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Useful graphic from The Guardian showing Government Revenues and Spending - helps to put some perspective on some of the announcements.
Politicshome's live Blog showing that hell hath no fury like pressure groups scorned, with plenty of useful links to early comments on The Budget.
Evening Standard's coverage here, it managed to pre-empt the Chancellor's statement.
With Evening Standard-like speed, please follow this link for a short set of questions about today's Budget.
Attention is often focused on the tariff and non-tariff barriers to trade and in particular, the extent to which trade from developing countries to advanced high-income nations is influenced by import taxes. Average tariff rates have come down to historic lows in recent years although non-tariff barriers proliferate.
New research from a group of European economists finds that trade costs - a concept that captures the broader expenses of getting goods and services across borders into international markets - are much higher than tariffs. And for developing countries these costs have not fallen to the same extent as richer countries.read more...»
The economics news, and this blog, has recently featured the debate between those who favour more government spending on public infrastructure and those who favour sticking to the role of austerity, in the search for growth - see the debate (or spat) between Krugman and Sachs, Vince Cable's article in the New Statesman and Liam Fox's speech to the IEA last week for a range of different views. The idea that more UK spending on 'shovel-ready projects' (if such a thing exists) would help to kick start the economy through multiplied growth of GDP suggests that we don't spend enough. And this view would be borne out by those who suffer damaged car tyres from potholes, hold-ups on the roads and railways from lack of maintenance, and delayed or re-routed air travel when the airports can't cope with adverse weather. However, an article in the Wall Street Journal this weekend suggests that the UK's spending is well ahead of other countries,and that Germany in particular has a real problem with aging, collapsing infrastructure.
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.
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...»
There are several research organisations out there producing regularly updated forecasts on what is likely to happen to the relative shares of global GDP and income per capita over the long run. Typically the forecast stretches out to 2050 and necessarily involves plenty of uncertainty. But these over the horizon studies are quite interesting in their own right because they remind us of the changing drivers of growth in the world economy.
Here is one of these reports - World in 2050 The BRICs and beyond: prospects, challenges and opportunities - produced by economists at PriceWaterhouseCoopersread more...»
Robert Nutter explains that, over recent years, the fear that the minimum wage would cause increased unemployment has not materialised, although since the start of the current economic crisis employers have expressed some concerns that employment may be affected in low paid jobs. Another concern has been the belief that a national minimum wage is inappropriate for an economy where costs and labour market conditions vary significantly between regions. The national minimum wage may perhaps provide a living wage in North-East England but certainly not in London.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...»
Immigration lowers the wages of relatively low-skilled native employees in sectors of the service economy that hire bigger shares of foreign workers. But the cost reductions that employers enjoy from lower wages are typically passed on to consumers: price inflation is much higher for services with no change in immigrant employment than for services where immigrant employment is growing.
These are among the findings of research by Professors Bernt Bratsberg and Oddbjørn Raaum, published in the latest issue of the Economic Journal. Their study confirms that there are clear winners and losers from labour migration: low- and semi-skilled workers face increased competitive pressures on their wages and employment while consumers enjoy more services at lower prices.
Any visa policies that restrict entry by highly productive foreign students are a significant barrier to science and ultimately to innovation and growth. That is one of the conclusions of research by Professors Eric Stuen, Mushfiq Mobarak and Keith Maskus, published in the latest issue of the Economic Journal.
Their study of 700,000 postgraduates in the science and engineering laboratories of the top US universities finds that American students and foreign students are both highly significant contributors to the development of scientific knowledge. But greater diversity in the origins of foreign students raises their joint contribution to knowledge.
These findings imply that visa restrictions limiting the entry of high- ability foreign students – as well as visa policies that prioritise students’ ability to pay tuition fees over their technical merits – would significantly undermine scientific output.
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...»
At our Teaching the Global Economy at the RSA (London) in November 2012, the distinguished development economist Professor Paul Collier spoke on some of the leading development issues of the moment. A-level student Mark Austen was there to scribe some notes on the talk and the subsequent Q&A discussion. Here are his notes together with some connecting links and other resources. We hope that you find them useful.read more...»
Youth unemployment is higher than adult unemployment even in normal economic times. But in recessions, especially in countries with rigid labour markets, young people typically stay unemployed for too long. In these circumstances, urgent policy action is needed to avoid long-term unemployment, which destroys talent and creates social problems.
Peter Marsh's talk at our Global economy conference in London on Monday challenged us to think in fresh terms about what manufacturing is and the opportunities for British businesses to make successful headway in premium and precision manufactured products in a fast-changing global environment. Here are the slides from his presentation. The FT special reprot - Making the Future is well worth tapping into - here is the link. We have also linked to some of his recent video pieces for the Financial Timesread more...»
I'm sure you don't have any problems convincing your students that education is a merit good/service. Every so often, however, it may be difficult for young people in the UK, aspirational and aiming high, to see how their own learning impacts so positively upon the wider society. Although we constantly debate the quality of education in the UK and strive to improve, many young people will take opportunities to access schools and colleges for granted - perhaps arguing about local differences and the cost of higher education but rarely about actual access to basic education. With such relatively high levels of literacy and numeracy amongst British youngsters it is difficult for them to imagine a society where this is not the norm. The Waseela-e-Taleem initiative in Pakistan, however, could prove a useful example of how government intervention into education is about more than just the structure of assessment and paying teachers - but a country's drive to improve access to basic education and shift its economic as well its political and sociological prospects.read more...»
Michael Heseltine’s report on economic growth came out last week. It contains 89 recommendations. A mere 57 varieties, to recall the famous Heinz slogan, might have connected it more with popular culture.
A selection of visualisations from the MIT Media Lab Observatory of Economic Complexity - these cover changes in export patterns for a small cluster of developing and developed countries. What are the most notable and perhaps significant changes that students can identify?read more...»
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:
Former Labour Deputy Prime Minister John Prescott was once (perhaps) quoted as saying: "The Green Belt is one of Labour's greatest achievements, and we intend to build on it!". Danny Boyle's dramatic and wonderful London 2012 Olympic opening ceremony "Isle's of Beauty" began with an unforgettable rural landscape which was soon to be transformed by an altogether harsher industrial landscape during the pandemonium.
For many years we have regarded our greenbelt protected land as a bulwark against urban sprawl and over-rapid commercial and industrial development. But this is about to change with a change in planning laws and regulations that will make it easier to turn farmland into business parks and new housing?read more...»
New figures that make international comparisons of productivity suggest that the UK is once more fallig behind efficiency improvements made in some of our major trade rivals. The productivity gap is regarded by many as one of the key supply-side weaknesses in the British economy.
Infrastructure includes physical capital such as transport networks, energy, power and water supplies and telecommunications networks. Poor infrastructure hampers growth because it causes higher supply costs and delays for businesses. It reduces the mobility of labour and affects the ability of exporters to get their products to international markets.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...»
This blog will provide a regularly updated selection of news videos on the role that often small-scale infrastructure projects can play in supporting development in some of the least developed countries. Click below to view the current entries:read more...»
This Financial Times news video is excellent on issues surrounding high rates of youth unemployment. The number of 18- to 24-year-olds out of work for at least six months has risen by more than a third in the past year to 403,000.
Many thousands are struggling to find work and the lack of apprenticeship schemes and the high level of short term or vulnerable contract work makes it extremely tough to get into formal work. More and more students are looking to establish their own businesses as an alternative. The rapid expansion of student-led entrepreneurship societies based around colleges and universities is a welcome development. So too is the rise of “start-up” milk-rounds at many of the UK’s universities. Challenging times yes, but opportunities will always exist for enquiring minds with ideas to incubate and grow.read more...»
Here is an example of a fast-growing developing country in Africa making important investment to help meet ambitious targets for supplying energy from renewable sources. Katrina Manson films and reports for the Financial Times from the Great Rift Valley on Kenya’s latest plans to exploit geothermal energy to produce electricity.
The fixed costs of finding geo-thermal sources, build the turbines and then connect to Keyna’s energy grid are huge. But a move towards smaller geo-thermal energy plants provide a more cost efficient approach. Successful investment will help to reduce energy imports, provide a viable alternative to uncertain hydro-electric power, create new jobs and contribute to Kenya’s search for sustainable growth.read more...»
This news video report from the Wall Street Journal is superb in highlighting the economic consequences of the chronic shortages of energy and fuel in the fast-growing Indian economy. The focus is on a newly opened coal-fired power station (note the investment in it from Hong Kong and China) which has already had to close dow production twice because it has run out of coal supplies.read more...»
This 101 East programme from Al Jazeerah shown in June 2012 looks at attempts within China to fast track investment and progress in product innovation as part of the drive to sustain growth and make the leap from middle to higher income living standards. The programme is 25 minutes long. China faces allegations of unfair trade practices and intellectual piracy by some of its major trading partners in the US and Europeread more...»
Many people take as given a pressing need to increase capital investment in the infrastructure of our energy sectors - but how strong are the economic and social impacts of such investment? The LSE Growth Commission met this week to discuss this and I have brought together some of the arguments drawing on a number of various twitter feedsread more...»
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...»
Lots of students will be revising the economics of supply-side policies this week with their AS macro paper coming into view. There are different interpretations of what constitutes a supply-side policy measure. I like to label SSP (supply-side policy) to any policy or group of measures where emphasis is given to improving the working of markets, raising factor efficiency, improving the quantity and quality of labour and in lifting the capacity and competitiveness of an economy in a constantly-changing international environment.
Many supply side policies focus on improving incentives and outcomes in the labour market, others are geared towards bettering the performance of markets for goods and services, All of them centre on helping to sustain non-inflationary growth, improve trade performance, lift living standards and create new and fulfilling jobs opportunities.
This revision blog looks in particular at some evaluation points on supply-side approaches:read more...»
A revision blog on the economic impact of migration on the UK economyread more...»
Productivity is a key measure of supply-side economic performance and labour efficiency.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...»
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.
Today, TUC figures showed that the number of men working part time who are looking for full time work has doubled in the last four years from 293,000 to nearly 600,000. Is this a sign of the recession or is it an inevitable result of a move towards more flexible working?read more...»
A short glossary of key terms connected to the economic cycleread more...»
This is well worth watching! It is an 8 minute discussion from the Economist which examines what is being called “The Third Industrial Revolution” - based around the digitisation of manufacturing processes. Concepts such as 3d printing and advanced robotics are discussed, as are concepts such as competitiveness, productivity and product personalisation. One possible consequence of these changes might be that high quality manufacturing may begin to move back from lower-wage economies such as China and back to economies like the USA.read more...»
Here is a superb news report from Channel 4 news about the shortage of skilled workers in the North East of England (an area of high unemployment). Nissan this week announced a big new investment in car making at their ultra-high productivity plant in Washington, Tyne and Wear. But many of the manufacturers along Nissan’s supply chain are finding it tough to get enough skilled people coming througth to make realistic bid for the orders that will come from Nissa. Some businesses are having to turn down contracts because they dont have the extra workforce to cope with the higher volumes of businesses.
Skills shortages are restricting the growth of many small and medium sized businesses especially in manufacturing. Little wonder that Nissan is working very closely with Gateshead College to run an apprenticeship scheme - an example of external economies of scale in action.read more...»
Productivity is a measure of the efficiency with which a country combines capital and labour to produce more with the same level of factor inputs. We commonly focus on labour productivity measured by output per person employed or output per person hour.
A better measure of underlying productivity growth is total factor productivity which takes into account changes in the amount of capital available for each worker to use and also changes in the size of the labour force.
To give a simple numerical example, if the size of the capital stock grows by 3% and the employed workforce expands by 2% and output (GDP) increases by 8%, then total factor productivity has increased by 3%.
China has achieved impressive gains in productivity in recent years. Some of this is undoubtedly the huge spending on capital investment which has grown to nearly 50% of China’s GDP. The labour force has also grown although this is scheduled to level off and then decline in the years ahead.
What has driven improvements in Chinese total factor productivity?read more...»
In the past we have discussed some of the long term economic and social costs of a persistently high rate of unemployment and we have used the term hysteresis effects. It seems that a new term is being used to cover some of the consequences of millions of people being out of work - unemployment scarring - and this revision blog looks at some of the causes of this.read more...»
Professor David Blanchflower didn’t pull his punches when he was a member of the Bank of England’s Monetary Policy Committee and he is making his mark once more with an attack on what he views as the Coalition government’s lacklustre approach to tackling youth unemployment. Blanchflower is reported in the Guardian as wanting zero national insurance contributions for employers who take on younger workers in depressed regions and localities. And he wants greater investment in vocational education in schools and colleges with the school-leaving age raised to 18.read more...»
As ever, there are loads of sources that students can use to analyse the Budget and to extract pieces of Evidence for the Examples they will need to add depth to their analysis in essays. Those who are attending the current round of revision workshops will recognise this as a key part of ensuring that they write essays which PEEL the answer (each paragraph makes one Point, using Examples with Evidence, offering Evaluation and Linking to the question). As start points, I would suggest these sources which are reasonably free of opinions:
BBC website: Budget 2012 at a glance, Farewell 50p tax rate, and Over 65-s tax-free income freeze
The Guardian Budget 2012: welfare cuts, tax cuts too, but retreat on child benefit and for the visual learners a nice graphic version: Tax and spending plans visualised
This news video from the BBC focuses on a man who has been out of work for over two years in the seaside town of Weston-super-mare a town dominated by tourist businesses where employment is highly seasonal. It provides a strong short case study in the problems of people who have been out of paid employment for a long time. Watch the piece here
Channel 4 news have a special section on the unemployment crisis in the UK economy. Follow this link for fresh teaching and studying resources on unemployment. Follow this link for the Channel 4 News Jobs Reportread 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...»
Migration from one country to another has become an increasingly important feature of our globalizing world and it raises many important economic, social and political issues. About 200-million people — about 3% of the world’s population — now live in countries in which they were not born. In the United Kingdom in 2010, the number of international migrants as a percentage of the population rose above 10% for the first time after several years of high rates of net inward migrationread more...»
The rapid growth of the India economy has been helped by her economy enjoying a number of supply-side advantages. That said there remain structural supply-side weaknesses that will limit her continued competitiveness and development. This blog looks at the plusses and the minuses.read more...»
Britain is one of the world’s biggest exporters of creative products - from live TV shows and music to books, arts, architecture and films the economy has built up an enviable global reputation for excellence and a growing trade surplus to aid our balance of payments.
Computer games falls squarely into this category but, according to TIGA - the trade association representing the UK’s games industry - unless there is renewed government support, the future of this sector is at risk. TIGA claims that the British games industry is suffering a significant ‘brain drain’ as talented programmers and artists leave the country to work abroad.read more...»