Economics

Economics

‘The Dismal Science...Carlyle

‘The failed profession’...JK. Galbraith

‘The imaginary science’...Tiger Moto

Economics along with Politics are fundamental to

understanding the world we live in. If you cannot grasp the fundamentals of

these two subjects you will be for the rest of your life be conned..lied and

cheated. So always remember Politics and Economics are linked...Politics

affects economics...and economics affects politics...known as Political

economy.

In the past economics was not a distinct subject ..but was taught

along with politics and Philosophy. In fact Oxford University teach a degree

comprised of economics..politics and philosophy..very useful.

What the economics profession has done is try to teach it as a

special discipline and mathematized the subject to give it a firmer foundation as

with science subjects.

The result has been that mathematical models of the economy have

been constructed to reflect the real economy. In reality these models do not

reflect the workings of the real economy ..but are abstract models which reflect

the mind set of the originator. So what is a social science has been turned into a

hard science like Physics. The only problem when these economic models are

applied to the real world..they often fail.

To overcome these failed results the economic profession is

constantly updating ..revising ..even in some cases replacing these

theories..latest theory called modern monetary theory...also called the magic

money tree..by those who dismiss it. Since there is not one view of

economics..the profession is in constant turmoil..when policies do not work

you the public pay the price ..in lower wages..unemployment...reduced

economic prospects. To understand how we have got to this sorry state we need

to learn economic and financial history.

There are currently two dominant theories of how the economy

works:-

1)The Monetarists...who believe that by controlling the money

supply...limited role of government..markets work best if left to correct

themselves..they say that a ‘rising tide lifts all boats’...that is we all get rich.

2)Keynesians...this group of economists believe that government intervention

in the market is essential to ensure the market works for the benefit of every

one. If left to its own there is no guarantee that every one will be better off. As

you grow up you will spend a lifetime trying to earn enough money to have a

good living standard...money and economics are not the same thing..i will deal

with how money works in the next chapter.

One time Prime Minister of the UK..Margaret

Thatcher..believed economics... was a branch of household income..she treated

the UK economy with the same logic of the household budget..with mixed

results..for which the people of the UK are still paying the price.

The first early economist Carlyle who framed it as the

dismal science..his view was economics was man made ..it was dependent on

the rational and irrational behaviour of people..this can clearly evident at sports

matches...where people will cheer their team..even though they get no financial

benefit.

Economist Lionel Robbins gives the best economic

description..”study of human behaviour ..as a relationship between ends and

scarce means which have alternative uses”...what this means there is not

enough stuff to go around..because stuff is always in short supply..not so

today...mass manufacturing produces an abundance of goods..problem is people

do not have enough money to buy it all.

The first economist to be taken seriously was Adam Smith

he of the ‘invisible hand fame....according to him rational actions of self

interested people...give the wider society what it needs. In his day the subject

was called political economy.

Adam Smith is much misquoted..he was not a radical free

marketer..in his works he was very critical of Corporations in his day called

joint stock companies...who he believed would often collude to rig the market

system ...against the interest of the consumer...he was also critical of unbridled

greed and selfishness. So when you hear free marketeers using him as

justification for corporate greed...remind them he is the opposite of what they

believe.

As economics has developed the field of Macroeconomics has

developed which tries to measure a countries output now as GDP..which

include things like income..trade..taxation.inflation ..and unemployment.

Microeconomics looks at interactions between people..and business ..i,e

supply and demand ..between sellers and buyers..in market based competition

at local level.

Summary

The early classical economists like Marx..Adam Smith..Ricardo..had

a better understanding of economics works than many of today's economists.

The old classical economists based their theories on real things..unlike later

economists who built abstract mathematical models which often did not reflect

how the real world works..they see economics as a branch mathematics..the

number of market crashes attest to this..the big one being the 1929 market

crash..when theory goes wrong.

After the second world war economic and political power

shifted to the US..the new Imperialist..the US approach being much more

market friendly...as a route to success..economic stability..efficiency..markets

know best..Although not all agreed with this..game theory..limits to economic

growth in a system of finite resources..chaos theory and Psychology of human

behaviour has under mined the free market approach...the frequent market

crashes and environmental damage..and climate change..has cast doubt...there

is something fundamentally wrong within the system.

Political and economic power is again shifting to Asia...the

emerging BRICS countries of Brazil..Russia...India,China and South Africa.