Category: MacroEconomics

Paul Mason’s Capitalism

Posted on by Rhys Williams

Paul Mason today gave a ‘sermon’ (they even made us sing hymns!) on what he describes as Post-Capitalism. Without yet having read his book I wanted to address a few of his points based on his talk. Therefore some of my issues and criticisms may be cleared up at a later date. I find it ironic that he describes post-capitalism as being based on the shareholder economy which arises through voluntarism, yet the talk cost £20 per ticket and was followed by a book sign afterwards, which was also sold – but hey, we haven’t reached the post-capitalist state yet!

My first criticism with the whole idea (I think the same as Iain Martin’s) is that he seems to describe capitalism as an ideology, when in fact it is simply a system to distribute scarce resources. [...]

What is hysteresis?

Posted on by Rhys Williams

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. [...]

An Introduction to Post-Keynesianism

Posted on by Rhys Williams

I recently attended a 3 day Post-Keynesian Study Group (PKSG) workshop at Kingston University, and here is some of what I learnt on the course. I am sure this will spawn many other research interests, leading to future blog articles on some of the theory discussed.

Day 1

The course was to be split up into 3 days, on the first day we would cover Post-Keynesianism, on the second we would continue with PK and financial crises in the morning, followed by Marxist Political Economy in the afternoon and then on the final day we would round off what we had learned, ask any further question and debate the success of student movements in encouraging pluralism. [...]

Why is Osborne adamant on a budget surplus?

Posted on by Rhys Williams

Sawyer - budgetruleobjectionsI’ve just finished reading Malcolm Sawyer’s take on budgets surpluses (Malcolm Sawyer – Budget 2015 The budget surplus – see image for his basic objections) which leads be to write the following post, questioning whether budget surpluses are as positive as Osborne would have the public believe.

A government’s fiscal situation and that of an individual, or even a firm, are completely different. When a government decides to borrow then it must be the case that the private sector is saving, and when the government decides to save then it must be the case that the private sector is borrowing. [...]

Was OPEC’s price increase inflationary or deflationary?

Posted on by Rhys Williams

In the 1970s OPEC, the oil cartel, increased prices which – it is often proclaimed – is responsible for the stagflation in Western countries. Whilst we would naturally expect such an increase in price of a vital commodity to lead to inflation (we will examine these effects shortly), is it possible that there could have been some deflationary effects too?

Naturally basic economic theory would tell us that the oil price increase would be inflationary:

Oil is a commodity which is highly price inelastic (meaning a change in prices isn’t met with much of a change in demand) and so a rise in its price will have to be absorbed by consumers. [...]

What is a Cobb-Douglas Function?

Posted on by Rhys Williams

The Cobb-Douglas function has many applications in economics; from being a well-behaved preference in microeconomics to a production function in macroeconomics. It is named after Paul Douglas, an American Congressmen who was researching labour and capital shares and asked Charles Cobb, a mathematician, for help in formulating this into a function. In this article we will explore its use as a production function.

Functions

In its simplicity, a CD (Cobb-Douglas) function is just a function. A function, in mathematical jargon, transforms an input into a single output: it is a one-to-one mapping. For example Y=2X is a simple function. X is the independent variable and Y is the dependent variable, because Y is determined by whatever the value of X is. [...]

Yap and the Stone Currency

Posted on by Rhys Williams

yapYap is an island in the Pacific Ocean within the Caroline Islands with a population of around 10,000. Despite being a tiny country which you have probably never heard of before, Yap teaches us some important lessons on the functions of money. That is because money on the island consists of large stone discs, made from limestone and shipped from an island a few hundred miles off the coast of Yap, called Rai. They made Rai there money which they would use for expensive transfers, such as for their daughters dowry. Because Rai is made from limestone it is a mix between fiat money and commodity money. [...]

Predictably Irrational

Posted on by Rhys Williams

I have just finished reading Predictably Irrational, a book by Dan Ariely on why economic thinking is flawed due to its failure to include behavioural economic concepts. In economics the actions of people are summed up by Homo Economicus, an imaginary figure that is completely rational and bases all its actions upon these rational foundations. Obviously not all humans are as rational as Homo Economicus, and this causes inconsistencies in economic models.

Dan Ariely argues that if we use findings from behavioural economics (a branch of economics that incorporates psychology) and mould these into our economic models, then we will improve our models and will thus have a better understanding of how the economy actually works. [...]

The Expansionary Fiscal Contraction Hypothesis

Posted on by Rhys Williams

Read this essay (http://www.econ.aueb.gr/en/uploadfiles/AllRP092012.pdf) about the theory of expansionary fiscal contraction. In a nutshell the theory proposes that austerity (fiscal contraction) can lead to economic growth as consumers might anticipate smaller taxes tomorrow, and hence increase their spending today, thus boosting the economy. It also proposes that austerity would reduce the effects of crowding out, but this point is only really relevant when the economy is at full-employment, and so can be ignored regarding the current situation we are in.

The introduction of the essay is extremely good at explaining this point.

UPDATE: A follow-up of this issue is available to read here. [...]