What would Hayek do to sort out this mess?, Dr. Eamonn Butler, LSE

Friedrich Hayek was an Austrian economist who later moved to the UK and was considered as the main opponent of John Maynard Keynes, perhaps the most famous British economist and philosopher. However, both these famous economists had many famous theories and ideas that could significantly help the current economic crisis we are in. This lecture provided an insight into the thinking of Hayek and what he would do to fix the economic mess the world is in, according to the theories and ideas he collated in his works.

Firstly, Hayek is most known for his contribution in the boom and bust cycles or better known as the Business Cycle. Hayek claimed the problem was the boom and not the recession that follows, according to his theories the recession that is followed by a period of economic prosperity, lasts for as long as the period of economic prosperity was for. Dr. Eamonn Butler used an excellent analogy to describe the peculiar relationship between the boom and the bust and that was the recession was like a hangover after a party which is the period of economic prosperity or boom. Therefore, Hayek warned that whenever there are years of economic boom, economists should be fearful that a recession is going to hit soon, as it is inevitable according to the business cycle. It is apparent that prior to the Great Recession of 2008, economists were unprepared for the total economic disaster that was about to ensue.

Furthermore, Hayek believed that markets should be free and not constrained by government limitation such as in the form of ‘red tape’ which is legislation that limits the flexibility of the market. He also stated that the labour market should be free which means the National Minimum Wage (NMW) should be scrapped, which would cause some outrage amongst people. However, the explanation behind these controversial decisions was extraordinary. In the case of the labour market, it was claimed that the reason why high unemployment exists is due to the NMW and if it were scrapped more people would become employed as currently some people cannot be hired as the NMW is too high for some firms to advocate to. In addition, the normal market should be free so the correct ‘price signals’ are given out. This means that consumers and firms see the correct price of a good or service in the market system, as currently taxation and ‘red tape’ can act as ‘fog’ in Dr. Eamonn Butler’s words.

Moreover according to Dr. Butler, Hayek would have believed that the ability given to the Monetary Policy Committee (MPC) of the Bank of England (BoE) to set interest rates is wrong and should be stopped, as false information is then given out to consumers and firms that they should start to spend more money, whereas they should do the opposite. Similar to the freedom that should be granted to labour markets and the markets for goods and services, should also be granted to the interest rates. This would lead to correct information reaching firms and consumers and they would know the current economic position of the UK, rather than that knowledge only being shared with the central bank, the BoE.

To conclude, Dr. Eamonn Butler offered the most likely opinion Hayek would have offered had he still been alive today. It seems as if that this could perhaps be the solution to exiting the current economic disaster we are in and that is to refer to the theories and teaching of past economists.

China’s New Leadership - Hopes for Reform and Fear of Uncertainty by Professor Athar Hussain, Dr Debin Ma and Professor Arne Westad, LSE

China is quickly rising to be one of the most influential and powerful countries in the world, in terms of their economy and grasp on the world’s markets, such as being one of the largest exporters of goods. China have also recently experienced a slight change in leadership, which raises some eyebrows globally, as China have an unprecedented amount of control in the affairs and decisions of many nations around the world. This lecture gave the analysis of these changes and their significance, from three well-recognised experts in this field.

One of the main focal points of the lecture was how this new leadership is going to deal with the prospect of China’s growth slowing down after decades of sharp increases in growth of their entire economy. This is most apparent after figures and predictions suggest that China could soon experience a slow down in growth and perhaps even the risk of economic collapse. This speculation and predictions can be measured against the graph of the Business Cycle:

The Business cycle would suggest that China would inevitably experience a downturn or in this specific graph a recession, sourced from: http://monevator.com/wpcontent/uploads/2009/05/businesscycle_1.jpg

However, as was pointed out during the lecture these predictions of China’s economy collapsing and a slow down in growth have been stated for many years, making these claims less plausible.

Furthermore, another issue that this new leadership will have to overcome is the rapid urbanisation of China with now more than 51% of people living in cities, which has dramatically increased from amount of people who lived in cities twenty years ago. This urbanisation is occurring at such a rate, due to the substantial advancements in China’s economy and technology, enabling the eradication of domestic issues such as poverty, which was rife in China a mere thirty years ago. This quick urbanisation, however may also have negative consequences, as was expressed in the lecture. It is most evident with the growing rates of inequality in China following their fast growth rates. This will obviously be a grave concern for the new China’s leadership. However in this scenario, slow growth rates could be argued would greatly benefit China, as the problem of inequality would be less of a concern.

Moreover, another issue the new leadership of China will have to face is “What will China do next?” China has evolved from a country stricken with poverty and disease to a bustling, wealthy and urbanised nation in the space of thirty years, which is extraordinary. However, in the process China has gained tremendous power, for example they export significant quantities of goods across the world and as a consequence their economy is now booming. Therefore, as was discussed in the lecture, this new leadership of China ought to consider this and the image they portray to other countries, especially their neighbours.

In conclusion, Professor Athar Hussain, Dr Debin Ma and Professor Arne Westad provided a stimulating discussion regarding the new leadership of China and the impacts of this on their economy. It is clearly apparent that China’s new leadership has many challenges ahead. However, how could the government of one of the most powerful nations on Earth, not have any challenges and obstacles?

The Economics of the Very Long Run: From Fire to Finance in Two Million Years by Professor Mark Schaffer, Gresham College

This lecture provided a useful insight into the history of economies and finance, over the course of two million years. From the beginnings of mankind to the current economic disaster we are in. Famous names such as Thomas Malthus and Charles Darwin were mentioned frequently and was apparent that they too affected or have been affected by the founding’s of modern day economics.

A recurrent theme that Professor Mark Schaffer used in his lecture was the tremendous impact that technology has had on the progression and formation of economies. The first clear example of this was the effects of fire on the expansion of economies and increases in living standards. The next new ‘technology’ that helped to further expand the economies of the time was the invention of agriculture. These new technologies and many more that were invented in the centuries to come such as the Industrial Revolution and wireless internet has caused wealth to increase and living standards to also follow the pattern.

New technologies lead to extra benefits for the people of the area/time. The creation of fire meant that early humans no longer had to spend hours eating raw meat and that the fire offered protection, warmth and even weapons. This led to positive consequences on the economy as humans now had more available time. The invention of agriculture meant that the hunter/gatherer humans began to settle down and even produce more children, this again had positive consequences on the economy as there were now more humans and potential to create villages and cities. However, a more recent example of the telephone has also had a significant impact on the economies of the time, as people can now communicate with others around the world, which would have expand the economy as people could communicate much faster than before.

Thomas Malthus and his work: ‘An Essay on the Principle of Population’ written in 1798, was a significant aspect of the lecture and it was clearly apparent that his work was controversial and accurate in explaining the changing levels of human population. This led to the formation of the Malthusian Model, which has three key parts: Equilibrium, Stability and Growth, which outline the growth of human population. It was evident that this theory of Malthus was far more plausible than his other theories such as his ‘doomsday prophecy’ which outlined the end of humanity as food production, which increases arithmetically, would be exhausted due to the geometrically increasing human population. 

Professor Schaffer also labelled Malthus the ‘grandfather of the theory of evolution’, as his works especially the Malthusian model helped Charles Darwin and others to formulate this revolutionary theory. This is evidently apparent as the first two parts of the Malthusian Model are shared with the theory of evolution as they both tackle long run changes in society and economies.

To conclude, the lecture was stimulating and thought provoking, as it provided the brief history of the formation of economies and some very important people who theorised the entire process.

The Political Consequences of the Great Recession: Electoral Punishment & Popular Protest by Professor Hanspeter Kriesi, LSE

Professor Kriesi produced a thought-provoking argument that analysed the effects and overall impact of the Great Recession of 2008 both economically and politically. He also used the information and evidence he presented and related it to two case studies, which strengthened his claims and made his theories more credible.

The main bulk of the lecture was filtering the events that follow an economic crisis and understanding the purpose and impact of these events. In addition, a recurring theme within the lecture was the power the people had, more so than the people actually know about. This was most evident in the actions of the general public in times of economic emergency.

Professor Kriesi expanded upon this spectacle and analysed it further. It was soon clear that the government would only act and adapt when there is overwhelming pressure from the people of the specific country. This is most apparent from the power people have in electing parties or individuals at elections to the power people impose during demonstrations and protests against the actions of the government.

Moreover, Professor Kriesi then expanded on the response from the government and the possible assistance a country may receive during times of economic distress, in particular financial aid from the International Monetary Fund (IMF). This then led to his two case studies.

The first of the case studies was Iceland and how it adapted and changed after the effects of the Great Recession. It was one of the first countries to be struck by the crisis, after the three biggest banks of Iceland collapsed. However, Iceland in Professor Kriesi’s words was a ‘victim of the intervention of the IMF’. Furthermore, Iceland experienced popular discontent among the people and this led to more demonstrations and protests. The other case study, which was discussed, was Latvia and how the Great Recession affected them. It was apparent that there were far more protests and demonstrations in Latvia and they were also a ‘victim of the intervention of the IMF’.

However, after analysing both these western and eastern European countries, it was evident that there was an important difference between western and eastern European countries. Firstly in Western Europe the unemployment rate is more important, but in Eastern Europe the growth rate is more important. This would definitely lead to very different approaches taken by the government in trying to revive their country after an economic crisis hits.

To conclude, this lecture provided important facts and figures that demonstrate the impact the Great Recession has had on countries. In addition, this lecture gave an interesting conflict in the aims and objectives of eastern and western European countries, which could therefore be used to analyse and justify the political and economical response of that countries’ people.