Here is a streamed (and downloadable) presentation on policies to cut unemployment in the UK economy.read more...»
How Britain escaped from the travails of the Great Depression and achieved 4% a year growth in the years from 1933 to 1937 has important lessons for today’s policy-makers, according to research by Professor Nicholas Crafts, presented at the Economic History Society’s 2013 annual conference.read more...»
GDP per hour – labour productivity – in the UK remains lower than at the beginning of the recession in 2008. A special session at the Royal Economic Society on Friday 5 April held jointly by the Centre for Economic Performance (CEP) and Institute for Fiscal Studies (IFS) investigated the causes of this mystery. It was also the subject of radio 4 In Business - click here
See also: the Job Rich Depression (The Economist)
Economic commentators love their acronyms and abbreviations - they come in handy when reaching character capacity limits on a tweet and also for students fighting the exam clock to complete a timed essay. Two new ones have come to my attention in recent days. What does ZIRP and PLOG mean to you?read more...»
It’s not often you read such a clearly set out, even-handed article on macroeconomic policy, so this relatively lengthy piece was interesting in itself as its writer appears to deal relatively equally with both sides of the big austerity debate. But you really have to take notice when the writer is the Secretary of State for Business, Innovation and Skills, Vince Cable.
Tomorrow's Financial Times leads with a headline, "Osborne to hand Carney powers to kick start the economy." Budget to alter Bank of England's remit...Loser Monetary Policy."
Stephannie Flanders, the BBC's Economics Editor, considered if the UK's present monetary policy with its use of Quantitative Easing had played a part in pushing up share prices and wondered if other unorthodox measures would be effective to deal with a stagnating economy.
Vince Cable the Business Secretary provides an outline in The New Statesman of the economic problems the current coalition government has faced, how monetary, fiscal and supply side measures might be used to stimulate the UK economy in response to what he calls the long economic stagnation of post-crisis Britain.
The FT implies that The Chancellor is not wholly convinced by arguments from Vince Cable to boost growth with a new programme of infrastructure spending on schools, roads and housing, funded by extra borrowing. The arrival of Mark Carney at The Bank of England may signal a sea change in how monetary policy is used to stimulate the economy, breaking with the 2% inflation targeting approach. The MPC may be encouraged to focus on targets for inflation and employment. Some of The Committee's members support more quantitative easing whilst The Deputy Governor Paul Tucker said the idea of negative interest rates should be considered.
Link to coverage of Cameron's Speech http://www.guardian.co.uk/politics/2013/mar/07/david-cameron-rules-out-extra-borrowing
The Economist wades in with an analysis of why the slump in consumer spending has contributed to a flatlining economy with low or barely perceptible growth. Household saving has increased to c.7%. Falls in real wages, coupled with rising 'administered prices' of gas and electricity have also helped lower consumption. But the cycle of higher costs and prices isn't helped when Sterling depreciated by 6% in the course of the New Year.
The loss of triple A status on UK government bonds has intensified the demands for a Plan B. So-called Keynesians demand an increase in both public spending and the public sector deficit.
What might Keynes himself have said about the current situation? Lacking a Ouija board, I am unable to communicate directly with the great man himself. But we can get a very strong hint from the title of the first major work which Keynes published when confronted with the 1929 financial crash. It is the Treatise on Money. His most famous work was not published until 1936, when the Great Depression was well and truly over. Its full name is the General Theory of Employment, Interest and Money.read more...»
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...»
An updated glossary of key terms for AS macroread 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...»
Here is a link to a video of a talk given by the eminent economic historian, Professor Nick Crafts on whether there are important lessons from the 1930s for policy-makers as they search for growth enhancing policy measures. The opening statement is gloomy, but the historical sweep and arguments are impressive! A stretch and challenge talk for ambitious sixth form economists.read more...»
In the boom decade of the 2000s, corporate rebranding and renaming was all the rage. Some were successful. Others are best forgotten, like PWC’s proposal to bestow the name of Monday on its consulting arm. But as the world’s economic recovery gathers momentum, perhaps it is time to revive the practice.
If fiscal consolidation continues and radical changes to monetary policy are ruled out, it is mainly ‘supply-side’ reform that can restart UK growth without doing longer-term damage to the economy. Among other things, that means repairing infrastructure, improving education, reforming taxation and tackling the restrictive planning system. But one area that could deliver both short-term stimulus and long-term efficiency is private house-building – as happened in the 1930s recovery from recession. Today’s planning restrictions mean that the stock of houses is three million below and real prices are 35% above what they would be if market forces operated freely.
These are among the conclusions of Professor Nick Crafts on what policy-makers can learn from the 1930s and 1980s, when the UK economy made strong recoveries from severe recessions very similar to the current one. Despite fiscal consolidation, both the 1930-32 and 1979-81 recessions were followed by strong recoveries.
Delivering the Royal Economic Society (RES) annual policy lecture in London on Wednesday 17 October 2012, Professor Crafts summarised the policy lessons from those decades that are relevant to kick-starting recovery now:
Nobel Prize winner Paul Krugman will shortly be in town. With Lord Richard Layard, he will be calling for more public spending and borrowing. The two have issued a ‘Manifesto for Economic Sense’. But is it?
The opening sentences make dramatic claims: ‘More than four years after the financial crisis began, the world’s major advanced economies remain deeply depressed, in a scene all too reminiscent of the 1930s. And the reason is simple: we are relying on the same ideas that governed policy in the 1930s.’
This makes for good rhetoric. No doubt the BBC will swallow it whole. Unfortunately, it is simply not true. It would be foolish to say that the world economy is booming, but it is just as wrong to claim that the world’s major advanced economies remain deeply depressed.read more...»
I set some of my AS economics students an assignment on Keynes last week. The starting point was the first of Stephanie Flanders' excellent series featuring Keynes, Hayek and Marx. We watched it in class and I was keen for students to explore some of the guiding principles of Keynesian economics well before we get stuck into AD-AS analysis. I am also desperate to avoid showing them a mark scheme until March at least (when I am taking a sabbatical!) - so I marked their work mainly on the quality of their writing and whether or not I enjoyed reading it! I have showcased a few examples below of their answers.
The UK economy is struggling to recover from the last recession. Private sector demand in the form of consumer spending and business capital investment remains weak, confidence is low and exports of goods and services have been affected by problems in the economies of many of our trading partners. UK GDP remains well below the peak achieved before the start of the last recession and unemployment continues to rise. Keynesian economics has made a comeback in recent times, indeed many governments around the world have decided to introduce Keynesian policies as a way of injecting fresh demand into their fragile economies.
Analyse how the macroeconomic problems outlined above would be approached by Keynesian economists. In your answer try to capture the essence of the Keynesian approach and attempt to raise and discuss some of the criticisms that have been levelled at Keynes.read more...»
Stephanie Flanders, the BBC's Economics editor, is starting a new series looking at famous Economists.read more...»
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...»
The debate rages about whether the Chancellor should implement a Plan B, or C or D or even Z. There seems to be a plethora of alternatives. But many of them share a key common theme. Namely, that an increase in public spending will boost output in the economy overall.
This was one of the revolutionary new ideas developed by Keynes, which he called the ‘multiplier’. An increase in public spending means that more people are employed, in the public sector itself of in building infrastructure. These in turn spend more money and the effect ripples across the economy. The final impact is a multiple – hence the word ‘multiplier’ – of the initial increase in spending.
This seems to be commonsense. But commonsense can often lead us astray. It seems to be common sense that the Sun goes round the Earth, it goes round the sky after all. What does modern economics have to say about the size of the multiplier?read more...»
Many AS students will be starting their introductory macroeconomics courses and lots of you will be keen to make a great start and achieve momentum in their work from the word go! The same can be said about the British economy!
One of the key issues at this time is how best to inject some growth of demand, production and jobs into an economy that has struggled to climb out of recession. Indeed GDP remains well below the peak seen just before the start of the recession in 2008-09. The UK's economy is expected to contract by 0.7% this year, according to a new forecast from the Organisation of Economic Cooperation and development (OECD).read more...»
There was an interesting discussion on Keynesian insights for today’s financial markets on FT television today. The interviewee is the noted biographer of Keynes, Professor Robert Skidelsky.read more...»
When Robert Skidelsky gave his talk on Keynes here in Madrid last October, he spoke at length about the importance of effective government spending emphasising that the focus of the spending should be on capital rather than current. Yes, when aggregate demand is lacking, the government should increase spending on capital projects, even if that means deficit spending, in order to kick start the economy with the accompanying multiplier effect on output, jobs and growth.read more...»
Paul Krugman made an impassioned plea for a reversal of austerity policies in a talk to a packed Peacock Theatre at the LSE in London last night - I was live tweeting the event and I have brought together these tweets and some other comments together with some of the charts in his talk. I have also drawn on the live tweets of Stuart Foster whose excellent twitter feed can be found here: @econbant
The slides from Krugman’s talk at the LSE can be found here
Paul Krugman talks to Evan Davis on the Radio 4 Today programme: Click here Niall Ferguson provides a contrary view here: ‘You can’t solve debt with more debt’ See also: European Commission supports UK deficit-cutting course (BBC news)
Our focus in an AS macro revision session was on the difference between cyclical issues and events and the wider / deeper structural problems and issues facing the UK economy at this fascinating time. Key macro policy decisions affect the path of an economy out of recession, but are these the same policies that will address the supply-side constraints and weaknesses that hold back growth, development and contribute to growing inequality?read 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...»
A short glossary of key terms connected to the economic cycleread more...»
We were looking today in AS macro at the policy options being considered as part of a strategy to drive a stronger recovery in demand, output, jobs and investment in the UK economy.
I am trying to encourage my students to put things into context as soon as possible in their longer essay-style questions. Here are some thoughts on a question on policies designed to bolster growth:read more...»
How far, how fast and in what way should the UK government seek to cut the annual budget deficit and improve the state of public sector finances? These questions continue to be at the centre of a fierce debate among economists.read more...»
Profit-seeking businesses will go ahead with an investment if they believe that it will - over its projected lifetime - yield a real rate of return greater than if the money had been invested in the next best alternative way. Opportunity cost is a useful idea to use here. Private sector businesses usually focus on these objectives when investing in new capital inputs:read more...»
In this blog we are putting together a suite of web-based resources on the clash between supporters of Keynes and Hayek, a debate that have gathered momentum in recent times largely in the wake of the global financial crisis.read more...»
After a hesitant start and some time spent getting to know the user interface, I am starting to use Prezi more widely as an alternative to other presentation software. I would be really keen to share ideas and collaborate on presentations with other colleagues so if you are interested in joining up please let me know. Here is an initial presentation I used this afternoon on unemployment policies - focusing on ten strategies to reduce unemployment. The aim is to stimulate discussion among students who can take apart the proposals and substitute their own.read more...»