Naked Economics: It Depends Essay
Throughout the book Naked Economics are many instances where Charles Wheelan brings up an issue that is controversial or debatable. Essentially economics is the social science that studies the production, distribution, and consumption of goods and services. So what is the driving force behind production, distribution, and consumption? The answer to that is simply put, humans. People affect the economy in many different ways whether those ways are direct or indirect. Humans like nature are ever changing and cannot be controlled or manipulated.
One would simply think that economics is a simple science that is based on fact and laws; however, unlike math where there is a definitive answer, sometimes economic answers depend on the situation. One golden example is the role government has to offer to the economy, is it, “Too big, too small, or just about right? ” (Wheelan, pg 77). A simple question but with a complex answer. Consider the banking bailouts issue, should the government bailout banks and financial institutions?
Firstly, the US government distorted the market to encourage poorer individuals to take out large mortgages and buy houses. When a few of these people failed to pay off the mortgage, this began the chain of events that led to the foreclosure crisis we see today, this is a perfect example of how a big government took an active role in society and thus failed. However, what would be different if the government had not intervened? It would be business owners and average every day homeowners who would corrupt the economy. The decision to make risky investments came from companies and homeowners.
Because some governments did not sufficiently regulate those corporations, businesses and home owners were ultimately the decision makers and coincidently made poor decisions (i. e. buying houses they could not afford), thus a minimal role of the government in economy resulted in a crisis as well. So what should have been done, a large role of the government or a small role? Well, it depends. Another prime example of an economic dilemma is a question proposed by Amartya Sen, the 1998 Nobel Prize Winner in Economics, “Three men have come to you looking for work” (Wheelan, pg 60).
One of the three is very poor so hiring him would increase his welfare, the second is not poor but was just recently deprived, and the third has a chronic health condition. So if you are the employer who would you chose to most benefit the economic society you live in? Would you help the common welfare by choosing the poorest, or increase the esteem of the second, or help the third survive his health condition. The answer to this is tough and debatable, and has many solutions. One of the solutions could be to hire the one who has a health condition because he may be on the verge of death.
A simple yet potential problematic solution could be to split the shifts and wages amongst the three workers, because something is always better than nothing. This way you could also help increase spending as all three workers would be making an income and all three would add to the employment rate. The answer is thus based rather on opinion than based on fact. Because all three workers give the same effort statistically for the economy they would all three be beneficial, so the answer still stands, who to choose?
Finally a good debate topic is that of free trade which is the opposite of protectionism (Wheelan, pg 193). By allowing everyone equal access to all markets, you guarantee the most efficient allocation of resources and the cheapest prices for consumers. Can such a theory work in practice however? The questions of free trade is debatable because there are many sides to the argument of whether allowing foreign trade to be accepted everywhere across the world giving cheaper prices but more domestic competition or to barricade trade globally and allow more domestic citizens to keep their jobs.
A positive aspect of free trade is that it keeps different countries interlocked in a network of trust and fellowship thus preventing war, however, if trade goes badly the opposing country maybe provoked to indulge in war. A key concept of free trade however is cheaper prices, and maximum global efficiency can only be maintained by a tariff free international economy. The more efficiently allocated are the world’s resources the less waste there is and more affordable goods will be prevalent for consumers.
However, some economists say otherwise that international economics isn’t as simple as increasing the efficiency of global trade. They believe that even though cheaper prices will become more available the jobs and companies on American soil will be less prevalent. Clearly the USA would want to favor their own citizen’s jobs rather than the cheaper prices right? Thus the answer still stands with no correct answer but rather opinion based ones, should we do this or that? Similar to all the above questions in economics it sometimes depends.