John Maynard Keynes

Being one of the most influential economists of the 20th century, he credited a lot of famous economic theories for the world to use. Even though a well educated child, Keynes did not contribute that well for academics ,and instead joined a variety of literary pursuits and political activities.
During the inter-war years, Keynes amassed a considerable personal fortune from the financial markets and, as bursar of King's College, greatly improved the college's financial position. He became a prominent arts patron and board member of a number of companies. In 1926, he married Lydia Lopokova, a Russian ballerina.
Keynes' best-known work, 'The General Theory of Employment, Interest and Money', was published in 1936, and became a benchmark for future economic thought. It also secured his position as Britain's most influential economist, and with the advent of World War Two, he again worked for the treasury. In 1942, he was made a member of the house of lords.
During the war years, Keynes played a decisive role in the negotiations that were to shape the post-war international economic order. In 1944, he led the British delegation to the Bretton Woods conference in the United States. At the conference he played a significant part in the planning of the World Bank and the International Monetary Fund. He died on 21 April 1946.

Price Controls

Price Controls

Maximum Price Controls: This is when the government sets a maximum price, below the equilibrium price which prevents producers from raising the price above it. It is also called Price ceiling. Usually maximum prices are usually set to protect consumers and they are normally imposed in markets where the product in question is a necessity or a merit good.  The Government can set a legally imposed maximum price in a market that suppliers cannot exceed – in an attempt to prevent the market price from rising above a certain level. To be effective a maximum price has to be set below the free market price.
One example of a maximum price might when shortage of essential foodstuffs threatens large rises in the free market price. Other examples include rent controls on properties – for example the system of rent controls still in place in Manhattan in the United States.
A maximum price seeks to control the price – but also involves a normative judgement on behalf of the government about what that price should be. An example of a maximum price is shown in the next diagram. The normal free market equilibrium price is shown at Pe – but the government decides to introduce a maximum price of Pmax. This price ceiling creates excess demand for the product equal to quantity Q2-Q2 because the price has been held below the normal equilibrium.
 
Minimum Price Controls
This is the other phenomenon of the maximum price. Sets above the equilibrium price, which prevents producers from reducing the price below it. Also known as the floor. A minimum price is a legally imposed price floor below which the normal market price cannot fall. To be effective the minimum price has to be set above the normal equilibrium price. Perhaps the best example of a minimum price is the minimum wage. The national minimum wage was introduced into the UK in 1999. It is an intervention in the labour market designed to increase the pay of lower-paid workers and thereby influence the distribution of income in society. In October 2005, the value of the minimum wage for adults was £5.05 – following a series of small increases over recent years.
The main aims of the minimum wage

1. The equity justification: That every job should offer a fair rate of pay commensurate with the skills and experience of an employee
2. Labour market incentives: The NMW is designed to improve the incentives for people to start looking for work – thereby boosting the economy’s available labour supply
3. Labour market discrimination: The NMW is a tool designed to offset some of the effects of persistent discrimination of many low-paid female workers and younger employees.
4.  An example of a maximum price controls are wage laws. Laws specifying the lowest wage a company can pay an employee (employees are suppliers of labor and the company is the consumer in this case). When the minimum wage is set higher than the equilibrium market price for unskilled labor, unemployment is created (more people are looking for jobs than there are jobs available).

Unemployment, a Big Issue!

 Landing a Job after a year of Rejection

Students graduating from college are entering perhaps the toughest, most uncertain job market in generations. In our series, we met recent grads who shared the frustrations and fears they faced as they set out in search of work. In this installment, we follow-up with one of our previous grads who has now landed a job after a yearlong search.

Melanie Singer an ordinary women starts of about her opinion on her situation. She studied about unemployment in her college years very firmly. Following graduation, it took her a whole year to finally find work as an accountant. "I even remember I looked over my books, my accounting books, before I started just because I was nervous that I wasn't going to remember something important," she says.

Now, Singer balances the spreadsheets every month and reconciles the accounts — all of the things that her college degree prepared her to do. And now with her job, she's paying off her $15,000 in student loans.

"For once it felt like OK, all this work is finally paying off," she says.

Back when Singer was unemployed, she had gone to interview after interview and sent out more resumes than she can remember. After a while, she said, it took a toll on her. After these challenges in her life, Singer learned a lot about patience and preservation, and she is on fire about her education also aiding to help solve the unemployment problem in the U.S.

Tax and Subsidy

TAX + Subsidy

Funds provided by taxation have been used by states and their functional equivalents throughout history to carry out many functions. Some of these include expenditures on war, the enforcement of law and public order, protection of property, economic infrastructure (roads, legal tender, enforcement of contracts, etc.), public works, social engineering, and the operation of government itself. Most modern governments also use taxes to fund welfare and public services. These services can include education systems, health care systems, pensions for the elderly, unemployment benefits, and public transportation. Energy, water and waste management systems are also common public utilities. Colonial and moderning states have also used cash taxes to draw or force reluctant subsistence producers into cash economies.

Governments use different kinds of taxes and vary the tax rates. This is done to distribute the tax burden among individuals or classes of the population involved in taxable activities, such as business, or to redistribute resources between individuals or classes in the population. Historically, the nobility were supported by taxes on the poor; modern social security systems are intended to support the poor, the disabled, or the retired by taxes on those who are still working. In addition, taxes are applied to fund foreign and military aid, to influence the macroeconomic performance of the economy (the government's strategy for doing this is called its fiscal policy - see also tax exemption), or to modify patterns of consumption or employment within an economy, by making some classes of transaction more or less attractive.

A nation's tax system is often a reflection of its communal values or the values of those in power. To create a system of taxation, a nation must make choices regarding the distribution of the tax burden — who will pay taxes and how much they will pay — and how the taxes collected will be spent. In democratic nations where the public elects those in charge of establishing the tax system, these choices reflect the type of community which the public wishes to create. In countries where the public does not have a significant amount of influence over the system of taxation, that system may be more of a reflection on the values of those in power.

The resource collected from the public through taxation is always greater than the amount which can be used by the government. The difference is called compliance cost, and includes for example the labour cost and other expenses incurred in complying with tax laws and rules. The collection of a tax in order to spend it on a specified purpose, for example collecting a tax on alcohol to pay directly for alcoholism rehabilitation centres, is called hypothecation. This practice is often disliked by finance ministers, since it reduces their freedom of action. Some economic theorists consider the concept to be intellectually dishonest since (in reality) money is fungible. Furthermore, it often happens that taxes or excises initially levied to fund some specific government programs are then later diverted to the government general fund. In some cases, such taxes are collected in fundamentally inefficient ways, for example highway tolls.

Some economists, especially neo-classical economists, argue that all taxation creates market distortion and results in economic inefficiency. They have therefore sought to identify the kind of tax system that would minimize this distortion. Also, one of every government's most fundamental duties is to administer possession and use of land in the geographic area over which it is sovereign, and it is considered economically efficient for government to recover for public purposes the additional value it creates by providing this unique service.

Since governments also resolve commercial disputes, especially in countries with common law, similar arguments are sometimes used to justify a sales tax or value added tax. Others (e.g. libertarians) argue that most or all forms of taxes are immoral due to their involuntary (and therefore eventually coercive/violent) nature. The most extreme anti-tax view is anarcho-capitalism, in which the provision of all social services should be a matter of voluntary private contracts.


Subsidy
Advantages
- reduces cost of production
- releases resources to be used for other purposes e.g expansion (increased supply)
- increases the firms competitive edge in terms of prices. With subsidies they are able to cover cost without making their products unaffordable.

Disadvantages
- It increases dependence of firms and hence, might not provide motivation necessary for increasing efficiency and supply