Tag Archives: economics

The Three Worlds

Generally, the terms first-world and third-world are used to describe rich countries and poor countries, respectively. But how did the terms get their start? You don’t actually have to look too far back, because the terms arose, under slightly different meanings, during the Cold War. ‘First world’ used to refer to the United States and its allies, most of which were democratic and capitalist, ‘Second World’ used to refer to the Soviet Union, its allies, and other communist or socialist states, and ‘Third world’ referred to neutral or unaligned nations. Under the old definitions, the wealthy nation of Switzerland would have been considered a “third world nation”, while the relatively poor nations of Burma and Mozambique would have been considered “first world nations”. Finally, a more recent term “fourth world” refers to smaller populations, typically those excluded from global or industrial societies.

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Double Post: Subsidies and the Prisoner’s Dilemma

Again, I’m sorry for missing a day, but I’ll do some related topics in today’s double post: Subsidies and the Prisoner’s Dilemma.

Subsidies are support income provided by the government to certain companies, namely agriculture and energy providers. In the past, these sectors were weak and needed support from their companies otherwise life in general would collapse (no food, no electricity, no fuel, etc.). I’m not going to argue that subsidies are not needed, I’m no expert in economics and it’s not my place to do so, but some subsidies, such as those that pay farmers not to farm (which I’ll get to in a bit because it has a little to do with the next topic) are counter-intuitive.

So what does paying farmers not to farm have to do with the Prisoner’s Dilemma? First we have to know what the Prisoner’s Dilemma is. Say we take two prisoners, Alvin and Bruce, who have together committed a crime (the details aren’t exactly important). If either one sells out the other, and the other confesses, the one who confessed gets one year in prison while the one who betrayed gets off free, if both betray each other, both will get three months in prison, and if both confess, both get only one month in prison. It’s, individually, in both Alvin’s and Bruce’s to betray, but it’s in their collective interest if they both confess. We see something similar in raw food prices. If a farmer produce large amounts of food, that food will be worth less due to inflation, than it would be if they produced less, but if farmer produce less food they are at the whim of the markets and could get in trouble due to other farmers potentially producing more food and driving prices down. That’s the farmer’s dilemma, and that’s where subsidies come in.

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Inflation and the Gold Standard

Inflation, at discussed in economics, is the rise in cost of goods and services in an economy over a period of time. Inflation is generally caused when money is printed in larger and larger quantities, thus being worth less and being unable to buy as much as the same amount of money would have before. Different economic philosophies have different views on the causes and effects of inflation, but they all tend to return to either a drop in the value of money, an increase in the value of goods or both. The gold standard is one way to control the rate of inflation. What the gold standard does is fix the value of gold, that is, the government owns a certain amount of gold and will only print as much money as they have gold. For example, if country X has 20 ounces of gold and they’ve fixed the price of gold at 20$ per ounce, then country X will only print 400$ worth of money (20 ounces x $20 per ounce = $400). The gold standard is one form monetary policy and is a historically popular method for controlling inflation, but it is not the only, nor necessarily the best.

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Filed under Economics