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According to a report published by the Parliamentary Public Accounts Committee, the Government are currently underestimating how many students will actually pay back their university loans over the coming decades. Currently, the Government estimates that between 35 and 40% of loans to Higher Education students are never paid back - the Committee believes that the rate on non-repayment is much higher and reflects a weakness in the loan collection method. The primary reason for non-repayment is that student details get lost over a period of time particularly if the graduate moves and works abroad or was an EU citizen who has returned to their own country. The method of using the income tax registration process as a way of locating former students has been criticized for not being an effective method of collecting information. It is estimated that the shortfall could be as much as £80 million by 2042.read more...»
If you attended the recent tutor2u revision conferences for up-coming micro-economic exams (look out for the macro workshops and combined micro and macro to come in March) you will have seen how fuel-pricing was used as an example of market failure, government intervention strategies and government failure.
Fortunately, the energy market is a gift that keeps giving to us in the economics world (every cloud has a silver lining) as a report out today (see this link for the BBC version of the story) indicates that Parliament is about to intervene to try and stop the energy companies charging more to customers who pay by cash rather than by direct debit (£114 per year, according to the report).read more...»
It was announced yesterday that the Government is planning to abandon its use of expensive software such as Microsoft Office (see article in the Guardian here) partly as a way of reducing costs but also as a means of breaking some of the software company's 'oligopolistic' stranglehold on the market.
As well as offering an example of Government policy to combat market failure, this story gives us a little insight into the issue of contestability in the software industry.read more...»
The NHS gives us so much value, as Economics teachers, as it serves as a great example of so many areas of theory. The story which heads up the BBC News site this morning is another useful one: NHS waiting time data for elective surgery has been found to be 'unreliable'read more...»
This report which the Public Accounts Committee published on Friday, entitled Supporting UK exporters overseas, gives a useful piece of background reading, as it marries up AS and A2 level theory, and micro and macro topics. It looks at the combined efforts of the Foreign and Commonwealth Office and UK Trade and Industry to help UK firms, particularly small and medium sized businesses, boost their exports and so contribute to UK GDP recovery. The summary of the report on the PAC website could be used by students to consider a couple of questions:
How many examples of government failure can you identify?
Given that the UK does not currently use monetary policy to influence the exchange rate, what mix of government policies might be used in order to meet the target of doubling exports by 2020?
Proposing Government intervention strategies for dealing with externality market failure is a common enough exam question. Many of my students will concentrate on the use of indirect taxation, subsidies, pollution permits or regulation as a method of reducing consumption - often forgetting that the Government can use good, old-fashioned advice as a way of altering purchasing patterns.read more...»
The NHS is part of the British establishment just as much as tea, talking about the weather and sarcasm. This view through rose-tinted spectacles has prevented serious debate and clouded our judgment. Foreign visitors are now being charged to use our A & E services, yet they can still see GP's for free. This ludicrous half measure is just one example that we are blinded by love for our NHS. A situation has arisen in which any attempt from politicians to discuss much needed improvements for the current healthcare system is political suicide. This is hindering development.
Most first year Economics students consider government intervention and government failure as key topics in their introductory microeconomics course. Finding compelling examples of state blunders is not that difficult but understanding how the complexity of the government apparatus lies behind failures of project and policy requires digging deeper.read more...»
In a recent assignment, A2 students were asked to write a 500 word profile on each of two development economists of their choice and to capture their key ideas and connect to one or more current issues in development. I will be adding some of their responses to the economics blog. Here Ben Evans focuses on the work of Daron Acemogluread more...»
The Treasury’s amendments to the Banking Reform Bill mean that senior bankers could face up to seven years in jail for ‘reckless misconduct’ which leads to the collapse of a bank. Certainly, the behaviour of prominent individuals in the run up to the crisis left much to be desired. If only we could have put a few of them on show trial in 2009 and given them 20 years in jail, regardless of their objective guilt! But this option was never available, we live under the rule of law.read more...»
Many of you starting out on Economics programmes will quickly hit on this topic. Is it wise to take a 'free market' or Laisser Faire approach to organising the economy? Or should the government be controlling key parts of the economy? This theme is likely to run through the course, as you go on to consider the ways in which government intervention in the economy can make things better - or worse.
Here's the ideal topic to get you thinking. Are industries best managed when they are in the hands of the government (which is often described as nationalised)? Or is it better for them to be run as regular private businesses - that is privatised?read more...»
It occurred to me recently that the way the government tries to control the population, by encouraging and discouraging certain activities, is rather like the way in which I, as a parent, try to control my child.
Legislation – Setting rules
Imprisonment – Grounding
Fines – Reducing pocket money
Providing information – Using examples from experience, educating
Subsidising – Helping towards payment
State Provision – Buying things for my children
For example, I don’t want my daughter to smoke, drink or take drugs, so what do I do to prevent this? I will provide her with plenty of information as to why she shouldn’t partake in these activities, should she do it anyway, I’ll probably ban these products from my house and also reduce her pocket money in order to prevent her from buying them.
How does the Government try to prevent its citizens from smoking drinking and taking drugs? Well, it provides us with information, legislates against it, setting age limits and laws to try to prevent excessive consumption, and places large levies on alcohol and tobacco products to try to discourage consumption, something akin to what I am putting into place.
Will it work?
In some cases, yes, in others, no and the combination of controls will probably vary for each individual, but as a parent I only really get one chance to get it right for each child, the Government, however, can play the percentage game.
Bringing up children is not all about steering your child away from negativity, much as the Government also wants us to do positive things with our lives. For example:
I see education as quite important in a child’s life and as such, I will try my best to ensure that my daughter takes advantage of the best education available to her and embraces it. How will I do that? I will insist that she goes to school, as will the Government. I will monitor her progress carefully, as will her schools. I will encourage her to work hard, as will her teachers, and I will provide information as to the positive future that will ensue from her hard work, as will Government initiatives.
So, all in all, I am my daughter’s Government, trying to persuade her to make the correct decisions, in her own best interests. I’m sure that along the way, I’ll make some horrendous mistakes, as I’m sure most students would agree, parents don’t always know the best way to deal with situations, much as Governments don’t, largely down to information failure! I’m sure Sophie will make some choices that I won’t necessarily agree with, but as long as I look at the long term and have a clear direction, hopefully I’ll raise a happy, positive individual, much as the Government wants to do with all of us.read more...»
As of today, any employee wishing to take their employer to an unfair dismissal, unequal pay or sexual discrimination tribunal will have to pay a fee. This fee will not be automatically refunded on a successful tribunal outcome meaning that employees who are making choices about such an action have to be aware of the potential financial cost of such an action.
The government argue that this removes some of the burden of tribunal costs away from tax payers and should also reduce the number of frivolous claims made (and thus reduce a further burden on businesses). As such, you could claim that the tribunal fee represents a supply-side policy by the government - an attempt to improve the efficiency of the operation of businesses by reducing some of the red-tape that can stop a business working effectively (particularly small businesses).
Trade Unions are unhappy about the fee introduction. They argue that it reduces the opportunity for poorer workers (or unemployed people who have lost a job) to seek justice for what may have been unfair treatment. An evaluative argument here, therefore, might suggest that the tribunal fee acts as a barrier to fair pay, particularly in cases of discrimination.
Follow this link for some details as illustrated by the New Statesman.
Okay, hands up, how many of you economics teachers use cigarettes as one of your primary examples of a demerit good? Well, it does fit the bill and it gives you the opportunity to give teenagers a bit of a lecture about healthy living (if only the Ofsted inspector was there for that lesson).
The government's announcement today that they are to postpone the introduction of standardised packaging for cigarettes is bound to meet with some criticism - many will claim that they are giving in to pressure from a tobacco industry which feels that it is already heavily regulated. The concept is that a standard, plain package will put some people off from purchasing cigarettes as there is some research that says that people are attracted to the branding. Personally, until they put the phrase 'don't listen to your peers, they smell' on the box I'm not convinced the plan would have much impact anyway.
What intrigued me more about this story, is the fact that the government have postponed the plan until the impact of standardised packaging has been more closely studied in Australia (where the policy already exists). So there you go, not only is this a story about cigarettes as a demerit good but it is also an example of the government attempting to avoid policy failure. The government argues that it shouldn't spend money on implementing policies and then policing the tobacco firms and retailers if the impact of the programme is minimal. In a sense, the government are arguing that taking its time over this plan may save money in the long run or enable it to spend its scarce resources on a policy that has more impact.
As an example of collusion, this news article showing alleged price fixing by Canadian chocolate manufacturers and their wholesale distributors illustrates how highly-dominant firms can impact against the public interest.
Reading this article and admitting that chocolate is the closest product that I consume which exhibits addictive qualities (apart from coffee and salt-laden crisps that is) it struck me that this perhaps could be used as an evaluative argument when considering the case for legalisation of slightly stronger narcotics.
One argument for legalising cannabis is that tax revenue can be accrued and there would be a reduction in crime given the lowering of prices (and consequential drop in burglary and stealing to pay for the relatively expensive habit).
This reduction in price, it could be argued, might only occur if the newly formed legal market for cannabis is highly competitive and doesn't suffer from oligopolistic distribution conditions like chocolate does in Canada (or in the UK, for that matter).
Just a thought. Now, where's the other half of that Twirl?
Those of you who are about to take your Econ 3 exam (or whose students are getting ready for the final push), might find this story about sexism in TV an interesting example of inequality in the labour market. A report out yesterday and being pursued by Deputy Leader of the Labour Party, Harriet Harman suggests that a lowly 18% of UK TV presenters over the age of 50 are women. Some channels are worse than others.
The story is also a good example of how current government intervention in this labour market is having little effect. Anti-ageist and sexist laws exist and yet there appears a very real 'glass-ceiling' when it comes to women over the age of 50 wishing to work on TV. If legislation is ineffective what other policies could students suggest might improve the situation? A quota system? Fines? Here is a real chance to offer critical and evaluative analysis on government intervention.
Follow this link to read a report.
I'm always sightly dubious about statistics and information represented by campaign organisations - I'm left with the reservation that information can presented in any way that you want to prove whatever point that you are trying to make (wasn't it an economist who came up with the phrase 'lies, damned lies and statistics'?). So this fascinating report from an organisation called 'Vision of Humanity' needs to be looked at with an open mind.
However, if you take it at face value, it offers some really interesting information.read more...»
The European Union's carbon emissions trading scheme is under huge pressure at the moment and there are many who believe that the market-based system of carbon pricing has effectively collapsed.
- There is a fundamental over-supply of carbon permits in the market - on some estimates, an excess of supply of over 840 million permits (one permit = one tonne of CO2)
- This has caused a sharp fall in the market price of carbon to below Euro 5 per tonne
- At such low prices there is an incentive to use coal rather than cleaner natural gas for electricity generation
- Latest figures show that greenhouse gas output in Europe fell in 2012 by 1.4% - but this is largely the result of very weak economic growth in the EU
(Source: The Economist) - click here
Unicef have just released their latest 'report card' on the relative state of well being among children in 29 of the most wealthy countries. The report (a full version and a summary) are available from this link.
The report shows pleasing progress for the UK (our place on the overall ranking has gone up from last place to 16th) with an improvement in obesity levels and a reduction in consumption of alcohol, cigarettes and drugs compared to the 2007 report.
However, worryingly, the UK is ranked 24th in the table with regards to its provision of Education. The biggest weakness highlighted, is the fact that the UK has one of the lowest percentages of young people continuing with education post 16 (only 74%) and very high levels of young people not in education, employment or training at all (nearly 10%). Students of economics could use this as evidence of government failure with regards to supply-side policies - with such a low level of participation in comparison to our major competitors can we guarantee that we are developing skills that will allow the economy to grow in the future? Could your students suggest (and then evaluate) suggestions for how this situation could be remedied?
AS Micro students will be gearing themselves up for a key period of intensive revision over the coming days and weeks. For most, being able to analyse and evaluate government intervention in markets is crucial to scoring well in exam questions and reaching those top grades.
Evaluation is not a skill that can be learnt overnight. It requires plenty of attempts to get the evaluative style and approach working well.BTW, if you are revising market failure I highly recommend Matt Smith's Scoop.It Board - full of great applied examples on this big area for the Unit 1 economics exam! Click here to view it read more...»
The subject of obesity is an increasingly important topic in the study of market failure. Its consequences are severe and go right to the heart of the ‘inefficient allocation of resources’ economic concept of market failure. Overconsumption of a number of demerit goods are one of the many causes of this growing epidemic and worrying trends and statistics can be found here with this BBC video clip also providing a useful overview on the facts behind global obesity. The UK is one of the most obese nations in the world with about a quarter of adults classed as obese and that figure is predicted to doubly by 2050.
Today's announcement of routes for the HS2 project highlights the importance governments ascribe to public works projects.
Given that the increasing concern over obesity (and it's knock-on issues) are fairly prevalent in the news at the moment I thought this article from the Independent may be of interest. The reporter is linking the causes of obesity and debt together - suggesting that our big problem as an animal is that we don't like to think about the future. I thought that it was an interesting link, not least because we probably all know that its true! It further illustrates the problem of imperfect information and our inability to consume products that benefit us in the long-run (e.g. pensions) and over-consume those products that we know are not good for us (e.g. 90% of what you have consumed over the last two weeks).
Happy New Year to all Tutor2u blog readers.
An updated glossary of key terms for the Unit 1 Economics paperread more...»
Here is a streamed revision presentation on rent controls in the housing market - designed for AS micro students.read more...»
An A-Z glossary for the Unit 1 Micro courseread more...»
|Employment Rate||Employment Rate||Unemployment Rate||Unemployment Rate||Inactivity Rate||Inactivity Rate|
|Mixed or Multiple||64.3%||55.3%||15.7%||15.8%||23.7%||34.3%|
|Chinese & Other||67.0%||51.8%||10.3%||10.6%||25.3%||42.1%|
If you have seen the news stories today showing how workplace discrimination towards ethnic minority women continues to cause the government concern, you may be interested to read the full report. It is available from the Runnymede Trust (it requires registration but it is free) and has been written for the All Party Parliamentary Group on Race and Community. There's a brief summary from the BBC, but the full report gives recommendations that you might like to present to students as possible government intervention strategies and get them to evaluate accordingly. The table above gives you a flavour of the statistics that can be used to discuss inequality of income and wealth.
I'm sure you don't have any problems convincing your students that education is a merit good/service. Every so often, however, it may be difficult for young people in the UK, aspirational and aiming high, to see how their own learning impacts so positively upon the wider society. Although we constantly debate the quality of education in the UK and strive to improve, many young people will take opportunities to access schools and colleges for granted - perhaps arguing about local differences and the cost of higher education but rarely about actual access to basic education. With such relatively high levels of literacy and numeracy amongst British youngsters it is difficult for them to imagine a society where this is not the norm. The Waseela-e-Taleem initiative in Pakistan, however, could prove a useful example of how government intervention into education is about more than just the structure of assessment and paying teachers - but a country's drive to improve access to basic education and shift its economic as well its political and sociological prospects.read more...»
Corporation tax is very much in the news. Starbucks is merely the latest to be in the spotlight, having paid no corporation tax on more than £1billion of sales in the past three years . This became noteworthy when the Prime Minister himself declared he was unhappy with the level of tax avoidance by big corporations working in Britain.
The plain fact is that if corporation tax did not exist, it would be madness to introduce it. The tax plays to the ignorance not only of the general public, but of almost all politicians. It encourages the fantasy that there is a free lunch, that someone else will pick up the bill for the welfare state and bloated state bureaucracy.read more...»
Every cloud has a silver lining! News reports out today confirmed that the original decision to award the next 15 year franchise of the West Coast Rail line to FirstGroup instead of the incumbent Virgin Rail has been rescinded and the bidding process re-opened at a potential wasted cost of £40 million (by the way, have they fixed that leaky roof at your school yet?). This may seem like a fiasco to train users and the general public alike but to us Economics teachers it's a super example of government failing to intervene correctly in a market.read more...»
You might find this news report from KL.FM (a radio station in King's Lynn) about the self-regulated sales of 'strong booze' in Ipswich an excellent example of a policy to deal with de-merit goods. Alcohol is a prime example of a de-merit good and a common student response regarding government policies to reduce its consumption often centres around the use of taxation and age-based prohibition. A good evaluative answer to questions relating to government policy would mention the fact that alcohol remains a popular product despite its obvious issues and might also discuss how the over-consumption of alcohol could be linked to something more cultural (compared to, say, France) - hence the need for something a little more creative than blanket bans or high duties. I would want to ask my students questions such as 'what are the costs to society' mentioned within the report and why might the targeting of high-strength alcoholic drinks be a more affective policy then banning sales of all alcohol?
A park and ride scheme may be introduced to encourage motorists to use public transport, buses or trains to reach their workplaces. It is a government policy to overcome market failures associated with the negative externalities of congestion viz increased journey times, increased fuel and running costs, and atmospheric pollution.read more...»
If workers are needed for the output they are required to produce, then it follows that they could be paid up to the extra value of revenue that their output generates for the firm, and that wage differentials will reflect differences in labour productivity - in other words, I am talking about the marginal revenue product of labour. The University and College Union (UCU) have commissioned a report from the Institute of Public Policy Research (IPPR) called ‘Further Higher? Tertiary education and growth in the UK’s new economy’, looking for some evidence of the differences in the productivity of workers who have A levels and those with degrees - you can see the results in the table above.read more...»
Here is a short 35 slide revision presentation on government intervention in markets designed for AS microeconomics revisionread more...»
Here is an updated version of the WEESTEPS approach to economics evaluation designed to boost the evaluation scores and exam results for AS and A2 Economics students.
It gives you some great pointers about the evaluative approaches that can be used. Works well for micro and macro - but particularly when you have to evaluate a specific policy intervention in a market / industry / or a macro policy discussion.read more...»
Here is a selection of a recent blog resources on topics that appear on the core Unit 1 Syllabus focusing on changing market prices and examples of interventions to address perceived market failuresread more...»
The cost-benefit principle is one of those core ideas that can be brought into so many evaluation discussions both in micro and macroeconomics – you should be using it in your papers!read more...»
Here is a revision presentation offering ideas for stronger evaluation and analysis in your AS and A2 economics exam papers. Ten strands are suggested for students who want to build really good answers especially to evaluation questions.read more...»
Last week I attended the IEA Hayek Memorial lecture, given by Elinor Ostrom, Nobel laureate, on common resources and looking beyond government regulation.
The lecture took two parts: a presentation from Professor Ostrom, which was mainly focused on the research methodology, and a Q&A session, where anecdotal research evidence was more forthcoming.read more...»
Professor David Blanchflower didn’t pull his punches when he was a member of the Bank of England’s Monetary Policy Committee and he is making his mark once more with an attack on what he views as the Coalition government’s lacklustre approach to tackling youth unemployment. Blanchflower is reported in the Guardian as wanting zero national insurance contributions for employers who take on younger workers in depressed regions and localities. And he wants greater investment in vocational education in schools and colleges with the school-leaving age raised to 18.read more...»
Here is a fresh attempt by the British government to breathe life into the moribund housing market. People in England are being offered financial help to climb onto or up the housing ladder as the government’s new mortgage indemnity scheme launches. Under the terms of the scheme, both the construction industry and taxpayers will act as co-guarantors on new homes bought by existing or first-time buyers. Will it work in boosting demand for new build homes? Is this scheme designed to help house-buyers or builders? Or is there a real risk of government failure?
* Builders will pay 3.5 per cent of the price of the home
* Taxpayers will provide an additional guarantee of 5.5 per cent that will only be used if there is a major property crash.
* Mortgage lenders will be able to lend up to 95 per cent of the sale price which means new buyers in many instances will only need to find a five per cent deposit or £10,000 on a new £200,000 home. The typical deposit on a mortgage now is closer to £36,000
* The scheme is available on houses and flats valued under £500,000 in England only
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%.read more...»
I’ve just found this fascinating video from the amazing TED website which is an excellent example to show how ‘the market’ can can be used to solve an external costread more...»
This blog provides a link to a constantly updated revision Prezi on negative externalities and market failure - designed for students taking AS Microeconomics Unit 1 and those studying externalities for the IB Diploma. The Prezi contains lots of short news videos on examples of externalities. Click on the link below to access the Prezi.read more...»
If you are a fan of laminate flooring, wood panelled walls or neat wood-based fencing for the garden, the chances are that you will be paying higher prices in the years ahead. Despite the Britain offering a temperate climate for a plentiful supply of wood and a well organised system of land registry and plantation management, the UK market price of different types of timber has shot up over the last two years.read more...»
This blog entry will provide a regularly updated set of links to resources to the European Union’s Common Agricultural Policy and attempts to reform this contentious and complex system of farm support.
Check below for suggested linksread more...»
It seems those fortunate enough to live next to Hyde Park are increasingly bothered by the negative externalities arising from the concerts put on there. This BBC article is a good illustration of the difficulties involved at arriving at a socially-optimal level of production.
Is the story of HMRCs failure to collect the right amount of tax from some big businesses an example of regulatory capture? In the current example, the Public Accounts Committee has said that HM Revenue and Customs enjoyed an “unduly cosy” relationship with major companies, and their procedures have allowed rules to be ‘bent’ so that up to £25bn tax has been underpaid. Regulatory capture (an example of government failure) is what happens when regulated industries are able to gain influence over their regulator, so that instead of serving the public interest, the regulator actually supports the interest of the industry concerned. In this case, there does not seem to be one specific industry concerned (although Goldman Sachs’s underpayment of something between £8mn and £20mn comes in for particular criticism); however the situation does seem to meet the requirements defined by the Economist as “Gamekeeper turns poacher or, at least, helps poacher”.
The Government has announced today a scheme to help first time buyers on to the property ladder. It has been reported widely in the press with mixed reactions. The BBC article outlines the main proposals (here is the link to The Daily Telegraph). It is interesting from a political point of view that this government should chose to intervene in this market, though perhaps we should not be too surprised as it was the Conservatives that brought in the ‘Right to Buy’ legislation in 1980.read more...»
This is the headline used by Reuters in their report of the government Transport Secretary’s proposal that the speed limit on motorways should be raised from 70 to 80mph.
The justification for the proposal is largely that, when the limit was introduced, cars were less safe than they are now, and that technical improvements have made 80mph a safe speed at which to travel. Other arguments include the desire to conform with the higher motorway speed limits in Europe, which are generally higher than in the UK, and also the fact that many drivers do drive at between 70 and 80 on motorways anyway and tend not to be fined for it, so the law may as well be amended to keep up with actual behaviour.read more...»