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

France - Wide spread prolonged strikes, supply damaged (oil reserves) and Riots:

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.

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 Osborne 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"

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.

Internet Bubbles: easy steps to loose money

The Internet Bubble
The Internet has revolutionised the world, business included. From around 1995 to the early 2000s there was a sort of strange aura around internet companies leading to 'stock bubbles', companies were pumped up to be huge with nothing but a web address then collapsed with no capital to reply their creditors.

This is simply how it works:
-Internet company is founded with an idea
-Someone finds out about this and is also convinced it is a good idea
-Internet firms of the past have jumped up stock market… so people assume this will
-people buy stock
-people recommend buying the stock
-more people hear about it and see the stock price rising (increased demand) so they buy (further increasing demand)...
-Shares soar!
-Baffled owners of the company release more stock to make a profit for them selves
-Demand for stock is still insainly high and people continue buying forcing the price up (even though supply is increasing)
-Owers of the company rease more and more stock
-The company is not actually that good.. (E.g: Netscape, fanstiastic but then wiped out by Microsoft.)
-Stock plumits down
-Company is struggling but has no stock left to release
-Company goes bankrupt.

Just demonstrates the stumbling block of economics... sometimes people aren't that rational.

Review of Panic! 'by' Michael Lewis

Panic! (The History of Modern Financial Insanity) is like no book I have read. This is not surprising considering it is written by ex-bond sales man Michael Lewis, a man who used to work for Saloman brothers playing the market for millions until he quit to expose the insanity of the system. That is what this book is all about.
While Lewis has written many books before such as liar's poker (that i am yet to read) this book is a general overview of the history of financial market: "the story of modern financial insanity". How ever the book is not actually 'written' by Lewis, he chooses to tell the story through many peoples perspective. The book is simply a book of articles masterfully arranged with Lewis being the narrator. One article would tell of how everything is up, the next a prediction of down fall, the next a story of what the government is doing the next a renegade traders account.

The book is split into 4 parts.
Part 1: A brand new kind of crash - the market crash of 1987
Part 2: foreigners gone wild - the asian crisis and subsequent recessions.
Part 3: The New New Panic - the internet bubble
Part 4: the peoples panic - the resent US subprime collapse

At the start of the book at Part 1 the book may seem of little economic relevance but stick with it, the information gathered on the markets and how they work is very useful to know and it gets more directly economical later when the markets start to affect the economy as a whole.

Part 2 is my favourite part, detailing the rise and fall of the asian markets, and how when they were thrown into recession it rippled across the world. There is a fantastic article by Paul Krugman from Fortune magazine, september 7, 1998 called Saving Asia that goes in-depth into different macro economic policies.
Throughout the book it tells of how again and again people make the same mistakes and how the history of markets have shaped the economic world.

“In Octorber 1987, the markets took power from people who traded with their intuition and bestowed it upon the people who traded with their forumlas. In Austust 1998, the markets took power away from the people with forumlas who hoped to remain detached from the market place and bestowed it upon the large wall street firms that oversee the market place.” –How the Eggheads cracked, Michael Lewis, the new york times, 1999. (and we know now that in 2008 it took power away from the big firms with the fall of Lehman brothers)

In summary this is a fantastic book if you want to be filled in on resent economic and market history and equally useful if you want to understand markets. How ever due to the nature of the book some parts are very difficult to read, some of articles assume knowledge of the reader. Overall if you are the persistence to get through difficult articles, this book is well worth the read.
Advanced so A level although could be useful for business students as well as economics

Review of Tescopoly by Andrew Simms

At first look the book Tescopoly may seem like a book of slander against tesco but having read it, it is much more. The book details the rise of the supermarket industry in particular tesco but it goes further than that. It analyses how the rise in the supermarket industry and the retail giants has destroyed the local economies across the country, how they also are destroying society as a result.
Simms often refers to local economies as ecosystems, saying that when their are lots of small shops there is lots of diversity and thus ideas flourish. With many shops comes competition but also other advantages to the consumer such as human connection and "social glue". He states supermarkets as invasive that destroy the economy and wipe out the local diversity.
He details the anti-competivie practises of tesco and other supermarkets arguing that actually they use their monopoly status and 'tricks' to get to the top and ruin the consumer. Talking about how by 'freeing' the markets of restriction you actually destroy the 'free market'. While the book is persuasive and heavily rooted in Simms opinions, he uses a wide range of data and arguments to back up his points. Simms brings in quotes and theories from various economist, placing economists like Maynard Keynes and Adam Smith on his side. He uses lots of facts and data from various sources to prove his point, even when quoting politicians he ensures he quotes a Labour MP then next page a Conservative and before long a Lib Dem and so on.
By the end of the book i found my self totally won over by Simms, having a strange urge to run into Tesco shouting "what have you done to those farmers (african and british) and josephine the now ex shopkeeper!!!"
I certainly recommend this book, it is easy to read for economists and none economists, its interesting can be easily dipped in and out of but also ties together like a story. It contains lots of Macro Economics that will serve well in exams.
I'd say GCSE + A Level Friendly

Sinking Economy

The Credit Crunch has had its casualties, around 2.5 million unemployed (Labour force survey) but here is a quick case study of an industry hit hard.
The kitchen industry saw quite large growth during the resent boom of the 2000s, being an luxury product the consumption of designer kitchens is linked with peoples incomes, high income elasticity. As as soon as the economy goes into decline peoples confidence falls and as a result they cut back on luxuries. One of the first industries to bit hit hard by this was the of course the kitchen industry, it easy to cut back on the new kitchen you were planning.
I happen to know a kitchen fitter who was made redundant from three kitchen firms then finally ended up long term unemployed. GDP has now moved up to 1.1% thus the UK is in recovery. low and behold as basic economic theory suggest, he now has his job back.
A clear sign that things are picking up, although as a possible double dip looms it could be worst times ahead for luxury industries.



Bonus fact: "A zero income elasticity (or inelastic) demand occurs when an increase in income is not associated with a change in the demand of a good. These would be sticky goods." - wikipedia

Zoo-opoly

i took a visit with my psychology class to a certain zoo. The basis of this was to look into animal behaviour... how ever when we stopped for lunch my mind tuned to an interesting example of Micro economics.

For my lunch I had a chicken burger with chips and a medium soft drink, this was at a frankly extortionate price of £5.50! High price.. good quality? NO it was perhaps the worse meal i have had in months.

McDonald's:
£3.59 - larger, better quality ingredient, better packaging, better taste,
Zoo Restaurant:
£5.50 - Small, droopy, cold, side order of stomach pain


First thought: MARKET FAILURE
This was clearly an example of a monopoly, once you enter the zoo you are in a world with no free market. The shops, the restaurants and everything else is a total monopoly. This is no competition, supply is restricted and demand is high. I settled on disgruntled on this analysis for some time then i had a second thought..

Second though: Positive Externalites?
Upon further contemplation i considered a new route of analysis.. your not paying for the burger, your paying for the animals. Perhaps there is a positive externality in comsumption of the dodgy burger, by consuming the burger you are giving money to the zoo which pay for the animals. The more burgers bought the more animals the zoo can afford. Its of course not a positive externalitiy in a orthodox sense because lowering the price to increase demand will remove the effect, but there are positives of consumption.

So the question is which is it? what do u think?

Also where were the kangaroos...........?

Inflation Killed My Pocket Money

Here Sonny boy take this 10p and go buy yourself a handful of sweets" ... yes Grandma i think you will find you can no long buy a humble Fredo with that!

Inflation is often a concept none economists easily over look. People will look at the public sector (for example) and ask why are they complaining about a 1% pay increase? Its an increase isn't it? No it is not, if inflation is higher than 2%. If inflation is 2% that means everything will cost 2% more than last year so their wages from last year will be able to buy less. While this is not a fall in nominal income it is a fall in real income. This means that a 1% wage rise is actually a pay cut in real terms.
(This means that the pay freezes, which means no more pay increase, in the public sector as stated in the budget is actually a cut in real terms.)
Value can also confuse some people, consumers can easily be thrown off track by inflation as the hypothetical granny was. To assume that something will cost the same as it did ten years ago is folly because firms will have raised their prices due to inflation. If your pocket money as a child (if your lucky enough to get any) never saw an increase then it means it will have fallen in value significantly over time. "Your lucky back in my day we got 50p a week" is a failure of a statement.. back in your day 50p could buy a lot more!
On a final note, if you can grasp this concept you will be able to understand that over time the value of your savings fall. If interest rates are less than inflation then in real turns saves are devaluing... using this theory we can move into Micro Economics because this is one of the main principals of Monetary policy......