Category: Economics 10e: Ch 01

An ongoing debate in economics for many years has been the extent to which governments should intervene in the economy. The debate has re-emerged in recent months with the global financial crisis as many commentators have arged that had a tighter regulatory system been in place, it could have helped to prevent some of the poorer lending practices of banks internationally. Even the recent G20 meeting (dubbed Bretton Woods II by some analysts) discussed regulatory reform of the international financial system. The two articles below look at this debate about the extent of government intervention from two very different angles. The first is from the perspective of Victorian England and Little Dorritt, while the second (by Peter Mandelson) looks at how globalisation and the financial crisis have informed the debate about state intervention.

So much for ‘late’ capitalism Guardian (24/11/08)
The future active state Guardian (4/12/08)

Questions

  1. Examine the advantages and disadvantages of greater state intervention in an economy.
  2. Discuss the extent to which globalisation has changed the need for the amount of state intervention in an economy.
  3. “Strong social welfare systems and redistribution can be contributors to economic growth.” Discuss the extent to which this statement will always hold true.

The current financial crisis has led many to wonder whether this may mark the ‘death of capitalism’. While this may almost certainly be an over-statement, it may mark a fundamental sea change in the way in which we oversee and manage a capitalist system. The articles below look at some of the implication of this possible change in approach.

Positive thinking Guardian (18/10/08)
A category error Guardian (10/10/08)
History can guide, yet there are new limits of the possible Guardian (10/10/08)
I’ve watched the economy for 30 years. Now I’m truly scared Guardian (28/10/08)
The new New Dealers Guardian (26/9/08)
Europe and America in the shadows as a new era dawns Telegraph (26/10/08)

Questions

1. Explain what is meant by a capitalist system of economic organisation.
2. Assess the extent to which a ‘soft-touch’ regulatory approach can be blamed for the current financial crisis.
3. Discuss the extent to which greater levels of government intervention and economic regulation are likely to result from the current financial crisis.
4. Are we witnessing the death of capitalism?

In a remarkable turn around, the current financial crisis has seen mentions of Karl Marx and Marxism creeping their way back into the economic media. Whilst no-one expects a resurgence of Marxist economics, the current financial crisis has led people to wonder whether his work may have some relevance in trying to analyse the current instability in the capitalist and financial system. Even the Archbishop of Canterbury has argued that Karl Marx was right in his assessment of capitalism. So is Marx turning in his grave, or is he due for a revival of fortunes?

Banking crisis gives added capital to Karl Marx’s writings Times Online (20/10/08)
The red Archbishop? Guardian (25/9/08)
Marx is dead: don’t resuscitate him Guardian (27/9/08)

Questions

1. Summarise the key tenets of Marxist economics.
2. Step 5 of Karl Marx’s ten essential steps to Communism was “Centralisation of credit in the hands of the state…..“. Assess the relevance of this as a possible solution to the current financial crisis.
3. An over-expansion of credit can enable the capitalist system to sell temporarily more goods than the sum of real incomes created in current production, plus past savings, could buy, but in the long run, debts must be paid”. Discuss the extent to which this quote from Marx is relevant in the analysis of the current financial crisis.

A key introductory economic concept, brought to us from Adam Smith, is the invisible hand that manages the workings of the market economy. However, is the current financial crisis an indication that the invisible hand has failed us? Should we be looking more at the invisible heart of community when we try to build an economic system? The first article linked below look at whether we may be more successful at delivering economic happiness and welfare if we follow the invisible heart rather than the invisible hand.

This way happiness lies Guardian (19/10/08)
Why do we need economic growth? BBC Magazine (16/10/08)

Questions

1. Explain how the ‘invisible hand’ allocates economic resources in a market economy.
2. Assess whether the current financial crisis may indicate that the invisible hand has failed to allocate resources appropriately.
3. Discuss whether the pursuit of economic happiness may be more appropriate than the pursuit of economic growth.

Russia has been growing rapidly. Average earnings have recently been growing at 20% a year and consumption growth has not been far behind this. Moscow apparently has more ‘6-series BMWs’ than any other city in the world. With Vladimir Putin now the prime minister he has promised to rein in inflation and boost social spending on housing and infrastructure. So what are the prospects for Russia in the next decade?

Russia: giant of a new economic world order Observer (25/05/08)
Vladimir Putin pledges to transform economy of Russia into a world leader Times Online (9/05/08)
Putin in 2020 pledge on economy BBC News Online (8/05/08)

Questions

1. Assess the recent economic performance of the Russian economy.
2. Examine the importance of oil to the Russian economy. What can the Russian government do to reduce the dependence on oil revenues?
3. Discuss the importance of infrastructure and spending on other social capital for the development of the Russian economy.