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.
Thursday, 16 September 2010
Wednesday, 1 September 2010
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
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
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
Sunday, 8 August 2010
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
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
Monday, 12 July 2010
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...........?
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...........?
Wednesday, 23 June 2010
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......
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......
Thursday, 13 May 2010
Money Isn't Everything: An Introduction to Economics
We take money for granted today and often if you ask someone what economics is about they will tell its about money. Money is an interesting thing if we analyse it further, in fact from economic point of view money its self possesses no value what so ever! In this article I will try to explain what the principal behind money is and how we have come to use it.
The world we live in is full of useful resources that we can use to better our selves (increase our standard of living) but the problem has always been how to divide these through out the population evenly. You see even in the time of the first humans when resources were in abundant supply we had to get at them. This required time and skill and people had to worry about the daily struggles of life. This meant people failed to advance into great empires. At some point in history the human race made a great jump they decided to barter, to trade, and economics began. People first would trade one resource for another, this was known as barter and it meant people could begin to specialise. Specialisation is when individuals can focus on one thing they are good at so that we can all produce more. In the early societies those that were good at farming could farm enough for many people and then others could work on making other goods like weapons, then these could be swapped with each other. There are how ever a number of huge problems with barter. The first problem with barter is that how can people know what one thing is worth, there is no use a farmer spending all his time raising a cow and then getting just a spear for it. The second problem is related to the first problem, there is no division of units, if a cow is worth four and half a spears what use is half a spear! The final main problem is that resources can perish, if a farmer works hard and farms lots of potato’s then wants to save up so if there is a bad season, he can’t or all his potato’s will rot. The solution if a medium of exchange… money.
The first evidence of money is in Mesopotamia around 3000bc, by making everything worth an amount of money people can save money and freer to specialise. Money was clearly a success and by the time of the Roman Empire the roman currency called denarii was being used through out Europe. Why then did I say that money is useless? Money is just a method of exchanging resources with each other; the value is only in what you can buy with the money. All the money in the world is worth all the resources in the world.
By increasing the amount of money the only thing that happens is you decrease the value of everything. If the only thing you could buy with Pounds was Apples and there were only 40 Apples you could buy, then if the amount of pounds in the world was £1000 then 40 Apples would be worth £1000 (1 Apple = £25). If you mint another £1000 then the total number of pounds becomes £2000 this then means if you have all the money in the world the max you can buy is still 40 apples and each apple is now worth half the amount. This is why government CANT print money to make them richer all it will do is devalue the value of their currency or in other words increase prices. A rise in prices is know as inflation and printing lots of money leads to hyperinflation. This method of gaining wealth has been tried again and again in history, Germany in the 1920s, Greece in 1944 and there are many more examples, it always fails.
Money is only ever worth what you can buy with it. There is no use in being a Zimbabwean billionaire.
Written By Jonathan Martin 24/4/10
The world we live in is full of useful resources that we can use to better our selves (increase our standard of living) but the problem has always been how to divide these through out the population evenly. You see even in the time of the first humans when resources were in abundant supply we had to get at them. This required time and skill and people had to worry about the daily struggles of life. This meant people failed to advance into great empires. At some point in history the human race made a great jump they decided to barter, to trade, and economics began. People first would trade one resource for another, this was known as barter and it meant people could begin to specialise. Specialisation is when individuals can focus on one thing they are good at so that we can all produce more. In the early societies those that were good at farming could farm enough for many people and then others could work on making other goods like weapons, then these could be swapped with each other. There are how ever a number of huge problems with barter. The first problem with barter is that how can people know what one thing is worth, there is no use a farmer spending all his time raising a cow and then getting just a spear for it. The second problem is related to the first problem, there is no division of units, if a cow is worth four and half a spears what use is half a spear! The final main problem is that resources can perish, if a farmer works hard and farms lots of potato’s then wants to save up so if there is a bad season, he can’t or all his potato’s will rot. The solution if a medium of exchange… money.
The first evidence of money is in Mesopotamia around 3000bc, by making everything worth an amount of money people can save money and freer to specialise. Money was clearly a success and by the time of the Roman Empire the roman currency called denarii was being used through out Europe. Why then did I say that money is useless? Money is just a method of exchanging resources with each other; the value is only in what you can buy with the money. All the money in the world is worth all the resources in the world.
By increasing the amount of money the only thing that happens is you decrease the value of everything. If the only thing you could buy with Pounds was Apples and there were only 40 Apples you could buy, then if the amount of pounds in the world was £1000 then 40 Apples would be worth £1000 (1 Apple = £25). If you mint another £1000 then the total number of pounds becomes £2000 this then means if you have all the money in the world the max you can buy is still 40 apples and each apple is now worth half the amount. This is why government CANT print money to make them richer all it will do is devalue the value of their currency or in other words increase prices. A rise in prices is know as inflation and printing lots of money leads to hyperinflation. This method of gaining wealth has been tried again and again in history, Germany in the 1920s, Greece in 1944 and there are many more examples, it always fails.
Money is only ever worth what you can buy with it. There is no use in being a Zimbabwean billionaire.
Written By Jonathan Martin 24/4/10
Wednesday, 12 May 2010
Good Morning Mr Cameron
We now have a new PM David Cameron but also a deputy PM NIck Clegg.. what does this mean? We have a right wing PM and a left wing Deputy PM.. can this work?
Business:
The FTSE 100 Index was previously in free fall seems to be stabilizing but is still on the fall, this could show that the new coalition has yet to gain the support of business.
The pound however has risen from a sump of 1.47 against the dollar to just under 1.5, this shows that the deal has been positive but the pound is still far off 1.54 which it was at the start of the month.
Culturally:
Its difficult to tell what the people think of this deal, many die hard Torys and Lib Dems feel betrayed but it is generally seen as a good decision by most I believe as at least we now have a government... although facebook polls showed most people wanted a lib-lab coalition and if not a re-election with only a small proportion wanting a Lib-servitive coalition but facebook does not represent the whole population. Perhaps this is one of the challenges to David Cameron, trying to persuade the youth that Torys are not evil! He will also face scrutiny Europe for his parties allegiance in the European parliament.
Economically:
We don't know what the result of this deal will be, many labour supports believed Tory cuts would cause a double dip recession... this is unclear at the moment but they have stated they will not increase Nation Insurance or and will seek to alleviate tax on lower earners which though theories of Fiscal policy is good for the economy unless we already have restored Aggregate Demand to is former level in which case it could lead to future inflation. Inflation is something to watch
What ever happens we can expect interesting times ahead, some think this coalition will fall apart and we will soon have a re-election but what is certain these two men have a hard time ahead.
Tuesday, 11 May 2010
Goodbye Mr Brown
Today we see the end of new labours grasp on UK politics, amongst the chaos of the hung parliament I for one would like to take a moment to think of Gordon Brown.
Gordon Brown resigned as Prime Minister of the country and of the Labour party at 7:20pm on the 11th of May. As long serving chancellor and PM through a recession Gordon Brown could perhaps be most remembered for reviving Fiscal policy offer people the chance to post bellow the GOOD things about Mr. Brown and his service the country.
Now we must watch look to our new PM David Cameron, will he serve as a good PM? Can he hold together a coalition with the Lib Dems? What of Gorge Osborn I for one will go into this new era open minded, I hope for a brighter future of reform and stable real ecological economic growth.
Gordon Brown resigned as Prime Minister of the country and of the Labour party at 7:20pm on the 11th of May. As long serving chancellor and PM through a recession Gordon Brown could perhaps be most remembered for reviving Fiscal policy offer people the chance to post bellow the GOOD things about Mr. Brown and his service the country.
Now we must watch look to our new PM David Cameron, will he serve as a good PM? Can he hold together a coalition with the Lib Dems? What of Gorge Osborn I for one will go into this new era open minded, I hope for a brighter future of reform and stable real ecological economic growth.
Saturday, 10 April 2010
Hung parliament keeping markets hanging
With the Torys on 306 seats, Labour on 258 and the Lib Dems on 57 we are presently in a state of hung parliment, before the election the Conservative warned of the effects on the economy but what has happened?
As we became closer and closer to a hung parilment the FTSE 100 fell more and more. The FTSE started on 12 April at just under 5800 but by the 4 may it had fallen to just over 5400. At the start of the 10th of may the FTSE was around 5125. This would imply that the hung parilment is hurting stocks but there are other factors, by 8:45am the FTSE had jumped to 5350, why? A euro stablizing fund has raised the FTSE but over all it is on the fall.
As we became closer and closer to a hung parilment the FTSE 100 fell more and more. The FTSE started on 12 April at just under 5800 but by the 4 may it had fallen to just over 5400. At the start of the 10th of may the FTSE was around 5125. This would imply that the hung parilment is hurting stocks but there are other factors, by 8:45am the FTSE had jumped to 5350, why? A euro stablizing fund has raised the FTSE but over all it is on the fall.
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