Six Breakthrough Ideas in Economics (?)

In the opinion of The Economist, they are:

1. Akerlof’s Market for Lemons
2. Minsky’s Financial Cycle
3. The Stolper-Samuelson Theorem (Wikipedia explanation).
4. The Keynesian multiplier
5. The Nash equilibrium
6. The Mundell-Fleming trilemma (Wikipedia explanation).

Pointer from Greg Mankiw.

In Specialization and Trade, I discuss many of these ideas.

I mention (1) as an example of economists finding a theoretical market failure for which markets have found solutions. Used cars are sold with guarantees, or with information provided by third parties, or by reputable dealers.

I endorse something like (2), although I offer a different mechanism for the financial cycle. Minsky describes it in terms of the risk proclivities of capitalists. I describe it in terms of the trust that people place in financial intermediaries.

I do not discuss (3) specifically, but I do say that the “two-by-two” model of international trade is an example of economic modeling that is more misleading than insightful. In any case, of all of the Heckscher-Ohlin-Samuelson results, I would have picked factor-price equalization over Stolper-Samuelson.

I explain why (4) is a terrible idea.

I do not mention (5) by name, but I do describe the maintenance of cultural norms from a game-theoretic perspective.

I do not discuss (6), but I argue against monetarism, and thus I implicitly discount the trilemma.