Saturday, 5 April 2014

MPC: Success or Stalemate?

By Shivani Maru

Mark Carney with prominent members of the UK's Monetary Policy Committee.
Image credit:

The MPC is short for the Monetary Policy Committee; a committee in the Bank of England that controls the base interest rate in the UK. They meet every month in order to discuss what they believe the interest rate should be.
The main aim of the MPC is to alter the rate of interest in order to meet the inflation target. In the UK, the inflation target is 2% CPI, which has been set by the government.  Although this may seem like a simple task, it actually is quite daunting.

Saturday, 22 February 2014

Masdar City: The Answer To Sustainable Economic Growth?

By Shivani Maru

Masdar City: the future of sustainable living. Initiated back in 2006, Masdar City (located in Abu Dhabi) is a city that will only run on renewable resources. Although some may argue that this initiative will be ineffective as it is surrounded by ‘some of the world’s most unsustainable developments,’ Masdar City is helping to correct this. Masdar City is another way of raising awareness to residents of the UAE and the world about green technology.

Sustainability is very important for the economy, especially for the future. What’s the use of producing goods from natural resources that will eventually run out? Especially, when natural resources are being consumed faster than they are being produced. They are going to run out, and also considering that Abu Dhabi is a net exporter of oil, this raises questions as to the sustainability of the country. Often, governments use higher taxes on petrol as a way of becoming more sustainable. However, the truth is is that we need these resources regardless. Therefore, it’s better to look at renewable resources as an alternative.

Saturday, 8 February 2014

The Shifts and the Shocks: Lessons of the Global Financial Crisis

By Viva Avasthi
"In economic terms, the only other disaster that matches this is a world war. [...] This wasn't some minor event. We will be living with the consequences of this possibly forever."

The quote above is from Martin Wolf, the associate editor and chief economics commentator at the Financial Times, specifically from the highly passionate and immensely thought-provoking lecture he delivered at the University of Birmingham on Wednesday (5th October). Mr Wolf is, as his Wikipedia page puts it, 'widely considered to be one of the world's most influential writers on economics' and so it was with great excitement that I came to listen to him speak on what he is most passionate about: the financial crisis of 2008. I was not disappointed.

In outlining the key arguments which shaped his lecture, I will follow the same structure which he did by looking first at where we are post-crash, then how we got here, and finally what we should learn. Along the way I will insert my own comments and also some references to books, videos and ideas which I feel have already contributed well to the existing debate and which you readers may want to look into. In an effort to keep this article of a moderate rather than excessively long length, I have taken the liberty to condense Mr Wolf's arguments as much as possible, so please do forgive any ambiguity present. Comments are, as always, very welcome and I will be delighted if you make the effort to share your thoughts with me.

Wednesday, 5 February 2014

Why is Venezuela Running Out of Toilet Paper?

By Shannon Wade
Her author profile will be available below this article soon.

My friend and I used to play an “impromptu-speaking” game where we would switch turns throwing out a word and having the other person speak for a minute on that topic. One night when I was having a sleep-over at my friend’s house, we decided to play this game. It was about 12 am at night so we were both in that goofy, sleep-deprived, second-wind stage. My friend decided to give me the word – toilet-paper. Really? I have to speak for one entire minute on toilet-paper?!! My response went something like: “Well, toilet-paper is thin white bathroom tissue, sometimes with little designs on it, used by individuals in bathrooms to…um…wipe…It is a very good thing to have!! If you didn’t have toilet-paper, you would have to… *ahem, let’s skip that part*…Anyways, it is useful and found in sanitary countries…hopefully…” I then proceeded to ramble on for about 40 more seconds about things only vaguely reminiscent of toilet-paper. The one description of this product that did not enter my speech was the fact that some wealthy countries don’t have enough toilet-paper. Like Venezuela. It was something I never even thought possible. Until now.

Friday, 24 January 2014

Fiscal Responsibility in the UK and the Role of the OBR

by Viva Avasthi

Why is it in all governments' interests to ensure that they and their policies are seen as credible? How is it that the British government manages to maintain a relatively high level of credibility?

These were the main questions raised and addressed by Professor Stephen Nickell at the lecture I attended on Wednesday which was organised by and held at the University of Birmingham.

Professor Nickell, who is a member of the UK Budget Responsibility Committee (find out more about him here) started his lecture by answering the first of the two key questions. He explained that if a government plans to spend only as much as it plans to tax, and it is believed to follow its plans fairly stringently, people will be willing to lend to that government (by purchasing its bonds, known as gilts). However, if the credibility of the government is weak, people will want to be compensated through higher interest rates for the risks they are taking in lending to that government.

Sunday, 19 January 2014

The UK has hit its inflation target, but how are other countries doing?

by Viva Avasthi

Here's some good news for us here in Britain: the UK's inflation rate (as measured by the Consumer Price Index, the CPI) fell from 2.1% in November to 2.0% as announced earlier this week. It's the first time in four years that the target has been met. Use the graph below to see how inflation levels have changed over the years.

You might be wondering why this is good news - after all, is it not just another statistic? The answer which most economists would give at this point is, "absolutely not". This figure of 2.0% is significant because it is the medium-term inflation target set by the Bank of England (the UK's central bank). The BBC has written a clear and simple article perfect for newcomers to the subject on what achieving this target means for the British economy and the general public.  The Telegraph has written a more detailed article on the matter, which includes a variety of interesting opinions. However, I'd like to focus a little on why the target was set as 2.0% in the first place. I'll then go on to look at how successful other countries have been with their inflation targets recently.

Monday, 13 January 2014

I, Eraser

By Loren Chue
Her author profile can be found below this article.

I am a rubber eraser, a common tool often kneaded and worn by children, students, and adults alike.
I help expunge stray marks of pencil leads, heavy marks, you name it, and I’ll obliterate them all with a trusty rubbing of elbow grease.
But believe me—there’s much more behind my seemingly simple makeup and outer façade. Simple, you say. But have you ever thought of how much juggling I do in my metamorphosis from rubber to functional eraser?
So follow me from inception to full functionality and maturity. Swing around the globe from the USA to Malaysia, where my journey begins. I’m born as part of a rubber tree, a natural resource. A worker taps my tree by cutting a thin strip of bark away at 30 degree angle, allowing the latex to drain into a collecting container. Now a chemical is added to stop my latex from coagulating. After a few days, diluted acetic acid or formic acid is added to allow me to coagulate into slabs within the aluminum partitions of the tanks I’m poured into. I’m passed through rollers (such a tight squeeze!) to absorb excess water, and then I’m packed into bales and bales, bound with metal straps (I can’t escape now), and shipped to manufacturers several hundred miles away in China or Japan.

Tuesday, 7 January 2014

Some Thoughts on the Minimum Wage

By Loren Chue
Her author profile can be found below this article.

Imagine strolling in your local shopping center or mall. Your stomach growls, and try as you might to suppress the hunger pangs, your stomach chides you for not feeding it and satiating its need for food. Without further ado, you stroll into the nearest Subway, eager to purchase a five-dollar footlong. As you stand waiting, you watch a young lady prepare your lightly toasted sandwich. She is about high school age, and you think, She really should be taking a break or studying right now. The young lady hands you the sandwich and you order an extra bowl of steaming minestrone. Heading towards the cashier, this time a middle-aged man, adds up the cost and says “$7.50 please.” You hand him your credit card to swipe, and he hands you the receipt, places your food in the bag, adds a few extra napkins, a fork and a spoon, and off you go, ready to enjoy a fresh, hot meal.
In the Journal of Economic Issues, the liberal economist Robert Prasch defends the minimum wage. These, he writes, are the three main benefits of putting a price floor on labor: “First, it increases the level of effective demand; second, it provides an impetus for rapid technical change; and third, it equalizes bargaining power in labor markets.”
Here’s the breakdown:
Prasch asserts the minimum wage increases the level of effective demand by transferring the purchasing power over from “profits, perks and overheads to those who earn low wages.” He also writes that transferring purchasing power will “increase domestic spending.”

Tuesday, 24 December 2013

Ideology and economic thought

by Jaime Bravo

Brenna made a response to my article - see here. She wrote some arguments that were supposed to refute my theories on austerity and public spending. But there are, yet, arguments to be said. She tried to build a model mixing up economics and politics; she even quoted paragraphs of the American Constitution. This is not of my concern in here. But still, I have something to say about what she wrote.

Thursday, 5 December 2013

In Response to Jaime

By Brenna Fisher 
Her author profile can be found below this article.

A few weeks ago, Jaime Bravo wrote an article refuting my stance on reducing the United States’ federal deficit. After reading his article and doing some more research of my own, I stand by my position of reducing the government debt. It is very clear that he is an intelligent young economist and has done ample research into the subjects on which he writes. I respect his opinion and his work; it would be foolish to try and claim otherwise. However, I cannot agree with, or condone, the examples or solutions he poses in response to my article.

First off, I would like to address some of his rebuttals to my points. Jaime seemed to generalize from my article that I believe all government spending is wrong and all debt should be eliminated. He states, “She assumes (by writing this article) that debt is a problem and that therefore, we should cut it.” However, never in my original article did I claim such a thing. Government spending is a crucial component to Gross Domestic Product and necessary to keep a country strong and expanding. Whether it is the federal government or the states individual responsibility to spend money on programs for education, transportation, and technological process is a long debated issue but, in the end, it should not be eliminated permanently, and a moderate amount is healthy. The government deficit should not be entirely eliminated either, but balanced with budget surpluses to create a more evenly equitable budget. Some government debt used to encourage GDP growth is good; 17 trillion dollars worth of debt, of which a majority is being spent on social welfare programs, is not. I have yet to read any concrete evidence of how an exorbitant amount of money spent on welfare programs profits the country in the long run.

Opportunity Cost in the College Decision

By Michaela Miller
Her author profile can be found below this article.

There's another one, an innocent-looking envelope sitting in my lap, just waiting to be opened. I've sorted through all the other mail, the advertisements, the catalogues, the bills (thankfully not mine), trying to forget its presence but to no avail. It taunts me with its computer-generated cursive printing and its happy, fall-colored exterior. "Dream" it says on the front! Encompassed in that simple word are the endless possibilities open to me if I a
ttend Vanderbilt University. The only problem? This is probably the tenth college brochure I've received in the past two weeks, all full of normative statements about the large amount of utility students get from attending the advertised school, all claiming my worth as human capital will be exponentially increased should I attend whichever college the brochure represents. I finally overcome my reluctance and open the packet, only to discover exactly what I knew I would find: yet another potential college further confusing my decision of where I should go.

Wednesday, 4 December 2013

How will online education affect demand for traditional colleges?

By Anna Mitchell 
Her author profile can be found below this article.

For decades, the image of an ivy-coated Gothic turret on a perfectly groomed campus has popped into people’s minds when they imagine an ideal education. Colleges are supposed to churn out legions of innovative and intelligent leaders, the people who will change the world with new technologies or policies. Their graduates should be equipped with unique ideas that they could only form thanks to their post-secondary educations. But increasingly, this ideal isn’t depicting reality. A change in the price of a substitute good, online education, has decreased. While online colleges such as the University of Phoenix have existed for years, only in the past two years have online college courses from top schools been offered for free. With this decrease in price of the substitute good, demand for expensive educations, especially from lesser-known schools, may start to decrease. In response, schools may be forced to lower their tuition or improve their product to compete.

Tuesday, 3 December 2013

Why Lloyd Shapley was Wrong

By Michaela Miller
Her author profile can be found below this article.

Lloyd Shapley (right) won the Nobel prize for economics in 2012 alongside Alvin Roth (left).
Image credits to The Guardian (UK).

Now heading into my eleventh grade year, I can finally begin to appreciate the amount of stress that accompanies students of this age. As if nine classes, the SATs, and a job weren´t enough, it is in this season that I will be forced to think about that dreadful thing they call college. Now don´t get me wrong, I´m excited for college. I want to meet people my age with the same interests and goals, I want to root for the team, and I want to figure out the rest of my life. I´m just not all that excited about the hours of stress involved with the admission process. Why do I have to worry about this now, when my time is a scarce good? If only the process was something a bit more like the 2012 Nobel prize winner Lloyd Shapley´s suggestion... right?

“Walmart is good for you!” Oh, really?

By Stephanie Canavan
Her author profile can be found below this article.

With the holidays approaching, one can hardly turn on the TV without being bombarded by commercials shouting that their store has the best deals and lowest prices. Perhaps one of the loudest culprits of these holiday season adds is Walmart. Long known for its low-price guarantees, Walmart is a front runner in boasting its benefits toward your microeconomic holiday family budgets. But from a macroeconomic perspective, Walmart can have less than positive repercussions for the economy as a whole. I recently read an economically faulty article, written by Tom Van Ripper, entitled “Walmart is good for you” which presented an alternative opinion, supported with scanty facts and jumpy assumptions.

Tom Van Ripper began his argument on a foundation of sand, basing virtually his entire debate on the misguided conclusion of a recent study which stated “between 1985 and 2003, personal income, overall employment and retail employment grew faster in counties with a Walmart than in those without one.” The lousy economist incorrectly placed assumptions that because of this finding, Walmart must be the sole beneficiary force causing these positive economic happenings. In fact, there could be a myriad of other factors that caused this economic growth, such as higher investments in education or monetary policies. Van Rippers article continues with more misused statistical proof by quoting a statement from the Federal Reserve “Nearly 90% of the U.S. population lives within 15 miles of a Walmart store, and two-thirds of all retailers are located within five miles of one, the Fed’s report says.” Simply because the Federal Reserve released this statement does not mean it can be used as evidence towards the economic benefits of Walmart. Conversely, this statement simply shows the vast spread of the Walmart enterprise and how greatly such a behemoth could affect the US economy.

Sunday, 17 November 2013

No, Brenna, the US Should Not Reduce Government Spending

By Jaime Bravo

Brenna Fisher, a partner of mine in this blog, wrote today an article speaking about the possibility of reducing government spending and why it was necessary. Here is her take. After reading it - and I must say that I have been reading about austerity in Europe and in the US for a long time - I cannot agree with her thoughts. Austerity, as we know it in Europe and specially in Spain, has been intellectually defeated. Austerity has been widely used only for ideological and political purposes, that is, the implementation of austerity is good, but only if you are rich - which is exactly what Mark Blyth said a few days ago on The Guardian. So, if austerity has been defeated, why do we still support it in some ways? Because it keeps our political aims alive. Make no mistake, I really respect Brenna's work. I enjoyed her last article on music and recessions and I share my thoughts with her on Twitter - see here. It is just there are some failures on economic assumptions that we still consider as facts. It is not Brenna's problem, it is a problem of economic thought.

Do not follow the European path

Europe is one of the most complex economic experiments of all time. It is not my aim to write about it here but we have to work on a few facts. First, Europe is driving himself into a liquidity trap. I have worked widely on it - you can read my work here; it is in Spanish though. Mario Draghi said a few weeks ago that the ECB is going to low the interest rates at 0,30%. But Europe has a particularity:  members have not the control of their own currency; the US does. So it means that, devaluation is easier in the US than in Europe. Then, you cannot make a proper analysis withouth considering the job the ECB does. You have to assume that the ECB has not the same ideas than the FED: Janet Yellen is an economist who knows how to drive the economic scenario of the US while Draghi is limited by Germany. Austerity has been already used. And it had many effects on the economy. Let's take a look at the next graph, which shows a correlation between austerity and growth in many countries: