Barter in Russia
March 29th, 2006
The Russian transition to a workable free market economy in the 1990s brought with it one very striking feature: The widespread reemergence of barter as an accepted, and perhaps even, preferable, means of exchange. Surprisingly, this use of barter was seen less in transactions between individuals, and more in major transactions between firms in almost all industries.
All the usual characteristics of a barter system were seen. For one, almost all deals were bilateral. But given that not all goods bartered could be used directly, additional barter deals were created to garner goods that could be used directly. Complicated barter chains were created, resulting in substantial problems for the Russian economy.
The End of Poverty: Initial Review
March 21st, 2006
Although I’ve actually finished Jeffrey Sachs recent (relatively, at least) book, The End of Poverty, I don’t think I’m anywhere near the mental state required to write a full review on it. So… this post will just contain my initial review of the book.
Now, I aim to make all my posts complete within 400 or so words, so don’t expect a lengthy critique of The End of Poverty. Anyway, here it is.
The Tobin Tax
March 17th, 2006
In the early 1970s, the daily turnover in the world’s foreign exchange markets was approximately US$18 billion. In the mid-1980s, it was around US$150 billion. Just two years ago, in 2004, it was a massive US$1.9 trillion (up from US$1.8 trillion in 2002). We are talking about growth previously unimaginable, but when seen in the light of the almost equivalent growth in speculative activity, the massive turnover seems less surprising.
Speculative flows have become one of the most fearsome forces in the world - capable of delivering great currency instability and financial crises, especially at times of economic uncertainty. In our region alone (South-East Asia), we’ve experienced the 1997 Asian Financial Crisis that started in Thailand, and eventually consumed most countries in Asia. The Russian rouble’s meltdown in 1998 and the Argentinian crisis in 2001 are more recent, but possibly less devastating examples.
It is in the wake of this powerful speculative force that the Tobin tax has been considered. In 1978, James Tobin - a Nobel-prize winning economist - first suggested a small tax on foreign exchange transactions, that would be applied on most, if not all, major economies. The tax would just be tiny one, about 0.1 to 0.5 percent, payable on all spot or cash exchange rate transactions, to deter speculative activity. It was argued that this would make speculative transactions more costly and would therefore, reduce the volume of such transactions - leading to possibly greater exchange rate stability.
The MPC and Calculus
March 16th, 2006
Any A-Level economics student can probably tell you that the marginal propensity to consume (MPC) is the proportion of a rise in national income that is consumed (provided that they’ve learnt the topic, of course). But ask them to show this mathemathically and you’ll probably get blank stares. This shouldn’t be a surprise given the lack of mathematics weaved into pre-university economics courses, where theory is given primary focus.
But that doesn’t mean that your O-Level calculus course (yes, that’s all you’ll need) should go wasted. It really isn’t difficult to mathematically derive the MPC from a consumption function. So, let’s try it.
The Lorentz Curve
March 16th, 2006
Another sub-topic generally left untouched at the A-Levels (at least for me) is the Lorentz curve. The Lorentz curve, as seen below, is named after the American statistician M.D. Lorentz, and is a curve that shows the proportion of national income earned by a given percentage of the population. It provides a visual representation of the (in)equality of distribution of income of a particular population.
Goodhart’s Law: Controlling Is Distorting
March 15th, 2006
Goodhart’s Law - the sociological analogue of Heisenberg’s uncertainty principle in quantum mechanics - originally arose in economics, and can be defined rather succintly as: Controlling an indicator results in the distortion of its use as an indicator (1). But I think it should be easier to understand Professor Marilyn Strathern’s version of the Law: When a measure becomes a target, it ceases to be a good measure.
What is Economics?
March 15th, 2006
As I refresh my knowledge on the vast, yet somehow focused subject that is economics, I’ve often wondered whether I could answer what the hell economics actually is off the top of my head. When I think about it, I’ve actually studied Economics at O-Levels, and recently, A-Levels, and am about to embark upon a mathematically-intensive economics degree in some university in September 2006. A question as basic as this should be second nature. Yes… should.
