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A Critique of Behavioral Finance

By Dr. Hassan Shirvani—The recent global financial crisis has raised serious questions about the rationality of the securities markets.  In rational markets, prices tend to closely track their fundamental values, so that there is little or no chance of getting price bubbles.  During the run-up to the recent crisis, however, many asset prices, including those in the housing sector, seemingly deviated from their correct values, resulting in subsequent financial crashes around…

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Economic Inequality in America

By Dr. Hassan Shirvani–The impressive body of empirical evidence recently furnished by the French economist Thomas Piketty and his associates clearly demonstrates that there is a worsening trend of income and wealth inequality in America.  This trend, in effect since the  beginning of the 19th century, managed to take a breather in the first half of the…

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Liquidity Traps: Old and New

By Hassan Shirvani—- The concept of a liquidity trap, introduced by the British economist John Maynard Keynes during the Great Depression of the 1930s, refers to the situation in which monetary policy becomes largely impotent in lowering interest rates to stimulate additional borrowing and spending in the economy. This can result from the fact that…

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Fallacy of Composition in Economics

By Dr. Hassan Shirvani —-The fallacy of composition refers to the logically untenable position that what is true for a member of a group must necessarily also be true for the group as a whole. Perhaps a good example of this fallacy is the assertion that since an individual in a crowded room can obtain…

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The Economics of Friedrich Hayek

By Dr. Hassan Shirvani— Conservatives tend to idolize the Austrian economist Friedrich Hayek (1899-1992) in the same way that liberals like to lionize the British economist John Maynard Keynes (1883-1946). Indeed, during the Great Depression of the 1930s, the debate between the supporters of Hayek and Keynes dominated much of the academic economic scene. The…

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A Primer on Keynesian Economics

By Dr. Hassan Shirvani —Before John Maynard Keynes published his General Theory of Employment, Interest, and Money in 1936, the prevailing view among most economists was that modern economies are characterized by perfectly competitive markets, in which flexible prices and wages cleared all markets and, hence, ensured continuous full employment. Pointing to the Great Depression…

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The Wizard of Oz as a Monetary Allegory

By Dr. Hassan Shirvani — Since the Chicago journalist L. Frank Baum published his The Wonderful Wizard of Oz in 1900, the book has become one of the most beloved American tales of adventure. Millions of both children and adults have taken great pleasure in reading about Dorothy, a little girl living in the midst…

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The Economics of the Just Price

By Dr. Hassan Shirvani — The concept of the “just” or “fair” price is as old as History. To combat predatory lending practices, price gouging, profiteering, and price discrimination, many governments throughout history have passed laws to protect their citizens against dishonest and unethical lenders and sellers. Thus, the Babylonian king Hammurabi (1792-1750 B.C.) had…

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Conservatives vs. Liberals: The Economic Debate

Given their disparate ideologies, conservatives and liberals generally reach different conclusions about such economic issues as how modern economies operate, what should be the role of government economic policies and regulations, and what levels of income and wealth inequality should be tolerated. While the foregoing economic debate between the two camps has been ongoing for…

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Catholic Economic Teaching

The recent controversy over Pope Francis’s economic views has raised the related issue of whether these views are consistent with the traditional Catholic economic teaching. While the answer is in the affirmative, the pope has decidedly added a new emphasis and a more urgent tone to this teaching.   Catholicism is, of course, primarily a…

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