The economy seems set to emerge from one of the most substantial financial crises of modern times, the question of economic illiteracy among the general public seems a pertinent one. Would our financial system have faced such a crisis had the public understood basic economic theory?
One of the most emblematic signs of this crippling ignorance of economic reality can be seen in Gwen Stefani’s 2005 pop hit ‘Rich Girl’. Ms Stefani’s claim that “if (she) was a rich girl… then (she would) have all the money in the world” is an obviously fallacious one.
Yet, even if we are to take her refrain of “Na na na na na” as a signal that she is not speaking in total earnestness, the sentiments expressed expose a seriously flawed grasp on international finance.
Grant that Ms Stefani might have all the money in the world. This would, the barest of analyses reveals, have devastating effects: take world income Y as given by the identity C + I + G, where C is consumption, I is investment, and G is Gwen Stefani’s spending.
All would approach zero in Stefani’s scenario. Witness, then, a plummet in aggregate demand, followed by falling prices and halted production.
One might conceivably expect the deflationary trend to increase Ms Stefani’s real money balance, but wealth is contextual: and in precipitating a global market free-fall, Ms Stefani will see her hoardings reduced in utility.
She would then be anything but a rich girl.Perhaps the only effective way to demonstrate that pop can be financially responsible would be a track with a more fiscally prudent message – Britney Spears’ ‘Toxic Assets’, for example?