Google Wave: Trade deficits and surpluses
We were back on Wave last night considering some of the wider arguments surrounding persistent trade imbalances. Are trade imbalances a problem?
We are hoping that - as more Economics teachers migrate to Google Wave - we will be able to schedule collaborative sessions (typically lasting between 45 to 60 minutes) where we can generate ideas, arguments and perspectives in real time and support eachother’s teaching on chosen topics or issues.
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Toy Story
The Go Go Hamster is set to be one of the top toys this Christmas. But this, and other toys in high demand, might be subject to a shortage of supply. Retailers had their fingers burned last year as demand for toys fell by 12% and many were left with excess supply after the Christmas period. Many toy retailers make over 50% of their sales in November-December, but the early stages of global recession reduced demand for toys in 2008, shifting the demand curve to the left so that, in order to clear excess stocks, retailers had to reduce prices. In a textbook example of cobweb theory, many have ordered fewer toys this year thus reducing supply, but in fact the early signs on both sides of the Atlantic and across Europe is that demand is, at least partly, restored, so there is now a risk of excess demand.
Stimulating Times
I was drawn to this very interesting graphic from the latest IMF report on the state of government (fiscal) finances in countries around the world.
read more...»China’s growth starts to climb back above the 8% target
China’s leaders have set ambitious targets for economic growth - with an aim of reaching 8% growth of real GDP in 2009, a year in which world trade has shrunk and much of the developed world has been mired in recession. An enormous stimulus programme seems to be having an effect with the latest data showing a pick up in output and annualised growth of GDP climbing above 8.5%. Exports remain weak and many Chinese manufacturers are finding that the prices they are able to get from advanced economy importers continues to fall - the terms of trade have moved against them. Lifting domestic demand has become a key macroeconomic objective for the Chinese government. China has poured £354billion into spending on infrastructure in order to boost its domestic economy as exports have suffered.
This BBC news video reports on the latest Chinese growth figures.
See also
BBC: China economic growth accelerates
The Times: The dragon roars again after new figures put China’s output on a growth hat-trick
Taxing hot money - is Brazil getting it wrong?
Carl Mortished’s excellent world business briefing in the Times today covers developments in the Brazilian economy. Huge inflows of foreign direct investment have helped to drive their currency higher and the Brazilian Finance Ministry has responded with a 2 per cent capital tax on foreign ‘hot money’ inflows into stocks and bonds. The article suggests that Brazil might be better off in the long run by cutting import tariffs on capital goods thus reducing the price of imports of hi-tech machinery that will give her economy a major supply-side boost. In contrast to China, Brazil exports a relatively low percentage of her national output and it is largely self sufficient. The country has enjoyed a significant improvement in her terms of trade with strong world prices for many of her key exported commodites such as iron ore, coffee and orange juice. The boom in commodity exports has helped to increase the real purchasing power of millions of Brazil’s poorest people but a huge amount remains to be done and income and wealth inequalities are vast.
“Brazil is not China; it does not trade that much. Where China’s motor is manufacturing exports, Brazil is largely a self-sufficient economy, more like the United States, with a vast hinterland of eager, albeit poor, consumers.”
Paul Mason on the future for the dollar
Paul Mason’s excellent short video report appeared on Newsnight last Friday and it considers whether the US dollar (currently weak in global currency markets) will continue to ebb away as the reserve currency of choice for international transactions? The Yen and the Euro are making strides and there is pressure from the Chinese for a new currency to emerge perhaps as a development of the special drawing rights organised by the IMF. The BBC video links to a follow up discussion featuring Irwin Steltzer and Linda Yueh from Oxford University. A good discussion-starter for A2 macroeconomists.
Watch Are dollar’s days as world currency numbered?
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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.
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Beijing worries that supply is outpacing demand
Not all investment contributes to growth - and in an economy where super-charged capital spending has been a driving force of economic expansion over several decades, there is always a risk that a country that invests over forty per cent of GDP on capital goods can eventually suffer an investment-led slump. Japan learned to her cost the dangers of being over-capitalised. Is China recognising the same symptoms in time? This article from the Times makes for fascinating reading.
“Beijing is eager to keep GDP growth above the level of 8 per cent supposedly required to maintain social stability and job creation. But there are fears that huge imbalances between production capacity and actual demand could lead to price wars, corporate failures and severe setbacks for the country’s stellar expansion trajectory.”
Read Beijing moves to halt growth as supply starts to outstrip demand
Paul Mason on Economic Aftershocks
Newsnight’s Economics Editor Paul Mason was on fine form last week with a set of short reports on how the economic and financial crisis has affected the UK and Global economy. Both are between five and six minutes long and I showed them to my A2 students as a prompt for discussion and also to an able AS set who are still dipping their toes in the macroeconomic waters! The features allowed us to discuss (at AS level) the inter-connected nature of the world economy (for example the need to re-balance demand and trade between the USA and China) and also to consider the reasons for and consequences of the huge rise in public sector spending and borrowing.
For AS economics I have deliberately left introductory stuff on the circular flow until we have kicked around ideas and arguments about the recession - causes, effects and ways out of the downturn.
Here are the links to Paul Mason’s three video reports from last week:
Aftershock - Impact on the World
Aftershock - Has ideology changed?
Protectionism and the free-market Economist
The Economist magazine is furious with Barack Obama for his announcement of a 35% import tax on tyres from China. The writer looks at the role of world trade in the extraordinary burst of growth that globalisation has triggered, which has “lifted hundreds of millions out of poverty over the past few decades and brought lower prices to consumers everywhere.” The effect is being threatened now though, as world trade is predicted to fall by 10% in 2009 and many countries attempt to help their domestic industries with subsidies or new tariffs on imports: the Economist quotes a report from the Geneva-based World Trade Alliance claiming that, on average, once every three days a G20 member has broken the no-protectionism pledge they made at the summit in April. Specifically, they look at the potential problems to be caused by the new import tax on Chinese tyres: either consumers will have to pay more for tyres made more expensively in the domestic economy, which will cause the motor trade to suffer, or buyers will simply switch to an alternative source of low cost imports, from India or Malaysia, in which case the US jobs will be lost anyway, and in either case there is the risk of provoking retailatory measures from China.
Does one small measure of protectionism matter? The selective steel tariffs introduced by George Bush on imports from China in 2002 had very little effect on trading relations between the two nations in the long-run. The Economist thinks that this is different, and that America has to take a leading role in resisting the temptation to protect, but also largely because they are reliant on the Chinese as major buyers of the government bonds that are financing America’s massive fiscal deficit.
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