SWOT analysis – Examples

swot analysis

SWOT analysis is looking at a businesses – strengths, weaknesses, opportunities, threats. SWOT analysis is useful for a business looking at strategic planning for the future. How can the firm survive, grow and remain relevant. Examples of strengths Current profitable orders. Existing brand loyalty and brand recognition Loyal customer base Mailing list and details of …

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Sugar tax debate

sugar-tax-fat-tax

Excess consumption of sugar is linked to several health problems, such as obesity, diabetes, and tooth decay. Consumption of sugar imposes costs on individuals (lower life expectancy) and the rest of society (higher health care costs + lower productivity). A tax on sugar would discourage consumption and raise tax revenue to fund improved health care. …

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Long-Term inflation forecasts

Originally published in March 2015. Current inflation rate (Feb 2020) is 1.3%. I was 0.7% out.

But there was no skill in predicting inflation of 2%. If Ii had to predict inflation for 2025, I would predict the same = 2%.


Reader’s Question: What will be the inflation rate in 2020?

Firstly, I can’t resist a few economics ‘jokes’

  • “An economist is an expert who will know tomorrow why the things he predicted yesterday didn’t happen today. “
  • “The First Law of Economists: For every economist, there exists an equal and opposite economist.”
  • The Second Law of Economists: They’re both wrong.
  • Q:Why did God create economists ?
  • A: In order to make weather forecasters look good.

To be honest, it is very difficult to make inflation forecasts for more than 12-18 months time. I feel that if you make inflation forecasts for 5 years in advance, you are really just guessing.

There are so many different scenarios which could happen in the next five years, which we can’t envisage at the moment.

uk-RPI-inflation-1948-2014

My Guess for inflation in 2020

After making a sufficiently long list of disclaimers, I’m happy to stick my neck out on the line and make the rather unexciting prediction that inflation will be 2%. (which happens to the government’s target for CPI inflation). The reason for this prediction is:

Generally, we have become quite good at keeping inflation low. The peak in inflation in 2010 to 5% is misleading, because it was just temporary cost-push inflation in the middle of a recession. Since the 1980s, we haven’t seen any significant demand-pull inflation.

Inflation is more likely to be low because:

  • The Bank of England was made independent in 1997. (Previously government set interest rates). Independent Central Banks are willing to take politically unpopular decisions to raise interest rates before an election reducing chance of boom and bust. Independent Central Banks are judged on their success in keeping inflation low, so they don’t want to lose their ‘low inflation credibility’.
  • Inflation expectations have fallen. It would take a big change in the economy (like the cost-push inflation of 1970s) to really shift inflation expectations upwards.
  • There is a strong will to reduce inflation. For example, Europe has tolerated very high levels of unemployment and prolonged economic stagnation – but they wouldn’t tolerate high inflation. I don’t see this changing, there is a very strong consensus on keeping inflation low amongst mainstream economists and politicians.
  • Continued improvements in technology and greater competitiveness of markets (e.g. see how competitive supermarkets have become in past few years.)

The greater concern is that we entering a period of disinflation – very low inflation, below the government’s target of 2%. Experience of the past few years and the experience of Japan suggests that these periods of very low inflation can be self-fulfilling and take a long time to get out of.

Long Range Inflation Forecasts may try to take these issues into account.

  • Are we entering a new era of macroeconomic stability, where central banks have finally mastered the art of managing the economy? The medium-term prospects for greater economic stability are quite promising in this regard. People are already suggesting that the boom and bust economic cycle are a thing of the past in the UK
  • Will a shortage of raw materials cause cost-push inflation? or will alternatives be found?
  • To what extent will new technology continue to lower costs?
  • Will global warming cause a shortage of food and water, therefore pushing up prices of basic necessities?
  • Will overpopulation cause demand to rise faster than supply

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Different types of economic policies

policies-for-economic-growth

A list of different types of economic policies. Monetary policy Fiscal policy Supply-side policies Microeconomic policies – tax, subsidies, price controls, housing market, regulation of monopolies Labour market policies Tariff/trade policies Demand-side policies Policies for influencing aggregate demand and expenditure in the economy. This mainly involves fiscal and monetary policy. Fiscal policy Government changes to …

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Do tax cuts pay for themselves?

us-federal-deficit

Some economists, such as Arthur Laffer, argue that there are circumstances when cutting tax leads to either increased tax revenue or tax revenues stay the same. The logic is related to the incentive effects of tax cuts on productivity and growth. If income tax rates are too high, then workers may be discouraged to work. …

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The link between budget deficits and bond yields

Questions on budget deficits and bond yields.

1. What is the Link between the size of a countries budget deficit, and bond yields?

deficit

Highest budget deficits – Ireland, Japan, UK and US

10 Year Bond Yields

bond-yields

 

  • Greece and Ireland seem to have the relationship you might expect – deficit close to 10% of GDP causing bond yields to rise.
  • But, in the case of Spain and Portugal, bond yields are high given their relatively modest budget deficit.
  • By contrast, UK, US and Japan have very high budget deficits – yet they have very low bond yields.

Firstly, as well as looking at annual budget deficit, it is important to also consider total levels of debt. For example,a budget deficit is more of a problem if your debt to GDP ratio is already over 100% of GDP. But, on this count, UK, US and Japan have a public sector debt higher than Portugal and Spain.

Why are bond yields so high for Spain and Portugal, but so low for UK, US and Japan?

Itamar Caspi offered this explanation:

1. Independent central bank – If a country has it’s own currency, the link between the size of the deficit and bond yields will probably be weak (see the US UK and Japan). On the contrary, being unable to run independent monetary policy will lead to a positive relation – higher deficits lead to high yields.

2. Fiscal multipliers – The larger the effect of contraction fiscal policy (deficit reduction) higher is the probability that cutting the deficit will lead to slow growth and thus to higher yields. That is why we see yields rising even though a country follows fiscal consolidation. for small multipliers, the effect will be the opposite – cutting the deficit will lead to lower yields (for more on that – view IMF – Too much of a good thing).

That is a good start. In addition, I would add.

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Types of tax

tax-

A tax is a charge levied by a government to raise revenue. The main types of taxes include Income tax – a percentage of income. Corporation tax – a percentage of a firm’s profit. Sales tax/VAT – an indirect tax on the sale of goods. Excise duties – taxes on alcohol, tobacco, petrol. Production taxes …

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Should we pay to visit the doctor?

charging-to-see-doctor

Should visiting a GP doctor be free or should we pay to visit the doctor? It is an emotional issue as in the UK there is a strong acceptance of free health care, but what are the economic arguments? Could we have better health care by charging people to see their GP? Benefits of charging …

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