Why Did Communism Fail? #3 – Incentives

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”

April 20, 2013PoliticsCommunism, Economic Theory, Economics, Incentives, Innovation, Modernity, Stagnation, Why Did Communism Fail? Leave a comment

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?”

April 6, 2013EconomicsAustrian Economics, Bernanke, Causes, Central Bank, Economic Theory, Economics, Federal Reserve, Hyperinflation, Inflation, Libertarian, Monetary Policy, Printing Money, Quantitative Easing, War Leave a comment

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”

January 18, 2013EconomicsBehavioural Economics, Books, Economic Theory, Economics, Economy, Free Market, Libertarian, Predictably Irrational Leave a comment

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”

January 11, 2013EconomicsBehavioural Economics, Books, Chapter 1, Chapter by Chapter, Choice, decision, Economic Theory, Economics, Free Market, Neo-Classical, Predictably Irrational, Summary Leave a comment

The Flaw Of The Invisible Hand

Introductions to economics usually start with gushing tales about the magic of the free market. It is usually stated that the free market allows everyone to get the best quality goods at the cheapest prices. The magical invisible hand guides everyone to the best place without any unnecessary government intervention. Below is a link to a video typical of the kind. (I’ll ignore for the moment that it completely misrepresents what Adam Smith said). Its short and simple, but it is a simple argument. This is the typical free market argument with its claim that left alone it will bring the best world for everyone. So in the video it compares two bakers offering bread and the consumer chooses either … Continue reading “The Flaw Of The Invisible Hand”

December 29, 2012EconomicsAsymmetric Information, Competition, Conspicuous Consumption, Culture, Economic Theory, Economics, Externality, Fashion, Free Market, Invisible Hand Leave a comment

The Mythical Laffer Curve

Conservatives everywhere condemn the use of tax increases for fear of the Laffer Curve. This is the idea that if taxes are too high, people will lose the incentive to work and therefore revenue will actually decrease. It is most famous for its counter-intuitive argument that a tax cut could increase revenue. Unfortunately there is little or no evidence to support this claim. History clearly shows that cutting taxes does not increase revenue. The Laffer curve is a political idea used to justify tax cuts for the rich. It is not based on sound economics. Most economists know the Laffer Curve isn’t true. An IGM survey of economists found that not a single one of them agreed that a tax … Continue reading “The Mythical Laffer Curve”

September 7, 2012The othersDemocrats, Disincentive To Work, Economic Theory, Economics, Economy, Election 2012, Entrepreneurs, Free Market, Incentive, Laffer Curve, Myth, Obama, Opinion, Politics, Punish Job Creators, Reaganomics, Republicans, Supply Side, taxes, Taxes Penalise Rich, Taxes Too High, Wrong Leave a comment