------------------------------------------------------------------------------------------------------------------ Introduction
The UK Government has spent £1 trillion on helping the economy, and more particularly the banks, during the credit crunch.
The Conservative-Lib Dem coalition government believes that spending cuts need to be made so that government borrowing can be seriously reduced. Apart from health care which has been "ring-fenced" (protected against cuts), they are asking each department to cut somewhere between 20-25% from their spending.
On Wednesday 20th October, Chancellor George Osborne will announce the details. Nobody is sure what will be cut. However, estimates say about 600,000 government workers will lose their jobs over the next few years.
What Would You Cut....?
From the BBC, this allows you to play around with diffferent possible government spending areas that could be cut:
ONE difficulty with studying economics is that there are so many new words to learn.
It is sometimes useful then, to have access to dictionaries which give you the meaning of these words.
There are many available on the internet. Some start with basic economics terms, others are for advanced students.
My advice if you don't know a word is look in more than one site, because you might find the way a word is described in one place is easier for you to understand than in another.
Here is a guide to some economic glossaries I think are useful:
1) Bized economics glossary - this is good place to start since it is written for A-level students.
2) The Economist magazine's glossary - from, of course, the best magazine in the world, which, of course, you are all reading every week. It is written for eductaed people who may not have studied economics, so should be quite easy for you to understand.....
3) AMOS web glossary - size is the advantage of this one, with over 3000 economics terms discussed. It is from the USA, so beware of some words which are different from those we use in the UK.
4) Dr T's Economic Glossary - written by a university teacher, this uses advanced language to describe the economic ideas you may already know. Better for A2 students than AS.
6) The Concise Encyclopedia of Economics - as the title suggests, not so much a dictionary as a series of short essays. Very interesting, but be aware that there is a bias to the writers of these essays - they are Austrian School economists (put very simply, very much in favour of the free market and against government).
If you want to buy an economics dictionary, this old one is still one of the most excellent available. I have a copy so if you'd like to have a look, just ask.....
I'VE been looking for some ways to visualise the huge amounts of money that governments owe.
Remember that "budget deficit" refers to the money a government borrows over a year, wheareas "national debt" is all of the money a government owes from borrowing in the past.
Here's an article about current UK government borrowing: uk record borrowing. This is the key information:
"TheUK's budget deficit rose to the highest level since at least 1993 reaching 15.3 billion pounds in August....
"...economists expect the deficit to be .... 149 billion pounds in 2010."
This sounds a lot but it's hard to imagine. Economists usually compare these big numbers with the total value of all production in the country. On this measure, the deficit for 2010 will be equivalent to about 10% of UK GDP. In other words, the government borrowing for this year will be the same value as 10% of all the goods and services made in Britain.
However, a billion of something is hard for us to imagine. This video may help....
Trying to find visualisations of a billion then led me to trying to do the same about a trillion. Whenever I hear the word "trillion", I often think about the US national debt, currently about $13 trillion!
I am now going to pause writing this blog and see how long the clock will take to increase by $1 million.....
Right, back again, it took 22 seconds. Therefore, US national debt is increasing by $1 million every 22 seconds!
Much of this is interest payments, calculated to be around $383 billion this year. Of course, this leads to an enormous opportunity cost where money that could have been spent on providing government goods and services is spent on interest payments. But also remember that if a government doesn't pay its debts (known as "defaulting") it won't be able to borrow money in the future, or if it can, it will be at even higher levels of interest. And then it won't be able to pay back the interest so they can borrow more money to make the interest payments.......
There is a clock in New York which shows the US National Debt. A couple of years ago there was a problem with it:
If a billion is hard to imagine, a trillion must be even more difficult.
These 2 visualisations may help:
One last number to draw attention to: the total cost of the government spending caused by the credit crunch so far has been .... $10,000,000,000,000 (10 trillion).
Although actually this is only up July 2009 (see this BBC article).
Recently, some economists have been arguing that the Bank of England needs to put even more money into the economy to make sure we do not fall back into recession (time for more QE?).
SOME students have been asking me about economics books they can read in order to help their university applications.
Here are some recommendations:
1. Predictably Irrational by Dan Ariely
This is a book about "behaviourial economics", the use of experiments and theories from psychology to better understand economic behaviour. This book challenges traditional economic ideas about how we make economic decisions. It's also very funny!
2. Ship of Fools by Fintan O'Toole
This book discusses the rise and fall of the Irish economy over the 1990s and 2000s. The country was praised around the world as the best example of how deregulation, low taxes and foreign investment could led to very high growth rates. Before it all went spectacularly wrong during the Credit Crunch. It's GDP has fallen by 14% between 2008 to 2010, and has the world's highest debt to other countries - equivalent to 811% of GDP. This book argues the stupidity and greed of Ireland's politicians and business leaders caused this.
3. The Storm: The World Economic Crisis and What It Means by Vince Cable
Vince Cable is currently the Miinster for Trade in the UK government. He was one of the few people to warn about the problems that eventually dragged this country into the Credit Crunch. This is a short and readable account of those events.
4. The Death of Economics by Paul Ormerod
This book was written some time ago, but is still excellent. It is good for those students who also know some maths. The central idea of the book is how the maths and stats used in making economic forecasts is wrong, and how this has led to completely wrong decisions and theories.
If you would like some more suggestions, here is a longer list from tutor2u:
"People in the UK pay the highest prices for food and diesel, yet the government spends below the European average (as a percentage of GDP) on health and education. We also work longer hours, retire later, receive less annual leave than most of our European counterparts and get less sunshine along the way – not to mention the fact that we can expect to die two years younger than our French counterparts."
Therefore the message to you would appear to be: get your excellent university degree from the UK, but don't stay here afterwards!
However, as usual, a closer look at the statistics is interesting, to me at least! Firstly, only 10 countries are included in the study. Secondly, take a look a list of indicators used in the research:
net household income after tax
VAT
average working hours per week
hours of sunshine per year
retirement age
number of days holiday per year
education spending as % of GDP
health spending as % of GDP
fuel unleaded gasoline per litre
fuel diesel per litre
gas per GJ
electricity per kWh
alcohol prices index
food prices index
cigarette prices per 20
life expectancy
I have no problem with the use of stats number 1-8 and 16. What worries me is that there are 7 out of 16 indicators about cost of goods and services, which appears unbalanced. Thus, a country like Poland, which has by far the lowest income, scores well in the survey because its prices are so low.
Can you please notice any other possible problems which can help save my wonderful country from being called the 2nd worst place to live in Europe?
UK CPI INFLATION for July was 3.1% down from 3.2% in June. The Bank of England stated that they could not see it falling to the 2% target this year.
The ONS (Office of National Statistics) revised Q2 GDP Growth up to 1.2% from their earlier estimate of 1.1%. This was the fastest rate of quarterly growth in the UK since 2001, but economists are expecting a slower rate during the rest of the year.
Q2 GDP was revised in the USA, but downwards, from an estimate of 2.4% to 1.6%. This has led many to expect more quantitiative easing to be introduced soon by the US government and Federal Reserve.
Germany grew in Q2 by 2.2%, its highest ever rate since reunification in 1990.
However, Greece (1.5% fall in GDP), Spain (only 0.2% rise) and Japan (only 0.4%) all had disappointing growth figures. For Japan, this was also the month in which it fell behind China's total GDP and therefore dropped to being the world's third biggest economy. Income per person in Japan, however, is still ten times as much as in China.
THE three words you are going to hear again and again in A2 Economics class will be:
do more reading
do more reading
do more reading
do more reading
do more reading
do more reading
Another thing to say about the A2 year is
students who begin the year by working hard usually finish it working hard
students who begin the year by not working hard................
You can finish it!
So, any one want to do more reading now and start working hard even before the A2 year begins?
If you do, here is a link to a tutor2u reading list of 12 online economics articles, "designed to take Year 12 (i.e. A2) economists into interesting areas of recent research in economics, management and the application of economic ideas ... with one eye on strengthening their UCAS application":
This news might not seem so surprising given that Japan has had low or even negative growth over the past ten years, while China has averaged 10%.
Nevertheless, the gap between the two countries' GDP 30 or 40 years ago was huge. Click on the next link, and you can see an interactive graph I made on gapminder that shows this:
Try dragging back the arrow at the bottom to 1960 then press play to see how GDP changed. You can also click on other countries in the panel on the right to see how they did in comparison.
It's worth having a good play around with this - we will be using the gapminder software a lot in my classes during the next school year.
UK GDP expanded by 1.1% in the 3 months up to the end of June, a better performance than many expected. This is compared to the 0.3% growth in quarter 1 of this year.
Meanwhile South Korean growth slowed to 7.2% in 2010 Q2, from 8.1% in Q1.
USA growth dropped to 2.4% Q2 from 3.7% Q1.
Export figures boomed for India (up by 30.4% so far this year) and Malaysia (17.2% more compared to this time last year).
Unemployment fell in June in Brazil (to 7%) and Mexico (from 5.4% to 5.1%) but in the Eurozone stayed at 10%. Spain's jobless figure is still 20%.
Inflation decreased in Russia (down to 5.5% from 5.8%) and Switzerland (now 0.4%).
The generally positive news is reflected in the statistics for World GDP:
UK BANKS have been announcing their yearly profits over the last few weeks, and they are all making profit again, including those who are partly owned by the British taxpayers.
However, as the diagram below shows, this doesn't seem to have been accompanied by more lending to businesses:
Economists argue that lending to businesses is essential for the recovery stage of the economic cycle. For a while when climbing out of recession, a lot of businesses do not need new capital goods since those they already have are likely to have extra capacity that can be used.
But once consumer demand picks up beyond a certain stage, businesses must first purchase extra capital goods in order to produce more goods for consumers.
The diagram above shows this is not happening.
Many people think this is because the banks are refusing to make loans available to businesses. However, the banks are arguing that they are offering funds, and that the lack of business borrowing isn't their fault.
Can anyone guess who the banks are blaming for the lack of business borrowing in the UK economy? (I'll try and give one of my amazing prizes to whoever has the best answer......)
SOME of you studied with Tang, first and so far only winner of the Bellerbys Nobel Prize for Economics (see post 32).
He is currently studying for a BA back in Singapore, and he recently wrote to me about an excellent website: http://www.ted.com/.
This organisation invites all kinds of famous and/or clever people to talk, the only rule being that they can have to limit their speech to less than 20 minutes.
(By the way, he is using the amazing Gapminder software (go to http://www.gapminder.org/) which I will be using a lot in class next year. I'll blog about it soon.)
You can see that subtitles are available for the talks and you can also read the transcript while the speaker is talking.
There is a good relevant selection of information here, especially with relation to the Credit Crunch.
For instance, here is the first data visualisation, about government revenue and spending:
(I've only made a screen shot of the top ten.)
This is the 4th data set, about different countries' GDP and how much comes from agriculture, industry and services. As you can see, it is currently organised alphabetically.
Clicking on the relevant column arrow reorders this to show, for instance, those countries who have the largest part of GDP from industry:
Don't be fooled by this - it ISN'T saying that, for example, Iraq has a lot of manufacturing industry, just that in comparison to agriculture and services, by far the largest area of the country's output in from industry. It's probably 62.8% of not very much!
If I could be allowed one slight criticism, it would be good to know the sources of the data Nick has used.
Nevertheless, this is a very good resource. Play around with it yourselves and let me know if you find something interesting or surprising.
How are your holidays going? Are you bored yet and wishing you were back to studying? No, didn't think so.........!
While in the long term this blog will of course keep going, I want to decide whether it should have a rest during the month of August.
I really don't mind doing it if anyone is reading at the moment, so if you are either vote in the new poll or leave a comment, and even if I get some replies, I will continue.
UPDATE Already a few votes in the poll, thank you!
Please add yours if you are reading - it's gives the writer of this blog encouragement.
I guess we won't be taking a break during August then. Which is fine, since I've got quite a lot of interesting stuff to share with you.........
HERE'S a website by the above famous American university that has links to all of their economics courses, with lots of useful lecture notes and assignments.
