Thursday, July 21, 2011

Post 1. Economics

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This website is dedicated to a fuller understanding of Economics.

The original meaning of the word relates to the management of a household. So one can say "Economics is the social science that describes the factors that determine the production, distribution and consumption of goods and services. The term economics comes from the Ancient Greek οἰκονομία from οἶκος (oikos, "house") and νόμος (nomos, "custom" or "law"), hence "rules of the house (hold for good management)".

See: I think that that modern academic economists start slipping when they started to view a country's economy as functioning in a fundamentally different way than the economy of an individual household. They recognise this "mistake" - they call this "the fallacy of composition" - the larger economy is somehow different to the smaller unit. This may be so, something that is true for the single case may not be necessarily be true for the whole.
There are however some economic realities that cannot be changed just because we wish it so. For example, something needs to be produced before it can be consumed. A policy of "quantitative easing" for example may soften the effects of a recession but allmost everyone realises that such actions do not create wealth - one cannot spend oneself out of debt, can one? One first has to produce, one first has to earn and then save an so increase ones productive capacity. This is true for individuals, firms and countries.

Lately the notion of first borrowing to obtain the required productive capacity has developed - such a strategy is risky but possible, so the guideline is that if you do have to borrow, one has to do so prudently - this holds true for individuals, firms and countries. One must realise that things can go wrong and then someone still has to pay for it. The Greek government realised this after years of overspending (2012) - For governments it is easy to spend someone else's money on hair brained schemes such as giving home loans to people that cannot afford to repay them (as was done in the US)... or medi-help or free schooling or (fill in anything that people get without fully paying for it themselves). The South African Gautrain project is another one of those ill-conceived schemes - it has to be subsidised by the taxpayer to keep it running. And though lauded as a "success" it is still to be proven to be economical. In other words a worthwhile investment (a worthwhile investment is defined as one that you would have undertaken if it was your money).

When it comes to providing social services to the poor it is better to turn compassion over to people that care - do not force people to care through taxes, voluntary charity will be the moral thing to do. Other people's money is not for you to take just because you won some election. In subsequent pages we will be looking at other issues that affect our economic welfare - from price formation to economic growth.

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