Degrowth – definition, examples and criticisms

de-growth

Degrowth is a political and economic theory which emphasises changing priorities of society from economic growth and production to a society based on sustainability, well-being, concern for environment and co-operation. The motives for pursuing degrowth include the need to provide environmental sustainability for the long-term and improve quality of life. Critics argue degrowth is a …

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Historical UK national debt

uk-national-debt-since-1727-annotated

Click to enlarge National debt (public sector debt) is the total amount of liabilities the government owe to the private sector (plus liabilities held by Central Bank). National debt is typically bought by domestic private sector (banks, insurance funds, pension funds) and foreign investors (foreign banks) History of UK national debt In 1694, the first …

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How quickly can an economy adjust?

Indian economy

Economies face many events that cause firms and consumers to adjust their behaviour. New technology, demand-side shock, supply-side shock all cause a change in the priorities of the economy. In theory, the price mechanism will lead to a smooth reallocation of resources as capital and labour are deployed from unproductive areas to new areas. Some …

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Should the government intervene in the economy?

functions-of-a-government

One of the main issues in economics is the extent to which the government should intervene in the economy. Free market economists argue that government intervention should be strictly limited as government intervention tends to cause an inefficient allocation of resources. However, others argue there is a strong case for government intervention in different fields, such as externalities, public goods and monopoly power.

hoover-dam
Hoover Dam built in the 1930s with government funds

This is a summary of whether should the government intervene in the economy.

Arguments for government intervention

functions-of-a-government

  1. Greater equality – redistribute income and wealth to improve equality of opportunity and equality of outcome.
  2. Overcome market failure – Markets fail to take into account externalities and are likely to under-produce public/merit goods. For example, governments can subsidise or provide goods with positive externalities.
  3. Macroeconomic intervention. – intervention to overcome prolonged recessions and reduce unemployment.
  4. Disaster relief – only government can solve major health crisis such as pandemics.

Arguments against government intervention

  1. Governments liable to make the wrong decisions – influenced by political pressure groups, they spend on inefficient projects which lead to an inefficient outcome.
  2. Personal freedom. Government intervention is taking away individuals decision on how to spend and act. Economic intervention takes some personal freedom away.
  3. The market is most efficient at deciding how and when to produce.

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Effect of falling oil prices

A fall in oil prices should cause a reduction in transport and fuel costs for firms. Consumers who will also benefit from the lower prices of transport and fuel. The lower oil prices will effectively increase their disposable income and enable them to spend more on other goods Because oil is the most traded commodity …

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Difference between monetary and fiscal policy

fiscal-vs-monetary

Readers Question: What is the difference between monetary and fiscal policy? Monetary policy involves changing the interest rate and influencing the money supply. Fiscal policy involves the government changing tax rates and levels of government spending to influence aggregate demand in the economy. They are both used to pursue policies of higher economic growth or …

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Inflation and Recession

econ-growth-inflation-dec

In a recession, you would usually expect a fall in the inflation rate due to lower demand and lower economic activity. The inflation rate fell in major recessions like 1929-32, 1981, 1991 and 2020.. However, it is not guaranteed inflation will fall in recession. For example, we could have a period of stagflation – rising …

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