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Showing posts with the label economic theory

Economic Growth through Societal Motivation

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Economic engines are fostered through the patterns of human development and the creation of an environment that allows them to realize their fullest potential on the market. The economic system should encourage exploratory entrepreneurial behavior that leads to tangible rewards for societal members to ensure momentum continues to thrust forward. The same mechanics that apply to organizational motivation also apply to national motivation as each member determines whether or not they will engage the market with their skills and abilities.  The book Capital in the Twenty-First Century by Thomas Piketty outlines how wealth is increasingly accumulating into fewer and fewer hands thereby retarding the financial growth of the middle class. Wealth distribution tied directly to performance helps to encourage greater levels of motivation and innovative ideation.   Higher performance should be encouraged throughout the layers of society to have the highest development of the economi

Book Review: The Theory of Economic Development by Joseph Schumpeter

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Joseph Schumpeter is known as the “Prophet of Innovation” and published his work The Theory of Economic Development at 28 years of age ( 1 ). As an economist he didn’t receive much attention because he wasn’t in alignment with the popular Keynesian Economics of the time ( 2 ).   His greatest achievement being the meshing of sociology with economics to make a system of development. The chapters of the book are: (I) The Circular Flow of Economic Life as Conditioned by Given Circumstances; (II) The Fundamental Phenomenon of Economic Development; (III) Credit and Capital; (IV) Entrepreneurial Profit; (V) Interest on Capital; (IV) The Business Cycle. Schumpeter believed in a perfect equilibrium where there are no profits, no savings, no new products, no voluntary unemployment, or need. It is a system of economic flow where there is no need to adapt, adjust, or change because everything is running smoothly. This perfect equilibrium either never existed or

Keynesian Theory: Benefits and Detractors

Keynesian economic theory has been under increased scrutiny as the U.S. national debt load increases and the economy suffers from a long period of recession. The theoretical standpoint of the Keynesian model is one of a mixed bag where those elements that would have a positive impact are often drowned out by inefficient governmental waste, political favoritism, and the cost of servicing the debt. Under certain circumstances the policies can help stave off economic collapse but fail to bring about positive benefits the longer it is used. According to the U.S. Census Bureau an era between 1790's to 1930's only saw deficits in government spending in approximately 38 years. Most of this debt was short-term and a direct result of increased costs of war or economic downturns (Lee, 2012). Total federal budgets ran at approximately 3.2% of GNP when compared to nearly 70% of GNP today (The 2012 Long-Term, 2012). At such a high debt-to-earnings scenario the Keynesian approach loses its

The Concept of Business Cycles and Recession in Economics

Economic cycles are a natural part of business life and have occurred in one form or another for nearly every generation. These boom and bust cycles exist in everything from the biological organisms to stock market investing. It is often beneficial to view economic theories of business cycles to understand how imperfect information impacts the national economy as it moves through these growth patterns. Such cycles are many years in the making and can have a devastating impact on the economy if recovery is not forthcoming. Bob Lucas, a Nobel  Prize Laureate, developed a monetary theory of business cycles that helps explain economic growth spurts and decline (1972). To him, inaccurate perceptions of economic factors contribute to these cycles that push the system out of homeostasis. Firms, and their management, only have limited time and resources for understanding their environment and typically focus on only that information which is needed for their immediate purposes. It takes cons

Book Review: Alan Grenspan-The Age of Turbulence

Alan Greenspan's book The Age of Turbulence: Adventures in a New World reached no.1 on the New York Times best seller list in 2007. The book appears to be one part autobiography and economic theory. His philosophical and economic approaches are spelled out between the pages. Through the work a reader should understand the nature and life of an important intellectual theorist within American culture. The New York Times states, " For a memoir from such a high-profile figure, it is surprisingly frank. Large parts of the book are downright entertaining. Its biggest failing — the reason it isn’t a great memoir — is Mr. Greenspan’s reluctance to be as forthright and penetrating about himself as he is about others " (Leonhardt, 2007). The first part of the book outlines his life from high school clarinet player, professional service, philosophical discussions, and through various employment positions leading to the Federal Reserve Chairman. He provides some wisdom for

The Bounded Rationality of Stakeholder Theory

Stakeholder Theory is an organizational management perspective that attempts to defined the nature and purpose of firms/corporations within society. According to its founder Milton Friedman, the purpose of a firm is embedded almost exclusively in the production of wealth for shareholders (Friedman, 1970). Since this time, the concept of stakeholder has been expanded to include the idea that other entities have a particular stake, or interest, in the organization and can influence its success or failure. The theory defines who are the stakeholders in an organization and their rights and obligations to the shareholders as well as society in general. The root of the theory is based off of the premise that its purpose is the, " identification of moral or philosophical guidelines for the operation and management of the corporation " (Donaldson & Preston, 1995). The theory helps to foster the understanding that the needs of the owners should be realized first before other con

The Economic Theory of Chaos: Controlling the Uncontrollable

Chaos is a natural part of our lives and is prevalent in anything from weather patterns to economics. In order to understand the unpredictable nature of life and fluctuations in normal development through time Chaos Theory came into being. " Discoveries in quantum physics, biology, and chaos theory enable us to deal successfully with change and uncertainty in our organizations and our lives....the new science radically alters our understanding of the world, and it can teach us to live and work well together in these chaotic times " (Wheatley, 2009). Originally used in weather patterns and physics the theory has been applied to understanding and minimizing economic crisis. Before understanding the theory it is important to first have a grasp of the field of economics. " Economics, if it is to be a science at all, must be a mathematical science … mechanics of utility and self-interest "(Jevons, 1924). The very purpose of economic models is to predict, explain a