Archive for June 19th, 2012

June 19, 2012

Boom and Bust

animal spirits

A credit boom-bust cycle is an episode characterized by a sustained increase in several economics indicators followed by a sharp and rapid contraction. Commonly the boom is driven by a rapid expansion of credit to the private sector accompanied with rising prices of commodities and stock market index.

Following the boom phase, asset prices collapse and a credit crunch arises, where access to financing opportunities are sharply reduced below levels observed during normal times. The unwinding of the boom phase brings a considerably large reduction in investment and fall in consumption and an economic recession may follow. The recession following the burst of the episode is oftentimes short-lived, GDP and consumption growth usually resume within a year.

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June 19, 2012

Malthusian Catastrophe

soylent green

A Malthusian catastrophe [mal-thoo-zee-uhn] would be a forced return to subsistence-level conditions due to population growth outpacing agricultural production. Population and growth size has a negative impact on the environment. Later formulations consider economic growth limits as well. The term is also commonly used in discussions of oil depletion. Based on the work of political economist Thomas Malthus (1766–1834), theories of Malthusian catastrophe are very similar to the Iron Law of Wages (real wages always tend toward the minimum wage necessary to sustain the life of the worker).

The main difference is that the Malthusian theories predict what will happen over several generations or centuries, whereas the Iron Law of Wages predicts what will happen in a matter of years and decades. The Industrial Revolution enabled the modern world to break out of the Malthusian growth model, however, various limited resources which may soon limit human population growth because of a widespread belief in the importance of prosperity for every individual and the rising consumption trends of large developing nations such as China and India.

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June 19, 2012

Iron Law of Wages

wage slave

The Iron Law of Wages is a proposed law of economics that asserts that real wages always tend, in the long run, toward the minimum wage necessary to sustain the life of the worker. The theory was first named by Ferdinand Lassalle in the mid-nineteenth century.

Karl Marx attributed the doctrine to Lassalle (notably in ‘Critique of the Gotha Programme’), crediting the idea to Thomas Malthus in his work, ‘An Essay on the Principle of Population,’ and the terminology to Goethe’s ‘great, eternal iron laws’ in ‘Das Göttliche’ (‘On the Divine’).

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June 19, 2012

Malthusian Trap

malthus

The Malthusian trap [mal-thoo-zee-uhn], named after political economist Thomas Robert Malthus, suggests that for most of human history, income was largely stagnant because technological advances and discoveries only resulted in more people, rather than improvements in the standard of living.

It is only with the onset of the Industrial Revolution in about 1800 that the income per person dramatically increased, and they broke out of the Trap; it has been shown, however, that the escape from the Malthusian trap can also generate serious political upheavals.

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