Thursday, October 7, 2010

What you will learn this year...

So you chose economics, and you've arrived at university.  If your A-level economics was anything like mine, you may have been given a stylised history of the UK with some brief treatment of the 1970s before moving on to the 1980s and Margaret Thatcher.  You probably got the impression from how the material was presented to you that Labour had a reputation for being unable to manage the economy - something that bedeviled them in 1992, but something New Labour managed to overcome in 1997.

One thing though has become remarkably clear since the May General Election this year - the Conservatives are remarkably good at rewriting economic history, and unfathomly good at getting people (who don't necessarily even vote Tory) to believe what they say about the economy.

You will learn this year and in your three years studying economics that politicians generally are not folk to be trusted when they open their mouths about the economy.  You'll learn about incentives, and how incentive structures influence perverse outcomes (e.g. see page 19 of this newsletter about this).  You probably already knew this, but the incentives in play for politicians influence the things they utter on the economy - they are party political first, and truthful a distant second.

An example of this was William Hague on Radio 4 yesterday morning.  Cuts will harm defence, yet as with any Tory comment on anything related to cuts, they try and paint a picture of how shambolic Labour was, the mess they left, etc., in order to (1) score some political points (who would ever vote that lot in again after this?!) and (2) excuse themselves from the blame for the adverse effects of the cuts they intend to make.

The fundamental underlying matter here though is that people do actually seem to believe cuts are unavoidable.  You would almost think, given this, that the economics profession was in consensus about this: Cuts are necessary and unavoidable.  It may, then, come as some surprise to find that a lot of prominent economists actually don't believe this.  Paul Krugman, Joseph Stiglitz (both Nobel prizewinners), Brad DeLong, Martin Wolf (writer at the FT), Robert Skidelsky to name but a few, dissent.

Stay tuned then: Don't skip lectures, listen in them, attempt the assignments you get for each class and attend each class, and you'll learn a lot more about why these economists think the way they do, and why you should treat with scepticism every economic utterance from a politician...

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