Sunday, September 14, 2008

Look what I got for you!

This is Joe Stiglitz of Columbia talking on why GDP is not a good measure of living standards (of, well being). Make sure you understand what he says when discussing the difference between GDP and GNP!

Always a pleasure to watch (only 8 minutes).

The full talk is at here (1:36):

Export Restrictions and the Food Crisis from the Aplia Blog

A good analysis (cum diagrams) of the food crisis from the Aplia blog. Try to understand the two diagrams. We have spent quite some time on the issue last year as it unfolded but this post can serve as a good review of some basic micro principles and it obviously has connections to development related issues which we will be discussing at greater length later this semester. The post is here. Read it.

Role of prices in a market economy

Please read this article by Stefanos Manos published a few days ago in Kathimerini (in Greek). It has to do with the distorted prices of energy in Greece. A good example of the incentive and signalling role of relative prices in a market economy.

Evaluating trading blocks

In a few weeks we will be discussing international economics in a more systematic fashion. Section 4.3 of the syllabus is on Economic Integration and Trading Blocks.

In a recent issue of The Economist there are two articles on regional trading blocks that are both interesting and useful. The first one is a leader titled 'A second-best choice' which discusses India's free-trade agreement with the ten fast-growing countries in the Association of South-East Asian Nations. The newspaper considers bilateral agreements inferior and dangerous compared to any resulting through the WTO led multilateral system. According to the Economist:
India dealt the multilateral trading system a blow by saying “no”. Kamal Nath, India’s trade minister, helped kibosh a breakthrough in the Doha round of global trade talks by refusing to compromise over demands for safeguard tariffs to protect more than 200m Indian farmers.
(obviously, I didn't know the word 'kibosh' so that explains the link above!)
The Economist is great in explaining complex economic theory in simple (but dense) words so I can't resist the temptation to copy the explanation offered for its position:
Multilateral trade rounds are the foundation of the trading system because they are based on the “most favoured nation” principle—that any tariff cuts offered to one country must be offered to them all. Regional and bilateral deals are based on discrimination. They lower tariff barriers between their signatories, but not everyone else. Discrimination means that, although regional deals create new trade among their members, they may also divert it from lower-cost outsiders.
(we will discuss trade creation and trade diversion later in class)

I also can't resist quoting Jagdish Bhagwati of Columbia:
In a new book Mr Bhagwati calls them (regional trading blocks) “termites in the trading system
He has also referred to the complexity resulting from the differing rules of these bilateral / regional deals as the 'spaghetti bowl' of preferential agreements.

The second article in the same issue on regionalism vs multilateralism is titled 'Afta Doha' (if you can explain the title you will gain many kudos). Read it as it contains interesting facts that you could use in your final May (November?) exam.

Wednesday, September 10, 2008

Europe Slashes Growth Forecasts for 2008

A nice macro article full of concepts and issues that you should all know is in today's New York Times. The academic year starts on Friday and I'll be reviewing and wrapping up macro the first couple of weeks with my kids (Candidates 2009). This article is not only interesting per se but careful reading will force you to check on what you remember from year 1. Just read below the first couple of paragraphs:
The European Commission on Wednesday cut its forecast for economic growth this year, conceding that a slowdown in the United States, expensive energy and a global housing slump were exacting a heavier price than was expected even six months ago.

With an embattled prime minister in Britain struggling with a housing market slide, a German government under pressure to enact an economic stimulus package and a French government whose spending is hamstrung by a ballooning budget deficit, the gloomy figures only added to a darkening political mood in Europe.
For example, why would a slowdown in the US contribute to a decrease in European growth?What's the role of expensive energy? Through what possible routes does a slump in housing exact a 'heavier price'? What could the 'economic stimulus package considered by the German government include? Why are 'balooning budget deficits' feared so that now France can't spend its way out of trouble? What are the risks? Why does Europe have constarints on government spending? How much sense do they make when euro member countries have no monetary policy to resort to? Can you see why distinguishing between the short run and the long run may be important?

Read the whole article here. It's worth your time.

Monday, September 8, 2008

Doubling living standards in poor countries

At our school we subscribe (btw, for free) to Finance and Development, an IMF quarterly publication, and in the September 2008 issue:
F&D asked a number of opinion leaders around the world to answer the question"What’s the single thing most likely to double living standards in poor countries over the next decade?"
Here is what they chose:

National ownership of the development agenda
Investment in education
Tackling corruption
Boosting productivity
Delivering on promises to meet the MDGs

You should be able to think of reasons why each could be considered instrumental. I know we haven't discussed development proper yet but we have made many in class development related discussions from day one last year and your background in econ is (should be?) good enough to provide at least some reasons for each.

In any case, do check out the article here (page 28)

Sunday, September 7, 2008

GDP and living standards

It's Sunday evening. I'm back from visiting the GAIA Center for Environmental Research and Education in Kifisia which is absolutely excellent and highly recommended. After enjoying a nice meal, what's better than checking out recent back issues of the IHT or the Economist? Actually, I can think of quite a few other activities that would rank higher up but... :-)

I did find this: Economists look to expand GDP to count 'quality of life'. It is well written and it explains the limitations of using GDP as a measure of overall well-being.
Print it out and read it. Most of the problems we mention in class are there, the most important being that GDP provides no information about the underlying income distribution and how it changes. Quoting from the article:
The U.S. gross domestic product grew robustly in the post-World War II years. Family incomes also went up, and a rising GDP came to signal well-being as well as expanding economic activity. But these days, while the value added in making cars goes into the total, same as always, the gain can be distributed in stock dividends or profits or multimillion-dollar chief executive pay more than in raises for workers. The GDP does not reflect the shift in distribution.

And over the past 15 years there has been just such a shift. While the GDP has continued to rise, wages have stagnated, pensions have shrunk or disappeared and income inequality has increased.
BTW, a very interesting account of how and why income distribution has become more unequal in the United States can be found in Paul Krugman's new book The Conscience of a Liberal.

Saturday, September 6, 2008

A BBC article on the US economy

US economy 'facing stagflation' was the title of an online BBC article on September 4 that I am reading now, 2 days later. I am posting it as it is one of the many articles that can be found on macro issues in news sources all over.
The US economy is facing slow growth and higher prices, according to the most recent survey by the US central bank, the Federal Reserve.

Economic activity was "weak, soft or subdued" across the country, said the Fed's latest Beige Book report.

And spending slowed, with consumers concentrating on "food, staples and essential items" rather than luxuries.
Sounds like a classic case of stagflation, as mentioned later in the article. Note the adjectives describing the low growth rate of the US economy. Why are people spending less on luxuries?

The article continues with this:
The survey points to the same dilemma that is facing central banks around the world - the contradictory pressures of rising inflation and slowing growth.
What's contradictory about these pressures?
The Fed has kept interest rates unchanged at 2% for the past six months, and the market expects no change when the Fed's open market committee next meets on 16 September.
With interest rates at 2% (compared to 5% in the UK) why aren't US consumers splurging on durables?
Car sales were particularly weak, a trend confirmed by the latest industry figures, which show a double-digit drop in orders at Ford, GM, and Chrysler.
The answer ay have a lot to do with this:
However, with housing prices still falling at 15% annually, and financial firms restricting their lending, consumer confidence is at an all-time low.
The weak employment market, with nearly 500,000 job losses so far this year, is another drag on consumer spending
Lastly, what do you understand by this:
In addition, the dollar has halted its slide, and began the strengthen again on the back of weaker-than-expected growth in Europe.
What does 'halting its slide' mean and how does this affect the US AD? How could weaker than expected growth in Europe affect the USD/Euro exchange rate (2 routes are expected - one obviously dominates here)?

Isn't it fun when just a few months after taking the IB Economics course you can read so much more into an article?

The full article is here.

Thursday, September 4, 2008

For my conceited group...

OK, boys and girls, HL Economics candidates 2009, here is your way out of May 09!

BTW, if you are taking SATs, here is conceited (and a great resource to have handy on your browser)

(bubble gum nail polish???????)

PS:if you're searching for a connection to our course, there isn't one :-)

Wednesday, September 3, 2008

Poverty, India and Hermes

Quite a few articles in today's IHT (NYT) that I found interesting for IB economics students!

"Trying to sell luxury goods amid stark poverty" is the first (here). Read this:

An old woman missing her top front teeth holds a tot in rumpled clothes - who is sporting a Fendi bib. At retail, the bib sells for about $100.

A family of three squeezes onto a motorbike for their daily commute, the mother riding helmetless and sidesaddle in the traditional Indian way - except that she has a Herm├Ęs Birkin bag prominently displayed on her wrist. It costs over $10,000, if you can find one.

Elsewhere, a toothless, barefoot man holds a Burberry umbrella costing about $200.

Welcome to the new India - at least as Vogue sees it.

"The swelling ranks of the very poor" is the second one (here)
There is a lot more poverty in the world than previously thought.The World Bank reported in August that in 2005, there were 1.4 billion people living below the poverty line - that is, living on less than $1.25 a day.
The poverty expressed in the World Bank's measure is so abject that it is hard for citizens of the industrial world to comprehend.
India, which has more people in extreme poverty than it did 25 years ago....

...and, this year's IHT Luxury Conference "THE WORLD'S LEADING CONFERENCE ON THE BUSINESS OF LUXURY AND STYLE" will be held in (take a wild guess and register here!)

I can 'smell' the discussions we may have in class on this one!

(BTW, the new poverty count has to do with new PPP dollar estimates - we've talked about this last year)

(distasteful, isn't it?)