Property - then and now
Conditions in the UK housing market seem to get tougher by the day. The latest data on home repossessions is pretty dire - the Times reports that “Home repossession orders are nearing the level last seen in the recession of the early 1990s after rising by 16 per cent in the first quarter of this year.” and a fresh cluster of announcements about higher mortgage costs and tightening lending criteria have come from various mortgage lenders. In the short run there is really not much that the government can do to prevent even higher levels of property repossessions (or foreclosures), one danger is that fire-sales of repossessed properties will increase the supply-demand balance and drive prices down even quicker that forecast.
I liked this piece from the Money Central section of the Times website which cast a glance back to the last time that the UK property sector was in deep doo daa - how different are the market conditions in 2008 compared to the early 1990s? A good read for students wanting some historical perspective to build into their exam answers.
Carbon Trading - News Update
Here are three good articles on carbon trading for students wanting to be up to date and have some more arguments to hand:
BBC: “Carbon market’s value hits $64bn”
Nova Scotia News: “Canada may hook up with the EU carbon trading scheme”
Reuters: “British government shelves plans for personal carbon trading”
Loss aversion and experiences of inflation
Few people believe that the officially published measure of inflation accurately captures their own experiences and problems - this is hardly a surprise since our own spending patterns will rarely correlate precisely with the weights used to calculate the consumer price and retail price index. But there is a real danger that the published inflation figures are losing credibility - and with it comes a risk of a larger-than-expected wage-price effect into 2009.
David Leonhardt writing in the New York Times links aspects of behavioural economics to the vexed question of just how high is inflation. A really interesting piece and well worth reading:
“Price increases are simply more noticeable — more salient, as psychologists would say — than price decreases. Part of this comes from the notion of loss aversion: human beings dislike a loss more than they like a gain of equivalent size. If you have to sell your house for less than you bought it for, you’re really unhappy. You hate that ground chuck now costs $2.83 a pound, but you didn’t notice that oranges are 31 percent cheaper than they were a year ago. There is also something particular to inflation that aggravates loss aversion. Price increases are obvious. But price declines are often hidden. The cost of an item stays about the same for years, while everything else gets more expensive and nominal incomes rise.”
Re-birth of the Phillips Machine
The Guardian today carries a piece on the restoration of the famous Phillips Machine. I would love to be able to take my students to see this in action. Does anyone know if this is possible?
“It is 2 metres (7ft) tall, 1.5 metres wide and a metre deep. It runs on water and most of the time it is screened off at the back of a lecture room in Cambridge. But when the nine members of the Bank of England’s monetary policy committee announce their latest decision on interest rates today they will owe a debt of gratitude to the computer built in a garage in south Croydon by Bill Phillips - an engineer turned economist from New Zealand - almost 60 years ago.”
Better off out than in?
Yes says Ambrose Evans-Pritchard in his piece in the Telegraph today arguing that the UK economy might have been dealt a much tougher blow from the fallout from the credit crunch had we been locked into the single currency zone. I have been discussing this with my A2 students this morning. When external shocks occur, the key to stabilising prices, demand and output is to have a flexible supply-side, fiscal policy autonomy and control over monetary policy. The UK has all three to a reasonable degree and I cannot help thinking that the sliding sterling-euro exchange rate is key to all of this.
Ambrose writes: “As Neil Mellor from the Bank of New York Mellon points out, the pound has been perfectly hedged in this cycle. Sterling has fallen hard against the euro, giving a shot in the arm to British manufacturers (yes, they still exist, 13pc of GDP) who rely heavily on Europe’s markets: yet it remains overvalued against the dollar, softening the effect of oil, metal, and commodity inflation. The shock absorber is working. The Bank of England has already cut rates three times.”
It is interesting when you chat to city and industry economists that discussion of the possible entry of the UK into the Euro Zone is completely off the agenda, the prospect does not exist. The debate has moved on for good.
Madonna gives thumbs up to ticket touts
The Financial Times reports today that the pop star Madonna is “endorsing the sell-on of concert tickets, condemned by some concert promoters as scalping or touting, by making two leading companies in the secondary ticket market official partners for her forthcoming Sticky & Sweet tour of North America and Europe.....Secondary ticketing companies enable the public to trade their tickets online with customers who are prepared to pay above their face value. The company takes a cut of about 10 to 15 per cent.”
What do you think of secondary markets for tickets to sports events and live concerts? There are all sorts of arguments on both sides and secondary ticket agencies tend to have a rather dire reputation; images of shady touts patrolling venues looking for buyers immediately spring to mind. But if you have bought a ticket to an event weeks or months in advance and then find your circumstances have changed, why shouldn’t you have the option of using a legal secondary market?
Emailing entries in for the RES competition
If you do not have a postal option available please email in your essay to geoff@tutor2u.net ahead of Monday’s deadline
But please also remember to attach a cover sheet completed
You can download one here
Gangmasters and monopsony power
How many gangmasters are there operating in the UK? Does the Licensing Authority really have a proper handle on the scale of workers being organised and often exploited by gangmaster businesses? I was discussing this issue of monospony in my A2 revision presentations at London and Manchester in the last week. It is I feel one of the really important aspects of market failure in a largely deregulated labour market.
The BBC reports that ”a gangmaster has been stripped of his licence after investigators uncovered a “disgraceful story of forced labour” amongst migrant workers in Scotland.” The government has introduced a licensing scheme for gangmasters - partly as a consequence of the awful events that unfolded for the Chinese cocklepickers on Morecambe Bay (captured superbly in Nick Broomfield’s recent film “Ghosts").
Why Economics Matters
This looks like a tremendous event at the LSE in a couple of weeks
Why Economics Matters
Date: Tuesday 20 May 2008
Time: 6.30-8pm
Venue: Old Theatre, Old Building
Speakers: Professor Orazio Attanasio, Tim Harford, Professor Klaus Nielsen, Martin Wolf, Chair: Evan Davis
Further details available here
Things can only get better …..
We asked a thousand people and most of them said ...... there is trouble ahead! Consumer confidence took a further nose-dive last month according to fresh data from the Nationwide Building Society. The main reason was another steep decline in the percentage of people reported as saying that the UK economy is in good shape. This is just one survey among many, and its limited longevity doesn’t give it much of a record in anticipating turning points in the economic cycle. But if the housing market presages a wider economic downturn, it might well be one of the survey indicators to watch carefully because the shift in sentiment does not appear to have benign causes. Sixty per cent of those surveyed say that now is a bad time to make a major purchase such as a house or a new car – almost twice the number compared to two years ago.
