OFWAT plans to turn the tap on water company prices
The Times today has an interesting article on the power battle between the water industry regulator OFWAT and the regional monopoly providers such as Thames Water. It appears that a much tougher pricing regime is planned for the utilities leading to cuts in the real price of water supplies for consumers.
“Every five years, Ofwat sets limits on prices that water companies in England and Wales can charge. For 2010-15, it has proposed that, before taking inflation into account, bills should be reduced for many customers, bringing the average annual water and sewerage bill down by 4 per cent from £344 to £330 by 2015. The water companies had wanted a £28 rise to fund their business plans.”
OFWAT wants the utilities to invest more in in improving drinking water quality, cutting leakage levels and raise the number of metered households from 36 per cent to 50 per cent (in a bid to control water usage). But will imposing real price cuts help achieve this objective? The aim is to have a pricing regime that forces the utilities to raise productivity and cut out as many inefficiencies as possible.
Water is a good example of where a strong regulator is needed because of the absence of competition - after all consumers can’t switch supplier if they are given a poor service.
Global food prices and the terms of trade
Agflation refers to a sustained increase in the general price of foodstuffs and in recent years we have become accustomed to seeing the prices of many basic staple products rising. The era of cheap food looks to be over for now on the back of significant demand-side factors, not least rising population levels, higher per capita incomes and speculative demand for foods as prices have become more volatile. Supply-side factors are also important in explaining strong inflation in food prices. Both sides of the market are discussed by Ambrose Evans-Pritchard in his column in the Telegraph today “Food will never be so cheap again” - plenty of applied microeconomics here in addition to the huge number of macroeconomic issues that the trend rise in food prices has caused. One of the big changes in a switch in the terms of trade away from food importers towards food exporters. But do higher food prices necessarily cause agricultural supply to expand?
Rated: 
(1/5), based on 23 reviews
EU warns that UK’s Black Hole is unsustainable
The European Commission has just published its latest Sustainability Report that looks at the state of the government finances of member nations. And the warning is pretty clear - without strong corrective action the UK runs the risk of public sector debt becoming unsustainable
read more...»Gloomy summary
Here is a summary of four reports posted on the Business and Economics sections of the BBC News website over the last few days. Be warned - none of them are particularly hopeful, the green shoots of summer giving way to autumn mists.
Are the Japanese the latest victims of a strengthening currency?
The Japanese Yen has hit an eight month high vs the US Dollar according to BBC news BBC News Article. This has prompted a lot of hand wringing from the Japanese ruling party and has sent share prices in Tokyo tumbling. But why should having a strong currency against the greenback equate to economic turmoil?
King confirms green shoots
CPI inflation has fallen to 1.6%, and RPI inflation started to recover to -1.3%, in the measure of the annual rate to August. Is this good news?
For CPI, it means that the rate is moving further away from the target of 2%, which would be a concern if it was to continue on that trend, but the RPI measure indicates a slightly lower level of deflation, which should be a welcome sign. However, in both cases, it depends upon the reason as well as the expectation of what happens next. In a speech to the Treasury Select Committee, Mervyn King suggested that inflation is likely to be volatile over the next year, and focusing on GDP, he said that there were signs of a recovery to positive growth in the third quarter of the year.
But he remains very cautious; although the European Commission forecast the UK to grow 0.2% between July and September, this is less than in France or Germany, and Mervyn King suggested three factors, or headwinds, against which UK growth would have to struggle in order to become positive.
read more...»China’s concern over US monetary expansion
As the US effectively prints more money, Chinese officials are expressing concern over the impact that this will have on their economy
read more...»Keynes v Friedman
A cross posting from my blogging colleague Jon Mace
Today’s extract in The Telegraph from Edmund Conway’s new book looks at Milton Friedman and Monetarism. Economics students need to have a sound awareness of the Monetarism versus Keynesian debate. Friedman and Keynes came from opposing ends of economic ideology. They doctrines have dominated economic thinking and policy over the last 50 years. In short Keynes placed greater emphasis on unemployment than inflation and gave warning that the state of the economy could be improved by some government interference. Friedman argued otherwise.
Conway provides a good analysis of the difference between these two economic giants:
“Inflation is always and everywhere a monetary phenomenon,” Friedman said. In short, by pumping extra money into the system (as the Keynesians were prone to doing) governments would drive up inflation, risking major economic pain. Friedman believed that if central banks were charged with maintaining control of prices, most other aspects of the economy – unemployment, economic growth, productivity – would take care of themselves.
While Keynes had asserted that it was difficult to persuade workers to accept lower wages, classical monetarist theory argued otherwise: that lower incomes for workers and lower prices for firms were acceptable in the face of rising inflation. The growth rate of an economy, argued Friedman, could be determined by controlling the amount of money being printed by central banks. Print more cash and people would spend more, and vice versa. It also marked an important political departure: whereas Keynes argued politicians should attempt to control the economy through fiscal policy, Friedman advocated giving independent central banks control over the economy using interest rates
The piece then goes on to examine the successes and failures of the two doctrines over the last fifty years. I always think it important for students to have an awareness of the changing economic conditions and favored policies over the decades, it only helps them to ingrain a deeper understanding of the theory.
He finishes the extract with an excellent quote from Martin Wolf:
Just as Keynes’s ideas were tested to destruction in the 1950s, 1960s and 1970s, Milton Friedman’s ideas might suffer a similar fate in the 1980s, 1990s and 2000s. All gods fail, if one believes too much.
The article in full can be found here.
Inflation or Unemployment - Which is Worse
Here is a super short resource from BBC World Business. Paul Krugman, Nobel laureate and professor of economics in Princeton University, and first Niall Ferguson, history professor at Harvard University followed by interpretation of the discussion by Stephanie Flanders.
Developments in Currency Markets
Here is our latest streamed presentation on key movements in foreign exchange markets. The presentation covers:
Sterling Trade-weighted Index
Sterling US Dollar Rate
Sterling US Dollar and Interest Rates
Euro Sterling Exchange Rate
Euro Sterling and Interest Rates
Sterling and CPI Inflation
Sterling and Monthly Trade Balance in Goods
Chinese Yuan against the US Dollar
Russian Rouble against the US Dollar
Euro against the US Dollar
Pegging to the Euro – Latvia and Estonia
Most Popular Topic Tags on the Economics Blog
recession, demand, economics, unemployment, price, prices, inflation, investment, costs, profit, downturn, trade, supply, debt, confidence, euro, gdp, competition, employment, capacity, production, risk, china, oil, incentives, exports, housing, expectations, pay, manufacturing, sterling, food, profits, property, tutor2u, mortgage, globalisation, banks, revision, slowdown, borrowing, usa, retailers, emissions, airlines, innovation, deflation, dollar, supermarkets, entrepreneur, efficiency, monopsony, elasticity, aqa, welfare, consumption, economist, productivity, saving, keynes, opec, wealth, depression, moodle, depreciation, jobs, credit crunch, competitiveness, cars, google, stocks, infrastructure, economic cycle, environmental, strategy, tim harford, externalities, carbon, vle, subsidy, evaluation, management, eu, losses, protectionism, spare capacity, inequality, environment, poverty, monopoly, bank of england, construction, behavioural, macroeconomics, output gap, budget deficit, carbon trading, steel, wages, japan, commodities, oligopoly, currencies, imports, bbc, stagflation, contestable, cpi, agflation, farming, newsnight, choices, skills, regulation, survey, taxes, government failure, itunes, minimum wage, lse, climate change, paul mason, population, intervention, keynes society, aviation, fiscal stimulus, amazon, single market, pricing, dan ariely, cartel, eton college, pollution, interest rates, shareholder, london, rationality, redundancies, market failure, rpi, mpc, shipping, behavioural economics, germany, robert peston, india, rsa, reputation, facebook, income elasticity, stakeholders, current account, brazil, coffee, savings, microsoft, monetary policy, crowding out, collapse, barriers to entry, nationalisation, multiplier effect, economies of scale, suppliers, price discrimination, uk economy, development, quiz, quantitative easing, currency, apple, surplus, tesco, free, labour market, behaviour, tragedy of the commons, opportunity cost, open source, vat, smoking, poverty trap, ireland, merger, growth, edinburgh, ownership, discrimination, global, cost benefit analysis, oecd, supply chain, shareholders, scarcity, balance of payments, petrol, liquidity, duopoly, iphone, starbucks, trade deficit, happiness, etonomics, scrappage, human capital, capital, subsidies, immigration, eurozone, takeover, exploitation, ecb, paradox of thrift, taxation, wiki, advertising, iceland, labour force survey, utility, wants, cost of living, brand, poland, blog, speculation, foreign exchange, spain, indirect tax, robert frank, northern rock, roger bootle, ocr economics, heathrow, hbos, animal spirits, hotels, freight, federal reserve, kaletsky, price war, information failure, crude oil, gini coefficient, transport, creative destruction, leverage, sony, migrants, us economy, waste, information, fishing, milk, tax, government borrowing, budget, eu enlargement, anchoring, obama, entrepreneurship society, aggregate demand, peter day, recovery, needs, internet, forecast, european union, discounting, real income, copper, deficit, public sector, contestability, nissan, companies, david smith, fairness, blogging, standard of living, aqa economics, martin wolf, renewable, twitter, sentiment, labour mobility, collusion, imf, accelerator effect, geoff riley, fair trade, pubs, income tax, obesity, guardian, consumer welfare, res, disposable income, national debt, devaluation, consumer surplus, corus, vacancies, global economy, broadband, sub-prime, tariff, joint venture, vehicles, startups, yuan, immobility, income elasticity of demand, edexcel economics, redundancy, tata, walmart, relative poverty, youth unemployment, accelerator, tickets, coal, cash, pensions, edmund conway, base rate, russia, diesel, marginal cost, external shocks, movies, liquidity trap, contestable market, libor, stephanie flanders, fixed costs, comparative advantage, allocative efficiency, training, satisficing, hot money, rory cellan-jones, status races, price mechanism, healthcare, deleveraging, congestion, veblen goods, credit, social entrepreneur, apprenticeships, hyperinflation, economic efficiency, migration, financial times, evan davis, automatic stabilisers, age structure, cyclical, king of shaves, monopoly power, reserve currency, ryanair, wheat, ucas, scotland, carbon tax, positional goods, drugs, aldi, ebea, stimulus, deindustrialisation, barclays, chris coleridge, yahoo, organic growth, liberalisation, equity, richard thaler, pay cuts, royal mail, diseconomies of scale, logging, tax burden, bonds, savings ratio, will king, pension, demography, structural, gillette, nhs, job losses, ocr, house prices, cross elasticity, brics, redistribution, biofuel, nelson thornes, paul krugman, schumpeter, slump, markets, footfall, british airways, green revolution, income distribution, price capping, logic of life, ft, contraction, enterprise, the economist, eastern europe, natural monopoly, health, general motors, o2, deforestation, enlargement, producer welfare, economic welfare, asda, supply-side, research, landfill, social costs, long tail, jim o'neill, diane coyle, economax, energy, podcast, share prices, tariffs, external shock, profit margin, fiscal drag, green shoots, ftse, philip allan, hedge fund, students, buy to let, elasticity of supply, market power, disincentives, ben bernanke, retailing, trend growth, resources, declan curry, nokia, undercover economist, hysteresis, chris anderson, bric economies, dynamic efficiency, price fixing, fiscal policy, winners curse, zimbabwe, hamish mcrae, toyota, market structure, global business, john kay, claimant count, compound interest, contestable markets, frictional, hedging, repossession, public good, law of unintended consequences, royal economic society, sustainability, probability, sustainable growth, cambridge, robert skidelsky, vertical integration, economics teacher inset, rentokil, price regulation, business cycle, fairtrade, freemium, yields, national institute, nairu, costa, nobel prize, robert shiller, market, gender pay gap,All tags
ECONOMICS TEACHER RESOURCE NEWSLETTER
Join over 4,000 other Economics Teachers in the UK and around the world who receive the tutor2u Economics Resource Email newsletter. Get special offers, first news of latest resources, teaching ideas, conferences and workshops.
Recent Threads on the Economics Teacher Discussion Forums:
Posts in: General Economics Teaching
Good hotel in London for school trip
Competitive Markets
Diminishing Returns
Complementary goods - HELP Please!
URgent Help Needed
Equilibrium concept
The price of life
Extended Project Qualification
Economics course structure
Bank of England School Trip
