 Robert Frank The Relative Price Effect Explains Behavior 59 Bruno S. Frey The Precedence of Exchange over Production 61 Jetta Frost Contents ix Inequality Reduces Growth Clemens Fuest Contingent Valuation, Willingness to Pay, and Willingness 63 to Accept Victor Ginsburgh 65 Governments Must Reduce Budget Deficits Michael Graff 67 Reach for Your Dream Allan Guggenbühl 69 The EU’s Competiveness Authority Beat Gygi 71 Say’s Law Jochen Hartwig 73 Boundedness of Rationality Jürg Helbling 75 Rational Expectations David F. Hendry 77 Letting Insolvent Banks Fail Gerard Hertig 79 Pleasantville Politics: Selecting Politicians According to Ability Bruno Heyndels 81 The Axioms of Revealed Preference John Kay There Ain’t No Such Thing as a Free Lunch: 83 The Myth of Expansionary Consolidations Gebhard Kirchga€ssner 85 Government Hurts the Economy More Than It Helps Margaret Levi 87 The Motivated Armchair Approach to Preferences Siegwart Lindenberg 89 Economics Is Based on Scientific Methods 91 Michael McAleer Contents The Death of DistancePeter Nijkamp 93 Dump the Concept of Rationality Into the Deep OceanKarl-Dieter Opp 95 Pay for Performance Raises PerformanceMargit Osterloh 97 Home Ownership Is GoodAndrew J. Oswald 99 Coase TheoremEric A. Posner 101 Poverty Is Good for DevelopmentMartin Ravallion 105 Markets Are EfficientJean-Charles Rochet 107 CEOs Are Paid for TalentKatja Rost 109 The Efficiency-Equity TradeoffJeffrey D. Sachs 111 Deterministic Trend of InequalityChristoph A. Schaltegger 115 Quantitative EasingKurt Schiltknecht 117 Hosting the Olympic GamesSascha L. Schmidt 119 Abolishing Cash as Solution Against the EvilFriedrich Schneider 121 Receiving Money and Not Having to Work Raises HappinessRonnie Schöb 125 Saints in Public OfficeGerhard Schwarz 127 Helicopter MoneyHans-Werner Sinn 129 Contents xi Decisions Are Deterministic Didier Sornette 131 Politicians Systematically Converge to the Median Voter David Stadelmann 133 Artists Are Poor and thus Unhappy Lasse Steiner Returns on Educational Investments Are Highest for Early 135 Childhood Interventions Elsbeth Stern 137 EU Centralization Armin Steuernagel 139 The Alleged Asymmetry in Maintaining a Fixed Exchange Rate Jan-Egbert Sturm 141 Governments Should Maximize the Happiness of the Population Alois Stutzer 145 Okun’s Equality-Efficiency Trade-Off Mark Thoma 147 “A Rising Tide Raises All Boats” David Throsby 149 Social Cost Analysis Robert D. Tollison 151 Natural Resources Make Rich Rick van der Ploeg 153 The Natural Rate of Interest Is Positive Carl Christian von Weizsa€cker 155 Europe’s “Skill Shortage” Joachim Voth 157 Taxes Are Paid Because of Expected Punishment Hannelore Weck-Hannemann 159 Better Safe than Sorry 161 Antoinette Weibel Contents The End of Work 163 Boris Zürcher Postscript 165 Bruno S. Frey and David Iselin