Economies of Scale
How can old media (such as newspapers) compete in the digital age?
Perhaps by seeking to take advantage of serious economies of scale.
News International has recently opened a new printing press in Hertfordshire which covers an area the size of 23 football pitches - and offers quieter and faster (70,000 papers per hour) production of both broadsheets such as The Times and Sunday Times, as well as Britain’s favourite tabloid, The Sun. In addition, the headcount of people needed to run the new plant is 200 - compared to 600 with the old facilities. It is perhaps the least labour intensive printing facility in the world.
read more...»Mind Map: Credit Crunch
Our A2 macro group mind-mapped the Credit Crunch in a lesson on Friday, a text summary appears below and the original map is also available as a pdf file.
read more...»New Labour’s Economic Dream turns to Nightmare?
The Sunday Times offers an article which suggests the public’s perception of New Labour’s economic policies are turning decidedly sour.
“By 78% to 12%, voters think that the government wastes large amounts of money and is not trying to do anything about it,” according to David Smith.
read more...»Economics: Sunday Paper Selection
David Smith looks at the performance of the UK economy over the last fifteen years referencing a work published alongside the Budget Report last week: Resilience in the UK and other OECD economies
Jeff Randall writing in the Telegraph argues that “the unwinding of the Great Debt Delusion still has a long way to go and many more victims to claim.”
Will Hutton on a a deluded Wall Street threatens the world economy
The Mail on Sunday has a stunning aerial photo of Heathrow Terminal 5 - superb for using when teaching economies of scale and the law of increased dimensions!
Yuan’s World
Countries running gigantic trade surpluses must take some responsibility for rebalancing the world economy by raising their own domestic demand for goods and services. That was the message I took from a speech on the balance of payments given last week by John Gieve, deputy governor of the Bank of England. In a talk to the Sovereign Wealth Management Conference in London. Mr Gieve argued that stronger action is needed to correct some of the deep rooted balance of payments imbalances in the world economy and that sovereign wealth funds will have an increasing role to play by boosting investment in their domestic economies to close some of the gap between domestic savings and investment.
Some key points from his speech are given below:
read more...»What shall we do with the drunken nation? Volumen Dos
[This is the concluding half of my two-parter on combating alcohol abuse in Britain. The first half, focusing on the price policies the government can use can be read here.]
read more...»Bear Stearns - The Tip of an Iceberg?
A couple of days ago one of my colleagues on the teaching staff came up to me and said that he was surprised to find so few people as worried as he was about the financial crises known as the credit crunch. He was spot on. Barely a day goes by without the Financial Times or the Wall Street Journal headlining news of the latest hedge fund collapse, bad debt write-off, profit warning from the real economy or rumours of a deeper and much broader contagion of disease ridden debt floating around the financial system. I was hinting to my economics class last week that things are likely to get worse - perhaps much worse - than the markets are predicting. Financial bubbles do not, as a general rule, deflate gently. Bubbles burst, and sometimes with frightening rapidity and force once euphoria has given way to doubt and panic. The massive injections of liquidity by the main central banks and the deep cuts in nominal interest rates are testimony to the seriousness of the credit crunch. They may not be enough.
read more...»ECB inertia threatens the slow lane
Central banks in the USA and the UK are cutting interest rates as credit crunch 2.0 takes hold. But the European Central Bank is holding firm with official rates at 4 per cent despite mounting evidence that the surging Euro-dollar exchange rate is hitting investment, exports and growth prospects. Why the inertia? And is the ECB so firmly fixated on the altar of price stability that it is prepared to allow the Eurozone economy to tumble into a growth recession thus putting the future of the single currency area under theat?
read more...»King sized rates for UK hotels
Why are British hotels so expensive? And how are British hoteliers using price discrimination to charge different nationalities different prices for the same room? These are other questions are explored in this excellent Independent “Big Question” feature from last week. The online article contains a superb graphic that teachers might want to use in a worksheet. There is a lot of microeconomics in the article by Martin Hickman, consumer affairs correspondent.
“The UK has the most expensive hotels in Europe, according to a new report. Staying a night here cost an average of £106 in 2007, up 12 per cent on the previous year. So why are Britishhotels so expensive? Three factors – tax, costs and supply and demand – according to the British Hospitality Association, the hotel industry’s body.”
The article can be accessed here
The Times reports today that “The leisure group Whitbread has been holding secret talks to merge its Premier Inn budget-hotel business with the rival Travelodge chain in a move that would create a £3 billion hospitality giant.”
A to Z of AS Macroeconomics!
Teaching at 5.30pm on a Friday afternoon as the fag end of term approaches isn’t great fun but after a successful SWOT analysis of the UK economy yesterday, I set my AS macro group a half hour challenge today - to produce an A to Z of macroeconomics as a prelude to their revision. Working in pairs, they tried to assemble twenty-six entries - it could be a concept, an issue in the news or perhaps a well known economist - anything so long as it had a
macroeconomic connection! Similar to the game of Scattegories, teams only scored a mark when their answer was unique within the class.
Double points could be scored for suggestions such as Ben Bernanke, price pressures or credit crunch. Three marks for purchasing power parity! This led to some very creative and quirky answers.
Anyway ... here is a potted (albeit incomplete) summary of the responses. My job over the weekend is to produce a word document that provides a web link to a newpaper or BBC news story for each of them - so that they can access some articles linked to their suggestions whenever they want to. Can blog users suggest other entries? I am happy to email the word file over if you want to try this exercise before the end of term!
read more...»US and UK inflation
Latest data on inflation suggests price rises are dampening in the US - opening the door for further rate cuts.
But in the UK there are fears that sustained inflationary pressures will prevent the Monetary Policy Committee of the Bank of England reducing the base rate until at least the summer. Geoff looked at this in detail earlier in the week.
read more...»Tony Dye
I was very sad to learn today that Tony Dye, former chief investment officer of Phillips and Drew died on Monday at the early age of 59. Tony was known as Doctor Doom for his bearish forecasts for stock prices during times of financial euphoria and ultimately he was proved right with the collapse of the dot-com boom in the spring of 2000. The boys at my economics society at school thought so much of him that they invited him to speak to the Keynes Society a couple of years ago. Tony delighted us on that occasion with a really nicely judged talk and by using some chapters of Keynes’ General Theory to illustrate some of the dangers of the herd mentality of people working in the financial markets. Tony Dye was a natural contrarian who believed passionately in the lessons of history and the power of the idea that values revert back to historic means. His obituary in the Telegraph provides a neat quote from Keynes which Tony was fond of using “worldy wisdom teaches that it is better to fail conventionally than it is to succeed unconventionally.” Rest in peace.
Europe’s 20-20 vision
Political leaders of the 27 EU nations are meeting to discuss proposals to make deeper binding commitments to CO2 emissions. This BBC news article provides good background for AS students looking at the issue for their AQA unit 3 paper and it is also relevant for A2 students covering environmental policy. I am always slightly suspicious of grand design statements, as always the devil is in the detail. It might be worth getting your students to take this interactive test available on the BBC web site.
“Aside from cutting emissions by at least one-fifth by 2020 from 1990 levels, EU states have agreed to use 20 percent of renewable energy sources in power production and 10 percent of biofuels from crops in transport by the same date.”
Depreciating lemons and peaches
The prices of used cars are falling faster than ever before.
read more...»Adaptive expectations?
For over ten years the Bank of England has been keen to manage expectations of inflation. It knows that if people fear a return of high rates of price inflation, they will factor that into their wage demands and there is a risk that the price stability we have enjoyed for fifteen years or more might be under threat. That would make the setting of interest rates even more complicated than normal, particularly given the current economic uncertainties at home and abroad.
With that in mind, the latest quarterly survey of price expectations published by the bank does not make happy bed-time reading for the Governor. Expectations of future inflation rose to 3.3 percent in February - the highest since the Bank started to publish the survey in 1999 and (importantly) more than a percentage point above the actual rate of CPI inflation.
Perhaps this survey is an example of adaptive expectations at work. Families see the rising cost of living every time they go to the supermarket, fill their car with diesel or check their quarterly energy bills. More people than ever before are discovering that the official measure of inflation (the CPI) bears little resemblance to the inflation they feel. The RPI inflation rate which includes housing costs, is much closer to their day-to-day experience.
It might be that we are unduly influenced by the prices we see around us and those highlighted in news broadcasts and on the front pages of the papers. Behind the scenes, the prices of audio-visual products continues to fall, as does the retail prices of clothing and second hand cars!
Whatever the cause, the reality is that rising expectations of inflation will make it more difficult for the MPC to sanction aggressive cuts in interest rates if and when the economy moves into a sharper than expected slowdown.
Gold glitters over $1000
The price of gold has risen above $1000 for the first time and the falling US dollar is the main cause. As the greenback slides in the foreign exchange markets, so gold becomes an even more attractive target for speculators who are keen to hedge against the growing global economic uncertainty and also take advantage of stronger currencies to buy gold - which of course is priced in dollars. Nervous investors are looking for assets that will give a more certain return and, with equities markets struggling to recover from the fall-out from the credit crunch, foreign investors now regard precious metals as hard assets that can protect the real value of their portfolios. How much longer can the gold bull (or should that be bullion) run continue? The spread-betting markets are chocker with traders taking bets that gold will rise to $1100 or higher still. The lesson seems to be this - watch what the US dollar is doing first and that will give you the next move in the price of gold. So when will the US Fed stop cutting interest rates?
Incentives, Darling
Two articles in The Economist caught my attention today. The first is an analysis of the non-doms issue in relation to the principles of taxation. Ther is also a brief discussion of this week’s budget, which appeared (as well as proving remarkaby optimistic about the growth prospects for the UK economy) to focus on changing production and consumption levels of demerit goods; namely cars, plastic bags and booze.
The second looks at merit good provision (and more importantly, uptake) in both South and North America.
read more...»Credit Crunch in 3:07
I teach a General Studies course on Friday mornings and will be looking at the credit crunch and the link between financial and economic crises tomorrow.
read more...»Tiger and his rivals
Does the presence of Tiger Woods in a professional golf tournament inhibit the standard of play of his rivals?
A fascinating paper by Jennifer Brown from Berkeley and given at a conference titled “Tournaments, Contests and Relative Performance Evaluation” earlier on this month suggests that he might do just that. Download the full paper here ... of great interest to golf loving behavioural economists! Rather like the jockeys who ease down their mounts in races where they have no chance of catching the leader, perhaps some of the cohort of professional players do not play to their maximum in tournaments where Tiger is pretty much expected to win? The paper looks at how performance of golf players changes at different stages of the tournament.
read more...»Revision Focus: Export Performance
Explain the factors which may help to determine an economy’s export performance (20 marks)
A revision note on some of the factors that shape the growth of exports for an economy
read more...»Mind Mappers for Economics
Calling all those of you who use mind-mapping in your teaching of economics. Is there anyone out there willing to swap some mind-maps? I have developed a reasonably-sized collection of maps used for AS, A2 and Oxbridge teaching - mainly created in MindJet 6 and would be happy to arrange for an email swap! Fingers crossed! Mind Manager 7 is now out and working well!
The most powerful law in the world?
We are studying information failure this week and at one point during the lesson today I was tempted to spurt out that the biggest information failure of all was the failure of people to understand the law of compound interest. That was going to be in the context of discussing why people often leave it so late to start saving money when a small pot earning interest on a compound basis over a large time period can grow very quickly if it invested for long enough. Just small changes in the annual return - say from 2.5% pa to 3.0% pa can have an enormous effect on the final value of a pension fund. MindYourFinances has a good example to use by way of illustration.
I will leave that discussion until the next lesson ... but tonight I picked up a piece by John Kay which will appear in the FT tomorrow on the wealth of Warren Buffett newly crowned as the world’s richest man. Kay reinforces the power of compound interest in shaping the value of the Buffett Foundation.
“Albert Einstein supposedly observed that the most powerful force in the universe is compound interest, and Mr Buffett’s frugality has enabled compound interest to work its magic. During Mr Buffett’s tenure at Berkshire Hathaway, the S&P 500 index has produced an average total return of 10 per cent. That return reinvested over 42 years will multiply your stake 67 times. But if your investments yield twice as much as that – as Mr Buffett’s have done – your wealth increases not by twice 67, but 67 squared, a factor of 4,500. That arithmetic makes Mr Buffett the richest man in the world.”
Read the rest of John’s piece here
UK Economic and Labour Market Review
The Economic and Labour Market Review available from the Office for National Statistics is a superb point of call for teachers and students wanting current UK macroeconomic data. Navigation is easy and most of the files are available for download in excel format.
BAA raises passenger charges
British Airports Authority, which owns and runs seven of the largest airports in the UK including Heathrow, Stansted and Gatwicj has been given clearance by the Civil Aviation Authority to increase the charge it makes for each passenger using the airport. It is a good example of how an industry regulator has the power to cap charges or prices in a market and the news has been criticised by many of the major airlines who are lobbying for a breakup of the BAA monopoly. They accuse the CAA of regulatory failure, of collapsing against the pressure placed on them by BAA to give them greater freedom to life passenger charges for taking off.
According to the Financial Times “The CAA said it was increasing the price cap at Heathrow by £2.44 or 23.5 per cent in real terms to £12.80 per passenger for the coming year from April 2008. Charges in the four subsequent years could rise by 7.5 per cent a year above inflation.”
I wrote about BAA in a recent edition of EconoMax. BAA is now owned by the Spanish firm Ferrovial and is struggling under a mountain of debt. They face huge bills for ramping up security arrangements at all of the major airports and in investing in new capacity and facilities at airports already stretched to breaking point. Ultimately of course, given the nature of the business, it is the passenger who will foot the bill through higher fares.
Stormy Weather
The UK has been battered by uncomfortable and volatile conditions and fears over damage to property this week - and the weather has been awful as well.
When it rains, it pours, and this is as true for the macroeconomy as anything else.
read more...»The Big Question looks at carbon trading
Plenty of environmental economics in today’s edition of the Independent. The regular Big Question feature looks at the costs and benefits of carbon trading in the wake of the government’s support for fresh investment in coal fired power stations. Read The Big Question: What is carbon trading, and will it help in the battle against climate change?
Their editorial lays into Chancellor Alastair Darling for being ready to sacrifice environmental targets because of a faltering economy.
“Environmental levies need two key features. The first is that they be substantial enough to change behaviour. The second, and no less important, is that the proceeds are seen to be channelled into green schemes, or to provide tax breaks for those who make more environmentally friendly choice.”
Read: Make the polluters pay, and give the others a break
Finally there is a feature on how the effects of climate change tend to hit disproportionately the poorest communities around the world - the costs of adapting to climate change are enormous and some regions and communities are least able to cope.
More environmental news and features in the Independent are available here
Job Vacancy: Butternut Squash Picker
It may be worth setting your video recorders this evening at 9pm, BB2. As you may well be aware the BBC is running a series of programs under the heading of The White Season, Is white working class Britain becoming invisible? The title of the program tonight being The Poles are Coming:
According to some of the locals, Peterborough is being stretched to breaking point by the influx of Eastern Europeans, attracted to the area by the promise of high wages and decent living conditions in exchange for manual labour. Employers are delighted with their Polish recruits, but some residents want the Poles to go home.
read more...»Bet on the Budget?
In my home town this week it is jump racing’s premier meeting, the Cheltenham festival. If you don’t fancy a flutter on the horses how about having a little punt on tomorrow’s budget. An interesting article from the BBC today looks at some odds on Alistair Darling’s first budget.
read more...ȣ1.10 for Diesel and further rises to come
Crude oil prices reached fresh highs on the international petroleum exchanges today with some oil trading at over $107 a barrel. And for motorists the pain is going to get worse in the coming weeks for it takes up to two weeks and sometimes longer for wholesale prices to feed through to the cost of a litre of fuel on the petrol forecourts. As our chart shows, there has been a pretty inexorable rise in the retail price of petrol. All eyes will be on the Chancellor this week in his Budget statement to see if he makes any fresh announcements on petrol duty.
A new survery from USwitch has found that household bills have risen by £1,783 a year, with petrol prices up 18 per cent (£192), energy bills up 13 per cent (£114), food prices up 11 per cent (£324) and mortgage prices up nine per cent (£1,020). Little wonder that the amount of money people have for discretionary spending - money left over once all of the main bills have been paid - is shrinking at a rapid rate of knots.
The Decoupling Debate
The D word - ‘decoupling’ - is at the heart of the debate regarding global economic prospects for 2008 and beyond.
The term refers to the shift by developing economies - and newly industrialising countries in particular - away from dependence on strong demand in the West for their products.
read more...»
