One day a boy was playing football when he accidently broke a window. Rather than get mad, the people shrugged their shoulders and said breaking windows is good for the economy. After all, if no windows were broken, then all the glaziers would be out of a job. By breaking the window, the boy ensured money would be spent on repairs, thereby ensuring someone kept their job and giving the window making business a boost. However, at this point Bastist in his seminal essay “That Which Is Seen And That Which Is Not Seen” jumps in to point out why this is a fallacy. While we see the money spent on repairing the window, we don’t see what would have happened had the window not been broken. Instead of repairing the window, the money could have been spent on a new pair of shoes. So while the glazier is better off, we don’t see the people who are worse off as a result. Continue reading “Debunking The Broken Window Fallacy”
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.
Economics is a broad and vast field comprising intricate areas that would take years to master. This makes it very hard to summarise or reduce it to a simple point. However, if there was one simple lesson that I wished everyone knew about economics, one easy sentence or sound bite that could explain the essential core to people who know nothing else about economics, it would be: “My spending is your income”. This simple point, properly understood, explains everything you need to know about the important policy issues of the economy. It doesn’t explain everything, but it explains the important parts.
My Spending Is Your Income
There are few things in life as soul-crushing and depressing as being unemployed. In our modern society, people are defined by their work; your job is who you are. Those without a job are therefore excluded from society and feel as though their very identity is in question. Words cannot fully express the overwhelming sense of shame and humiliation that the unemployed feel. Even in times of severe recession they still blame themselves. There is a severe stigma attached to unemployment that makes them outsiders in society. Unemployment is a social curse that robs people of their dignity and self-respect. Continue reading “The Shame Of Unemployment”
At the moment the government is trying to negotiate a deal to best cut public sector wages. However, any such deal will only make the recession worse without reducing the deficit. Here is a guest blog I wrote on the topic.
– Robert Nielsen discusses the ongoing dispute over the Croke Park II proposals, and why cutting wages is always a bad idea.
At the moment there is a great deal of controversy over the Croke Park Deal. In essence the government is trying to cut the wages of public sector workers while the public sector unions are opposing this. Regardless of the politics of the agreement, cutting wages is bad economics. It depresses the economy, worsens the recession and doesn’t even achieve its objective of reducing the deficit. The union membership was absolutely right to reject the Croke Park Deal and the government must completely reconsider its plan of action, because the current one isn’t working.
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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.
Continue reading “What Economics Doesn’t Talk About”
Back in 1930 Keynes predicted that in the future people would only work 15 hours a week. We would become so productive that we could produce everything we needed while only working a short amount of time. Our lives could then be devoted to things we love and enjoy. Instead we are in a world of extremes. Some are lost in a sea of despair and hopelessness, ashamed that they cannot find work. Others are on the verge of burnout from overwork and stress, with no time for their friends or family. We need to stop and relax and enjoy things that really matter. The solution is to reduce the working week, initially to four days and then after several years to three days. There are 3 main reasons for this, it will reduce unemployment, reduce consumerism and increase leisure time. Continue reading “Three Day Working Week”
There are many questions about this current recession. Why did the economy decline so much? Why are most economies stagnating? Why has low interest rates and quantitative easing not lead to recovery? I recently read Richard Koo’s The Holy Grail Of Macroeconomics which answers these questions. I found it deeply insightful, not only for its explanation of the current recession and the Great Depression but also because it was written before the crisis even happened. Koo accurately describes out current mess, what’s wrong and what we have to do to fix it. Continue reading “Balance Sheet Recession”
Don’t get me wrong, I’m a liberal, a Democrat and I’ve voted for Obama for this election. My problem is that my main reason for voting for Obama is that I want Romney to lose. Obama’s campaign has consisted solely of stating Romney’s ideas are bad (which they are), yet he has not defended his own ideas or offered any new policies for his second term. Obama is fighting a defensive campaign, offering to prevent Romney from making things worse, but not offering any ideas for how to make things better. If you ignore the rhetoric and look only at the actions, you will see Obama has not been offering the radical solutions to turn America around. Continue reading “My Problem With Obama”
The recent housing bubble in Ireland defied the laws of economics. Supply and demand rose simultaneously, the market rose to absurd heights before crashing to unheard of lows. It went from an extreme of being able to sell a house no matter how high the price, to one where you can’t sell a house no matter how low you drop the price. According to everything I have been taught about economics, this could not happen. Textbooks are useless in understanding the bubble. According to them the price is always right, that left alone the free market will make everyone better off. Bubbles or recessions don’t happen. Any exceptions are temporary; it’s not possible for a decade of boom to be replaced by a decade of bust. But that is what has happened. Continue reading “The Irish Housing Bubble And Bust”