A super interactive graphic from the Financial Times. China has developed a rapacious appetite for natural resources as its economy has developed over the last decade.
Paul Krugman expands on the nature of the liquidity trap and why more of the world economy might be in this situation than is commonly supposed. His opening paragraph raises an interesting question for A2 economists - does a liquidity trap encourage protectionist policies and heighten the risks of a period of prolonged de-globalisation?
“Being in a liquidity trap reverses many of the usual rules of economic policy. Virtue becomes vice: attempts to save more actually make us poorer, in both the short and the long run. Prudence becomes folly: a stern determination to balance budgets and avoid any risk of inflation is the road to disaster. Mercantilism works: countries that subsidize exports and restrict imports actually do gain at their trading partners’ expense.”
There’s been lots of discussions in the news these last few months about the power of speculators against sovereign debt. My students have been asking about this so I thought I’d write a short note here about it:
- There has been a lot of naked short selling of sovereign debt recently, particularly Greece debt.
- A naked position (also known as an uncovered position) in derivatives speak is when the seller of an option does not have the corresponding position in the underlying security
- A short sell is a strategy to aimed at taking advantage of an expected fall in prices
Rapid growth has put India’s creaking infrastructure under tremendous pressure. The Indian government has sharply increased investment spending on infrastructure with ambitious projects such as adding 20km of new roads each day! Can the spending projects deliver? This BBC India Business Report looks at the rise in investment spending.
As Forbes produce their annual rich list, some interesting developments:
- an American does not top the rankings for the first time since 1994.
- Mexican Carlos Slim has topped the billionaire’s list, perhaps a sign of where specifically the world economy has seen grown in the wake of the credit crunch
- A discussion of changing regional income inequality:
:97 names made their debut while a record 164 returned to the list in 2010 - including Facebook founder Mark Zuckerberg ($4bn), who, aged 25, also regained the title of youngest billionaire;
:A total of 234 Asian billionaires were featured in the 2010 list compared with 248 from Europe.
:New York remained at the top of the pile with 60 ultra-rich residents, Moscow was second with 50 billionaires and London third with 32.
- Things seem to have improved (for them!) since the financial crisis last year took its toll on the world’s richest people, wiping 332 names off the list and an average of 23% off the wealth of the remaining billionaires.
- In Europe, shopping dominated the money list with six of the top 10 European billionaires making their money in retail and three more in consumer products
A hat tip to Diane Coyle for flagging up this superb blog update from Barry Eichengreen and Kevin O’Rourke comparing today’s global crisis to the Great Depression - fantastic for students of economic history.
An interesting summary of the sovereign debt worries of a cluster of countries courtesy of the Wall Street Journal
BBC World Business news carries an interview with Luciano Coutinho, CEO of BNDES Bank in which he argues that Brazil is looking to diversify its economic base as a platform for stronger long term economic growth
“The Government is stepping up efforts to diversify the economy, creating global champions in a range of industries, from telecoms to farming. Brazil dominates global trade in several agricultural commodities, from coffee to sugar, or chicken and beef.”
Pascal Lamy from the WTO has given a strong defence of the impact that trade can has as a stimulus for broader global economic recovery. World trade in goods and services has declined by 12% since the onset of the financial crisis but according to the WTO although there has been renewed claims of a return to protectionism, fears of a tsunami of import controls have - by and large - proved to be wide of the mark.read more...»
Many colleagues are teaching aspects of development economics at this time of the year and a sunny Spring hat tip go Mark Seccombe for putting together this veritable goldmine of sources of data.read more...»
Following on from Geoff’s entry on international competitiveness here ; this video clip sees macroeconomist Xavier Sala-i-Martin (Professor of Economics at Columbia University) discuss the current international competitiveness rankings from the World Economic Forum report 2009-10, and the recent relinquishing of the top spot by the USA. Do go to his website too… always a good source of random fun!read more...»
Published at the end of January 2010 I came across this excellent report whilst researching an updated presentation on carbon trading and carbon taxes. The hmtl version of the report from the House of Commons Environmental Audit Commission can be found here. The role of carbon markets in preventing dangerous climage change
Here are some additional links to useful recent news articles and resources on carbon trading and carbon pricing:read more...»
Sue Lloyd-Roberts has made many memorable reports for different television stations over the years. In this latest piece from Zimbabwe she visits a nephew of Robert Mugabe who enjoys unparalled wealth before seeing an overwhelmed aids clinic in a Harare hospital. Life expectancy has fallen to thirty five years. Basic foods are available but with the majority of urban dwellers surviving on one dollar a day after paying rent, a loaf of bread remains a weekly luxury.
A top-down programme to encourage bottom-up growth of entrepreneurship in China’s rural areas. We have become accustomed to the enormous size of infrastructure projects in China designed to maintain domestic demand and employment and sustain a minimum growth rate of 8 per cent. China’s investments in new factories and properties surged 67 percent last year to 15.2 trillion yuan, more than Russia’s gross domestic product.
This is another approach focusing on enterprise in rural areas. The Chinese Government has spent about $40 billion training people from the countryside to run their own business. The Government’s scheme provides free skills training, tax free loans of up to $8,000 and two years of support.
“Around the world over the last century, the typical financial crisis caused the jobless rate to rise for almost five years, according to work by the economists Carmen Reinhart and Kenneth Rogoff.”
David Leonhardt - writing in the New York Times - praises the employment effects of the Obama stimulus programme in a super piece. Judging Stimulus by Job Data Reveals Success
And over at the Financial Times, the ever-readable Martin Wolf considers the thickness of the fiscal tightrope facing the US government and other leading economies.
“The argument is, rather, that the benefits of the higher output today exceed the costs of debt service tomorrow ....high-income countries face huge fiscal challenges. And yes, the crisis-hit countries start from grossly unsustainable fiscal positions. But the US is not Greece. Moreover, a massive fiscal tightening today would be a grave error.”
And here is the link to last week’s feature in the Independent on the views of economist Joseph Stiglitz: The Money Man: Super-economist Joseph Stiglitz on how to fix the recession
All three of these articles will stretch and challenge A2 economists wanting to understand more about the big fiscal issues facing governments at the moment.
This BBC news video provides an interesting window on the pressures for wages to rise in the booming city of Shanghai. The impressive rebound in Chinese economic growth is driven by the strength of the underlying growth forces in the economy together with the impact of the huge fiscal stimulus. But for many young professionals growth is causing the cost of living to surge - food and property prices are the main concerns. Inflation is a genuine risk for the Chinese economy - what might the Chinese authorities do about this?read more...»
What do the following businesses have in common?
Eurasian Natural Resources
In a break with the consensus that has enveloped policy makers in institutions such as the International Monetary Fund, the IMF’s Chief Economist Oliver Blanchard has written a new paper (Rethinking Macroeconomic Policy) that suggests that a relaxation of tough inflation targets and acceptance of slightly higher average inflation is needed to give macro economic policy more traction in the years ahead.
For A2 economists this is an important policy debate. Are the economic and social costs of average inflation of say 3 to 4% much higher than achieving consumer price inflation of 2%?
Here are some links to coverage of the paper.
Paul Krugman: The Case For Higher Inflation
Economist Blog: Reorienting macroeconomic policy
The erstwhile environmental campaigner, journalist and broadcaster Jonathan Porritt gave an impassioned talk on the politics and economics climate change at the LSE tonight. We are in a period of extraordinary turmoil in the global politics of climate change. Here in the UK, support for the idea of man-made climate change is actually lower at the end of 2009 despite one of the most expensive government information TV and cinema campaigns ever launched. But by and large, people seem to be turned off by the warnings of scary apocalyptic misery.read more...»
A superb comment piece from John Rose chief executive of Rolls-Royce plc that is well suited to students of competitiveness and globalisation and the challenges and opportunities for British business
“We start with some real assets: a history of scientific excellence, the world’s sixth-largest manufacturing output, well-developed high-value service activities and four of the world’s top ten universities. If we exploit these advantages effectively, we can become a preferred location for high-value companies, with a clear understanding of where our competitive advantage lies, and with a better balanced, more resilient economy than we have chosen for ourselves today.”
John Rose also delivered a lecture on these themes to the RSA a few weeks ago - a video can be found here
We’ve just updated our China Economy Chartroom classroom poster set. It provides charts using the latest public data on the key economic variables in China together with some profiles of China’s phenomenal consumer and industrial growth in recent years.read more...»
An interesting graphic in the Economist looks at the total change in GDP during the 2008/2010 global recession for a selection of major economies. The chart shows that Britain’s slump was not nearly as deep as Japan’s, where GDP contracted by 8.6% from peak to trough.
Hamish McRae is on excellent form in this piece in the Independent - China’s latest growth surge is the result of an enormous fiscal stimulus and a massive (and unsustainable) rise in credit.
One of the short term consequences is that China’s turbo-charged growth is once again putting upward pressure on world commodity prices. Just as a hungry teenager will happily eat food long into the night, China’s incremental demand for natural resources and manufactured components is threatening another rise in cost push inflationary pressures in the world economy. This is one of the inflation risks facing developed countries and a factor behind fears of a rise in short term and long term interest rates before a recovery gains sufficient traction.
A hat tip to Edmund Conway from the Telegraph for spotting this. This is excellent for identifying some of the external risks / shocks that affect national economies and could be useful for A2 macro students.
David Smith’s weekly Economic Outlook in the Sunday Times focuses on the prospect that recovery from the recession will come from exports. He suggests that the conditions needed are in place – sterling is a significantly more competitive currency than was the case 18 months ago, there is strong recovery in world trade which is likely to last into 2011, and there is no wage inflation to spoil the competitiveness of UK export prices. The Ernst and Young Item club’s predictions for the economy over the next ten years, to be published today but much trailed through the media this weekend, will suggest that although the domestic economy will struggle to produce enough consumer demand to stimulate growth - debt-laden consumers have to recover from the shock of repaying some of their borrowing before they are prepared to spend so heavily again – growth in exports will be strong, with figures of 9%, 9.5% and 8% growth predicted for 2011 to 2014. If consumption is indeed sluggish at the same time, we can hope that imports will not be growing as fast, so that the figure for net exports improves, allowing Aggregate Demand to grow and some recovery of output to become established.read more...»
More significant developments in the Chinese economy over recent weeks, with significant implications for the global economy & businesses looking to exploit opportunities in China, or counter threats from import penetration. This new revision presentation guides students through some of the key data and developments:
The forces of supply and demand in the global oil market feature frequently in economics exams. So here is a revision update on what has happened to the world oil market in the last 12 months. It was a year when crude oil prices recovered quite strongly from their lows at the start of 2009. As we head into 2010, the price of a barrel of crude is rising above $80 and strong economic growth in emerging market countries together with the lagged effects of reduced investment in oil exploration and drilling may take prices closer to $100 in the year ahead.
1/ The Times - Top Ten Credit Crunch Films - Kevin Maher chooses his selection of recession related films
2/ The Times - Prices of new cars will be open to offers - deep discounts in the prices of new cars are expected as the car scrappage scheme draws to a close.
3/ Independent - Virgin gets clearance for launch into banking - a good example here of one of the barriers to entry in the banking industry. Virgin needed a banking licence to break into the retail banking sector - it now has one
4/ Telegraph - The shortlist for worst takeover of the century - a super piece looking at some of the disastrous mergers and takeovers of recent years - some great examples to use in evaluation for essays on business integration/growth
5/ Vox - The impact of crisis-driven protectionism on EU exports: The “Russian doll” effect - useful background on the rise of protectionism in the global economy and the impact this has had on the EU economy
A fascinating, short interview on Bloomberg today (4 Jan 2010) with Jim O’Neill (Cheif Economist at Goldman Sachs) talking about the economic prospects of the BRICS in the next decade.read more...»