Predictably Irrational Chapter 4 – The Cost Of Social Norms

In Chapter of “Predictably Irrational”, Dan Ariely discusses the importance of social norms in determining our actions and the paradox of how we will do some things for free but not if we are paid. Economics is based on the idea that we are all self-interested and will only do something if we have something (money) to gain. Ariely shows that we are not as greedy and selfish as this depiction describes us and that we are also motivated by social norms that can often be more important than money. Continue reading “Predictably Irrational Chapter 4 – The Cost Of Social Norms”

Predictably Irrational Chapter 1 – The Truth About Relativity

Predictably Irrational byDan 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 that the book is heavily based upon evidence and empirical studies, so no claim is made without being backed up. In fact Ariely does most of the experiments himself so you are really hearing it from the horse’s mouth.

Predictably Irrational by Dan Ariely
Predictably Irrational by Dan Ariely

Continue reading “Predictably Irrational Chapter 1 – The Truth About Relativity”

A New Economic Theory

On this blog I have been very critical of mainstream economics, to the point that I feel most of it should be thrown out. I believe the orthodox theory of demand, supply, labour theory, wages, recessions, competition and information are fundamentally flawed. The obvious question is, if we are to ditch these unrealistic and useless theories, what do we replace them with? I cannot only criticise and knock down, I also have to create. I believe we should replace the current theory based on graphs of supply and demand with one based on power. The economy is not governed by unseen and unchangeable impersonal forces but by the competition of different sources for power. I believe neo-classical economics has outlived its usefulness and instead should be replaced with “The Theory of Power”. Continue reading “A New Economic Theory”

What Economics Doesn’t Talk About

Whenever I tell people that I’m studying economics they usually ask me how to solve the recession or what to do about the banks. Each time I’m embarrassed over the fact that we have never even mentioned these issues in lectures. In my course I have basically been taught that the free market is the most efficient and best system in the world and trouble always results when it is interfered with. In my textbooks recessions are not mentioned, they do not happen. There is no explanation of unemployment, the biggest issue of our times. There is no mention of profit, the heart of capitalism. Nor do they talk about banks or money or advertising or how systems are guided by power relations. No mention is made of poverty, in effect ignoring three-quarters of the world.
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Economics Of Discrimination

If we were rational logical people living in a neo-classical world there would be no discrimination. People would only be judged according to their productivity and nothing else. All races would receive equal pay and job opportunities. In fact Milton Friedman even developed a theory in which racist firms would be driven out of business by inclusive firms. Yet discrimination does exist. For generations many businesses would only hire white people. Even today ethnic minorities are paid less than white people and suffered from higher unemployment. The perfect neo-classical utopia does not exist. Social norms determine action just as much as pure economics. We need government to right the wrongs of the free market. Continue reading “Economics Of Discrimination”

Laissez Faire And The Irish Great Famine

Right wing libertarian politics have never really caught on in Ireland. Part of this is due to the memory of the Great Famine of 1845-8. The Famine, though caused by blight, was made worse by the prevailing conservative doctrine of laissez faire. This was the prime example of politicians believing the free market will solve everything, that it would be unethical for the government to intervene and that helping the poor would only make them lazy and dependent. This was an experiment of a world with only minimal government, of free market principles in practice, the result was so disastrous that a million people died. Continue reading “Laissez Faire And The Irish Great Famine”

There Is (Almost) No Such Thing As Perfect Competition

Neo-classicalists argue that the market will naturally come to an equilibrium known as perfect competition. In this ideal utopia everything will be perfect. Consumers get the lowest price, workers get a fair wage and businesses earn only ‘normal’ profits. No one is ripped off or exploited because no such nasty things occur. There is no poverty, unemployment, inflation or recessions. There is no need for government to intervene or even exist. While it does describe agriculture, it is completely irrelevant to the rest of the economy. It is a conservative’s dream, more like Narnia than the real world. Despite being taught in all textbooks and described as the economy without government interference, it is instead a deeply flawed theory. It is based upon 5 unrealistic assumptions that do not reflect the actual economy. Continue reading “There Is (Almost) No Such Thing As Perfect Competition”

The Market Is Never Free

It is common to hear people call for the removal of the government from the market or launch defences of the ‘free’ market. It is asserted that governments always get things wrong and that regulations only make things worse. Conservatives proclaim that if the economy was only left in the hands of the free market everything would be better. However there is no such thing as the free market. It doesn’t exist and probably never did. Every market has some rules and regulations that even conservatives admit are necessary. We have grown so use to them that we don’t see them but they are still there. The market is never free. Continue reading “The Market Is Never Free”

Labour Market In The Real World

Orthodox economics treats labour as a good like any other subject to the laws of supply and demand. However this misses a crucial point that we are not dealing with commodities but rather people. With goods, demand is decided by consumers and supply by producers, whereas with labour, demand is decided by producers and supply by consumers. The entire system is turned on its head yet neo-classical economics claims the results will be the same.
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What If Up Is Really Down?

The first thing everyone learns about economics is that the demand curve slopes down and the supply curve slopes upwards. This is described as obvious 2+2=4 and a fact that needs little proof. But recently I read Debunking Economics by Steve Keen which has turned my view of economics on its head. What if down is really up? What if everything taught in basic economics is wrong? What if the supply curve really slopes down? Continue reading “What If Up Is Really Down?”