Entries Tagged 'economics' ↓
July 22nd, 2008 — economics
Firstly, I am not convinced that China’s economic growth is a problem for the UK. I would argue China’s economic development has many benefits. (see: how Chinese economy has affected UK Economy)
Rising Oil Prices. We can’t blame just China for rising oil prices. But, it is a factor. There is not much UK government can do about that.
Decline In Manufacturing Sector. The government can always try to implement better supply side policies to improve productivity of industry, but, there is a limit to how much they can do. Governments may need to just accept the changing structure of the economy.
Environmental Problems. A problem of Chinese growth is the increase in carbon emissions. Growth from China can easily dwarf any savings the UK make. Not much government can do about that.
Current Account deficit. I would say that blaming China for current account deficit misses the point. Most of the deficit is caused by a decade of high consumption and low savings.
July 22nd, 2008 — economics
Readers Question: How Has China’s Economic Industrialisation Affected the UK’s Economy? And What Policies Could The UK Government Implement To Rectify The Problems Created From China’s Growth?
Lower Goods Inflation. Chinese economic growth has been characterised by low priced manufactured goods. The price of items such as clothes and electronic goods has consistently fallen, helping to maintain low inflation. This downward pressure on prices is particularly helpful given current cost push inflation pressures from energy and food.
Higher price of raw materials. As well as contributing to lower goods inflation. You could argue China’s growth is contributing to rising prices of raw materials e.g. oil. The economic growth in China is pushing up demand and therefore price of oil, which is having an impact on Western inflation
Decline In Manufacturing Sector. The UK’s manufacturing sector has been in relative decline since early 1980s. Chinese growth has in a way speeded up this process as British firms with higher labour costs become uncompetitive compared to Chinese firms.However, the Manufacturing sector may have declined anyway and upto recently job losses in manufacturing sector have been absorbed in service sector.
Current account deficit. The above factor has caused a deterioration in the long term trade balance between UK and China.
Service sector Inflows. Trade between China and UK is not just a one way process. China is increasingly using its financial clout to buy British goods and services. A good example, is education.
July 22nd, 2008 — economics
Keynes was one of the great economists of the twentieth century. Even his critics would have to admit he had a certain turn of phrase and wit. These are some of his more memorable quotes
“The long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is past the ocean is flat again. ”
“In truth, the gold standard is already a barbarous relic.”
-Monetary Reform (1924), p. 172
“If economists could manage to get themselves thought of as humble, competent people on a level with dentists, that would be splendid.”
- “The Future” Ch. 5, Essays in Persuasion (1931)
” There is no harm in being sometimes wrong — especially if one is promptly found out.”
- Essays in Biography (1933)
“The day is not far off when the economic problem will take the back seat where it belongs, and the arena of the heart and the head will be occupied or reoccupied, by our real problems — the problems of life and of human relations, of creation and behaviour and religion.”
- First Annual Report of the Arts Council (1945-1946)
“The book, as it stands, seems to me to be one of the most frightful muddles I have ever read, with scarcely a sound proposition in it beginning with page 45 [Hayek provided historical background up to page 45; after that came his theoretical model], and yet it remains a book of some interest, which is likely to leave its mark on the mind of the reader. It is an extraordinary example of how, starting with a mistake, a remorseless logician can end up in bedlam.”
* On Friedrich Hayek’s Prices and Production, in Collected Works, vol. XII, p. 252
” Education: the inculcation of the incomprehensible into the indifferent by the incompetent.”
o As quoted in Infinite Riches: Gems from a Lifetime of Reading (1979) by Leo Calvin Rosten, p. 165
“When the facts change, I change my mind. What do you do, sir?”
o Reply to a criticism during the Great Depression of having changed his position on monetary policy, as quoted in Lost Prophets: An Insider’s History of the Modern Eonomists (1994) by Alfred L. Malabre, p. 220
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July 19th, 2008 — economics
Readers Question: I understand why, generally, low inflation is considered to be a good thing and why high inflation is bad particularly if you have savings whose value in real terms then diminishes faster.
What I do not understand is why inflation is not in fact a good thing for those of us in their late 30s, saddled with a huge mortgage, two kids, and no savings to speak of. Surely once I have bought a house for £x, what I really want is for the cost of it (which is of course fixed when I hand over the purchase price - this is nothing to do with what happens to the VALUE of the property in future since that only has an impact if I ever sell) in real terms to drop as quickly as possible, so that the cost of borrowing to fund it becomes a smaller part of my income as quickly as possible?
To give an extreme example, my parents bought their first house in 1964. They paid about £1500. This felt like a fortune at the time, but they could probably get an overdraft to refinance it now, if they had only ever had an interest only mortgage! And the interest payments themselves, though a struggle in 1964, would be a quite trivial amount relative to their income now.
So surely if inflation hits 10% (I know that is unlikely, but let’s just say, for the sake of argument), and since I do not propose to move again, then the cost of my house (which remains thus static at what I paid for it) IN REAL TERMS will drop faster so that, assuming my salary at least keeps up with inflation, I’m going to be better off than if the £300,000 I paid still “feels” like £300,000 in 10 years’ time?
Thanks for the question. You raise a good point. Inflation is generally considered to be a damaging thing for the economy. There are many costs of inflation such as uncertainty, declining competitiveness, menu costs. For full explanation see: Costs of inflation. However, although inflation is generally bad, there are some people who will benefit from inflation (as long as nominal wages rise faster than inflation)
If you keep money under your bed, inflation will reduce the value of your savings. But, if you borrow a fixed amount, inflation makes it much easier to pay back (assuming wages keep pace with inflation, which generally they do in OECD economies)
When people are considering whether to buy or rent, they often forget the importance of inflation. They look at the cost of mortgage payments and focus on how expensive they are. But, these mortgage payments historically, decline in real terms over the course of the mortgage.
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July 16th, 2008 — economics
More bad news for the UK economy as CPI inflation jumped up to 3.8% yesterday. However, statistics also showed a jump in unemployment; the claimant count moved above 1 million for the first time in several months.
The Bank of England said they were powerless to stop the inflation as they don’t want to risk increasing interest rates given present difficulties.
Variations in Inflation Rate
From the diagram below, you can see the large variations in inflation for different groups of goods.
Food, energy and education are the worst affected (interestingly people never talk about inflation here)
If you like buying cheap clothes from Primark and using a mobile phone, it’s not so bad though.
- Price of Milk has increased 22% to 43p a pint.
- Price of Petrol has increased 21% to £1.18
Zimbabwe inflation
Spare a thought for Zimbabwe; their inflation rate passed the 2.2million % rate. Zimbabwe inflation
July 15th, 2008 — economics
A post on Moral Hazard and the banking sector. Moral hazard is a particualar problem for Central Banks and governments at the moment. The government don’t want banks to go bankrupt, but, the concern is that bailing out banks will encourage banks to make bad decisions in the future.
In the US, the Federal Reserve have had to support 2 of the biggest mortgage companies Freddie Mac and Fannie Mae. Fannie mae and Freddie Mac are mortgage companies who mainly buy or guarantee mortgages offered by other banks. Together, the two firms own or guarantee about $5.3 trillion (£2.7 trillion) worth of home loans - about half the outstanding mortgages in the US. That is about 25 times as big as the Rock’s obligations, and twice the size of the UK economy. It is widely agreed that they cannot be allowed to go bankrupt.
July 9th, 2008 — economics
The Cardboard bike needs no oil.
High oil prices have come as quite a shock to many. What is the best way to deal with them?
For a cyclist, like me, high oil prices are the best thing since the invention of dérailleur gears. Quiet roads, less chance of getting run over by a car; I’m just praying for the $300 barrel.
These folks aren’t so happy though, they are praying for lower gas prices. Poor God, what can he do? Some people are praying to save the environment, and some people praying to have cheap Gas so they can continue to drive without having to pay too much. Why pray for world peace, and elimination of poverty when you can pray to have cheaper Gas prices?
Solar Powered Cars
Solar powered cars. No petrol required. Not sure how far it would travel in the UK though. The European monsoon has arrived again….
For those with petrol cars, you could try these tips to reduce petrol consumption
July 6th, 2008 — economics
Origin of the term Dismal Science
It appears that the term ‘dismal science’ was first coined by Thomas Carlyle, in December 1849, “Occasional Discourse on the Negro Question” in the London monthly Fraser’s Magazine.
In particular, Carlyle was criticising the economists belief in supply and demand which stood in sharp contrast to his idealised view of a slave society. View more at: Why Economics is called the dismal science
Origins of the term Dismal Science
Secret History of the Dismal Science
July 6th, 2008 — economics
Readers Question: What economic factors should I consider if I want to know the relationship between innovation and the presence of patents/copyrights? Do copyright/patents (generally Intellectual Property Rights) stifle innovation? Does it slow down economic growth?
There is some debate. But, one argument is that patents are necessary to encourage innovation. If firms were unable to patent new machines, they would have less incentive to spend the necessary money on research and Development. Research and Development is risky and expensive; a firm may have to spend millions of pounds on developing new technology. If the technology was then freely available to all firms the market would be competitive and therefore, they would not make sufficient profit to justify the investment. Also it is argued that investment for innovation is paid for out of retained profit. So current patents on drugs are in effect financing future innovation. (This is certainly what the drug companies will say)
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July 1st, 2008 — economics
Selected Posts for June, with a focus on the impact of rising oil prices.
Why is the Price of Oil Rising?
With oil and petrol prices going through the roof, these are 10 Ways to Save petrol
Nevertheless, if oil prices keep rising we may have to consider the impact of a world without oil
Rising oil prices are causing rising inflation - just at a time when Central Banks would like to be able to cut rates - The Central Bank dilemma
With Oil prices continuing to rise, a reader asks - ‘Under what conditions can oil prices fall?’
Rising oil prices is not the only problem for the US. It comes at a time of record levels of debt in the US
Debates in Economics
