Even though we all live in a capitalist economy, few people seem to understand what this means. The word is thrown around in economic and political debates without much consistency. The situation is even worse for socialism which seems to be a label thrown onto random policies without any understanding. So to help clear up the confusion, I thought I would give a clear and simple explanation to what these words mean. Continue reading “What Is Capitalism And Socialism?”
It is common on the internet to encounter libertarians who decry the existence of the state which they view as nothing short of oppression. To them the state is a tyranny to which no one has agreed to. The world would be a better place if the state was drastically reduced in size or even abolished. Why should be people forced to obey rules against their will? Instead everyone should be free to do as they wish on their own property. However, I’d like to use a thought experiment to show how a world of solely private property is little different from our current world and how private property contains many of the arbitrary coercion that libertarians so passionately denounce in states. Continue reading “A Thought About Property Without The State”
Some things happen in life that are so strange, that you wonder if they really happened. Some things happen that are so horrible you wish they didn’t. Some things are like a living nightmare that you can’t escape. My following story is a mix of all of the above and is so strange and awful that I can’t come up with a title that isn’t sensationalist and clichéd (so I went to the other extreme of understatement). I was so shaken by the whole event that it’s only now that I am far away that I feel comfortable telling it (I’m getting very shaky again just remembering it all while writing this).
It all began three months ago Continue reading “A Less Than Pleasant Working Experience”
The standard (or neo-classical) view of economics makes a lot of assumptions. The main ones are that people have rational preferences, they are self-interested, they are utility maximisers and they have access to all relevant information (including information about the future). The economy is assumed to be in equilibrium, markets are efficient and perfect competition reigns (of course this is a simplification). These assumptions come in for a lot of criticism but they are defended as necessary simplifications. However, the assumptions economists make have a huge effect on the world of economics and therefore world economies. Continue reading “Economists And Their Assumptions”
The standard economic view used to be that capital controls were a damaging relic from the past. Almost all economists opposed them as they believed they discouraged foreign investment, created barriers to trade and lead to an inefficient allocation of resources. The notion that the government could restrict how people used their money was found abhorrent by many. However, since the Financial Crisis, there has been a shift in opinions. Many economists support some capital controls to reduce instability in the economy, particularly in the financial sector. 250 economists from around the world signed a petition calling on the US government to reconsider its opposition to capital controls. Even major institutions like the IMF, the World Bank, the Federal Reserve and the European Union have admitted that there may be some cases in which capital controls are beneficial. Continue reading “The Case For Capital Controls”
The government has been celebrating Ireland’s recent exit from the Troika bailout and have proclaimed that Ireland is now on the road to recovery. The Taoiseach addressed the nation to celebrate the regaining of Ireland’s economic sovereignty. But are we out of the woods yet? Is Ireland facing a new dawn that leaves the nightmare of the recession behind or is it only a mirage of false hope while we are still stuck in the mud? Continue reading “On The Road To Recovery Or The Road To Nowhere?”
If you open any economic textbook you will find a standard explanation of how banks operate. The basic story is that a person deposits some money (say €100) into a bank which then saves a percent of this (say 10%) as a reserve and then lends out the rest. This €90 is then deposited by whoever receives the loan, 10% of which is saved and the rest is lent out. This goes on and on until the original €100 has become €1,000. It is easy to see why students are told this story; it is simple, intuitive and gives them a basic idea of banking. Unfortunately, it is wrong.
There is strong evidence that contrary to the above story (known as the loanable funds theory) the banking system works the other way around. Deposits don’t create loans; loans create deposits (this is known as endogenous money). This is a more complicated story but a more realistic one that can better guide our view of the economy. Continue reading “Endogenous Money Or How Loans Create Deposits”