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The Confederation of British Industry has today launched a report called Our Global Future: The Business Vision for a Reformed EU - The report calls for further EU reform not least the completion of the single market in particular in services and the new internet economy. They argue for more free trade deals with other countries and regions.
The report produces estimates – based on past academic studies – that EU membership adds £62bn-£78bn a year to UK gross domestic product, equal to the combined economies of northeast England and Northern Ireland. That works out at £3,000 per household and £1,225 per individual. The fact sheets from the report can be found hereread more...»
The rate of unemployment in Greece has reached a record of just under 28% of the labour force. To put this into context, in 2008 just before the Global Financial Crisis engulfed much of the EU economy in recession, Greek unemployment was 7.8% (equivalent to where the UK jobless rate is today). Youth unemployment is staggeringly high - the latest figures show that 58.8% of people under the age of 25 are out of work.
There are some tentative signs that the Greek economy may be at a turning point from the trough of a deep and persistent depression. After six years of full-blown recession some macro indicators suggest that confidence is seeping back for businesses and consumers and that the government debt crisis might ease a little. Tourism, which accounts for about a fifth of Greece's economic output and one in five jobs is having a strong year - tourism exports represent an injection in the Greek economy's circular flow of income and spending. Chinese tourists seem to be coming to Greece in much greater numbers!
But Greece has suffered gravely over the last few years - the level of real GDP is 25% lower than it was before the crisis and some economists have started to refer to Greece as a sub-merging economy whose trend growth rate is now negative.read more...»
Cambridge economist Mike Kitson argues here that the Euro Zone will eventually collapse after a number of difficult years. As pressure again mounts in the Eurozone leading Cambridge economist Michael Kitson says the euro might 'stagger on' for a few more years but eventually it will disintegrate. Policy makers have been papering over the cracks in the Eurozone and causing major problems for many member countries which are trapped by tight fiscal rulesread more...»
SPOTTING and identifying new species is always exciting. And the last couple of years has seen the emergence of a new type of economic commentator, the recovery denier. Paul Krugman, the Nobel prize-winning economist, wrote a piece at the end of last year in which he compared the current situation to that of the 1930s. On Newsnight recently, another Nobel economist Joseph Stiglitz poured scorn on my assertion that the US economy has recovered.
But what does the data tell us? In the 1930s, output in America fell by nearly 30 per cent from its 1929 peak. This time, the fall was only 3 per cent, and the level of output is now higher than it was below the crash. The latest US labour market figures show continued growth in employment. Over 5m net new jobs have been created over the past three years, all of which have been in the private sector. Unemployment has just fallen to a four year low.
The recent debacle in Cyprus has essentially been shrugged off by the markets. The European Central Bank vigorously asserts the crisis in the Euro zone is over. So why is there continued unease about the financial viability of countries such as Spain and Portugal, a morass into which even the French are now being dragged?
Economic theory helps us understand a bit more about why this is the case. One thing which the last few years in Europe have shown very starkly is the massive difference between debt which is denominated in nominal terms and that which is in real terms. Nobel Laureate Chris Sims makes the point clearly in his recently published Presidential Address to the American Economic Association.read more...»
The scale and depth of the unemployment crisis in Europe is confirmed by fresh figures released by Euro Stat. Unemployment in the Euro Zone was 12.0% in February 2013 and the jobless rate for the European Union as a whole was 10.9%. Last month there were 26.3 million people counted as out of work in the twenty-seven countries within the single market, 19 million of whom live in Euro Zone countries. In the last year alone, unemployment in the Euro Zone has jumped by over 1.7 million but this aggregate figure hides large country differences and persistent regional and local variations. Here is the contextual data to take into the exam:
Evaluating the UK’s macro performance outside of the Euro Zone
- Decision made in 2003 that the UK would remain outside
of the single currency
- UK remains a full member of the single market
- Supportive of further EU enlargement but distanced from deeper fiscal / banking intregration
Crucial question both in the short and medium term is whether non-participation in the Euro makes a significant difference to key macro outcomes
- Real GDP growth, estimated Trend growth (LRAS)
- Core CPI inflation and inflation expectations
- Employment and unemployment rates
- Trade balances (with EU and beyond)
- Trends in relative productivity and per capita incomes
Here is a selection of links and news videos on the vexed economic, social and political issue of fiscal austerity - there is a particular focus on the effects of austerity in the debt-ridden crisis countries of the Euro Zoneread more...»
The OECD's world economic outlook is published twice and year and is a heavyweight publication with plenty of great relevant macro for ambitious A2 students. I have linked below to their latest report - including a streamed presentation on their key data forecasts and emphasis on some of the underlying challenges facing OECD countries.read more...»
The balance of economic power is expected to shift dramatically over the coming half century, with fast-growing emerging market economies accounting for an ever-increasing share of global output, according to new OECD research. Here are some links to their report and to media coverage.
I am launching into a short course in international trade, balance of payments and links to economic development issues. The standard fare is inescapable and there will be plenty of opportunity to cover theories of comparative and competitive advantage, evaluate the costs and benefits of protectionism and look at key trends in the balance of payments, terms of trade and capital accounts for developed and developing countries.
This time, in an attempt to freshen things up I am starting by looking at the work of Cesar Hidalgo and Richard Hausman at the MIT Media Lab and the Observatory of Economic Complexity. I first came across their work whilst reading Tim Harford's last book Adapt. They are mapping vast amounts of trade data from across the world to explore the extent to which export complexity, dynamic advantage and per capita incomes are connected. The data visualisations are tremendously interesting and I will be asking my Year 13 students to explore their site and choose some data of their own that sheds light on revealed comparative advantage in the world economy.read more...»
As unemployment hits the headlines for the wrong reasons again : ‘The Eurozone is heading for disaster’.... ‘the lost generation’.... it is a great opportunity to study the theoretical concepts in this area. Unemployment in the eurozone hit a fresh high of 18.2 million in August; the highest unemployment rate was recorded in Spain, where 25.1% of the workforce is out of a job! Youth unemployment remains a particular concern, with the rate among under-25s hitting 22.8% across the eurozone and data from Eurostat shows that 55.4% of adults under 25 are out of work in Greece, compared to 52.9% in Spain!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!)
A useful series of flow charts on the BBC Business Webpage outlining some of the causes and effects of the present problems of the Eurozone economies.
A good starting point for AS students and teachers preparing for A2 Economics courses.
Tempting, I think, as an extension activity with year 12 students who are returning from their AS exams and starting on A2 courses, to put this happy Irish picture up on the whiteboard on Monday morning and ask them to explain the message on the flag.
Perhaps a prize for the most on-the-ball answer?
What are the possible ripple effects of the euro crisis? There are a myriad of different opinions about what might happen and how far it might go.
This interactive graphic from the BBC website is a neat summary of just some of them - it starts with Greece itself, with comparisons to the debt crises in Spain, Portugal and Ireland then looks at the potential contagion effects of a collapse of confidence in Italy.
This may spread to banking meltdown in France, the UK and the ECB, with a Euro break-up rippling through the German and wider EU economies. As a result of the interdependence of the EU and its worldwide trading partners, global meltdown follows - which explains why Christine Lagarde of the IMF has been calling for more leniency towards Greece and other borrowers, and more action in Europe to boost growth.
Is there some way in which such negative multiplier effects can be avoided? Can macroeconomic policies be used somehow to protect domestic economies from the fallout? If they cannot, what next? This resource only presents one set of ideas, but might just help students to tease out some of the convoluted and complex issues which dog the EU and global economy at present.
How much spare capacity does an economy have to meet a rise in demand? How close is an economy to operating at its productive potential? Has the recession damaged the economy’s productive potential? These sorts of questions all link to an important concept – the output gap. The output gap is the difference between the actual level of national output and the estimated potential level and is usually expressed as a percentage of the level of potential output.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.
Following on from Ben Christopher’s article, a BBC Radio 4 interview with Andrew Balls, an investment fund manager, and younger brother of The Shadow Chancellor on the possibility of a Grexit - Greek exit from the Euro.read more...»
Here is a revision blog on some of the key economic challenges facing the seventeen member nations of the Euro Zone or Euro Arearead more...»
Much of the stuff written about Greece over the last months has accused the Greek people of all kinds of things - living beyond their means, failure to pay taxes, and laziness among others. Recent OECD data, used by Tim Harford in More or Less on Radio 4 (link to the podcast here), suggests that Greeks are not lazy - they actually work longer hours per person than any other European country. However, analysis of the figures a little more depth, which GDP per worker, when it is used as a measure of productivity, putting Greece almost at the bottom of the table. The data (more detail in the article here) does come with a health warning, as unlike figures such as CPI or LFS unemployment it is not collected according to agreed international methods but by individual national statistics authorities. However, it could be useful for students to analyse likely reasons for the difference in number of hours worked and productivity between countries such as Germany and Greece.
The UK comes a rather mediocre 14th in both tables, by the way.
Another great piece of work by the team at the Guardian here using Xtranormal. This one tries to explain the current situation regarding the Greek debt deal. Is it over? Sorted? maybe not…read more...»
I have been looking for resources to use with my A2 students to investigate the Greek debt crisis, and why it is causing such global concern. So first I am really grateful to find the powerpoint that Geoff has posted to the blog this morning, which sets out the scale of the problem there very clearly. I would like to suggest another resource I have just come across which I think complements the powerpoint quite well - especially to help answer the question “What will happen if the Greeks do default?”. Someone at the BBC has devised a decision tree looking at possible outcomes which depend on how the Greek authorities respond to their “Troika” of lenders - the European Union, International Monetary Fund and European Central Bank. The potential outcomes range from a pyrrhic victory in which Greece forces its lenders to write off most of its debts, but bankrupts it’s banks, to global meltdown.
What the decision tree doesn’t include is probablilites for each outcome. That could be the class activity for the week, perhaps.
A2 level economists studying macroeconomics are almost certainly going to be discussing the economics of a Greek government default in the coming days and weeks. Many of the main macro indicators for Greece have been heading in the wrong direction for some time and the country provides a rich opportunity to study the causes and consequences of a fiscal, economic and wider social crisis. I haave put together a slide presentation of ten key macroeconomic charts for Greece. Students and teachers might want to use this (and edit / improve) when discussing events as they occur in the days ahead.read more...»
AS level economists studying macroeconomics are almost certainly going to be discussing the economics of a Greek government default in the coming days and weeks. Many of the main macro indicators for Greece have been heading in the wrong direction for some time and the country provides a rich opportunity to study the causes and consequences of a fiscal, economic and wider social crisis. I haave put together a slide presentation of ten key macroeconomic charts for Greece. Students and teachers might want to use this (and edit / improve) when discussing events as they occur in the days ahead.read more...»
It’s time to start treating our A2 economics students like 9 year-olds…in a kind-hearted way. How? With this highly creative and engaging piece of analysis by the market analysts at JP Morgan.
The Eurozone crisis is both political AND economic, with the underlying issue one of who pays the bill for nation and bank bailouts. The political impasse in Europe over the crisis is difficult to understand. But this Lego-inspired graphic does a pretty good job of explaining who wants what. Follow the commentary underneath the graphic to hear the story.
Hand it out to your A2 students and see if they can make sense of it.
A recession is a hard-landing and means a fall in the level of real national output i.e. a period when the rate of growth is negative, leading to a contraction in employment, incomes and profits. There is in fact more than one definition and measurement of a recession.read more...»
Many of Europe’s newer member states have outperformed established EU countries since they joined the single market in 2004 and 2007. And as a result there has been a process of convergence in average living standards and improved employment opportunities. Europe’s new nations have injected extra dynamism into the region despite inevitable teething problems along the way.
For students revising aspects of EU enlargement here is a streamed version of a presentation I gave to a Tutor2u event in London a few weeks ago
A streamed version of the presentation is available here
Related news issues
Germany expects influx of Polish workers (BBC news, April 2011)
Almost a year ago I headed to the LSE to hear Nouriel Roubini launch a new book “Crisis Economics”. The notes that I took at the time are reprised below and reading through them again, I am struck by just how accurate the Roubini assessment was of where the next phase of the financial and economic crisis would move. Many of the remarks are relavant to students preparing for the OCR F585 paper for June 2011 and also for other A2 macro students wanting some evaluative comments on the international economic crisis.
I have repeated my comments from the May 2010 blog and they appear below. There has been some minor editing and I have supplemented the blog with some charts drawn from the team at Timetric.read more...»
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.
In this Timetric chart blog we look at unemployment rates for a selection of country groups - these automatically updated charts will track what is happening to the standardised jobless rates for clusters of countries starting with one that includes the Euro Area, Germany, USA, UK and Japan. The second chart is the unemployment rates in the so-called PIIGS - Portugal, Italy, Ireland, Greece and Spainread more...»
A starting point to this question is to discuss what “weaker EU countries” might mean. We can use some of the conventional indicators of macro performance to help us namely:
1. Slow or negative economic growth
2. Rising unemployment and falling employment rates
3. Deteriorating public sector finances and higher government debt
4. Relatively high inflation or perhaps an economy experiencing a period of deflation
5. A high deficit in trade in goods and services
Other indicators might be used to identify weaknesses in performance - for example:
1. Relatively low labour productivity
2. A falling share of global trade
3. Rising yields on long term government bond issues
4. Weaknesses in non-price competitiveness
Here is an updated twenty five slide streamed presentation on macroeconomic developments in the 27 countries of the EU with a particular focus on the Euro Area and UK/EU comparisons.read more...»
The Institute of Directors reports that a graduate tax would be bad for the UK’s competitiveness. How well would a Graduate Tax fare when scrutinised by Adam Smith? He developed his four Canons of Taxation to determine how ‘good’ a tax will be. The four are:
1. The cost of collection must be low relative to the yield
2. The timing and amount to be paid must be certain to the payer (It should all be open and above board and clearly set out so that people know what their obligations will be.)
3. The means and timing of payment must be convenient to the payer
4. Taxes should be levied according to ability to pay
However much the undergraduates of the future may dislike the idea, a direct tax which is collected with standard income tax and based on the level of income generated by those with degrees would seem to meet those pretty well.
There is evidence today for the theory that an inhospitable macroeconomic climate will drive some of the more valuable labour resources out of a nation’s economy. The International Herald Tribune reports on the exodus of young graduates from Greece, in search of employment opportunities elsewhere. A number of reasons are given; a deepening recession, a job market already crippled by an entrenched culture of cronyism, a national debt which is larger than Greece’s gross domestic product suggesting that years of austerity budgets lie ahead and finally a string of political corruption scandals has left many young Greeks disillusioned about the future.read more...»
A new law has come into force this week in Greece banning smoking in enclosed public spaces and tobacco advertising.
It is estimated that more than 40% of Greek adults smoke - well above the EU’s average of 29% - which is perhaps why at a time of fiscal austerity, it is surprising/impressive that the Greek government have pursued this policy. Cigarettes bring in a significant amount of tax revenue (either via indirect or corporation taxes) which will be lost. But then maybe it will save a lot more money via its health bill. (or maybe they are just hoping people will flaunt the rules and collect fines!).
Having said this, this latest attempt to stop smokers, is its 4th attempt in a decade - following a tobacco ban in public places on July 1 of this year too. The demand for habit-forming goods is too inelastic to go away overnight…
Economic institutions matter! From the credibility of central banks to the roles played by legal systems in upholding property rights and the need for a functioning system of government in collecting tax revenues and making sure that each dollar or euro or pound of state spending is money fairly well spent. I enjoyed reading Tyler Cowen’s piece in the New York Times today - among many others he senses that an eventual default and departure from the Euro is probably the best approach that greek can take.
The budget crisis facing Greece boils down to excessively high levels of government spending and a failure to collect sufficient tax income. This comes as no surprise when we discover the size of Greece’s shadow economy.
“Greece has a malfunctioning fiscal system in which the shadow economy is estimated to be roughly 20 to 30 percent of the reported economy and tax evasion may run at $30 billion a year. Simply collecting taxes that are legally due would help bring Greece’s books into balance, yet even this simple remedy does not appear imminent.”
A link to an excellent and thought-provoking article by Paul Mason from BBC Newsnight on the implications of the Greek/Euro Zone crisis. He argues that the ripping up of the Euro Zone fiscal rule book and the eventual bail out of the Greek economy shifts the risks to taxpayers in Northern Europe.
“In the 27 member states of the EU, it is France, Germany, Italy and the UK which bear the risk of southern European default. That is to say, the taxpayers of northern Europe. And, as members of the IMF, the industrialised countries of Europe are additionally exposed to the Fund’s €250bn loan.” Stage Three of the financial crisis - hallmarked by an age of austerity poses severe social and political risks across the continent.
In a related feature Professor Joe Stiglitz is interviewed here by BBC World and argues that imposing fiscal austerity by european governments risks plunging Europe into a second recession.
Tuesday afternoon and breaking news of a serious downgrade for the Greek economy.The ratings agency Standard & Poor’s has cut Greek’s credit rating three levels to BB+, or junk. Two year bond interest rates are 16% and rising. I am sure this will be huge news in the financial papers in the morning. This BBC news video looks at some of the opposition to the spending cuts the Greek government will be required to make as part of the international financial rescue package.
This BBC news report has a neat six page graphic helping to explain what went wrong with Greece in the eight years since the Euro was introduced into the Greek economy.
Both companies and governments can issue bonds when they need to borrow money. The issue of new government debt is done by the central bank and involves selling debt to capital markets. The bond market is also the place where companies may seek to raise funds by issuing new tranches of debt.read more...»
No rich advanced nation has defaulted on sovereign debts since the end of the second world war but should the default option seem attractive governments should beware the longer term costs and consequences. The Economist this week has a feature on some recent research into the impact of sovereign debt default focusing in particular on the experience of Argentina. Three major effects are identified:read more...»