Category: Economics: Ch 01

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Marx – back from the dead?

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.
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The invisible hand and the invisible heart

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.
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The Russian economic powerhouse

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.
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Labour’s public sector is a Soviet tractor factory

Public choice theory is an area of economics that uses standard economic tools to consider the decisions made by politicians and others within the public sector. In essence the theory applies economic principles to politics. In the article below Simon Caulkin argues that public sector reform and the application of public choice theory has failed and likens the public sector reforms that have been implemented to Soviet central planning.

Labour’s public sector is a Soviet tractor factory Observer (4/5/08)

Questions

1. Explain what is meant by public choice theory.
2. Describe the principal public-sector reforms that were implemented under the Blair government. 
3. Discuss the extent to which recent public-sector reforms have succeeded in delivering a more responsive and efficient public sector.
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Choice – whether you like it or not!

As economists we often argue that choice is a good thing as it will help to create more efficient and dynamic markets. Public-sector reform has tended to focus on the introduction of choice as a way of making public services more responsive to consumer needs. But is choice always a good thing? The article linked to below from the Guardian considers the trade-off between choice and central planning.

We’re getting choice, whether we want it or not Guardian (16/3/2008)

Questions

1. Explain how increased choice helps to make the public sector more responsive to consumer needs.
2. Discuss whether centrally planned provision of public services, such as healthcare, is likely to lead to more or less efficient services.
3. Assess the extent to which increased choice in the provision of health services is likely to make health care more responsive to people’s healthcare needs.