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Today's question for #WhyStudyEconomics
Should we provide relief to debtors when there is a recession, such as in this pandemic or the housing crisis before that?
The answer illustrates how good economics is about making the sum bigger than its parts
Should we provide relief to debtors when there is a recession, such as in this pandemic or the housing crisis before that?
The answer illustrates how good economics is about making the sum bigger than its parts
Each debtor has a lender. So providing relief to the debtor means we are taking something away from the lender
Isn't this a zero sum game then?
Why provide relief to the debtor at the expense of the lender?
Economics tells us that this apparently simple logic is incorrect
Isn't this a zero sum game then?
Why provide relief to the debtor at the expense of the lender?
Economics tells us that this apparently simple logic is incorrect
The reason: In the midst of a recession, demanding an additional dollar from a debtor takes away one dollar from their total spending
But giving the same dollar to the lender does not add this dollar back into total spending, because lenders try to save some portion of it
But giving the same dollar to the lender does not add this dollar back into total spending, because lenders try to save some portion of it
I'll do occasional thread on #WhyStudyEconomics - explaining how this science can be used for our collective good when used properly
Today's question: Should we have a minimum wage?
Today's question: Should we have a minimum wage?
Questions in economics are social in nature which can understandably trigger an ideological/emotional response
But one must resist that initial temptation and start with a formal framework to think objectively about the question at hand
This is what theorists try to do
But one must resist that initial temptation and start with a formal framework to think objectively about the question at hand
This is what theorists try to do
For a question on the minimum wage, we must start with a theory of how labor market works
A theory does not tell us how labor markets *actually* work, but it guides us by spelling out conditions under which a minimum wage is desirable versus not
A theory does not tell us how labor markets *actually* work, but it guides us by spelling out conditions under which a minimum wage is desirable versus not
