18 days left to the RES deadline!
Welcome to the merry month of May! Our email inbox is filling up nicely with essays submitted for the RES competition.
Sunlight is a great disinfectant
Who to blame? Who to target in the search for the culprits behind the great banking crisis which has mutated from a calamity in private sector credit and derivatives markets into a broader, damaging economic and social disaster. Playing the blame game is easier armed with the benefit of hindsight. But with each passing day it becomes clear that what we have seen is a multi-tiered case study in market and governing failure. Ordinary citizens — whose pensions and living standards are now threatened and blighted by the folly of financiers blinded by their own hubris and greed — will not easily accept that the current generation of leaders are the people to lead us out of this mess.
read more...»Russian economy in freefall
If you thought that the UK recession was bad enough, take a look at this new BBC news report on the economic decline of Russia. The lines for the soup kitchens are growing by the day, in the face of a forecast 6% decline in GDP during 2009.
Britain’s Debt Gatekeeper
Here is a timely interview with the person charged with finding buyers (both home and abroad) for the tsunami of government debt that will have to be issued in the coming years,
“As head of the DMO, Mr Stheeman, 49, is the gatekeeper of Britain’s ballooning public debt – all £1.4 trillion of it under the Treasury’s forecasts for 2013. It is his responsibility to make sure the money is raised both successfully and at the lowest possible price. He has never been so busy.”
HMV diversifies into cinemas
Here is a great example of business diversification and growth through joint venture. HMV is entering into a joint venture with cinema chain Curzon Artificial Eye to open a cinema called hmvcurzon above its Wimbledon store.
read more...»Thomson-Reuters and Bloomberg Duopoly
The Lex column in the FT today considers the outlook for the news wire services run by Thomson-Reuters and Bloomberg. I couldn’t function without my EcoWin service - it is invaluable to be able to call up data on virtually anything when teaching in the classroom or when preparing an article or student handout. The market for news wire services is basically an oliogpoly. And economies of scale really matter in this industry given the dominance of fixed costs in providing real time information services to subscribers. How will Bloomberg and Thomson-Reuters be affected by the downturn in the financial services industry?
Bloomberg has reported a fall in the number of Bloomberg terminal subscriptions - they are down by 2.5% from a subscriber base estimated at 300,000. Terminal sales account for about 85 per cent of Bloomberg’s revenues and each can be rented for $1600 a month!
In a world of great financial and economic uncertainty and incredibly heavy newsflow one might expect the demand for news wire services to be fairly recession resistant. But the collapse of many hedge funds and steep cutbacks in employment in other areas of financial services is having a negative effect on both news information companies. Is a price war in the cost of renting a terminal imminent? Or will the two giants continue to compete in non-price terms? The latter is more likely - just recently Bloomberg announced it has added Associated Press to its service - offering yet more breaking news for subscribers!
Top Ten Tips for OCR AS Economics
Many thanks to Tim Mason for providing this helpful guide for students ahead of their papers. Tim welcomes all comments especially from centres who are experienced hands at the OCR course! Please leave your comments below.
read more...»Q&A: Changes in pattern of national output
A student posts this question:
Sectoral contribution to the national income and employment have changed over a period. Explain in context of structural changes in economy.
Thanks for just posting an exam question! How imaginative! Briefly here are my thoughts:
read more...»Obama’s pledge on R&D
“I am here today to set this goal: we will devote more than 3% of our GDP to research and development,”
If Obama succeeds in his aim, the US economy will raise investment in research and development as a share of national income - AS students might consider some of the likely demand and supply-side effects of such an aim. A good article to use when teaching supply-side policies.
The UK of course is some distance below the US levels when it comes to research and development spending.
Tim Key - the Bankers Poem
Some strong language…..
read more...»Renting enjoys a new lease of life
What have you rented in the last year? A holiday cottage or perhaps an after dinner suit? Perhaps a marquee for a family event or an item of equipment for some landscape gardening. Renting rather than owning outright is an important economic choice - each decision requires a calibration of the private costs and benefits.
This BBC news video brings back memories - in the 1970s renting televisions was all the rage and a quick pop down to the Rediffusion store was as common as a trip for your weekly groceries.
In this harsh economic climate, there seems to be generalised shift towards renting rather than ownership - from televisions and power tools to personal accessories, from dvds to property. Demand for rented goods is growing and the choice of products available to lease is surprisingly wide! The Erento web site is mentioned - here is the link.
Passing the burden - Sainsbury’s and their suppliers
AS micro students grappling with their revision on government intervention will come across the issue of who ends up paying for an indirect tax. The conventional view is that a supplier faced with an excise duty or other tax can consider passing it on by raising the final price to the consumer. Price elasticity of demand and supply come into play in deciding who eventually bears the burden of an indirect tax.
Here is a slight twist. Sainsbury’s has written an email to their suppliers of alcholic refreshment more or less insisting that they aborb the recent hike in duty announced in Darling’s budget. According to a report in the Daily Telegraph:
“Duty – April 2009” sent to its beer and cider suppliers prior to the Budget, J Sainsbury said that it would be “replacing” any lines on June 1 “that we cannot maintain margin on” following the announcement of an increase.”
In effect - they are telling them to aborb the tax or risk being delisted by the supermarket. Given Sainsbury’s monopsony power it is clear where the balance of influence lies in the relationship. Is Sainsbury’s decision asymmetric? Did they pass on the 2,5% decrease in VAT to their drinks department customers last Autumn?
Chile - Mending the roof when the sun is shining
I have Dani Rodrik’s weblog to my list of regularly visited sites and his most recent post provides a super example of how a country can accumulate a fiscal surplus when macroeconomic conditions are favourable giving the government scope for an appropriate and sustainable fiscal stimulus in the face of global economic uncertainty and a downturn in commodity markets.
Notice from the chart above just how dependent is Chile on exports of copper
“Until the current crisis hit, Chile’s economy was booming, fueled in part by high world prices for copper, its leading export. The government’s coffers were flush with cash. (Chile’s main copper company is state-owned, which may be a surprise to those who think Chile runs on a free-market model!) Students demanded more money for education, civil servants higher salaries, and politicians clamored for more spending on all kinds of social programs. Being fully aware of Latin America’s commodity boom-and-bust-cycles and recognizing that high copper prices were temporary, Velasco stood his ground and decided to do what any good macroeconomist would do: smooth intertemporal consumption by saving most of the copper surplus. He ran up the largest fiscal surpluses Chile has seen in modern times.”
Recession cuts the US trade deficit in half
There has been a remarkable turnaround in the size of the monthly trade deficit in goods for the US economy. This prompted plenty of useful discussion in our AS macro class today when we revised government policies towards the balance of payments.
AQA Exam Technique Handout
I have put together my recent series of posts on exam technique for the AQA AS economics papers into a single word file - available for download by clicking the link below.
Exam_Technique_Advice_AS_Economics.doc
Explanation questions on the new AQA AS Papers
Part (c) explanation questions in the new AQA AS papers score 12 marks. For example in the January 2009 macro paper students were faced with this question:
“Extract B suggests that international studies ‘provide explanations for differences in labour productivity’. Explain two determinants of labour productivity.”
On the other question
“Explain two determinants of saving by households”
The examiners’report gives some important clues as to how to approach these questions and achieve high marks with the mimimum of fuss.
read more...»Data explanations on the new AQA AS Papers
The second question on the AQA units 1 and 2 papers asks students to identify features of selected economic data - usually in the form of a chart and/or table. The question carries 8 marks. I produced a quick revision exercise on this aspect of the new paper a few weeks ago and it is available for download here.
The January 2009 Examiners’ reports make for important reading once again
read more...»First hints of the brain drain effect
The government’s decision to increase the top rate of income tax from 40% to 50% is pure political opportunism from a party that has given up any realistic hope of power at the next election. Cue a chance to stick a few poorly aimed knives into the body of up and coming entrepreneurs for a measure that will raise a little extra revenue but which will also do huge long term damage to enterprise in the British economy. From next year anyone earning more than £150,000 a year will pay 50% income tax. The move replaced the 45% tax bracket threatened in the pre-budget report last November. Here are the first signs of a brain drain effect taking hold. And even more worrying is the threat of a brain blockade - as highly skilled people in industries such as technology, medicine, industrial research and so son may now shun coming to the UK in favour of competing locations. Those with a cushion of wealth are best placed to relocate, in a digital age the barriers to conducting business off-shore are so much lower. The Telegraph provides a handy guide for those searching for an atlas and airline timetable this weekend.
Budget Graphic
There is an excellent graphic available on The Times website that would be well worth down loading, printing out and sticking in your folder or study wall. It is a summary of the budget given by Alistair Darling last Wednesday and the differences between the government’s economic outlook and the outlook put forward by city economists. Remember examiners love to see exam answers which are packed with current economic data.
The pdf of the graphic can be found here.
Will this turn out to be a Y-shaped recession?
Just a brief piece on some sales data which highlights an interesting feature of the current recession in the UK. You might think the analysis is pants, but still possibly of interest…
read more...»Amazon benefits from a weaker pound
Amazon UK released some pretty strong sales, revenue and profit figures yesterday suggesting that the internet retailer continues to enjoy a purple patch despite the recession at home. Clearly the weaker pound is helping as customers sat in their villas in southern Europe or across in recession-hit Ireland take advantage of improved purchasing power to order their DVDs, flat-screen TVs, Nexpresso machines, Apple accessories and digital cameras from the UK website. This story from the Telegraph also reveals the battle that Amazon has had with the EU Commission over the directive on the disposal of consumer durables when they reach the end of their life.
“Until last month Amazon had banned European customers from purchasing electronic items from Amazon.co.uk because it refused to sign-up to the European Commission Waste Electrical and Electronic Equipment (WEEE) directive, which imposes a levy on all retailers for recycling electronic products.”
Amazon continues to expand and achieve internal economies of scale and scope. The business now has four huge warehouses in Glasgow, Fife, Bedfordshire and most recently Swansea, where it opened its largest centre to date last year, at more than 800,000 square feet of storage space with some 1,000 staff.
Pain in Spain
Spanish unemployment has more than doubled in the last year and is now surging above the 4 million mark and heading for 5 million and an average of more than 20% of the labour force. Over 700,000 jobs have been lost in construction alone as the fall out continues from the collapse in the once-booming residential property market. As the FT reports today ““Spain and Ireland together have accounted for 75 per cent of the eurozone’s unemployment increase in the 12 months to February, even though they make up only 14 per cent of gross domestic product,” he said. “That tells you a lot about how bad their performance has been. Spanish employers are pleading for a reform of Spanish labour laws, saying it is too expensive to hire and fire permanent workers.” More here from the Independent.
Robert Schiller at the RSA
If you can get to the RSA on a lunchtime, this looks like a stunning opportunity. Thursday 21st May at 1pm
“Acclaimed economist Robert Shiller challenges the economic wisdom that got us into the current financial mess, and puts forward a bold new vision to transform economics and restore prosperity. The global financial crisis has made it clear that powerful psychological forces are imperilling the wealth of nations today. From blind faith in ever-rising housing prices to plummeting confidence in capital markets, ‘animal spirits’ are driving financial events worldwide.”
Fishing for a problem for the tragedy of the commons
A new report from the European Commission finds that further sizeable reductions are needed in the size of the EU fishing fleet in order to bring about a more sustainable future for the deep sea fishing industry. The long term and possibly permanent and irreversible decline in fish stocks is an example of the tragedy of the commons - a form of market failure. The Common Fisheries Policy has been wildy condemned for failing to address the issue of over-fishing - not least the stupidity of fishing quotas that prompt many fishing vessels to dump unwanted fish overboard before reaching port. This new report argues that the capacity of the industry needs to be culled and this raises important issues about resource allocation andjobs and living standards in regions dependent on fishing.
“Across the EU, fleet capacity has come down, the commission says, but only about 2-3% per year. Meanwhile, technological improvements are making boats 2-3% more efficient every year - so the capacity reductions are having little effect.”
More here from the BBC web site
UK finally joins the Euro Zone (well, a bit of the UK)
It has been a long time coming. However, a part of the UK mainland has now informally joined the Euro Zone by adopting the Euro, sitting alongside the British Pound as an acceptable currency in which to trade.
read more...»Interviews with John Micklethwait at the Big Think
Editor of the Economist John Micklethwait has recorded a super series of short interviews for The Independent’s Big Think which are ideal background watching for Economics and Business teachers, as well as potentially useful for gifted and talented students…
read more...»Could this be the UK’s first “fat tax”?
Should obese people be charged extra for their excess weight? Ryanair’s passengers think so…
read more...»Forecasting is a mug’s game
Budget day tomorrow and we prepare ourselves for another Treasury macroeconomic forecast that continues the a long series of back of the envelope calculations that turn out to be wildy optimistic. Stephen King throws a much needed bucket of cold water on the Treasury and Bank of England forecasts in his weekly column in the Independent:
“A sensible fiscal rule might be “the good times won’t last”, thereby emphasising the need to run healthy fiscal surpluses during periods of apparent economic good fortune. Yet few governments have been wise enough to deliver such outcomes (they’re mostly too focused on the next election). So when the economy suddenly and unexpectedly collapses, the fiscal situation is often not strong enough to offer sufficient cushioning…....Governments and central bankers like to give the impression that, somehow, they are in control. They can certainly make a difference but, ultimately, the UK economy is at the mercy of changes in the global economic weather conditions. Weather forecasters know that developments elsewhere have a huge impact on conditions in the UK. Economic forecasters, on the other hand, seem to think the UK is, economically, an island.”
One of Stephen’s regular themes is that macro-economic policymakers are groping in the dark because they have lost control - the traditional instruments of macro demand management have (perhaps for the moment) developed an annoying fault and no longer seem to work in predictable ways.
Pepsi and Vertical Integration
Here is a great example for the revision notes on business growth. PepsiCo which also includes the Tropicana and Gatorade brands within its business has made a $6bn cash and stock offer for the Pepsi Bottling Group and PepsiAmericas. Pepsi already owns sizeable equity stakes in both of these huge bottling businesses - but it has taken advantage of the low stock market and a handy cash mountain to make a takeover bid. It is a classic case of backward vertical integration and a report in the Financial Times says that PepsiCo expects the integration to cut costs by about $200m annually. Britvic is PepsiCo’s bottler in the UK. Keep an eye out for Britvic making a move on smaller bottling companies elsewhere in the European Union.
Will raises fresh cash to disrupt the duopoly
Will King, founder and CEO of King of Shaves is featured in today’s Sunday Times. He is to demerge the division of his company that produces shaving products under licence for other brands including Ted Baker. According to the article “this will allow King to focus on the manufacturing business, which last year expanded into making razors with the launch of the Azor. The product is designed to break up a market dominated by Gillette and Wilkinson Sword.”
Will is speaking at our National Conference for Economics Teachers and delegates will each receive a King of Shaves goody bag.
