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Governments are different than firms, right? Perhaps not. In Part 1 of this series, I argued that when it comes to size, governments behave like they’re ‘just another firm’. In this post, I’m going to extend the evidence. I’ll first show you that as economies develop, governments get bigger. Then I’ll explain this trend using the ‘government-as-firm’ model.

I have a confession. I’m a political economist by trade, but I spend most of my time reading outside my discipline. I read about physics, cosmology, biology … the list goes on. Basically, if it’s not political economy, I read it. Usually this reading doesn’t relate to my own research. I do it because I love science. But every so often lightning strikes and I discover a scientific idea that begs to be applied to political economy.

You can’t get the right answer when you ask the wrong question. This truism, I’ve come to believe, explains much of what is wrong with economics. When it comes to studying income, economists ask the wrong question. Economists, I argue, have mostly asked: is income fair ? The problem is that this is a moral question, not a scientific one. It has no scientific answer.

I confess that I have a recurring nightmare. In it, I realize that everything I’ve ever written about economics is wrong. Neoclassical economics is not, as I’ve repeatedly claimed, a pile of bullshit. In this nightmare, neoclassical economics is correct . And as a strident critic of neoclassical theory, I realize the horrible truth. I’m a crank ! I wake up in a cold sweat, wondering if I’m wasting my life.

Income, I’ve come to believe, is shaped largely by rank within a hierarchy. If you’re at the top of a hierarchy, you’ll earn a handsome sum. But if you’re at the bottom of a hierarchy, you’ll earn a pittance. As a hard-nosed scientist, I’m always looking for ways to test this hypothesis.

Have you heard of the ‘productivity-pay gap’? It’s the (apparently) growing gap between the productivity of US workers and their pay. Here’s what it looks like: In this post, I debunk the ‘productivity-pay gap’ by showing that it has nothing to do with productivity. The reason is simple.

I recently read David Graeber’s book Bullshit Jobs: A Theory. If you’re not familiar, David Graeber is the anthropologist who wrote Debt: The First 5000 Years, a seminal book on the history of money and credit. In Bullshit Jobs , Graeber takes aim at pointless work. Graeber describes a bullshit job as: Bullshit Jobs is based largely around testimonials from people who feel that they have bullshit jobs.

In How Hierarchy Can Mediate the Returns to Education I examined the pay structure of the US military. I found that hierarchical rank is (by far) the strongest determinant of military pay. Here I want to show you that there is a regularity to military pay. In the US military, income is proportional to the number of subordinates one controls.

In The Social Environment as a Cause in Economics I argued that human behavior has two parts: Individual variation An environment that acts on this variation To illustrate these two parts, I used the example of the peppered moth. This species comes in two colors — black and white. Which color is better for survival? It depends on the environment. On natural-colored trees, white moths are better camouflaged. So being white is better.

I’m reposting here an article that Erald Kolasi and I wrote for Mint Magazine. The article discusses the problems with ‘real’ GDP and possible alternatives for measuring economic activity. The published version is under a paywall, so I’m posting our (unabridged) manuscript here.