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The weekend newsletter from the Institute of Economic Affairs has this 2-minute video about the regressive impact if indirect taxation on those with the lowest incomes. The message comes very much from the free-market perspective of the IEA, which may or may not be to your taste, but serves as a very good stimulus to discussion and analysis. The data that supports their argument for a reduction in indirect tax can be found in a report titled Aggressively Regressive.
When the government still has to borrow an extra £90bn per year, in spite of all their efforts to cut spending, then the rate of interest they need to pay in order to get access to that borrowing has got to be very important. George Osborne certainly thinks so; a key reason for his deficit-reduction strategy is to retain the confidence of the bond markets, so that bond-buyers are prepared to lend to the UK at low rates. This week, that rate touched a historic low of 1.396 per cent on 10-year bonds, and as the FT report, longer term 30-year gilt yields, considered particularly reflective of the country’s inflation prospects, also dropped to a record low of 2.102 per cent.read more...»
We all know that the UK government has run up a colossal national debt - £1475bn as I type this sentence. And it’s rising fast, since the UK government also has a fiscal deficit to finance this year, which will add even more to the total stock of debt.
Yet the cost of borrowing all this money is falling to new record lows. Why? And should this influence the government’s economic policy in any way?read more...»
What does this mean? Stated simply, it means that ratings agencies – who try to judge how reliable a debtor is – have issued a warning about the Russian government. If traders in the bond market doubt Russia’s ability to pay back debts, it will make it much harder, or at least more expensive, for Russia’s government to borrow.read more...»
CPI inflation has slipped well below the lower limit of the Monetary Policy Committee's target, to 0.5% - that is far lower than it fell during the recession, and the lowest level since May 2000. So, as Mark Carney prepares his letter to the Chancellor to explain how this has happened, and what the Bank of England intend to do about it, the BBC have published an article which examines why we need some inflation. It is one of those articles which is truly useful - probably more so than a text book as it is based on real, current context. Highly recommended to AS students learning about inflation for the first time, and A2 students who need to revise the basics.read more...»
According to the Guardian, "rarely has a trade agreement invited such hype and paranoia". The Transatlantic Trade and Investment Partnership (TTIP) – or proposed free trade pact between the US and the European Union – has triggered apocalyptic prophecies: the death of French culture; an invasion of toxic chlorine chickens into Germany; and Britain’s cherished NHS will become a stripped-down Medicare clone.
From the point of view of free-trade cheerleaders, EU carmakers will more than double their sales, Europe will be seized by a jobs and growth bonanza and Americans will beg European firms to build their roads and schools. The world’s biggest trading nations will have no choice but to play by the west’s rules in the new world created by TTIP.read more...»
I like to read Jeff Sachs for his alternative viewpoints. He often writes about investment and has recently argued that the problem with both free-market and Keynesian economics is that they misunderstand the nature of modern investment. Both schools believe that investment is led by the private sector, either because taxes and regulations are low (in the free-market model) or because aggregate demand is high (in the Keynesian model).
In Sachs’ alternative view, private-sector investment today depends on investment by the public sector. But investment into what? What types of capital should we be accumulating?read more...»
Every so often I read an article and start to tot up the number of economic concepts being covered in just a few words. This occurred to me again this morning when reading this BBC news article on train fare rises. Train fares are pegged to July's inflation rate and, as inflation is quite low at the moment, this means that the average rise of 2.2% is also relatively low (although regular train users may still feel aggrieved).
Have a read yourself and see how many concepts crop up or give them same exercise to your A2 students. My thoughts are below:read more...»
Japan has suffered years of persistent deflation, and needs expansionary policy to change that. But they also have the highest public debt of any of the developed countries, at just under 230%, and need contractionary policy to change that. How are they to manage such a difficult trade off?read more...»
The current recovery has been different in the United States. Though unemployment has fallen from 10% to 6.1%, labour-force participation has not increased. In fact, it has declined to its lowest level since 1978. This is controversial. Some economists say long-term structural factors, mainly aging, explain most of the recent drop in the labour force. Others argue that short-term, cyclical factors are mostly to blame: workers are sitting out the job hunt, waiting for better opportunities.
What about the effects?read more...»
This is an excellent podcast to introduce year 12 students to the importance of controlling inflation and the perils of deflation.read more...»
The Local Government Association (which represents local councils in the UK) have joined the debate about term time holidays for pupils this week. They argue that current rules banning term time holidays or imposing fines on those families who take such breaks do not recognise the complexities of modern families and also prevent poorer families from affording vacations that are invariably dearer during the holiday period.
It struck me whilst reading one of the reports that the suggested policy is to allow head teachers that most quantifiable of options, 'common sense', to make decisions on a case-by-case basis would be the sort of argument that would make me scream if a student wrote it in an assessment answer. Economics students, unlike Local Government officials, need to take a much more analytic approach to this question!read more...»
One optimistic observation in economics is that poor countries should be able to catch up with the richer ones, since it’s easier to grow from a low level of GDP to a higher one. This observation was made by Nobel-winner Robert Solow in 1956, and is based on the idea that low income countries are poor because their workers have access to less capital. This capital shortage (i.e. insufficient infrastructure) implies that the return on investment should be high, so capital should flow from rich countries to poor ones, leading the two worlds to converge on similar levels of productivity and income.
Furthermore, in this theory, growth in rich countries is driven by new technology which, once developed, could be adopted by poorer economies too. Indeed, the poor could potentially learn from the mistakes made by the rich, and leapfrog directly to more productive ways of doing things.
And so it seemed. From the late 1990s to 2008, poor countries were catching up fast. But that catch up seems to have slowed down (see chart above).read more...»
I love a story that really can resonate with students and get them 'irked'. It struck me yesterday that reading about a recent Bristol University research paper that claims that school admission policies lead to greater inequality might strike a chord with some young people.
The study suggests that the common policy in the UK of prioritizing admission places in primary and secondary schools based upon how close a student lives to that school continues a cycle of inequality. The argument is that, wealthier people are more able to afford to move to areas with higher performing schools and so are more inclined to do so. People without that facility have less choice in where to send their children and may have to stick with local schools despite their relative poor performance. So the cycle continues ..... poorer people receive a poorer quality education and are therefore less equipped to get the necessary qualifications to earn higher wages.read more...»
Yesterday’s Conservative party conference threw up some lovely economic policy proposals for students and teachers to get stuck into. They certainly grabbed the headlines today with David Cameron’s proposals to increase the personal allowance and 40p tax thresholds. Sky News have some decent coverage which can be used to spark a good discussion.
Here are a couple of current UK problems. Firstly, although the economy is recovering strongly, tax receipts aren’t. Secondly, flaws in the way the welfare system operates may be creating disincentives in the labour market. Could a radical proposal: streamlining the whole welfare system by paying everyone a ‘citizen’s income’ help?read more...»
Here is a link to a video report produced by the IMF as part of their annual assessment of the UK economy. Overall, the IMF is considerably more optimistic than it was in 2013 about prospects for near term recovery of output and continued reductions in unemployment.
Risks to macro stability are also considered, namely weak productivity growth and high housing pricesread more...»
The Russian central bank has raised their main policy interest rate by 0.5% to a new level of 8% in a bid to control inflationary pressures in the Russian economy.read more...»
An important landmark for the UK economy? Britain’s economy is finally larger than it was before the financial crisis six years ago. FT economics editor Chris Giles analyses the data and warns that continuing weak productivity means output growth will be slower than before the crisis - an excellent analysis of the key macro indicators suitable for all A level economics students.
I have added some charts on the UK drawn from the latest IMF world economic outlook.read more...»
This Mini Lecture discusses issues of labour productivity, low-wage work and economic growth of emerging markets.read more...»
Ed Miliband has told his party's national policy forum that the party must change policy from their traditional approach of raising spending and taxes, saying ''Higher spending is not actually the answer to the long-term economic crisis''. Some members of the forum wanted to force a vote for an immediate increase in public spending should Labour win the next election, but proposals committing Labour to new spending on housing and school meals were withdrawn at the forum in Milton Keynes.read more...»
This interview with Jurgen Maier of Siemens is well worth reading on several different levels. It challenges the conventional wisdom that UK will always lag behind Germany in terms of high value added manufacturing; it refers to the economics risks of Brexit (Britain leaving the EU) and it also stresses the importance to the UK of foreign investment from German businesses many of which have been in the Uk since well before the first World War - Siemens and Bosch are two well-known examples.read more...»
Data on export patterns for goods from countries around the world provide a fascinating window on the degrees of complexity that nations have achieved. There is growing interest in the significance of knowledge capital or know-how in lifting productivity, competitiveness and improving trade performance for economies at different stages of development. Below is my selection of countries.
There then follows links to videos from Cesar Hidalgo and Riccardo Hausman on their theory of productive knowledge - and in particular how it is acquired at the level of the individual, the level of organizations, and cities, regions, countries and societies.read more...»
Question six for the RES competition in 2014 is bound to produce a large number of answers. Labour migration is an important economic, social and political issue and many students will have clear views on the issue. So what will make an essay stand out from the crowd?read more...»
I was drawn to a Telegraph headline, Europe is jealous as Britain resurrects the Laffer Curve. According to the author, by next year Britain will have the equal lowest headline rate of corporation tax in the G20.
The Laffer Curve offers an intoxicating promise to politicians. It suggests that if the tax rate is too high (above t* in the diagram above) then a cut in tax rates will actually boost the amount of revenue raised!read more...»
This is the second essay of six available for students researching an entry for the 2014 RES competition. There has been some discussion about the choice of phrase "working mothers" in the question. We will expect to see some students challenge this in their answer to broaden the discussion to "working parents" but any approach is fine as long as the economics is interesting, relevant, evidence-based and has a strong narrative running through it!read more...»
Students preparing for unit 4 on Tuesday might spend half an hour or so analysing this report of the IMF’s update on the UK economy. Here are some key points worth noting:read more...»
The European Central Bank implemented a negative interest rate policy yesterday. Whilst we have become very accustomed to a low base rate in the UK, the ECB policy seems extraordinary.
The policy has come about due to a continued concern over the economic situation in the Eurozone. Growth remains weak, unemployment is high and inflation sits below the target of 2% in many of the 18 countries. The ECB is unlikely to follow the UK (and others) strategy of quantitative easing and so is left with fewer choices.
By setting a negative interest rate, the ECB wants to discourage banks from keeping larger reserves and promote a greater level of lending (and thus stimulate economic growth).
If you want to download a short Powerpoint slideshow that explains the policy and its possible consequences then click on this link.
If you are like me, teaching unemployment starts with explanation of its causes and then moves on to its impact (before discussing possible solutions). I've always found the 'impact' aspect relatively straight-forward; it would seem students find the concept of loss of output and its consequences fairly logical. Discussing the long-term effects can be more difficult as young adults in full-time education may not be wholly empathetic towards the outcomes of job loss.
An interesting report came out from the Nuffield Trust recently (a copy is available from this link) about the increase in the prescription of antidepressants. The increase from 15 million items prescribed in 1995 to 40 million items in 2012 is quite large but the report shows that the biggest jump has come during the economic downturn since 2008. The report hypothesizes on a number of causes of this increase but does suggest a link between unemployment and the increase in prescription of antidepressants. Perhaps it isn't a quantum leap to illustrate that there is a relationship between unemployment and depression but evidence of this nature may be valuable when making a point about the impact of unemployment (and its cost to society as a whole) in the class or as part of an exam answer.
Unemployment benefits can address the failures of credit markets by enabling unemployed people to spend more time searching for a new job – even in countries like Norway, which have an equitable wealth distribution and a generous welfare state. That is the central conclusion of research by Christoph Basten, Andreas Fagereng and Kjetil Telle, published in the May 2014 issue of the Economic Journal.read more...»
New Bank of England research adds further weight to the view that central bank asset purchases (‘quantitative easing’ or QE) can affect government and corporate bond yields. In particular, the study, which is published in the May 2014 issue of the Economic Journal, finds evidence that QE works by reducing the supply of government bonds remaining in the private sector – what are known as ‘local supply effects’.read more...»
Just in time for the unit 2 exam, and in good time for unit 4 students, this week's Deloitte Monday Briefing looks at the reasons behind the rapid recovery of growth in the UK. The Monday Briefing always makes very good reading, and often features analysis which is written with great clarity by Ian Stewart, their Chief Economist in the UK - to subscribe and receive an email every week, visit www.deloitte.co.uk/mondaybriefing
Below, I have copied much of this week's briefing with a little additional comment to emphasise the role of monetary and fiscal policies, and to look forward in order to consider how these may be evaluated in order to assess the contribution they may make in the near future.read more...»
Here are some resources on the newly created Pacific Alliance which - in the short run - has achieved significant tariff reductions but which in the long run seeks to create a new economic community / single market in the region.read more...»
In remarks made when launching the new quarterly inflation report (May 2014), the Governor of the Bank of England, Mark Carney, has signaled that policy interest rates set by the MPC are likely to remain at historically low levels for some time to come. The first rise in rates is probably less than a year away and some economists have penciled in early New Year 2015 for a rate hike. But what are some of the arguments for raising interest rates now?read more...»
England's odds of winning the World Cup are about 30-1 - which reflects a rather low level of confidence that we have a realistic chance. However, the Governor of the Bank of England seems to think that a safer bet would be to back the recovery of the UK economy, judging by Mark Carney's launch of the latest Inflation Report yesterday. He likened the path the economy has to follow to that of England's task in Brazil, and said that the Bank's priority was to steer the economy through the opening rounds, all the way to victory.read more...»
Teachers and students of the Phillips Curve will be delighted to access this updated classroom ready presentation on the Phillips Curve from Ed Dolan, Professor of Economics at Stockholm School of Economics, Riga, Latviaread more...»
Imagine that, for some reason, you were forced to choose between having to read a long, turgid novel like Westward Ho or Middlemarch, or a book on the methodology of the national economic accounts. Most people, however reluctantly, would plump for the former. But the latter can at times be very exciting. A recent paper uses national accounts concepts to revolutionise the conventional view of world trade.read more...»
The annual Institute for New Economic Thinking (INET) conference was held in Toronto earlier this month. INET was created by George Soros in the autumn of 2009 in response to the economic crisis. Mainstream economics bears a heavy responsibility for creating the intellectual climate prior to the crash that the problems of boom and bust had been solved forever. New ideas were needed. Certainly, INET has funded lots of interesting projects which orthodox funding bodies would have rejected.read more...»
Britain’s crisis of housing affordability is nothing to do with foreign speculators, according to Paul Cheshire writing in the Spring 2014 issue of CentrePiece magazine. Rather, it is a result of decades of misguided planning policies that constrain the supply of land and turn houses into something like gold or artworks. Houses have been converted from places in which to live into people’s most important financial asset.
The prospects of significant wage increases for typical UK workers are bleak, according to Professors David Blanchflower and Stephen Machin writing in the Spring 2014 issue of CentrePiece magazine from the London School of Economics.
It is quite clear that the economy is still well below full employment and there is a large amount of slack in the labour market, they say. There is little evidence of widespread skill shortages, which would push up wages; and public sector pay freezes with continuing redundancies continue to push down on workers’ bargaining power.read more...»
New data suggests that China will soon overtake the United States with the largest GDP adjusted for purchasing power parity. This short Financial Times video from Chris Giles looks at the new data which are being driven by fresh estimates of what money can buy - i.e. the volume of goods and services that are produced in different countries and what one dollar can buy in one country compared to another. The data finds that poorer countries are cheaper than economists thought they were and richer countries are more expensive.
China barely breaks into the top one hundred of the countries of the world in terms of GDP per capita (PPP) - it is a large country but not rich!
The 2011 gross domestic product (GDP) of the European Union, the United States and China together accounted for half of the world GDP in 2011. In 2011, the GDP of the 28-nations EU represented 18.6 percent of the world's GDP, expressed in Purchasing Power Standards (PPP). It was followed by the United States with a share of 17.1 percent and China with 14.9 percent.read more...»
Here is a streamed version of a revision presentation on the Crossrail project, a good example to use when teaching transport economics and the main principles and issues governing a cost benefit analysis approach to infrastructure investment appraisal. It is designed for use with AS and A2 economics students.read more...»
This is a screamer of an article on TPP from Linda Yueh. all students taking Econ4 must be aware of what the TPP is and what it might mean for the world economy if the TPP is finalised and completed. There are numerous barriers in the way. Can the USA and Japan resolve and reduce decades-long and deeply embedded protectionist measures covering farm products and car making? TPP has the potential to boost trade and growth in both countries - but politics and vested interests often get in the way. Watch Linda's video here: http://www.bbc.co.uk/news/business-27122428read more...»
This video from the Economist looks at some of the views on the economic and social impact of the ageing population in the world economy.read more...»
In the year to March 2014, consumer prices in Sweden fell by 0.4 per cent. This has prompted the central bank, the Riksbank, to abandon the normally cautious language used by such institutions. Over the same period, inflation was negative in a further seven European countries, such as Greece, Portugal and Spain. In eight other countries, inflation was still positive but very low, running at an annual rate of less than 0.5 per cent.
The Riksbank argues that these very low, often negative, rates of inflation are caused by a ‘very dramatic tightening’ of monetary policy. There is a definite risk of a slide into a prolonged depression similar to that of the 1930s.
Surely low inflation is a good thing? Well, up to a point.read more...»
According to The Economist, much of the world faces a familiar supply side constraint: the need for massive investment in infrastructure.read more...»
In recent months the external value of the pound has been rising quite strongly. Indeed it has outperformed a cluster of other countries even though we have seen a rise in the UK's current account deficit on the balance of payments. Stephanie Flanders, chief market strategist at JPMorgan Asset Management, talks to the Financial Times about the sterling's out-performance and what impact the strong pound is likely to have on the UK economy.read more...»
The BBC's Robert Peston looks at the broader issue of heavy debt in the UK economy and whether it is holding back economic growth.read more...»
Fears that the financial crisis will have a significant negative impact on long-term UK economic growth are unfounded, according to a majority of the UK macroeconomics profession surveyed by the Centre for Macroeconomics (CFM). What’s more, the CFM survey indicates some optimism about the UK’s immediate capacity for higher growth: while roughly half of the respondents share the views of the Office of Budget Responsibility, the other half is substantially more optimistic about the capacity for the economy to recover.read more...»
This Financial Times video report looks at the economic transformation of East London prompted in part by high levels of inward investment from the Far East. Consider the economic benefits of this investment but also the challenges of rejuvenating a part of London which for decades has lagged behind the rest of the capital in nearly every economic and social metric,read more...»