Was austerity necessary in 2010?

was-austerity-necessary

Readers Question If one looked at the UK’s Historical Debt to GDP ratio; at the time austerity was introduced; the Debt to GDP ratio was last at this 2010 level in 1966. Having lived in 1966 there was no massive economc requirement to reduce public spending at that time ie everything was fine. So was …

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When did the recovery from the 2009 recession occur?

UK-growth-since-2007

Readers Question: At the time of the Economic collapse 2007/ 2008 or near the end of that period in 2010 the Labour administration had actually started to pull out of recession – True or False? The recovery began towards the end of 2009 (Q4). Q2 growth in 2010 was quite high at 1% (annualised 4%) …

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Application and Interview Tips for PPE at Oxford University

I studied PPE at Lady Margaret Hall, Oxford University between 1995-99. Quite often people ask me for tips on applying and the interview, so here are a few suggestions. Mock Interview Practise I also offer mock interview practice. Usually, I like to offer a two-hour session. This usually involves 75 minutes of interview and 45 …

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Factors that affect foreign direct investment (FDI)

factors-affecting-fdi

Readers Question: why some countries are more successful in attracting Foreign Direct Investment than others? Foreign direct investment (FDI) means companies purchase capital and invest in a foreign country. For example, if a US multinational, such as Nike built a factory for making trainers in Pakistan; this would count as foreign direct investment. In summary, …

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Pros and cons of raising the minimum wage

In both the UK and US, politicians are proposing significant, above-inflation increases in the minimum wage. The US is proposing an increase from $7.50 to $15 by 2024. The arguments for raising the minimum wages include – reduced in-work poverty, a reduction in inequality, an incentive to increase labour productivity and higher wages leading to …

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Problems of Capitalism

problems-of-capitalism

Capitalism is an economic system based on free markets and limited government intervention. Proponents argue that capitalism is the most efficient economic system, enabling improved living standards. However, despite its ubiquity, many economists criticise aspects of capitalism and point out is many flaws and problems. In short, capitalism can cause – inequality, market failure, damage to the environment, short-termism, excess materialism and boom and bust economic cycles.

problems-of-capitalism

Problems of Capitalism

1. Inequality

The benefits of capitalism are rarely equitably distributed. Wealth tends to accrue to a small % of the population. This means that demand for luxury goods is often limited to a small % of the workforce. The nature of capitalism can cause this inequality to keep increasing. This occurs for a few reasons

  • Inherited wealth. Capitalists can pass on their assets to their children. Therefore, capitalism doesn’t cause equality of opportunity, but those born in privilege are much more likely to do well because of better education, upbringing and inherited wealth.
  • Interest from assets. If capitalists are able to purchase assets – bonds, house prices, shares, they gain interest, rent and dividends. They can use these proceeds to buy more assets and wealth – creating a wealth multiplier effect. Those without wealth get left behind and may see house prices rise faster than inflation.
  • The economist Thomas Piketty wrote an influential book Capital in the Twenty-First Century, which emphasised this element of capitalism to increase inequality. As a general rule, Picketty argues wealth grows faster than economic output. He uses expression r > g (where r is the rate of return to wealth and g is the economic growth rate.)

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The difference between current and capital spending

capital-consumer-goods

Capital spending is investment spending on increasing your fixed assets, for example, building a hospital, buying equipment or building a new road. See also: Gross fixed capital formation Current spending is expenditure on day to day running costs, for example, government spending on wages of public sector workers or buying raw materials. One major difference …

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