In economics textbooks there is a simple story told about racism. It explains how the free market punishes prejudice of any kind and instead builds an environment where all people compete equally regardless of their background. The explanation is simple – any business that refused to serve certain customers would earn less profit than a more tolerant rival. If you refuse to hire the most competent job applicant due to their race, gender, sexuality etc then they will work for your competitors or set up their own business and undercut you. Continue reading “Why The Free Market Doesn’t Prevent Racism”
At the core of economics (especially economics teaching) is the idea that people are fundamentally rational, self-interested, utility maximising individuals who make decisions after logically considering all the relevant facts. As these people know best what’s best for themselves, these decisions are optimal for society. However, one of the newest and fastest growing school of thought is the Behavioural School which uses the insights of psychology to show that this simply is not the case. These insights are sometimes viewed only in isolation or glossed over as minor trivia. However, when you put all the different pieces together, you see that the conclusions are far reaching for how the economy operates. Continue reading “4 Ways We Are Not Rational And How It Affects Economics”
There is something I never got about interest rates. There is a consensus across economists that interest rates have a very important impact on the economy. Economists of all stripes agree that lower interest rates boost economic growth and higher rates reduce growth. Some go as far as saying that it is through interest rates and monetary policy (not spending and fiscal policy) that governments should manage the economy. It’s a standard classroom exercise to draw curves showing the impact of interest rates on growth. Too low interest rates are one of the main factors blamed for causing the bubble and resulting recession. But I always felt that something didn’t quite add up and I began to doubt how important interest rates really are. Continue reading “Are Interest Rates Really That Important?”
It is common to hear people on the internet complain about the power of the state. It is regularly denounced for forcing people to obey its laws and pay taxes. Libertarians criticise this use of coercion and regularly compare it to a gang of thieves or the mafia. Many advocate that we either abolish or minimise the size of the state and replace it with a world where everything is based on voluntary co-operation and you are free to do what you want so long as it does not harm anyone (known as the Non-Aggression Principle). It seems like a simple choice between peaceful liberty or violent oppression. It is a handy debating trick as it allows libertarians to paint themselves as defenders of freedom while opponents look like tyrants. As nice as it sounds, it suffers from the fatal flaw that the market is just as reliant on the coercion as the state is. Continue reading “Both The State And The Market Are Based On Coercion”
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 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?”