The most common and simple explanation for why communism failed is that people are greedy. This is a gross simplification but does contain some truth. Communism failed to provide incentives for workers and citizens to work hard and be productive. While there are many benefits from equality, if pushed to an extreme it robs people of an incentive to make an effort. There was little if any reward for hard work or innovation and a lack of punishment for poor or inefficient work. The lack of incentives was a major reason for the poor performance of Eastern Europe economies. Why bother working hard if the reward was the same as doing the bare minimal? The lack of incentives was system … Continue reading “Why Did Communism Fail? #3 – Incentives”
Why Do We Print Money?
Printing money seems like a no-brainer. Surely it’s extremely obvious that printing money is a recipe for disaster that will result in hyperinflation. Surely the obvious action is to not print money and therefore avoid inflation. Yet every year, every country prints money. Why? Surely the money supply should be fixed. What possible reason could central banks have for risking massive inflation? Why do we print money? The first and most obvious reason for printing money is to replace old notes in the system. Notes get worn down through use, so it’s necessary to print new ones to replace them. Take a moment to think through why we do this and what would happen if we didn’t. Businesses would start … Continue reading “Why Do We Print Money?”
Was The Irish Famine Genocide?
Some people claim that the Great Famine was an act of genocide committed by the British Empire against the Irish people. This theory is most popular among Irish-Americans (who strangely enough are more nationalist than people from Ireland) and on the internet, though it has little if any credence in Ireland. It has been booted out of conspiracy theory land after one of the most respected Irish historians; Tim Pat Coogan supported the allegation in his new book, The Famine Plot. The Great Famine (or Great Hunger as it is also known) was the most cataclysmic event in Irish history. Sparked by the failure of the potato crop (due to blight) it led to roughly one million deaths and roughly … Continue reading “Was The Irish Famine Genocide?”
Predictably Irrational Chapters 9 & 10 – The Effect Of Expectation & The Power Of Price
In Chapter 9 and 10 (I combined them as they’re quite similar) of “Predictably Irrational” by Dan Ariely, the concept of how are expectations affect our decision making is discussed. We are not rational actors making choices in a vacuum but rather we are deeply affected by our expectations. If we expect a movie to be good, then it often is. This placebo effect is always to be found with prices. If we pay more for something, we value it more and get more from it. This creates serious problems for those who claim that market distortions will be corrected by market forces pushing a return to equilibrium. Ariely conducted an experiment involving free beer (I knew that would get … Continue reading “Predictably Irrational Chapters 9 & 10 – The Effect Of Expectation & The Power Of Price”
Predictably Irrational Chapter 3 – The Cost Of Zero Cost
To a neo-classical economist zero is just another price. To the average consumer it brings the magical connotations of free. We are always trying to get something for nothing so if something is free then consumers impulsively take the option. Ariely shows how this impulse comes with hidden costs that debunk the myth of rational consumers. Whether it’s from eating too much free food or accumulating worthless free pens, clickers etc, people are always trying to get a free lunch. As usual (this is what is so great about the book) Ariely did an experiment to find the answer (neo-classical economists take note). He set up a stall with offering (one per customer) two piles of chocolates, the first being … Continue reading “Predictably Irrational Chapter 3 – The Cost Of Zero Cost”
Predictably Irrational Chapter 1 – The Truth About Relativity
Predictably Irrational by Dan Ariely is a fascinating and deeply insightful book that is a pleasure to read and full of gems. It is bursting with interesting and ground breaking experiments that completely debunk many of the assumptions of economics. It will reshape how you view economics and how consumers react in real life, as opposed to in economics textbooks. It is a book I would highly recommend and should be considered a behavioural economics classic. In fact it’s so great that I couldn’t fit all I wanted to say about it into one post (or three) so instead I will summarise my favourite chapters (which is most of them) and highlight the important points they make. What is particularly interesting is … Continue reading “Predictably Irrational Chapter 1 – The Truth About Relativity”