Bonkers Economics

Does that mean we can’t choose how we spend our money?

We can choose what we buy at the point of purchase, but we can’t choose where the money subsequently flows. In practice it flows eventually into each activity in the economy in proportion to the amount that each is able to retain in wages or profits.

How does that happen? Can we see an example?

Well, when we buy bread at a baker's we know the baker has to pay the miller for the flour, and the miller has to pay the farmer for the wheat, so our money spreads at least that far. But what about the baker's electricity supplier? And the miller's landlord, and the farmer's insurance broker, and their various accountants and bank managers? They, and many others, are all getting their share. Like a drop of ink in a swimming pool it disperses into every corner, paying for a little bit of all the paid activity in the economy.

It sounds like the free market in action.

Sure, but the free market isn’t really free. For a start it’s massively unequal. Ordinary people don’t have the power of big companies. And it’s also massively regulated by government, mostly in favour of those big companies. So the people and businesses that are good at accumulating money do well, and people producing real, useful wealth often struggle to get by.

That’s life, isn't it? So what can we do about it?

What the image shows us is how much value we are placing on each activity, relative to the others. That’s not so much an economic as a political choice about how the government regulates markets and puts money into the economy. Those choices can change, but for some reason they never do. What we can do is make sure that our politicians truly understand the possibilities for change and the consequences of their decision making. At the moment it is pretty clear that they haven’t a clue.

Does that mean we can’t choose how we spend our money?

We can choose what we buy at the point of purchase, but we can’t choose where the money subsequently flows. In practice it flows eventually into each activity in the economy in proportion to the amount that each is able to retain in wages or profits.

How does that happen? Can we see an example?

Well, when we buy bread at a baker's we know the baker has to pay the miller for the flour, and the miller has to pay the farmer for the wheat, so our money spreads at least that far. But what about the baker's electricity supplier? And the miller's landlord, and the farmer's insurance broker, and their various accountants and bank managers? They, and many others, are all getting their share. Like a drop of ink in a swimming pool it disperses into every corner, paying for a little bit of all the paid activity in the economy.

It sounds like the free market in action.

Sure, but the free market isn’t really free. For a start it’s massively unequal. Ordinary people don’t have the power of big companies. And it’s also massively regulated by government, mostly in favour of those big companies. So the people and businesses that are good at accumulating money do well, and people producing real, useful wealth often struggle to get by.

That’s life, isn't it? So what can we do about it?

What the image shows us is how much value we are placing on each activity, relative to the others. That’s not so much an economic as a political choice about how the government regulates markets and puts money into the economy. Those choices can change, but for some reason they never do. What we can do is make sure that our politicians truly understand the possibilities for change and the consequences of their decision making. At the moment it is pretty clear that they haven’t a clue.

Does that mean we can’t choose how we spend our money?

We can choose what we buy at the point of purchase, but we can’t choose where the money subsequently flows. In practice it flows eventually into each activity in the economy in proportion to the amount that each is able to retain in wages or profits.

How does that happen? Can we see an example?

Well, when we buy bread at a baker's we know the baker has to pay the miller for the flour, and the miller has to pay the farmer for the wheat, so our money spreads at least that far. But what about the baker's electricity supplier? And the miller's landlord, and the farmer's insurance broker, and their various accountants and bank managers? They, and many others, are all getting their share. Like a drop of ink in a swimming pool it disperses into every corner, paying for a little bit of all the paid activity in the economy.

It sounds like the free market in action.

Sure, but the free market isn’t really free. For a start it’s massively unequal. Ordinary people don’t have the power of big companies. And it’s also massively regulated by government, mostly in favour of those big companies. So the people and businesses that are good at accumulating money do well, and people producing real, useful wealth often struggle to get by.

That’s life, isn't it? So what can we do about it?

What the image shows us is how much value we are placing on each activity, relative to the others. That’s not so much an economic as a political choice about how the government regulates markets and puts money into the economy. Those choices can change, but for some reason they never do. What we can do is make sure that our politicians truly understand the possibilities for change and the consequences of their decision making. At the moment it is pretty clear that they haven’t a clue.