Economics in Action

Lets talk about debts.

There has been a lot of talk in the media about debt. Whether it’s Greece’s spiraling debt, Iceland’s refusal to pay its debt, Dubai having its debt bailed out, Football clubs fighting to stay afloat in sea of debt, student loans and student debt, or the spiraling levels of consumer debt, debt is in the news a lot at the moment. The UK is currently at a record level of national debt, and so is the United States.

But what is debt, and what does economics have to say about it? Debt is borrowing something; an asset, and then paying it back over time.  This immediately leads to some issues; how do you know the person you’re lending to can pay you back? Why would you lend your money to someone? And how do you make money out of lending your money to other people?

One way this is dealt with is via the interest rate. This is a percentage that is paid on top of the amount borrowed, for example a 10% rate on a 100-pound loan results in £110 to be paid back (10/100*100=10). This economic revelation results in all 3 criteria being fulfilled, money being made, money being lent to those who can pay it back (via a method known as self-selection) and therefore an incentive to lend.

Economics teaches us a wide variety of ways to calculate the interest rate. This seemingly asinine thing is fascinating the more you study it. You see the interest rate affects all sorts of things. If the rate of interest falls, then the charges on a loan to buy larger items like cars, furniture, electrical equipment and so on is also likely to fall. Therefore total sales of these goods are likely to increase. Holidays are likely to become more likely and more houses will be sold. You will likely see more tourists as the exchange rate falls (and pounds become cheaper) One of the key things you will learn from economics is that changes to things like the interest rate have knock-on effects (also called externalities). This principle applies to a whole variety of things from signage to coffee prices. Your question this week is what implications could there be to Iceland not paying off their debt?

Answers on a postcard please.

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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.

Is economics useless?

So given all the recent ‘mess’ in world economy what value does ‘modern’ economics have to offer us?  Well it depends on who you ask. Here Stephanie Flanders offers some news and views on whether economics is a ‘busted flush’.

For those of you who don’t/cant be bothered to read the whole thing her argument in a paragraph

‘So, all in all, not an edifying list of complaints. But does that mean economics is a busted flush? I’m afraid not, because even if you think economics got a lot of this stuff wrong, you’d be hard-pressed to understand – or to fix – what’s happening in the global economy today without it. ‘

Maybe it’s not such a good time to be an economist. But it’s one helluva time to study economics.

http://www.bbc.co.uk/blogs/thereporters/stephanieflanders/2009/07/is_economics_a_busted_flush.html

Jobs for graduates- from any discipline- are not as plentiful as they were 2 years ago. After 40 failed job interviews, economics graduate Daniel Seddiqui was fed up and decided to experience lots of different jobs in a short amount of time, 50 jobs in 50 states in 50 weeks.

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Economics is a subject in its own right but it is well known for incorporating other disciplines including sociology, philosophy, politics and maths. Maths in particular is integral to economics.

For some reason maths isn’t often seen as the fascinating subject it is. It allows us to build bridges, measure stars, play hopscotch, make cars, cook; the list seems endless. Economics uses maths to frame and test its theories.

The Radio 4 show More or Less which “is devoted to the powerful, sometimes beautiful, often abused but ever ubiquitous world of numbers” asked well-known guests and contributors to say why they love numbers. The short films include Konnie Huq, Vince Cable and Rick Edwards.