How can our economy both be efficient and connected? (Sarah lewis & Jem Smith)

How  Can  Our  Economy  Be  Both  Efficient  And  Connected?  

Sarah  Lewis  &  

Jem  Smith  

What  does  ‘an  economy  of  interconnec@ng  strengths’  mean?  

Ø What  does  it  look  like?  How  similar  or  different?  

Ø What  economic  language  can  we  use?  How  does  it  relate  to  language  of  economics  now?  

Ø A  level  of  scep@cism...  

Economics is in crisis. But why aren’t political scientists and sociologists offering an alternative view?  Aditya  ChakraborJy:  The  Guardian  17.04.12  

Our  @me  here  together  

Ø Key  current  economic  terms  and  assump@ons  Ø The  pull  of  the  future  Ø What  apprecia@ve  ques@ons  can  we  be  asking  to  help  us  develop  a  beJer  sense  of  of  the  phrase  ‘economy  of  interconnec@ng  strengths’?  

Ø Developing  a  new,  yet  connected  language  to  ‘do’  economic  talk  

Ø How  do  we  take  it  beyond  this  room?  

What  is  an  economy?  An  economy  is  a  system  to  turn  raw  resources  into  consumer  goods/

services  using  workers  and  machines  

What  is  an  economy  for?  

1  Working  oXen  makes  people  unhappy.  

To  make  people  happy.      What  makes  people  happy?    Consumer  goods  and  services  (includes  healthcare,  educa@on  etc.).    Two  problems:    

2        Resources  (coal,  oil,  land  etc.)  and  inputs  (workers  and  machines)  are  limited,  people’s  wants  are  unlimited.  

Choices  must  be  made  •  How  much  should  people  work?  Leisure  @me  makes  people  happy  but  money  

allows  them  to  buy  good/services  they  need  or  want.  

Vs.  

•           What  goods/services  should  be  produced  with  limited  resources,  and  how?    

Vs.  

•         Who  should  get  these  goods/services?  

Vs.  

How  do  we  decide?  The  Price  Mechanism  

Prices  tell  you  something’s  Opportunity  Cost  –  what  you  have  to  give  up  to  enjoy  it.  This  allows  society  to  make  these  choices.  Price  is  determined  by  scarcity  and  desire  –  supply  and  demand.  

If  workers  are  scarce  and  companies  want  to  use  them  rather  than  machines  then  wages  –  the  price  of  labour  –  goes  up  as  supply  is  low  and  demand  high.  Wages  are  the  price  of  leisure  @me.  

Examples  

If  cars  are  plen@ful  and  people  prefer  bicycles,  the  price  of  cars  goes  down.      

Prices  don’t  lie  –  usually!    

Who  decides?  All  systems  use  prices    to  make  these  choices  one  way  or  the  other,  the  ques@on  is  who  uses  them  and  for  what  purpose?  

Extremes  

Socialist    

What  is  produced:  What  the  government  thinks  is  best  for  you    Who  gets  it:  Everyone  gets  equal  shares    How  much  should  you  work:  As  much  as  society  needs  you  to      

Free  Market    What  is  produced:  What  people  want    Who  gets  it:  The  most  valuable  people  get  the  most    How  much  should  you  work:  As  much  as  you  need/want  to  

Which  economic  system  is  best?  

Err….  

Two  ques@ons  really:    What  is  the  best  system  for  producing  goods/services?    What  is  the  best  system  for  distribu@ng  them?      Answer:  Which  is  the  most  efficient?    Which  system  produces  the  most  of  the  things  which  make  people  happy,  and  in  the  way  they  are  happiest  with  (which  is  the  most  produc?vely  efficient)?    Which  system  shares  out  these  things  in  the  way  which  results  in  the  greatest  amount  of  happiness  overall  (alloca?ve  efficiency)?    

Produc@ve  efficiency  Theory  and  experience  tells  us  that  in  this  case,  the  free  market  is  best:    Consumers  decide  what  is  produced  so  they  are  what  make  people  happiest  and  what  they  need.    People  decide  for  themselves  how  much  to  work  and  so  can  balance  work  and  leisure.      This  system  has  compe@@on,  making  companies  deploy  labour  and  capital  efficiently,  boos@ng  produc@vity.      

This  system  encourages  technological  advances,  boos@ng  produc@vity.      

Excep@ons  –  market  failure  The  free  market  relies  on  people  making  ra@onal  decisions  about  what’s  best  for  them  –  experience  and  psychology  suggests  that  some@mes  they  don’t!  

Health  –  people  underes@mate  the  value  of  early  interven@on  and  insurance.    

Educa@on  –  you  being  educated  has  benefits  for  others  but  they  don’t  pay  for  it.    

Street  ligh@ng  –  physically  impossible  to  charge  people  for  the  street  ligh@ng  they  use,  even  though  they  would  willingly  pay  for  it.    

Alloca@ve  efficiency  There  is  no  consensus  on  how  to  allocate  goods  in  the  best  way  for  society  

Depends  on  how  you  think  people  enjoy  material  possessions…    

Does  a  poor  man  buying  his  first  car  get  more  happiness  from  it  than  a  rich  man  buying  his  third?    Yes:    A  more  equal  society  =  a  happier  society    No:  A  more  equal  society  =  no  benefit    Do  people  care  more  about  the  reality  of  their  current  situa@on  than  the  possibili'es  for  the  future?      Yes:  A  more  equal  society  =  a  happier  society  (many  people  beJer  off,  some  worse  off  today)    No:  A  more  equal  society  =  an  unhappier  society  (nobody  can  dream  of  being  s@nking  rich  in  the  future)      

Different  Models  As  long  as  produc@ve  efficiency  is  maintained,  economies  can  have  different  alloca@ve  models  and  be  equally  successful.  

USA    High  growth    Highly  unequal  wealth    Huge  possibili@es  ‘The  American  Dream’  

Sweden    

High  growth    

Very  equal  society    

Less  poten@al  for  riches  

Exis@ng  points  of  connec@on  

Ø What  connec@ons  did  you  hear  to  ‘strengths’  language?  

Ø How  could  the  language  of  economics  move  towards  the  language  of  ‘an  economy  of  interconnec@ng  strengths’?    

Ø What  is  pulling  us  towards  a  different  understanding  of  economy  and  economics  now  and  in  the  future?    

Developing  the  ques@ons  

Ø What  apprecia@ve  ques@ons  can  we  be  asking  to  help  us  develop  a  beJer  understanding  of  a  world  that  reflects  ‘an  economy  of  inter-­‐connected  strengths’  ?    

Ø How  can  we  take  these  ques@ons  into  the  world?  

Ø   What  resources  and  strengths  do  we  have  to  ac@vely  par@cipate  in  changing  the  understanding  of  world  economy?