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Here is an updated revision presentation covering aspects of the growth of microfinance and the role that it can play in driving developmentread more...»
Economic imbalances are a recurring theme in discussions about prospects for the world economy. We link here to a recent lecture given at Gresham's College on some of the consequences of growing divergences between nations that are net savers and countries that are net debtors.
This lecture will look at the world surplus of savings as incomes gradually shift proportionally towards those who traditionally save a high proportion of their earnings and away from those who traditionally spend most of what they earn. In theory, the excess savings should be matched by higher investment. In practice this is not happening.
The post global financial crisis period is seeing a burst of innovation in the financial system as new platforms of funding especially for businesses seem to be gaining some traction even if they remain very small contrasted with the scale of established banks. This short report from the FT visits a conference on behavioural finance held at Oxford University and quizzes some leading figures on key developments in embryonic, emerging financial businesses. Having watched the video engage in some independent research on peer to peer lending and other fast-growing markets.read more...»
Here is a selection of resources on the Cyprus banking crisis and the controversial bail-in of uninsured large depositors. Particular credit to the team at Saxo Bank for an excellent info-graphicread more...»
I was told off this week by my students for using McDonald's as an example to illustrate my point yet again. In fact it was the second week on the trot that I was reprimanded as they told me previously that I was always peppering my conversation with Latin phrases "'cos it makes you sound more clever."
"No I don't," I replied - I've told my students a million times not to exaggerate. The offending example came as I was attempting to explain how fatty foods (especially those from the exalted temple of the Golden Arches) were a demerit good. I thought about it for a little while and realised that two weeks ago I'd told them about the use of 'stars' to motivate McDonald's staff and their extensive training programmes when we discussed labour productivity. I'd also mentioned them when we discussed possible issues relating to economies of scale and the fact that a homogenised world can lead to less choice (a weak argument in their view - a McDonald's in every town sounded like a wonderful idea) and discussed the use of persuasive advertising as an example of non-price competition. They were right, I seemed to be talking about McDonald's all the time - and I'm a vegetarian!
"Mea culpa," I confessed.read more...»
What a fabulous new resource for students and teachers! She's German. He's Greek. Can their ten year relationship survive the pressure? This great short comedy from director Bob Denham is jam packed with references to the Euro debt crisis - show it to your class and see how many the A-Level student gets (offer a prize!)
The economic news at the moment is mixed, and the impact of the 2007-2009 financial crash is far from over. But looking back into the past may give us something to feel cheerful about.read more...»
Q&A: For AS macroeconomics, what do we need to know about output gaps?read more...»
Last week I attended a very interesting lecture at the LSE on the Eurozone crisis, given by Leszek Balcerowicz, a Polish economist who is former chairman of the National Bank of Poland and Deputy Prime Minister.
The following blog outlines his thoughts, but also includes useful links to articles to read.
Using the crisis as a case study will hugely benefit A2 students as it encompasses many of the topics covered in the syllabus.
It is now over three years since the Monetary Policy Committee of the Bank of England cut policy interest rates to 0.5% and subsequently introduced a policy of quantitative easing (or an asset purchase programme) now worth £325 billion.
These have been difficult times for the Bank. The average rate of CPI inflation since 2008 has averaged 3.5% - well above the official target - and the Bank has faced pressures from many sectors of the economy not least the millions of pensioners and other net savers whose incomes have been dragged lower by this period of ultra-low interest rates.
Has conventional monetary policy lost its effectiveness in the aftermath of the global financial crisis? Bank lending continues to fall, consumer and business confidence is fragile, many people have seen interest rates on unsecured credit rise not fall, and the depreciation of sterling seems to have had a muted expansionary effect on demand, profits and jobs.
QE itself may have become ineffective. Adam Posen, a member of the BoE’s MPC stated in a recent speech that
“quantitative easing may be ineffective under the present circumstances. This could be because money put into the hands of risk-averse investors and banks simply sits there, on their balance sheets.’ instead of being lent out to businesses and individuals who need to borrow to finance investment.
Remember too that monetary policy does not operate in isolation. The effects of lower interest rates and the QE programme might well have been negated by other events in the world economy, for example falling demand and confidence and a return to recession in the euro area or the depressive effects of high oil and gas prices on real incomes and spending.read more...»
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.read more...»
This has to be amongst the best 60 seconds of Economics you’ll ever see on television. The superb Stephanie Flanders takes a leaf out of the RSA playbook to explain the basic theory behind quantitative easing. Wonderful!!read more...»
It is perhaps a moment of more political than economic significance, but on Friday 13th January 2012 Standard and Poors, a leading credit rating agency announced that France was losing her triple A (AAA) credit rating for sovereign debt. It was part of a larger downgrading of government bonds among a sizeable chunk of Euro Zone countries, the argument being that plans to achieve deficit reduction lacked credibility. France was downgraded, S&P also lowered the long-term ratings on Austria, Malta, Slovakia, and Slovenia, by one notch. The rating levels for Cyprus, Italy, Portugal and Spain were dropped two notches.
Here is a brief Channel 4 report on the news and some other links to the story. Only four Euro Zone countries now have an AAA rating. Do you know who they are?read more...»
The new series of Stephanomics is being filmed and made available on the BBC web site. In this episode, Stephanie Flanders asks who is to blame for the global financial crisis? She is joined by the billionaire investor George Soros, Sir Howard Davies, former chairman of the Financial Services Authority and former deputy governor of the Bank of England, and Dr DeAnne Julius, chairman of Chatham House and a former member of the Bank of England’s monetary policy committee. This is gold-dust for unit 4 macro students who want some tremendous evaluation on causation of the crisis from three incredibly well-placed figures.
A nice summary of the world economy situation…... compressed into three minutes .... click on the You Tube link belowread more...»
There were some desperately disappointing unemployment and employment numbers published for the UK economy today. Even taking due note of the need not to focus too much on one set of data the UK labour market looks to be weakening as fast as the autumn leaves are falling. The human and social cost of the high jobless figures is enormous and the macroeconomic effect of fewer people in work and paying taxes will dent further hopes of a solid recovery.read more...»
A good example to discuss of government intervention into agricultural markets - in this case Thailand’s government have intervened in the market to buy unmilled rice at 15,000 Thai baht per metric tonne, which is a 50% premium on the current market rate. A good discussion of the possible impacts can be found, with a discussion of the economic rationale/consequences of it, here.
JCT is no longer president of the European Central Bank and he leaves, after eight years at its helm, with as many detractors as there are supporters. The ECB is widely perceived as being ‘genetically’ close to the German
Bundesbank following the neo-classical school where inflation is the route of all problems and so needs to be controlled no matter the cost.
We´re going to be looking at this part of the syllabus very soon and the two graphics below from here and here look at how the US market for smartphone operating systems is split between the major firms and also how global market share for mobiles as well as smartphones is split.read more...»
The Govenor, Mervyn King, explains how he hopes that by injecting 75 billion of newly printed cash into the economy Aggregate Demand will be stimulated enough to avoid a double dip. See video below and the full article here.read more...»
Earlier this year, the Royal Economics Society had the Young Economist of the Year competition with one of the titles being to debate the use of a Fat Tax. This week, Denmark have announced exactly such a tax on some of its foods! Read more here.
Supporting article on the Danish fat tax from Time Magazine
And this feature on the efficiency and equity arguments surrounding the fat tax from Steve Sexton writing in the Freakonomics blog.
When teaching elasticities, fuel always seems to have been a favourite example of a good with very inelastic demand in response to price changes. However, this AA research adds further to the evidence that suggests that even fuel has now reached it’s limit in terms of quantity demanded remaining firm at it’s market price.read more...»
When discussing demerit goods, it is always good to be able to show a few examples. In these youtube clips, Ali G interviews a police superintendent about offensive weapons and a US federal agent about illegal drugs.read more...»
If you are teaching the economics of commodity prices and coffee in particular - this resource - will appeal strongly to your visual learners! The Guardian Pictures web site has a quite stunning set of photos of Kenyan coffee producers - growers who are hoping that rising world prices will bring respite after years of difficulty including volatile crop yields, poverty prices and incomes and a long term decline in investment.
The book world was shaken this month when it emerged that Waterstone’s, the UK’s largest book chain, is going to ditch its decade-old 3-for-2 offer. Good for A2 micro when discussing firms’ strategies for growth and profit. Read more here.
I have attached below an example of a homework assignment for my Unit 2 macro economic group which focuses on some of the main drivers of consumer demand for goods and services. It is available for free download as a pdf file. Discussion in class will centre on income, wealth, interest rates, confidence and expectations as key determinants. This is a particularly important stage of the economic cycle and there are many influences constraining household demand as we head towards the end of 2011.
I have attached below a homework assignment for my Unit 1 AS Micro students on market prices. The assignment focuses on the global markets for coffee and also for steel and is attached below as a pdf file for download if teaching colleagues might like to use and adapt it!
If Africa was a physical battleground between east & west during the cold war of the 20th Century, it can arguably be seen today as the ideological 21st Century battleground between the difference approaches to promoting economic development: the western aid model versus the Chinese trade model. Is the Sino-Africa relationship mutually beneficial? I certainly don’t claim to have a comprehensive answer to this but it has been interesting talking to Africans on my journey so far about their perception of this, particularly in Zambia…read more...»
This article from the WSJ highlights one determinant of exchange rates that we may not be too familiar with, whether or not a particular currency is regarded as a “safe haven” i.e. if a particluar investor fears that a currency will not hold its immediate or future value, then said investor may choose to exchange it for one which is more likely to.read more...»
A hat tip to my fellow blogger Graham Carter for suggesting this handy resource. The BBC web site maintains a regularly-updated selection of podcasts drawing on some of the best stories covered by the Today programme. Here is the link. Dip in once in a while to see if there is an audio-resource connected to relevant business, economic and financial news stories.
A big thank you to my former student Mike Dawes, who recommends the film of the book ‘Too Big to Fail’. The made-for-TV film has recently been shown on Sky Anytime, where you may have caught it, but if not there are some trailers and extracts available here on HBO’s website, as well as a synopsis.
Mike has also found a YouTube extract of a scene in the movie where US Treasury officials (Hank Paulson, Neel Kashkari, Jim Wilkinson) are deciding how to break the news of the AIG bailout in a press release and, in his words “there is a Scooby-Doo style unravelling of the recession which for 2 minutes is possibly one of the best explanations I have heard. They also neatly explain Credit-Default Swaps which is equally simple and may help those who were struggling to understand it.”
Andrew Ross Sorkin’s book which led to the film is available from Amazon’s US store here.
Here are some of the salient points from the gloomy World Economic Forecast from the IMF which argues that the global economy has entered a dangerous phase.
The IMF report highlights many of the vulnerabilities facing both developed and emerging economies. In Britain the media is emphasising a sizeable reduction in the forecast rate of growth for the UK for 2011 and 2012. Real GDP in the UK is likely to expand by just 1.1% in 2011 and 1.6% next year and the IMF economists say that there is a one in five chance of a double dip recession.
Weak growth is terrible news for the Chancellor who is hoping for a significant expansion of the private sector to offset fiscal cuts and to meet the targets for fiscal deficit reduction. It is also awful for prospects of a meaningful reduction in unemployment and prospects of tackling the structural issue of very high youth unemployment rates.
Incidentally that risk of a double-dip is thought to be much higher in the United States where the probability of a second recession following a partial recovery is put at 40%.read more...»
Well- it’s the day the United States might go bankrupt! Read on to find out more and for links to some useful resources to aid a class discussion of this fascinating topic.read more...»
A new OECD report on the risks of external shocks to the global economy looks like being really useful for teachers preparing fresh materials for their courses. “The interconnectedness of the global economy makes it more vulnerable to major shocks…...these shocks include cyber attacks, pandemics, geomagnetic storms, social unrest and financial crises.” The report can be downloaded here.
John Cassidy is always worth reading. His recent book ““How Markets Fail: The Logic of Economic Calamities” is one of the very best around for understanding important contributions to the development of economic thought and policy during the last fifty years. (I reviewed it here) In this article from the New Yorker, John Cassidy reports from the annual conference of the Institute for New Economic Thinking held at the Bretton Woods Hotel in New Hampshire, USA. It is a review of some of the keynote presentations and discussions and is recommended reading for A2 economics students wanting more background on some of the key policy dilemmas existing at present.
An excellent resource for Unit 2 and Unit 4 macroeconomics. Vishnu Padmanabhan from Timetric has this excellent look at the impact of the recession on real GDP growth in OECD countries. Which countries did best and worst in the recession? It turns out that Australia, Poland, Israel and South Korea were the countries least affected by the crisis and all avoided a full-blown recession - experiencing instead a soft landing. Here is Vishnu’s article. Our own growing selection of Timetric charts can be found by scrolling down to the bottom of this blog entry.
The OECD has just produced their annual review of Going for Growth - a largely supply-side look at policies designed to promote long-term growth in productive potential in the world economy. Details can be found here.
Remittances are the sending of money to people in another country. Despite a recent dip because of the global recession, total remittance flows have grown in the world economy over the longer-term as the scale of migration between countries has grown. For many lower-income nations, remittance income is now a sizeable contribution to their Gross National Income (GNI) The World Bank estimates that there are over 250 million people living overseas who send some of their earned income back - remittances to all countries topped $305bn in 2008. The biggest single recipients of remittances are India, Mexico and China but measured as a share of national income is probably a better way of considering their relative importance. The World Bank calculated that in 2007, remittances as a share of GDP was particularly high in these countries:
Our Timetric charts provide some data background to the importance of remittances
This is a terrific visualisation of what has happened to US house prices since the late nineteenth century - we ride the rollercoaster based on data from the Case Shiller index.
And if you want the latest Case Shiller data on US house prices - based on the 20 city survey, then click on the Timetric charts below .... hold onto your hats, the Florida property price data in particular looks pretty scaryread more...»
There is much talk in macro-economic policy circles of “re-balancing the economy” as a prelude to sustaining economic growth in the future. One aspect of this is addressing the long-term increase in importance of household spending as a share of national income (GDP). As our Timetric chart shows, the proportion of GDP accounted for by consumer spending on goods and services has edged higher over the years from 58% in 1980 to nearly two thirds of GDP in the credit-fuelled spending boom of the last few years.read more...»
Our good friends at Timetric are producing some superb stuff with economic data and here is another example. Policy interest rates are at historically low levels but the cost of borrowing for businesses and unsecured loans for personal customers continues to edge higher and is a vast multiple of the policy rate. This blog from Timetric offers timely background on the rising cost of credit. And it provides a connection to information failures in the consumer credit market.
The financialisation of the British economy continues apace. This article in the Guardian reports that US pay day loan businesses (regulated loan sharks to you and me) are planning a rapid and sizeable entry into the UK consumer credit market. In part this might be because in the UK there is little or no effective regulation on what they can charge.
Cash-strapped families often denied credit by high street banks are vulnerable to the heavy marketing of these businesses - students will know of one of them Wonga the shirt sponsor for Blackpool FC. The typical pay day loan is around £75 to £750, which is deposited in their bank account in as little as 15 minutes, to be repaid in around two to four weeks but with interest rates that can easily reach 30% a month or higher.
The pay day loan market might be a good case study for students wanting to understand more about the demand for credit and discussions about whether there should be a maximum price or cap on the interest rates that can be charged.
David Smith from the Sunday Times was on fine form in his talk to the Global Economy Student Enrichment event at Fulham yesterday. I have some brief notes below on some of his key themes and the pdf version of his presentation can be downloaded from the link at the bottom of the blogread more...»
Fans of Brad Pitt may be interested to know that the Hollywood star is pretty much lined up to take a lead role in the film of The Big Short - the epic new book from Michael Lewis. The author let this slip in discussion at a packed LSE last week as he explored the charaacters of many of the lead figures in a story of epic financial returns from staggering regulatory failure.read more...»
If, like my school, you haven’t entered students for Unit 3 in January but are teaching both A2 units side-by-side for June examination, you might be looking for examples of competition policy and regulation to offer your students in the coming weeks. The report of the Independent Commission on Banking and the focus on regulation at last week’s Davos meeting are very well timed; this report filed today by Tim Weber of the BBC gives a neat summary of the time leading up to Lehman’s collapse, and offers a rather chilling conclusion from informal dinner-table discussions with the world’s top bankers that it is unlikely that regulators can, in practice, untangle the systemic risks in the financial system that make it imperative for government’s to step in and support failing banks.
If you would like to follow this up as an example with students, you might try some of the following links. There are numerous articles assessing the report of the ICB - just a couple are given here.read more...»
Now releasing in the UK and starring Kevin Spacey, Paul Bettany, Jeremy Irons and Demi Moore, Margin Call is presented as a thriller that revolves around the key people at a investment bank over a 24-hour period during the early stages of the financial crisis.
BBC Newsnight interview (Jan 2012)read more...»
Will many advanced economies have to live with a new semi-permanently higher level of unemployment as a consequence of the global financial crisis, economic slump and a period of fiscal austerity?
Paul Mason the BBC’s Economics Editor manages this terrific end of scoop by spotting John Maynard Keynes near his old stomping ground in Bloomsbury - a quiet interview in a local pub provides some clues to Keynesian thinking on the recession!
Read on for a brilliant and amusing video explaining what a recession actually is…read more...»
My Year 13 students have worked on a collaborative piece this week on the Irish financial and economic crisis. We considered the background to the crisis, why the UK is helping with the bail out and some of the consequences for the future stability of the Euro. The final version of the Google Doc is available to download here.read more...»
On a scale of 1 to Ireland, how broke are you? In February 2007 The Bank of Ireland had a market capitalisation of over sixty billion euro. Market cap is the market value of a company’s issued share capital, i.e. the number of shares multiplied by the current price of those shares on the stock market. Today that market cap has collapsed - and as of this morning - With a market cap of $1.4bln, the bookmaker Paddy Power is now Ireland’s largest financial stock!
Another perspective: Facebook’s latest stock market valuation is €105bn. Ireland’s annual GNP: €130bn.
And low-cost airline Ryanair’s market cap tonight is nearly three times that of the entire Irish banking system!
The destruction of shareholder value in the Irish banking system is immense - but the losses and debts of the banks have been socialised and are being borne by Irish taxpayers. The emergency budget will hit people tremendously hard - among the announcements:
* €200 per household property tax for Ireland
* VAT will rise twice to 23%
* A cut in the national minimum wage in Ireland - cut by one euro to 7.65 euros per hour
* Pay cuts in the private sector
* The introduction of domestic water charges by 2014.
Rumours that Steve Jobs is set to use some of Apple’s cash pile to purchase the country and re-brand it iLand appear to be a little wide of the mark!