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Posts Tagged ‘economic policy’

How well do markets serve society?

Here’s a question that goes to the heart of economics and the social sciences generally: how desirable is the market system?

Our lives are dominated by markets. Whether in working or consuming, we operate in a market economy in which money is exchanged for goods or services. But also financial and product markets determine much of the structure of society, where most things seem to have a price.

But whilst, as a positive statement, we can say that money and markets are all around us, does that make them desirable? Markets provide signals and incentives; but are the signals the right ones? What are the incentives and how do we respond to them? And are these responses optimal?

You will probably have studied various ways in which markets fail to provide the optimal allocation of resources. But what are the limits of markets as a mechanism for social choices? And is there some more fundamental issue about the morality of a society that is organised around markets?

These are questions considered in the following podcast. It is an episode from BBC Radio 4′s Start the Week programme, hosted by Andrew Marr, with guests Michael Sandel, Diane Coyle and Grigory Yavlinksy. Here are the programme details:

Andrew Marr discusses the relationship between markets and morals with the political philosopher Michael Sandel. In his latest book, What Money Can’t Buy, Sandel questions the dominance of the financial markets in our daily lives, in which everything has a price. But the economist Diane Coyle stands up for her much maligned profession, and points to the many benefits of a market economy. The Russian economist Grigory Yavlinksy argues against viewing the world of money as separate from culture and society: he believes the financial crisis was merely a symptom of a wider moral collapse, and that it is time to examine the way we live.

(Links to the three contributors: Michael Sandel, Diane Coyle (see also), Grigory Yavlinsky.)

Podcast
Michael Sandel on Money and Morality BBC Start the Week programme (21/5/12)

Videos and articles
For a range of videos and articles on the morality of capitalism, see the previous post at:
We need to talk about Capitalism (28/1/12)

Questions

  1. What crises are there in current capitalism?
  2. What, according to Michael Sandel, is the difference between a market economy and a market society?
  3. Is the market society a relatively new phenomenon, or does it go back hundreds of years?
  4. To what extent is the greed expressed through markets and encouraged by markets affecting/infecting society and human relationships generally?
  5. What is the role of morality and trust in determining the desirability of market relationships?
  6. To what extent does a market economy allow people, rich and poor, to live separately from each other and not interact as joint members of society?
  7. What are the value systems promoted by marketisation? Should certain aspects of human life be outside these value systems?
  8. To what extent is the crisis of capitalism a crisis of economics?
  9. What policy alternatives are there for rebalancing society?
  10. What is the role of economists in advising on policy alternatives?
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Figuring things out

Economic assessment of real-world issues relies heavily on data. It is the same with economic policy recommendations. Both public- and private-sector organisations gather data, which are then used for analysis, often presented in a report. These reports are then often used as the basis for policy, whether by the government, local authorities or the private sector. Sometimes the data are those collected by national statistical agencies, such as the Office for National Statistics (ONS) in the UK; sometimes they are collected by private agencies; sometimes by individual researchers.

Clearly the analysis and the suitability of any policy recommendations depend on the quality of the data. But how much can we rely on the data? A problem is that people have an interest in gathering and/or selecting data that support their opinions. As a result, the data used for analysis and policy recommendations may be unreliable and incomplete.

This is not to say that the data collected by reputable agencies such as the ONS are wrong. Rather, it is the selective use of them that can be highly misleading. Sometimes, however, the data that some agencies produce may indeed be unreliable, with too small or unrepresentative samples. If they rely on surveys, the survey questions may be poorly framed or lead the respondent into giving a particular answer.

Newspapers make use of data and reports all the time to make a particular case – a case in line with the newspaper’s political stance. The lesson for economic students is that we need to be alert all the time as to just how reliable data are; and to whether the conclusions drawn from them are correct.

The following two articles by Ben Goldacre, from the Guardian’s Bad Science series, look at the misuse of data. The first looks at the case of the Health Service; the second at the possibility of savings by local government in their procurement activities.

Articles
How far should we trust health reporting? Guardian, Ben Goldacre (17/6/11)
Misleading money-saving claims help no one Guardian, Ben Goldacre (24/6/11)

Report
Realising Savings through Procurement Optimisation Opera Solutions

Questions

  1. According to the first article above, how much newspaper reporting based on the use of data is unreliable?
  2. What are the reasons for the unreliability of newspaper reporting?
  3. For what reasons might the ONS and other reputable agencies periodically have to amend time series data?
  4. “Council incompetence ‘costs every household £452 a year’”. Critically examine this claim by the Daily Mail.
  5. Why may Opera Solutions be seen as not wholly independent in reporting the possibilities of cost savings by local government?
  6. In the absence of reliable data, can any economic policy conclusions be drawn from economic models? Explain.
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The economic legacy of Gordon Brown

With the Conservatives and Liberal Democrats now in power in the UK and with the Labour Party, having lost the election, being now in the midst of a leadership campaign, politicians from across the political spectrum are balming Gordon Brown for the ‘mess the country’s in’. The UK has a record budget deficit and debt, and is just emerging from a deep recession, when only a few years ago, Gordon Brown was claiming the end of boom and bust. But is the condition of the UK economy Mr Brown’s fault? Would it have been any better if others had been in charge, or if there had been even greater independence for the Bank of England of if there had been an Office of Budget Responsibility (see)?

The following podcast by Martin Wolf, chief economics commentator of the Financial Times, considers this question. He argues that:

Everybody would like to blame Gordon Brown for the financial crisis. But he was only acting in line with the national consensus on economic policy.

The economic legacy of Mr Brown FT podcasts, Martin Wolf (13/5/10)
The economic legacy of Mr Brown Financial Times, Martin Wolf (13/5/10)

Questions

  1. Explain what is meant by ‘the great moderation’.
  2. Should regulation of the banks be handed back to the Bank of England?
  3. Why may controlling inflation not necessarily result in stable economic growth? Is this a case of Goodhart’s Law?
  4. Why was the UK economy especially fragile during the banking crisis and its aftermath?
  5. What, according to Martin Wolf, was Mr Brown’s biggest mistake?
  6. Could a mistake be now being made by following the conventional wisdom that cutting the deficit is the solution to achieving sustained recovery?
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