Is America heading for a boom? Real GDP has risen for 13 successive quarters and now stands 3 per cent above its peak level. A net total of 4.8 million jobs has been created over the past three years, with a fall of half a million in the public sector being massively outweighed by the 5.3 million rise in the private.
But welcome and sustained though the recovery is, it hardly
constitutes a boom. And it
certainly does not when compared with the growth rates seen in the recovery
from the last major financial crisis in the 1930s. The slump was of course much worse, with output falling in
every single year during 1930-33.
The rebound was spectacular.
GDP rose by no less the 43 per cent between 1933 and 1937.
But welcome and sustained though the recovery is, it hardly constitutes a boom. And it certainly does not when compared with the growth rates seen in the recovery from the last major financial crisis in the 1930s. The slump was of course much worse, with output falling in every single year during 1930-33. The rebound was spectacular. GDP rose by no less the 43 per cent between 1933 and 1937.
On Thursday 31st of January 2013, the long-awaited LSE Growth Commission Report was published and launched in London. The document itself is available for download from this link and I urge all teachers and students interested in growth, competitiveness and the fairness agenda to have a look at it. It is full of rewarding and important insights into the drivers of balanced growth in a modern advanced economy.
I will be adding new resources and links to this blog following the launch event
Key Points from LSE Growth Report
- Strong rule of law
- Generally competitive product markets
- Flexible labour market
- A world-class university system
- Openness to foreign investors and migrants
- Independent regulators including competition authorities
- Strengths in many key sectors including high end manufacturing
LSE Commission Growth Agenda
- Greater autonomy for schools, tackle the long tail of under-performance. Conditional cash transfers for families to pupil attendance and performance. Focus league tables less on % attaining 5 A-C grades. Reveal performance at the bottom end.
- Concentrating on skills (improving human capital) gives people the resilience to recover from global shifts in the division of labour
- Critical infrastructure essential for competitiveness in modern economy. For the UK, transport and energy are infrastructure areas with biggest issues; there has been a lack of clear strategy and lots of dithering / political delays.
- Huge opportunities for UK - industrial revolution driven by search for low-carbon technologies driving innovation - can the UK keep up?
LSE Commission proposes:
- 1) Strategy Board (for planning)
- 2) Planning Commission (for delivery)
- 3) Infrastructure Bank (for funding)
- Innovation is the third channel for increased growth
- Problems in UK capital markets mean innovation is not properly funded - short-termism remains a structural weakness of the markets
- More competition in retail banking
- Business bank that prioritises lending to SMEs and innovative firms
Changing the compass of economic performance
- Commission suggests that focus on GDP is not helpful
- GDP misses out on who gets the growth and measures production not income
- Need more focus on Median Household Income
- Median household income and GDP per capita have been decoupled since about 2002. GDP no longer tracks it
UK trend growth rate can be lifted by 0.5% with effective structural reforms - large compound effect on incomes over the long run
Institutions and incentives matter for growth. Macro stability important too. UK politics too short term and adversarial. Fundamental weakness is the failure to create a stable policy framework.
More focus needed on evidence based policy making to make government smarter.
Here Professor John Van Reenen, Director of CEP and co-chair of the LSE Growth Commission, presents a 'manifesto for growth' for the UK economy over the next 50 years, backed up by the Growth Commission's report.read more...»
Today's announcement of routes for the HS2 project highlights the importance governments ascribe to public works projects.
There are several research organisations out there producing regularly updated forecasts on what is likely to happen to the relative shares of global GDP and income per capita over the long run. Typically the forecast stretches out to 2050 and necessarily involves plenty of uncertainty. But these over the horizon studies are quite interesting in their own right because they remind us of the changing drivers of growth in the world economy.
Here is one of these reports - World in 2050 The BRICs and beyond: prospects, challenges and opportunities - produced by economists at PriceWaterhouseCoopersread more...»
Students taking their Business Economics unit exam this week might like to use online file-storage as an example of a contestable market. This comes during the week of an announcement by the colourfully-named internet tycoon Kim Dotcom of a re-launch of his file-sharing cloud-site Mega - which offers up to 50 Gb of free file storage and out-trumps its big and more established competitors at Dropbox, Microsoft and Google. According to Mr Dotcom he already has a quarter of a million registered users and over a million hits on his website within the first day.read more...»
Grabs have become an important and controversial issue
in development economics in recent years.
I really look forward to receiving my daily email from the Farnham Street Blog - over the last couple of years it has been a continuous stream of interesting ideas and links to thinking in business and behavioural economics. Today's article focused on the continued popularity of Lego bricks despite the loss of patents. Price anchoring, brilliant marketing, consumer perception, hard wiring into our brains the contextual value of a product ... the result is low price elasticity and the ability to raise price nearly every year! Here is the link
To fully understand trade, we must understand the value added at each stage ...... a crucial line in a new report from the OECD on the challenges of measuring the value of trade in a globalised world with deeply integrated supply chains. This is an important issue, traditional trade data rarely tells us the full story - a key evaluation argument that can be made in Unit 4 macro papers.
For example, the OECD report finds that one-third of the total value of motor vehicles exported from Germany actually comes from other countries, while nearly 40% of the total value of China’s electronics exports come from foreign sources.read more...»
There is increasing interest in the use of
"smart aid" - aid
programmes that use experimentation and focus on bottom-up projects in order to increase the effectiveness of each £
or $ given in aid
Does aid help or hinder economic growth and development? This is the subject of a fierce debate in the development economics literature
countries have seen a growing share of their GDP directly linked to overseas trade - trade has many positive spillover effects
As President Barack Obama prepares for his second inauguration I have put together this set of twenty five charts on the state of play for the US economy. An underlying awareness of some of the major challenges facing the world's largest economy provides great context for students writing on many other issues, for example US-China trade relationships, or connections between the USA and her NAFTA partners or emerging economies in Latin and South America.
The charts cover the following areas:read more...»
Comparative advantage is a dynamic concept meaning that it can and does change over time. For a country, the following factors are important in determining the relative unit costs of production:
The middle income trap exists for some countries that make significant progress in reducing extreme poverty and experience structural change and growth but then find it difficult to make the climb from being a middle-income country to achieve high-income fully-developed status. GDP growth rates often slow down and a country can struggle to build and maintain international competitiveness. Research from the World Bank finds that only 13 of the 101 countries deemed to be middle-income countries in 1960 had achieved high-income levels in 2011. Different studies find different thresholds for where growth tapers off, ranging from $8,500 to $18,500 at 2010 prices, adjusted for purchasing power parity.
The economist Robert Solow (pictured) developed the neo-classical theory of economic growth. Solow won the Nobel Prize in Economics in 1987.read more...»
Some links here for students and teachers who look at the Kenyan economy as part of their growth and development studies. Growth prospects look positive but even a growth rate of 4% is insufficient to bring about an economic transformation and tackle very high rates of youth unemployment and under-employment.read more...»
Hopefully this does what it says on the tin!read more...»
An updated glossary of key terms for AS macroread more...»
Here is a series of links to recently available resources on international financial flows and their impact on growth and developmentread more...»
As the sun rises on another year will the headwinds be favourable for Britain or are we facing up to another year of stresses and strains? Here is a brief commentary and overview of some of the key macroeconomic data for the UK economy together with some links to external articles and videos on economic prospects for Britain as we head in 2013.read more...»
I am linking in this blog to some of the ideas and arguments contained in "The Quest for Prosperity" the new book on economic development from Professor Justin Lin - in particular the case he makes for the need for a new development economics - devel econ 3.0!read more...»
This 34 minute debate features Professor Bill Easterly and Dambisa Moyo - looking at prospects for emerging countries in 2013read more...»
I am linking here to a lecture given recently at the Royal Society of Engineering by Tom Standage from the Economist.read more...»
Here is a superb blog from the Economist magazine into a digital business built around the Freemium pricing model and where network effects are strong. Also good for understanding market contestability and the impact of new entrants on profit margins. Dropbox is my preferred file sharing system, I am pretty much locked in and wouldn't change!
Freemium is a business model in which some basic services are provided for free, with the aim of enticing users to pay for additional, premium features or content
Apologies for the reference in this Blog’s title to the Human League’s 1981 Christmas number one single – it betrays my age. I’m sure if you come to use this example of competition regulation and contestability you will use something much more contemporary.
The back catalogue of all of the Human League songs of that era, along with many thousand more recent songs (such as those of Take That and Duffy) have just been bought by BMG – one of the world’s largest music publishing groups. BMG have purchased these rights from Universal who have been forced to sell them as part of their own takeover of EMI earlier in 2012.
In many countries, resource nationalism has become more frequent in recent years, indeed it has been one of the key stories in 2012 as several countries have introduced new resource taxes, natural resource licence reviews and expropriation of assets from private sector companies. This Financial Times news video looks at the trends including resource nationalism within countries as provinces and regions look to exert great control on the revenues from oil, gas and mining projects.
See also: Economist: Foreigners beware - oil and mining in Indonesia
Resource insecurity: New report from Chatham House
Interactive resource: New political economy of natural resourcesread more...»
Drawing on data from the December 2012 World Bank Database, this Guardian data resource looks at growth and development indicators for six fast growing countries over the period 2007-2011. The countries are Chile, Ghana, Indonesia, Mexico, Thailand and Turkey, looking at child mortality, university enrolment, mobile phone subscriptions and the numbers of tourists arriving to analyse the 'boom'
Immigration lowers the wages of relatively low-skilled native employees in sectors of the service economy that hire bigger shares of foreign workers. But the cost reductions that employers enjoy from lower wages are typically passed on to consumers: price inflation is much higher for services with no change in immigrant employment than for services where immigrant employment is growing.
These are among the findings of research by Professors Bernt Bratsberg and Oddbjørn Raaum, published in the latest issue of the Economic Journal. Their study confirms that there are clear winners and losers from labour migration: low- and semi-skilled workers face increased competitive pressures on their wages and employment while consumers enjoy more services at lower prices.