Challenging Economics – Theory Of Comparative Advantage

There are few debates that economists take only one side in and trade is one of them. Textbooks argue that trade creates prosperity always and everywhere. Students are required to answer questions on the benefits of trade and the costs of protectionism. There is a strong attempt to give the impression that all economists support free trade and the debate is only between those who understand economics and those who don’t. What is strange about all of this is how shaky the foundations for this belief are. It is mostly reliant on the “Law” of Comparative Advantage, which as I shall discuss, has some very significant flaws. Continue reading “Challenging Economics – Theory Of Comparative Advantage”

Advertisements

Challenging Economics – Marginal Productivity Of Labour

Whenever there is a great debate over wages, be it the minimum wage or unions effect on wages, opponents cite the marginal productivity of labour. They argue that this prevents businesses from paying higher wages and if they did, it would only lead to higher unemployment. This theory is unquestionably stated as fact in all textbooks and the impression is given that there is an iron law of economics that fixes wages. Despite its wide use, it is completely false. The vast majority of workers do not have a marginal productivity of labour and those that do are not paid it. It is a theory that has long outlived its day and continuing adherence to it means the wrong decisions are being made. Continue reading “Challenging Economics – Marginal Productivity Of Labour”

Challenging Economics – Coase Theorem

One of the fundamental problems with neo-classical economics is its lack of reality. In university students are taught theories that bare little similarity with the real world. I have learned a lot about economics and society during my time in university, unfortunately very little of that happened in the classroom. So I will run a series of posts where I challenge mainstream economics and debunk the unrealistic theories. Myself and my classmates are well able to explain abstract theories but can say little about the state of the economy or what to do about the recession.  First up is the Coase Theorem, a particularly ridiculous theory that only an economist could take seriously. Continue reading “Challenging Economics – Coase Theorem”