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 fa├žade. 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.”