The Twin Deficit Hypothesis

Simply put the twin deficit hypothesis is the view that an economy running a fiscal budget deficit will also run a current account deficit. It stems from a national accounting equation which says that NX = S-I. We arrive at this point because Classical economists take S = Y-C-G, so we can arrange our national accounting equation of Y = C + I + G + NX to get the above NX = S – I. Where Y is national output (i.e. GDP), S is savings, C is consumption, I is investment, G is government spending and NX is net exports (exports minus imports). [...]

Demography and the Industrial Revolution

What were the causes of the distinctive characteristics of English fertility behaviour during the Industrial Revolution? (b) How did the fertility rate interact with economic growth during this period?

demographyBefore the causes of fertility behaviour are explored, we need to first look at what these characteristics were in the first place. From the graph to the left1 we can see that the crude birth rate (which is defined as the number of live births per 1000 people) starts off at about 30 births per 1000 people in 1680 but increases to about 44 births per 1000 by 1820. This is a significant increase, especially as Malthus believed that the maximum biological rate of fertility can only be about 50 per 1000 people – so the fertility rate was approaching the maximum in 1820. [...]

Thatcher and Conservatism

Margaret Thatcher broke the post-war consensus in British politics and in so doing changed Conservatism in a fundamental way. Discuss.

It is generally agreed that the post-war consensus consisted of 3 broad pillars – the welfare state, a mixed economy and Keynesian demand-management to ensure full-employment. Let us firstly turn to Keynesian demand management; the post-war consensus was established when the dominant economic paradigm was Keynesian thought, it was believed that by altering government spending aggregate demand would change so as to ensure that full-employment was achieved. Traditionally, the government had the trade-off between high inflation and low unemployment or vice versa, this occurred because by reducing unemployment labour had strong bargaining power and was able to bid-up wages which caused inflation. [...]

Politics in Post-War Britain

Winston Churchill and Clement Attlee established a coherent political order in post-war British politics. Discuss.
The 3 main pillars of the post-war order were; a welfare state, a mixed economy and maintaining full employment. These three policies were introduced by Attlee’s Labour government between 1945 and 1950. They came about through a change in ideology in the electorate during the war. Although sometimes referred to as Butskellism because they were largely enacted by Hugh Gaitskell, Chancellor under Attlee and subsequently Rab Butler, Chancellor under Churchill, they only came to pass with the support and direction of Attlee and Churchill, reflecting their combined commitment to them. [...]

Post-Keynesianism Part II

Day 1 – Talk 2

After our Introduction to Post-Keynesianism from Engelbert Stockhammer we were given a talk by Ozlem Onaran, from Greenwich University, on “Aggregate demand, income distribution and unemployment”.

She begins by adding to Engelbert’s introduction, highlighting that fundamental uncertainty can lead to path dependency – that is decisions made today (as a result of fundamental uncertainty) will have knock-on effects into the future. Post-Keynesians believe that full-employment is a special scenario, unlike neo-classicalists who believe that full-employment is the natural equilibrium and deviations are temporary and as a result of external shocks.

The determinants of investment are reminded as: capacity utilisation (how much of existing machinery is being used), credit availability, animal spirits, technological opportunities (after WWII there were many new technologies – partially discovered/created through military efforts – which helped aid the post-war boom as firms rushed to invest in these new technologies to make profit from them) and future profitability. [...]

What is hysteresis?

I recently wrote an article on the situation in Greece, and mentioned the effects of hysteresis which I will expand upon in this blog article.

Hysteresis is a theory developed by the Keynesians to explain why laissez-faire economic policy may be damaging in the long run. Neoclassicalists would argue that during an economic downturn, when an external shock causes demand to fall, wages should be allowed to fall which would increase the international competitiveness of the economy so that exports can grow to increase demand and provide a boost to the economy fueling further growth until the economy is out of the slump and growing again. [...]