Common Sense Economics Paper

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Common Sense Economics Paper

With the recent developments in the economy there could have not been a better time to pick up this book and read it. I work for a financial institution which had received a good amount of TARP funds. This was followed by media on the company’s allocation of resources for what appears to be a recreational purchase equaling almost the amount of TARP funding. In turn to find out company “x” had decided that employees will not be receiving a compensation increase this year. After just the first couple of pages I already knew I wanted to dive in to the first part of the book discussing the “Ten Key Elements of Economics.” This immediately shifted my interest to the first two key elements that: “Incentives matter” and “There is no such thing as a free lunch.” There are many thoughts that came to mind while reading along. The incentive for employees was the annual compensation increase. The problem we are facing now is that the labor and productivity supplied are expected to be maintained, while people need to do more with less. As the book explains, it takes time to adjust. However one may argue that the incentive has changed. Now as the economy has shifted and the company has to make budget and staff cuts; the individual incentive has shifted to “maintaining employment.” Thus there is no longer an increasing financial incentive, with the exception of the existing financial compensation. We must remember that incentives matter, but also that at the same time they can shift based on the factors providing the incentive. The book examines the increase and decrease in gasoline prices. Consumers responded by changing their behavior, consequently shifting incentives.

The cutbacks of company “x” leads right into the element that “There is no Such Thing as a Free Lunch.” The compensation for the service we provide now is allocated elsewhere. By deciding to stay employed with company “x” we have...
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