Electric cars - subsidise the consumer or producer?
We can expect a battery of articles in the days and weeks ahead on government incentives to grow the UK electric car market. Gordon Brown is reported as favouring a sizeable subsidy for consumers to purchase electric vehicles - according to the FT, buyers of electric cars will be offered discounts of more than £2,000 – paid for by the state – under plans by Gordon Brown to make Britain a leading centre for manufacturing “greener” vehicles.
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Causes and Consequences of Russia’s Shrinking Population
This excellent BBC news article considers the background to Russia’s shrinking population. “By 2050, Russia’s population could shrink from the current figure of 142 million people to 100 million, according to a United Nations sponsored study published last year.” Staggeringly high mortality rates (life expectancy for males barely touches sixty) and low birth rates lie at the heart of this particular demographic time bomb. Students might be asked to consider the likely demand and supply-side effects of a long term decline in the size of the population. And also which policies are likely to be most effective in reversing it.
Australia’s Broadband Superhighway
It is ambitious, expensive and will take years to roll out - but the Australian government’s newly announced $43 billion project to extend super-fast broadband across the country is the type of government funded infrastructure project that makes you sit up and take notice. This article in the Times could be a good one to use when teaching about the supply-side consequences of government spending. And it is another example of how fiscal policy can be used to kick start domestic demand with the creation of thousands of ‘shovel-ready’ jobs.
“The project, which will start in Tasmania next year, requires the installation of fibre cables across Australia - a vast undertaking that the Government said would create 25,000 jobs a year during the eight years of construction.”
China and sustainable growth
This BBC news article considers the progress that China is making is reducing the environmental impact of her economic growth. We are told that ‘in Beijing alone, the number of cars has tripled over the past decade, with more than 1,000 new vehicles arriving on the streets of the capital every day.’ but that China’s commitment to a more sustainable rate of growth should not be underestimated.
Related to this topic - Nick Stern’s new book Blue Print for a Safer Planet is now being shipped by Amazon and Evan Davis interviewed him on the Today programme few days ago - here is the link to a four minute interview.
Infrastructure and Growth (2)
A hat tip to my colleague Jon Mace for spotting this rather good BBC news article that considers the role that investment in infrastructure can have in sustaining and promoting economic growth. It is a good example of how government spending (fiscal policy) can affect both aggregate demand and long run aggregate supply. And it raises important questions about how such projects are funded.
read more...»Revision presentation - Irish Economy in Crisis
Things are not looking good for the Irish Economy:
read more...»Q&A: What is the accelerator effect?
What is the accelerator effect?
The accelerator effect describes a principle where how much a business chooses to spend on capital investment will be influenced by how quickly demand is growing for their products.
read more...»Supply-side policy - UK economy indicators update
Supply-side policies and indicators - this is a fast-moving and important specification area where the supply-side data changes are significant and rapid. Here are some updated resources for use once we return after half-term…
read more...»Japan
Japan’s economy shrunk by 3.3% in the last quarter of 2008, the worst three month period since the oil crisis of the 1970s.
read more...»Official recession figures and graphics
This BBC resource has bang-up-to-date graphs and data for the performance of the macroeconomy – GDP, Unemployment, House prices, Inflation, Repossession and Interest rates – as well as some interesting regional comparisons and the opportunity to check your own personal inflation rate. It should be read by anyone studying macroeconomics, especially those taking AQA Unit 6 next week!
Apprenticeships and Economic Performance
My Monday morning edition of the Financial Times carried an important article on the prospects for apprenticeships during the economic downturn. The broad thrust of the piece was encouraging - a number of Britain’s biggest companies have said that they do not plan to curtail the number of apprenticeship programmes on offer to school and college leavers. It is not simply a case of altruism - a number of studies have shown that investing in the human capital of the workforce can achieve a positive payback in just a few years.
“Recent studies have shown that investing in an apprentice is often cheaper than recruiting qualified workers from rivals and then having to retrain them in the procedures of their new employer…...BT had “calculated a net financial benefit of over £1,300 ($1,910) per apprentice a year when compared with non-apprentice recruitment”......A more recent study by Warwick university for the taskforce’s successor, the Apprenticeship Ambassadors Network, found that it cost £28,762 to train an engineering apprentice but the “employer’s investment was, on average, paid back in less than three years”.
Why is the success of apprenticeship schemes important for the longer-term health of the UK economy? Many of the benefits of vocational programmes show through on the supply-side of the economy:
A lower risk of structural unemployment through lower occupational immobility
Less pressure on the welfare benefits system resulting from long term unemployment
A reduction in the number of unfilled vacancies for skilled workers
Higher productivity and better paid jobs - which then boosts aggregate demand
Ultimately - higher profits for businesses with successful apprenticeship schemes
Reduced dependence on inflows of migrant workers
Better skilled workers will improve the quality of work and provide a stronger platform for greater innovation in their chosen fields
Improved customer service e.g. in industries such as gas supply, plumbing and construction
The FT article can be found here
The website of the Apprenticeship Ambassadors Network is also worth visiting
Falling investment as accelerator effect kicks in
Here is a fresh sign of the impact of the economic downturn. The real value of capital investment spending by businesses fell sharply in the 3rd quarter of 2008 - investment demand is now on a steep downward path as our chart illustrates.
This is evidence for what is known as the accelerator effect. The demand for capital goods such as new machinery, factories and technology is linked to the actual and expected rate of growth of final demand for a firm’s products. When market demand slows down or falls as it is across many sectors of the economy, so the amount of spare productive capacity increases and leads to a reduction in planned investment spending. Many businesses are scaling back their investment programmes or postponing capital projects because they have lowered their expectations of future demand, revenue steams and anticipated profits. Only this week we learned that an £88m investment at car maker Toyota’s Flintshire factory has been put on hold because of the economic downturn. Manufacturers, retailers and construction companies are all holding back from going ahead with projects - the lack of demand is the main factor.
Capital investment is a volatile component of aggregate demand and in total contributes around 16-18 per cent of the UK’s real national income in any given year. The drop in investment is a portent of difficult times to come and we can expect to see further cuts in capital spending (capex) as we move into 2009. The UK economy will suffer a deep recession next year and the availability of finance to fund capital spending is severely curtailed by the ongoing credit crunch
The result will be a reduction in demand for capital goods and related inputs - bad news for those industries whose own fortunes depend on a steady flow of capital projects from the business sector.
Can government investment spending help to fill some of an increasing void?
BBC: UK businesses cut back investment
The Folly of Growth
The New Scientist has a special report on the environmental consequences of economic growth - The Folly of Growth - and their website carries some very useful links to recent research.
Why do we need economic growth?
John Sloman discusses this in his latest piece for the BBC magazine. His feature looks at the benefits of growth and some of the darker economic and social consequences. Growth is a necessary but insufficient condition for improvements in welfare and material living standards.
Here is the link to his article
BlackBerry raises the bar (again)
It is the classic contestable market - BlackBerry is locked into a perpetual battle with the likes of the iPhone for the hearts, minds and wallets of corporate and consumer users. The Indy today reports on the release of the new Blackberry Storm - hang the credit crunch, forget the implosion in the real economy, lets get out there and try it!
Standing on the shoulders of giants
It strikes me that we have probably already reached a critical mass for a wide and ever-growing range of open source software products. The BBC’s iPlayer is now cross-platform. Google is based almost entirely on open source software. And Specsavers, one of Britain’s largest private companies with a network of over 1,000 stores (growing at two a week) has built its entire infrastructure on open source. What is true for Specsavers also holds for Pepsi Co and Pixar. Mozilla Firefox, Linux, Moodle and Apache web servers have come of age and are sympotmatic of an age of collaborration and rapid innovation within the open source community.
read more...»Investing the proceeds of the oil bonanza
This BBC article focuses on the ways in which the Brazilian government is seeking to use the revenue from oil exports to boost the economy’s long run economic growth potential and reducing poverty. There is a neat line in here about the importance of value added - from moving away from dependence on exporting crude oil to selling derivatives of oil that carry a higher value in world markets. Yet another country looks poised to establish a sovereign wealth fund to manage some of the assets that come from selling black gold to the rest of the world.
Signed, sealed and delivered - The Box starts a journey
Containerisation has long been regarded as one of the key drivers of the current wave of globalisation. And now the BBC is putting together a series of video reports entitled The Box to demonstrate the impact that containerisation is having on our lives. Here Declan Curry finds out how the container box has transformed the way cargo moves around the world and in this report, Declan explains why such containers are so important in the modern world.
The series is inspired by the recent book by Marc Levinson “The Box How the Shipping Container Made the World Smaller and the World Economy Bigger” and seems destined to produce and tremendously rich vein of news clips for us over the next year. Hat tip to John Richards for alerting me to this.
Income inequality and growth
William Bernstein writes in a guest spot for the Freakonomics blog and considers how extreme income and wealth inequality can hinder growth and development in the long run. Quite apart from the increased burden of spending on defensive expenditure such as home security, prison guards and home and contents insurance - when the gap between the haves and the have-nots reaches staggering levels there is a real fear that respect for property rights is fundamentally undermined.
“The paradox of economic growth is that the same mechanisms that create great wealth –secure property rights and rule of law guaranteed by an independent judiciary — also give rise to great inequalities in its distribution. Private property provides a powerful incentive to produce wealth for oneself while simultaneously denying that same wealth to others. Wealth does trickle down to the rest of the population, but often not fast enough to avoid political strife and worse.”
The remainder of his post is here
Ageing but not ailing
Sarah Harper, Professor of Gerontology at Oxford and director of the Oxford Institute of Ageing offers this optimistic view of the economic and social spill-overs from our ageing population. Apparently - currently, every hour we live adds five minutes to our life expectancy.
Don’t panic, we have nothing to fear from an ageing society
The article seems to be in response to figures released last week that the number of people aged over 60 in the UK now outnumbers children for the first time.
Grey hairs, pensions and the trend growth rate
Is the ageing of the US population a contributing factor to a shrinking of the USA’s trend growth rate? Yes according to Stephen King writing in the Independent today.
“As the proportion of people in retirement swells, so the burden on workers tends to increase, as does competition over resources. Whether or not people have funded pension schemes, the ultimate problem relates to claims on output. If there are fewer people in work, there may simply not be enough output to satisfy all the competing claims.”
A shrinkage of the trend growth rate will have serious implications for the rate at which living standards can rise but the essence of King’s piece is that it will also contribute to growing inflationary pressures unless the USA can raise its game on productivity and/or become less unfriendly when it comes to net inward migration. It is a reminder that the root causes of inflation are not always on the demand-side.
Economic slowdown becomes steeper
This BBC news video is excellent at looking at some of the causes of the economic slowdown in the UK economy and features a brief cameo appearance by my old director of studies at university - Martin Weale from the National Institute. In a related article, the International Monetary Fund reports that the worst of the credit crunch is not yet over.
Expresso Book Machines - Printing on Demand
“As many as 1m titles may soon be available through on-demand printing, including 600,000 titles being digitised by the publisher Lightning Source, available to be printed in one-off versions on the Espresso machine, as well as hundreds of thousands of “open-source” titles, such as classics with expired copyright.”Countless hours have been spent by look lovers searching in second hand bookstores and online inside the long tail of millions of back-catalogue books and pamphlets that are out of print. The second hand book industry is thriving and several towns such as Sedbergh and Hay on Wye have enjoyed a renaissance built on clusters of bookstores that lure browsers throughout the year. But perhaps the days of longingly poring over second hand book shelves are under threat from a technological innovation called Expresso Book Machine which claims to bring printing on demand into the mainstream of book retailing. This machine is featured in today’s Sunday Times.
read more...»Will the sunshine on this solar subsidy?
I spotted this article in the Guardian from a little while back - “The largest rooftop solar power station in the world is being built in Spain. With a capacity of 12 megawatts of power, the station is made up of 85,000 lightweight panels covering an area of two million square feet” It brings into play three important economic concepts - renewable energy as a factor resource, economies of scale in production and also the costs and benefits of government subsidy - Spain has introduced subsidies of €0.42 per kilowatt per hour for investment in solar power - though the level of subsidy may be lowered in the months ahead.
Jim O’Neill on Globalisation
Jim O’Neill the Chief Economist of Goldman Sachs writes on the benefits of globalisation for the UK economy in today’s Sunday Telegraph
“For the nation that provided the English language to the world, that provides the link between east and west in terms of time zones, globalisation - the major structural trend of our generation - is going to become an ever greater bonus….At the heart of all of this is the expansion of the so-called BRIC economies. The emergence of Brazil, Russia, India and particularly China, closely followed by another group of emerging economies with large populations that we have dubbed the “Next 11”, will drive our future.”
Jim spoke at the Keynes Society in February and there is a report here
Oil sands - an enviromental catastrophe?
“The Caterpillar 797B heavy hauler is the world’s biggest truck. It’s taller than a four-storey house, as wide as a tennis court and it removes nearly 35,000 tonnes of oily sand a day from a deep open cast mine in northern Alberta in western Canada.”
John Vidal heads to Canada to ask some tough questions of the oil industry and its intentions in northern Alberta in this Guardian video report. This video is backed up by this report. Some of the photos of the plant and equipment being used are truly stunning - I will certainly be using this when I teach about economies of scale next autumn. The size of the oil sands exploration is astounding and the economic boom hitting this northern wilderness in places such as Fort McMurray beggars belief. But so too are the environmental consequences of this black gold rush
“The downside is ecological devastation and soaring greenhouse gas emissions on a scale that is beginning to alarm Canadians and other western countries trying to reduce the intensity of their carbon economies to counter climate change. Canada, alone, of developed countries, is expecting to increase emissions for 30 years and ignore its commitments to Kyoto.”
Peter Day looked at this issue a couple of years ago and his In Business report is still available on the BBC web site
Image from creative commons licence on Flickr.com
US human capital in decline?
Clive Crook’s excellent blog asks whether the US economy’s growth potential will be harmed by a forecast that “Over the coming years, baby-boomers departing from the labour force will have better educational qualifications than the younger workers replacing them. If the ultimate source of an economy’s ability to grow and prosper is its human capital, the US is in trouble.”
Is there an equivalent study available for the UK?
Infrastructure and Growth
Two recent stories published by the Economist are useful in understanding the significance of investment in critical infrastructure and sustaining long run economics growth
read more...»Renault-Nissan announce entry into low-cost car market in India
The battle is intensifying to develop, manufacture and sell low priced family cars to meet the burgeoning demand from consumers in emerging markets. Renault and Nissan announced today that they are entering into a joint venture with the India firm Bajaj Motors to jointly build a $2,500 car to compete with Tata Motors’ Nano mode. A new 400,000 capacity plant is being built in Chakan, Maharashtra and the aim is to bring the car to the market in 2011.
read more...»Policy conflict for the UK economy?
The IMF is forecasting a slowdown in global growth to 3.7% in 2008 and 2009. This is in contrast to recent growth rates of over 5%.
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