Thursday 28 October 2010

The fallacy of 0.8%

Some predicted 0.6% GDP growth, some predicted 0.4%, what did we get: 0.8%. Fantastic news, it would appear George Osborne's faith in the economy coving the back lash from the public sector cuts was correct.
George Osborne needs around 1 million jobs to be created, with the 0.8% growth came an decrease of 0.1% of unemployment. The Economy is creating jobs! So all the predictions of double dip, all the apocalyptic judgements on the spending review are wrong, its all up from here.
NO

What Mr Osborne will not be drawing attention to is that these figures are from the 3rd quarter, thats July, August and September. This is way before the spending review get chance to sink its teeth into the economy, it is in fact its before the new Government had done anything. The Con-Dem rejoice they really should be thanking the past Government. I'd go as far as saying this 0.8% is the fall out of the stimulus package that has now been reversed.
If your looking for more practical evidence not to get your hopes up, consider this.
Office for national statistics:
-Government and other services rose 0.6 per cent
-Construction output rose 4.0 per cent in the third quarter of 2010, compared with an increase of 9.5 per cent in the previous quarter
Construction is on the slide from the previous quarter indicating a downwards trend, the cancelation of Government contracts is not yet applied to these figures (with them being out of date) and other indications such as slowing housing market appeared after these figures have been calculated.
3rd quarter of 2008
 Construction is a large chunk of GDP if it starts to decline it could multiply across the whole economy. The 0.6% growth in Government services is almost certainly going to decline with the spending cuts. Then manufacturing will decline in the 4th quarter as well as there will be less demand for manufactured goods in the public sector (e.g: Fighter Jets..) and export demand for manufacturing is shaky with Europe  on the brink of a second economic collapse.

Don't be too quick to make judgements at first glance from one figure, analysis. I'm standing by my predictions of a double-dip.

Boris VS Cameron

First Strike
One would not really expect the Conservitvie Mayor of London and leading Conservitive figure to attack a Conservative lead coalition on the subject of cutting benefits, but this is Boris Johnson. Boris claimed there was a 'kosovo-style social cleansing' of London referring to the possibility of  82,000 households being evicted under the new spending cuts. 
His voice joins the Lib-dems that are already mounting pressure on the top of the coalition to re-think their plans to cut
It could be a carefully planned political move, if Boris distances himself from the coalition he labelled himself 'hero' of the poor succoring his place as mayor of London. Its also a good Mr Johnson is also differentiating him from David Cameron, which could come in handy if he is involved in a Conservative leadership contest in future, which is likely. 
crusader of the poor















Return fire
Downing street didn't hesitate to fire back. Boris Johnson recieved heavy critism from the top, his claims being dismissed. Infact Boris retracked his statements to a degree saying they were 'taken out of context'. Dispite this who knows if Boris and Daves relationship will see any more bumps in the near future.

Monday 25 October 2010

Why Rooney makes £200,000 a week and a nurse is on £27,000 a year

Wayne Rooney makes up to £200,000 a week on his new contract which is staggering considering a nurse makes on average £27,000 a year. Wayne is on around 380 times more than a nurse yet nurses help save lives and Wayne probably can't spell patient (not that i can talk), what is going on?
Some would question "what is going on! Its an outrage" maybe even doubt how economist works, but economics and example this quite easily: DEMAND AND SUPPLY.

The theory
Footballs have always been in short supply, there are very few players with the skill to play at the top in Football. To show this we draw an inelastic supply curve, as shown bellow in the graph
This first graph shows the demand for football players forty years ago, when plotted across this translates to £2300 a week. The second demand lines shows demand in 2010, demand has increased dramatically and because the supply of football players is inelastic this is multiplied and the salary sores.
At the bottom we can see that Q was the supply of skill football players and this now have increased to Q1, this is because the high wages incentivise more people to try and be football players, but if you don't have the skill you can't become one so Q is not effects much at all. This is what inelastic supply is all about.

Where is the high demand?
Why has demand increased? Whats the evidence? Well increasing viewing figures is the main reason, increasing merchandise e is another reason and the size of the top football as increased.
Football clubs are now seem all over the world and sell shirts and other merchandise in millions, for this reason an iconic football player is in very high demand: by the owners wanting to sell shirts and make money and by the fans that want to win.
The table bellow shows the value of rights to the premier league overseas, this is doubling every three years, which means the demand for players is being forced up as well.





Why do nurses get so little?

What about the nurses? well its simple, there is larger supply of nurses than skilled football players which drives down the 'price per nurse'.

Want to lower pay for football players?
If you still think its outrageous what football players get  paid then you can start by stop buying any merchandise from any team, so the value of a team or a players name falls and its not profitable for the owners of a club to pay so much for them.
Then you can stop watching all football games on TV so viewing figures falls and Sky, BBC and others don't bother paying for the rights to football and the value of it falls (low demand). Also advertisers will be put off football as a method of selling their products.
The question is would you really want to do that? and get everyone else to do that..? Or would you rather do the British thing and just moan and enjoy some fantastic goals? I'd rather do the latter.
The COCA COLA championship...

So next time your staggered by the amount Wayne Rooney gets pays consider how much people talk about football, all the matches you've watched and how much you care (or know someone who cares) about your team. Thats translates globally into HUGE demand which is why he gets a huge salary.

Primary sources:
Fags to Wags- The Times
Premier League world's favouriate league -Telegraph

Mini Skirts sparking a surprising philosophical debate

Italian city banning certain forms of 'inapproprate' clothing.. In particular mini skirts because it says it is indecent. ringing any alarm bells? Far right resricting freedoms maybe.

When we get cultural crack downs it is the first step on the dangerous road, its a slippery slope and telling people what they can and can't wear on their own body can become telling people what they can and can't do or who can and can't live.
Decently laws are considered important to maintain society as we know it but tightening them is alarming considering the trend of restricting freedoms we already have, for example controlling the internet.
The debate is hard, just as we argue over wether the government should intervene in the free market, how far should they intervene in society. Laws are a good thing but too many laws can be even worse than none.
Should laws protect everyone equally or protect the powerful?
How far do laws go before they restrict our rights?
If we police the internet we can prevent disgraceful crimes such as child pornography but it can go too far and nations in China police it to the extent that you can't express opinion against the government.

The reason all of this concerns me is that we have an increasing rise in the far right in Europe and in the UK we have problems such as fixed terms for Government lasting 5 years! A well meaning policy can start a landslide that eventually crushes freedoms and provides the bedrock for a dictators palace.

That skirt is far to short, go back to Rome and change.


Banning Miniskirts:
http://www.bbc.co.uk/news/world-europe-11617091

Friday 22 October 2010

Pol-Eco Profile: Alistair Darling

First of my a new section of the blog were I'll profile Economists and Politicians that I have an opinion on, be that good or bad. Whats really sparked this off is an article in a magazine: management today which is an interview with Alistair Darling by Chris Blackhurt

Back Ground:
Name: Alistair Maclean Darling
Nationality: British (Scottish)
Born: 28th November 1953
Background: Politics
Position: Ex-Chancellor of Exchequer (UK)
Education: Bachelor of Laws at Aberdeen University
Brief History: During University he joined Marxist groups then joined the labour party became MP in 1987 for central Edinburgh, 1997 entered labour cabinet (as Secretary of Treasury) in 2007 became Chancellor of Exchequer

Significance:
Personally I would credit Alistair Darling to the revival of Keynesian theory. The UK lead the world in the fiscal stimulus package and bailing out the banks. Measures such as the car scrappage scheme have a lot of macro economic theory behind them. We are now called George Osborne the one experimenting on the UK economy but the previous Government also banked on their fiscal stimulus working and it did, the UK is out of recession.
Also Alistair Darlings budget before losing the election contained many elements that the Con-dem Government is now taking credit for in their spending review.

My opinions:
I always liked Alistair Darling when he was in power, his air of maturity, the economic decisions and commitment. The media loved to attack Darling, its easy to blame him for the debt, the recession and make fun of his odd eye brows but he did not cause the recession or want to increase the deficit.
My opinions of Alistair Darling have turned some what into respect after reading a recent article, the way he is portrayed as hard working and honourable. Saying himself he did not want an economy dominated by the public sector but wanted to improve services that had been neglected. How he held his ground against Brown at the end and not at all naive in the banking crisis. Of course basing ones opinions on one article is folly but it only conformed my opinions on the man.

Thursday 21 October 2010

Personal thoughts on the spending review

The spending review is something that many people have judgements on.. here are my immediate views:
Infuriating as an economist, I believe this will send us into a double-dip recession. Although I am hoping it will test some theories such as: crowding out and the Keynesian macro theory.
As a student this budget fears me, it seems we are being hit very hard. Paying more for tuition fees scares me. Increases in VAT will hit me hard too as most of my disposable income is on goods faced by this tax levy. I'm also worried about opportunities in the future and feel persecuted.

I was once swaying strongly towards Lib-dem policy/philosophy  but now i find myself lost. Although given the choice i’d still probably say I was closest to Lib-dems (I am a fan of Vince Cable at the moment) but my opinions of Nick Clegg and others like Danny Alexander have fallen significantly, mainly for them totally flipping on 99% of their policies and promises and not having the stomach to admit it

Tuesday 19 October 2010

The BBBC

The cuts to the BBC caught me a bit off guard I must say, although everyone must pay the price of recession.

The BBC will have to have its license fee frozen at £145.50 for the next six years. This means that the BBC can't increase its 'prices' inline with inflation and other external factors. So in real terms the BBC is getting a pay cut.

The opportunity cost from the view of the Government is that the BBC now won't have to pay for licenses of over 75s (which was the next best alternative for gone). This would have cost the BBC 25% in cuts (in real terms) opposed to this policy, which costs 16% in real terms but over six years.

Reason why the Government are doing this are difficult to pin point it could be for political gain: to be seen as the restorer of justice to a company with outrageous cost, after the scandal of Jonathan Ross and management pay perhaps to mask their own cuts and expesnive scandel.
Of course an even more cynical view be to say that is to return the favor to the right wing newspapers that supported the Tories in taking power. Maybe there is economic basis behind the discision; at least with all the cuts consumers will have some extra cash to spend (hopefully raising AD). Again this could be twisted; they Con-Dem Government is doing this to say they gave people money as well as cut: 'the balanced budget"

Either way the cuts are likely to reduce the quality of services and hit moral. Its good news for ITV their main rival that has been through rough times recently. 
Perhaps the BBC should add an extra B and become Budget Britain’s Broadcasting Corporation. 

Is the Government addressing an out of hand monopoly or damaging a public service?

Source: http://www.bbc.co.uk/news/entertainment-arts-11572171

Monday 18 October 2010

Labour gathering attack plan


The fall of the Old (New) Labour

Having been truly beaten in the 2010 elections, Gordon Brown and New (now Old New labour?) Labour seemed well and truly down and out, from an outside perspective it seemed the Labour party was in ruins. The media had pinned the Credit Crunch on them and much more, they had been well and truly turned scapegoat.
On the other hand, the country is now in the hands of the double team of the sometimes annoying yet undeniably charismatic Clegg and Cameron (CC for short). It seemed the Conservatives and the liberal democrats had come up trumps. The Conservative party had wrestled back control of country after 13 years and the Lib dems had more power than they had had in officially ever! Although now it seems quite the contrary the coalition (or collision as I keep miss spelling it) is being brought back to reality as are voters and after a fiery yet civilized leadership contest Labour are gaining strength in the back ground to come back strong. Allow me to explain.

The Poison Chalice
The debt is spoken of as a time bomb but in fact the whole government is now ticking down to disaster, I would not go as far as saying that the Con-Dem government has inherited a poison chalice, it was all a set up.
The Conservative Government in its ethos was bound to execute harsh cut backs and try to slash back the bloated public sector, which is no bad thing. However in a very uneasy economic recovery it’s a recipe for double-dip recession and causing a recession is the best way to shatter voter trust.
I’ve been asking myself what exactly the change is? “Change” “New Politics” New conservite? So far its looks like benefit cuts, public services depleted and increases in regressive taxes (VAT), classic Tory stereotype? There’s already a sense of discontent at the fact the banks and top end of the income scale seem to have escaped, this is only likely to fuel this and maybe pin point it at the conservitive party. As for the Lib Dems they were all too easy to enter into a coalition that does not fit. Liberal Democrats: Center- Left Conservative: Right. Granted there is some policy over laps but how many policy are been implemented behind the Con-dem banner that are polar opposite to Lib Dem philosophy. How can a party that not long ago wanted to abolish tuition fees now sit in Government with a party tripling them? I don’t know, but maybe the answer is no. The political system allows a backbench rebellion and the growing detachment between the top of the party and the bulk of it is clear to see.

The New Labour that is in fact the Old Labour but now new.
Either way you want to look at it the Labour party is now very different, they have sheded Brown and move on with the past stigmas left behind with him. The Labour party are looking like they will come back strong and they have two plans for it.


Plan A – Milliband Number One

Ed Miliband is leading labour down his own path, old system yet new labour. Building his shadow cabinet from Alan Johnson, Harriet Hardman and Ed Balls Ed’s Labour party is seems to be portraying a more credible image.
The Labour party is now talking about the new generation; they talk about reforms and youths.
This is very cleaver, as I mentioned in another article it’s the young that are being hurt but not only this but it’s the young that are lost in politics. Many that were swept up by the Lib Dem ideals now find them selves ‘unclaimed’ by a party as they loose faith with the Lib Dem due to the coalition with the Tories. The young are the future voters and it’s a long-term investment to target them epically when the next election is a long way away. Also the idea of reform and being ‘true’ reformers is a knife in the back of the Liberal Democrats that said they were to bring reform and are yet to deliver. The labour party is trying to soak up the lost voters, detracting from the past bringing back those that left and stealing voters from the other parties.


Plan B – Miliband Mark Two?

What happens if Ed’s plans don’t work? Labour has a second chance, a life. They can bring in David Miliband. If all goes wrong David can return to try again for labour and all remains of New Labour can be gathered together to create new new labour! The Labour party has an attack plan and a back up, while the Liberal Democrats and the Conservatives struggle with the debt and the economy! The party out of power is the party in the best position at this time.

Its the young that are paying the price

The budget review is going to hit everyone pretty hard but it seems that there is one group being hit hardest, the young!

So far we have had confirmed that child benefit will be withdrawn from top earners, this is no bad thing in the sense that is moves towards a progressive tax/benefit system but it is just the first line of the policy targeting the young.
Secondly we have reforms EMA that could see many students loosing out. What ever your thoughts on EMA its not likely to go down well with those students loosing it.
Education slashes loom, if not in this review but in the near future. Again the true losers in this are the students, the NUT predicts the loss of specialist staff first, those that deal with behavioral and special needs.
The tally of cuts won't just affect those in education what about those just left education, those trying to buy their first house. Th Government reforms to the housing budget are going to make it, you guessed it, harder than before. 30,000 new 'affordable' homes were build in the south east and London last year and the latest prediction shows that in the next 5 years the government is unlikely to fund more than 250 new homes. The only hope is that the housing market will come down. While prediction are pointing the market that way the draw back is it normally a signal of a looming recession.
"The total number of 18 to 24-year-olds out of work for two years or more rose to 72,000 in the three months to June, up 11pc on the previous quarter, according to the Office for National Statistics (ONS)." -Telegraph
Youth unemployment as a result of the recession is clear to see and t it will only get worse if we going into a double-dip recession. I know that many of my peers find it hard to get work, I've found my self struggling to get work as a direct result of budget cuts to the police.
Majourty of students expenditor is on a small luxary items (video games) or cloths and a lot on books as well. The VAT increase will proportionally hit the young harder, especially with talk of it being applied to books and clothes now.
Then there is the big one, the hit that will take money directly out of the pockets of students and laden them with debt, Tuition fees. It’s looking like tuitions fees will be raised from £3,225 to £7000, over doubling! This means over double the debt, it seems the deficit is being shifted from the government balance to the accounts of students.

Its those that did not cause the credit crunch or rack up the debt that are now having to pay for it and the Conservative party will have to be careful, the young are the voters of the future, something Labour are exploiting given the circumstances stated above. Perhaps also Mr. Cameron should also be wary of students, student unions can be quite militant and in France we've seen their student unions joining mass strikes, the often fiery youth could come back to give the Prime Minister a nasty burn.

Saturday 16 October 2010

European Unrest

Economic collapse -> Strikes -> Riots -> Rebellion -> Revolution
With a bit of exstremism mixed in, its how all the very best dictators gained power, which is concerning considering the dire state of europe.

Greece - Riots


Brussels and rest of EU - Coordinated Strikes
Spain (in particular)- Strikes in Madrid





Greece looked bad but France seems much worse, closer to home. Is this a sign of things to come? Its testing time for European Politics. If Europe continues on this cause I'd say we are going to see the break down of the EU or sterner European Union.
Ahead of our own cut backs and considering Europe is our main trace partner its likely there will be some jittery politicians in Downing Street.


Monday 11 October 2010

The UIC Index

There are many ways of measuring the standard of living, or economic performance. I thought i would develope may own, here it is the UIC Index:

The Historian

"A historian is a profit in reverse"

Always a favourite quote of mine and now it seems to be more relevant than ever.

Were we are now
With the spending review just around the corner questions are being raised as to what it will mean for the UK economy.The UK has a national debt of around 950 billion (that's: 950,000,000,000!!), this staggering figure is the problem now facing Chancellor George Osbor
ne but what is he going to do about? This is the question on the mind of many, will raising tuition fees be part of repaying the debt, cancelling child befit is certainly one part of it.
The front line services such as police have already begun making cut backs and other areas of the public sector cringes in the knowledge its almost certain to see heavy job loses.

George Osborne may be cutting back to reduce the budget deficit but what will happen to the Macro economic objectives? Government spending (G) is a key part of Aggregate demand (AD), plotting a reduction in G and thus AD on a Long Run Aggregate Supply (LRAS) has the effect shown bellow:
Output falls from O to O1 and thus GDP falls.. the economy goes into recession! Surely George Osborne knows this? Well a major part of the conservatives plan on keep the economy afloat release a theory called crowed out, as explained in full by a fantastic article written by Joe RS: Joe's Article. Basically the Government expects the private sector to fill in the gap as they deplete the public sector, a valid theory. However this only possible if businesses have money to expand, something which is about to get a whole lot harder if the Monetary Policy Commity decides to raise interest rates!
Has George Osborn factored this into his theory? It certainly raises questions as to how qualified he is to run the economy, lets find out:


The Man in charge
Name:
George Gideon Oliver Osborne
Age: 39
Born: Paddington UK
Degree: Modern History.
Job History:
NHS: recording deaths
Selfridge's: Tidying towels
The Conservative Party
Experience in Economics (including GCSE ):
NONE
Anyone else shiver at the sight of that résumé, Well the city of London for a start! On the positive side every single one of you now reading this probably can say: "I have more experience in economics than the man in charge of the UK economy!" So how did he get the job.. well another Quote springs to mind, this time by Benjamin Franklin exasperated by politics:
"Democracy is two wolves and one lamb voting on what to have for lunch"

Alas more fitted for the present times would be:
"Two politicians and an economist voting on what to do with the economy"
At least there is one good thing, if he studied modern history he should be able to tell us about the 1930s.

The Past
During the period of 1930s the world economy was in a state of depression, in the US this was know as the great depression lasting from 1929 to around 1939 while the UK's problems started in 1918 but were not quite as bad by the late 1939s.
Economic growth was negative, between 1918 and 1921 there was a fall of 25% in output in the UK! The Government debt was large and the government was pressured to lower the deficit, this didn't help the economy!
Many nations were pinned down by something known as the gold standard that fixed their currencies so they could not export effectively.
As a result of the economic depression extremism increased, the Nazi party rose up in Germany and to a lesser extent in the UK, the KKK became stronger in the US and in Italy and Spain far right dictatorships rose up. Eventually Adolph Hitler rose to power in Germany and consumed Europe in war.


The future? (The apocalyptic edition)
World war 1 = war on terror
The Gold standard = The Euro
Economic down turn = Credit crunch
Right extremism = Tea Party Movement, BNP etc..
Government cut back? = Spending review?
World war 3 anyone?

OK so that's the extremest prediction possible (unless we look back the fall of Rome), but there some merit in looking back at the past to judge the future, there are many similarities to then and now and Keynesian models suggest these cut backs will lead to bad times ahead. We have to learn the lessons of the past, lets hope George Osborne did in his history classes. A final quote to consider:
"History repeats itself because no one was listening the first time"

Friday 8 October 2010

Review: New Ideas from Dead Economists

I would not say I regret reading New Ideas from Dead Economists but I'd certainly hesitate before recommending it. The book written by American Economist Todd G. Buchholz gives a brief history of Economics working through the major economic thinkers and movements from Adam Smith to today's.The concept of the book is fantastic but I was left with a feeling that it fails to for fill its promises.

For starters the book could easily loose two thirds of its pages! For each economist it has a short biography which is very useful knowledge, its good to their background and influences but sometimes this was too long winded. If the biographies were too long winded then the explanations of theories are something else, I found my self often begging it to get to the point. Perhaps one of the problems is Buchholz attempts to use analogies to 'simplify' key concepts, while being a good idea, Buchholzis not very good at it. For a young British citizen making sense of out dated US orientated analogies just leads to confusion. On a free period I kept thinking I was getting to a good analogy and would dictate it to my friend, by the time I'd finished neither me or him would know quite what the point was...
I could go as far as saying the only thing I got out of the book was: how linked philosophy and economics are, that most theories in economics have a key creator and economists like to ague. However by picking these up from the book at least means it has had some positive effects on me, I certainly think that any good economics student should understand were key areas of the syllabus come from but I might as well save you the trouble and list them bellow (Conveniently these are also pretty much the chapters of the book):

Adam Smith – Invisiblehand
Malthus – Population and dangers of growth
David Ricardo –Free trade!
John Steward Mill –Worked on taxation in re-guard to utilitarianism....
Karl Marx – Marxism (communism)
Alfred Marshal – Further supply and demand, marginal utility and cost of production
Keynes – Work on exchange rates and Fiscal Policy ( and more)
Monetarism (Milton Friedman) – Money supply
Public Choice theory – Governmentsonly act on self interest and are untrustworthy governors of the economy.
Rational Expectations - “states that agents'predictions ofthe future value of economically relevant variables,is not systematically wrong in that all errors are random.”

Note how the last discription comes from wikipedia, I could go as far as to say that you could get just as much if not more than in this book off wikipedia by typing in those headings but that would be unfair.
I have been too harsh on this book, of course there will be better and clearer information on the internet it is a culmination of many peoples work, this book is written by one man. I think this is were the problem lies, Buchholz has tried to cover the entire history of economics and he just can't do it. In areas the book is witty, easy to understand and exciting were as in others it is difficult and jumbled, I believe this is because Buchholz has had to pad out his knowledge and in areas that perhaps he is not specialist in and who can blame him for not being as good at explaining it. Also the book was written some time ago and has been repeatedly revised perhaps its lost its flare as a result.
Despite my perhaps damning review, this book is a bestseller and quite highly rated online. Some quick research shows that economists are more likely to be critical of the book than none-economists perhaps this is a factor in my judgment, its not written for economists.

I wouldn't advise you not to read this book but I would not put it near the top of your reading list.
I would however advise everyone to take some time to look at each of the economists listed above, these people shaped economics and think how good it would look to quote them in an essay.