Posts Tagged ‘economy’

Why Stimulus Spending Works and Austerity Fails

23 Nov

What’s the best way to solve a country’s economic troubles? Stimulus or Austerity?

Let’s start by thinking about how people (and businesses) make money. The basic rule (thank you, Charles Dickens) is :

  • Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness.
  • Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery

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Combating Employment

23 May

In my last post, I explained how inflation can be caused by people getting payrises without producing anything extra. If people can do this, it leads to a “prisoner’s dilemma” situation – if both players demand a payrise, both are worse off. If neither do, both are better off. If only one does, the guy who gets a payrise is better off, and the guy who showed restraint is worse off.

If there were only two workers in the economy, they could negotiate and come to some agreement. Unfortunately, in the real economy, there are more than two workers, and the payrise-inflation game becomes a multi-player prisoner’s dilemma.

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