Ronald Yiap is currently reading BSc in Economics at The London School of Economics and Political Science (2015-2018). This personal statement was part of his successful application to The LSE, University College London, University of Warwick for Economics and King’s College London for Politics.
Despite living in a suburban boarding school, I closely followed the recent financial crises originating in the West, including the US and Eurozone debt crises and the Global Financial Crisis. This latter crisis created such a strong economic force that it was felt in Malaysia and other eastern nations, confirming the adage, ‘when America sneezes the whole world catches a cold’. Realizing how globalised our world is, I have been regularly reading both The Financial Times and The Economist magazine to keep myself informed with global economic affairs whilst also expanding my knowledge of economic concepts and ideas. Aside from my readings, I regularly engage in debates with my peers outside class, one particularly fascinating example being, “Are impulsive decisions rational?” I would argue that, so long as some cost benefit analysis takes place, an impulsive decision can be considered rational.
Reading “Austerity: The History of a Dangerous Idea” by Mark Blyth, I was fascinated with a different idea of austerity to the anti-Keynesian idea that it is necessary to reduce debt for future growth prospects. On the one hand, Blyth’s argument on the negative effects of austerity is very true with the widening of income inequality and increased unemployment (Ireland hitting levels of 14.8% unemployment in 2012), especially in the short run. On the other hand, the recent economic recovery of Ireland, which just exited the Troika Bailout (allowing itself to save up to $500 million dollars a year) and is experiencing strong positive GDP growth, seems to support the anti-Keynesian idea that austerity does work in the long run. Overall, my view is that although austerity may have severe initial repercussions, namely lower public spending and higher taxation squeezing the poor, once debt levels have stabilised an economy can expect strong GDP growth.
Blyth’s idea of a widening inequality as a result of austerity intrigued me and I read more about the idea of inequality and its roots in “Capital in the Twenty-First Century”, by Thomas Picketty. He argues that wealth grows faster than economic output and formulates his claim in the expression r is greater than g (where the rate of return of wealth is greater than economic growth). Both authors ultimately agree that to bridge the inequality gap, higher tax on the rich is essential. Blyth states that raising the average income tax for the top income percentiles should work. Picketty argues, however, that a progressive tax on capital, in other words a tax on wealth instead of income, is more effective and should be implemented. As the expression r is greater than g suggests, due to the rapid growth of capital (in which only the rich can afford to invest) and economic growth (the sum of the economy), a progressive tax on capital would be more effective to reduce wealth inequality. Personally, I believe that to be able to get politicians to agree to any such reforms would be highly improbable due to the nature of our current political system. It is essential that we introduce the right incentives for policy makers to act given their relationship with financial institutions.
Having self-studied Decision Mathematics, I was introduced to Game Theory which studies strategic interactions between economic agents. Specifically, I was intrigued by the Ultimatum game and the Prisoner’s Dilemma. The Ultimatum game conventionally induces a Nash Equilibrium whereby the splitter will offer the smallest possible sum to achieve co-operation from the other player. This contrasts with actual experimental outcomes due to the element of fairness that triumphs over the rational idea of economic gain. In Economics, my study of oligopolies links closely with Game Theory, in particular how firms choose prices, quantities and make their market entry decisions.
My fascination with the ever expanding breadth of Economics makes the prospect of reading for a degree in it very exciting.