Tuesday, January 31, 2012

Assignment 2...

Depending on how much you enjoyed the alternative arrangements now in place for classes on econ101b, you'll either be delighted or daunted by the fact that Assignment 2 is now on WebCT...

The first question asks you to look at a plot of unemployment rates for the UK and a few other countries. In there is both the claimant count unemployment rate, and the standardised rate - two ways of measuring unemployment. As you'll see, the two do differ; the plot of unemployment on the assignment is:

The red lines are UK data, as the legend (top left) shows. The solid red line is the standardised rate, the dotted line the claimant count, and as was discussed in class, often (but not always), the claimant count is below the standardised rate - often considerably so - in 2005 the standardised rate was nearly 5% while the claimant count was just over 2.5%. What drives these kinds of differences?

Moreover, what has unemployment done in the UK over the years?  There's a fascinating discussion of unemployment in the UK on the blog Not the Treasury View, which looks at structural unemployment and something they call the unemployment gap. The blog talks about factors that have influenced unemployment in recent years, and may help you think about this. When was unemployment high, and why might it have been high? When was it low, and what helped it to become so low?

Moving on to inflation, the plot for the second question on the assignment is:
We have data here for CPI inflation for all goods. We could restrict it to core inflation, which excluded energy and food prices - if you're keen, you could search for that data on the OECD Statistics website and compare it to these inflation rates. What you may well find is that core inflation rates between countries differ a little more - the inflation rates we've plotted here include energy and food prices, which are globally traded items and hence a high price of energy in one country is a high price elsewhere too.

Why has the UK had a particular inflation history? What factors have influenced the UK? What about the recent inflationary history, since around 2006 or so?

I'm looking forward to reading your blogs - do let me know links when you've set your blogs up and don't be shy - making your blog more publicly available is a real asset and something that'll look great on your CV in years to come, and will help create even better discussions amongst your class mates.

Enjoy assignment 2 and your classes in weeks 5 and 6!

Saturday, January 21, 2012

An Example of Economics Laced With Values

Much more in the US than here, right wingers, and particularly Libertarians, command huge audiences. Following on from our discussions these coming weeks about values in economics, here is a whopping great example of value-laced economics - an attempt by a libertarian to promote the research of a think tank that has clear ideological and hence political leanings.

The research suggests that the tax rate on capital gains should be lower than others have suggested. Now, was that research by an independent, value-free, positive economics think tank? The think tank is called IRET, the Institute for Research on the Economics of Taxation, and the blogger, David Henderson, possibly deliberately, makes us believe that it's linked to Ohio State University by immediately after writing the IRET's name, he lists the researcher's university.

Is IRET unbiased, politically de-linked, and hence able to construct positive (what could happen), rather than normative (what should happen)?  The website paints a reasonably sensible picture of what the organisation does, although given it is set up to influence politicians is suggestive, but not indicative, of it holding some political motive. However, it reveals the founder of the Institute was an advisor to the Reagan government in the 1980s, and involved in many policies cutting taxes and keeping them low. The bottom line is, this is not an institution that looks politically neutral - when analysing tax, it will suggest taxes are kept low. I could be wrong, but I'm sceptical.

So what is my point here? Are we not to believe anyone at all who writes about economics? Of course not, we are not to stop believing everything we read. But we must be careful about what we read; if we want our economics to be value free, we must ensure that it is informed by those that are, as much as possible, value free. Think tanks that are not overtly political do exist; the Institute for Fiscal Studies in the UK is an excellent example, critiquing the tax and spend policies of all the major political parties around election time.

We are not to take refuge in cynicism, but instead to be careful about what we read!

Another interesting article on macro ideas

Simon Wren-Lewis is a macroeconomist at Oxford, and he writes a blog called Mainly Macro - it's very good, and he writes in a style which should be accessible to all. He's written a post in the last day or so (currently in Japan so it's hard to tell when the days end and start relative to the UK) about macroeconomic ideas, and it's a good read.

He talks about how ideas become "controversial" in a somewhat cynical manner - because political parties set up think tanks who state bad economic ideas (tax cuts pay for themselves) and hence the media thinks there is a debate about these issues.

It's a cynical view, and it's one that elevates Simon Wren-Lewis's ideas about macroeconomics and dismisses discussion about ideas perhaps a little too much. There is something called mainstream macroeconomics, where the more accepted ideas lie, but there is still those on the fringes of the mainstream whose ideas aren't quite so widely accepted, and hopefully in econ101b we'll do justice not just to the mainstream, but also to the ideas that don't make up part of the mainstream.

There is a debate out there, and it does appear to be influence by values, or political leanings - as you'll be discussing in classes this week and next!

Thursday, January 19, 2012

Improving on GDP...?

In the lectures Rob gave this week, you will have learnt a little bit about GDP - the market value of all the recently produced final goods and services in the economy.

Now of course, it's far from perfect as a measure - not least, how do you add up all the outputs of things that are hard to add up? Can you account for what are arguably negative contributions such as nuclear bombs and pollution?

Of course, many have tried. One of the articles referred to on the question sheet for classes for weeks 3-4 encourages you to have a go, and so you could get some tips and pointers from the comments there.

But how many judgement calls will you need to make in forming a new measure? And will it really be any good? Should it actually replace GDP, since at the end of the day GDP isn't designed to measure welfare...?

All this and more you can discuss in your classes these next couple of weeks...

Wednesday, January 18, 2012

Value Free Economics

Should economics be free of values? By this we mean moral values or political values, rather than measurement values like inches or ounces.

Why does macroeconomics seem to be so bound up in politics? Is it because we deal with the entire national economy, rather than individual markets? Is it because we deal with very complicated concepts, trying to think about millions of people making billions of decisions?

In economics we have a distinction between positive and normative economics, where the former aims at being objective, giving a description of things, while the latter provides a perspective on whether something should happen - hence is objective and allows politics or ethics or morals to enter. If we are moral beings, why should we attempt to make economics amoral? Can we even manage it?

All these things and more you might discuss on your blog, and in your first class for econ101b in the next couple of weeks...

Sunday, January 15, 2012

Blogging on econ101b

Students taking econ101b, Principles of Macroeconomics, are about to discover the method that they are being assessed (formatively - so not counting towards final grade but helping to show how you're getting on with the course) is changing this current term.

Instead of submitting an essay at some point during the term, as was the format last term for econ101a (and also for econ101b in previous years), this term you're expected to write blog posts for each assignment for each class.

Why would you want to bother to do this? Well, those of you that blog will already be aware that blogging is a very good way of helping you collect your thoughts and structuring them in a way that makes sense and is readable/understandable. This is a hugely important skill as you work your way through not just your degree but also your university life and after that - when you get a job.

A blog is public so once you've written something, there's no hiding! But it's better to dwell on the more positive - a blog is a form of presentation, and we're trying to encourage you to develop your presentational skills as you progress through your degree.

Additionally, writing a blog article will help you prepare for each class, where the assignment you blogged on will be discussed. You can start from what you wrote in your blog and develop your arguments further, and see if you're able to combat the arguments put forward by others. You'll be able to comment on the blogs of others in your class, and they will (hopefully!) comment on yours, so that an online as well as real discussion takes place regarding the various things we're going to be covering in econ101b this coming term.

So all in all, while you don't need to take part in this (you can of course just not bother) - it will be for your huge benefit if you do contribute, and hopefully it'll also be great fun too!