Economics

Evaluating the effect of Quantitative Easing - A Case Against?

2012-02-12T07:35:19Z

The effect of QE on savers is examined here in this excellent video and studio discussion led by Faisal Islam, the Economics Correspondent at Channel 4 news. Those households that don’t borrow are less interested in sustained low interest rates. One significant effect of QE and the decision to keep the base rate at 0.5% is to effectively eliminate the returns to saving. Is the policy worthwhile?

Unit 1 Micro: Public Goods News Clips

2012-02-11T19:04:45Z

A selection of recent news clips linked to the concept of public goods

Flood defence

Lighthouse protection

Speed cameras

Private prisons

Fireworks in Oban

The Story of ‘Adam Sugar’ (aka Aggregate Supply)

2012-02-10T16:05:29Z

This is a great activity my HoD Luke McIlvenna did today with our mutual Lower Sixth Economics Class, which helped them to develop and demonstrate their understanding of aggregate supply.

The students were asked to write a story about aggregate supply in which they had to imagine it as a person or thing with characteristics or even a personality. They needed to think about being quiet and unoccupied, becoming busier, and then becoming super stressed as they reached full capacity.

Some of the work produced by students was really great, not to mention creative. Here are two examples:

The_Story_of_Annie_Smith.docx

The Story of Adam Sugar (link to file via our department blog)

I’m looking forward to being able to build on this knowledge as we cover economic growth, unemployment and demand pull inflation.

Unit 2 Macro: China’s Trade Engine is Spluttering

2012-02-10T15:57:56Z

New data suggests that the rapid growth of exports from China is once again slowing down. This Reuters business news video (2 minutes) provides some useful background information on the recent downturn in export and import volumes and mentions that rising imports and a shrinking trade surplus may help the Chinese to rebalance their economy and perhaps provide a demand stimulus for exporters from struggling European countries.

That said the continued weakness of many EU countries will make it difficult for Chinese exporters to maintain sales and employment. During the global recession of 2008-09 millions of workers in Chinese manufacturing industry lost their jobs prompting many to return to their rural homelands in search of work and income.

* Which industries in China are likely to be most affected by a reduction in the growth of exports?

News video

The Working Poor

2012-02-10T09:17:38Z

Superb Newsnight last night that covers:
- the working poor
- the market failure of income inequality
- the abuse of monopsony power by supermarkets
- the government failure of the National Minimum Wage vs the Living Wage
- the burden on the tax payer of the working poor
Watch it here…

Martin Wolf on Global Shocks

2012-02-10T09:13:47Z

Some notes from the recent BBC analysis programme on the global crisis presented by Martin Wolf in which spoke to a number of

* We are not yet close to the end of a single long-running crisis / trauma of excessive private and public sector debt

* Excessive debt is not the only danger - there are many systemic issues facing the world economy

* Imbalances in the world economy - trade imbalances persist, and deep imbalances in growth rates going forward that are helping to fast-forward changes in the balance of economic power in the world economy

* Combination of sovereign debt problem (generates weak confidence) but a banking sector that continues to de-leverage (cut their loan books) which hampers private sector growth. The developed world is battered and weak and vulnerable to further macro shocks. There is a generalised slowdown and no country is immune to it.

Policy mistakes

1/ Financial deregulation encouraged reckless and high-risk lending

2/ Belief that sovereign debt was risk-less - inevitably led to too much of it being issued

3/ European monetary union - created with 17 disparate countries and without appropriate fiscal disciplines being enforced - there was a decade of lax lending and spending and worsening competitiveness for many countries in the south.

Financialization - a long-term failure of the capitalist system

Ever-rising borrowing became the only way to finance rising consumption in a decade when real wages were falling - borrowing was the demand-engine but this engine has now badly mis-fired and new sources of growth need to be found.

Productivity gains did not find their way into higher real wages for many millions of people at or around median wages, growth looked strong on the surface but was accompanied by a trend rise in inequality and growing social unrest.

Fallacies of composition

i) All countries should save more - the paradox of thrift

ii) All countries should seek to export more - one country’s BoP surplus is another’s deficit

iii) All countries should seek to reduce their debt - the risk of another global downturn / slump

It is incredibly hard to deal with de-leveraging of the banking system once we have allowed excessive leverage to happen in the boom. De-leveraging constrains the growth of private sector demand - from small businesses who cannot get loans to home-owners finding it tough to get a mortgage. This de-leveraging can take many years to unwind.

Main tool now lies in the hands of developed-country central banks who still have scope for expanding their own balance sheets through quantitative easing as a way of tackling weak growth of money and credit.

Or can we persuade fast-growing emerging countries to provide a further impetus to global economic demand - a new engine of growth that might help lift debt-ridden rich nations to achieve firmer recovery and attack debt in ways other than yet more austerity?

The autonomous capacity of developing countries to grow has increased but will they be willing to provide sufficient help perhaps through the International Monetary Fund? Does the IMF itself need to be able to act as a bank in it’s own right by creating new money - effectively the creation of a new global central bank.

Stephanie Flanders explains Quantitative Easing in 60 seconds

2012-02-09T22:22:21Z

This has to be amongst the best 60 seconds of Economics you’ll ever see on television. The superb Stephanie Flanders takes a leaf out of the RSA playbook to explain the basic theory behind quantitative easing. Wonderful!!

econoMAX - latest edition now available

2012-02-09T12:27:31Z

The latest edition of econoMAX, our digital magazine for A Level Economics students and teachers, is now available to subscribers on the econoMAX website. Details of the latest articles below.

School / college subscriptions to econoMAX remain at just £50 per year (for the 7th year running!) - your subscription allows whole-school access and distribution of econoMAX articles, including the entire archive dating back to 2004.

You can order your subscription to econoMAX here.

Difficulties on the High Street (Andy Reeve)

Barratts, Blacks, Burtons, Carpet Right, Comet, Currys, HMV, JJB Sports, Oddbins, Thorntons – These are all High Street names and all facing difficulties of varying degrees in 2011. The latest casualty of the continuing economic slowdown is the shoe retailer; Barratts. It entered into administration on 8th December 2011 and it cannot find a buyer. The most likely outcome will be that the administrators Deloitte will make 1610 employees of Barratts concession stores redundant and continue to try and sell on the remaining 173 stores to a potential buyer.

High Speed Rail in Britain: the economic case against HS2 (Tom White)

The improved West Coast Main Line was designed to allow many extra journeys and shave up to 30% off journey times between some of the country’s biggest cities. Although work on the upgrade was expected to cost around £2 billion, problems caused costs to balloon to £9 billion and the project was finished years overdue. Now the British government is raising the stakes by planning a new £32 billion high speed link from London to the north of England.

US Productivity – looking good! (Mark Johnston)

Job creation has been a major concern for the United States economy as it tries to avoid a double-dip recession. US President Barack Obama recently promised to implement new tax incentives for companies that create jobs within the domestic economy – rewarding those that bring jobs into the US and eliminating tax breaks for companies that move jobs overseas. Although the unemployment rate in the US fell to 8.5% in December 2011, the lowest since February 2009, it is the impressive productivity figures which have gone largely unnoticed.

Dental care - an imperfect market (Robert Nutter)

The vast majority of people do not like going to the dentist. Indeed 12% of us have a phobia about it. Visiting the dentist only has some attraction if we have a raging toothache and a dentist can relieve the pain. Currently about 60% of the adult population visit a dentist on a regular basis, but the demand for dental care has fallen in the recent economic climate suggesting that it is a normal good..

Credit – is it still too tight for a sustained recovery in the housing market? (Andy Reeve)

The publication of the Bank of England’s Credit Conditions Survey on 5th January 2012 suggests that the supply of credit for secured loans to individuals (mortgages) was broadly unchanged during the final quarter of 2011. Lenders expect there to be a small increase in the availability of credit during the first three months of 2012, although they point to poor forecasts for the economic performance of the economy as a negative factor on the level of credit that will be available to individuals.

Canada and Kyoto (Mark Johnston)

The Kyoto Protocol is a protocol to the United Nations Framework Convention on Climate Change (UNFCCC), aimed at reducing global warming. The Protocol was initially adopted on 11 December 1997 in Kyoto and Canada was one of the proactive countries in its implementation. However, on 13th December 2011, Peter Kent, the environment minister, announced that Canada was withdrawing from the agreement becoming the first country to do so. So, why the reversal of the commitment to the cause of reducing CO2 emissions? Furthermore, will Canada be the first of many that take the same course of action?

Competition and contestability in the UK bus market (Tom White)

Economic theory suggests that competition will often lead to improved economic efficiency, with this logic supporting the moves made in the 1980s to deregulate much of the UK bus market. So it’s disappointing to hear that 25 years later, the chairman of the Competition Commission’s local bus market investigation group has announced that the “reality is that in too many areas of the country, competition has stagnated and the incumbent providers know that they face little in the way of serious challenge”.

What’s best for developing countries – aid or remittances? (Mark Johnston)

In the current economic climate of austerity and government cut backs there has been some debate as to whether the aid budget to help developing countries will be a victim. However, is aid the best policy to assist those countries? Some have suggested that remittances from immigrants living abroad are a more effective tool for assisting those countries that are of developing status.

A backward step on the Maldives’ road to democracy?

2012-02-08T21:39:34Z

In development economics one of the issues that can often be a barrier to a country’s development is political instability, and it looks like the Maldives will be my case study this year. Read on to find out why

The democratically-elected President Mohamed Nasheed (well, now ex-President) was apparently forced to resign ‘at gunpoint’ by police and army officers who staged a coup in the collection of islands that only managed to have their first multi-party elections in October 2008. The coup has led to Mr Nasheed’s vice-president being put in charge, but the former President has vowed to seek to return to office.

This story obviously highlights a number of issues that can be discussed in lessons, chief among them the impact of such events on the economy of the Maldives- one which is heavily dependant on tourism, an industry which could certainly do without such negative publicity.

This BBC News article discusses the story in much more detail and also includes a number of useful links to other pages, including the BBC’s country profile which provides some useful background information.

Competitiveness

2012-02-08T19:24:22Z

A useful entry on the Bond Vigilantes blog on competiveness.

The concluding paragraph of this useful blog reads:
“It is true that the growth rate of an economy will depend on the growth rate of exports, but the problem is the growth rate of exports depends upon world demand and how competitive those exports are in the international marketplace. We doubt an internal devaluation is the answer to Europe’s problems. To say that a reduction in ULCs will result in a rebound in growth numbers is wrong. You have to be producing stuff that people want to buy. Or you need your currency to devalue by enough to make your goods relatively cheap. This isn’t going to happen in Europe, where the euro has been remarkably strong given the sovereign crisis. The growth answer lies in getting credit flowing through the economy again, and central banks recognise that. It is important to realise that sometimes the obvious solution – like “we need to be more competitive” – is not always the right solution.”
Find the whole entry here: http://www.bondvigilantes.com/ where you can also sign up for regular email updates. The articles are intended for investment professionals but there are useful titbits for Economics and Business teachers and students.

Teaching Economics: A Perspective from the Classroom

2012-02-07T19:51:33Z

I headed to the Bank of England today to a conference organised by Diane Coyle (Enlightenment Economics) and supported by the Bank and the Government Economic Service.

All of the sessions were full of interest and I will blog on some of the themes a little later on. For colleagues who would like to see the slides from my short talk please click on the link below

Economics - A Perspective from the Classroom

China bans its airlines from paying EU carbon tax

2012-02-06T05:52:33Z

On 1st January this year, the EU introduced an Emissions Trading Scheme (ETS) which levies a charge on flights in EU airspace based on carbon emissions. They estimate that this will add between 2 and 12 euros to flight tickets. Airlines are required to purchase emissions permits, like utilities and heavy industry in the EU, and airlines that do not comply face fines of 100 euros for each tonne of carbon dioxide emitted for which they have not surrendered allowances. In the case of persistent offenders, the EU has the right to ban airlines from its airports.

The Chinese Air Transport Association says the scheme would cost Chinese airlines 800 million yuan ($123 million) in the first year and more than triple that by 2020, and today the Chinese government has “banned” all airlines in the country from joining the ETS and also barred the airlines from increasing their fares or adding new charges for the scheme. The Chinese are not alone; last year a group of US airlines challenged the EU law and although the European Court of Justice ruled against them, more than two dozen countries, including India, Canada and Russia as well as China and the United States, have opposed the move, saying it violates international law and is an unfair trade barrier. As the BBC report points out, given the global economic conditions and an uncertain outlook for the travel industry, airlines see the extra tax eating further into their profits and are not convinced that this increase in the costs of production (SRAS) can be passed on to passengers.
“The sector is already facing quite severe challenges,” Chris De Lavigne of Frost & Sullivan told the BBC. “The airline industry as a whole has already been hit by high fuel costs in the past couple of years and no one wants additional cost factors coming in.”

The EU could take action against China. However, any fines or prohibitions are likely to provoke retaliation from China, which European airlines could not afford. And this happens just as EU governments desperately need the Chinese government’s help; as Reuters say “The aviation row also comes as euro zone countries have looked to China, with its big holdings of foreign exchange reserves, for a show of economic support while they grapple with the latest phase of their debt crisis” and is one week before the EU-China summit. It would seem expedient therefore to allow the Chinese airlines to avoid the charges - but in that case, there will be no grounds for applying them to any other airlines or countries, and the scheme will be subject to failure.

What would you do?

Teaching Vacancy - Economics (Part-time) at John Lyon School (Harrow)

2012-02-05T20:48:36Z

Many thanks to Stuart Foster for pointing out this nice part-time opportunity for a tutor2u economics teacher to join the thriving Economics department at John Lyon School. Need to move quickly on this one folks!

Economics Teacher (Part-time 0.5)
The John Lyon School

Dates: Apply by 20/02/2012
Job start September 2012
Location: Harrow
Contract type: Part Time
Contract term: Permanent

The School is seeking to appoint a part-time Teacher to join a popular and successful Economics Department. This is an excellent opportunity for either an experienced teacher or an NQT.

c has its own salary scale. A willingness to contribute to the extracurricular life of the School is desirable.

For further details please contact: The Head’s PA, The John Lyon School, Middle Road, Harrow on the Hill, Middlesex HA2 0HN, Telephone: 020 8872 8400, Email: headspa@johnlyon.org, www.johnlyon.org

Closing date for applications: Monday 20th February

The School is committed to safeguarding and promoting the welfare of children and applicants must be willing to undergo child protection screening appropriate to the post,

including checks with past employers and the Criminal Records Bureau.

The John Lyon School
Independent HMC Day School for 600 boys, aged 11-18
Harrow on the Hill

Teaching Vacancy - HOD Economics and Business Studies - City of London Freemen’s School

2012-02-05T20:16:27Z

Many thanks to Penny Brooks for letting us have news of this terrific HOD role for Economics/Business Studies in the beautiful Surrey countryside…

Head of Economics and Business Studies, City of London Freemen’s School

There have been many good jobs advertised on the blogs in the last couple of weeks. This one offers the chance to be Head of Department in a mixed independent school, close to London but in the Surrey countryside, teaching in the 6th form but within a school which includes pupils from 7 to 18 on one beautiful site.

You would be heading a department with excellent, experienced and enthusiastic teachers, and lively, questioning students. The school is in the process of introducing some exciting curriculum developments which will give all pupils the opportunity to extend and enrich their learning well beyond the academic curriculum, and offer staff the opportunity for involvement either in their specialist curriculum area, or in offering other extension activities.

Further information about the department can be found here:

CLFS_Economics_and_Business_Studies_Department.doc

The closing date for applications is Thursday 16th February 2012.

email the school for a full job description and application form quoting ref. 065218. In the meantime, if you would like the chance to discuss the job informally, please email Penny Brooks