More to life than GDP?

Happiness economics is a topic very much in vogue at the moment, and this year’s edition of Social Trends has clearly paid homage to that fact by including a measure of subjective well-being: Satisfaction with standard of living and financial prospects [Table 5.5]. The data made no attempt to debunk the Easterlin paradox: while household income has increased by over 60% and household wealth has more than doubled, satisfaction with standard of living has remained constant at around 85%.

Manufacturing’s revival?

Can UK manufacturing industry enjoy a sustained revival at a time when financial services are under pressure from the credit crunch? The Engineering Employers’ Federation has produced a new report on the performance of the manufacturing sector which concludes that “manufacturing is performing strongly with a number of the indicators at their highest level for ten years.”

UK National Accounts for 2007

The revised 4th quarter national income data for the UK has been published. There is a brief report here. Lehman Brothers have also released a pessimistic forecast for the UK predicting a one-in-three chance of an outright recession.

Now that the data is in I have revised my macro charts for showing the various components of aggregate demand for the UK - I often hand this out to AS macro students so that they can get a feel for the numbers and the difference in scale between for example household spending and capital investment. I have put some of these charts into the accompanying PowerPoint

Components of aggregate demand
UK economic cycle over the last 30 years
Real GDP since the mid 1970s
Macro objectives - growth, inflation and unemployment for the UK since 1989

I hope that these might be useful in macro revision sessions

PowerPoint file
Aggregate_Demand_UK.ppt

Revision: Household Saving

This revision focus looks at household saving - the decision to postpone consumption

At AS level, changes in the household savings ratio can have significant effects on the level of aggregate demand (in the short term) and also on the funds available to finance investment. There has been a trend decline in the savings ratio in many countries (in the United States, the personal sector savings ratio has touched zero!) and AS economists ought to be able to use an aggregate demand / supply framework to analyse some of the effects for variables such as GDP, employment, inflationary pressures and the balance of payments.

Is the low level of household saving a cause for economic concern in the longer term? if so, what might be done to increase saving? How does globalisation impact on the significance of saving for economic growth? This 3 page revision focus document (available in pdf format) covers some of these issues.

Saving_Revision.pdf

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!

Russia’s new road to economic growth

There is a great macroeconomics feature in the Times today about a massive road building programme being launched by the Russian government. I was watching The Long Way Round the other week and one of the most memorable sections is when Charlie and Ewan attempt to journey through the Road of Bones, perhaps one of the least hospitable and most dangerous stretches of roadway in the world. The Times reports that

“Russian roads are in a parlous state. The Soviet Union invested much more money into the nation’s railways and the country still lacks motorways between big cities - between Moscow and St Petersburg, for example - or to nearby European capitals, such as Minsk. In rural areas, many villages have little more than dirt tracks. The bad roads cost the economy an estimated 10 per cent of GDP, according to VTB Europe, the investment bank. It also costs lives: 34,000 people a year die on the roads in Russia, ten times more than in the UK. The Kremlin wants to start one of the most ambitious roadbuilding programmes ever, building 50,000km of roads in the next six years, at a cost of £2 million per kilometre. The plan includes tunnels, bridges and motorways between big cities and to borders with neighbouring countries.”

The article can be used to illustrate many economic issues

The multiplier effects of the road building programme
Applying some of the principles of cost-benefit analysis
Road building and externalities - including the environmental costs and benefits
The importance of infrastructure in driving economic growth
How Russia is planning to finance this programme - the Russian government is looking for half of the money to come from the private sector
What this road building programme might do to the prices of raw materials and to wages in the Russian construction sector
How might British firms be able to benefit from the huge road building investment programme?

Robert Frank on Income and Happiness

One of my favourite authors, the ‘Economic Naturalist’, Robert Frank writes about real incomes and happiness in today’s New York Times. He makes the point that “findings suggest that relative income is a much better predictor of well-being than absolute income” and the article is excellent for students wanting to know a little more about the problems in adjusting for price changes in the economy when trying to capture real improvements in living standards.

“Since the mid-1970s, however, income growth has been confined almost entirely to top earners. Changes in per-capita G.D.P., which track only changes in average income, are completely silent about the effects of this shift.  A society that aspires to improve needs a better measure of what counts as progress.”

See: Income and Happiness: An Imperfect Link

All aboard - can Grand Central stay on the rails?

Getting a new rail service off the ground is never easy. New rolling stock has to be commissioned and older carriages renovated; drivers have to be trained and other essential staff recruited. Marketing fresh timetables to customers takes time and travellers have to be reassured that the services will run to time and safely. Grand Central has battled industry indifferences and some outright hostility (from GNER the former holder of the East coast franchise) to launch a service providing a direct route from Sunderland along the Durham coast to London King’s Cross is a great example of a business that has struggled to get over the start line. The first trains pulled out of Sunderland station in December 2007 more than twelve months behind schedule mainly because of long delays in new rolling stock being delivered and then tested. Even now only a partial service is available. The company’s marketing slogan is “the train you have been waiting for” - somewhat ironic given the difficulties the business has faced.