Inflation 11,200,000 percent (yes, eleven point two million percent!)

Well, we know that if the inflation rate exceeds (usually) the 3% mark, Central Banks get nervous and typically respond by tightening monetary policy.

Well, what about 11,200,00%?

From cnn.com:

Zimbabwe's inflation rate has soared in the past three months and is now at 11.2 million percent, the highest in the world, according to the country's Central Statistical Office.

Think of possible solutions. Remember that you need to consider the particulars: we're talking of Zimbabwe, an African nation, that has been in the news very often lately...

We also learn from the article that price controls don't seem to work:

Official figures dated Monday show inflation has surged from the rate of 2.2 million percent recorded in May, despite the government's price controls.

Replacing the Central Bank with another monetary authority that would strictly control the money supply had been proposed by U.S. economist Steve Hanke:

Hanke says that in order to halt its hyperinflationary spiral, Zimbabwe must replace the Reserve Bank with a new monetary regime imposing discipline on money supply

A discussion of solutions can be found at the Marginal Revolution blog here.

Some of the costs of hyperinflation are mentioned in this Guardian June 07 article when inflation was only 4,500%:

Hyperinflation is spreading poverty, as even basic goods become unaffordable. Supermarket trollies lie idle as few can afford to buy more than a handful of goods. Government regulations only permit the withdrawals from banks of Z$1.5m a day, which is not enough to buy a week's worth of groceries.

Golfers pay for drinks before they set off on their round, because the price will have gone up by the time they have finished the 18th hole. One Zimbabwean was recently told by a pension company that it would no longer send him statements as his fund was worth less than the price of a stamp.

"I can barely cope with inflation in the thousands, but millions? We will die," said Iddah Mandaza, a Harare factory worker, who added that some workers were now saving on transport costs by "going to their jobs on Monday and sleeping at the workplace until Friday. They all share their meals. That's what they do to get by."

Many Zimbabweans are resorting to bartering. "I traded some soap for two buckets of maize meal [Zimbabwe's staple food]. It was far much better than trying to buy it in the shops," said worker Richard Mukondo. "People in the rural areas are even worse off. You can see they are hungry and their clothes are in tatters. They trade in whatever they can produce: tomatoes, onions, chickens and eggs."

How bad then can a mere 4.4% be? Well, this is the latest figure for Greece and, trust me, it is pretty bad. Remember the particulars!

Great Jazz station online!

Not econ related but this is my blog so I reserve the right to post non-econ stuff that I find interesting!

Well, this is a great place to listen to jazz (in the background?): It's WBGO, Jazz 88.3.

The Doha Round stalemate: does it matter?

We will be discussing elements of trade this semester and one of our topics will be trade liberalization. The WTO (World Trade Organization)is responsible among other things for conducting multilateral trade negotiations and the latest 'round' of such trade negotiations is the Doha Round. It is the Doha round because it was officially launched back in 1991 in Doha, the capital of Qatar.These trade talks have reached a stalemate and the most recent attempt to revive them collapsed. Much has been written on the benefits of a successive round, especially to the developing countries. Many have doubted these benefits and Rodrik's latest Project Syndicate piece 'Don't cry for Doha' contains some very interesting points that I think you should be aware of (please save his article for later use):

But look at the Doha agenda with a more detached set of eyes, and you wonder what all the fuss is about. True, farm-support policies in rich countries tend to depress world prices, along with the incomes of agricultural producers in developing countries. But for most farm products, the phasing out of these subsidies is likely to have only modest effects on world prices – at most a few percentage points. This is small potatoes compared to the significant run-up in prices that world markets have been experiencing recently, and it would in any case be swamped by the high volatility to which these markets are normally subject.

While higher world farm prices help producers, they hurt urban households in developing countries, many of which are also poor. That is why the recent spike in food prices has led many food-growing countries to impose export restrictions and has caused near panic among those concerned about global poverty.

It is hard to square these fears with the view that the Doha trade round could lift tens, if not hundreds, of millions out of poverty. The best that can be said is that farm reform in rich countries would be a mixed blessing for the world’s poor. Clear-cut gains exist only for a few commodities, such as cotton and sugar, which are not consumed in large quantities by poor households

Read it here or here

Inflation in U.S. at a 17-year high (IHT)

I'd like you to note the following from this article:

..the news was distressing for investors

and, also

The Consumer Price Index, considered the benchmark gauge of U.S. inflation, rose 0.8 percent in July. Economists had forecast a rise of half that rate. In June, prices rose 1.1 percent. The index surveys prices of a basket of common consumer goods, among them toothpaste, prescription drugs, airfares and the cost of dining out.

Because food and energy prices can be highly volatile from month to month, the Labor Department also calculates a so-called core price index, which strips out those costs. In July, core consumer prices rose 0.3 percent, reaching a 2.5 percent annual rate.

..and, lastly, this:

The Fed has signaled repeatedly that it has no plans to lower interest rates, given the threat that inflation poses to the economy. Lowering rates could stimulate more economic activity, but such a move would risk inflating prices further.

The link for the article is here, but if you google the title in the google news facility you can find different versions of it with the emphasis differing.

Greg Mankiw's Blog: How to Write Well

Well, you are not members (yet..) of the CEA but some of you are doing their Extended Essay in Economics so perhaps this Greg Mankiw post is worth looking at and saving. It is his advice to his staff when he was the CEA chair some years ago.


Greg Mankiw's Blog: How to Write Well

Europe succumbing to global economic woes (IHT)

Starting today, I am beginning an attempt to regularly post links to articles that I find interesting. There will be no pattern or sequence or regularity to expect. The rule is: if I happen to see it and I find it worthwhile posting (and I have the time :-) ) I will go ahead and post the link, perhaps accompanied with a small 'something'.

Hope it proves useful for (my) kids doing IB Economics!


The first one is from the International Herald Tribune. It is about the slowdown of the European economy: "...The economy of the 15-nation euro area contracted 0.2 percent in the three months ended June 30, data released Thursday showed..."

It is interesting to note the stance of the ECB:

But the European Central Bank, which has bucked the trend of other major central banks by raising interest rates in July, appears determined to stick to its mandate to tame inflation, arguing that higher inflation is still a greater threat than lower growth.

Is it worth controlling inflation? What could be the costs of not doing so? Who gains and who loses from a tight monetary policy stance? Taming inflation, but at what cost? Is there a difference between the short term and the long term? In this case, what does the price of oil got to do with it? Why may credibility in policymaking be important? Is there something in this article pointing to its role? What is the role and importance of inflationary expectations?


Note also the distinction made in the article between a 'recession' and stagnation:

The data Thursday from the EU statistical agency Eurostat set off fevered head-scratching about whether Europe can formally dodge a recession, often defined as two successive quarters of shrinking economic activity. The consensus seemed to be that it still might - but just barely.
'We can probably scrape by and avoid another negative quarter,' said Julian Callow, chief Europe economist at Barclays Capital. 'But we are in for stagnation here.'

Anyway, any IB economics student interested can find the article here

Aplia Econ Blog: News for Economics Students: California's Foil Balloon Problem

Aplia Econ Blog: News for Economics Students: California's Foil Balloon Problem

The Aplia Econ Blog: News for Econ Students

I just found this blog and it seems both very interesting and very useful for IB Economics students so I decided to let you know about it and upload the link for all of you. It was originally uploaded by a colleague (Patricia Hermes) on the OCC, the site for IB economics teachers (thanks Patricia!).

The externality analysis on helium ballon consumption is very close to what I consider the appropriate framework (check out the diagram used) and skimming through other posts makes me quite confident that many of you will bookmark the link for future regular reference.

This is the link (I will also add it on the RHS of this blog).

Enjoy!

The Economist Debate Series

The competitiveness of workers in today's rich countries is in permanent decline

Visit The Economist Debate Series. I got an invitation today and this is it:

The Economist’s Oxford style debate on the future of global workforce competitiveness kicked off today, and since education is critical to the preparation of our youth for tomorrow’s workforce, The Economist wanted to give you and readers of IB Economics (and, not only) an early heads up on the start of this new debate as well as highlight some key arguments made about education.

The proposition is: "this house believes that the competitiveness of workers in today's rich countries is in permanent decline." In his opening statement, Bishop asks if rich country workers both low-skilled and white collar should fear competition from “all those billions of hungry, cheap Chinese, Indians, Mexicans and so forth.” What do you think? Should rich nations be scared?

Additionally, Jacob Funk Kirkegaard of the Peterson Institute for International Economics argues that today’s human capital is increasingly distributed and cites educational stagnation in the West as part of the problem. Kirkegaard argues that Baby-boomers in the US and Germany are not ensuring that the children they leave behind are “on average better educated than themselves,” and that the rapid expansion of educational systems abroad, particularly in Asia are closing the gap between rich country and developing nation workers education levels (complete statement below). Do you agree? Are rich country students in danger of being leapfrogged by students in developing nations?

We think your readers/community would have strong statements to say about these arguments and would want to know about this debate. We’d love it if you could encourage your readership to participate by blogging about your opinions on the matter. You can also post your response to the debate floor. If moderator Matthew Bishop likes your argument, he may highlight it an upcoming statement.

Pro and Con experts, Jacob Funk Kirkegaard of the Peterson Institute for International Economics and Lynda Gratton, professor at London Business School spar off today in opening posts which will be followed by rebuttals (July 11) and closing statements (July 16). A winner will be determined by popular vote and announced on July 18.

Additionally, the following guest participants are scheduled to post their one-time statements:
· July 9 - Debra van Opstal, senior vice president at the Council on Competitiveness
· July 10 - Allan Schweyer, Executive Director & SVP, Research of Human Capital Institute (HCI)
· July 14 - Prof. Richard Freeman, Professor at Harvard University and London School of Economics
· July 15 – Kent Hughes, director, Program on Science, Technology, America and the Global Economy, Woodrow Wilson Center
· July 17 – Dr. Rudolf Thurner, president, European Association for Personnel Management (EAPM)


Where are our debaters? Let's hear from them!

IB Newsletter

The latest (June 2008) issue of our IB Newsletter is now available online. You can click here to download it and enjoy it!

Stagflation all over?

From: kathimerini.gr; July 1, 2008)

Η Eurobank φοβάται επιστροφή στην κρίση της δεκαετίας του ’70
Τον κίνδυνο του πληθωρισμού για τις αγορές και τους επενδυτές επισημαίνει η Διεύθυνση Οικονομικών Μελετών και Προβλέψεων της Eurobank EFG σε ειδική μελέτη που δημοσίευσε με τίτλο: «Πληθωρισμός: η νέα απειλή για τους επενδυτές».

Η μεγάλη αύξηση στις τιμές των τροφίμων, σημειώνεται στην ανάλυση της Eurobank, και το συνεχιζόμενο ράλι του πετρελαίου -παρά την επιβράδυνση στις ανεπτυγμένες οικονομίες- έφερε στο προσκήνιο ένα νέο κίνδυνο, τον οποίο οι αγορές και οι περισσότερες κεντρικές τράπεζες είχαν μάλλον υποτιμήσει κατά το προηγούμενο διάστημα, την αύξηση των πληθωριστικών πιέσεων. Η αναζωπύρωση του πληθωρισμού υποχρέωσε τόσο τη Fed όσο και την ΕΚΤ να επαναπροσδιορίσουν την πολιτική τους, εκφράζοντας την πρόθεσή τους να δώσουν προτεραιότητα στην καταπολέμηση του πληθωριστικού κινδύνου έναντι του κινδύνου της οικονομικής επιβράδυνσης. Παράλληλα, οι κεντρικές τράπεζες όλο και περισσότερων αναπτυσσόμενων οικονομιών στρέφονται πλέον σε πιο περιοριστική νομισματική πολιτική.

Ο συνδυασμός της επιβράδυνσης στις ανεπτυγμένες οικονομίες, της αύξησης των πληθωριστικών πιέσεων παγκοσμίως και της μεγάλης ανόδου στις τιμές των εμπορευμάτων έχουν ξυπνήσει φόβους για μια πιθανή επανάληψη του φαινόμενου του στασιμοπληθωρισμού στην παγκόσμια οικονομία, δηλαδή τη συνύπαρξη χαμηλής ανάπτυξης/ύφεσης και αυξανόμενου πληθωρισμού. Η κατάσταση αυτή χαρακτήρισε το οικονομικό περιβάλλον στο μεγαλύτερο κομμάτι της δεκαετίας του 1970. Σύμφωνα με την ιστορική εμπειρία από τη δεκαετία του 1970, ένα περιβάλλον υψηλού πληθωρισμού και χαμηλής ανάπτυξης είναι ιδιαίτερα δυσμενές τόσο για τις μετοχές όσο και για τα ομόλογα.

Οπως προκύπτει από την ανάλυση της Eurobank η υποχώρηση στις τιμές των μετοχών σε περιόδους χαμηλής ανάπτυξης και υψηλού πληθωρισμού οφείλεται σε τρεις παράγοντες, στην επιδείνωση των προσδοκιών για την εταιρική κερδοφορία, στην αύξηση στο ασφάλιστρο κινδύνου και στην αύξηση στα πραγματικά επιτόκια.

Πάντως οι αναλυτές της Eurobank δεν θεωρούν ως πιθανό την επανάληψη του φαινόμενου της δεκαετίας του 1970. Καταρχήν, η σπειροειδής αύξηση μισθών - τιμών δεν φαίνεται να ενεργοποιείται, αφού αφενός οι αμοιβές σήμερα δεν είναι άμεσα συνδεδεμένες με το επίπεδο του πληθωρισμού όπως κατά τη δεκαετία του 1970, ενώ η επιβράδυνση στις ΗΠΑ και την Ευρωζώνη αποτελούν ανασταλτικό παράγοντα για πιθανή αύξηση μισθών στο μέλλον. Επίσης, οι κεντρικές τράπεζες σήμερα είναι σε πολύ μεγαλύτερο βαθμό προσηλωμένες στην καταπολέμηση του πληθωρισμού σε σχέση με τη δεκαετία του 1970.

Ωστόσο εκτιμούν ότι ο πληθωρισμός θα παραμείνει σε υψηλά επίπεδα για αρκετό διάστημα και θα συνεχίσει να ταλαιπωρεί τις αγορές και στο δεύτερο εξάμηνο του 2008.

20:43

'...tears streaming down my face...'

I'm asking from you, my students, to devote 20 minutes and 43 seconds to watching and listening to Benjamin Zander in this TED talk.

The News

Quoting:
'Alisa Miller, head of Public Radio International, talks about why -- though we want to know more about the world than ever -- the US media is actually showing less'.


A couple of questions:
* What about news coverage on Greek TV? Anyone know of any studies on this?
* Do you agree with Ms Miller's explanation for the US? ('Covering Britney is cheaper')