HCJ Economics Lecture - Keynes and stuff

Our lecture and seminar combo for HCJ concerned Economics, a bit of a departure for what has essentially been philosophy until now. Chris started by saying that Schopenhauer believed music made life, as an economist he disagreed saying that it is money which makes life (the world go round). As you may know, economics is a about money... alright that was a bit obvious but I don't know who reads this. It's often referred to as The Dismal Science, a derogatory term for economics devised in the 19th Century by historian Thomas Carlyle. The main problem is economics is this; the more you consume, the more you want. How can economics solve this? Humans don't need anything really, OK so we need to eat and drink to live, but why do we need to do that? To exist we don't need anything, economics ignores needs and focuses on wants. How much you are prepared to pay for something shows a persons wants. So for example, if a piano costs £5000 and Biro costs one pound, why is a piano worth a thousand pens? It doesn't cost that much more to make surely, so it must be because people want it more. Utility is the fundamental, measurable, verifiable phenomena of human wants. It is the measure of satisfaction from a consumer after consuming a good or service. Over time people will try to maximise their utility, as in Utilitarianism.

!!!Now it's time for a quote without context!!!
"There are people who know the price of everything and the value of nothing."
Oscar Wilde

I'm going to put this next note in just as I've written it because I know it's important I just can't remember how it works out. It's an equation.

Y = C + I + G
Household Spending (C)
Investments (I)
Government Spending (G)

If Y decreases (Is Y like the amount of money overall?) then there isn't enough money for people to keep working without pay cuts.

SUPER HAPPY FUN TIME BONUS SEMINAR NOTES!!!

The seminar had a huge focus on Keynes and it was interesting to discuss his theories given the current economic climate. Keynes was an extremely influential economist, so much so that we could all be termed Keynesian. His most crucial innovation was taking apart Say's law, a classical economic principle named after French economist and businessman Jean-Baptiste Say. Essentially the principle was that "supply creates its own demand," but Keynes refutes this. If people save their money then this breaks Say's law. The thing that I remember most from this seminar about Keynes is that he would rather have people just digging pointless holes than have people unemployed; when faced with a depression he wouldn't ask why there is a depression, he'd ask ask how we lower unemployment. He believed that to get out of a recession the government should spend so that the public sector will spend; this is the multiplier effect, if I have £1000, spend 900 and save 100, the next person can save 100 and spend 800 and so on. When economics suffers from low demand, unemployment rises.

You often hear people say of the global debt and recession that "in the long run, this debt is going to have to be paid." Keynes would ask why. Why can't we just keep metaphorically kicking the can down the road? Money isn't real anyway. All a 5 pound note tells you is that it's meant to signify the value of 5 pound. It tells you right there on the note itself that it's worthless, it's just given value by us. So let's kick the can down the road, how about all the wars in the middle east? The USA is Keynesian in its military by knocking down and rebuilding countries like Iraq and Afghanistan every few years. The current economic crisis was caused by borrowing yes, it was caused by banks loaning money they didn't have but this had been happening for years, why not carry on? Liquidity is the technical term for giving people spending money, let's just liquidise? everything in sight. When the Lehman Brothers went bankrupt it wasn't necessarily because they're horrible people, I don't know them personally, it was a chain of mismanaged loans which have mangled the economy. Small banks borrowed from big banks who then borrowed from banks like Lehman Brothers, when the small banks can't pay the big banks their money back, then the big banks have no money to pay to Lehman Brothers. Bust. So then vast amounts of money were printed in an attempt to pretend everything was OK.

I've completely lost track of where I'm going with all this so here's some notes about the credit creation ratio (CCR). If the bank has £100 and the CCR is 1:10 then it can create ten bank accounts with £100. Still following? It's basically just magic. So once this money is gone, the bank goes and borrows money from the government who pay the bonds to cover all of these loans. The economic crash was caused because the CCR was too high. Now that it's been lowered though, no one can get a loan because no one can possibly pay them back.

A sobering end to a blog so here's a picture of some kittens in a barrel. The one of the left's Phillip.

Until Next Time. Stay Classy Internet.

P.S. Bonus picture: Occupy Wall Street