Supply-side policies
The great fiscal policy debate - this one will run and run….
Stephanie Flanders, the BBC Economics Editor, is assessing what might happen to fiscal policy after the election next year. She has produced reports for the BBC news which can be accessed from her Stephanomics blog, and produced a discussion piece which draws upon current opinion as well as historical evidence to predict the likely differences and similarities between the political parties. As she says, both parties would expect to announce tough budget plans if elected - and both would tend to delay most of the pain until 2011 or 2012, when the economy is more firmly on the mend. There is a nice historical piece about Geoffrey Howe’s tax raising budget in 1981, and a reference to the pro’s and con’s of Vince Cable’s proposal to raise revenue by a “mansion tax” on houses worth more than £1m - one problem being that there are rather fewer of those houses now than there were a few months ago.
Many A level students will be voting for the first time in this most important of elections, in which fiscal policy is surely going to be one of the hottest topics, and I would love to give them some of the elements of this discussion to evaluate as they prepare to be some of the better informed new generation of the electorate.
•UK Economy - •Fiscal Policy - •Supply-side policies -
Tags: budget, stephanie flanders, vince cable, tax revenue, mansion tax
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Deflation - Teacher Presentation
This new revision presentation examines the causes and effects of deflation and the possible economic policy responses.
Launch interactive presentation on deflation
Download pdf handout of presentation slides
•Inflation - •UK Economy - •Monetary Policy - •Supply-side policies -
Tags: deflation
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Rwanda invests in connecting the young
A deeply encouraging and inspiring report from Rory Cellan Jones on the One Laptop per Child policy being rolled out in Rwanda - a policy that aims to equip 100,000 students with access to the internet. Are there more important priorities than building an IT infrastructure such as meeting people’s basic needs and wants? Or can technology transform the economy just fifteen years after the genocide?
•Economic Growth - •Global Economy - •Standard of Living - •Teaching of Economics - •Development Economics - •Supply-side policies -
Tags: infrastructure, internet, laptops, rwanda
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UK broadband in the slow lane
The relatively slow speed of the average broadband connections for most UK businesses and households will act as a contsraint on future competitiveness and growth. This report from BBC news finds that a study of the global state of broadband has put the UK 25th out of 66 countries in terms of the quality and reach of its networks. Rory Cellan Jones follows up the report with his own observations
“Britain has done well in the first broadband wave, using a pretty efficient copper network and DSL technology to get homes across most of the country connected. But other countries are moving forward more rapidly to build next generation networks using cable and fibre-optics.”
Investment in broadband can have significant demand and supply-side effects - the real consequences of under-investment will become more painful and obvious as time goes on - but who should pay for the extra capital spending needed? Will the new broadband tax make any noticeable difference?
•AS Macro - •Business Economics - •Economic Growth - •Economics of Technology - •Government Intervention - •Indirect Taxes - •International Trade - •UK Economy - •Supply-side policies -
Tags: demand, investment, competitiveness, technology, broadband, rory cellan-jones, fibre-optics
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Human and social capital and pathways to prosperity
Tom Aedy picks an article by Michael Milken in the FT and focuses on the importance of human capital in a competitive global economy - Milken calls this the world’s most valuable asset.
read more...» •AS Macro - •Emerging Economies - •Cycles and Shocks - •Aggregate Supply - •Economic Growth - •International Trade - •Teaching of Economics - •Supply-side policies -
Tags: gdp, competition, production, china, incentives, human capital, economic growth, social capital
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Businesses call for youth jobs subsidy
High and rising youth unemployment is one of the most important economic and social policy issues of the day. The CBI has called for extra funding from the government for a youth jobs subsidy - a £2500 per head payment for businesses that offer apprenticeships. The aim is to widen access to apprenticeships and equip school and college leavers with extra skills to improve their human capital and occupational mobility. If the lobbying proves effective, this is a good example to use of an active-labour market policy whose objectives are firmly on the supply-side of the economy.
According to CBI Chairman Richard Lambert, ““Young people leaving education this summer face the toughest job market in a generation. We know from previous recessions that a lack of employment after leaving education can damage young peoples’ long-term prospects at a critical point as they move from education to the world of work.” Their 5-point programme for reducing youth unemployment is available here.
Given that the government was quick to introduce a £2000 car scrappage incentive (paid paid for by the motor industry) - it might make for interesting discussion in the classroom to weigh up the relative benefits and costs of using a similar pot of cash for a direct subsidy for consumers contrasted with an employment and training subsidy for employers. Who should pay for training? Why is the free-rider problem relevant here?
This Guardian article argues that “Apprenticeships are an out of date idea. The only reason that they are back on the agenda is because of the TV show.”
•AS Macro - •Business Economics - •Cost Benefit Analysis - •Government Intervention - •Subsidies - •Labour Economics - •Recession Watch! - •UK Economy - •Unemployment - •Supply-side policies -
Tags: recession, unemployment, employment, costs, pay, jobs, skills, human capital, cbi, apprenticeships
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Taking the pulse around the UK economy - are the anti-virals working?
Here is a whole feast of reports about the current state of the UK economy from the BBC – albeit some of them quite unpalatable. On the day on which the Labour Force Survey shows the biggest quarterly rise in unemployment since records of the ILO measure began in 1971, the BBC has a survey that shows that two out of three people know someone who has lost their job due to the recession, and 40% fear losing their own job. The survey is part of their feature ‘Taking the Pulse around the UK’ which is being covered on TV, radio and the website today. As well as the survey there is a series of video reports; in one from a Northampton market where a fruit and vegetable trader says he has never worked so hard for so little, while a clothes stall owner says she has altered the clothing she sells, stocking cheaper goods than before, in order to survive. In another, Hugh Pym summarises key indicators about the state of the economy, and a third has Stephanie Flanders debating the state of the economy with herself. The set of reports are well worth browsing through, and following the links to related items.
•Environmental Economics - •Government Intervention - •Labour Economics - •Manufacturing Industry - •Recession Watch! - •UK Economy - •Unemployment - •Supply-side policies -
Tags: recession, unemployment, employment, production, investment, trade, capacity, strategy, debt, incentives
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Innovation - A Driving Dynamic for the Economy
Innovative products and processes are the lifeblood of a competitive economy. With attention focused on the likely depth and duration of an economic recession, across the country there are many businesses who have one eye fixed firmly on the recovery and on continuing to develop and test new products. This superb and spirit-lifting BBC video pays a visit to Cambridge Consultants a business that has enjoyed its best ever year during a year of recession - ideas and investment businesses that can gain access to the finance that remains available look well placed to reap the benefits of their innovations - always providing they can get the products to market.
The video features a ‘virtually waterless’ laundry washing machine prototype developed by Xeros. By saving up to 90% of water compared to conventional machines, the Xeros process has the potential to reduce the cost of washing whilst also dramatically cutting carbon emissions.
•AS Macro - •Economic Growth - •Economics of Technology - •UK Economy - •Supply-side policies -
Tags: recession, investment, innovation, intellectual property, invention, cambridge consultants, ideas
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Q&A: What is the productivity gap?
The productivity gap is a phrase to describe a sustained difference in measured output per worker (or GDP per person employed) between one country and another.
read more...» •Economics Q&A - •Q&A - Macro - •Cycles and Shocks - •Aggregate Supply - •Economic Growth - •UK Economy - •Supply-side policies -
Tags: demand, gdp, competition, production, investment, productivity, capacity, management, efficiency, skills
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Revision - Labour Market Failure (presentation)
Here is a revised streamed presentation on market failure in the labour market
read more...» •Labour Economics - •Market Failure - •Factor Immobility - •Supply-side policies -
Tags: productivity, market failure, welfare, monopsony, labour market, discrimination, poverty trap, disincentives, unemployment trap, immobility of labour
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Revision - External Shocks (presentation)
This streamed revision presentation takes a look at external shocks
read more...» •AS Macro - •Emerging Economies - •Cycles and Shocks - •Aggregate Demand - •Capital Investment - •Consumer Spending - •Aggregate Supply - •Government Intervention - •Recession Watch! - •UK Economy - •Fiscal Policy - •Monetary Policy - •Supply-side policies -
Tags: recession, revision, demand, supply, external shocks, demand shocks, policy stimulus, supply shocks
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Guy Hands heads for the islands
A very brief piece in The Times today reports that the new 50% tax rate for Britain’s top earners is starting to have its predicted effect, of persuading some of those top earners to take their income elsewhere. Guy Hands, owner of EMI and the Terrra Firma private equity company, is leaving the UK to move to Guernsey and take advantage of its lower ‘tax haven’ rates. This is a textbook response - supply-side fiscal policy would suggest that a reduction in tax rates will encourage entrepreneurs and high earners into a country. Many city analysts predicted that the opposite would happen as a result of the ten percent rise in the top rate of tax, and that is what appears to have happened.
•AS Macro - •UK Economy - •Fiscal Policy - •Supply-side policies -
Tags: budget, rising tax rates
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Obama’s pledge on R&D
“I am here today to set this goal: we will devote more than 3% of our GDP to research and development,”
If Obama succeeds in his aim, the US economy will raise investment in research and development as a share of national income - AS students might consider some of the likely demand and supply-side effects of such an aim. A good article to use when teaching supply-side policies.
The UK of course is some distance below the US levels when it comes to research and development spending.
•Cycles and Shocks - •Aggregate Supply - •Economic Growth - •UK Economy - •US Economy - •Supply-side policies -
Tags: gdp, investment, research
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First hints of the brain drain effect
The government’s decision to increase the top rate of income tax from 40% to 50% is pure political opportunism from a party that has given up any realistic hope of power at the next election. Cue a chance to stick a few poorly aimed knives into the body of up and coming entrepreneurs for a measure that will raise a little extra revenue but which will also do huge long term damage to enterprise in the British economy. From next year anyone earning more than £150,000 a year will pay 50% income tax. The move replaced the 45% tax bracket threatened in the pre-budget report last November. Here are the first signs of a brain drain effect taking hold. And even more worrying is the threat of a brain blockade - as highly skilled people in industries such as technology, medicine, industrial research and so son may now shun coming to the UK in favour of competing locations. Those with a cushion of wealth are best placed to relocate, in a digital age the barriers to conducting business off-shore are so much lower. The Telegraph provides a handy guide for those searching for an atlas and airline timetable this weekend.
•AS Macro - •Cycles and Shocks - •Aggregate Supply - •Government Intervention - •Government Failure - •UK Economy - •Fiscal Policy - •Supply-side policies -
Tags: pay, entrepreneur, tax, brain drain
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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.
•Emerging Economies - •Russia Economy - •Economic Growth - •GCSE Economics - •Labour Economics - •Supply-side policies -
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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.”
•AS Macro - •Cost Benefit Analysis - •Cycles and Shocks - •Aggregate Demand - •Capital Investment - •Economic Growth - •Global Economy - •Keynesian Economics - •Unemployment - •Fiscal Policy - •Supply-side policies -
Tags: supply, capacity, infrastructure, broadband, australia, network
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A real apprentice scheme
Forget the hapless, hopeless bunch of shallow ‘apprentices’ on the BBC programme - a group of supposed high-flyers who cannot cost a van load of cleaning equipment. Here is a warmer story of the return of apprenticeship schemes at Doncaster College as the mining industry shows tentative signs of a stronger recovery in prices, production and jobs. Expanding the apprenticeship programme is a really important supply-side policy for the labour market.
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...» •AS Macro - •Cost Benefit Analysis - •Cycles and Shocks - •Aggregate Demand - •Capital Investment - •Economic Growth - •GCSE Economics - •US Economy - •Fiscal Policy - •Supply-side policies -
Tags: demand, supply, investment, competitiveness, infrastructure
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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...» •AS Macro - •Cycles and Shocks - •Economic Growth - •Recession Watch! - •Teaching of Economics - •UK Economy - •Supply-side policies -
Tags: inflation, supply, investment, incentives, supply-side, supply side policy, supply side indicators
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Supply-Side Indicators for the UK
I am about to start teaching supply-side economics with my AS students so the time has come to update some of the charts I use to illustrate aspects of supply-side performance. This is available to download as a PowerPoint file below.
read more...» •AS Macro - •Cycles and Shocks - •Aggregate Demand - •Capital Investment - •Aggregate Supply - •UK Economy - •Supply-side policies -
Tags: unemployment, inflation, employment, supply, gdp, competition, economics, investment, manufacturing, productivity
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Programme on unemployment
•AS Macro - •Poverty and Inequality - •Teaching of Economics - •Unemployment - •Supply-side policies -
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Defence of the car manufacturers’ loan guarantee package
On BBC i-player you can listen to a 10-minute interview with Lord Peter Mandelson on the Radio 5 ‘Drive’ programme this evening; after opening this link move the ‘fast forward’ cursor towards the bottom left of the screen from the 0.00 time to 2.14.30 to find the start of the interview. Lord Mandelson defends the measures to help the automotive industry which he announced today against criticism that the measures won’t go far enough to help the suppliers of car manufacturing, or the jobs which are being lost right now throughout the industry, and that other industries may be equally deserving of help to survive the recession.
read more...» •Credit Crunch - •Cycles and Shocks - •Aggregate Demand - •Capital Investment - •Fiscal Policy - •Supply-side policies -
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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
•AS Macro - •Business Economics - •Cycles and Shocks - •Aggregate Supply - •Economic Growth - •GCSE Economics - •Labour Economics - •Market Failure - •Factor Immobility - •UK Economy - •Unemployment - •Supply-side policies -
Tags: unemployment, investment, productivity, profits, welfare, jobs, construction, skills, human capital, immobility
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Has competition in postal services delivered?
Two years on from the liberalisation of the postal services industry, has this supply-side policy to make the market more contestable made any noticeable difference to the quality of service, prices and investment in delivery? A new report casts doubt on the changes to the industry since the market opened up to competition at the start of 2006 to businesses such as UK Mail. Robert Peston reports for the BBC in this video clip. His feature asks whether the universal service provision is a millstone round the neck of the Royal Mail which remains in deep financial trouble.
•AS Micro - •Business Economics - •Competitive Markets - •Supply-side policies -
Tags: prices, competition, monopsony, contestable, liberalisation, privatisation, postal services
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Revision: Supply-side of the UK Economy
This revision note recaps short run and long run aggregate supply and looks at some of the key supply-side policies together with a brief evaluation of the recent supply-side performance of the UK economy. Designed for both AS and A2 students. I have also attached a PowerPoint presentation with a selection of supply-side indicators for the UK.
Revision Note (pdf format)
Revision_Supply_Side_Policies.pdf
PowerPoint Charts
Supplyside_Performance_2008.ppt
•AS Macro - •UK Economy - •Supply-side policies -
Tags: supply, investment, productivity, competitiveness
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Revision: Innovation
Innovation has been defined by the OECD as “The transformation of an idea into a new, improved product, process or service.” This revision mind map looks at the micro and macroeconomic importance of innovation. Successful innovation can be a driving dynamic of a modern, competitive economy. A range of supply and demand-side policies can be used to foster innovative behaviour. Of key importance is the type of market structure in which innovation within the private sector can be encouraged. We must not forget too the potential for innovation in the public sector and in collaborative ventures between countries.
•AS Macro - •Supply-side policies -
Tags: supply, innovation, efficiency, competitiveness
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Foreign retailers help UK productivity
For some years there has been strong evidence that inflows of foreign investment into our manufacturing sector have served to drive higher output worker. But perhaps the same is happening on the high street and in the shopping malls? A new paper by Dr Dolores Anon Higon and Dr Nicholas Vasilakos presented at the Royal Economic Society’s March 2008 annual conference finds that foreign-owned retailers may improve the productivity of the retail sector as a whole if they are more productive than British retailers and they have the effect of forcing UK retailers to raise their own game with benefits for consumers in the longer term. A summary of their findings is available here from the RES web site.
Tags: manufacturing, productivity, retailers
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Competing on quality rather than price
The Financial Times carried an article today which I will use when discussing the different strategies British manufacturing firms can adopt when trying to compete in competitive global markets.
Public goods essays
Thanks for the ideas for essays on public goods. I settled on giving the students a choice of one from three…
•Market Failure - •Public Goods - •Supply-side policies -
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UK ranked as one of Europe’s innovation leaders
Those in Britain who believe that innovation is one of the most important supply-side determinants of economic growth, improved trade performance and rising living standards will be cheered by the latest 2007 Innovation Scoreboard for the twenty-seven nations of the EU. Sweden, Switzerland, Finland, Israel, Denmark, Japan, Germany, the UK and the US are ranked as Europe’s ‘innovation leaders’.
The EU press release says that
‘The UK performs particularly strongly in Innovation & entrepreneurship with a relatively high level on the indicator of Early-stage venture capital. It performs below the EU average in the dimension of Intellectual property with a relatively lower level on the indicators of Triad patents and Community designs. The analysis of innovation efficiency suggests that the UK is above the EU average in transforming innovation inputs into Applications, but below average in transforming such inputs into Intellectual property outputs.’
I produced a revision mind map on innovation a couple of years ago, it is still available on the web site here (in pdf format)
•European Economy - •Supply-side policies -
Tags: innovation, efficiency
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