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Top-down policy by government and central banks, usually intended to maximize growth while keeping down inflation and unemployment. The main instruments of macroeconomic policy are changes in the rate of interest and money supply, known as monetary policy, and changes in taxation and public spending, known as fiscal policy. The fact that unemployment and inflation often rise sharply, and that growth often slows or GDP falls, may be evidence of poorly executed macro¬economic policy. However, business cycles may simply be an unavoidable fact of economic life that macroeconomic policy, however well conducted, can never be sure of conquering.
Industry:Economy
A tax that is the same amount for everybody, regardless of income or wealth. Some economists argue that this is the most efficient form of taxation, as it does not distort incentives and thus it has no deadweight cost. This is because each person knows that whatever they do they will have to pay the same amount. It is also cheap to administer, as there is no complex process of measuring each person’s income and assets in order to calculate their tax bill. However, because rich and poor people pay the same, the tax may be perceived as unfair – as Margaret Thatcher found out when she introduced a lump-sum “poll tax”, a decision that was later to play a large part in her ousting as British prime minister.
Industry:Economy
How easily an asset can be spent, if so desired. Cash is wholly liquid. The liquidity of other assets is usually less; how much less may be measured by the ease with which they can be exchanged for cash (that is, liquidated). Public financial markets try to maximize the liquidity of assets such as bonds and equities by providing a central meeting place (the exchange) in which would-be buyers and sellers can easily find each other. Financial market makers (middlemen such as investment banks) can also increase liquidity by using some of their capital to buy securities from those who want to sell, when there is no other buyer offering a decent price. They do this in the expectation that if they hold the asset for a while they will be able to find somebody to buy it. Typically, the higher the volume of trades happening in a marketplace, the greater is its liquidity. Moreover, highly liquid markets attract more liquidity-seeking traders, further increasing liquidity. In a similar way, there can be vicious cycles in which liquidity dries up. The amount of liquidity in financial markets can vary enormously from one moment to the next, and can sometimes evaporate entirely, especially if market makers become too risk averse to put their capital at risk in this way.
Industry:Economy
A policy of promoting liberal economics by limiting the role of government to the things it can do to help the market economy work efficiently. This can include privatization and deregulation.
Industry:Economy
Laws can be an important source of economic efficiency – or inefficiency. Early economists such as Adam Smith often wrote about the economic impact of legal matters. But economics subsequently focused more narrowly on things monetary and commercial. It was only in the 1940s and 1950s, at the University of Chicago Law School, that the discipline of law and economics was born. It is now a substantial branch of economics and has had an impact beyond the ivory towers. The "economics" of law and economics is firmly in the liberal economics camp, favoring free markets and arguing that regulation often does more harm than good. It stresses the economic value of having clear, enforceable property rights, and of ensuring that these can be bought and sold. It has encouraged many antitrust policy¬makers to focus on maximizing consumer welfare, rather than, say, protecting small firms or opposing big ones just because they are big. It has also ventured into broader sociological issues, for instance, analyzing the economic causes of criminality and how to structure legal incentives to reduce crime. (See also evolutionary economics. )
Industry:Economy
Henry George, a 19th-century American eco¬nomist, believed that taxes should be levied only on the value of land, not on labor or capital. This “single tax”, he asserted in his book, PROGRESS AND POVERTY, would end unemployment, poverty, inflation and inequality. Many countries levy some tax on land or property values, although George’s single tax has never been fully implemented. This is mainly because of fears that it would drive down land prices too much or discourage efforts to improve the quality (that is, the economic value) of land. George addressed this concern by arguing that the tax should be levied only against the value of “unimproved” land. Certainly, a land tax has obvious advantages: it is simple and cheap to levy; evasion is all but impossible; and it penalizes owners who do not put their land to work.
Industry:Economy
One of the factors of production, along with labor, capital and enterprise. Pending colonization of the moon, it is in fairly fixed supply. Marginal increases are possible by reclaiming land from the sea and cutting down forests (which may impose large economic costs by damaging the environment), but the expansion of deserts may slightly reduce the amount of usable land. Owners earn money from land by charging rent.
Industry:Economy
A flexible labor market is one in which it is easy and inexpensive for firms to vary the amount of labor they use, including by changing the hours worked by each employee and by changing the number of employees. This often means minimal regulation of the terms of employment (no minimum wage, say) and weak (or no) trade unions. Such flexibility is characterized by its opponents as giving firms all the power, allowing them to fire employees at a moment’s notice and leaving workers feeling insecure. Opponents of labor market flexibility claim that labor laws that make workers feel more secure encourage employees to invest in acquiring skills that enable them to do their current job better but that could not be taken with them to another firm if they were let go. Supporters claim that it improves economic efficiency by leaving it to market forces to decide the terms of employment. Broadly speaking, the evidence is that greater flexibility is associated with lower rates of unemployment and higher GDP per head.
Industry:Economy
One of the factors of production, with land, capital and enterprise. Among the things that determine the supply of labor are the number of able people in the population, their willingness to work, labor laws and regulations, and the health of the economy and firms. Demand for labor is also affected by the health of the economy and firms, labor laws and regulations, as well as the price and supply of other factors of production. In a perfect market, wages (the price of labor) would be determined by supply and demand. But the labor market is often far from perfect. Wages can be less flexible than other prices; in particular, they rarely fall even when demand for labor declines or supply increases. This wage rigidity can be a cause of unemployment.
Industry:Economy
Corrupt, thieving government, in which the politicians and bureaucrats in charge use the powers of the state to feather their own nests. Russia in the years immediately after the fall of communism was a clear-cut example, with Mafia-friendly government members allocating themselves valuable shares during the privatization of state-owned companies, accepting bribes from foreign businesses, not collecting taxes from “helpful” companies and siphoning off international aid into their personal offshore bank accounts.
Industry:Economy
