Deck the halls with Macro Follies!

With the holidays around the corner… ūüôā

Each year, our attention turns to the holidays… and to holiday consumer spending! We’re told repeatedly that, because consumer spending is 60 – 70 percent of measured GDP, such spending is vital to economic growth and job creation. This must mean that savings, the opposite of consumption, is bad for growth.

This view of macroeconomics was first popularly asserted by Thomas Malthus in 1820, nearly 200 years ago. Malthus believed recessions where caused by “underconsumption” because there was a “general glut” of goods unsold. To recover from a recession and grow, we needed to stop all the saving and spend more to buy up all the goods on store shelves. Savers are like the miserly Ebenezer Scrooge. If you want a happy holiday, you’ve got to clear those shelves and give people a reason to produce more and create jobs. Or so Malthus thought…

John Maynard Keynes resurrected this approach and built on it with his influential “General Theory”, which now underpins much of our government policy and public discussion of spending and economic growth. Keynesians believe aggregate spending drives the economy and savings is a “leak” out of the flow of spending. Indeed, this economic philosophy underpins many people’s widespread obsession with retail sales each holiday season.¬†Keynesian Macro Santa’s sack is filled with spending.

But there is another view on recessions, recoveries and growth.

Classical and Austrian economists such as Adam Smith, Jean-Baptiste Say and Friedrich Hayek viewed savings as the vital lifeblood of economic growth and production as the means by which we live better and consume more in the long term. Our savings aren’t simply taken out of the economic system, but become the source of capital that entrepreneurs use to create new goods and increase productivity. These economists believe this increased productivity is the key to a wealthier world. Before we consume, we must effectively produce what others value — at prices that cover the costs. This fundamental idea, that our demand for goods is enabled and constituted by our supply of other goods came to be known as the “Law of Markets” and later “Say’s Law”. For classical and Austrian economics, recessions happen when producers make mistakes. They create goods that can’t be sold at a profit. These malinvestments tend to cluster in a recession as a result of systematic problems, such as disruptions in the financial system that cause monetary “disequilibrium”, often as the result of government interventions in the economy since they can be system-wide.

Recovery and growth in the classical and Austrian view is driven by restructuring production so that entrepreneurs discover again the best — i.e. the most valuable and sustainable — ways to serve customers. That process is lead by new entrepreneurs and driven by savers who make capital available to fund new investments and new ventures.¬†Sustainable saving and investment means creating more value for others while using fewer resources. This process lies at the core of healthy economic growth, including better job opportunities and a rising standard of living. If there are problems in the financial system such that our savings aren’t effectively being invested but sitting idle in bank vaults, or people are hoarding cash under their mattress in distress, a classical approach seeks to get the root of that problem and resolve the monetary problems with monetary solutions such as increasing the money supply to meet demand and other approaches. Using up more real resources through additional consumption in such a case is a applying the wrong medicine to the disease.

Consuming is our end goal, but producing value must be the means to that end.¬†That is to say, Macro Santa’s sack is filled with saving…

IAR

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Old Spice Advertising Success!

Advertising is one of the great ways of shifting out demand i.e increasing quantity demanded for a good. This in turn could increase sales revenue, assuming the P.E.D is elastic (which you could justify with the large amounts of substitutes for body care products). Old spice is here to show you how to pursue a successful campaign!

Here’s an article discussing the success rate of the campaign, which increased sales figure by 107%!

marketing lessons

The Impossible Trinity – 60 Second Adventures in Economics

Further to our discussions in class – The Impossible Trinity. Not everything can be controlled…

The Impossible Trinity or ‘trilemma’ suggests that it is impossible for a country to maintain a fixed exchange rate, free capital movement and an independent monetary policy at one and the same time.

 

The Labour Market

 

The concept of labor covers many aspects. Discover the labor market in a fictional country where an industry is faced with a shock of innovation. What then makes the adjustment of supply and demand work? What are the different types of public policies most often considered? What are the consequences of this adjustment and policies for workers, for businesses and for the State?

Source: Banque de France – Cit√© de l’√Čconomie et de la Monnaie, in partnership with Universcience (This film is currently featured in the exhibition “All you need to know about Eco¬≠nomics” At the Cit√© des sciences)

Also, Women Reach a Milestone in Job Market (online.wsj.com)

Women have recovered all the jobs they lost during the recession. Men have not. A record 67.5 million women are working today, up from the prior peak of 67.4 million in early 2008, according to the Labor Department’s latest tally of payrolls that captured the full rebound for the first time.