AEA Meeting Papers
By Arnold Kling
—a realistic norm regarding consumption behavior will make consumption directly dependent on current income, in violation of the neutrality of consumption given wealth;
—a realistic norm will make investment directly dependent on cash flow, in violation of Modigliani-Miller;
—a realistic norm will make wages and prices dependent on nominal considerations and thus violate natural rate theory;
—a realistic norm will make income and employment dependent on systematic monetary policy, and thus violate rational expectations theory; and
—a realistic norm will make current consumption dependent on the current generation’s social security receipts, in violation of Ricardian equivalence.
He discusses social norms, which have economic effects but which seem exogenous from an economic perspective. For example, the social norm for bequests changed from father passing everything to the oldest son to a more egalitarian approach.