No 99: Last week's budget

I'VE just realised that some (!!!!!) of you weren't here for all of my wonderful classes last week, so below are the main points from last Wednesday's Budget.

(For those of you don't know, the Budget - always at the beginning of a new finanicial year - is when the government announces it's tax plans for the next year and discusses the performance of the economy).

I didn't deliberately put the "sin tax" information bigger than the rest................ !

Full details are available here from the Guardian.

Please ask below about anything for which you would like some more explanation.

No 98: Who should be Chancellor?

ON Monday,  Channel 4 had a debate between the 3 men below, each of whom wish to be the next Chancellor of the Exchequer of Great Britain. Can you name them?

You could watch the hour long debate on 4od (the Channel 4 i player). But time is precious, and boredom is absolute.

Alternatively, read this post from the excellent "Monevator" blog, in which the writer gives his verdict on the 3 men's performances.

Personally, I am finding all the political parties' attitudes a bit similar at the moment.

On one hand everyone is saying that massive cuts will be needed to government spending in order to reduce the government budget deficit. On the other, all are avoiding giving any plans about them.  Also, while all of them are attacking bankers, there are few suggestions for regulations to prevent a credit crunch happening in the future.

In fact, if you were an alien who arrived on the planet just in time for last week's Budget, you would have looked at Alistair Darling's new plans for taxation and probably not have realised that government borrowing was such a problem.

But then when there is an election coming, us economists get forgotten about!

No 97: I don't want to be a millionaire any more :-(

HEARD the story about this man, a millionaire who is giving away all of his money because he is unhappy?

This includes the house you can see here, which is worth £1.4 million.

His name is Karl Radeber, he comes from Austria, and he is giving away his wealth of £3 million. Not to you and I unfortunately, but to charities that he has started up.

Read all about it in this Daily Telegraph article.

No 96: Sugar price volatility

TEST yourself by reading the article below.

The price of sugar has shot up recently, causing demonstrations by sugar consumers in developing countries.

• Can you identify what happened to supply which has raised sugar prices?
• What about demand factors?
• What do government do to the price of sugar in certain countries?
• Is there a possible solution?

As you can see, I have highlighted some important sections to help you.

Green is Where the Article Talks About

No 95: Too many airports!

STRANGE and interesting example of government failure in Japan from the BBC:

So why would the Japanese government build so many airports, and what problems has this caused?

Aiports create a lot of positive externalities (though their level of negative externalities stops them from being classified as merit goods) so building new aiports should increase these.

Generally, improvements in infrastructure are seen as being good for the economy, but I guess this is a clear example where the government has produced a non socially optimum output. Equally clearly, this has wasted many resources which would have a more effective opportunity cost use.

Why has the government done this? Is it simply a matter of a stupid misjudgement of how many airports the country needs? Read the rest of the article here, and see if you can find out the possible answer.

No 94: Key Information

ONE small thing to do, but something that could give you an advantage, is to remember then use in your exam the current major statistics about the UK economy:

• CPI INFLATION: 3.5% (JAN)

• UNEMPLOYMENT 7.8% (JAN)

• GDP GROWTH 0.3% (Q4 2009)

• TRADE BALANCE -£3.8 BILLION (JAN)

Good phrases to allow you to use these figures in your exam are-

"As can be seen from the current UK inflation rate of ____, .........."

"Unlike nowadays, when the rate of inflation is ______, ............."

"Having an inflation rate like the current UK one of ___, means that a government is likely to .........."

Believe me, few students will do this, yet it shows you have kept up with the latest developments in the UK economy. I think this could mark out your essay as one possibly deserving of a high mark.

I'll make you a deal - I'll update these statistics as they change if you promise to try and use them in the exams!

No 93: Newspaper review

STARTING off with a couple of negative pieces of information about the UK economy. From the Guardian:

 http://www.guardian.co.uk/business/2010/mar/10/industrial-production-fell-in-january-snow-disruption

A more worrying statistic was the UK trade balance for January:

http://news.bbc.co.uk/1/hi/business/8557200.stm

Notice how closely related the poor economic news and the fall in the pound have been. Combined with all the predictions of no party winning overall control in May's general election, there is a lot of uncertainty about the UK's economic future over the rest of this year, leading this writer to ask

http://blogs.telegraph.co.uk/finance/edmundconway/100004089/is-this-the-start-of-a-sterling-crisis/

However, there is slightly more optimistic news with relation to the amount of government borrowing, as reported in the Telegraph:

http://www.telegraph.co.uk/finance/economics/7436294/Lower-borrowing-fails-to-lift-Treasury-gloom.html
Lower than expected unemployment is an important reason for this, since it has meant government has needed less than previously calculated for benefit payments.

Nonetheless, there will still be a huge government deficit that needs to be reduced. In the run up to the Budget on March 24th, this Telegraph article forecasts no government spending cuts until after the election:

http://www.telegraph.co.uk/finance/financetopics/budget/7436658/Budget-2010-Labour-to-put-off-spending-cuts-until-after-the-general-election.html

Meanwhile, a couple of interesting China related stories.

First, news about inflation that may mean a cut in AD is required:

http://news.bbc.co.uk/1/hi/business/8561381.stm

The continuing argument between the USA and China over the RMBs low dollar exchange rate is the subject of this interesting piece from the Telegraph:

http://www.telegraph.co.uk/finance/comment/liamhalligan/7436875/The-more-America-huffs-about-the-yuan-the-less-China-will-do-about-it.html

(Liam Halligan is a good writer - I recommend looking at some of his other articles).

Finally, not about economics but I bet you watch this clip more than once:

No 92: It's a sad day for Bill Gates

HE is no longer the world's richest man, as this screenshot confirms below:

This comes from the Forbes magazine's annual table of the world's billionaires (there are 937 of them), which can view here:
http://www.forbes.com/lists/2010/10/billionaires-2010_The-Worlds-Billionaires_Rank.html

When you click on their names, you get more information, such as this about the new richest person in the world

You can also sort the list by country to see how many billionaires come from yours. The UK has 30 of which the most famous are probablt Richard Branson, JK Rowling, James Dyson, David Sainsbury, the Barclay brothers and Bernie Ecclestone. What about your country?

Click here to see about the world's youngest billionaire, who is 25 years old.

No 91: A Cartoon!!!! How An Economy Grows and Why It Doesn't

WE all love cartoons. Personally, my favourite kids one is Road Runner: find some on YouTube if you haven't seen it before. I also like Family Guy, but that's not really for kids. What about you?

However, back to the subjcet of economics, here is a cartoon book called "How an economy grows and why it doesn't". Be aware of the point of the view of the author, which you may be able to detect from the url alone. Tell me below which type of economist you think the writer  is!
http://freedom-school.com/money/how-an-economy-grows.pdf

No 90: Mervyn's and Alistair's Love Letters (Again!)

UK CPI reached 3.5% last month. That is more than 1% more than the government target of 2%.

It is the Bank of England's job to use monetary policy to make sure inflation remains within 1% plus/minus of the target.

Therefore, Mervyn King (Governor of Bank of England) had to send a letter to Alistair Darling (Chancellor of the Exchequer) explaining why he had been such a naughty boy in failing to do his homework correctly. Then Alistair wrote back to tell him not to worry.

These letters are useful for us to read since they show us what the government and B of E are feeling about the current UK economic situation.

Here is Merv's:

Mervs Letter

And this is what Alistair wrote back:

Alis Letter