economics

The Turkish boom and bust

The Turkish boom and bust

After a decade of secular stagnation in the west and ultra-low interest rates – from an economic perspective, the Turkish economy is ‘interesting’ in the sense that it gives a very different set of economic circumstances. An economic boom with parallels and similarities to the 1997-98 Asian Crisis. Since 2000, the Turkish economy has grown rapidly, helped by foreign direct investment which is attracted by new markets and an economy which is growing faster than the more sclerotic West.

Does higher government borrowing punish future generations?

Does higher government borrowing punish future generations?

Readers Question: The Labour party, among others, protests about the effects of government austerity policies on ordinary people but does government spending, even so-called ‘investment in infrastructure’, not automatically increase national debt which means punishing future generations? Firstly, if a government increases spending without any corresponding increase in taxes, then this change in the government’s fiscal stance will, ceteris paribus, lead to higher government borrowing – at least in the short-term. However, in the long-term, we need to consider the effect of: Impact of borrowing on economic growth – and…

effect-tariffs-on-consumer-surplus

Does a trade war cause a recession?

A trade war involves the imposition of tariffs between trading partners. This will almost certainly cause a fall in economic welfare for all the countries who experience higher tariffs and a fall in trade. However, this fall in economic welfare is not the same as a recession (a fall in GDP). In some circumstances, a trade war can be the external shock which leads to a fall in aggregate demand and recession, but the link is not guaranteed. In the past, (notably them1930s) recessions have led to a trade war. This…

free-trade-winners-losers

Who are the winners and losers from free trade?

Readers question: Who are the winners and losers from free trade? Free trade means that firms can export and import goods without tariff barriers. Free trade leads to lower prices and increased exports and imports. Economists are generally agreed that free trade leads to a net gain in economic welfare; as a result, economists generally support free trade. However, these gains may not be equally distributed. Also, though there is a net gain in economic welfare – there can be groups of individuals who lose out (e.g. uncompetitive firms who close…

Government intervention in the labour market

Government intervention in the labour market

Government intervention in the labour market to reduce inequality and market failure can take various forms. Minimum wages/living wages Maximum wages (rarely used) Legislation to prevent discrimination on the grounds of age, sex, religion. Legislation to support or regulate trade unions. Maximum working week Legislation on health and safety Behavioural nudges (e.g. encouraging workers to take pensions) Government provision of education and training schemes Minimum wages The minimum wage sets a legal floor below which employers cannot pay. The minimum wage is designed to help increase the income of the low-paid….

Branches of economics

Branches of economics

Economics is a broad subject concerned with the optimal distribution of resources in society. Within the subject there are several different branches which focus on different aspects. Also, there are different schools of thought which generally have different views on aspects of economics. The first way to split economics is Microeconomics and macroeconomics. Microeconomics – concerned with individual markets and small aspects of the economy. Macroeconomics – concerned with the whole aggregate economy. Issues such as inflation, economic growth and trade. To some extent, the split is artificial. Aspects of microeconomics…

Should I boycott goods made in sweatshop factories?

Should I boycott goods made in sweatshop factories?

Should I boycott goods made in sweatshop factories? Another question from – What would Keynes do? This is a dilemma for an economist. If we boycott goods made in ‘sweatshop factories’ – does it help or hinder workers in developing economies? Firstly, when we hear about working conditions in some ‘sweatshop factories’ – low pay, harsh and dangerous conditions,  and military-style discipline – it is human nature to want better conditions for those workers who make the products we use. When…

regulatory-capture

Regulatory Capture

Regulatory capture is a form of government failure where those bodies regulating industries become sympathetic to the businesses they are supposed to be regulating. Regulatory capture can mean monopolies can continue to charge high prices The opposite of regulatory capture is ‘public interest theory’ – the idea that government regulation can influence monopolies to behave in the public interest. How does regulatory capture occur? 1. Regulators become friendly with the firms they are dealing with. Spending time with people makes you more…