Because of factors effecting supply, according to this BBC clip
Because of factors effecting supply, according to this BBC clip
Good data on
This morning’s headline on BBC Breakfast was the news that yesterday RBS raised the interest rate on three of its mortgage products by a quarter of a percent to 4%. Three days ago the Halifax wrote to its mortgage holders saying that it intends to raise the cap on its Standard Variable Rate (SVR) to 3.75% above base rate, rather than the current 3%. As the Telegraph reports, although this doesn’t guarantee that Halifax would raise the rate itself, brokers”… believe otherwise and suggested that this would soon happen for a million Halifax borrowers” – and the BBC are now reporting an expectation that the Halifax will announce a rise in the SVR with effect from 1st May. For A level economists this story has several implications.
The first is clearly in macroeconomics, with the likely effect on consumer spending. We know well how squeezed consumers are, with rises in fuel and food prices, and the Bank of England has regularly expressed the importance of keeping base rates low in order to allow households to keep their heads above water. For mortgage holders with an interest-only mortgage, the RBS rate increase represents a 14% increase in their monthly mortgage payment – highlighted in this BBC video report.
The second concerns kinked demand curves and game theory. We have already seen RBS actually raising their rate and a likelihood that Halifax are about to do the same. Stuart Gregory from Lentune Mortgage Consultancy, who used to work for Halifax, told the Telegraph he expected to see a “chain of events” whereby other lenders also increased rates. “Once one does it, the others see it as an opportunity,” he said. This sounds like oligopoly behaviour to me. Mortgage lenders have all held their rates low for almost three years since Base Rate sunk to 0.5% in March 2009. This could be because, in close competition with each other, they have been stuck on the apex of a kinked demand curve, not feeling that the market would allow them either to raise rates and increase their returns – perhaps because competitors would not follow suit, and in any case their clients couldn’t afford the repayments – or to lower rates and try to gain larger market share – perhaps because they can’t afford the lower margins.
But something must have changed to cause RBS and Halifax to risk moving away from the established position, and guess that others will follow suit. There is certainly no signal from the Monetary Policy Committee or the Bank of England, who are more inclined at the moment to give the impression that 0.5% remains set in stone. The justification given by RBS is a rise in their borrowing costs. Partly due to rises in the LIBOR rate – as this graph shows, there may be some justification for this as there was a significant rise between November 2011 and the end of January 2012, although it has fallen back a little during February.
A second reason may be that savers are becoming more savvy in moving their funds between banks and accounts in order to seek the best possible rate, squeezing the margin between the rate that banks pay to savers and charge to borrowers – a new paradox of thrift. And a third was suggested by Paul Lewis on the BBC this morning; could it be that base rate, stuck so low for so long, is losing its power as a signal to other banks, who see official monetary policy as increasingly disconnected from the real world?
Dr Suess’ “The Lorax” has been a staple video of mine for a long time when teaching the market failure topic – there are numerous examples of negative externalities of production (and consumption), all set to music. Now a movie length version has been released in the USA and will follow in other markets around the world over the next couple of months.
The traditional interpretation of the book (and the original cartoon version which is very faithful to the book) is that it is a warning against greed and the pursuit of profit and the destruction of the environment that follows. The movie version has come under criticism from both sides, with environmentalists thinking that these principles have been watered down, with Mazda using the movie to sell SUV’s. Others think that it is anti big-business propaganda from the environmental movement, aided by Hollywood liberals.
Five different interpretations of The Lorax can be found here.
My interpretation that I give to my students is slightly different. After discussing with the students the things that they can think of that the government does, I tell them that we are going to watch a short video that shows what our country would look like if we had no government. After watching it we talk about the role of the government to establish and enforce property rights. If no-one owns the land and other resources then negative externalities and a “tragedy of the commons” effect is very likely. We then try and identify all of the negative externalities shown.
My students now want to do a class trip to see the movie….we’ll see!
An interesting article from Freakeconomics worthy of some ‘air time’ in any discussion of the wealth effect. A great evaluation point when analyzing consumption within the AS/AD Model.
From the BBC
a) Assess how much of a problem unemployment is for the UK in the light of the data
….according to this clip from the BBC
a) Using the list of the determinants of demand, explain the increase in demand for nail bars
….has returned to Ireland with a vengance according to Aljazeera
…..according to the BBC
a) Using demand diagrams and the list of determinants of demand, explain the changing demand for biscuits in the UK
……according to the BBC
a) What are the negative externalities experienced on the road and by who?
b) What actions have already been taken to reduce the negative externalities and how successful have they been?
c) Assess the likely success of the new proposals
Great data from tutor2u
a) Using S&D analysis, explain the difference in these wage rates
A summary of the highest and lowest paid jobs in the UK labour market can be found here. I often use this data and resource links as starting points for discussion introductory labour market economics for EdExcel Unit 1 and it might also be handy for AQA Unit 3 economics.
Median Gross Weekly Pay (£s)
1 Directors and chief executives of major organisations 1,955.9
2 Aircraft pilots and flight engineers 1,437.3
3 Senior officials in national government 1,408.9
4 Medical practitioners 1,289.5
5 Air traffic controllers 1,168.2
6 Police officers (inspectors and above) 1,122.6
7 Financial managers and chartered secretaries 1,086.7
8 Brokers 1,073.2
9 Managers in mining and energy 1,038.3
10 Public service administrative professionals 941.5
Median Gross Weekly Pay (£s)
1 School mid-day assistants 233.3
2 Waiters, waitresses 244.8
3 Hairdressers, barbers 245.9
4 Bar staff 248.5
5 Kitchen and catering assistants 251.5
6 Launderers, dry cleaners, pressers 257.6
7 Retail cashiers and check-out operators 262.7
8 Floral arrangers, florists 265.0
9 Playgroup leaders/assistants 265.3
10 Leisure and theme park attendants 265.8
UK earnings data for 2011
Median gross annual earnings (£) 26,244
Median gross weekly earnings (£) 500.7
Median gross hourly earnings (£) 12.71
Male Median gross annual earnings (£) 28,409
Female Median gross annual earnings (£) 22,910
Male Median gross hourly earnings (£) 13.23
Female Median gross hourly earnings (£) 11.92
Median Gross annual earnings (£)
Industry sector 2011
Accommodation and food service activities 16,141
Agriculture, forestry and fishing 20,075
Wholesale and retail trade; repair of motor vehicles and motorcycles 20,400
Arts, entertainment and recreation 21,178
Human health and social work activities 24,554
Real estate activities 25,071
Transportation and storage 26,239
All industries and services 26,244
Professional, scientific and technical activities 32,277
Information and Communication 35,028
Financial and insurance activities 35,697
Electricity, gas, steam and air conditioning supply 36,202
Mining and quarrying 41,023
Reducing the pay gap in companies
Preparations are well underway for our series of A2 macro revision workshops at different locations in the UK and overseas during March and April. Bookings can still be made using this link
There are five main sessions during the day
1 Prospects for the UK Economy
2 Monetary and Fiscal Policy Economics
3 Trade Imbalances and Exchange Rate Economics
4 The Euro Zone Crisis
5 Session Focusing on Exam Technique
Great video from the BBC evaluating the likey success of the “no selling alcohol at below cost price” measure due to be introduced soon
The AS Macro (Unit 2) Revision Workshops are just a few weeks away and preparations are in full swing for the series of events in our UK venues and also in Spain (Madrid) on April 13th. The day is split into five sections.
1 Recession and Recovery – Understanding the Economic Cycle
2 Inflation and Unemployment – Conflicting Objectives?
3 Monetary Policy and Economic Performance
4 Fiscal Policy and Supply-side Policies
5 Special session on Exam Technique in AS macro
Bookings can still be made using this link
Much of the stuff written about Greece over the last months has accused the Greek people of all kinds of things – living beyond their means, failure to pay taxes, and laziness among others. Recent OECD data, used by Tim Harford in More or Less on Radio 4 (link to the podcast here), suggests that Greeks are not lazy – they actually work longer hours per person than any other European country. However, analysis of the figures a little more depth, which GDP per worker, when it is used as a measure of productivity, putting Greece almost at the bottom of the table. The data (more detail in the article here) does come with a health warning, as unlike figures such as CPI or LFS unemployment it is not collected according to agreed international methods but by individual national statistics authorities. However, it could be useful for students to analyse likely reasons for the difference in number of hours worked and productivity between countries such as Germany and Greece.
The UK comes a rather mediocre 14th in both tables, by the way.
We have followed Stephen Stubbs on the economics blog before. This committed man from the north-east of England has been out of work for more than a year and had filed nearly two thousands job applications in a concerted and lengthy pursuit of a fresh job. What marvellous news it is that he has found work with the student loans company. Here are two videos that tell the story of his long and difficult pathway to finding new work.
The rise in long term unemployment
The search for work
Here is a selection of short news video resources on trade unions in the UK
BBC news – Feb 2012: Are we seeing a return to trade union militancy?
BBC News: 1984 Archive: Orgreave picket
A look back to the Miners’ Strike of 1983-84 and the infamous confrontation at the Orgreave Coking Plant- click here
I am teaching trade unions as part of our study of labour markets in the UK and the rest of Europe. This data from Timetric tracks the number of days lost from industrial disputes / stoppages and is always useful in providing historical context. Data on UK trade union membership can be found here
* Trade union density for employees in the UK was just 26.6 per cent in 2010
* Trade union membership levels for UK employees was 6.5 million compared with 2009. Across all sectors of the economy, just under half of UK employees (46.1 per cent in 2010) were in a workplace where a trade union was present
* The hourly earnings of union members, according to the LFS, averaged £14.00 in 2010, 16.7 per cent more than the earnings of non-members (£12.00 per hour)
Includes working days lost, stoppages and workers involved
Number of stoppages
Here is a one minute news clip packed with nuggets of good business economics. Profits have more than doubled at German car-maker Volkswagen after the company delivered a record number of vehicles last year. It delivered more than 8.2 million vehicles, up almost 15% on 2010. Listen and watch for information on their acquisitions and competitive strategy especially when targeting fast growing markets in emerging economies especially China, India and Brazil.
Here is a lovely three minute Newsnight video featuring Hans Rosling on the convergence in income per capita and health outcomes between China and the UK. Great presentation.
The award-winning journalist Paul Mason provides this video report on low pay for hundreds of thousands of people who work for the big four supermarkets. I use this video when teaching monopsony power in the labour market. For many people, supermarket workers’ wages are being supplemented by state benefits such as child tax credits
In a related issue, Channel 4 news reports on Tesco buckling under pressure over its use of unpaid work experience staff – and announced they will now be paid – unlike the government’s work experience scheme
A fortnight ago I spoke at an event organised by the Government Economic Service and the Bank of England on the teaching of Economics in schools and universities.It was a really interesting day and in this article Diane Coyle, Managing Director of Enlightenment Economics draws together many of the threads of discussion and debate. I’ll be writing up my own commentary after the weekend.
Rugby League legend Kevin Sinfield and Leeds Rugby CEO Gary Hetherington are speaking at the Eton College Sports Society on Monday 27th February starting at 8.40pm. If anyone is in the vicinity and would like to come to the meeting please feel free to do so. Entry is free, please contact me if parking is needed. It should be a great chance to discuss the business of professional rugby in one of the toughest sports in the world.
Karan Bilimoria, Founder of Cobra Beer is speaking at the Eton Entrepreneurship Society on Thursday 1st March starting at 8.40pm. If anyone is in the vicinity and would like to come to the meeting please feel free to do so. Entry is free, please contact me if parking is needed.
Thanks for tutor2u for pointing me in the direction of the ONS video channel
This is really good on youth unemployment
a) How much of a problem is youth unemployment in the UK?
Another great piece of work by the team at the Guardian here using Xtranormal. This one tries to explain the current situation regarding the Greek debt deal. Is it over? Sorted? maybe not…
Economics is a social science involving the study of human behaviour. we know that binge drinking is an economic and social issue that probably requires a range of policy interventions to address effectively over time. This BBC news magazine article offer ten policy prescriptions – students can easily add to the catalogue – but provides a really good example of how to build good evaluation into an AS micro market failure / government failure question.
The Confederation of British Industry is a lobbying organisation and seeks to promote and protect the interest of many of the UK’s leading businesses across manufacturing and services. Ahead of the March Budget, their head John Cridland argues in this video for a series of targeted tax cuts as a stimulus for the economy. This is worth watching to get a feel for what are the priorities of business at this stage of the cycle. How much different would it be if the interviewee was representing the trade unions?
It is over five years since the publication of the Stern Report and much has happened in the intervening period. Stern however was at pains to emphasise that his core message remained undimmed, namely that the costs of inaction are enormous but the costs of early action to cut emissions are manageable. We have seen in recent years rapid technological change much of which is hugely encouraging in taking us closer to de-coupling the relationship between production and consumption and carbon emissions. But more is needed, Stern is arguing in these three lectures for a new industrial revolution, a deep set of changes to production processes and technologies that happens across every sector. The economics and politics of how progress might be made in moving towards a new revolution will be the focus of the second and third lectures.
LECTURE 1 – Tuesday 21 February 2012
What we risk and how we should cast the economics and ethics
LECTURE 2 – Wednesday 22 February 2012
How we can respond and prosper
LECTURE 3 – Thursday 23 February 2012
How we can get there: building national and international action
In the first lecture Lord Stern reviewed some of the science of climate change, he addressed those who remain in denial and touched briefly on the vexed on the issue of discounting the future benefits arising from climate change interventions.
The science tells us a lot about the link between changes in the flow and stock of emissions and the likely changes in average temperatures. There is a clear trend in temperature but lots of oscillations, and whilst uncertainty is fundamental and we can never be sure, he argues that
(i) The the scale of the likely effects are enormous
(ii) The time lags are long
(iii) The consequences are public - the effects of climate change are blind to where the emissions are generated and the wholly public nature of emissions-related carbon change is now well understood around the world, especially in countries where the impact is being seen now in increasingly volatile weather patterns.
To hold to a 50-50% chance of holding the rise in average global temperatures to 2 degrees centigrade, we need CO2 emissions to peak and start falling rapidly before 2020.
There are big dangers in delaying not least because holding to existing technologies and processes are likely to lock-in up the majority of hydrocarbons and make any attempt at cutting the stock of emissions difficult and costly in the future.
As social scientists we must not be afraid of bringing our core values to the fore when thinking about policy options and policy architecture. The ethics and the economics of climate change are intertwined and will always be so. The issue raises all kinds of ethical debates, for example the rights of future generations and their ability to enjoy liberty and justice. The question of how a virtuous person ought to behave. And also the vexed issue of intra-generational equity across countries.
Stern argued that rich advanced nations have duties and responsibilities. It is immoral for countries with high per capita incomes to deny rights to the remaining carbon space (the scope for the annual flow of emissions to rise without jeopardising a target for the overall stock of emissions) to those in emerging / developing lower-income countries.
Stern’s review came under criticism from some quarters about the low discount rate chosen for calculating the present value of the benefits of climate change policies whose impact will be many years into the future. He argued in his lecture tonight that the debate over the discount rate essentially diverts attention away from what really matters which is that we are dealing with risk management and effects that could have catastrophic human, economic, social and political consequences for many millions of people. Those who come after us are worth just as much as we are. We need to make long-term collective decisions and there are few if any market interest rates (set in capital markets) that capture the risks and uncertainties for a time frame that is a hundred or more years into the future.
Economic growth will not be positive if we mis-manage climate change. There is a strong probability that the next generation will be poorer than the current one not least with the fragilities laid bare but the continued fall-out from the global financial crisis.
The scale of emissions reduction needed
* The world is currently emitting around 50 billion tonnes of CO2 each year. Even with all of the commitments and plans for action made at Copenhagen, Cancun and Durban at previous summits it is likely that this annual flow of emissions will plateau (developed country emissions falling, fast-growing emerging countries seeing their emissions rising as consumption grows).
* If the world economy grows at an annual rate of 2.5% for the next forty years, this implies a world economy nearly three times bigger than it is now
* We need to cut emissions per unit of output by a factor of eight – this requires an industrial revolution and you cannot leave sector out
* This industrial revolution needs strong policy interventions to nurture it and to correct for the many market failures. Investment in low carbon technologies and processes might have to grow by 2 or 3% of global GDP, and the majority of this will come from the private sector, we can see already many firms taking a very long view.
We should not simply focus on improving energy efficiency (although this is important and can be done at a relatively low marginal abatement cost). We should also look seriously at ways to reduce consumption and change the pattern of consumption on different goods and services. Just stopping economic growth does not deliver the deep cuts in emissions that are needed.
Emissions trading has a role to play. The current low price for carbon credits within the European Union emissions trading scheme is not surprising if you have macro policies sending the EU into a state of semi-permanent depression whilst at the same time national governments hand out carbon credit quotas that pretend the EU economy was continuing along previous growth trajectories. Some intervention is justified to support the carbon price because it is confidence in the price in a market-based mechanism that drives investment
Developing countries leading the way
Growing evidence that many less developed countries see low carbon technologies as offering huge opportunities for growth, development and over-coming poverty. They are likely to lead the way not least in disruptive innovations that can then be licensed and sold to rich nations!
Two excellent posts from tutor2u, the first with 10 posible solutions to evaluate and the second with some moreinformation on actions already tried
which appears to be a summary of theis BBC article
http://www.bbc.co.uk/news/magazine-16466646 and then
Most governments have used a combination of policies with varying levels of success. One policy option is the use of variable rates of Excise Duty. The March 2011 budget resulted in a rise in the duty on strong beers (above 7.5% alcohol) of 25%, and the duty on weak beers (below 2.8%) cut by 50%.
The excise duty changes in The 2011 Budget were to tackle problem drinking by encouraging industry to produce, and drinkers to consume, lower strength beer. HMRC believe that there would be some unstated long term health benefits as a result of the change.
The Scottish Government and pressure groups have proposed a minimum price system, which might make a pint of beer at least £1.25 and a bottle of wine £5. This could affect low-cost retailers and some supermarkets but few pubs. Opponents of this measure imply that unintended consequences might be smuggling or the production of counterfeit drinks, and the loss of revenue for the UK government.. Consumers can still travel to France, load up a van or car with as much alcohol as they want.
Some US states have a legal drinking age in of 21. A higher minimum age, might make it easier for pubs to police under-age Yet Alcohol Concern, a pressure group, agrees but says it would be politically impossible to raise the drinking age. One thing to bear in mind is that laws need to be enforced to make them effective and to achieve the goal of lowering the consumption of demerit goods. Few off-licences and pub licensees appear to prosecuted for selling to under 18s.
In parts of Canada, and Sweden, drinkers only buy alcohol from state-owned shops. This may prevent impulse buys during a visit to a supermarket. But this might be a radical measure too far to gain support from free market Conservative MPs in The UK Coalition Government.
Politicians wanted encourage the drinks industry to support the Drink Aware Campaign, but were aware that this can lead to lower sales and profits for the drinks manufacturers. There was a potential conflict of interest, and some might wonder if the firms would really back it. A voluntary code of practice might be seen as a the lesser of two evils, as some medical pressure groups and politicians have introduced outright bans on tobacco advertising, and advocate a similar prohibition for alcoholic drinks.
Others are content to see government intervention on labelling drinks bottles, all now carry health warnings and state how many units of alcohol they contain, but as The House of Commons Select Committee observed in December 2011, “the pharmacological properties of alcohol…include loss of inhibitions in the short term and dependence in the long term, make it impractical to rely on a ‘nudge’ framework of ‘rational man making informed decisions’ about drinking alcohol to effect behaviour change.”
The House of Commons Select Committee questioned the effectiveness of existing Government Information on Alcohol, and suggested that campaigns focused on the short term acute risks associated with individual episodes of heavy drinking and (ii) the longer term chronic risks associated with regular drinking. (Do you want to end up like Father Jack Hackett?)
The MPs also wanted to highlight situations where it is not appropriate to drink at all, for example while operating machinery, and perhaps change the focus of Government Information Campaigns.
Last week David Cameron called binge drinking a “scandal” and referred to the negative externalities that are incurred by 3rd parties – in this case the NHS, to the tune of £2.7bn a year. He pledged to introduce drunk tanks whilst there are plans for a minimum price for alcohol.
The BBC website today has an excellent article that would be an excellent starting point for a discussion on the ways that the government might intervene to correct the market failure arising from the negative externalities associated with binge drinking. The 10 ‘radical solutions’ mentioned in the article are:
1. Subtly make drinks weaker
2. Enforce a minimum price for alcohol
3. Get people back into pubs
4. Raise the legal drinking age
5. Nationalise off-licenses
6. Discourage rounds
7. Ban alcohol marketing
8. Target middle class professionals
9. Not in front of the children
10. Stop exaggerating the problem
This would be an excellent opportunity for students to apply these ideas to the problem of binge drinking and practice their analytical and evaluation skills. Whilst reading the supporting paragraphs in the article for each suggestion you may wish to consider the following:
a) Using economic terminology and diagram analysis, how would each of these options reduce the market failure associated with binge drinking. How might each option affect private costs and the amount of quantity demand / quantity supplied of alcohol?
b) How effective would each option be? Can you spot any problems with each method? Would each option achieve the desired outcome?
A good way to approach the evaluation of each option might consider the WEESTEPS approach to evaluation highlighted in Jim’s blog
…….as got worse says
a) Using the “evaluation ” criteria we have gone through, comment on how much of a problem this deficit is for Japan
Exclusive news of a temporary teaching opportunity to work alongside the superb Econ team at Oundle…
An excellent opportunity to join the economics team at Oundle School, with Mo Tanweer (Head of Department and tutor2u presenter/blogger) and Andrew Ireson (tutor2u presenter). Details below.
TEACHER OF ECONOMICS – MATERNITY COVER FOR 7 MONTHS
- For September 2012 we are looking for an enthusiastic graduate teacher of Economics who has a real passion for the subject to become part of a friendly team, to provide maternity cover for 7 months – September to March.
- Currently in a department of four, Economics is a popular and growing subject with approximately 110 pupils across the Sixth Form opting for the subject.
- We offer the choice to pupils to pursue either the Edexcel A-level syllabus or the Pre-U qualification.
- In 2011, 80% of candidates gained an A* or A grade at A2 level.
- There is a healthy level of extra-curricular economics activities, with active Junior and Senior Economics Societies which allow the pupils to experience the subject well beyond the confines of the curriculum.
- The successful applicant will be innovative, competent in the use of ICT, and willing to embrace the use of technology to aid learning. The successful candidate will have a real enthusiasm for, and interest in, the subject which will inform their teaching.
- Oundle School has its own salary scale.
- Accommodation may be available.
- Please contact Mo Tanweer at MT@oundleschool.org.uk if you require any further information about the vacancy.
- You can visit the School’s website at www.oundleschool.org.uk to learn more about the school.
- Closing date: 1st March 2012.
- To apply for this vacancy, please complete the application form here: http://www.oundleschool.org.uk/about/vacancies/index.php and send your CV and letter of application to: Mrs Tracy Heath – PA to the Deputy Head; Oundle School, Brereton Rooms, Church Street; Oundle, Peterborough PE8 4EE
Here is a new macroeconomic board drawing together news flow on key developments in the European Union economy as the continent struggles to overcome the financial, political, economic and social crisis: Pinterest European Economy Board
Here’s 10 examples of people in the US who once found their skills in great demand but for various reasons once the bubble burst they have found it impossible to find work again and so join the increasing ranks of the long term unemployed.
It’s useful for students to understand that it is not just factory workers who are losing their jobs in droves and the social problems that arise the longer people remain out of work afflict everyone regardless of qualifications and experience. One lady, who suffers from panic attacks, talks about how she used to have to turn down jobs, “When things were good, she worked at some well-known firms in New York’s Financial District, including Lehman Brothers, yet no one will hire her now because she isn’t as young as the new college graduates.”
I often use the Tees Street Isn’t Working series from the 80s recession (part one below) to illustrate the effects of long term unemployment and also Geoff’’s more recent post on this topic with video resources found here.
This is a remarkable video featuring Geoff McCormick, director of UK design firm The Alloy that looks inside an iPhone at the component parts. Each and every iPhone contains thousands of patented components, ideas, designs and processes. Fantastic when teaching about the economics of intellectual property and the patent wars dominating the courts.
Not according to this BBC Panorama video
Paul Ormerod blogs here about the growing academic interest in cooperation between businesses and within our economic system. Our discipline will move towards embracing cooperative strategies between agents in markets because often it provides a way to reduce the fragility of businesses and economic systems in an age of systemic shocks and threats. Paul links to another really interesting blog by Ed Mayo.
For those of you who missed this week’s panorama “Poor America” it is well worth 30 minutes of your time. Students often assume that a high GDP per capita always leads to the good life for all- this programme highlights inequality well.
Video clip: Poor America: ‘Some kids are making ketchup soup’
The Panorama programme on America’s poor is available to view for the next 12 months – click here
The programme fits in well with both macro and micro – There is also an excellent part looking at the effects of hunger on student, which could be used for business as an example of Maslow.
I plan to get students to first find the following from the CIA web site
There are some fantastic statistics given in the programme which students can spend some time with; such as the cost of a hernia operation in the US- Students may want to look at the cost of a similar operation in the UK (The best source I could find was http://www.privatehealth.co.uk/hospitaltreatment/whatdoesitcost/hernia-surgery/) suggesting a maximum cost of £380)
I am glad that I remembered to record it!
Real Gross National Income per capita in the United States
Per capita incomes and unemployment in the USA
In the last twelve months two huge discoveries of natural gas have been made in the East African country of Mozambique. The latest – a deepwater discovery – is said to hold over 210 billion cubic metres of natural gas and investment in exploiting the field could be the major cataylst for a rapid phase of growth and development for one of the world’s poorest countries. The country has large untapped oil, coal and titanium reserves in addition to the gas. According to the UK Trade and Investment body, within 15 years Mozambique could be Africa’s second largest coal producer (after South Africa) and one of the largest coal exporters in the world.
Can it benefit in a sustainable way from exporting these resources or will they prove to be a curse on development?
For many years Mozambique has been afflicted by a brutal civil war which ended in 1992 and then a series of natural disasters including floods in 2001 and 2001 which destroyed much of its infrastructure.Floods were replaced by a calamitous drought in 2002 but more recently the economy has achieved strong growth and progress in lifting people out of absolute poverty. That said, 50% of Mozambicans living on less than $1 a day, foreign aid accounts for nearly half of government spending and there remain severe doubts about whether the dividends of an export-boom in natural resources will feed through the the majority of the population.
The Mozambique government has a 10% stake in the newly-discovered gas fields, it sold a licence to the Italian company Eni to explore for new gas reserves and Eni has committed to building a multibillion-dollar liquefied natural gas terminal in the country as a distribution platform to export mainly to fast-growing Asian economies.
Other transnational companies are investing in Mozambique. Vale, a Brazilian multinational is spending over $3 billion to rebuild and extend the 425 mile Nacala railway and connect it to a deep water port so that Mozambiquan coal can be exported.
Putting the infrastructure in place will take several years and gas production on a huge scale may not start before 2016. Although new industries brings risks as well as opportunities, the potential for a step change in development in the country is enormous.
Progress in raising per capita incomes
Exports as a share of GDP and debt interest payments as a percentage of export values
Video Resources: Doubts over equality in Mozambique’s coal boom
Riots over food price hikes in Mozambique
Poverty at $2 a day (PPP)
Question six in this year’s competition is likely to prove highly popular. “‘Is austerity the best way out of the debt crisis?”. Just to clarify for students already engaged in research for this question, the answer does not have to be specifically related to the UK but it would be fine to focus on the UK. The debt crisis extends to many parts of the world economy and students are free to adopt any approach they choose. The judges will always credit an interesting and relevant approach to the question drawing on debt issues facing one or more countries.
At the World Traders’ Tacitus lecture last night, Terry Smith proposed a return to the provisions of the Glass-Steagall Act in order to reform the banking sector. The title of his lecture was ‘Is Occupy right?’, and while he clearly didn’t go along with some of the propositions of the Occupy movement, such as the imposition of a financial transaction tax, he did say that they have a serious point to make about the financial system.
The Glass-Steagall Act was passed in the US in 1933 as a response to the 1929 Stock Market crash, the failure nationwide of commercial banking, and in midst of the Great Depression. At the time, “improper banking activity”, or what was considered too much risky commercial bank involvement in stock market investment, was deemed to be the main culprit of the financial crash. The act therefore set up a firewall between commercial banking and investment activities, with controls imposed on both. Does this sound familiar? Take a look at the proposals of the Vickers Commission in the UK and the Volcker rule in the US, and you will find that ironically regulators are looking at bringing in very similar controls now, in order to prevent another crash like that of 2008.
These re-imposed controls are needed because Glass-Steagall was repealed in 1999 during Bill Clinton’s presidency. For more than six decades it had provided a framework that had governed the functions and reach of the nation’s largest banks. The Act was repealed, as a move to liberate financial markets. It was called the ‘Financial Modernisation Act’, was passed by 90 votes to 8 in the US Senate and was hailed as the most important breakthrough in the worlds of finance and politics in decades. However it caused great concern among some economists about the implications of creating banking institutions which were too big to fail.
The Huffington Post reports some of these concerns. Edward Kane, a finance professor at Boston College warned against this move in 1999 and ten years later said “It made it possible for the very big firms to take risks in a way that would require a great deal of investment risk and time for regulatory agencies. You had people who could basically outplay the regulators.” Jeffrey Garten, who at the time had left his post as Undersecretary of Commerce for International Trade at the Clinton White House, wrote in the New York Times that if these new “megabanks” were to falter, “they could take down the entire global financial system with them.”
Prescient words, which suggest that removals of regulation created the opportunity for sub-prime lending and the intricate web of credit swaps and other obscure financial instruments which led to the crash and credit crunch. Mr Smith suggested that Big Bang in the UK in 1986, which scrapped fixed commissions on Stock Market deals and made London a more competitive location for trading, created conflicts of interest between brokers and clients, which contributed to the same effect. He also referred to the bonus culture, which doesn’t evenly share the downside risk of bad deals, and to the fee structure in hedge funds which doesn’t allow a fair sharing of the upside risk but passes on to the client all of the trading fees, but only a proportion of the profit.
His conclusion was that yes, Occupy is right to say that the markets need harsh reform. But his view was that, within new regulation, they need to be more free – with the freedom to fail as a result of Creative Destruction in markets, without the need to be bailed out because they are too big and too complex.
Here is a link to information about two talks which have just been added to the LSE’s programme. The first is on Wednesday 29th February at 5pm; the Czech Prime Minister will be talking about potential solutions for Europe to restore growth and create jobs, and the untapped potential of the Single Market. The second is on Tuesday 3rd April at 6.30; Newsnight’s Paul Mason will be interviewing the ‘radical economist’ Professor Steve Keen who believes that “If we keep the parasitic banking sector alive, the economy dies”.
Both sound like excellent extension opportunities for keen students. They are free and open to all but you do need to apply for tickets; follow links from the LSE link above to apply for them. For those who are unable to get to the LSE to attend them, they are likely to be available as podcasts later; again follow the link above for details.
The workshop booklets and supporting materials for the intensive one-day revision workshops are now on the way to the printers! We have been really busy this week finalising our programme of revision exercises and updates for both the AS Economics and A2 Economics workshops, which for Spring 2012 have a macroeconomics focus.
The session titles are outlined below. Bookings can still be made using this link
Please note that we permit Year 13 students to attend on their own (or in small groups).
Session 1: Recession and Recovery – Understanding the Economic Cycle
Session 2: Inflation and Unemployment- Conflicting Objectives?
Session 3: Monetary Policy and Economic Performance
Session 4: Fiscal Policy and Supply-side Policies
Session 5: Exam Technique in AS macro
Session 1: Prospects for the UK Economy
Session 2: Monetary and Fiscal Policy Economics
Session 3: Trade Imbalances and Exchange Rate Economics
Session 4: The Euro Zone Crisis
Session 5: Session Focusing on Exam Technique
Please note that we normally receive a significant number of new bookings in the days immediately after half-term. So please contact us as soon as possible to arrange your places.
Joe Lynam reports for BBC Newsnight on prospects for the UK economy – an excellent short feature on attempts to grow the economy and achieve a re-balancing towards exports and investment. See also BBC news: Bank of England says UK economy ‘to zigzag’ this year
Here are some notes from watching and listening to the Bank of England Inflation Report press conference. As always there was much for students of macroeconomics especially those keen to pick up some of the key thoughts of policy makers as we strive to achieve a sustained recovery.
King said that recovery in the UK will eventually be driven by rising real incomes and a pick-up in capital investment but the biggest risk remains economic and financial instability in the Euro Zone where a number of countries continue to suffer from a structural lack of competitiveness, high government debt and financing difficulties.
Questioned on a possible Greek default, King remarked that both the BoE and the Govt have considered a range of possible outcomes and made contingency plans. Many large UK banks are exposed to the real economy of the fragile Euro Zone economy rather than to Euro Zone sovereign debt.
“We are steering a course through choppy waters but we are aware of the fact that people are facing painful times – the consequences of the adjustments made inevitable by the financial crisis and the need to rebalance the economy.”
“We all want to return to a world of steady growth, inflation close to target and normal interest rates will take time. There is a limit to what monetary policy can achieve when real economic adjustments need to be made.”
Weak money and credit growth
There has been a noticeable and significant fall in the growth of money and credit – this is inevitable in a “balance sheet” recession resulting from a financial crisis where lenders are engaged in de-leveraging (i.e. cutting their loan books and tightening the supply of new loans to personal and business customers)
One of the main objectives of asset purchases (QE) by the Bank of England is to inject more money into the economy. But will fresh credit get to small businesses in the economy? Credit conditions if anything are still tightening for small businesses. Net lending to small businesses has fallen quarter by quarter in 2011.
In 2012, big businesses can borrow money more cheaply than our biggest banks- they are much less affected by the de-leveraging occurring in the banking system. Banks are still trying to strengthen their capital position in order than they can borrow more cheaply from the capital markets. In the long-term this will help small businesses but provides a problem in the near-term. The national loan guarantee scheme is a way forward, how quickly can it be set up?
The Bank of England will not buy assets other than gilts in QE programme as that would be a public sector subsidy, which is matter for the Government not the central bank
Diminishing returns to QE programme?
Any monetary policy easing can exhibit a limit to how far it can go. Monetary policy at the moment is trying to nudge people to bring forward their spending e.g. from next year to this year. But confidence is low and an impaired banking system constrains the effectiveness of monetary policy
The position of savers
Ultra-low returns on savings deposits and the growing impact of QE on pension scheme deficits and annuities beg the question about whether it is worth saving at the moment? The evidence is that household saving in the UK has gone up despite negative real returns on deposits, this is a sign of wider economic weakness and desire to repay debt
A return to normalised interest rates of say 4 or 5% might on the surface provide some relief to millions of hard-pressed savers, but a quick return to normal rates would also cause asset prices to fall, a sharp appreciation in the exchange rate and an almost guaranteed recession in which everyone is worse off
King reflected that all groups in society are suffering from the consequences of the financial crisis – an example of the externalities of financial collapse. He believes that the UK has put in place conditions to make the necessary real economic adjustments
1. Credible fiscal plan to bring down the budget deficit
2. 25% fall in exchange rate without a rise in wage inflation allowing the real exchange rate to fall
3. Historically large easing of monetary policy including QE
He reminded those there not to underestimate the impact of the automatic stabilisers – an important part of fiscal policy – they are more potent in the UK than in other nations. And looking to medium-term adjustment and re-balancing of the economy, it is particularly valuable to bring in supply-side reforms to raise productivity – it will raise higher future incomes which will help address the debt overhang. Which supply-side reforms will best support the growth agenda?
The Bank of England says UK inflation will reach 2% target by end of 2012 before falling as low as 1.5% in 2013. UK policy interest rates look to be on hold for the foreseeable future. We haven’t seen a rate change since the spring of 2009. What probability that interest rates will remain at 0.5% or at least 1% or lower when we head into 2014?
See also BBC news: Bank of England says UK economy ‘to zigzag’ this year