Why I Will Vote For Bernie Sanders

America has a serious problem with inequality. The gap between the rich and the poor is one of the widest among developed nations and has reached levels last seen in the Roaring Twenties before the Great Crash. Although the productivity and wealth of the nation have grown rapidly, the wages of ordinary workers have stagnated. Average wages have remained more or less the same for forty years. While wealth becomes increasingly concentrated in fewer and fewer hands, more and more people fall into poverty. Unions have had their strength drained from them and adjusted for inflation, the minimum wage is lower than it was fifty years ago. To be successful in America nowadays has less to do with your skill and abilities and more to do with where you were born and how rich your parents were. Continue reading “Why I Will Vote For Bernie Sanders”

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Endogenous Money Or How Loans Create Deposits

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”

What Is Modern Monetary Theory?

The crisis has given rise to a range of new ideas and theories to replace the discredited view of the economy. The newest and most imaginative of these is known as Modern Monetary Theory (MMT) and is one of the first theories to owe its growth to the internet. Without a doubt MMT is radical and completely turns established economic thinking on its head. If it is correct then it would change the way we think about the economy forever.

Continue reading “What Is Modern Monetary Theory?”

What To Do About The Homeless?

It seems every street in San Francisco has a homeless person on it. Every day I pass them and at night most shop fronts has one huddled in it. The streets are littered with bundles of clothes which turn out to be people trying to sleep. We all pass them and feel pangs of guilt, often taking the easier option of ignoring them. Yet there doesn’t seem to be an easy solutions or ways to help. We want to help, but don’t want to encourage begging. Is dropping coins into their paper cup really the best thing we can do? Continue reading “What To Do About The Homeless?”

Wrong Kind Of Incentives

Pick any economics textbook and they will tell you about how people are motivated by incentives. These are what guide the economy and ensure it functions. As Adam Smith famously said, we get food from butchers and bakers not through charity but because they have an incentive to sell and make a profit. But what happens when incentives lead people in a negative direction? What if people have an incentive not to help others but make a profit from them? One common problem known to health economists is known as supplier induced demand and occurs when doctors put making money ahead of helping their patients. Continue reading “Wrong Kind Of Incentives”

The Great Bitcoin Bubble

There’s this new idea that plans to revolutionise money. It’s called bitcoin and aims to be an online currency to replace the real thing. Unlike printed money, it is not controlled by any central bank or government and prides itself on its lack of rules and regulations. Its proponents see it as a 21st century version of the gold standard and it has been enthusiastically endorsed by libertarians and anarchists around the globe as its price sky rockets. However, it is in reality a giant internet bubble based primarily on speculation that will inevitably crash. It is open to abuse, hacking and is no more trust worthy than the government. It is an economic calamity and trapped in hyper deflation death spiral. It can teach us a lot about how currencies work, and just as importantly, why some don’t. Continue reading “The Great Bitcoin Bubble”

The Fool’s Gold Standard

Having money linked to a Gold Standard is an idea that almost every economist opposes. It is described as the economic equivalent of creationism and a major cause of the Great Depression. It is ignored by policymakers and no country has one anymore. Yet there is some support for it on the internet. It is one of Ron Paul’s main ideas in his campaign for the Presidency and is supported to some extent by Paul Ryan. The Republican platform promises a commission to consider reintroducing it. So what is a Gold Standard and why is it so bad? Continue reading “The Fool’s Gold Standard”