Category: Economics: Ch 12

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Capitalism – RIP?

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?

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Crunch time for ecology as well as economics?

“The economic crisis is petty by comparison to the nature crunch. But they have the same cause.” This is how George Monbiot starts his article below. The comparison between the financial crisis may seem an unlikely one, but global warming and the resultant economic costs could also have a significant effect on the world economy.

This is what denial does Monbiot.com (14/10/08)
Green shoots of recovery Guardian (8/10/08)
Independence from the street up Guardian (23/9/08)

Questions

1. Define the terms (i) external cost (ii) private cost (iii) social costs.
2. Using diagrams as appropriate show the reasons why the market economy may fail to allocate scarce resources appropriately.
3. “If the global economy keeps growing at 3% a year (or 1700% a century) it too will hit the wall.”. Discuss possible policies that may help prevent this situation arising.
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An asymmetrical crisis?

The economist Joseph Stiglitz won the Nobel Prize for Economics in 2001. Along with George Akerlof and Michael Spence, he worked out a theory of information asymmetry: a situation where both parties in a transaction have different levels of information. Could this theory have some relevance as an explanation of the current financial crisis?

In praise of …..Joseph Stiglitz Guardian (8/10/08)
Stiglitz lecture on financial crisis available online University of Manchester (13/10/08)

Questions

1. Explain what is meant by information asymmetry.
2. Explain how information asymmetry can lead to markets working imperfectly.
3. Discuss the extent to which the theory of information asymmetry may be relevant as a partial determinant of the current financial crisis.
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Hayek and neo-liberal economic policy

Hayek, through his book the ‘Road to Serfdom’ became one of the founding fathers of the market economic system that we have adopted as the principal method of organising economic activity. However, like all neo-liberal economists, his views and recommendations have come under increasing scrutiny in the current financial crisis.

Faith. Belief. Trust. This economic orthodoxy was built on superstition Guardian (6/10/08)
Dangers of worshipping false god of self-regulating markets Irishtimes.com (3/10/08)

Questions

1. Write a short paragraph setting out the key arguments in Hayek’s book ‘The Road to Serfdom’.
2. Assess the importance of confidence in an economic system. To what extent is a lack of confidence a ‘self-fulfilling prophecy’?
3. Discuss the extent to which Hayek’s work influenced the adoption of neo-liberal economic policies.
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Economic downturn – prime crime-time?

The article linked below looks at the extent to which economic downturn and rising inequality are likely to affect crime levels in the UK. Traditionally the view has been that an economic downturn will raise crime, but is it necessarily the downturn that is causing the increased crime?

Consumed by crime Guardian (24/9/08)

Questions

1. Explain why an economic downturn may lead to increased levels of crime.
2. Discuss the extent to which deregulation of markets may have exaggerated the relationship between crime and the level of economic growth.
3. Assess the view espoused in the article that “a culture obsessed with material goods” and “competitive individualism” have led to stronger link between crime and economic growth.