Before the invasion of Ukraine, there was a clear consensus on the limitations of economic sanctions. They would take a long time to organize and even longer to have any effect. Just about every commentary I read anticipated Russian tanks in Kiev long before sanctions could have any effect.

That judgement now looks way off the mark. Despite some limited advances in the south of Ukraine, Putin’s invasion seems to have stalled. Meanwhile sanctions, both official and unofficial, have raced ahead.

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With the pace of events accelerating all the time, yesterday’s hot take is today’s embarrassing blunder, to be forgotten as soon as possible. Still, so far this suggested way out of the Ukraine disaster doesn’t look too bad to me.

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Even with Covid and climate change to worry about, it’s hard to pay attention to much else besides the disaster in Ukraine. It’s easy enough to imagine a scale of escalation leading to nuclear war (Putin’s army occupies Ukraine, resistance bases itself in Poland, attacks into Poland produce NATO resistance, someone makes a mistake, and that’s that). What’s harder is to think about less extreme outcomes.

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Have your say

That’s the self-explanatory headline for my latest piece in The Conversation. Read there, comment here.
I should mention that The Conversation edits quite vigorously, including adding material. So, while I stand by the argument in the piece, not every turn of phrase is exactly what I would have written.

There’s been a lot of debate lately about whether tightening of anti-trust legislation might be a useful response to inflation. Underlying this question is that of the relationship between monopoly and inflation more generally. The dominant view among mainstream/neoclassical economists seems to be that there is no such relationship. That view is stated by one of the most prominent mainstream theorist, Larry Summers as follows

There is no basis in economics for expecting increases in demand to systematically larger price increases for monopolies or oligopolies than competitive industries.

Summers goes on to describe the opposite view as ‘anti-science’.

Readers of this blog will be devastated to learn that Summers is dead wrong. It’s quite straightforward to show, in a simple neoclassical model, that imperfect competition amplifies the inflationary effects of demand shocks. Here’s a paper I’ve just written with my colleague Flavio Menezes https://t.co/9FIactnJo7 which makes this point using the concept of the strategic industry supply curve. The same result can be presented, less elegantly in our view, using the standard tools of comparative statics to be found in any intermediate microeconomics test.

We also show that, contrary to a suggestion by Elizabeth Warren, imperfect competition is likely to dampen the impact of cost shocks. There isn’t, however, any equivalence here. Warren’s background is in law, and she isn’t making a claim just observing that monopoly power might be a problem. The distinction between cost shocks and demand shocks is unlikely to have been relevant to her, whereas it should have occurred immediately to a leading theorist like Summers.

I’m not sure about the lessons from all this. For me, it’s to think carefully before making dogmatic statements from authority. If all experts agree on something, we should say so, but be careful to make sure we are right.