Economics in Action

Finance and Stability talk by Andy Haldane

Warwick Economics Summit is an annual event organised entirely by students from Warwick University. The three-day event sees students from across the world come together to exchange ideas and listen to some of the most prominent modern economists talking about current economic problems in the world. This year’s summit has been attended by students from as far as USA, Brazil and Slovenia.

On behalf of the Economics Network, I attended the event on the second day to promote our Student Challenge as well as the two websites I am working on. Needless to say, I was very impressed with the quality of the student team that organised the event (despite some initial hiccups with booking tickets). Everyone was very friendly and helpful, and I instantly felt welcomed. (more…)

This is a very interesting article on education in America from the NY Times. It questions whether access to higher education can be solved on a meritocratic basis. Perhaps, we could draw analogies with what is happening in the UK.

http://economix.blogs.nytimes.com/2011/02/18/why-does-college-cost-so-much/

As part of my course, I do quite a lot of reading on Adam Smith at the moment. One thing that I came across is the notion of self-interest, which is completely different from the selfishness that people tend to think about when they read Smith.

According to Adam Smith, people have different motives for their actions, one of which is self-interest or self-love. It is important to note that Smith did provide a distinction between them. People are selfish if they act purely to gain for themselves. This involves the taking of more than one’s ‘fair share’. Smith actively condemned this behaviour in his writing:

‘…all for ourselves, and nothing for other people, seems, in every age of the world, to have been the vile maxim of the masters of mankind.’

On the other hand, self-interested people do have other people’s interests in their mind. Self-interest is the interest in the well-being of the self. It is only a part of what people consider when they decide whether or not to act. Therefore, Smith thinks it is not logical to condemn this behaviour. It is not wrong if an individual wants to buy a new shirt for himself. He clearly acts upon his self-interest, but he is not selfish unless he stole the money in order to purchase the shirt.

Smith wrote that we benefit from the self-interest of the butcher, brewer and baker, and it is clear from his writing as a whole that, because they are self-interested, the butcher, brewer and baker look out for themselves; however, because they are not selfish, they also care for their customers. It is this kind of self-interest (not selfishness) that leads to social improvement.

Here is the first article we received from Josh Taylor – our new contributor.

As a student of Economics and a political neutral, the recession has been particularly interesting, with the revelations of how much debt we as a country are in. This is not just governmental overspending revenue incomes, but the public and the culture of buying now paying later on credit. For proof you only have to watch TV for an hour or so and you’ll be amazed at how many advertisements (ok not BBC) there are for quick-money, consolidating your debt etc. The conservatives and now the newly-informed liberal-democrats are for reducing the debt of the nation, by limiting the size of governmental spending i.e. “The Cuts”, I don’t intend to get into any sort of political debate as to whether we need to cut or not, but the nation’s majority have decided democratically that this is the way that we are going to get out of this “crisis”.

But, I can’t but help see the contradiction in raising university fees at this moment in time. (more…)

The inevitable has finally come!

In his Spending Review yesterday, George Osborne announced a 40% cut in the teaching budget for universities. This is part of the coalition’s plan to tackle the UK’s historical deficit. Universities now have no other option than increase tuition fees in order to fill the new gap in funding. This will be possible if Browne plan is implemented. Essentially, the implementation of this proposal will create a free market for higher education in the UK, very similar to what already exists in the US. However, this also signals the end to a great education system that used to be free and available to everyone. So, what do we take from this?

The cost of teaching a degree is estimated to be around £7,000. Under the current system, universities are allowed to charge students up to £3,290, which most of them do. The remaining cost is then subsidised by the government. If the cap on tuition fees is removed, we can expect most elite universities to raise their fees without facing a decrease in demand for places (demand for places at big universities is indeed very inelastic). This will enable them to invest more in researches and compete with big American universities.

However, there is also a downside to this. Firstly, creating a market place for higher education will benefit only a certain group of universities. As in any other competitive market, smaller and less prestigious universities will struggle to compete and shut down eventually. This will increase unemployment level in the public sector (not every lecturer can go and work for a private company), which in turn will have a wider adverse effect on our newly recovered economy. Furthermore, bright students from poor families will no longer be able to go to places like Oxford or Cambridge simply because they cannot afford them.

In the end, higher education is a public good that will always be under provided in a market system. This is why government provision of education is so vital. However, a market for higher education now means it is money that gets you into the best universities, not your real academic potential.

Please comment below to let us know what you think.

A great new page from our friends at Intute Social Sciences and the Economics Network is up! Useful for degree or A-levels students, it tours some of the key sites for Economics and shows you how to make use of them in your work.

You can find it at: The Internet for Economics.