Friday, 13 July 2012

The Social Contract: Part 2

by Viva Avasthi

bees, the fable of the bees, economics for teens, economics for teenagers
Is the ideal society reflected in The Fable of the Bees?
Niall Ferguson argued in the first of this year's Reith Lectures that the social contract (which I explained in my previous article) needs to be restored between the generations. I agree with him to an extent, because it does appear to be the case that governments often don't work in the interest of improving conditions for both the present and the future generations, but to improve their chances of collecting votes. This leads to a vicious circle in one sense, because the government is forced to provide people with what they demand rather than to do what is ideally required to tackle a particular problem.

For example, in the UK, large numbers of the population rally against spending cuts because, on the surface, the cuts are removing people from their jobs and hindering development in whichever sector the cuts have been proposed. Not many stop to consider the longer term benefits of using cuts to reduce government debt. After all, a reduced debt indicates a healthier economy and can lead to lowered tax rates which will surely be seen as beneficial by the very same people who propose to stop the spending cuts. According to Niall Ferguson, the biggest problem is the way young people respond to the government's decisions:

"The young find it quite hard to compute their own long-term economic interests. It is surprisingly easy to win the support of young voters for policies that  would ultimately make matters even worse for them, like maintaining defined benefit pensions for public employees. If young Americans knew what was good for them, they would all be in the Tea Party." - Niall Ferguson in 'The Rule of Law and its Enemies - The Human Hive'

 For those of you who aren't aware of what the 'Tea Party' is (just as I wasn't before I embarked on some research), the 'Tea Party' is an American political movement which promotes reduced government spending, reduced tax rates and reduced national debt. I have no idea why it is referred to as the 'Tea Party', but if anybody knows, please solve the mystery by commenting below!

Personally, I think that Niall Ferguson's opinion on the youth is quite true in the sense that the young often complain about matters which are needed for easing the burdens of the recent economic crisis such as raised university tuition fees, for example. Surely having to pay up to £9000 every year is no worse that paying £3000 each year when every student is offered an interest-free government loan whereby they only need to repay the loan once they earn enough to do so. If students attend universities to gain valuable knowledge and qualifications which will equip them with the skills needed for obtaining well paying jobs, they have nothing to worry about. If, however, a student decides that they want to go to university 'for a laugh', then the increased fee is certainly extortionate from their perspective.

It appears to me that improving education is the best way to resolve the issue of the breach in the social contract. If people were taught about the importance of society and making decisions not for selfish and short-term reasons, but for slightly less selfish and longer-term reasons, then people might stop criticizing the direct implications of policies and appreciate the benefits for both themselves and their children in the longer term.

Some of you might be thinking, "What about Adam Smith's famous invisible hand theory? Doesn't that basically state that being selfish is what helps society to progress because when an individual gains, society gains?"

Yes, but in this circumstance, if one section of society benefits through not having cuts imposed on it, then it is another section of society, or potentially even the entire society itself that could end up having to bear the burden of the cuts anyway through increased taxes, for example. After all, Adam Smith didn't call his theory the 'Greed is Good Theory', did he? The various laws and legislations that we as a society have created would be counter-productive otherwise!

I would be very interested in considering the arguments that you might have. Please comment below and share your thoughts!


  1. the tea party is short for taxed enough already. They want to get back to America's constitutional roots (which many of them don't seem to understand) so they added in party because of the Boston tea party which was a famous tax revolt and an important event in our countries history. However they're not really concerned with lowering the debt or else they'd cut military spending. (we spend more on our military than any other nation.) instead they go after programs for the poor like food stamps and welfare, and as a result I can't take them seriously.

    1. Thanks for you comment, Jake. I'm interested in finding out more...clearly you are disapproving of the tea party and what you have said does seem convincing. I think your point about if the party were concerned with lowering debt they would cut military spending is a very interesting one as it does make a lot of sense. However, if the tea party is not really pro lowering debt, tax rates and government spending, then, in your opinion, which American political movement is?

  2. Hi Viva,

    I'm a PPE student at Brasenose College, Oxford and Joe Organ directed us towards this webpage as he thought you were very keen on economics. I really liked the piece, and I think there are some fairly compelling issues around inter-generational transfer and unfairness; I would perhaps argue that the far more serious issue is the cross class (if we use wealth as a heuristic for class) transfer in fiscal contraction ie 'the poor' (broadly) lose out far more than 'the young' do when the government starts taking the axe to services.

    Anyway, best of luck for university applications etc, I think the blog is a great idea to pursue and certainly something I'm not sure I could have done in year 12. Hope everything goes well.

    Best wishes,

    Hugh McHale-Maughan

    1. Hi Hugh,

      Thank you for taking the time to visit The Teen Economists, and please do pass on my thanks to Dr Joe Organ for being so nice as to direct you and your peers towards the blog.

      I wrote this article in Year 10 and since then I am certainly more inclined to agree with you that the cross-class transfer of wealth is more of an issue than the inter-generational transfer. I found Prof. Will Hutton's 'Them and Us' a compelling read on the subject. (Have you ever been taught by him?) However, I still believe that too many people vote without being aware of how certain policies might play out in the longer term: an issue that can perhaps be tackled through education.

      Thanks again for your comment and best of luck with your degree!

      Lovely to hear from you,


    2. I'll let Hugh handle most of this in his own time (he'd moan at me if I didn't - he's like that) but you may be interested to know that, although you'd be unlikely to ever be taught by Will Hutton if you came to Oxford, he's the Principal of Hertford College and he occasionally speaks in debates/talks open to members of all colleges.

    3. Ah, okay - thanks for that bit of information. I knew that he was Principal of Hertford College, but I wasn't sure whether he taught students. I attended a lecture of his last year and he was brilliant and really lovely to talk to afterwards. I've written about my experiences here, if you're interested:

  3. Hey Viva,

    Very interesting article. I completely agree that there is often a lack of long-termism when it comes to economic policy in much of the world.

    However, I don't agree that we can treat disagreement with austerity measures as "not stopping to consider the longer term benefits". Austerity is highly controversial. Many, such as myself, have considered the longer term benefits of austerity, and considered the longer term benefits of not pursuing austerity (perhaps enacting fiscal stimuli), and have come to a reasoned conclusion that the latter is preferable.

    It is very difficult to use austerity in order to significantly decrease current debt. If austerity measures are enacted, aggregate demand decreases - i.e. people demand fewer goods from firms. If firms experience less demand, many will be forced to either decrease workers' wages, fire some workers, or both. Hence, total wages will decrease. Taxation revenue is drawn from total wages - so if total wages decrease, taxation revenue decreases. Furthermore, if people are made unemployed or their wages are reduced to a very low level, the government will have to spend more than before on unemployment benefit and income-tax credits. Hence, austerity measures usually have, to at least some extent, the ironic effect of decreasing taxation revenues and increasing government spending - therefore, the initial cuts in net government spending will be somewhat, mostly or entirely matched by resulting rises in net government spending. This is why Osborne has had significant difficulty in getting the budget deficit down and looks likely to fail in his target of cutting it completely by 2015/16.

    So, there are rational economic arguments for disagreeing with austerity. There are also rational economic arguments for disagreeing with Niall Ferguson. His claims that young Americans "should all be in the Tea Party" are very one-eyed. Putting economic policy aside, because Tea Party members are quite wide-ranging in its economic conservatism, this is a group that appears to wish to severely limit immigration and appears to think that we should not worry about climate change. Any young person should feel free to disagree with these views without being said to not think about the long-term.

    Tuition fees are a multi-dimensional issue. It's often said that new fee-repayment system makes the regime better now than it was before, despite the rise to £9000 per year. I'd probably agree. But this doesn't change the fact that the government could have introduced the new fee-repayment system WITHOUT raising fees to £9000 per year. The two are not inextricable. Hence, I don't think that line of argument is sufficient to defend the Coalition's tuition fee reforms as a whole - it may be better now, but it would have been far better if they had chosen not to raise fees by so much, so fast. Much of the outrage over the issue also stemmed from the Lib Dems' backtracking on their promise to NOT raise tuition fees. That said, I do agree with your point that, despite the price hike, university education still seems worth the price.

    As you can see from the length of my comment, this has been a very thought-provoking article. Well done. As Hugh says, best of luck for university applications and so on. If you have any questions, please feel free to ask them below.

    Ben Sanders
    First Year PPE student
    Brasenose College, Oxford University

  4. Hey Ben,

    Thank you for taking the time to write such a long and detailed comment. It was only a short time ago that I replied to Hugh's comment, and then I noticed that not only had another PPE student from Brasenose commented, but that he had left multiple comments! I think I'll send Dr Joe Organ an email thanking him for encouraging all of you to take the time to read what we've written here at The Teen Economists and to leave such thoughtful comments.

    Turning now to the actual substance of your comment, I have to admit that even I wouldn't really buy the austerity argument that I've proposed in this article any more. This article was written in the summer of Year 10 when I was first getting really interested in various ideas in economics and politics. However, by the spring of Year 11, I'd read about J.M. Keynes and his ideas, which are essentially what you've described, and which make a great deal of sense, I think.

    I also read up on the Tea Party after Jake left his comment and I definitely feel that there's nothing wrong with not agreeing with their policies. It's been really interesting for me that both you and Hugh chose to comment on this particular article, as it's allowed me to see how my ideas and thinking have changed quite a bit over time. The change was to be expected, I suppose, but it's still a little strange to look back at an article you yourself wrote and think, "Hmm, that's really not a great argument."

    In terms of the tuition fee rise issue, I think that the biggest issue really was the fact that the Lib Dems went back on their promise - a promise which they had waved in the electorate's faces before the election, which, of course, made things a lot worse when they broke it. Hence those people taking the time to make the 'Nick Clegg Apology Song' which you've probably seen, but here's a link anyway:

    I have a question: how did you decide between applying for PPE, E&M and Economics (at Cambridge)?

    Thanks again for commenting and best of luck with your degree!

    Lovely to hear from you,


    1. I can see why you find the change a little strange, and I think a lot of people have experiences like that. I never really put pen to paper with my thoughts from Year 10, but I know that if I had they'd be pretty unrecognisable to me now.

      I actually thought the mass coverage of the Nick Clegg apology song was a bit of a shame! Obviously, he may only have apologised for purely political, selfish motives - an attempt to regain a semblance of credibility with the voters. On the other hand, he may actually feel remorseful - and, if so, I think we should actually applaud his courage. Apologising for such a large mistake, made on such a big stage, is difficult.

      Deciding between PPE, E&M and Economics at Cambridge wasn't hard for me, as I am very interested in Philosophy and (to a lesser extent) Politics, as well as Economics. I really wanted to do all three subjects, so for me it was a no-brainer. Of course, you don't have to be desperate to do all three subjects to still do PPE! Quite a lot of people only have a deep interest in two of its disciplines. Are you particularly interested in Philosophy and/or Politics? How about Management?


    2. If he did apologise out of genuine remorse then yes, I suppose he ought to have been regarded far more favourably. The trouble, though, is that it's really difficult to decipher the intentions of politicians a lot of the time for reasons which make sense, but are frustrating all the same. Did you watch 'The Politician's Husband' when it was aired on BBC 2 last year? If so, what did you think of it? I thought it painted a very bleak picture of politics, but I wasn't entirely sure to what extent it could be believed... Your knowledge of politics must exceed mine, so I'm interested in finding out what you thought of it. You too, Hugh, if you're reading this comment!

      Thanks, that's really helpful. I'm really quite interested in Philosophy, though I haven't read any of the major philosophical texts - only summaries of what they discuss. Actually, I have read extracts of various significant texts as part of our Philosophy Reading Group at school, but that doesn't compare to reading the full texts, I guess. I do have quite an interest in politics since politicians and political parties are the means through which economic policies are administered, and I also find international relations fascinating. I don't affiliate myself with any party though. Management doesn't really interest me, but I asked you about E&M because it's one of the Oxbridge Economics degrees, and I thought I'd include it in my question for the sake of completeness.

      Right now I'm more inclined towards applying for Economics at Cambridge rather than PPE at Oxford because the Cambridge course appears to be far more mathematical without compromising too much on the historical and political aspects of Economics. PPE does sound amazing, though! I only wish it were more mathematical...


    3. Agreed. I didn't watch The Politician's Husband, but it seems very interesting. "House of Cards" is supposed to be very good too, if you're interested in US politics (there was also a "House of Cards" series televised around 20 years ago that was based on UK politics, but I'm not sure if that's readily available anywhere).

      No shame in not having read any major philosophical texts yet. To date, I've still only read a few philosophical books cover to cover, and most of these were introductions. If you're interested in doing more reading, I'd definitely recommend "Think", by Simon Blackburn - it's the only introduction to philosophy that I've yet read that is simultaneously accessible to the beginner and fairly deep in its analysis. Avoid "What Does it All Mean?" by Nagel (too shallow) and "The Problems of Philosophy" by Russell (too inaccessible).

      Yeah, it's probably worth mentioning that the course providers for Economics at Oxford have slightly redesigned the first year modules this year, and there's now a bit more emphasis on written understanding of microeconomics than in previous years. The microeconomics first year course is still mainly maths, though.


  5. "Hmm, that's really not a great argument." is a thought I suffer after almost every tutorial as I re-examine my essay; it's a good one to have, however, and is pretty central to the Oxbridge experience.

    I don't want to end up in a classic PPE argument, but I do think there are fairly compelling reasons for the tuition fee rise that transcend a standard left-right division (I'd actually defend the rise as being quite a left wing measure). Also, I am potentially the only man left in Britain who believes in Nick Clegg and thinks he's done a good job of delivering on his manifesto given the seat-breakdown of the coalition.

    I'm not sure if this was addressed to me, but I wrote off E&M and Economics as being intensely dull compared to the sparkling brilliance of PPE.


    1. The Oxbridge experience sounds amazing! After all those tutorials and sessions re-evaluating your own arguments you must have developed so quickly in your critical ability and understanding of Philosophy, Politics and Economics over this past academic year. I'm interested in whether you're finding that the experience is as good as you expected. Is it even better?

      As my understanding of economics has developed, I've found that economic and political answers tend to be very complex and very obscure. A lot of the time there are very compelling arguments on both sides of a debate and it's difficult coming to a decision on what you yourself believe. I find that it's far easier when you're formally debating a topic (such as tuition fee levels, for example) as you're forced to stay on a side and argue from that point of view as best you can. Do you find that to be the case? Also, is it true that a lot of people come to Oxford to study PPE with very strong affiliations to a particular party? Doesn't that make it difficult for them to really take in what's being taught?

      Thanks for sharing your thoughts on why you picked PPE. I have to ask you the same question I asked Ben, though. Am I correct in believing that the PPE course is not very mathematically rigorous? I take Maths, Further Maths, Economics, Physics and Latin at AS level and I really enjoy maths. It seems to me that my subjects might be too mathematical for me to have a decent shot at applying for PPE, and the course itself might not be suitable for me anyway. What do you think?


    2. I may as well give my thoughts on this as well as Hugh, when he replies.

      Speaking for myself, I realise now that I didn't have a very detailed idea of what studying at Oxford would be like. I sort of vaguely imagined that everything here would be completely different to any experience I'd ever previously had and, by consequence, couldn't really put together a detailed imagination of what things would be like here. In practice, this is definitely a very different environment to school-life and home-life but I haven't had a massive culture-shock. So the experience has been quite different from my (vague) expectations, but I certainly haven't been disappointed.

      I myself don't really find that. I'm happy to not have a position on certain issues if I don't know enough about them, if I don't understand them well enough or if I haven't given them enough thought yet. I think that helps me choose components that I like from arguments on both sides of an issue and from that form my own position on the matter, because I'm not afraid to be left unable to decide one way or another if I've drawn equal amounts from both sides of the debate. But everyone's way of understanding issues and debating them is different.

      The official University policy is that any combination of A-Levels, provided they are mostly "facilitating" subjects, is suitable for PPE. Maths and History were listed as "useful" subjects when I was applying, but plenty of successful PPE applicants don't have History and roughly a tenth don't have Maths. So the real question is, as you put it, whether the course itself might not be suitable for you. If you want to do Maths for almost your entire degree, PPE won't be able to offer you that; only one-sixth of the first year modules has a heavy maths component (microeconomics) and, even if you pick your modules in years 2-3 to maximise the amount of maths you do, I'm pretty sure that at least 25-35% of your modules in these years would contain little to no maths.

      So it all depends on what priority you'd give to doing Maths or maths-related topics. If you want to get a more even combination of Maths and an element of PPE, you could do something like Maths and Philosophy here at Oxford - but I imagine that you're firm on doing Economics in some capacity!



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