W’s

Welcome to the SwiftEconomics.com Glossary! Each word will come to life using witty jokes, satire, and colorful examples. The glossary is meant to amuse and educate; not to be traditional or academic. The SwiftEconomics.com team wants to hammer home a few vital ideas throughout the vocabulary lesson. For example, keep an eye on asymmetric information’s effect on health insurance. Please share the SwiftEconomics.com Glossary with colleagues, friends, and family!

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Wages

Labour comes at a cost; its price often failing to hit equilibrium. The equilibrium wage in a marketplace will employ the greatest number of people. The number of workers and number of jobs available actually converge at a natural price.

In practice, labour market wages rarely swim in a free marketplace. In some industries wages are driven by unions and collective bargaining agreements. These worker cartels ban together hoping to swing a bigger stick. Unions famously (among economist circles) cause a higher unemployment rate. The number of labourers willing to work at the above market wages spike. Naturally, businesses can’t afford to employ as many workers at the above market wage.

Some countries institute price floors in the form of a minimum wage. Government policy to increase minimum wage as irked some economists who plead with politicians it only causes inflation. Businesses increase prices to compensate for the extra labour costs.


Wealth Effect

The wealthier someone gets (and feels) the more they will spend. A person’s marginal propensity to consume increases as their wealth increases. It makes sense that as someone’s income rises so, too, will their spending. According to the wealth effect, a person’s house appreciating in value will spark additional spending as well.


Wealth Tax

Tax on net worth and wealth transfers, unrelated to income. Income tax is only paid by those with income. Rich and poor people alike can have little to no income. Inheritance tax and annual taxes on someone’s net worth are examples of the wealth tax in action. Wealth taxes ensure that the richest members of society pay more taxes then everyone else. In most Western economies this tax system is considered “fair.”


Weightless Economy

Information, intellectual capital, and services; all the stuff in the economy that increases GDP but isn’t a physical commodity. Financial services have created trillions of new dollars of GDP by simply repackaging existing loans, moving the new pools, and selling shares of the pools to investors along the way. Internet properties move information, services, and software with a click of a mouse. Weightless economies increase efficiency in an immeasurable way.


Welfare

Society’s “social welfare” refers to everyone’s overall well being. An aggregate social utility model describes total welfare as the sum of everyone’s individual utility.

The Rawlsian social utility model suggests total welfare is only as good as the poorest member of society. With no regard to taking income away from other members of society, the poorest person will receive redistributed income in order to maximize social welfare.

The United States government coined transfer payments to low income individuals “welfare;” a very Rawlsian model. U.S. government also expresses transfer payments as “tax credits.” You do want to express yourself, don’t you?


Welfare Economics

Empathy economics; a call to allocate scarce resources efficiently but fairly. What passes as “fair and equitable” rarely reaches a consensus.

This process analyzes the impact of an economic activity on the well being of a country, firm, or individual. Economists dating back to Adam Smith have included empathy, compassion, and sympathy into their economic reasoning.

Smith believed that a functioning, collaborative society was held together by empathy (he called it sympathy back then). Consider empathy as the ability to put yourself into another’s shoes and feel their pain as if it was your own. Self-interests are so powerful that only empathy binds society together:

“Men, though naturally sympathetic, feel so little for another, with whom they have no particular connexion, in comparison of what they feel for themselves; the misery of one, who is merely their fellow-creature, is of so little importance to them in comparison even of a small conveniency of their own; they have it so much in their power to hurt him, and may have so many temptations to do so, that if this principle [of justice] did not stand up within them in his defence, and overawe them into a respect for his innocence, they would, like wild beasts, be at all times ready to fly upon him; and a man would enter an assembly of men as he enters a den of lions.” –Adam Smith, Theory of Moral Sentiments


Welfare to Work

A program designed to get welfare people off of welfare. Participants are required to meet certain conditions in order to receive welfare benefits. A U.S. program that ended September 2004, the hope was to minimize the poverty trap.

When people are paid not to work, they have little incentive to get off the couch and get a job. As it turns out paid leisure time offers a lot of utility.


Windfall Gains

Cornucopia (meaning abundant, overflowing supply…get this word in your vocabulary) of unexpected income. Lottery winnings or unexpected inheritance are prime examples; time to double down on eleven and let it ride.


Windfall Profit

Cornucopia of unexpected profits; famously used by politicians to describe oil profits. What defines a profit as “unexpected” is fairly mysterious. If anything oil profits are very expected. Global supply of oil is largely manipulated by OPEC and energy companies can cut refining capacity at any time. I’d expect oil profits for a long while.


Winner-Takes-All Markets

You play to win the game. If you don’t like it go play intramurals, brother. Go play intramurals.

Earnings in these markets are driven by relative performance, not by hour’s worked or stand-alone individual productivity. It isn’t uncommon in the financial industry to find compensation structures with huge bonuses for outselling fellow employees.


Withholding Tax

Income taken by the government before you even see it. From a taxpayer’s perspective you shouldn’t allow government to withhold earnings from dividend, interest, or job income. Instead, take all of your earnings, place it in a savings account, and let it compound interest until tax time. Only then should you fork over your tax burden. By allowing government to withhold income you give them a zero-percent loan. The tax refund that gets you so excited is actually money they never should have had and were able to use at no cost. Well, at cost to you. Opportunity cost to you.

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