Donald Trump came into office promising to ‘roll back’ the regulatory ‘burden’ on business as part of his economic strategy. The claim is that this will reduce business costs and create jobs by boosting economic growth. But will it work?
The right often complains of the ‘burden’ on business and, particularly in the US, equates the absence of regulation with freedom.
This is emotive stuff. Burden? It sounds bad. Freedom? What’s not to like? But this kind of rhetoric avoids a more nuanced discussion of the issue. Continue reading →
Some good news for the environment: following the introduction of a 5p plastic bag charge in England in October 2015, consumption has dropped dramatically, by 83% by the end of 2016 if current trends continue. This is surely an example of how a simple policy can be effective in changing behaviour, or incentives, as economists like to say. Note that the charge is not a tax, and is meant to be reused by the companies to which it applies. Many will give the money to charity, certainly if they care about their ‘social responsibilities’.
Plastic bag waste and pollution are an example of what in economics is called an externality. This is when the social cost or benefit of behaviour is not reflected in the price charged for a good or service. This results in economic inefficiency. If businesses or consumers are polluting but are not in some way paying for the cost imposed on society and the environment, then there is the potential for a charge or a tax on production or consumption to improve the economic outcome. Continue reading →
More economic output is not always a good thing. This will come as no surprise to many from the green wing of politics, but it is often easy to forget that increased private sector activity may not be associated with increased economic and social welfare. Under capitalism, many of us, including economists, can forget that continued economic growth, punctuated by booms and recessions, is a relatively recent phenomenon in world history. It has not always been with us, and who is to say that it always will be?
As an example of rising private sector output and income resulting from damage, a simple example, relevant to current drivers all over the UK, is the phenomenon of potholes. Continue reading →
In the wake of the 2008 financial crisis and ensuing recession, whose effects are still with us, governments have put in place complex new regulations which aim to prevent any similar crisis in the near future. Whether or not they will is controversial. But the UK, US and other advanced economies since the 1970s have become what is termed by some economists as ‘financialized’. The latter means that an increasing proportion of economic activity is subject to the behaviour of financial institutions and markets, and a much larger proportion of overall private sector profits occur in the financial sector.
The dysfunctional elements of financialization came to a dramatic head with the credit crunch in 2007, the financial crisis which began in 2008, and a global recession and subsequent weak recovery. Financial innovation, the accumulation of private sector debt and a number of housing bubbles in economies across the world led initially to huge profits for investment banks and other financial institutions, and enormous salaries for many working in the sector. Ultimately however this proved dysfunctional with regards to the role they played in the crisis. What may appear to be success for the individuals and companies involved in finance, at least for a time, can prove disastrous when looking at the wider economic and social impact over the longer term. Continue reading →