Sunday, 17 November 2013

No, Brenna, the US Should Not Reduce Government Spending

By Jaime Bravo

Brenna Fisher, a partner of mine in this blog, wrote today an article speaking about the possibility of reducing government spending and why it was necessary. Here is her take. After reading it - and I must say that I have been reading about austerity in Europe and in the US for a long time - I cannot agree with her thoughts. Austerity, as we know it in Europe and specially in Spain, has been intellectually defeated. Austerity has been widely used only for ideological and political purposes, that is, the implementation of austerity is good, but only if you are rich - which is exactly what Mark Blyth said a few days ago on The Guardian. So, if austerity has been defeated, why do we still support it in some ways? Because it keeps our political aims alive. Make no mistake, I really respect Brenna's work. I enjoyed her last article on music and recessions and I share my thoughts with her on Twitter - see here. It is just there are some failures on economic assumptions that we still consider as facts. It is not Brenna's problem, it is a problem of economic thought.

Do not follow the European path

Europe is one of the most complex economic experiments of all time. It is not my aim to write about it here but we have to work on a few facts. First, Europe is driving himself into a liquidity trap. I have worked widely on it - you can read my work here; it is in Spanish though. Mario Draghi said a few weeks ago that the ECB is going to low the interest rates at 0,30%. But Europe has a particularity:  members have not the control of their own currency; the US does. So it means that, devaluation is easier in the US than in Europe. Then, you cannot make a proper analysis withouth considering the job the ECB does. You have to assume that the ECB has not the same ideas than the FED: Janet Yellen is an economist who knows how to drive the economic scenario of the US while Draghi is limited by Germany. Austerity has been already used. And it had many effects on the economy. Let's take a look at the next graph, which shows a correlation between austerity and growth in many countries:

How might the US Government Boost the Economy?

By Brenna Fisher
Her author profile can be found below this article.

Credit to CBS News

In this controversial age where Democrats and Republicans are at each other’s throats daily, debating the politics and economic problems that face America today, it seems like any simple question will receive a long, complex answer. Unsurprisingly, as the United States enters deeper into a economic stagnation, fueling economic prosperity is on everyone’s minds. But just how simple is the answer? Certainly, there are many different opinions, and there is no “easy” button to press and fix the financial turmoil. However, one tactic could solve a majority of the problems, though it wouldn’t be the popular decision.

Saturday, 16 November 2013

The Effect of Homeschooling on the Economy

By Stephanie Canavan
Her author profile can be found below this article.

I’m sure everyone has heard at least one negative quote from anti-homeschooling politicians or superintendents that belittles home education, claiming it “robs the system of resources” and results in “socially inferior citizens”.  But results are showing that not only is homeschooling saving the government large quantities of funds, but also resulting in a higher quality of education and return on investment, which in turn can significantly benefit economic growth.

Homeschooling is often overlooked in regards to the economy since it is classified under household production in the circular flow diagram. Household production is when a household produces a product or service for itself instead of purchasing it from a firm or other entity and, since there is no market transaction, it is not taken into account when calculating GDP.  Many people may incorrectly assume that this means household production has absolutely no effect on the economy. In fact, it is often thought that homeschooling deprives the economy of resources as it requires a parent to stay home to educate their child instead of entering into the workforce.  However, just because it is not valued monetarily into GDP now does not mean it will have no effect upon the future economy.

Friday, 15 November 2013

To What Extent Does a Rational Economic Man Exist?

By Timur Almazov

Economic theories are meant to represent patterns of the real market, but since we live in a complicated world, economists have to simplify the reality to fit economic models. They have included assumptions into their theories and the idea of rational economic man was one of the most popular ones. Its purpose was to describe the preferences and actions of humans, but to cut long story short, it didn’t do a good job.

The definition of an economic man is: a rational and selfish agent, whose preferences do not change. In this essay and in the longer version I have looked at the assumptions of economic rationality and how close it is in describing us as “rational”. Most economists agree that rational agents are those who have the same constant preferences (usually to make a profit) and make “internally consistent” decisions. This means that rational people follow logical coherence, which does not necessarily have to be reasonable. A rational person can believe in magic as long as all of his or hers other beliefs are consistent with the existence of magic.

Saturday, 2 November 2013

Music and Recessions: An Unexpected Correlation

By Brenna Fisher
Her author profile can be found below this article.

Commonly known throughout the world are the economic effects of inflation and recession. Inflation, when increasing at a steady rate is more prosperous, while recession means, to some degree, a financial crisis. However, one of the lesser known facts about inflation and recession is how it affects a country euphonically. A noticeable trend in music occurs during the ups and downs of the economic cycle. During recessions, the popular music tends to be upbeat and positive, while during an inflation, it tends to be melodiously slower and slightly more melodramatic. During the Great Recession from 2007 until 2009, many countries, including the United States of America, was entering into a downturn. Norway however, was entering a period of financial prosperity, as seen in the graph below. Comparing the popular music during this time, it appears that the trend stays true.

2008 was the peak of the recession for America. Over a million employees were out of a job and the labor force was suffering. However, some of the Billboard Top 100 Hits during this period were “So What” by P!nk, “When I Grow Up” by the Pussycat Dolls, and “Pocketful of Sunshine” by Natasha Bedingfield. Despite the economic downfall, these songs emphasized a catchy up-beat tune and lyrics meant to empower. “When I Grow Up” focuses on the future, rather than the present and “So What” is an offbeat piece meant to highlight the general mentality “who cares, it doesn’t really matter anyways.” Natasha Bedingfield’s hit stresses the positive events and the triumphs, encouraging listeners to be optimistic and forget about the bad. It is no coincidence that many of the listeners were having a difficult time actually finding the positives in their life, so they looked to popular music to encourage it.