EconAir

EconAir is an economics and political blog containing about 200 essays and posts written mostly by Bennett Greenberg, a retired professor of economics with experience teaching across the full undergraduate economics curriculum as well as related disciplines such as economic history, business strategy, finance, and political economy. Experience includes economist and corporate planning manager for three S&P500 companies, consultant to small businesses, brokering a large acquisition, managing director of a small company, and board member of five nonprofits. Since retirement, also interested in political and economic lessons from historical examples. The central theme of this blog is that innovation and information are the driving forces of economic development, economic growth, competition, and market structure. Modern capitalism is best understood as a dynamic process, not a static system of markets tending toward equilibrium. The Industrial and Digital Revolution...

  Assumptions Economic theory starts with a set of assumptions about behavior.  The most basic is the assumption of rationality in the limited sense that individuals can calculate and compare the marginal costs and marginal benefits of decisions.  They then pick that decision that maximizes net benefit. Economists and psychologists have attacked this assumption.  Some have won Nobel Prizes in Economics. It is refuted by virtually everything that has been learned in cognitive psychology and neuroscience. Yet it remains the foundation of economic theory. This assumption is not even supported by one of economists’ favorite tool, game theory.  One famous experiment, the “ultimatum game,” demonstrates that moral considerations can overcome maximizing income. This outcome seems to hold for many different social groups and many different cultures. Profit Maximization Maybe the most defensible assumption is profit maximization.  While it is...