market clearing

Networks, Crowds, and Markets: Reasoning About a Highly Connected World
by David Easley and Jon Kleinberg
Published 15 Nov 2010

This is far from obvious, and we will turn shortly to a method for constructing market-clearing prices that, in the process, proves they always exist. Before doing this, we consider another natural question: the relationship between market-clearing prices and social welfare. Just because market-clearing prices cause all buyers to resolve their contention and get different houses, does this mean that the total valuation of the resulting assignment will be good? In fact, there is something very strong that can be said here as well: market-clearing prices (for this buyer-seller matching problem) always provide socially optimal outcomes: Optimality of Market-Clearing Prices: For any set of market-clearing prices, a perfect matching in the resulting preferred-seller graph has the maximum total valuation of any assignment of sellers to buyers.

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Therefore, to maximize the total payoffs to all participants, we want prices and a matching that lead to the maximum total valuation, and this is achieved by using market-clearing prices and a perfect matching in the resulting preferred-seller graph. We can summarize this as follows. Optimality of Market-Clearing Prices (equivalent version): A set of market-clearing prices, and a perfect matching in the resulting preferred-seller graph, produces the maximum possible sum of payoffs to all sellers and buyers. 10.4 Constructing a Set of Market-Clearing Prices Now let’s turn to the harder challenge: understanding why market-clearing prices must always exist. We’re going to do this by taking an arbitrary set of buyer valuations, and describing a procedure that arrives at market-clearing prices.

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There are many possible sets of market-clearing 15.9. ADVANCED MATERIAL: VCG PRICES AND THE MARKET-CLEARING PROPERTY473 prices, but with some checking, we can see that in our examples, the VCG prices have corresponded to prices that are as small as possible, subject to having the market-clearing property. So let’s consider the following way to make this precise. Over all possible sets of market-clearing prices, consider the ones that minimize the total sum of the prices. (For example, in Figure 15.9, the total sum of prices is 3 + 1 + 0 = 4.) We will refer to such prices as a set of minimum market-clearing prices. In principle, there could be multiple sets of minimum market-clearing prices, but in fact we will see that there is only one such set, and they form the VCG prices.

The Financial Crisis and the Free Market Cure: Why Pure Capitalism Is the World Economy's Only Hope
by John A. Allison
Published 20 Sep 2012

When government arbitrarily raises the wage rate above the market-clearing price, labor will go unsold, exactly as in the previous milk example. Minimum-wage laws raise the wage rate above the market-clearing price and thereby create unemployment. From immediately before the financial crisis until today, the minimum wage has been raised from $5.15 per hour to $7.25 per hour, or 41 percent. The prices for practically all other goods and services have either fallen or risen only a little. So in the face of a severe economic correction, the government has raised the price of labor far above the market-clearing price. The minimum-wage laws are the primary cause of the high unemployment levels in the United States today.

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The law of supply and demand is not negotiable, any more than the laws of thermodynamics are. This is true whether the politicians like it or not. The law of supply and demand demonstrates that there is a market-clearing price at which supply and demand are equal. At this price, the producers of a good or service (supply) will provide exactly the amount of the good or service that the users (demand) want to purchase. The market will clear; that is, all the production will be sold to willing buyers. If the price is forced below the market-clearing price by government policy (price controls), the users of the good or service will want to purchase more than the providers of the good or service are willing to provide at that price.

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There is another set of state laws that has played an important role in keeping the housing market from correcting rapidly and has increased the losses and the destruction of wealth in the housing correction, the state home foreclosure laws. There are price corrections in all types of markets; stock markets and commodity markets are clear examples of markets in which price corrections are rapid and sometimes dramatic. Even though the price corrections may be challenging if you are on the wrong side of the bet, markets clear and everyone can get on with his business based on the new prices that more properly value the commodity or stock. For example, I started my career as a farm lender. Every spring, some of our farm clients would plant a soybean crop. Some of them would hedge the price they were to receive in the fall; some would not.

Trading and Exchanges: Market Microstructure for Practitioners
by Larry Harris
Published 2 Jan 2003

Various national treasuries use them to sell their bills, and the Arizona Stock Exchange offers them for trading U.S. equities. In a single price auction, all trades take place at the same market-clearing price. The last match that leads to a feasible trade determines the clearing price. If the buy and sell orders in this match specify the same trade price, that price must be the market-clearing price. Any other price would be either too high to satisfy the buy order or too low to satisfy the sell order. Matching by price priority ensures that this market-clearing price is also feasible for all previously matched orders. These matches involve buy and sell orders with higher (or at least equal) price priority.

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These matches involve buy and sell orders with higher (or at least equal) price priority. Since all buyers with higher price priority are willing to trade at higher prices than the market-clearing price, and all sellers with higher price priority are willing to trade at lower prices than the market-clearing price, all matches can trade at the market-clearing price. If the buy and sell orders in the last feasible trade specify different prices, the buy order will bid a higher price than the sell order offers. The market can clear at either of these two prices or at any price between them. The market rules will specify the clearing price in this unusual event. 6.3.1 Single Price Auction Example Suppose that the auction of the previous example is a single price auction.

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Because prices and quantities are discrete, single price auctions often have excess supply or demand at the market-clearing price. If there is excess supply, all buyers at that price have their orders filled, and the secondary precedence rules determine which sell orders fill. If there is excess demand, all sellers have their orders filled, and the secondary precedence rules determine which buy orders fill. Of course, ranking by price priority ensures that all buy orders placed above the market-clearing price and all sell orders placed below the market-clearing price also fill. 6.3.2.1 Supply and Demand Schedules The supply and demand schedules for the orders in our example appear in table 6-5 and figure 6-1.

The Rise and Decline of Nations: Economic Growth, Stagflation, and Social Rigidities
by Mancur Olson

In the seminal book in this tradition, Robert Barro and Herschel Grossman emphasized this uneasiness with exemplary scientific candor: One other omission from our discussion is especially embarrassing and should be explicitly noted. Although the discussion stresses the implications of exchange at prices which are inconsistent with general market clearing, we provide no choice-theoretic analysis of the market-clearing process itself. In other words, we do not analyze the adjustment of wages and prices as part of the maximizing behavior of firms and households. Consequently, we do not really explain the failure of markets to clear, and our analyses of wage and price dynamics are based on ad hoc adjustment equations.6 Perhaps this admirable uneasiness about a theory built on an unexplained ad hoc premise explains why the authors, heralded as leaders of the Keynesian-disequilibrium counterrevolution, by the evidence of subsequent works have joined the flight from Keynesian economics.

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Though Malinvaud and the other disequilibrium theorists simply assumed some non-market-clearing prices and wages, their analyses of the process now being described is quite similar. Malinvaud most usefully has pointed out that in such circumstances there is "Keynesian" involuntary unemployment as well as "classical" involuntary unemployment.22 The former, very loosely speaking, is the additional unemployment brought about because the quantity of goods purchased in the product market has fallen off due to non-market-clearing prices in those markets, which in turn reduces firms' demands for labor and multiplies the loss in employment due to wages that are above marketclearing levels.

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The greater these variations, the more it pays to search for the higher returns. This extra search, however, is not a socially efficient expenditure on the gathering of information, and it is required only because of the special-interest groups, so it also generates involuntary unemployment. Some time is spent in job queues because of the non-market-clearing prices and wages, which further increases involuntary unemployment. IX We shall soon see that the above approach has some surprising and testable implications when placed in a general equilibrium context, but it will first be necessary to refer back to Implication 6 in chapter 3. That implication was that distributional coalitions generate slow decisionmaking, crowded agendas, and cluttered bargaining tables.

A Little History of Economics
by Niall Kishtainy
Published 15 Jan 2017

Lucas also believed that markets quickly got to an equilibrium: there’d rarely be too little demand or supply of a good. Prices adjust to make sure of it. Economists call it ‘market clearing’. Lucas said that it applied in the labour market too: the price of labour (wages) would adjust so that the supply of labour (the number of people looking for a job) equalled the demand (the number of people firms wanted to hire). There’d rarely be a shortage of labour. There’d rarely be a shortage of jobs, either. Unemployment couldn’t happen, at least not for any significant length of time – wages would quickly fall and firms hire more workers. Market clearing, combined with rational expectations, was a strong attack on Keynes.

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Market clearing, combined with rational expectations, was a strong attack on Keynes. He’d argued that economies could get stuck in situations where many people were looking for jobs but couldn’t find one. Market clearing meant that anyone who wanted a job at the going wage could get one; workers without jobs were unemployed out of choice. And rational expectations meant that the government could do nothing to increase employment. Lucas’s school of thinking was called ‘new classical economics’. It revived ideas that Keynes had fought against, those of the classical school which had said that the economy would always quickly adjust to eliminate unemployment and that there was no point in the government trying to boost it further.

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Virtual Competition
by Ariel Ezrachi and Maurice E. Stucke
Published 30 Nov 2016

Instead, if Uber possesses market power, the surge price enables both Uber and its drivers to simply earn extra profits, at consumers’ expense, all under the guise of a “market-clearing” price. A Privately Planned Economy? Notice here that Uber is in effect an uber–price regulator. Uber does not own the cars. Nor does Uber employ the drivers, who are “independent contractors.”18 Nor does Uber allow individual drivers and passengers to negotiate prices in each city. Uber sets the price. It also increases and lowers the price based on its capturing all the relevant market information. So if Uber captures the sum of all knowledge to set the market-clearing price, why can’t other platforms and super-platforms do the same?

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One scenario, as we saw, will be the gradual demise of a uniform market price, as pricing algorithms individualize price and product offerings as they approach near-perfect behavioral discrimination. Another set of scenarios involve pricing algorithms tacitly colluding in a transparency-enhanced environment. In either case, the market involves many competitors who, following the path of Uber, can also claim that they are harnessing Big Data and Big Analytics to set the market-clearing price. If they have market power, then their marketclearing price may exceed the competitive price, that is, the average price if left to negotiation between individual buyers and sellers. Is Smart Regulation Back? If companies can harness Big Data and Big Analytics to effectively set the market price, should governments use the same tools to monitor industry prices (or even determine a competitive price)?

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And the government could determine a competitive price and identify what amounts to an excessive price. So if Uber, as an intermediary, can calculate the surcharge for its many drivers and passengers during periods of congestion, why couldn’t the government’s pricing algorithms monitor industry pricing or simply set the market-clearing price. One could argue that price regulation in the post-Hayekian world of Big Data is feasible, once industry data on individual consumer preferences and firm costs are collected and analyzed. The rise of the digitalized hand makes this possible. One could go a step further. If companies can harness Big Data to set the market price, can the combination of large volumes of data and sophisticated pricing algorithms make a centrally planned economy viable?

Mathematics for Economics and Finance
by Michael Harrison and Patrick Waldron
Published 19 Apr 2011

They maximise ‘utility’ given a budget constraint, based on prices and income. What do firms do? They maximise profits, given technological constraints (and input and output prices). Microeconomics is ultimately the theory of the determination of prices by the interaction of all these decisions: all agents simultaneously maximise their objective functions subject to market clearing conditions. What is Mathematics? This section will have all the stuff about logic and proof and so on moved into it. Revised: December 2, 1998 NOTATION xi NOTATION Throughout the book, x etc. will denote points of <n for n > 1 and x etc. will denote points of < or of an arbitrary vector or metric space X.

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The payoffs of a typical complex security will be represented by a column vector, yj ∈ <M , where yij is the payoff in state i of security j. The set of all complex securities on a given finite sample space is an M -dimensional vector space and the M possible Arrow-Debreu securities constitute the standard basis for this vector space. State contingent claims prices are determined by the market clearing equations in a general equilibrium model: Aggregate consumption in state i = Aggregate endowment in state i. Each individual will have an optimal consumption choice depending on endowments and preferences and conditional on the state of the world. Optimal future consumption is denoted  ∗  x1  x∗   x∗ =   2 . (5.4.1)  ...  x∗N If there are N complex securities, then the investor must find a portfolio w = (w1 , . . . , wN ) whose payoffs satisfy x∗i = N X yij wj .

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It follows that the expected return on the market portfolio must exceed rf . Q.E.D. Now we can calculate the risk premium of the market portfolio. CAPM gives a relation between the risk premia on individual assets and the risk premium on the market portfolio. The risk premium on the market portfolio must adjust in equilibrium to give market-clearing. In some situations, the risk premium on the market portfolio can be written in terms of investors’ utility functions. Assume there is a riskless asset and returns are multivariate normal (MVN). Recall the first order conditions for the canonical portfolio choice problem: 0 = E[u0i (W̃i )(r̃j − rf )] ∀ i, j (6.5.17) h = E[u0i (W̃i )]E[r̃j − rf ] + Cov u0i (W̃i ), r̃j i h = E[u0i (W̃i )]E[r̃j − rf ] + E[u00i (W̃i )]Cov W̃i , r̃j (6.5.18) i (6.5.19) using the definition of covariance and Stein’s lemma for MVN distributions.

Empirical Market Microstructure: The Institutions, Economics and Econometrics of Securities Trading
by Joel Hasbrouck
Published 4 Jan 2007

The arrival intensity for sellers is λSell (p), a function of the price they receive. These functions are depicted in figure 11.1. They describe demand and supply, but not in the usual static sense. Market clearing in this context means that buyers and sellers arrive at the same average rate, that is, with the same intensity. If the dealer were to quote the same price to buyers and sellers, market clearing would occur where the intensity functions cross. This is defined by λBuy (pEq ) = λSell (pEq ) = λEq . As long as the intensities are the same, the dealer is on average buying and selling at the same rate.

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One common and important mechanism is the continuous limit order market. The full range, though, includes search, bargaining, auctions, dealer markets, and a variety of derivative markets. These mechanisms may operate in parallel: Many markets are hybrids. 1.1.3 Multiple Characterizations of Prices The market-clearing price, at least at it arises in usual Walrasian tatonnement, rarely appears in microstructure analyses. At a single instant there may be many prices, depending on direction (buying or selling), the speed with which the trade must be accomplished, the agent’s identity or other attribute, and the agent’s relationship to the counterparty (as well as, of course, quantity).

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Liquidity (“noise”) traders submit a net order flow u ∼ N (0, σu2 ), independent of v . The market maker (MM) observes the total demand y = x + u and then sets a price, p. All of the 61 62 EMPIRICAL MARKET MICROSTRUCTURE trades are cleared at p. If there is an imbalance between buyers and sellers, the MM makes up the difference. Nobody knows the market clearing price when they submit their orders. Because the liquidity trader order flow is exogenous, there are really only two players we need to concentrate on: the informed trader and the MM. The informed trader wants to trade aggressively, for example, buying a large quantity if her information is positive.

Where Does Money Come From?: A Guide to the UK Monetary & Banking System
by Josh Ryan-Collins , Tony Greenham , Richard Werner and Andrew Jackson
Published 14 Apr 2012

Under the conditions of ‘perfect information’ that are assumed for markets to ‘clear’, where the quantity supplied meets the quantity demanded, people ‘automatically’ exchange goods and services, without delay or friction, according to the production costs of the commodity and people’s ‘marginal utility’ – that is, the balance between the convenience obtained and the risk avoided from its possession.15 This approach posed a question for how to include money. French economist Leon Walras created a hypothetical numeraire, a symbolic representation of existing commodity values, to enable him to model an exchange economy in which the market ‘clears’ under conditions of equilibrium. To do so, Walras had to postulate the existence of an omnipotent ‘auctioneer’ capable of knowing all exchange and utility values at all times. This deity enabled Walras to happily ignore money. But other economists were not happy with the ‘imaginary auctioneer’.

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You will probably find that most of them started out with very little money and had to get loans from the bank, friends, or family before they could begin selling their services or products on the market. As Marx pointed out, in the capitalist system, money (or capital/financing) is required prior to production,26 rather than naturally arising after production as a way of making exchange more convenient. This is why it is called ‘capital-ism’. So building a model that starts with market clearing and allocation and then tries to fit in money as a veil on top of this makes little sense. As American economist Hyman Minsky argues: ...we cannot understand how our economy works by first solving allocation problems and then adding financing relations; in a capitalist economy resource allocation and price determination are integrated with the financing of outputs, positions in capital assets, and the validating of liabilities.

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The demand for credit, and hence money, appears far less subject to diminishing marginal utility.35 Under the endogenous money theory, it is assumed that banks make loans, and credit ‘clears’ at a given interest rate. A riskier loan will incur a higher rate of interest but if the demand for credit is always very high (or even infinite), the theoretical market-clearing interest rate would be so high as to leave banks with only risky projects, while sensible projects could not generate sufficient returns to service the loans.36 It is therefore more important for a bank to avoid defaults on its loans than it is to earn a higher rate of interest. Higher rates may bring an extra few percentage points’ profit, but a default could lead to a 100 per cent loss.

Modernising Money: Why Our Monetary System Is Broken and How It Can Be Fixed
by Andrew Jackson (economist) and Ben Dyson (economist)
Published 15 Nov 2012

Credit rationing implies that banks respond to a situation whereby they have imperfect information (i.e. they cannot tell good borrowers from bad) by setting interest rates below the market clearing rate (to a level which maximises their profits – i* on figure 3.3) and ration credit instead.12 In conclusion, the credit rationing theory sees causality in the banking system occurring in the following way (shown overleaf). Faced with a large demand for credit, banks set interest rates below the market clearing rate and ration credit instead (by rejecting some loan applications). When banks lend, deposits are created. This increases demand for reserves in order to settle payments.

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Credit rationing What then determines the level of bank lending, and therefore the money supply? Faced with a huge demand for credit, and little limit on how much they are able to supply, banks could simply supply as much lending as is demanded, by granting a loan to everyone who applied for one. With such high demand, however, the market-clearing rate of interest would be very high. As Stiglitz and Weiss (1988) point out this will create two problems. First: “among those who are most likely to bid high interest rates are risk lovers (who are willing to undertake very risky projects, with a small probability of success, but high returns if successful); optimists (who overestimate the probability of projects succeeding and the return if successful); and crooks (who, because they do not plan to pay back the money anyway, are virtually indifferent to the interest rate which they promise).

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(Smith, 1776) fig. 3.3 – Relationship between interest rate charged on loans and profits The second problem is that in order to compensate for the higher loan cost, “there may be an adverse incentive effect; borrowers take riskier actions, which increases the probability of default.” (Stiglitz & Weiss, 1988) Therefore, if banks charge interest rates at the market clearing level they will drive the less risky borrowers out of the market, leaving only the high-risk borrowers. Higher risk implies a higher number of defaults on loans, which will adversely affect bank profits. The relationship between bank profits and the interest rate charged on loans is shown in figure 3.3.

Rethinking the Economics of Land and Housing
by Josh Ryan-Collins , Toby Lloyd and Laurie Macfarlane
Published 28 Feb 2017

The fixed supply of land for particular uses means it does not fit easily in mainstream economic theories where supply and demand set prices in a free market. If the demand for iPhones increases, Apple can increase the quantity of phones produced – at a cost to themselves – until an equilibrium is reached, whereby demand meets supply and the market ‘clears’. Apple may instead choose to increase the price of iPhones; however they then face the risk that some consumers may choose to buy a different brand of phone. The idea is that market competition generates an efficient trade-off between quantity and price and economic rents are minimised. But the quantity of land cannot be increased in the way the quantity of iPhones can.

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This sustained relatively high land and house prices, and preserved the developers and banks, but at the price of transactions and output plummeting. There was no clearing of the market, no rebasing of land and house prices as after the last three booms, no opportunities for new entrants to enter the market, or for a new cohort of owner-occupiers to buy. In the absence of a market clear-out, the new government resorted to ever more massive demand-side subsidies to help push a few more middle-income households over the line into homeownership. The new land economy settlement that had emerged by the end of the 1980s – minimal supply-side intervention and demand-side support for homeownership – was being pushed to its limits.

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Evidence from the UK and Australia suggests that rather than spending their accumulated wealth in later life, households have been passing it on to their children as inheritance, while younger cohorts have increasingly been making use of mortgage equity withdrawal (see section 5.5) to fund large, one-off expenditures (Parkinson et al., 2009). Unrealistic assumptions are also made about the financial sector and banks in the lifecycle model. Banks are assumed to willingly lend at the market rate of interest where the supply of mortgage credit meets demand (where the market ‘clears’). This is based on the assumption that both households and financial intermediaries (banks) have very high – if not perfect – levels of information and are able to make accurate judgements about the future based upon a range of knowable probabilities (the ‘rational expectations’ hypothesis).

Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism
by George A. Akerlof and Robert J. Shiller
Published 1 Jan 2009

In contrast, however, when the unemployment rate rises quits invariably go down.10 Indeed a simple relation between quits and unemployment explains three-quarters of the variation. When unemployment goes up by 1 percentage point, the monthly quit rate per hundred employees falls by 1.26.11 These changes in the quit rate suggest that unemployment is exactly caused by wages in excess of market clearing. That of course exactly corresponds to the predictions of efficiency wage theory. In its view, when unemployment goes up the gap between the supply of and demand for labor increases. Workers with jobs at existing wages realize that they are lucky. They see how they would fare elsewhere, and they are therefore highly reluctant to quit their jobs.

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Why? Because economists who consider themselves yet smarter than Shapiro and Stiglitz have pointed out that if workers only care about money and how hard they work, employers could devise incentive schemes that are yet more profitable for themselves, and that do not result in wages in excess of market clearing. For example, Edward Lazear, who was a successor to Stiglitz as the chair of the Council of Economic Advisers, has shown that seniority rights give an alternative incentive to keep workers from shirking.13 If you get caught shirking and have to find a new job, you lose all those privileges you may have earned from working at your job for so long.

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It is more complex because we ascribe to the employee motives that are more realistic than those of the strictly economic model. It is simpler because we think that we can represent the wage as depending at least in part on what workers think would be fair, and those fair wages are almost always above the market clearing wage. They are also slow to change. It is an explanation for unemployment that seems to hit the sweet spot. It is simple and realistic, and it also fits the facts. In particular it explains easily and naturally why quits go up as unemployment falls. This is a fundamental building block of the economy.

The Price Is Wrong: Why Capitalism Won't Save the Planet
by Brett Christophers
Published 12 Mar 2024

Rather, electricity for next-day delivery is traded on the spot market, typically in hourly or half-hourly chunks. Ahead of a cut-off point (usually midday), generators bid the amount of electricity they expect to be able to supply for each day-ahead time period – for instance, the hour beginning at 4:00 a.m. Expected supply and demand determine the market-clearing spot price.44 Prices in electricity spot markets are notoriously volatile, with, as we will see, hugely significant implications. Of course, such a market design poses particular difficulties for solar and wind generators, who are only able to predict their likely supply of power up to thirty-six hours ahead of time to a certain extent.

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As various studies have found, the output of renewables facilities tends to be sold on wholesale markets disproportionately when electricity is cheap.75 This stands to reason: sitting higher up the merit order stack, conventional generators, with pricier bids, are, by definition, not dispatched when prices are cheap – prices are cheap precisely because their dispatch is not required. The point now to be yoked to this foregoing insight, in any event, is that the more renewables production that occurs, and the more often that renewables set market clearing prices, the more broadly exposed renewables generators become to this phenomenon of price (and profit) suppression. Readers will probably not be surprised to learn that there is a name for this paradoxical effect, whereby renewables potentially undermine the conditions of their own future viability and growth precisely by virtue of their own success in displacing more expensive, conventional generating technologies and thereby reducing the price of electricity.

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In Europe, however, increased natural gas costs in autumn 2021 – a result of the sudden paucity of supply relative to surging demand – could be, and were, passed on to electricity retailers and consumers. Indeed, for reasons we established earlier in this book (Chapter 6), wholesale and retail electricity prices in Europe are in fact disproportionately influenced by gas prices. The proportion of the time when gas provides the all-important market-clearing and price-setting ‘last unit’ of supply in Europe’s merit-order-based electricity sector substantially outstrips the proportion of electricity that gas actually physically serves to help generate. Thus, if Europe’s gas prices increase, so, in turn, do its electricity prices – not for every hour, every day, since there will be periods when gas plants are not required to fire and thus when other sources will set the spot price; and not in the same degree in every country, since some countries (such as the UK) are more reliant on gas for electricity generation than others (such as Sweden); but, averaged out, the relationship holds.

Misbehaving: The Making of Behavioral Economics
by Richard H. Thaler
Published 10 May 2015

In this example, that means that subjects 7, 8, and 11 will buy tokens from subjects 2, 5, and 6, as illustrated in panel C. We can figure out the price that will make this market “clear,” meaning equate supply and demand, by working from the two ends of the distribution toward the middle. Subject 11 will have no trouble finding a price at which Subject 2 will give up his token, so they are bound to make a deal. The same applies to Subjects 8 and 5. But to get Subject 7 to buy a token from Subject 6, the price will have to be between their two reservation prices. Since we only allowed prices in increments of 50 cents, the market-clearing price will be $3. FIGURE 7 Since both the values and the tokens are being handed out at random, the particular outcome will differ each time, but on average the six people with the highest valuations will have been allocated half of the tokens, and as in this example, they will have to buy three tokens to make the market clear.

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FIGURE 7 Since both the values and the tokens are being handed out at random, the particular outcome will differ each time, but on average the six people with the highest valuations will have been allocated half of the tokens, and as in this example, they will have to buy three tokens to make the market clear. In other words, the predicted volume of trading is half the number of tokens distributed. Now suppose we repeat the experiment, but this time we do it with some good such as a chocolate bar. Again we could rank the subjects from high to low based on how much they like the chocolate bar, but in this case we are not telling the subjects how much they like the good; they are determining that themselves.

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“Altruistic Punishment in Humans.” Nature 415, no. 6868: 137–40. Fehr, Ernst, and Lorenz Goette. 2007. “Do Workers Work More If Wages re High? Evidence from a Randomized Field Experiment.” American Economic Review 97, no. 1: 298–317. Fehr, Ernst, George Kirchsteiger, and Arno Riedl. 1993. “Does Fairness Prevent Market Clearing? An Experimental Investigation.” Quarterly Journal of Economics 108, no. 2: 437–59. Fehr, Ernst, and Klaus M. Schmidt. 1999. “A Theory of Fairness, Competition, and Cooperation.” Quarterly Journal of Economics 114, no. 3: 817–68. Fischbacher, Urs, Simon Gächter, and Ernst Fehr. 2001. “Are People Conditionally Cooperative?

Taming the Sun: Innovations to Harness Solar Energy and Power the Planet
by Varun Sivaram
Published 2 Mar 2018

So, once bids from the low-cost plants, such as nuclear reactors, were accepted, the market would have to accept higher-cost bids, such as from natural gas turbines that would charge an arm and a leg to burn expensive fuel and boost output quickly when demand surged. Markets also paid every power plant the same, “market-clearing” price—that is, the price charged for the last bid accepted (that of the expensive natural gas turbine). This practice was a relief for the nuclear reactors because, despite the low cost of producing power, the plants relied on high ongoing revenues to pay off the hugely expensive construction costs of the plant.

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Together, cheap renewable energy and natural gas have turned that old market paradigm on its head. As the penetration of solar and wind power rises, these generators are happy to offer to sell their power at zero cost to the grid because they have zero fuel costs. Their influence, along with that of cheap natural gas, drags down the market-clearing price. In other words, solar and wind generators compete with nuclear power to have their low-cost bids accepted by the market. Whoever wins ends up getting paid only a pittance. And nuclear plants that can no longer pay off their capital costs go bust. The same thing would happen to the economics of solar and wind generators, except that they are protected by policy or contract structures.

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Wholesale electricity market    A market for competing generators of electricity to sell their output to retailers, who then sell it on to customers. In the United States, wholesale electricity markets often span multiple states and follow an auction process in which bids to sell electricity are accepted in ascending order until all electric demand is met, and the highest accepted bid sets the market-clearing price. Wind power    A form of renewable energy that uses air flow through wind turbines to produce electricity. Like solar power, wind power is intermittent and depends on wind speeds. Wind turbines can be sited on land or at sea; offshore wind turbines are becoming increasingly economical.

Economists and the Powerful
by Norbert Haring , Norbert H. Ring and Niall Douglas
Published 30 Sep 2012

This quote may explain why his new theory was met with such enthusiastic support and had such lasting impact, despite a few rather fundamental shortcomings and contradictions that we will further explore in Chapter 4. His theory says that the workings of the market make sure that workers and capital are paid exactly what they contribute to the value of the product at the margin, i.e. by what they contribute to the last unit of the good that can gainfully be produced (Clark 1899/2001). Finding market-clearing prices for goods, labor and capital is tricky both in theory and reality. They have to be found not only for each market separately, but for all markets at the same time. Leon Walras (1834–1910) was the first to tackle this problem. He formulated a large number of equations describing the whole economy.

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The name of the game refers to an influential theoretical paper by Nobel Memorial Prize winner George Akerlof, called “Labor Contracts as a Partial Gift Exchange.” In the gift exchange model, the effort of workers depends on whether they consider their pay as fair. Therefore many firms pay more than the market clearing wage in order to elicit more effort. One consequence of this policy is that the market does not clear and there is involuntary unemployment (Akerlof 1982). The typical results of such experiments confirm that higher wage offers by firms, on average, induce workers to provide more effort. This contradicts a fundamental neoclassical assumption that the quality of the labor unit is independent of what is paid for it.

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This means that low-wage workers in the secondary market are supposed to cut their wages even more in order to create enough demand for their own labor and for the labor of those descending from the primary labor market. Most modern neoclassical theorists will admit that the wage cuts needed to achieve this can be steep. There is no guarantee at all that you can live on the market-clearing wage (Kaufman 2009). In an open economy with exports, external demand might eventually solve the problem at low enough wages, but there is certainly no guarantee. With flexible exchange rates, the exchange rate often appreciates if wages and prices go down. This can cancel out the improvement in competitiveness brought about by lower wages.

The Corruption of Capitalism: Why Rentiers Thrive and Work Does Not Pay
by Guy Standing
Published 13 Jul 2016

Yet, in contrast to the stated justification for minimum wages, governments have been weakening the bargaining power of employees and trade unions. Defenders of ‘free market’ capitalism justify curbing unions’ bargaining strength on the grounds that they push wages above market-clearing and productivity-driven levels. Defenders of unions argue that without them employers can and do take advantage of workers’ vulnerability to force wages below market-clearing levels and even below the cost of subsistence. Governments have lowered wages by more indirect means as well. Thus they have allowed and encouraged the spread of unpaid or low-paid interns which, through substitution and threat effects, drives down the wages of others doing similar labour in regular jobs.36 A more systemic intervention has been the use of tax credits, discussed in Chapter 3, which enable firms to pay very low wages.

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But they are being used to undermine professional qualifications, further marginalising the time-honoured concept of the professional and craft community. This is what platform corporations want, and what neo-liberals have always wanted, because they depict all collective bodies as distorting the market and preventing market clearing.30 The platforms are reducing the rental income gained by those inside occupational communities and transferring that to themselves, further reducing the returns to labour and work. One of the least analysed aspects of the neo-liberal agenda has been the re-regulation of occupations, including all the great professions.

Shorting the Grid: The Hidden Fragility of Our Electric Grid
by Meredith. Angwin
Published 18 Oct 2020

However, whatever the authors of the paper conclude, I would point out that RTO retail electricity prices have stayed higher than non-RTO retail prices for twenty-five years. I would not personally conclude that retail markets have saved money for the consumer. Utilities and FERC orders IN 1997, FERC ISSUED Orders 888 and 889, designed to give open access to transmission lines, and to “encourage the creation of a separate Price Exchange to reveal market-clearing prices in the new competitive market.” Two years later, in 1999, FERC issued Order 2000 to foster participation in Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs).28 The model for the deregulation was similar to the one for phone deregulation. One service (your local phone company, your local distribution utility) would be in charge of the wires to your house.

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If its bid is accepted (its bid isn’t too high), it can bank on capacity payments when it comes online. As mentioned before, capacity payments are the major way that many gas-fired plants are funded, so a guarantee of such payments can encourage bank loans for building the power plant. The capacity payments also encourage profitability once the plant has been built. However, if the market clearing price for capacity payments is too low, perhaps this new plant won’t be promised enough funding, and it won’t be built. Perhaps no new gas-fired plants will be built. To fix this, ISO-NE proposed the MOPR rule to FERC. The idea of MOPR is to keep capacity payments high enough to encourage CONE (new power plants).

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Grid reliability and resource adequacy remain within the purview of the regional grid operator, and it is the Commission’s responsibility to ensure that this objective is accomplished at just and reasonable rates. The CASPR proposal appears attractive because it … presents a solution to this complicated situation. However, the major flaw in the proposal … is that the “competitively based” market clearing price will not provide a meaningful signal to the marketplace. I am further concerned about the signals that today’s decision sends to New England stakeholders. Instead of incentivizing developers to compete for market revenues, the message the Commission is sending to market participants is that the best way to ensure the future viability of a particular resource is to seek state support.

Cryptoeconomics: Fundamental Principles of Bitcoin
by Eric Voskuil , James Chiang and Amir Taaki
Published 28 Feb 2020

This implies that production must be restricted by the cartel in order to raise unit price [321] for non-partners. Limiting production leaves an opportunity for other producers to capture customers with a lower marginal utility [322] for the product, as those customers would otherwise be unserved. Thus competition lowers price until the market clears. A free market seeks the clearing price that produces the global return on capital (interest ). A current price above this level increases production and below decreases production. It is time preference [323] that determines the rate of interest. Unless production is disproportionately subject to anti-market forces, such as tax or subsidy, everyone enjoys the same opportunity to raise capital and compete in production.

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It is a levy on the taxpayers of the subsidizing state, typically applied to establish market share for the product. In the case where demand is elastic [456] , the subsidy increases sales volume for the product by reducing price relative to the otherwise market price. The lower price increases demand, by capturing buyers with lower marginal utility [457] for the product, until the market clears. In contrast to dumping, trading at market price doesn’t reduce price because it is not subsidized. Finally, there is a related theory that reduction of hoarding [458] generally reduces exchange prices of the hoarded property. This is true [459] , however a transfer is not a reduction to hoarding levels unless the buyer of the hoarded property subsequently hoards it less than the seller.

Austerity: The History of a Dangerous Idea
by Mark Blyth
Published 24 Apr 2013

Figure 2.2 The Keynesian Phillips Curve The new instruction sheet, which came to be known as “neoclassical,” or more popularly, “neoliberal” economics, was quite technical, but basically it started from the premise that individuals were not the shortsighted, animal-sprit, driven businessmen lampooned by Keynes, but were instead supersmart processors of information.31 The new approach distrusted anything bigger than the individual, insisting that accounts of the behavior of aggregates such as “financial markets” had to be based in prior accounts of the behavior of the individuals (investors, firms, funds) that made them up, and that any theory of the behavior of aggregates must be generated from the two main assumptions of this new neoclassical economics, that individuals are self-interested agents who maximize the pursuit of those interests, and that markets clear.32 According to this new view, the Keynesian instruction sheet must, in some sense, see individuals as being deluded all the time by government policy; otherwise, they would see the policy coming and anticipate it in their decisions, thus cancelling out its effects on real variables—so-called expectations or “Ricardian equivalence” effects.

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As Keynes demonstrated, there is no reason for an economy to “naturally” return to a full-employment equilibrium after a shock. It can settle into a state far from full employment for a very long time.53 The Austrian explanation of sustained unemployment after a bust—the inability of the economy to self-heal as it should—is that trade unions are holding up the market-clearing wage. But in the United States, for example, where unions cover less than one in eight workers, such an explanation is simply not credible.54 Moreover, Germany and Sweden, countries with much higher unemployment rates through the business cycle, also have far higher unionization rates. Second, if the only policy on offer is to get the government out of economic affairs completely, then its not clear how one does it short of engaging in a kind of “year zero” purge of the modern economy and polity.

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With inflation rising and unemployment not improving, Keynesianism, according to monetarists, eventually eats itself. Friedman’s monetarism pushed hard against one of the key ideas of the postwar economic instruction sheet—the Phillips curve—that we also discussed in chapter 2.61 Crucial was his idea that there is a natural rate of unemployment, an evolutionary throwback to classical ideas about labor markets clearing at the equilibrium wage, with the amount of employment generated being a function of structural supply-side factors plus the degree of trade-union militancy. As Michael Bleaney once observed, accepting Milton’s monetarism ensures that “ideas concerning a lack of effective demand have disappeared out the window … we are back in a completely classical world where … full employment follows automatically.”62 Indeed, monetarism was in many ways simply a restatement of the quantity theory of money that goes all the way back to David Hume.

The Rise of the Quants: Marschak, Sharpe, Black, Scholes and Merton
by Colin Read
Published 16 Jul 2012

Up to that point, economics at the macro level was considered a trivial extension of economics of the small, or microeconomics. In the microeconomics of a market, a price that is too high results in supply that exceeds demand and a reduction in the price until the surpluses in the market clear. The trivial extension to the macroeconomy commends that such symptoms of excess supply as unemployment should result in lower wages and market clearing. In other words, individual 18 The Rise of the Quants markets are either at or converging toward equilibrium at all times, and so must the aggregation of all markets at the macroeconomic level. The Kiel School also recognized that aggregates of markets do not behave as simplistically as classically trained microeconomists might wish.

Financial Market Meltdown: Everything You Need to Know to Understand and Survive the Global Credit Crisis
by Kevin Mellyn
Published 30 Sep 2009

It might occur at an open-air fair that meets from time to time. The larger and more frequently the market between trappers and farmers happens, the more trades will happen. These trades will set the ‘‘price’’ between pelts and corn after anyone who wants to swap one for the other has done so. This is how markets set prices. The markets ‘‘clear,’’ as economists put it, when all the stuff brought to a market gets exchanged or swapped, so nobody wanting corn is still holding out for more pelts and vice versa. This establishes what corn is worth in terms of pelts and what pelts are worth in terms of corn. Introduction Commodity Money The question not solved by this system is, what are corn and pelts worth relative to other ‘‘stuff ’’?

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It has been the largest single cause of financial crises over the last forty years, from the U.S. banking crisis of 1974, triggered by collapsing real estate investment trusts, the collapse of the U.S. savings and loan industry in the 1980s, the collapse of the Japanese bubble economy in 1990, the Swedish and Finnish banking crises of the same period, and the Asian banking crisis of 1997. The only response to this inconvenient fact that the U.S. Congress seems capable of is to throw money at the collapsing U.S. housing market instead of simply letting the market clear at prices that attract buyers who can actually afford a house. To protect distressed homeowners, our political masters have felt quite free to violate centuries of contract law and property rights essential to a functioning market economy. There is nothing to stop them from doing so. They have effectively deflected public anger away from themselves and succeeded in demonizing not only the whole financial world but free market capitalism itself.

Straight to Hell: True Tales of Deviance, Debauchery, and Billion-Dollar Deals
by John Lefevre
Published 4 Nov 2014

The book-building process varies significantly from a single-day drive-by to a heavily marketed two-week roadshow. The simple idea is to work with the sales force to bring in orders and solicit price sensitivities and feedback from the investors. This “market color” is reflected by me to the issuer. It’s then my job to convince the issuer to agree to a price that reflects where a market-clearing deal works. Once we get the issuer to sign off on the deal terms, we’re ready to allocate bonds to investors, get the deal across the finish line, and then move on to the next one. The allocation process is one of the most nuanced and contentious aspects of the execution process, and probably the most important.

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After several catastrophic days on the road, the relationship bankers delicately convince the chairman to come back to Hong Kong and allow the rest of the deal team—including his highly impressive, Western-educated CFO—to complete the remainder of the roadshow on the company’s behalf. Not only have we been telling the deal team that market conditions have weakened and investor appetite for risk has diminished for first-time issuers, things really have deteriorated. We’re now looking at a market-clearing transaction in the context of 10.5%, or 100 basis points higher than what we promised—not an immaterial difference in the context of a $300 million deal. The time has finally come for us to drop the hammer; we’re already late on providing formal price guidance to the market. We’ve been whispering “low/mid-10s” to investors, and even that doesn’t get them too excited.

What's Wrong With Economics: A Primer for the Perplexed
by Robert Skidelsky
Published 3 Mar 2020

The French economist Léon Walras (1834–1910) extended the notion of equilibrium in a local market to the idea of the general equilibrium (GE) of a system of markets. He reasoned that if the whole economy consisted of perfectly competitive markets, supply and demand would be simultaneously balanced in all markets, a balance which can be expressed in a set of simultaneous equations. In Walrasian GE each market establishes its equilibrium or market-clearing price through a process Walras called tatonnement or ‘groping’. At the point of trade all prices in the economy have been perfectly adjusted to the supply and demand conditions in each market. It is important to note that all markets in the Walrasian system are auction markets, in which contracts to buy and sell are made simultaneously – prices are known to both buyers and sellers.

…

Duncan Foley believes in the ‘immense scientific value’ of equilibrium concepts.7 I would argue rather that it has a baleful influence, by encouraging economists to think that the market system is automatically self-correcting and therefore not requiring policy intervention. Formally, equilibrium represents a state of affairs in which resources are so allocated that market-clearing prices prevail all round, and no one has any incentive to change their position. This is an ‘optimum’ equilibrium, in the sense that the economy is at its production possibility frontier (PPF) and all are satisfied with ‘what they’ve got’. However, within this equilibrium framework, economists toy with several different concepts of equilibrium, depending on what they want to explain.

Red-Blooded Risk: The Secret History of Wall Street
by Aaron Brown and Eric Kim
Published 10 Oct 2011

I’m only interested in the market makers generating consistent profits. But even within this group there is a variety of prices and also differences in the positions they have built up. You might argue that the differences in prices are going to be pretty small, and some kind of average or market-clearing price is the best estimate of probability. One issue with this is none of the prices directly measure probability; all of them blend in utility to some degree. A person who locks in a price for future oil may not believe the price of oil is going up. She may be unable to afford higher prices if that does happen, and is willing to take an expected loss in order to ensure survival of her business.

…

The probability we care about is that of a hypothetical risk-neutral oil market maker who makes consistent money in stand-alone oil futures trading averaging over all future scenarios. That turns out to give significantly different probabilities than our subjective estimates, or long-term frequency, or market-clearing prices; even if we agree on numeraire and the identity of the bettors on the other side. The result of all this is rocket scientists invented their own notion of probability. A probability distribution can only be defined with respect to a numeraire, and therefore cannot be defined for all possible outcomes.

…

Therefore, there is no need for a pool of loans or pile of gold to support their value. The net value is zero. What is important is that the derivatives will pay off as promised. That payoff is secured by the initial margin and daily mark-to-market payments made by derivative holders. That security, in turn, depends on two things: that we can establish a daily market-clearing price for the derivative and that the price doesn’t change in any day more than the amount of initial margin required. Accurate, transparent prices and smooth price changes are both features of liquidity. Futures markets often have daily price change limits; the price is not allowed to move more than a certain amount in a day.

Slowdown: The End of the Great Acceleration―and Why It’s Good for the Planet, the Economy, and Our Lives
by Danny Dorling and Kirsten McClure
Published 18 May 2020

Even patenting, after building up a head of steam, appears to have flatlined. A continual steady increase in innovation now requires ever-greater investment to produce any substantial results.17 Much of the current slowdown is still being described as creative destruction, and as the process of “market clearing,” wherein the obsolete is perpetually replaced by the new, as if the capitalist transition were some end-of-history process that we will always be stuck in. Financial analysts make arrogant claims based on the 1980s and 1990s economics they learned at school, failing to spot the new reality. They repeat a particular mantra in the hope that they will be taken seriously as great soothsayers.

…

(Dick), 214 dot.com bubble, 255–56, 257, 260 drones, 356n18 Dyson, James, 267 East Bradford Socialist Sunday School banner, 299, 301, 365n27 East Timor, fertility rates, 204–5, 206 economics and economic indicators: capitalism, as transitional/temporary, 10–11, 188, 230–32, 235–37, 283, 284, 317–18; creative destruction, 11, 296–97, 317; GDP (see gross domestic product); gold prices, 251, 251–53; house prices, 247–51, 249, 253–55; inequalities (see inequalities); market clearing, 296–97; money illusion, 250; quality of life, 242–47, 245; share prices, 255–61, 257, 260; speculation, 254–55; top-ranking financial centers, 263–64; vulnerable employment, 294; wages, 244–47, 245 Economist, 22, 23 ecotourism, 17–18, 19, 23 education: fake university degrees, 236; and fertility rates, 160; and rate of change, 121; tertiary, 270, 271, 315–16.

…

See debt Lockett, William, 269 London: as center of selfishness, 263; conditions in (1901), 185; decline of marriage in, 274; population, 323; poverty in, 280–81; rise of anti-conservative forces in, 279 Lührmann, Anna, 276–77 Lutz, Wolfgang, 141 Luy, Marc, 320 machine learning, 85 Maddison, Angus, 149–50, 155, 233, 347n11. See also Angus Maddison Project Database 2018 Malaysia, 247 Malthus, Thomas Robert, 162 Marin, Sanna, 312 market clearing, 296–97 marriage, 273–76, 361n31; England and Wales, 218, 273–74, 275; Japan, 211 Marx, Karl, 230, 294 Massey, Douglas, 153–54 mastic harvest, 16–18 maternity leave, 310–11 McClure, Kirsten, 183 measure of domestic progress (MDP), 242–43 Mexico: automobile production, 115, 118; migration, 153 microprocessor efficiency, 85 migration, 21; and birth rates, 312; British Isles, 161–65; control, 21, 341n6; to London, 185; rural, 16–18, 22–25; and slowdown, 19, to United States, 152–54 miraculous spiral, 19–21, 20 Monbiot, George, 217, 243 money illusion, 250 Moore’s law, 85, 87 Morawetz, Nancy, 153 mortgages, 49–56, 54; and house prices, 254 Music While You Work (BBC), 322–23 NASA, 123, 127–28, 129, 130–31, 348n5 NASDAQ Composite Index, 257, 260 Nationwide Building Society, 248, 250 Native Americans, 150 natural gas, 112 Netherlands: Amsterdam, 248, 249, 263; production and consumption of books, 73, 74–77, 75, 81–85, 83 New Straits Times, 247 Newton, Isaac, 4 New York: city, 263–64, 274; state voting, 277–79, 278 New Zealand, 175, 176, 177 Niger, 201–4, 203 Nixon, Richard, 25, 278, 279 NOAA.

Why Your World Is About to Get a Whole Lot Smaller: Oil and the End of Globalization
by Jeff Rubin
Published 19 May 2009

The two fundamental axioms of the dismal science are that the demand curve slopes down and the supply curve slopes up. That is, the more people want something, the more it should cost. And the more it costs, the more of it there should be. Find the point of intersection between those two curves, and voilà, you have found the market clearing price. If Porsche Carreras were given away to all ticket holders at NFL games, they would be worth a lot less than they are today. If we started running out of, say, shampoo, the price would go up. Manufacturers would have an incentive to ramp up shampoo production, and the price would come back down.

…

Warren has already announced that he will only operate the fishing lodge business every other year. At least for now, I can still come back in 2010. But he also tells me there are seven salmon-fishing lodges for sale on one river alone in Alaska. Basic economics tells me that if seven fishing lodges suddenly come on the market at the same time, the market clearing price for an Alaskan fishing lodge is going to be falling. In short, there are more sellers than buyers of Alaskan fishing lodges. And for good reason. Who is going to come in and buy what are hugely oil-intensive businesses when the price of delivering oil to the lodge amounts to as much as $420 per barrel?

Paper Money Collapse: The Folly of Elastic Money and the Coming Monetary Breakdown
by Detlev S. Schlichter
Published 21 Sep 2011

Additionally, rising uncertainty in the crisis may lift the demand for cash holdings, which, in the absence of further money injections, will lead to a rise in the purchasing power of money. These deflationary processes must be allowed to proceed. They are part of a necessary readjustment of prices away from money-induced distortions and back toward market-clearing levels. However, no specific policies are necessary, such as shrinking the money supply or lowering prices to return to a specific price average or a previous gold price. All that is needed is simply a complete stop to money injections followed by the abstention from any interference with the market process.

…

The antideflation policy that has been adopted is largely a policy of price fixing, a policy of preventing the market from exposing capital misallocations and then liquidating them. The root causes of the crisis remain in place and the underlying problems unaddressed. For example, mortgage-backed securities worth billions have still not been placed at market-clearing levels with private investors but are being artificially supported either directly by the Federal Reserve or indirectly by the banking sector that has been encouraged with vast amounts of free money from the Fed to hold onto these securities. Without a free market and uninhibited price formation, there is simply no way of telling what the true demand for these securities is and which of them are supported by private capital and true savings.

The American Dream Is Not Dead: (But Populism Could Kill It)
by Michael R. Strain
Published 25 Feb 2020

At lower wages, fewer people want to work, but firms want to hire relatively more workers. The market settles on an equilibrium wage rate at which every firm can hire as many workers as it wants (knowing it has to pay the equilibrium wage) and every worker who wants to work (for the equilibrium wage) can find a job. The labor market clears. Labor supply equals labor demand. This model leaves out quite a bit. Importantly, in actual labor markets, firms have some control over the wages they pay their workers. Wages may need to be higher than the “equilibrium market wage” in order to induce workers to switch employers or move to a new city.

The Irrational Economist: Making Decisions in a Dangerous World
by Erwann Michel-Kerjan and Paul Slovic
Published 5 Jan 2010

GENERAL EQUILIBRIUM AND CREDIT INSTRUMENTS The concept of general equilibrium was always implicit in any serious use of standard economic analysis, but it became explicit in the work of French economist Léon Walras (1874, 1877). The elements of the analysis are competitive markets in the individual commodities, each characterized by a large number of participants on both sides, all facing the same price, and by market clearing (buyers purchase the commodity from the sellers at this market price). Under these assumptions, there is no question of liquidity; any individual, taken to be small compared with the total market, can buy or sell at the unique market price. Money plays no essential role, except as a useful tool of accounting.

…

The markets are linked because the same individuals appear in all or at least many markets, and make choices as consumers or producers based on all prices. Hence, the price of one commodity affects market behavior on all other markets. Under these and other conditions, some remarkable theoretical results have been obtained. There will be a set of prices (possibly not unique) such that equilibrium (market clearing) can be achieved on all markets (with a suitable meaning for clearing when there is excess supply at zero price). Further, assume that individual behavior is rational, in the sense that individuals in these markets are maximizing the utility they derive from the goods they acquire. Then the allocation achieved at a competitive equilibrium is efficient in the sense that there is no other allocation in which some other individual is better off and no individual is worse off.

California Burning: The Fall of Pacific Gas and Electric--And What It Means for America's Power Grid
by Katherine Blunt
Published 29 Aug 2022

The Power Exchange would calculate total expected demand in any given hour and sort supply bids by price, from lowest to highest. It would first accept the lowest-priced bid and work up the list until it had secured enough supply to satisfy demand. The most expensive bid accepted through that process set what’s known as the market clearing price, the amount paid to any supplier who offered to sell at or under that threshold. Any bid above that threshold would be rejected as unnecessary. The Power Exchange would then relay the schedules to the grid operator, which would oversee power delivery and monitor supply and demand in real time.

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See also specific hedge funds Heffern family, 4 Henderson, Thelton, 157, 180, 189 Hoffman, Hallie, 151, 158–59, 168–70, 198–99 Hoffman, Tom, 178, 179 Hofmann, David, 215–16, 274 Howells, Julius, 24, 28–29, 30, 31, 36, 45 hydroelectric power, 25–28 mechanics of, 25 nation’s first power plant in Appleton, 26–27 hydropower, 25 I An Inconvenient Truth (Gore), 96 Insull, Samuel, 39, 40 International Brotherhood of Electrical Workers Local 1245, 92–93 inverse condemnation, 100–101, 188 Investor Summit on Climate Risk, 2008, 98–99 Iranian Revolution, 55 J Johnson, Bill blackouts of 2019 and, 229–31 named CEO of PG&E, 211–12 PG&E guilty plea to homicide for Camp Fire and, 279–80, 283–84 questioned by Abrams at bankruptcy hearing, 2–5 rejects San Francisco’s purchase offer, 235–36 resignation from PG&E of, 6, 286 K Keenan, Jack, 134 KeySpan Corporation, 110–11 Kincade Fire, 231–32 Klarman, Seth, 244 Knighthead Capital Management, 212–13, 244, 280, 281 L Latham & Watkins LLP, 158, 159 Lay, Ken, 71 Liccardo, Sam, 238–39 Lloyd’s Register, 119–20, 121 Los Angeles Department of Water and Power, 101 M Manegold, Bill, 171–75, 269 market clearing price, 66 market power, 41 Martin, John, 32, 33–35, 45 megawatt hours, 65 Middle East oil supplies, 54 Mirant, 63 Mojave Solar, 127–30 Monday Night Football game, blackouts at, 118–19 monopolies, 39–40 Montali, Dennis, 202–3, 245–47 Moody’s, 281 Musk, Elon, 97 N National Transportation Safety Board (NTSB), 109–10, 117–18 natural gas, 56 Natural Gas Pipeline Safety Act (1968), 148, 153, 168 natural monopolies, 39–40 Newsom, Gavin, 202, 213–14 appoints Batjer to head CPUC, 228 blackouts of 2019 and, 228, 232–33 state fund for utilities’ future liabilities cost and, 217–18 supports PG&E bankruptcy plan, 240–41 Niagara Falls hydroelectric plant, 27 Nixon, Richard, 55 Noel, Marc Camp Fire investigation of, 14–15, 198, 267–70 Dixie Fire investigation of, 290 request PG&E send evidence to FBI, 19–20 North American Company Great Western Power Company acquired by, 45–46 PG&E and Great Western merger and, 46–47 North American Electric Reliability Corporation (NERC), 117, 137 NRG Energy, 63 NTSB.

Crude Volatility: The History and the Future of Boom-Bust Oil Prices
by Robert McNally
Published 17 Jan 2017

Meanwhile, prices on crude and refined products remained frozen for the big oil producers and importers accounting for 95 percent of the market, constrained in their ability to expand production.41 Customers of the big companies—independent marketers, fuel oil distributors, and other large fuel purchasers—found themselves unable to get the supply they needed at controlled prices. This is not surprising, since basic economics tells us when prices are held below market–clearing level, producers suffer losses if they produce or expand. Physical shortages result. Rising prices and shortages thrust the oil industry into the public’s crosshairs. Claims that the big firms were “holding back” supplies began to surface. Political pressure rose for the federal government to expand regulation beyond prices onto supply via the direct allocation (in other words, rationing) of supplies of crude and refined products.

…

Domestic production fell, which increased dependence on imports.45 Second, the price controls increased incentives to import oil which in turn emboldened OPEC and made the U.S. more likely to see higher prices.46 The famous gas lines and shortages of the mid-1970s originated partly from price controls47 (to the extent controls held prices below market—clearing levels, they stimulated consumption), but mainly from allocation programs, state regulations, and consumer panic. Allocation programs, which stipulated the geographic allotment of fuel and were based on historical consumption patterns, denied oil companies the flexibility to move supplies from ample to lacking parts of the country.

Luxury Fever: Why Money Fails to Satisfy in an Era of Excess
by Robert H. Frank
Published 15 Jan 1999

During the energy crises of the 1970s, for example, concern for the well-being of the poor led to the imposition of gasoline price controls, and a resulting need to ration short supplies. The lines of cars queued up for gas at many urban stations stretched for several blocks, each car belching fumes and wasting fuel as it inched toward the pumps. Far better for all would have been allowing gasoline prices to rise to their market-clearing levels, and then increasing the monetary supplement to ease the burden on the poor. Rent controls and subsidized public housing are similarly clumsy and wasteful ways of trying to deliver services that the poor could better purchase for themselves in the open market, if only they had more income.

…

Fatsis, Stefan. “Boomers Return to the Ski Slopes—To Nest,” Wall Street Journal, January 17, 1997: B1, B10. Fehr, Ernst, and G. Kirchsteiger “Insider Power, Wage Discrimination, and Fairness,” Economic Journal 104, 1994: 571-83. Fehr, Ernst; G. Kirchsteiger; and A. Riedl. “Does Fairness Prevent Market Clearing? An Experimental Investigation,” Quarterly Journal of Economics 108, 1993: 439-59. Feldstein, Martin. “Taxing Consumption,” New Republic, February 28, 1976: 14-17. Feldstein, Martin. “The Effect of Marginal Tax Rates on Taxable Income: A Panel Study of the 1986 Tax Reform Act,” Journal of Political Economy 103, June 1995: 551-72.

Paved Paradise: How Parking Explains the World
by Henry Grabar
Published 8 May 2023

You paid for parking with every breath of dirty air, in the flood damage from the rain that ran off the fields of asphalt, in the higher electricity bills from running an air conditioner through the urban heat-island effect, in the vanishing natural land on the outskirts of the city. But you almost never paid for it when you parked your car, which created a localized supply-and-demand crisis. You could read the whole postwar parking history of U.S. cities this way: it was because cities had been reluctant to free up curb space with market-clearing pricing that they had to resort to more extreme measures, such as demolitions, money-losing public garages, and parking requirements. Shoup did a little back-of-the-napkin calculation. He took an estimate for how much a new parking space cost in 1998 ($4,000) and multiplied it by a conservative estimate of how many spaces existed per car (three) to conclude that there existed $12,000 in parking for every one of the country’s 208 million cars.

…

Finally, in April 2013, with Chestnut Street parking at $3.50 an hour and Lombard Street at $1 an hour, Lombard Street became the parking destination of choice for visitors to the Marina District. (The prices have continued to fluctuate since, in an effort to keep the neighborhood occupancy in equilibrium—if anything, the program has been criticized for taking too long to reach market-clearing prices.) Curbs opened; garages filled. Citations in pilot areas fell by 23 percent—maybe people finally felt they were getting a service worth paying for. Price changes reduced the time San Franciscans spent looking for parking by 43 to 50 percent in pilot areas (and by 13 percent elsewhere).

Letters to My Palestinian Neighbor
by Yossi Klein Halevi
Published 14 May 2018

We politely asked vendors to close. Most of us were older recruits, and we were abashed before these men, fathers like us who only wanted to feed their families. Sensing our reluctance, the vendors ignored us. An officer appeared. Wordlessly he approached a stand selling lemons and emptied the contents on the ground. The market cleared. A chubby teenage Palestinian boy, accused of stone throwing, was brought, blindfolded, into our tent camp. A group of soldiers from the Border Police unit gathered around. One said to him in Arabic, Repeat after me: One order of hummus, one order of fava beans, I love the Border Police. The young man dutifully repeated the rhymed Arabic ditty.

The Economics Anti-Textbook: A Critical Thinker's Guide to Microeconomics
by Rod Hill and Anthony Myatt
Published 15 Mar 2010

Many years ago Imre Lak­ atos (1978) explained that we should expect this to be the case – at least the ‘incapable of refutation’ part. out of the question. To conduct a test, a complete model of supply, demand, and price adjustment must be specified, estimated, and used to derive a quantitative measure of the speed at which the market-clearing price moves. Then actual price movements can be compared to this norm. This … is one of the ways that econometricians have demonstrated that prices and wages are sticky. But, of course, any such demonstration is conditional on the validity of the many maintained hypotheses used as the framework for estimation.

…

In the mad scramble to sell, prices fall precipitously. Fundamental values suddenly don’t matter. Individuals and companies that borrowed heavily to participate in the real estate boom find themselves with negative net asset values. When the loans are called in, bankruptcy looms. Interest rates aren’t always at their market clearing level Bankruptcies highlight an important point: the destruction of wealth in the downturn isn’t limited to decreases in asset prices – real wealth is also destroyed. Machines are mothballed, factories are closed. Some may never reopen. Financial institutions find themselves not only short of liquidity, but also short of capital.

The Business Blockchain: Promise, Practice, and Application of the Next Internet Technology
by William Mougayar
Published 25 Apr 2016

Legally binding governance-related matters will be easily implemented across distributed teams. Remote voting will be trusted, even at national levels, in legally binding political elections. Trading exchanges (stocks, commodity, financial instruments) will adopt blockchain-based trust services for validating transactions, and streamlining their market-clearing activities. Most banks will support routine bi-directional cryptocurrency transactions (between regular currency and cryptocurrency). Most merchants will accept cryptocurrency as a payment option. Accounting, billing and financial packages will include cryptocurrency as standard choices, including crypto-equity.

Culture and Prosperity: The Truth About Markets - Why Some Nations Are Rich but Most Remain Poor
by John Kay
Published 24 May 2004

The lights stay on, the flowers that arrive at San Remo at the beginning of the morning leave it at the end. This solves part of the coordination problem, but only part. The remarkable feature of the market economy is that it seems to solve a large variety of coordination problems simultaneously. The flower market clears, and at the same time electricity demand balances supply. There are enough trucks at the market, but not too many; enough gas for power stations, but not too much. Central planners always found it easy to deal with any particular coordination failure. By switching resources you can always relieve a shortage or a surplus: this is what we do when we plan our households or our businesses, and it is what the people who ran the Soviet { 174} John Kay economy did all the time.

…

The employer is concerned about the abilities and commitment of his staff; the worker wants a pleasant environment and congenial and capable colleagues. Concepts of the "going rate" are important to the decisions of employers and employees. And since prices have an informational function as well as a market-clearing function, there are good reasons for this. But a consequence is that in the labor market, as in the property market, prices will adjust only slowly to changing economic conditions. So there is unemployment in slumps, and labor shortages in booms. 11 And so the Arrow-Debreu model can be no more than a partial explanation of how market economies solve coordination problems.

The End of Alchemy: Money, Banking and the Future of the Global Economy
by Mervyn King
Published 3 Mar 2016

When bidding in the auction, consumers must bid not only for the good they want – lunch in their favourite Manhattan restaurant, say – and the date on which they want it – next Tuesday – but also for the ‘state of the world’ in which they wish to purchase it. For example, if the restaurant is outdoors you might bid high for a table if next Tuesday were to be sunny and perhaps zero for a table if it were cold or wet. Market-clearing prices are likely to be high in the former ‘state of the world’ and low in the latter. The key point is that all transactions can be made in advance because it is possible, in this theoretical view, to identify all relevant states of the world and make the auction contingent on them. In other words, radical uncertainty is ruled out by assumption.

…

Pre-agreed instructions embedded in computer algorithms would determine the sequence in which financial assets belonging to the purchaser were sold and used to augment the financial assets of the vendor, also in a pre-agreed sequence. Assets used in this way could be any for which there were market-clearing prices in ‘real time’. Someone buying a meal in a restaurant might use a card, as now, but the result would not be a transfer from their bank account to that of the restaurant; instead there would be a sale of shares from the diner’s portfolio and the acquisition of different shares, or other assets, to the same value by the restaurant.

Expected Returns: An Investor's Guide to Harvesting Market Rewards
by Antti Ilmanen
Published 4 Apr 2011

In equilibrium (i.e., if price is equal to value), the expected return on the market portfolio, the return forecast for the equity market or any other market, should equal that market’s required return. The expected return determines how high a return the market can feasibly supply, while the required return determines how high a return market participants (as a group) demand (in order to hold the amount of an asset that is on offer, so that markets clear and all assets are held). As always, market prices adjust to balance supply and demand. For example, if all investors suddenly require higher risk premia, current market prices of risky assets must fall. Time variation in objectively feasible future returns may reflect mispricing caused by irrational expectations or sentiment fluctuations—but its origins could also be fully rational, reflecting risk premia that are time varying due to variation in the amount of risk in the market or in market participants’ tolerance for risk.

…

These assumptions ensure that every investor holds the same portfolio of risky assets, combining it with some amount, positive or negative, of the riskless asset (this latter amount depends on the specific risk aversion of a given investor). Moreover, these assumptions lead to the conclusion that the holdings just described are optimal. Finally, in equilibrium, market clearing requires that the risky asset portfolio demanded in common by all investors equals the market portfolio of risky assets. The CAPM’s asset-pricing implication is that assets with a higher sensitivity to the market [2] should offer a higher expected return—see equation (5.2), which is a simple rendition of the CAPM.

…

The prototypical case involves time-separable utility (only current and future consumption matter, not past consumption) and constant relative risk aversion (the same proportion of wealth is invested in the risky asset at all wealth levels). In equilibrium, asset prices are set so that the consumer holds all the assets (market clearing) and is indifferent to buying or selling a small unit of any asset. Such optimizing behavior implies the fundamental valuation equation (5.3), that asset price is equal to the expected product of a future payoff and the SDF. [6] A common formal specification assumes a representative agent and time-separable utility of consumption.

The End of Loser Liberalism: Making Markets Progressive
by Dean Baker
Published 1 Jan 2011

This sort of charade has allowed both the Obama and Bush administrations to claim that they are concerned about the overvaluation of the dollar and that they are doing what they can to rectify the situation. Yet the United States has the power to unilaterally take steps to lower the value of the dollar against other currencies. It can be difficult or even impossible to keep the price of a currency above the market-clearing level, but it is always possible to push down the value of a currency, through relatively simple mechanisms. One route, which is completely legal under all U.S. trade agreements, would be to tax the interest earnings of a country that we believe is maintaining an undervalued currency against the dollar.

Angrynomics
by Eric Lonergan and Mark Blyth
Published 15 Jun 2020

ERIC: Now, if Polanyi gives us the first piece of the puzzle regarding where today’s angrynomics comes from – from the fiction that labour is just another commodity, which is politically unsustainable in practice – then the second piece of the puzzle comes from our friend John in our opening parable. John is, of course, John Maynard Keynes, who wrote a book in 1936 that was also a reflection on the failure of Capitalism v.1.0 called The General Theory of Employment, Interest and Money. Prior to Keynes, economists thought that left on their own markets clear (buyers find sellers and workers find employment), and through free competition full employment would be produced. Keynes argued against this view, drawing on his understanding of the then on-going Great Depression, arguing that most of the time we don’t actually inhabit a world where markets always clear and the poorest improve along with the richest.

The Default Line: The Inside Story of People, Banks and Entire Nations on the Edge
by Faisal Islam
Published 28 Aug 2013

Although it is borrowed money, it doesn’t count as public-sector borrowing but as a ‘financial transaction’ instead. The banks fund 75 per cent, a less risky and therefore cheaper mortgage, and the buyer pays a 5 per cent deposit. It basically opens up affordable mortgages to buyers with small deposits. Was there not a simpler solution to jump-start the market? Why not let the market clear, and prices fall to reflect falling real incomes, weak economic growth? Indeed, why doesn’t Taylor Wimpey just cut the prices of its homes? ‘Life’s not that simple,’ Redfern tells me. He mentions the impact on local existing homes if new home prices were cut. ‘I don’t think it’s very desirable for people who have already bought from us, and people in the surrounding village.

…

DEFAULT LINE #6: The role of economics Economics has developed into something of a state-backed theology in public policy. It is social science that has become a language for the calculation of costs and benefits. Its magical powers have been overstated, however. Many of these economic analyses are just extrapolations and the only accurate analysis is provided with hindsight. Conventional market-clearing equilibrium economics inculcates a mindset of econofatalism: a belief that nothing can be done to change the inevitable financial fate of a nation’s economy. Milton Friedman developed the concept of the ‘superneutrality’ of money. Superneutrality is an apt description of the approach to public policy that arises out of the overuse of economics.

Willful: How We Choose What We Do
by Richard Robb
Published 12 Nov 2019

But Diogenes argues that the merchant is not obligated to reveal this information because there is a significant difference between not revealing and actively concealing. Antipater favors disclosure on the basis that “it is your duty to consider the interests of your fellow-men and to serve society.”4 The primary impact of disclosure would be on the market-clearing price and hence on the merchant’s profit. Either way, the people of Rhodes, taken as a whole, will end up with the same amount of grain on the same schedule.5 Thus the question is really, how much money should the Rhodians transfer to the merchant? And how important is the principle that honesty is the best policy?

The Currency Cold War: Cash and Cryptography, Hash Rates and Hegemony
by David G. W. Birch
Published 14 Apr 2020

However, as de Bono explains in ‘The IBM dollar’, in an always-on networked world this complexity is no barrier to trade: Pre-agreed algorithms would determine which financial assets were sold by the purchaser of the good or service depending on the value of the transaction. And the supplier of that good or service would know that incoming funds would be allocated to the appropriate combination of assets as prescribed by another pre-agreed algorithm. Eligible assets would be any financial assets for which there were market clearing prices in real time. The same system could match demands and supplies of financial assets, determine prices and make settlements. Note his adumbration of Bitcoin’s lack of intermediaries and settlement. Remember, he was writing this before there was a Google or a Netscape, let alone a PayPal or an M-Pesa.

Red Plenty
by Francis Spufford
Published 1 Jan 2007

Other sources, without Ellman’s bite and analytical clarity, are John Pearce Hardt, ed., Mathematics and Computers in Soviet Economic Planning (New Haven CT: Yale University Press, 1967), and Martin Cave, Computers and Economic Planning: The perience (Cambridge: CUP, 1980). 6 The recording clerks sally out from the Ministry of Trade’s little booths: among other things, as an information-gathering exercise, to collect a set of market-clearing prices which could then be used to help establish the price level for the bulk of food trade, in state stores. The state price was always cheaper, guaranteeing that food at the state price would always be in shortage relative to the money available to pay for it, but how much cheaper it was varied, depending both on the irregular jumps of the official prices and the more continuous adjustment of the market prices.

…

Other sources, without Ellman’s bite and analytical clarity, are John Pearce Hardt, ed., Mathematics and Computers in Soviet Economic Planning (New Haven CT: Yale University Press, 1967), and Martin Cave, Computers and Economic Planning: The Soviet Experience (Cambridge: CUP, 1980). 6 The recording clerks sally out from the Ministry of Trade’s little booths: among other things, as an information-gathering exercise, to collect a set of market-clearing prices which could then be used to help establish the price level for the bulk of food trade, in state stores. The state price was always cheaper, guaranteeing that food at the state price would always be in shortage relative to the money available to pay for it, but how much cheaper it was varied, depending both on the irregular jumps of the official prices and the more continuous adjustment of the market prices.

Statistical Arbitrage: Algorithmic Trading Insights and Techniques
by Andrew Pole
Published 14 Sep 2007

Here, however, the rules are defined by human modelers and not the laws of the physical universe, and they are changeable. Noise is omnipresent as human traders still directly preempt a sizable chunk of market activity and originate all transactions. Notwithstanding the noise, the new forces for equilibrium are searching not for fair relative prices but fair (mutually accepted by participating entities) market clearing. This new paradigm may be a reversion (!!!) to an age-old paradigm of economics: perfect competition. Now, on that train of thought one might conjure ideas of dynamic cobweb algorithms, game theoretic strategies, and perhaps a necessary repositioning of research into behavioral finance. Volatility will remain consumed by the algorithms.

Gigged: The End of the Job and the Future of Work
by Sarah Kessler
Published 11 Jun 2018

On average, it estimated they were making $10.75 per hour in the Houston area, $8.77 per hour in Detroit, and $13.17 in Denver, which was slightly less than Walmart’s average full-time hourly rate in 2016.13 Based on the pricing model data, BuzzFeed determined that gas, insurance, and other costs of doing business amounted to about 22% of full-time drivers’ gross pay in Denver, 24% in Houston, and 31% in Detroit.14 Wages in all three markets cleared the minimum-wage, but not by much. And unlike a minimum- wage job, driving for Uber came without any paid breaks or benefits like health insurance. What it paid could change any time. As Uber was pitching its company as a way to start a mini-business, internal presentations (which would eventually also leak to the press) showed that it considered the biggest competitor to its gig-based jobs to be McDonald’s.15 In January 2017, the company agreed to pay the Federal Trade Commission (FTC) $20 million to settle charges that it misled prospective drivers by exaggerating how much money they would make.16 Some drivers were still content with the service, despite the gap between its advertised opportunity and its actual pay.

Retirementology: Rethinking the American Dream in a New Economy
by Gregory Brandon Salsbury
Published 15 Mar 2010

It’s equally difficult to find out exactly when the healthcare menagerie we have now came into existence. When did employer-provided health insurance become the norm? Did the need for insurance ever really intersect with market forces? And if they did intersect, did they simply collide and cause a big mess rather than bring together the buyer and seller of a service at a market-clearing price? That’s the way it works in every other segment of our economy: A product or service is offered at a price, and people decide whether that price is worthwhile for the product or service. But when it comes to healthcare, there’s been a disruption in that consumer/producer relationship. Something has kept marketers from directly meeting the needs of the consumers who want or need the product.

Never Let a Serious Crisis Go to Waste: How Neoliberalism Survived the Financial Meltdown
by Philip Mirowski
Published 24 Jun 2013

Geanakoplos likes to phrase his commentary in terms of “cycles,” but in fact, general equilibrium forces him to posit separate and unconnected sequential states of equilibrium, driven in a Rube Goldberg fashion by the arbitrarily sequenced arrival of asset issuance→“news”→valuation. Each state along the way is in “equilibrium,” as defined by constrained optimization and market clearing. Because everything is always already in equilibrium, the only reason anything changes is the deus ex machina imposed from outside by the model builder. Worse, the sequence itself is completely arbitrary, dictated more by the math than by anything that happens in the world: for instance, each player has only one chance to issue assets, is proscribed from trading them on secondary markets, and consumption can happen only at the initial issuance and at the end of time.108 It seems that, however proud he may be of hewing to Walrasian heuristics, the suite of models he has constructed rarely do much to actually illuminate the actual crisis and aftermath.

…

One immediate consequence of this view was that the imposing magnitude of the toxic asset problem was not necessarily worrisome, nor was the possibility that the TARP program would be unable to remove the vast majority of the toxic assets from banks’ balance sheets: The “losers” are not left high and dry. By determining the market clearing price, the auction increases liquidity . . . The auction has effectively aggregated information about the security’s value. This price information is the essential ingredient needed to restore the secondary market for mortgage backed securities.130 What mattered, they insisted, was “information”: information would summon forth funds from private actors, thereby thawing frozen secondary markets.

The Inner Lives of Markets: How People Shape Them—And They Shape Us
by Tim Sullivan
Published 6 Jun 2016

Congestion pricing is related to Uber’s surge pricing, where prices go up when there are fewer cars or more people looking for a ride. But the rationale is a bit different. Vickrey was focused on preventing the negative externalities that occur when a system is overloaded by too many customers. Uber just wants to reequilibrate supply and demand in real time to let markets clear—to make sure supply meets demand—by the minute. 7. A classic result in auction theory, the Revenue Equivalence Theorem, shows that, with appropriate assumptions on buyer and seller attributes like risk preferences, first- and second-price auctions can be expected to generate the same revenues for the seller, on average.

Broken Markets: A User's Guide to the Post-Finance Economy
by Kevin Mellyn
Published 18 Jun 2012

There was the opportunity to simultaneously increase temporary income support while making pro-growth reforms in the tax code and providing a road map to sustainable public finances, something the bipartisan Simpson-Bowles Commission sketched out. Even an increase in direct government purchases of military hardware might have helped, as it did after 1940. So would a plan to let the financial, especially the mortgage, markets clear through actually finding a bottom at which assets would find ready buyers.The window for bold action with bipartisan support was there, as it was in 1933. Whatever one thinks of the New Deal, Roosevelt treated the Depression as a national emergency equivalent to war and focused on nothing else in his famous 100 days.

Tyler Cowen-Discover Your Inner Economist Use Incentives to Fall in Love, Survive Your Next Meeting, and Motivate Your Dentist-Plume (2008)
by Unknown
Published 20 Sep 2008

People want their sex to consist of peaks, rather than seeking to Avoiding the Seven Deadly Sins (or Not) I 181 maximize lifetime pleasure. Thomas Schelling once told me he does not always listen to Bach, even when he feels like doing so. He wants to keep it as a special experience. 7. The market-clearing price for more sex is positive. Overall men want sex more than women do, plus many women are more selective in their choice of partner. Many men are bidding, implicitlyor explicitly, for a smaller number of women. Yet people feel shame about paying or receiving money in too explicit a fashion (see also #4).

Hubris: Why Economists Failed to Predict the Crisis and How to Avoid the Next One
by Meghnad Desai
Published 15 Feb 2015

Samuelson’s student Lawrence Klein, who had coined the term “the Keynesian Revolution,” became known for translating Keynesian ideas into econometric models, which could then be used for policy purposes.10 There was, however, a problem at the heart of economics. In microeconomics, the theory of single markets taken individually (partial equilibrium) or taken simultaneously (general equilibrium) was taught. Economists learnt that the market works, that is, that all markets clear and there is no excess supply left unsold or excess demand left unsatisfied at the end of the day. In macroeconomics, they learnt that the labor market often failed to clear and hence public policy was needed to correct that anomaly. The two strands seemed incompatible. Walrasian or Marshallian economics did not face this problem.

99%: Mass Impoverishment and How We Can End It
by Mark Thomas
Published 7 Aug 2019

In the words of another Nobel Prize-winning economist, Joseph Stiglitz, ‘not only did the model fail to predict the Crisis; it effectively said that it couldn’t happen. Under the core hypotheses (rational expectations, exogenous shocks), a crisis of that form and magnitude simply couldn’t occur.’5 In the same way, long-term unemployment is impossible in a model in which all markets clear quickly. And of particular interest to this book, mass impoverishment can never be an issue in an economy where there is a single representative household. If these features of the real-world are important problems – which they clearly are – policymakers have no hope of deriving any relevant insight from DSGE models as they are currently constructed.

Before Babylon, Beyond Bitcoin: From Money That We Understand to Money That Understands Us (Perspectives)
by David Birch
Published 14 Jun 2017

In his original work de Bono puts it quite nicely when he says: Pre-agreed algorithms would determine which financial assets were sold by the purchaser of the good or service depending on the value of the transaction. And the supplier of that good or service would know that the incoming funds would be allocated to the appropriate combination of assets as prescribed by another pre-agreed algorithm. Eligible assets will be any financial assets for which there were market clearing prices in real time. The same system could match demands and supplies of financial assets, determine prices and make settlements. I cannot resist pointing out that de Bono also wrote that the key to any such developments ‘is the ability of computers to communicate in real time to permit instantaneous verification of the creditworthiness of counterparties’: this is an early vision of what we might now call the reputation economy, which I explored in my previous book, where I noted that identities and credentials are easy to create and destroy but reputations are much harder to subvert since they depend not on what anyone thinks but on what everyone thinks (Birch 2014).

How Much Is Enough?: Money and the Good Life
by Robert Skidelsky and Edward Skidelsky
Published 18 Jun 2012

More recent proposals, such as Milton Friedman’s “negative income tax”—a single cash payment to all those whose incomes fell below a certain threshold—have been seen as cheaper way of providing social security.16 Something called “basic income” has also been promoted as a way of topping up wages when the market-clearing wage fell below subsistence, and in this form has been widely adopted in the form of tax credits. Most of the earlier arguments were rights-, or entitlement-, based, a typical one being that each citizen had a right to a share of the nation’s patrimony—its stock of assets, natural or inherited—in compensation for the original act of property despoliation.

Who Gets What — and Why: The New Economics of Matchmaking and Market Design
by Alvin E. Roth
Published 1 Jun 2015

Xiaolin Xing and I studied the labor market for professional psychologists at a time when they tried to implement something like the deferred acceptance algorithm by telephone. It was too congested for them to get to a stable matching: trying to conduct all the steps of the deferred acceptance algorithm through long chains of phone calls took too long. See A. E. Roth and X. Xing, “Turnaround Time and Bottlenecks in Market Clearing: Decentralized Matching in the Market for Clinical Psychologists,” Journal of Political Economy 105 (April 1997): 284–329. Today they use the same kind of computerized clearinghouse that we designed for the medical Match. [>] counterexample: Gale and Shapley’s proof that a stable matching always exists when no couples are present is what mathematicians call a theorem, while an example that shows that conclusion no longer follows when couples are present is called a counterexample, because it is an example that goes counter to what we might have expected from the theorem.

Losing Control: The Emerging Threats to Western Prosperity
by Stephen D. King
Published 14 Jun 2010

China, for example, has a level of income inequality similar to that of the US, an ironic result given the countries’ differing political systems. In an attempt to deliver social cohesion in the light of rising commodity prices, many fast-growing emerging markets choose to subsidize the prices of staples such as food and energy. This effectively raises consumption over and above the market clearing level. Higher consumption in the emerging world must, though, imply lower consumption elsewhere: the developed world ends up paying an even higher price for access to the world’s raw materials. Inflation in the emerging markets may tend to drift higher as a result of economic catch-up accompanied by fixed nominal exchange rates, but there is also a danger of nasty inflation surprises that stem from emerging-market linkages to the US dollar.

Stolen: How to Save the World From Financialisation
by Grace Blakeley
Published 9 Sep 2019

In the inter-war period, Keynes had mounted a challenge to the economics profession by developing a theory of economic demand that challenged the central tenet of classical economics — Say’s law, the idea that supply creates its own demand.8 According to Jean-Baptiste Say — a Napoleonic-era French economist — prices in a free market will rise and fall to ensure that the market “clears”, leaving no goods or services left once everyone has had the chance to bid. If the market fails to clear — i.e. if businesses have products to sell but no one wants to buy them — it is because something is getting in the way of the price mechanism, like taxes or regulation. The law applied to workers as well as commodities, which reinforced the idea that there could be such a thing as involuntary unemployment.

The Enablers: How the West Supports Kleptocrats and Corruption - Endangering Our Democracy
by Frank Vogl
Published 14 Jul 2021

Their countries need to be part of the global economic system, not ostracized. The costs of banning them from the bond markets would be shouldered, above all, by their citizens. It is not an option. Klepto-borrowers in the sovereign debt markets need to be warned that their anti-corruption performance will be critical in determining their access to the markets. Clear warnings to this effect need to be made by the stock exchanges that list the bonds, by the investment bankers who manage the bond issues, and the ratings agencies that assign risk levels to the bonds. Investors need far better education about the corruption risks in this context. Bond prospectuses need to contain clear statements by the borrowers as to how they plan to use the funds to benefit their citizens.

Debunking Economics - Revised, Expanded and Integrated Edition: The Naked Emperor Dethroned?
by Steve Keen
Published 21 Sep 2011

In considering why the data so strongly contradicted the theory, Fama admitted two points that I labored to make in this chapter: that the theory assumes that all agents have the same expectations about the future and that those expectations are correct. Though they put this in a very awkward way, this is unmistakably what they said in this paragraph: Sharpe (1964) and Lintner […] add two key assumptions to the Markowitz model to identify a portfolio that must be mean-variance-efficient. The first assumption is complete agreement: given market clearing asset prices at t-1, investors agree on the joint distribution of asset returns from t-1 to t. And this distribution is the true one – that is, it is the distribution from which the returns we use to test the model are drawn. (Ibid.: 26; emphasis added) A whole generation of economists has thus been taught a theory about finance that assumes that people can predict the future – without that being admitted in the textbook treatments to which they have been exposed, where instead euphemisms such as ‘investors make use of all available information’ hide the absurd assumptions at the core of the theory.

…

As a New Keynesian model it allows for various ‘imperfections,’ and tellingly they remark that without ‘short-run nominal wage rigidity’ and a stylized but trivial role for money (‘Money is introduced into the model through a restriction that households require money to purchase goods’), the model would simply predict that full-employment equilibrium would apply at all times: The model also allows for short-run nominal wage rigidity (by different degrees in different countries) and therefore allows for significant periods of unemployment depending on the labor-market institutions in each country. This assumption, when taken together with the explicit role for money, is what gives the model its ‘macroeconomic’ characteristics. (Here again the model’s assumptions differ from the standard market-clearing assumption in most CGE models.) […] Although it is assumed that market forces eventually drive the world economy to neoclassical steady-state growth equilibrium, unemployment does emerge for long periods owing to wage stickiness, to an extent that differs between countries owing to differences in labor-market institutions.

The End of Theory: Financial Crises, the Failure of Economics, and the Sweep of Human Interaction
by Richard Bookstaber
Published 1 May 2017

Mencken wrote that there is “always an easy solution to every human problem—neat, plausible, and wrong.” And neoclassical economics has been wrong. Its main result, so far, has been to demonstrate the futility of trying to build a bridge between axiomatic, deductive models and the real world. Assuming, for example, perfect knowledge and instant market clearing simply misses the point. Economists cast aside the very subject we want to study: crises that are wrapped in uncertainty, that alter our views of the world in surprising ways beyond the scope of our precrisis probabilities and worldview, that create an instability that is not merely a local aberration but is running off the tracks and careening down the mountain.

When the Money Runs Out: The End of Western Affluence
by Stephen D. King
Published 17 Jun 2013

If economies are incapable of healing on their own, we put our faith in the policy-maker's magic wand. The debate on the ability or otherwise of economies to ‘self-adjust’ is long and tortuous. Before the Weimar Republic's hyperinflation in the early 1920s and the Great Depression of the 1930s, there had been few recognized instances of major macroeconomic calamities. The assumption was that markets ‘cleared’. A rise in unemployment would be met by a fall in wages, thereby allowing workers to price themselves back into the market. An excessive increase in consumer demand would lead to higher prices: wage earners would end up worse off in real terms, bringing demand back on track. A sudden reduction in capital spending would lead to lower interest rates – the supply of savings would now be greater than the demand for loans – thus encouraging households to spend rather than save.

Straight Talk on Trade: Ideas for a Sane World Economy
by Dani Rodrik
Published 8 Oct 2017

Their first-order effect is to level the bargaining relationship between employers and employees, rather than to raise overall costs of production. And even when costs are affected, any adverse effects could be easily offset by improved morale, better incentives, and reduced turnover of the workforce. Minimum wages are somewhat different in that they directly raise the cost of labor. Minimum wages that are not too far from the market-clearing competitive level may not do much damage to overall employment while improving labor conditions somewhat. The same cannot be said of minimum wages that are far above this level. The danger then is that many job-seekers will be denied opportunities of employment by being priced out of the market.

Reinventing the Bazaar: A Natural History of Markets
by John McMillan
Published 1 Jan 2002

Companies wanting to sell submit offers of quantity and price. A bank of computers array the bids and offers and, hour by hour, calculate the price at which supply meets demand. (Such an auction would not have been feasible a few years earlier, by the way, for powerful computers are needed to instantly compare the bids, compute the market-clearing price, and allocate the quantity orders to the buyers and sellers.) The auction prices rose higher and higher. “We are so far into the realm of extraordinary gouging we are orders of magnitude off the chart,” California Assembly Speaker Fred Keeley told the Federal Energy Regulatory Commission in 2001.

Lectures on Urban Economics
by Jan K. Brueckner
Published 14 May 2011

In other words, the cap-and-trade system ensures that the chosen total pollution level will be generated with the lowest possible total abatement costs.4 Note that the operation of the pollution-rights market will ensure that sales and purchases of rights exactly balance, an outcome that requires a market-clearing level for the price s. Another observation is that the (conditional) social optimum will also emerge if polluters start out with no pollution rights and must buy them from the government. Then every polluter will be a buyer, and each equal will set MB equal to the price s in choosing its level of pollution (and its purchase of pollution rights).

Free Money for All: A Basic Income Guarantee Solution for the Twenty-First Century
by Mark Walker
Published 29 Nov 2015

So, Rawls seems to be assuming a false dilemma, either the Malibu surfer must work a 40-hour week and is entitled to the full $30,000, or the Malibu surfer is entitled to nothing. But, as we have seen in the case of Sara and Freddie, this is a very unRawlsian view. The third point is that there are further advantages to perennial surfers not working that Rawls does not seem to consider. One benefit is that for every perennial surfer, the market clearing rate for labor rises. That is, for the US economy as a whole, there is a surplus of workers, there are more people seeking work than there are jobs. Since this point applies to the economy as a whole, it is consistent with shortages of workers in certain segments of the economy. If some drop out of the competitive pool looking for work, this means there will be more competition among employers for employees.

The Truth Machine: The Blockchain and the Future of Everything
by Paul Vigna and Michael J. Casey
Published 27 Feb 2018

Intermediate goods that would otherwise be encumbered by a pre-established chain of unsettled commitments can instead be put out to bid to see if other buyers want to take on the rights and obligations associated with them. This would attract alternative sources of impromptu demand, which could have a market-clearing effect on resource management. Enhanced visibility on business processes, when coupled with the ability to find liquid markets for goods-linked digital assets, means that industrial actors could be incentivized, like never before, to be both environmentally responsible and profitable. It’s similar to the principle, explored above, of using price signals to optimize a solar microgrid.

The Wisdom of Crowds
by James Surowiecki
Published 1 Jan 2004

If no one accepted the bid, then you’d presumably raise it until you were able to find someone to accept your price. Smith was doing this experiment for a simple reason. Economic theory predicts that if you let buyers and sellers trade with each other, the bids and asks will quickly converge on a single price, which is the price where supply and demand meet, or what economists call the “market-clearing price.” What Smith wanted to find out was whether economic theory fit reality. It did. The offers in the experimental market quickly converged on one price. They did so even though none of the students wanted this result (buyers wanted prices to be lower, sellers wanted prices to be higher), and even though the students didn’t know anything except the prices on their cards.

The Clash of the Cultures
by John C. Bogle
Published 30 Jun 2012

I wince when the Federal Reserve states its intention to raise asset prices—including “higher stock prices”—apparently irrespective of the level of underlying intrinsic stock values. Substantive limits on short selling are another nonstarter for me. The overriding principle should be: Let the markets clear, at whatever prices that willing and informed buyers agree to pay to willing and informed (but often better-informed) sellers. Individual investors need to wake up. Adam Smith–like, they need to look after their own best interests. Of course, that would mean that individual investors must demand much better, clearer, and more pointed disclosures.

Postcapitalism: A Guide to Our Future
by Paul Mason
Published 29 Jul 2015

In its first major macro-economic study of the internet, in 2013, the OECD admitted: ‘While the internet’s impact on market transactions and value added has been undoubtedly far-reaching, its effect on non-market interactions … is even more profound. Non-market interactions on the internet are broadly characterised by the absence of a price and market-clearing mechanism.’ Marginalism supplies no metric, no model to understand how a price economy becomes a substantially non-price economy. As the OECD team put it: ‘Little attention has been paid to non-market interactions since few, if any, well-defined and well-grounded measurements have been commonly adopted.’33 Let’s admit, then, that only marginalism enables us to build price models in a capitalist society where everything is scarce.

Paper Promises
by Philip Coggan
Published 1 Dec 2011

During the Great Depression of the 1930s, orthodox (or classical) economists argued that the economy would eventually right itself. Unemployment was the result of an excessive price for labour: if wages were allowed to fall, workers would be priced back into jobs. Governments should balance the budget and not interfere with the market-clearing process, since any budget deficit would simply ‘crowd out’ private-sector spending. But the long period of stagnation, and the massed ranks of unemployed, undermined the classical economists’ case. Keynes offered a reasoned rebuttal. A recession was caused by a shortfall in demand, or to put it another way, an excess of saving (income can only be spent or saved).

A Pelican Introduction Economics: A User's Guide
by Ha-Joon Chang
Published 26 May 2014

The best way to impose such discipline on workers, according to this argument, is to make job loss costly to them by raising their wages above the market rate – if workers can get another job with equal pay easily, they will not be afraid of the threat of being fired. However, since all capitalists do the same, the result is that the overall wage rate is pushed above the ‘market-clearing’ level and unemployment is created. It is on the basis of this reasoning that Marx called the unemployed workers the reserve army of labour, who can be called upon any time if the hired workers become too unwieldy. It is on this ground that Michal Kalecki (1899–1970), the Polish economist who invented Keynes’s theory of effective demand before Keynes, argued that full employment is incompatible with capitalism.

The Bitcoin Standard: The Decentralized Alternative to Central Banking
by Saifedean Ammous
Published 23 Mar 2018

If the contractor realizes the mistake early on, the capital wasted on starting 120 houses might be very little, and a new contractor will be able to take the remaining bricks and use them to produce 90 houses. If the developer remains ignorant of the reality until the capital runs out, he will only have 120 unfinished homes that are worthless as nobody will pay to live in a roofless house. When the central bank manipulates the interest rate lower than the market clearing price by directing banks to create more money by lending, they are at once reducing the amount of savings available in society and increasing the quantity demanded by borrowers while also directing the borrowed capital toward projects which cannot be completed. Hence, the more unsound the form of money, and the easier it is for central banks to manipulate interest rates, the more severe the business cycles are.

The Accidental Investment Banker: Inside the Decade That Transformed Wall Street
by Jonathan A. Knee
Published 31 Jul 2006

Unlike issuing equity, underwriting highly leveraged companies in competitive markets can involve significant financial as well as reputational risks. Frequent issuers often demanded and received commitments from underwriters to “buy” an entire issue, something that never happened in an IPO where an offering simply prices where the market clears.5 For a debt security, the counterpart to a share price is the interest rate. Just as an issuer looking for the lowest cost of capital hopes for the highest share price in an IPO, he or she prays for a low interest rate on their junk bonds. “Buying” an issue involves an underwriter putting a backstop on the possible interest rate payable by the issuer: the bank will guarantee to absorb whatever portion of the offering the market will not accept at the specified rate.

Seventeen Contradictions and the End of Capitalism
by David Harvey
Published 3 Apr 2014

This meant that the capitalist state had to internalise limitations upon its autocratic powers and devolve the production of consensus to freely functioning individuals who internalised notions of social cohesion around the nation state. Above all, they had to consent to the regulation of activity through the procedures of the market. Clear limits were placed upon centralised power. The politics of the Tea Party as well as those of the autonomistas and the anarchists in the United States converge in seeking to limit or even to destroy the state, though in the name of pure individualism on the right and some sort of individualistically anchored associationism on the left.

Arguing With Zombies: Economics, Politics, and the Fight for a Better Future
by Paul Krugman
Published 28 Jan 2020

The map is not the territory, and it’s O.K. to use different kinds of maps depending on what you’re trying to accomplish: if you’re driving, a road map suffices, if you’re going hiking, you really need a topo. But economists were bound to push at the dividing line between micro and macro—which in practice has meant trying to make macro more like micro, basing more and more of it on optimization and market-clearing. And if the attempts to provide “microfoundations” fell short? Well, given human propensities, plus the law of diminishing disciples, it was probably inevitable that a substantial part of the economics profession would simply assume away the realities of the business cycle, because they didn’t fit the models.

Toward Rational Exuberance: The Evolution of the Modern Stock Market
by B. Mark Smith
Published 1 Jan 2001

Defenders of the efficient market hypothesis protested that this critique was not fair, in that the discounts that seemed to exist were at least in part illusory, since they were calculated using stock price indices that included many stocks that were not trading because of order imbalances. Had these stocks actually traded at market-clearing levels, the inclusion of their prices in the index would have resulted in an overall index value that was much lower, and much closer to the futures prices that actually prevailed. The efficient market advocates also pointed to the decision by New York Stock Exchange authorities to cut off the automated order system after Tuesday morning, October 20.

Unconventional Success: A Fundamental Approach to Personal Investment
by David F. Swensen
Published 8 Aug 2005

ETFs largely avoid the stale pricing problem that haunts standard mutual funds, as continuous pricing of ETF shares during trading hours affords investors the opportunity to trade at fresh market prices. Table 11.3 includes core-asset-class ETF ticker symbols for both market price and fair value. Even though demand or supply imbalances for particular ETFs may cause the market-clearing price to deviate from fair value, when deviations between market price and fair value reach sufficient magnitude, an arbitrage mechanism allows certain large investors to profit by redressing the imbalances. As a result, markets generally operate effectively throughout the trading day. So-called authorized participants perform the arbitrage function by buying or selling institutional blocks of ETF shares, usually sized at 50,000 shares for equity ETFs and 100,000 shares for fixed-income ETFs.

Samuelson Friedman: The Battle Over the Free Market
by Nicholas Wapshott
Published 2 Aug 2021

If there was a resulting stampede for higher wages and prices, to catch up for the loss of increases during the freeze, hyperinflation was likely to take root, Friedman argued. Friedman was offended by Nixon interfering with the free working of the price mechanism, in which the “natural” price was arrived at and supply and demand were matched as the market “cleared.” He had warned fifteen years before that “even open hyperinflations [periods of high inflation] are less damaging to output than suppressed inflations in which a wide range of prices are held well below the levels that would clear the market.” In the October 18 Newsweek column Friedman argued that there were only two remedies for hyperinflation, neither of which he found palatable: “The re-imposition of controls, this time far more widespread, detailed and stringent; or sharply deflationary monetary and fiscal measures.

The Death of Money: The Coming Collapse of the International Monetary System
by James Rickards
Published 7 Apr 2014

This belief causes buyers to lower the prices they are willing to pay. Sellers of high-quality used cars might reject the extra-low prices offered by buyers and refuse to sell. In an extreme case, there might be no market at all for used cars because buyers and sellers are too far apart on price, even though there would theoretically be a market-clearing price if both sides to the transaction knew all the facts. Used cars are just one illustration of the asymmetric information problem, which can apply to a vast array of goods and services, including financial transactions. Interestingly, gold does not suffer this problem because it has a uniform grade.

How Markets Fail: The Logic of Economic Calamities
by John Cassidy
Published 10 Nov 2009

Is there any reason to suppose that a set of market prices exists at which all of these goods will be supplied in exactly the quantities that people demand? Yes, there is. As long as each industry contains many competing suppliers, and firms aren’t able to lower their unit costs merely by raising output, it can be mathematically demonstrated that a market-clearing set of prices exists. Once these prices are posted, supply will equal demand in every industry, and no resources will be idle. There are two more bits of good news. At this “equilibrium” set of prices, labor, land, and other inputs will be directed to their most productive uses. It won’t be possible, by rearranging production, to produce more output.

If You're So Smart, Why Aren't You Happy?
by Raj Raghunathan
Published 25 Apr 2016

J. De Quervain, et al., “The Neural Basis of Altruistic Punishment,” Science 305(5688) (2004): 1254–58; C. Camerer and K. Weigelt, “Experimental Tests of a Sequential Equilibrium Reputation Model,” Econometrica 56(1) (1988): 1–36; E. Fehr, G. Kirchsteiger, and A. Riedl, “Does Fairness Prevent Market Clearing? An Experimental Investigation,” The Quarterly Journal of Economics 108(2) (1993): 437–59; and I. Bohnet and R. Zeckhauser, “Trust, Risk and Betrayal,” Journal of Economic Behavior & Organization 55(4) (2004): 467–84. 95 percent . . . don’t walk away: See www.theguardian.com/science/2012/jul/15/interview-dr-love-paul-zak; for a review of this research, see P.

The Trade Lifecycle: Behind the Scenes of the Trading Process (The Wiley Finance Series)
by Robert P. Baker
Published 4 Oct 2015

CCPs are financial market infrastructures that can reduce and ‘mutualise’ – that is, share between their members – counterparty credit risk in the markets in which they operate. Their origins as clearing houses can be traced back to the late 19th century, when they were primarily used to net payments in commodities futures markets. Clearing via CCPs initially grew through exchange-traded products including bonds, equities, futures and options contracts. During the first decade of this century, clearing became important for OTC products as well as those traded on exchanges. The use of CCP tightens up the trading of OTCs and reduces systemic risk:    CCP takes over counterparty risk CCP enforces strict risk control and collateral Use of netting reduces overall exposure.

Efficiently Inefficient: How Smart Money Invests and Market Prices Are Determined
by Lasse Heje Pedersen
Published 12 Apr 2015

In summary, short-selling can be difficult as it requires locating a lendable share, it requires posting margin collateral, it is associated with a loan fee, and it evolves recall risk and funding liquidity risk (the risk that you run out of capital before the trade converges). 8.2. SHORT SALE FRICTIONS MEAN THAT COMPANIES CAN BE OVERVALUED Dedicated short bias managers sell short to profit from stocks being overvalued. If short sellers could do so without all the costs and risks discussed above, the market clearing price would incorporate both the views of pessimists and optimists, thus reflecting more information. The difficulties in shorting, however, make it harder to express negative views, opening the potential for stocks to be overvalued in an efficiently inefficient way. To understand the effect of short sale frictions, suppose that people have different opinions about a stock: Some are very optimistic, and others are skeptical.

Mastering Private Equity
by Zeisberger, Claudia,Prahl, Michael,White, Bowen , Michael Prahl and Bowen White
Published 15 Jun 2017

This clause can be waived by LPs to reduce the complexity of a sales process. Similar terms can protect the interests of other shareholders in a direct secondary transaction, where shareholder syndication agreements often include pre-emption rights that provide existing investors in a PE-backed company the right to acquire a selling shareholder’s stake at a market-clearing price. OTHER TRANSFER RESTRICTIONS: The LPs’ ability to sell stakes in a fund may be limited by other clauses defining the terms under which interests in the fund can be transferred. These may include clauses that limit the transferability to specific dates—such as month-end or quarter-end—for accounting and administrative purposes or that require specific legal validation before proceeding.

The New Enclosure: The Appropriation of Public Land in Neoliberal Britain
by Brett Christophers
Published 6 Nov 2018

‘Monopoly power over the use of land’, Harvey notes, ‘can never be entirely stripped of its monopolistic aspects, because land is variegated in terms of its qualities of fertility, location, etc.’.3 Or, as Churchill famously put it: ‘Land monopoly is not the only monopoly, but it is by far the greatest of monopolies – it is a perpetual monopoly, and it is the mother of all other forms of monopoly.’1 Combine these two qualities – the necessity of speculation in land and the endemic nature of monopoly control over it – and you have, Harvey concludes, a recipe for trouble. As we have seen, effective coordination of capitalist production through the land market requires landowners to charge market-clearing rents: those that discipline producers to be competitive, and that therefore help keep productive forces in balance. As Harvey says, however, ‘there is no way to ensure that the appropriators of rent take their due and only their due’. The way in which markets typically ensure that market participants only take ‘their due’ – the amount designed to keep the system as a whole in balance – is through competition.

Limitless: The Federal Reserve Takes on a New Age of Crisis
by Jeanna Smialek
Published 27 Feb 2023

They envisioned a fifteen-branch central bank that would have power over money printing and bank regulation and that could support troubled banks in crises.[46] Each branch would be governed by boards elected by member banks in their district; bigger banks would have more votes and thus more representation. The branches would hold reserves, issue currency, support the short-term business debt market, clear checks, and keep money moving around the country. What the bankers designed was not an arm of government so much as a private, government-sponsored organizing body, one that could halt panics and make sure that reserves—so often stuck in far-flung places and frozen entirely amid panics—would be centralized.

Investing Amid Low Expected Returns: Making the Most When Markets Offer the Least
by Antti Ilmanen
Published 24 Feb 2022

Investors can increase their expected portfolio returns by accepting a riskier portfolio. However, within the CAPM this is more efficiently done by raising the portfolio weight of the market portfolio vis-a-vis the riskless asset, not by taking more security-specific risk by overweighting high-beta stocks. In the CAPM equilibrium, homogeneous investor expectations and market clearing requirement imply that all investors hold an efficient mix of the riskless asset and the same risky market-cap portfolio (see Box 12.1 below). A key insight is that an asset's standalone risk (volatility) is not crucial for expected returns because this risk can be largely diversified away. Only the systematic risk matters, and this is what beta captures.

The Tyranny of Nostalgia: Half a Century of British Economic Decline
by Russell Jones
Published 15 Jan 2023

They accepted much of the QTM, the NRH, the REH, the EMH and even RBC theory, although their sense was that the new classicists had gone beyond their skis, especially in how they denied a demand-driven explanation for recessions and regarded all unemployment as voluntary. This so-called new Keynesian school baulked at the notion of instantaneous market clearing because it takes time for contracts to change, because not all prices embody new information, and because information can be costly to acquire. Prices could therefore be ‘sticky’ for extended periods, and markets can fail to clear, so both supply and demand shocks can lead to involuntary unemployment.

The Best Business Writing 2013
by Dean Starkman
Published 1 Jan 2013

I was going to sell the doors, the windows, the gates if I could, but they told me I couldn’t.” She decided not to file for bankruptcy: It would have cost her thousands of dollars and require her to give up her van, which she was determined to keep. When she had nothing left to sell to make her mortgage payments, she was forced to put her home on the market, clearing only $4,000 on the sale. “I was spinning out of control,” she says. “I was starting to lose my wits. It’s very surreal being at a level of depression where it’s easier to think about suicide and dying than it is to bend over and pick something up you’re stepping over. It was getting bad enough that my friends started looking at me, going, ‘You better get out of here.’

The Shifts and the Shocks: What We've Learned--And Have Still to Learn--From the Financial Crisis
by Martin Wolf
Published 24 Nov 2015

In this way, internal balance – full employment – was achieved, albeit temporarily, at the price of a huge external imbalance – excess demand for tradeables and so trade and current-account deficits. The global market for the US dollar is rigged. It is one in which governments are prepared to buy massively, to prevent prices from reaching natural market clearing levels. We do not know how much lower the dollar would have been if there had been no such intervention, but surely it would have been substantially weaker and US monetary policy would have consequently needed to be less expansionary. As Pettis puts it, ‘Excessive use of the US dollar internationally actually forces up either American debt or American unemployment.’31 Inevitably, the Fed chose debt over unemployment.

After the Music Stopped: The Financial Crisis, the Response, and the Work Ahead
by Alan S. Blinder
Published 24 Jan 2013

When the highest price bid for an asset is $20, and the lowest asking price is $60—and gaps like that were common at the time—discerning the “true” market value becomes a question for philosophers, not for economists, and certainly not for traders. The big hazard for the original TARP idea was therefore this: If Treasury offered to buy that asset at, say, $40, would it be overpaying or underpaying? How would it even know? BID-ASK SPREADS You remember your first Economics 101 lesson, right? Free markets clear at the point where the demand curve and the supply curve cross. Well, that’s not exactly right. In any given market at any given time, there normally will be a gap, or spread, between the highest price any demander is willing to pay (“the bid”) and lowest price any supplier is willing to accept (“the ask”).

The Sovereign Individual: How to Survive and Thrive During the Collapse of the Welfare State
by James Dale Davidson and William Rees-Mogg
Published 3 Feb 1997

While unions sometimes attempted through intimidation to prevent local officials from enforcing injunctions, these efforts, too, were seldom successful. Even the most violent strikes were usually suppressed within days or weeks by military means. Blackmail Made Easy There is a lesson to be learned for the Information Age in the fact that union attempts to achieve wages above market-clearing levels were seldom successful when firm size was small. Not even those lines of business that were clearly vulnerable to sabotage, such as canals, railways, streetcars, and mines, were easily brought under control. This is not because the unions shrank from using violence. To the contrary. Violence was lavishly employed, sometimes against high-profile individuals.

In Pursuit of the Perfect Portfolio: The Stories, Voices, and Key Insights of the Pioneers Who Shaped the Way We Invest
by Andrew W. Lo and Stephen R. Foerster
Published 16 Aug 2021

Sharpe viewed his equilibrium model as a natural extension of his dissertation. “I then did in the dissertation, and subsequently expanded on, what anybody trained in microeconomics would do: [ask the question] if everybody does this, what happens when they all come to market, and prices adjust and the markets clear … [,] referred to as equilibrium. And what I found was that under some very, very rigid simplifying assumptions, that ‘Yes, Virginia,’ there would be higher expected return for higher risk … but not just any risk … [;] the risk for which there will be a reward if the markets are functioning at all well … is risk that … cannot be diversified away.”31 By the fall of 1961, Sharpe’s work on the CAPM had progressed sufficiently for him to draft a working paper that was then shared with other academics at workshops and seminars.

Why Stock Markets Crash: Critical Events in Complex Financial Systems
by Didier Sornette
Published 18 Nov 2002

According to survey studies reported by Kahneman, Knetsch, and Thaler [227], people indicate that it is unfair for firms to raise prices and increase profits in response to certain changes in the environment that are not justified by an increase in costs. Thus, respondents report that it is “unfair” for firms to raise the price of snow shovels after a snowstorm or to raise the price of plywood after a hurricane. In these circumstances, economic theory predicts shortages, an increase in prices toward the new market clearing levels, and, eventually, an increase in output. In other words, the increase of price is the equilibrium solution associated with the new supply–demand relationship, 88 chapter 4 but this is considered unfair by people. How this perception impacts the real dynamics of the price and the behavior of firms and buyers to give rise to efficient or inefficient markets remains a subject of research. 5.

New Market Wizards: Conversations With America's Top Traders
by Jack D. Schwager
Published 28 Jan 1994

To me, it seemed ridiculous that people were pricing stocks that way. You make it sound like you completely shrugged off the panic that engulfed the markets that week. I don’t think I underestimated the risk of the trade when I bought ten S&P futures on the day of the crash. However, in retrospect, I certainly was naive in having faith that the markets, clearing firms, and banks 304 / The New Market Wizard would continue to function. The subsequent realization that if the Fed had been less aggressive, my clearing firm, along with many others, could have gone bankrupt, obliterating my account equity in the process, really shook me up. Does it ever bother you when you lose?

Not Working: Where Have All the Good Jobs Gone?
by David G. Blanchflower
Published 12 Apr 2021

The paper argued that macroeconomics was going through a period of great progress and excitement: “A macroeconomic article today often follows strict, haiku-like rules. It starts from a general equilibrium structure, in which individuals maximize the expected present value of utility, firms maximize their value, and markets clear. Then, it introduces a twist, be it an imperfection or the closing of a particular set of markets, and works out the general equilibrium implications. It then performs a numerical simulation based on calibration, showing that the model performs well. It ends with a welfare assessment.” I have no idea what “haiku-like” rules are or how they can help us understand how an economy works.

Rentier Capitalism: Who Owns the Economy, and Who Pays for It?
by Brett Christophers
Published 17 Nov 2020

Indeed, Brotherstone argues that the monumental shifting of the balance between capital and labour that occurred in early-1980s Britain was exactly what the then energy minister, later chancellor of the exchequer, Nigel Lawson was referring to when he claimed in a 1982 speech that North Sea oil had arrived on the scene when it was of ‘unprecedented value and strategic importance’.88 It was, in other words, no mere accident that rising unemployment costs in that period were more or less matched by rising government revenues from hydrocarbon taxation.89 Anticipation of the latter, suggests Brotherstone, had been crucial to the strategy of actively fomenting the former. The North Sea was both breeding ground and operating theatre, then, for the ‘massive “market clearing” operation’ planned and executed by Tory strategists: ‘The oil money would provide the safety net while [the government] applied the shock therapy of mass unemployment.’90 What ensued was not failure; it was resounding, calculated success. Laissez-faire, and everything that went with it, was, as Karl Polanyi famously insisted, planned – and in the UK, natural-resource rentierism underwrote the Tory blueprint.91 In recent years, of course, there has been increasing talk of a new threat to the business of natural-resource rentiers – and especially to those, like the UK’s leading protagonists, for whom mineral fuels represent a significant source of rents.

Stigum's Money Market, 4E
by Marcia Stigum and Anthony Crescenzi
Published 9 Feb 2007

The perception that the Fed’s independence is limited once influenced Fed policy, but it has been over two decades since there has been any meaningful degree of such influence. In particular, during the late 1970s and early 1980s when the Fed was tightening and it appeared that interest rates might reach unacceptable levels, the Fed attempted to force a contraction in bank lending while simultaneously preventing interest rates from rising to market-clearing levels. During one such period, 1977, a banker commented. “It is not always politically feasible for the Fed, when it wants to curtail bank lending, to allow interest rates to go where they must to do so. The Fed would never admit this, but they know they are a creature of Congress, and Congress would never let the prime go to 15%—one way or another it would remove in one fell swoop the so-called independence of the Fed.”

…

As noted in chapter 9, there are good grounds for doubting whether the Fed was ever a serious convert to monetarism; more likely, it viewed a public profession of monetarism as a sort of temporary expedient. By declaring that its goal was to control money supply, the Fed was able to fight inflation by allowing interest rates to rise to market-clearing levels—levels that proved so high that they would have been politically unacceptable had not politicians, too, bought into monetarism. Once inflation was quelled, the Fed gradually moved away from its monetarist stance. Having changed its definition of money supply as gasoline prices have increased these days—there was M1 to M5, M1A, M1B, and L—the Fed more or less admitted that, in a constantly changing world, there was no measure of money supply that it could control and, more important, no measure that it made sense, theoretically or practically, to control.

More Money Than God: Hedge Funds and the Making of a New Elite
by Sebastian Mallaby
Published 9 Jun 2010

The firm’s government-bond trader, Paul Mozer, had cheated repeatedly in the auctions; Meriwether, who was responsible for overseeing Mozer, resigned from the firm and paid a $50,000 fine imposed by the Securities and Exchange Commission.6 After scouting about for opportunities, Meriwether resolved to set up on his own. He would reassemble his team of rocket scientists and would do it without the unnecessary trappings of a big bank: Functions like marketing, clearing, settling, and operations would be outsourced, so that there would be no need to spread the professors’ trading profits through undeserving back-office departments. The way Meriwether saw it, he was inventing a new kind of financial institution for a new age. A world in which a small brotherhood of academics could earn more than a large bank required a fresh kind of setup.

Owning the Earth: The Transforming History of Land Ownership
by Andro Linklater
Published 12 Nov 2013

In 1818, it was formally enclosed within a single customs union, the Zollverein, later extended in 1834 to include most of Germany. The first beneficiaries of reform were, therefore, the bourgeoisie, meaning the traders, small manufacturers, and commercial businesses, set free from the constriction of urban guilds and suddenly presented with a vastly expanded market cleared of tariff restrictions. The bourgeoisie flourished especially in the west, where urban prosperity spilled over into a countryside where French influence had ensured that peasant holdings were already held virtually as property. Further east, in traditional Prussia’s deeply conservative society, the changes caused widespread anxiety.

Money and Government: The Past and Future of Economics
by Robert Skidelsky
Published 13 Nov 2018

What he aimed to show was that, even without these frictions, a market economy would not be optimally self-adjusting. There was no ‘automatic tendency’ for the rate of interest to fall sufficiently to employ all intended saving, nor for real wages to fall sufficiently to employ all those looking for work. Whether or not equilibrium or market-clearing prices for saving or work existed, they were not known, or knowable, to those whose decisions determined prices in the market. In a competitive market system, uncertainty attaching to such prices was inherent and ineradicable. The counterattack started not with a rejection of Keynesian policy prescriptions, but with an assault on Keynes’s theory.

The Price of Time: The Real Story of Interest
by Edward Chancellor
Published 15 Aug 2022

By the time of the global financial crisis, however, its economy was beset by a number of severe imbalances – asset price bubbles and credit booms, excess savings and wasteful investments. These imbalances were the product of financial repression, according to McKinnon. In a 2012 paper written shortly before his death, McKinnon suggested that negative real interest rates on Chinese bank deposits had reduced household income. Benchmark rates kept below the market-clearing rate were creating an excessive demand for credit, he added. State-owned enterprises, which received preferential access to credit, were crowding out private businesses, McKinnon suggested. Low interest rates had boosted investment, but the general quality of lending was poor. Furthermore, savings were moving out of banks into an opaque shadow banking system.13 Financial repression had tilted China’s economy away from consumption towards low-quality investment and fostered asset price bubbles.

What Went Wrong: How the 1% Hijacked the American Middle Class . . . And What Other Countries Got Right
by George R. Tyler
Published 15 Jul 2013

His rivals were horrified. The Wall Street Journal accused him of injecting ‘Biblical or spiritual principles into a field where they do not belong.’ The New York Times correspondent who traveled to Detroit to interview him that week asked him if he was a socialist.”11 Ford could pay higher than market-clearing wages, because the productivity of his workers was relatively high; a Model T was produced every twenty-four seconds, compared to 12 hours previously.12 Better productivity performance also enabled Ford to grow fabulously rich, despite paying better wages than his competitors. Malcolm Gladwell has concluded that Ford is the most successful auto man ever and the seventh richest person in history, resting between Andrew Mellon and the Roman Senator Marcus Crassus.13 He was no fool, producing 15.5 million model Ts and revolutionizing the global auto industry; Ford certainly didn’t become wealthy overpaying for anything.

The Wealth of Networks: How Social Production Transforms Markets and Freedom
by Yochai Benkler
Published 14 May 2006

More importantly, as aspects of performance that are harder to fully specify in advance or monitor--like creativity over time given the occurrence of new opportunities to be creative, or implicit know-how--become a more significant aspect of what is valuable about an individual's contribution, market mechanisms become more and more costly to maintain efficiently, and, as a practical matter, simply lose a lot of information. 218 People have different innate capabilities; personal, social, and educational histories; emotional frameworks; and ongoing lived experiences, which make [pg 111] for immensely diverse associations with, idiosyncratic insights into, and divergent utilization of existing information and cultural inputs at different times and in different contexts. Human creativity is therefore very difficult to standardize and specify in the contracts necessary for either market-cleared or hierarchically organized production. As the weight of human intellectual effort increases in the overall mix of inputs into a given production process, an organization model that does not require contractual specification of the individual effort required to participate in a collective enterprise, and which allows individuals to self-identify for tasks, will be better at gathering and utilizing information about who should be doing what than a system that does require such specification.

The Man Who Knew: The Life and Times of Alan Greenspan
by Sebastian Mallaby
Published 10 Oct 2016

However, since productivity gains also create deflationary pressure, and since that deflationary pressure is easier to see than the rise in the natural interest rate, an inflation-targeting central bank will tend to cut interest rates. Monetary authorities, therefore, will tend to push interest rates below the stable, market-clearing level. The result will be too much leverage and soaring asset prices: in short, a bubble. This argument was made by Richmond Fed president Al Broaddus during the May 1997 FOMC meeting. For a more recent version, see David Beckworth, “Inflation Targeting.” 38. The debate over the costs and merits of inflation targeting continues until the time of writing, but there is evidence that central banks should target the stability of growth and asset prices rather than the stability of inflation when confronted by a supply shock.