The True Level of Unemployment in UK

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Readers Question: To what extent do the official UK figures for unemployment accurately reflect economic reality? The unemployment rate measures those who are officially seeking work but unable to find employment. However, the official unemployment rate does not include those who are not working and are classed as economically inactive. For example, economically inactive can …

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Government debt under labour 1997-2010

Government debt under Labour was a major factor in the elections of 2010 and 2015. But to what extent did the Labour government really plunge the economy into debt during 1997-2007?

Usually, when people say ‘it’s debt that got us into this mess’. They tend to view all types of debt as the same – equating government debt to financial debt incurred from selling sub-prime mortgages in the US. However, this is deeply misleading. The consequence of bad debt defaults in the financial system is very different to government debt financed through selling bonds.

Government debt

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In 1997, public sector debt as % of GDP:

  • 1997/98 – 40.4% of GDP
  • 2007/08 – 36.4% of GDP
  • 2010/11 – 60.0% of GDP.
  • May 2019 – 82.9% of GDP

At the start of the great recession in 2007, public sector debt had fallen from 40.4% of GDP to 36.4% of GDP. This was despite increased real government spending. After the start of the crisis, public sector debt almost doubled in the space of three years.

If we look at just actual government debt, there is a significant increase.

In 1997, the total public sector debt was:

  • 1997/98 – £352 bn
  • 2007/08 – £527 bn
  • 2010/11 – £902 bn

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Debt to GDP statistics were helped by the period of strong economic growth – a reminder that economic growth is as important at debt levels. It is also worth bearing in mind UK public sector debt in comparison to the post-war period.

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Some misconceptions about how the economy works

What are some of the biggest misconceptions about how the economy works? Some misconceptions Economists can make reliable forecasts. Presidents control the economy – Policies of government only partially responsible for economic activity. Luddite fallacy. – Misconception that new technology destroys jobs. Broken window fallacy – Misconception paying for damage creates economic activity. The lump …

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Advantages of Capitalism

Readers Question: What are the advantages of capitalism? Capitalism is an economy based on free markets where resources and firms are privately owned. In practice, this usually involves some state intervention to protect private property and regulate certain aspects of the economy. Most would argue that the UK and US is essentially capitalist despite the …

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Why do countries import and export the same good?

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Why does a country like the UK import and export the same good? Would it not be more efficient to just consume domestically the exports and therefore import less? There are many reasons a country exports the same good it imports A difference in style of products may be suited to different market Seasonal trends, …

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Law of Unintended Consequences

maximum-price

The law of unintended consequences refers to how economic decisions may have effects that are unexpected. Usually, this refers to an economic law which distorts consumer or producer behaviour in a way that is not expected. For example, a law may be implemented with the best intentions to help a group, but, if there are …

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Maximum Working Week – Pros and Cons

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A maximum working week is a legal limit on the standard number of hours that can be worked in a week. For example, in 2000 France passed a maximum working week of 35 hours. Additional hours could be worked, but they had to be paid at an overtime rate of +25%. At the 2019 Labour …

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Human Capital definition and importance

human-capital

Human Capital is a measure of the skills, education, capacity and attributes of labour which influence their productive capacity and earning potential. According to the OECD, human capital is defined as: “the knowledge, skills, competencies and other attributes embodied in individuals or groups of individuals acquired during their life and used to produce goods, services …

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