Scots may lead the way in setting minimum price for alcohol
The smoking ban first came in north of the border and now we find that the Scottish government has been proactive in trying to curb the economic and social costs of high alcohol consumption and binge drinking. Establishing a minimum price per unit of alcohol seems like an obvious economic approach to the issue and this report by Colin Blane looks at the plan for a minimum price of 40p per unit - making a bottle of wine at least £3.60.If it works the number of hospital admissions could be cut by many thousands per year. Will Scotland become the first country in Europe to go down this path? This short video piece would make a good starter resource for a lesson on intervention options and an evaluation of their potential impacts.
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?
Government legislation week
In time for the start of term, there is lots of legislation coming into force this week. There’s the third rise in petrol duty in nine months, starting today, with the return of VAT to 17.5% at the end of year to come – is this the price of going green, or the price of a budget deficit?
read more...»USA triples the tax on cigarettes
I will resist the temptation to roll out the usual cigarette puns .... smokers fuming over tax rise etc etc ...but the news that the Federal tax on puffing away has risen so much remains of interest to economists....
The US government has introduced a huge rise in the tax on cigarettes - reported here by the BBC. For a 10-pack carton, the tax leapt to 10.06 dollars from 3.90 dollars.
It is a good example of how large scale increases in indirect taxes are needed to have a significant impact on demand and the timing of the tax hike is also interesting - is it better to raise taxes during an economic slump when household budgets are under great strain? Does this give people just the right incentive when they might be considering cutting back or stopping altogether? Note too that the article mentions how the extra tax revenue will be used - to pay for health care for uninsured children - an example of ‘earmarked’ or hypothecated taxation at work. Always assuming of course that the tax jump does lead to more revenue coming in.
Keep in mind that this is a federal tax and that individual states can (and do) levy their own supplementary duties on packets or cartons of cigarettes. With the combined city, state and recently raised federal tax, smokers in New York City pay about $10 per pack - $4 higher than in many southern states and a clear incentive for smuggling!
Higher taxes, health warnings, bans on smoking in public has reduced per capita consumption in the USA from almost 4,300 annually in 1965 to below 1,700 now but the market remains highly profitable.
Currency Wars?
The Financial Times reports today that the Swiss Central Bank has started to intervene in the currency markets to lower the value of the Swiss Franc because they fear that a rapidly appreciating currency will worsen their economic slowdown.
read more...»Devaluation and salvation?
The exchange rate is big news at the moment and it is worth following closely since changes in the external value of a currency can have significant effects on prices, export and domestic demand, jobs and the rate of economic growth.
As with most topics in AS macro, think about causation, consequences and whether changes to macroeconomic policies through intervention can and should seek to make a difference.
Larry Elliott in the Guardian considers whether the devaluation of sterling against the Euro could be a saving grace for the economy. And there is a neat interactive graphic showing what has been happening to the pound’s value against the Euro Area currency.
The Times reports on sterling’s weakness and suggests that falling overseas demand for UK denominated shares is one factor driving the currency lower. Britain is expected to suffer a deeper recession than most of the leading advanced economies and this will impact on profits and dividends from UK businesses largely dependent on the health of the UK economy.
The Financial Times reports on the rise of the Euro as a reserve currency
“There are now more euros in circulation than dollars, and the euro’s role as an international reserve currency is growing. By the first half of this year, the euro accounted for 27 per cent of official foreign reserves, up from 18 per cent soon after its launch. The dollar’s share fell from 71.2 per cent to 62.5 per cent during the same period.”
Reserve currency status is an important factor driving demand for a currency – sterling seems to have lost its much vaunted safe-haven status among international investors and this is another reason behind the steep depreciation of recent weeks and months.
Will the government (through the Bank of England) intervene in the currency markets to help stabilise the value of the pound against the Euro?
Not if you believe the public statements of Treasury Minister Yvette Cooper who is reported in the Independent as saying that the value of the pound was not a top priority for the government implying that the pound would be left to find its own market level. In an interview on the BBC radio 4 Today programme she is quoted as saying:
“We’ve never had a policy of targeting the pound. Our policy is to target inflation. And that I think has been the right one.”
Regular articles on the economics of exchange rates appear on my blog here:
FT Graphic on Government Intervention
Here is another superb Financial Times graphic considering the various ways in which governments have chosen to intervene during the failure of the financial markets. A brilliant resource for teachers.
Aspects of Nationalisation - Debt and Free Markets
The national debt is the accmulated outstanding borrowing of central and local government together with public corporations. One of the immediate effects of the bail outs for financial institutions is that the total national debt has climbed by tens of billions of pounds. If the full extent of the extra finance made available to support the partly-nationalised banks is taken up, then UK national debt might rise to 100% in the near future, an almost unprecedented position to be in during peace time. The last time that government sector debt exceeded fifty per cent of our GDP was in the late 1970s when the Callaghan Labour government was forced into a bout of emergency borrowing from the International Monetary Fund.
This Independent article looks at the position and how the debt will be financed.
This Financial Times editorial considers the role that government intervention can play in saving free market institutions.
In today’s Guardian, Ashley Seager considers how the crisis has affected Britain’s public finances
B2BB - Back to Banking Basics
I have read much on the complex causes of the Banking Crisis but rarely have I heard an explanation as clear and compelling as that offered by Guy Ashton Head of Global Equity Research at Deutsche Bank at the school’s Stock Broking Society tonight.
read more...»Two superb FT graphics
The FT has two superb graphics on government intervention and interest rates
Hat tip to Mo Tanweer for spotting these
Interest rates and how changes affect the financial system
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