This paper statistically examines the relationship between the incumbent president's political party and the US economy from 1949 to 2024. Compared with Democrats, Republicans have delivered significantly lower GDP growth and greater growth in unemployment. Democratic presidents have significantly lowered unemployment, but Republican presidents have had no significant effect. Neither party has had a significant effect on the debt-to-GDP ratio. Increases in national debt predict lower unemployment after one year. Increased unemployment predicts lower GDP growth after one year but higher GDP growth after four years. GDP growth predicts lower national debt growth after one year. Higher national debt reduces GDP growth after four years. S&P 500 returns predict GDP growth, while higher Dow Jones Industrial Average returns predict lower GDP growth and higher GDP growth predicts higher Dow Jones returns. Presidential party predicts higher federal debt under Republicans after one year.
Neoclassical economics, which forms the foundations of mainstream economic analysis, is institution-free. But the economy is not a group of people or a set of prices and quantities. It is an institutional framework within which people interact to improve their economic well-being. The institution-free framework of neoclassical economics engages in economic analysis while assuming away the economy. When teaching the neoclassical framework, it is worth emphasizing not only that the framework uses simplifying assumptions, as all models do, but that those assumptions hide the mechanisms that produce the neoclassical equilibrium outcomes. How much faith should one place in policies derived from economic models that do not take the economy into account?
Trade is generally good for economies. This finding permeates economics, though there are still attempts to undermine it. There are stylized game theoretic models that may indicate strategic benefits to tariffs, but even these models do not necessarily address the secondary effects of erratic tariff policies. When tariff policies are difficult to predict, the policy uncertainty creates its own negative pressure on production. This note speaks to the concept that there are more than two players in a trade war.
I identify two strains of neoliberalism. I designate the most common use as pejorative neoliberalism, a term of disparagement for marginalist and freemarket thinkers. This use traces its origins to interwar Germany as a pejorative for the Austrian school. Since the 1990s, a nearly identical usage has been adopted by the academic far-left. I designate as non-ironic neoliberalism a post-2010 attempt to reclaim the term to describe moderately pro-market, but technocratic, beliefs. This version has more in common with the market-failure economic theorists of the mid-twentieth century than with the critics of their theories. I conclude that neither usage of the term has meaningful explanatory value for classical liberal economic theory.
Hinzen, John, and Saleh (2022) argue that the design of the bitcoin protocol results in a negative network effect. In their view, additional users create network congestion and settlement delays that discourage adoption. This is an interesting theoretical result, but it rests on faulty assumptions about how bitcoin actually works. In particular, the authors fundamentally misunderstand how bitcoin achieves consensus and how the entry and exit of miners affect the timing of new transaction blocks. The authors also ignore existing, widely implemented scaling solutions.
An increasing number of scholars have argued that the theoretical approach of Ludwig von Mises ought to be viewed along lines that are more favorably disposed to interpretive historical methods than was once generally recognized. Despite Mises's adamant statements about the apodictic certainty of theory derived from purposefulness, particular purposes were often seen by Mises to be embedded in a specific context. While this essay does not deny that such "understanding" can be useful in the application of theory, it argues that there were very good reasons why some of Mises's students, particularly Murray Rothbard, took their teacher's arguments in the more logically deductive and apodictic direction. The distinction between Mises's idea of Begreifen and the historically laden concept of Verstehen is seen to be more substantive than nominal.
The Princeton Panel was formed by Claude Robinson, a partner of George Gallup, to produce an ideology of capitalism by capitalist methods. It proposed to replace donors with market-based transactions. We explain this concern over the influence of donors by appealing to the ghastly experience of Isaac Don Levine when he attacked the antisemitism of Merwin Hart, the head of the influential National Economic Council. Although the Princeton Panel did not survive Robinson's passing, it served as a node in market liberalism. Gordon Tullock worked for Robinson and through the Princeton Panel met Murray Rothbard and Karl Popper.
This paper provides three immersive lesson plans that showcase the intricate relationship between economic dynamism and economic growth, emphasizing the narrative power of images to illustrate the concept of creative destruction. Economic dynamism is the process by which innovation, entrepreneurship, and market forces continually reshape industries and economies. Creative destruction, a term coined by economist Joseph Schumpeter, embodies this transformative process in which new technologies, ideas, and business models replace outdated ones, leading to economic progress. This work is especially timely, as Joel Mokyr, Philippe for their work on how innovation and the forces of creative destruction can drive economic growth.
Scholars of neoliberalism claim that it is a distinct and conceptually useful political and economic philosophy that has passed through three distinct phases: origins; breakthrough; and dominance. While some have pointed to the death of neoliberalism, we may be seeing an interesting fourth phase, studies. This article provides a synthesis of existing work and seeks to add balance and clarity to the study of neoliberalism.
What can Aristotle's philosophy teach businesspeople? Scholarship engaging this question occurs largely in the field of business ethics among scholars who approach Aristotle's philosophy as "virtue ethics." Prioritizing practical applications of Aristotle's philosophy to contemporary businesses, these scholars misunderstand his Ethics' and Politics' contemplative character. This article argues Aristotle's practical relevance dwells in reading his philosophy carefully and literally. Using my own translation, I demonstrate that the text of Aristotle's philosophy encourages readers to find freedom in contemplating their choices' natural need for the good that transcends business and politics, a need at the heart of friendship.
Subprime mortgages have probably been one of the most maligned financial innovations in history. However, much of the criticism is simply wrong. Although thought of as mainly a vehicle for lending to poor minority groups, subprime was actually used mainly by the middle class. It is the fact that subprime also enabled significant numbers of people previously excluded from the prime mortgage market to obtain loans that led to the misrepresentation of subprime as a low-income-only product.
This paper examines the relationship between internet access and Native American economic development. First, it synthesizes various insights from institutional economics and market-process economics to examine how expanded internet access can improve development on reservations. Reliable, high-speed internet access facilitates a greater degree of specialization and exchange, contributing to economic growth for Native American communities. Internet access directly contributes to development because it provides more ways for private entrepreneurs and tribally owned enterprises to reach consumers, as well as outside firms to exchange with reservation residents. Reliable, high-speed internet access indirectly aids economic development by improving human capital through better access to education and telemedicine. Technological innovations and institutional reforms can reduce the costs of providing internet. Second, this paper describes the real-world institutional and economic barriers that limit internet access on reservations. Third, this paper uses a case study of the Colville Indian Reservation to examine how a real-world technological innovation has improved internet access, thus expanding the extent of the market and facilitating development. The case study is instructive because it examines how recent technological innovations on the Colville Indian Reservation have augmented opportunities in business, health, and education.
Amid rising international tensions, notably the ongoing Russia-Ukraine and Hamas-Israel conflicts, countries around the world are reassessing their defense budgets with seriousness not seen since the Cold War. This paper investigates empirically whether national defense budgets align with actual security needs and underlying economic fundamentals. Using the framework of Borcherding and Deacon (1972) and Bergstrom and Goodman (1973), we estimate the determinants of national defense spending for a longitudinal panel of 150 countries from 1950 to 2016. Our findings reveal that national defense expenditures exhibit a high degree of rivalry, often being closer to 1 than 0 on the Samuelson Index. This suggests that governments, in practice, treat national defense as a rival rather than nonrival good, resulting in its estimated overprovision by 30 to 40 percent, on average. Our results call for a critical reassessment of defense allocation strategies and optimization of public resource management.
Using World Bank estimates of intergenerational educational persistence and mobility for multiple countries across the development spectrum, this paper finds that economic freedom noticeably improves educational mobility. This is probably because economic freedom increases the returns to education in ways that incentivize greater investment in education.
Commentators on Adam Smith's Inquiry into the Nature and Causes of the Wealth of Nations often characterize Smith as a proponent of government in multiple areas, including security in person, property, contract, and some public goods. However, Smith understood government more expansively than people today. In volume I, book III, chapters I-IV, Smith describes the evolution of merchant towns in England that led to "good governance" that dismantled the feudal system. This limited government not only included the security provided by the formal laws and institutions. It also aligned the informal elements of individual civic ethics and self-reliance with the formal institutions. This Smithian combination of formal and informal government encouraged liberty and market exchange, which enriched towns and, then, agriculture. It established the foundation for English economic development, which made the nation wealthy.
This paper investigates whether state policy makers use targeted economic development incentives to compensate for deficient institutional quality. Our findings suggest that states with stronger economic institutions, as measured by the Economic Freedom of North America index, have lower levels of incentive intensity than those with weaker economic institutions. Evidence suggests the difference in incentive intensity is largely driven by differences in both investment tax credits and research and development tax credits. Moreover, we find that incentives are primarily used to offset the government spending component of the economic freedom index.
One would think that business schools, of all colleges at the university, would be the least likely to go woke. After all, the study of markets takes place therein, and that ought to be sufficient immunization against the incursion of this intellectual deficiency. But the facts of the matter are otherwise. In this paper, we try to establish the facts of the matter and make the case that this shift is unwarranted.
Superficial consideration of market fundamentals has permitted prominent critics of private enterprise from John Kenneth Galbraith to 2017 Nobelist Richard Thaler to maintain that premia on closed-ended funds (that is, investment trusts) prior to the stock market crash of 1929 are prima facie evidence of investor irrationality. We provide the first-ever fundamentals-focused inquiry into the pricing of investment trusts that year. Applying multiple empirical methods to a large sample of about three thousand observations, we assess the pricing and fundamentals of two informationally polar types of trusts: transparent trusts whose portfolios were published throughout the year; and blind trusts whose portfolios were unpublished until the third-quarter reporting week. Consistent with the efficient market hypothesis, when new information about blind trusts hit the market, their prices quickly corrected. This was the great correction of 1929.
From 1833 to 1848, Bent, St. Vrain & Company (BSV) dominated the burgeoning Santa Fe Trail trade among Americans, Mexicans, and the various nomadic Indian tribes inhabiting the southwestern US frontier through superior application of commercial diplomacy. BSV agents adopted Indian customs and other traditional mechanisms of trust and reciprocity, such as intermarriage, gift exchange, and ritual smoking, to reduce the prospect of opportunistic dealing. BSV's successes illustrate how market mechanisms accomplish self-enforcing exchange among heterogeneous agents. The BSV experience is also a demonstration of the catallactic nature of international trade: the notion that exchange involves "turning enemy into friend." BSV's experience gives credence to the doux commerce thesis: The pursuit of profits promotes peace between peoples.
Economic freedom raises incomes and economic growth, partly through increased human capital investment. When men and women differ in the economic freedom they experience, we expect girls and boys to face different returns to human capital investment. Using country-level panel data and country fixed effects, I estimate how gender disparity in economic freedom affects gender gaps in human capital accumulation. Closing gender disparities in economic freedom raises female literacy rates and may improve female learning outcomes.
