- Industry: Economy; Printing & publishing
- Number of terms: 15233
- Number of blossaries: 1
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Making things like cars or frozen food has shrunk in importance in most developed countries during the past half century as services have grown. In the United States and the UK, the proportion of workers in manufacturing has shrunk since 1900 from around 40% to barely 20%. More than two-thirds of output in OECD countries, and up to four-fifths of employment, is now in the services sector. At the same time, manufacturing has grown in importance in developing countries. Many people think that manufacturing somehow matters more than any other economic activity and is in some way superior to surfing the Internet or cutting somebody’s hair. This is prob¬ably nothing more than nostalgia for times past when making things in factories was what real men did, just as 150 years ago growing things in fields was what real men did. Mostly, the shift from manufacturing to services (as with the earlier shift from agriculture to manufacturing) reflects progress into jobs that create more utility, this time for real women as well as real men, which may explain why it is happening first in richer countries.
Industry:Economy
The big picture: analyzing economy-wide phenomena such as growth, inflation and unemployment. Contrast with microeconomics, the study of the behavior of individual markets, workers, households and firms. Although economists generally separate themselves into distinct macro and micro camps, macroeconomic phenomena are the product of all the microeconomic activity in an economy. The precise relationship between macro and micro is not particularly well understood, which has often made it difficult for a government to deliver well-run macroeconomic policy.
Industry:Economy
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
An attempt to explain the way that people split their income between spending and saving, and the way that they borrow. Over their lifetime, a typical person’s income varies by far more than how much they spend. On average, young people have low incomes but big spending commitments: on investing in their human capital through education and training, building a family, buying a home, and so on. So they do not save much and often borrow heavily. As they get older their income generally rises, they pay off their mortgage, the children leave home and they prepare for retirement, so they sharply increase their saving and investment. In retirement, their income is largely or entirely from state benefits and the saving and investment they did when working; they spend most or all of their income, and, by selling off assets, often spend more than their income. Broadly speaking, this theory is supported by the data, though some economists argue that young people do not spend as much as they should on, say, being educated, because lenders are reluctant to extend credit to them. One puzzle is that people often have substantial assets left when they die. Some economists say this is because they want to leave a generous inheritance for their relatives; others say that people are simply far too optimistic about how long they will live. (See also permanent income hypothesis and relative income hypothesis. )
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
Let-it-be economics: the belief that an economy functions best when there is no interference by government. It can be traced to the 18th-century French physiocrats, who believed in government according to the natural order and opposed mercantilism. Adam Smith and others turned it into a central tenet of classical economics, as it allowed the invisible hand to operate efficiently. (But even they saw a need for some limited government role in the economy. ) In the 19th century, it inspired the British political movement that secured the repeal of the Corn Laws and promoted free trade, and gave birth to The Economist in 1843. In the 20th century, laissez-faire was often seen as synonymous with supporting monopoly and allowing the business cycle to boom and bust, and it came off second best against Keynesian policies of interventionist government. However, mounting evidence of the inefficiency of state intervention inspired the free market policies of Ronald Reagan and Margaret Thatcher in the 1980s, both of whom stressed the importance of laissez-faire.
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
