Teachers and students of development economics may be aware of this fresh blog from the chief economist of the World Bank’s Africa Region.
There is plenty of coverage today of new data from Oxford Economics that shows how per capita incomes have declined during the third term of the Labour Government.
UK GDP per capita in 2009 prices (£ sterling)
2009 (estimate) £22,700
2010 (forecast) £22,775
2/ Japan pledges to end economic spiral (The Times) - The ten-year plan would see Japan shift some of the focus of its giant economy, with new emphasis placed on environmental technology, science, tourism and medical care.
3/ Economics emerges from the rubble in fragile state (Larry Elliot in the Guardian)
4/ Freakonomics meets More or Less (BBC Radio 4) - Tim Harford gets together with Steve Levitt for a special edition of the excellent Radio 4 programme
5/ Counting the cost of high speed trains (BBC Global Business) - how large are the economic and environmental benefits of investment in new high speed trains?
Many millions of people enjoy playing online games and for social game developers a hugely important source of revenue is from the sale of virtual goods. The trading of virtual goods within games is a global industry worth over $10 billion a year. Here is a good example of complementary demand in markets - regular gamers are happy to purchase seeds, tractors and coins using real money to help them get ahead in their favourite game. This BBC news feature argues that virtual goods are one of the hottest trends in technology and are fuelling huge growth in the social gaming sector.
There is a fascinating lecture at the RSA early next month - Fun Inc.: Why games are the 21st century’s most serious business - details are here. Tom Chatfield’s new book is available here from Amazon.
1/ BBC news: UK unemployment ‘will peak at 2.8m’ in 2010: Report on the latest forecast from the Chartered Institute of Personnel and Development
2/ Financial Times: UK suffers a decade of weak expansion: UK gross domestic product, on average, rose by 1.7 per cent annually in real terms throughout the so-called noughties, Britain’s weakest period of economic expansion of any since the 1940s
3/ Guardian: British homeowners continue to trim mortgage debt: Britons reduced their outstanding mortgage debt by £4.9bn during the third quarter of the year, figures from the Bank of England showed today
4/ Guardian: The global economy’s decade of debt-fuelled boom and bust: Larry Elliot argues that borrowing was both the shaky foundation of global growth and the cause of its collapse
I limit my recommended reading list to twenty books and issue it to my students twice a year making the odd change each time. My current list is shown below.read more...»
1/ Paul Krugman on The Big Zero (Comment piece in the New York Times)
“From an economic point of view, I’d suggest that we call the decade past the Big Zero. It was a decade in which nothing good happened, and none of the optimistic things we were supposed to believe turned out to be true.” More here
2/ How economics managed to make amends - Arvind Subramanian (FT comment page)
“The avoidance of the Greatest Depression that could so easily have happened in 2009 is an outcome the world owes to economics; at the least, it is the discipline’s atonement for allowing the crisis of 2008 to unfold” More here
3/ Tim Harford - The battle for the soul of microfinance (FT)
“Multinational banks at last see microfinance as a profit opportunity” More here
4/ Stephanie Flanders - Intriguing economic questions for 2010
“What are the most intriguing economic questions for 2010? Here are my top four.” More here
As part of his continuing series Making Sense of financial news, Paul Solman at PBS has a unique look at the legacy of economist John Maynard Keynes, who first introduced the concept of government intervention in the economy, and his countertenor Friedrich Hayek.
1/ Liam Halligan on the risks of a fresh surge in protectionism
We are at risk of a trade war - and the West has most to lose
2/ A Sunday Times profile of a Lovefilm, which with 1.2m members, has become the market leader in mail-order film rental
Lovefilm owners to sell out
5/Innovation continues at Apple
Apple poised to start new year with launch of tablet computer
A terrific google wave on some of the landmark events of 2009.read more...»
This revised and extended revision presentation on monetary policy is designed for AS students
2/ Signs of hope for the economy in 2010 - Observer journalists believe there are reasons to believe the worst of the crisis is over
3/ Independent: A decade of excellence? The heroes and zeros
4/ Wall Street Journal on “creative destruction” - To understand the challenges that faced businesses the past 10 years, consider the household names that didn’t make it through the decade: Anheuser-Busch, Compaq, Gillette, Enron, Lehman Brothers, Merrill Lynch, WorldCom. More here
Ask a student on the first day back which countries you associate with hyper-inflation - its a fair bet that most will offer Zimbabwe as an answer - and of course they would have been right up to a few months ago. But currency reforms have brought about a remarkable twist in the inflationary outlook. “Since January, inflation has slowed rapidly after the country shelved use of the local currency and adopted various currencies such as the dollar, South African rand, British pound and Botswana pula” ......indeed there are signs of mild deflation in consumer prices.
Here is a fascinating piece from the New York Times on how some restaurants are restructuring their menus in a bid to beat the recession and drive higher revenues and profit margins from their businesses. Decoy choices and eliminating the currency sign are among the experimental strategies.
“Pounded by the recession, they are hoping that some magic combination of prices, adjectives, fonts, type sizes, ink colors and placement on the page can coax diners into spending a little more money.
A huge number of well-known economists and a remarkable number of ideas make an appearance in John Cassidy’s new book How Markets Fail – the logic of economic calamities. From Akerlof and Arrow to Von Neumann and Walras, John Cassidy’s ambitious and lucid work takes us on a swift journey through over two hundred years of economic thought and policy-making through to the moment when the global financial system stared over the abyss in the early autumn of 2008.read more...»
The original misery index compiled by economist Arthur Okun added together a country’s unemployment and inflation rates to derive a simple measure of ‘economic misery’. The idea was popular at times of stagflation - a combination of stagnant growth, rising unemployment and accelerating consumer prices. Various reincarnations of the Misery Index have been developed over the years - Harvard’s Robert Barro, for instance, made one that includes interest rates and GDP
Now we have new one created by Pierre Cailleteau, an economist and sovereign risk analyst at Moody’s. The index adds together a country’s budget deficit, as a percentage of gross domestic product, and its unemployment rate. It captures the current conundrum for many countries: their economies need stimulus, but their budgets may not be able to afford it. It reflects the realisation of a new age of fiscal austerity as governments across the world battle to control their ballooning fiscal deficits and accumulating national debt. Floyd Norris writes about this new version of the index in this piece in the New York Times.
Spain is at the top of the Misery Index, Latvia places second and Lithuania third, followed by Ireland, Greece and the UK. The US places eighth after Iceland. This makes the Uk the lousiest economy among the Group of 7! Of the 16 economies studied by Moody’s, the Czech Republic, Italy and Germany were forecast to be the least miserable.
Fans of behavioural economics will love this festive selection of cognitive biases in popular songs unearthed by Chris Dillow in his excellent blog.
The ONS has produced a short piece looking at what has happened to unemployment in the UK over the last three economic recessions.
Their data shows that the unemployment rate has (thus far) remained lower than it was in the first six quarters of the 1980s and 1990s recessions. The unemployment rate was 0.1 percentage points higher at the start of the 1980s recession than at the start of this recession. Several explanations have been put forward for this including a shift towards part-time working, greater use of short-time working to avoid compulsory redundancies, a fall in working hours and businesses encouraging some of their employees the chance to take unpaid breaks from work such as sabbaticals during the downturn. Wage freezes and (in some cases) pay cuts may have had some effect on total employment.read more...»
The UK household savings ratio continues to move higher. But it is unlikely this heralds a return to consistent savings behaviour by consumers. Instead it reflects - in the short term at least - a decision to cut spending and repay existing debts rather than a deliberate decision to accumulate financial wealth by locking money away in occupational pensions and other long-term savings instruments. Ian King has a good piece on this in the Times today. The nominal rates of return on most savings accounts have collapsed because of the steep cut in policy interest rates and millions have lost confidence in the financial services industry.
“A study published yesterday by AT Kearney, the management consultancy, revealed that 90 per cent of UK households have less than £50,000 in financial assets — including their defined contribution pensions — and average financial wealth of just £7,000.”
New data on the UK shows that household expenditure growth rose 0.1 per cent, although remains 3.3 per cent lower than the third quarter of 2008. The savings ratio — the gap between household income and spending, which is often used to repay debts or add to savings — soared to 8.6 per cent between July and September, the highest level since 1998.
Another superb interactive resource from the FT provides a tabbed guide to key market data from the Noughties. Highly recommended.
A good investigation here into the rapid growth of the counterfeit cigarette market in the UK…read more...»
Here is a really interesting example of external growth through horizontal integration with a highly successful UK drink and leisure business seeing expansion opportunities in Central and Eastern Europe. Costa is paying £36million for Coffee Heaven a business that has 90 coffee shops in Central and Eastern Europe, comprising 62 shops in Poland, 14 in the Czech Republic and 14 across Bulgaria, Hungary and Latvia.
Costa has more than 1,000 stores in the UK and more than 400 internationally and its stores account for around 25 per cent of Whitbread’s total revenues. All its international stores are operated under franchise. Costa is a wholly-owned unit of Whitbread, the U.K.‘s largest hotel and restaurant company operating brands in the budget hotel, restaurant and coffee shop sectors, whose brands include Premier Inn, Beefeater and Brewers Fayre. Premier Inn is the key part of this business - its fortunes essentially drive the company’s share price.
2010-11 should see a number of CEEC countries emerge from a turbulent and difficult macroeconomic period. And as per capita incomes rise, the potential for growth of market demand in high street coffee stores in many of the EU’s new member states ought to be high. That said Coffeeheaven has made net losses in each of the last seven years - Costa will be hoping that its greater financial resources and economies of scale will help to bring the business back into profitability. Whitbread has an annual capital spending in excess of £300million, so the £36million paid for Coffee Heaven looks small in comparison.
Open economies, which are highly trade dependent and export only a small range of products to few markets, are affected most by the trade transmission mechanism. This helps to understand the wider economic and social effects of the 2009 global downturn.
The recession has affected developing countries in many different ways including the following:
Embroiled in what looks likely to be a protracted takeover bid from Kraft, Cadbury’s has suffered a blow with the news that its share of the UK confectionery market has dipped below 30 per cent for the first time in a while. The Times reports that Cadbury’s chunk of the chocolate market by value slipped 1.7 per cent to 29.8 per cent last month, the first time that it has fallen below 30 per cent all year. Market share of Mars, its biggest rival, slipped 0.6 per cent in the period. There are signs that aggressive pricing of basic chocolate bars by discount retailers such as Aldi and Lidl is having an effect; so too is the growth of sales for own-brand bars offered by Tesco, Sainsbury’s and the ongoing battle for customers between Waitrose and Marks and Spencer. Some customers have complained about a 75% rise in the price of a 230g bar of Dairy Milk in the last 12 months. High world cocoa prices have explained some of the price hike but Cadbury’s tactic of launching a new 100g bar priced at £1 had led some to claim that their are deliberately trying to anchor their prices at a higher level to raise profit margins as a defence against the takeover bid. The decline in market share suggests that chocoholics are more price sensitive than Cadburys might have forecast.
This new revision presentation looks at the issues facing the struggling economy in Greece
This describes an outflow of money from one country to another as investors lose faith and confidence in their external investments. Typically it happens when a nation’s currency is under strong downward pressure either because of speculative selling or because of fundamental factors such as a recession, poor trade performance or a steep fall in asset prices or interest rates. Another root cause is weakening faith in the creditworthiness of a national government especially when they are running up large budget deficits that might be unsustainable. Foreign investors may choose to withdraw their money if they expect a hike in taxes on their investments.read more...»
This new chart from Barclays Capital shows the steady but sustained decline in the global market share for the internet explorer browser.
For years Microsoft has been in dispute with the European Union competition authorities over alleged abuse of its dominant position in the browser market. From now onwards, it will now offer European users a choice of web browser options like Apple’s Safari, Google’s Chrome, and Opera, in addition to its Internet Explorer (IE). Mozilla’s Firefox now has a quarter of the browser marke and Chrome has made a good start in this increasingly contestable market. Google is positioning Chrome as both a browser and an operating system - a real challenge to the Microsoft model.
This hints that the transmission mechanism of monetary policy might have broken down. When ultra-low interest rates appear to be ineffective in restoring confidence and spending, this is known as the liquidity trap. For the exam you need to explain how a reduction in policy interest rates can stimulate household and business sector demand and also (through the exchange rate) providing a stimulus to export s. But we do not live in normal times! There are grounds for thinking that – in the short term at least – the impact of monetary policy may have been reduced. Here are some reasons:read more...»
Martin Dougiamas, lead director and founder of Moodle has shared a superb presentation on where Moodle is heading with the release of 2.0 (and looking further forward to 2.1). You can find it here on slide share. I will be using some of the holidays to explore applications that can fit within Moodle or which can sit outside the VLE and encourage me to try some of the activities and approaches above point 5 above!
The UK first introduced inflation targets in 1992 following sterling’s suspension from the exchange rate mechanism. The government wanted an inflation target to be the ultimate objective of monetary policy having opted to move to a floating exchange rate system.read more...»
Here’s an interesting debate that’s cropped up from a report published this week by the New Economics Foundation. Those of you who have looked at the value of labour will be familiar with the concept of marginal revenue product. That’s to say that it’s worth me paying you £100,000 a year if you bring in benefits to my firm that are equal to or greater than that value. The NEF twist is that they subtract from this an estimated amount equivalent of how much damage you do to society. It’s a kind of bizarre (and highly debateable!) version of labour market economics meets negative externalities.
Their conclusion: cleaners are worth more to society than bankers.read more...»
A fascinating analysis from Business Insider highlights 10 major industries that have been a core part of the US economy which seem to be in terminal decline. A great resource to begin a lesson looking at issues of business costs, competitiveness and the impact of globalisation on manufacturing.
It would be interesting for students to prepare a similar list of UK industries which might suffer a similar fate (there must be some crossover)
Macro stability can be measured by the volatility of key indicators:
1. Consumer price inflation (annual % change in prices)
2. Real GDP growth over one or more business cycles
3. Changes in measured unemployment / employment
4. Fluctuations in the current account of the balance of payments
5. Changes in government finances (i.e. the size of the fiscal deficit or surplus)
6. Volatility of short term policy interest rates and long term interest rates such as the yield on government bonds
7. Stability of the exchange rate in currency markets
Lots of examples of opportunity cost and market failure in this video report from Africa about jatropha, a crop that can be used to produce biofuels. It has a number of advantages; it can’t be used for food, so avoids the dilemma of competing demand or supply suffered by crops like maize and soya, it grows naturally in tough conditions and is fairly drought resisitant so can be cultivated in areas which won’t support other crops, and is poisonous to animals so crops are unlikely to be spoiled by animals looking for food. On the other hand it takes some years to reach productive maturity, so requires investment, and time and money put into producing it could be used to grow food crops for people and livestock in exceptionally poor areas of Africa. There are a number of small scale european businesses trying to invest in this part of the world by setting up plantations on a commercial scale, but they face a long timescale to receive any payback on that investment, once they have negotiated with government and local tribes for access to the land and local labour supply and developed the infrastructure to support transport power and irrigation. How should the government intervene, in order to ensure short term provision of food and facilities for local people living on a dollar a day, and also long term potential for inward investment in infrastructure and jobs? What are the advantages and disadvantages of allowing this to be developed by outside investors rather than by local co-operatives?
Great news - we’ve been asked by the Institute of Taxation to take-on the marketing and operation of Challenge the Chancellor 2010, a great competition for GCSE and A Level economists in the Spring term with some great prizes. More details here, at the new dedicated Challenge the Chancellor Competition 2010 section of our subject blogs:
Next year’s Moodle Moot is to be hosted by University of London Computer Centre on 13th and 14th April. Here are the details
Sometimes the simplest interventions have the greatest effects. Cutting average road speeds for vehicles in built up areas is the surest way to reduce the number of deaths and serious injuries for pedestrians and this latest report highlights the impact that 20mph limits in London have had on the number of fatalities.
The Guardian’s pre-budget report coverage has this nifty and informative interactive chart that tracks changes in UK unemployment over the last 30 years.
The Office of National Statistics have released updated figures on the distribution of national wealth.
The richest fifth have nearly two thirds of the wealth. More startling is that the poorer half of us speak for just 9p in every £1 of privately held wealth.
Private household net wealth in Great Britain totalled £9 trillion in 2006/08 and nearly 80% of this is accumulated in property and private pension entitlements.
Median household net wealth was £204,500 in 2006/08. The least wealthy half of households accounted for only 9 per cent of wealth, while the wealthiest 20 per cent of households had 62 per cent of total wealth.
The least wealthy 10 per cent of households had negative total net wealth
Median net wealth – including pensions, houses and cars, but excluding mortgages and other debt – of a household in the South East is £287,900. In Scotland, it is £150,600.
The Lorenz curve for wealth is more skewed than it is for income and it is an interesting exercise for students to explain why and discuss the consequences for over-lapping generations.
Fellow Moodlers have been waiting for the roll out of Moodle 2.0 and it seems that February 2010 will see the launch of 2.0 in beta format with final testing in the spring ahead of a summer full release. Hans de Zwart has a superb blog here writing about some of the new features of Moodle 2.0 And the latest news on the Moodle 2.0 roadmap is available here. The deeper integration of Moodle 2.0 with existing open-source web 2.0 technologies and applications is really exciting and the summer of 2010 might well be the opportunity to develop economics and business VLE’s built around the Moodle approach that will blow commercial proprietory systems out of the water!
Hat tip to A Ellams for spotting this little gem!
What is the True Cost of Christmas?
The True Cost of Christmas is the cumulative cost of all the gifts when you count each repetition in the song—so it reflects the cost of 364 gifts.
There is a video link here on how the Christmas Price Index is constructed:
First Dubai… Now Greece… Who’s next? Greece saw its credit ratings downgraded to the lowest level in the eurozone on Tuesday as fears mounted over its deteriorating public finances.read more...»
As Richard Branson launches his spaceliner it occured to me that people would pay anything for a chance to travel in space and i would most definitely say that the demand curve the supplier of space travel faces would be upward sloping.read more...»
I want to give my students a chance to write a short essay over the next month or so - especially year 12 as a way of spreading their wings. Can anyone suggest additions to or amendments to this draft list of questions? There would be a 1,000 word limit to encourage crisp and fluent answers that don’t waffle!
What have we learned from the financial crisis?
Does British manufacturing have a future?
Can economics explain why one in five young drivers in the UK are uninsured ?
Does the size of the national debt matter?
Many economists have returned to Keynes for answers to the economic crisis. Are they right to do so?
The effect that the internal macroeconomic environment can have on FDI is seen here as McDonald’s pulled out of Iceland last month, making it one of the few European countries (including Albania and Bosnia and Herzegovina) without a McDonald’s.read more...»
Almost exactly a year to the day from when Woolworths announced it was going into administration, Borders (UK) last week announced the same. It was only last year, that this tutor2u entry on Borders trying to outcompete Amazon was written. The results have been anything but good (but does provide an interesting case study on contestability, competitive forces and the effect of the Internet on competition).read more...»
Many thanks to Geoff for updating his popular revision presentation for AS students on Aggregate Demand
We have been studying oligopoly in our A2 micro and the issue of electricity and gas prices has been headline news for some time. Last week the Conservatives announced plans to break up the highly concentrated domestic energy supply market and inject fresh competition. This is reported here in the Guardian. There is a super paragraph that explains the oligopolistic nature of the industry:
“The industry has since consolidated into EDF, E.ON, RWE npower, Centrica, Scottish Power (owned by Iberdrola) and Scottish and Southern Energy, which control the production and supply of electricity and gas to almost all UK households and businesses. Only a handful of small independent power plant operators and tiny suppliers survive. Energy analysts say the market dominance by the Big Six makes it impossible for anyone else to gain a foothold.”
Market dominance is reinforced by the highly vertically integrated nature of these energy giants.
“they own power plants and source the gas themselves to supply their own customers. This means they will always be profitable at a group level because their retail businesses subsidise their power plant arms when generating costs are high and vice-versa”
The energy companies have been accused of engaging in implicit price collusion - tor the main product they most actively sell - direct debit for dual fuel, gas and electricity - the price difference between the cheapest and most expensive is £30 a year or around 60 pence per week. The consumer watchdog EnergyWatch has complained that British consumers are being ripped off by a “comfortable oligopoly” of bloated electricity and gas supply companies.
The construction of ever-taller buildings is often associated with financial euphoria and excess. This short chronicle makes for interesting reading.