Not the Treasury View...

In preparing for the lectures this coming term, I've been looking over Chapters 14 to 17 in Sloman, the textbook we use. Particularly Chapter 16 looks at the development of macroeconomics, and the role the UK Treasury, alongside John Maynard Keynes, played in this development.

It's a fascinating story that we'll think about much more in the first few weeks of term. In the meantime though, it reminded me of an excellent blog that I subscribe to the posts from, called Not the Treasury View, and is written by Jonathan Portes at the National Institute of Economic and Social Research. The name harks back to what was the Treasury view back in the time of Keynes, around the Great Depression of the 1920s and 1930s - namely to balance the budget and trust that in the long run the economy would return to equilibrium and growth.

Keynes provided the alternative view, namely that government could, and should do more than this, and actively intervene in the case of deficient demand, as it was argued was the case back then. It's argued by many (for example, see another interesting blogger, John Quiggin here on unemployment) that Keynes was the founder of macroeconomics as we know it, pointing out that the economy as a whole could experience long periods of disequilibrium, characterised by high unemployment.

I'd really recommend subscribing to the RSS feed from Not the Treasury View. You may initially think Portes to simply be a leftie hence a critic of Tory policy, yet if you dig far enough back you'll find he's critical of all government policy that flies in the face of simple economic theory and evidence. Part of the course this term is to start forming coherent analyses of government policy - you can do much worse than become an avid reader of Not the Treasury View.

Topical Initiative in Bristol

Just as we start lecturing on money, the BBC reports that Bristol is issuing its own currency: The Bristol Pound. The Bristol pounds, which Bristol is calling on locals to design the notes for, will be exchanged 1:1 with actual pounds (Pounds Sterling), hence operating on a fixed exchange rate system, yet will have one important, and designed, limitation - they can only be traded in Bristol.

This may sound, on the face of it, like a great local initiative, but one has to really question why this is being done, and it really begs the question of whether this will succeed. Why, if you are a Bristol trader, would you actually use these things? They have the same nominal value as a normal pound, yet you can only use them in a restricted geographical area. What happens if your suppliers are outside the local area?

The bottom line is we trade because there is a mutual benefit from doing so - both parties benefit. If someone outside the Bristol area can do something more efficiently, why not let them do it, so Bristol folk can get on with things they are good at? Why instead have Bristolians waste time and effort replicating at greater cost what others do better? Why not instead have them being innovative and thinking about new ways to add value and be creative?

Localism is an increasingly popular movement, yet it is a rather short sighted one once it loses sight of the fact that trade creates opportunity - if we all do the things we're good at, more is produced - it's not a zero sum game.

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!

Keynes, Economics and Econometrics

Perhaps one of the biggest names in economics is Keynes; even those who have no knowledge of economics have heard of this chap Keynes. His work appears to float in and out of flavour, with a resurgence in 2008, but a fall back in 2009 on as we've headed towards the economics of austerity. Much is said and mis-said about Keynes, and one thing often presented is that he was anti-econometrics. There's a really good blog written by some econometrics lecturers in Canada which has a post on Keynes and his contributions to econometrics - it's well worth a read if you're interested in how the disciplines of economics and econometrics have developed.

Good as Gold?

You'll learn next term about the history of monetary arrangements that the industrialised world has dabbled with over the years.

Most tend to be abandoned in perceived failure - funnily enough usually around the time of some recession or time of economic difficulty.

The current time of economic difficulty is no different, and people are once again making suggestions that perhaps the current monetary arrangement, inflation targetting, has run its course.

The argument is: Inflation targetting was all well and good; it gave us low and stable inflation and a long period of growth - but it also gave us asset price bubbles (share prices, house prices, commodity prices), most of which have at different points led to small recessions, and arguably to the huge recession we just suffered.

So, instead, some people have suggested a return to something called the Gold Standard. The World Bank's chief Robert Zoellick made the suggestion in the FT last week.

A gold standard is where the value of the currency is backed (at least partially) in gold, some recognisable tangible object. This is in contrast to the current system where currency is backed only in our faith that it is worth what it is worth.

If you're interested in reading more about this suggestion, and how it has been greeted, then there's a New York Times discussion on it here, with contributions from various top economists from the US.

Make Use of the Internet!

You've just started your economics degree (or at least a degree vaguely related to economics), which means you must be at least a little keen to understand more about the economy around us - if not least to impress your friends.

An attitude that seems to pervade many economics students at Birmingham though is "how much do I have to do?", or perhaps better paraphrased "how little can I get away with doing?". Can I get away with just buying this particular textbook and then reading the specific bits the lecturer refers to? Can I then spend all of the rest of my time doing other more interesting stuff (Wii, drinking, whatever)?

The answer, of course, is "yes, of course you can - provided you're happy with a 2:2". In the increasingly difficult workplace out there post-degree, a 2:2 might not cut the mustard.

The point is this: Make the most of your time as a student, and make the most of the resources available to you - academically! It sounds cringeworthy, but most previous students of economics would have given their right arm for the kinds of resources freely available to you via the internet. Prominent economists whom previous to hear their thoughts you needed to be a student at their university (not always easy when they're at Harvard and such places), but now you can just read their blogs.

You can read the most prominent thinkers in the field daily and start to understand how they think, how economists think, and most of all you can get their take on why the economy is where it is right now.

Use these resources available to you - you don't need to be an expert to read them because these guys are trying to write in a more easily accessible language than you'd find in one of their papers. To this end and to encourage you to do this, an extra panel has been added on the right hand side of this blog as you read it, with the title ECON101AB BLOGS. Go visit them, browse, see what you learn!

Unemployment Numbers

Another in the long list of things we'll look into next term in econ101b is Unemployment - joblessness. Unemployment almost always refers to workers out of work, although others have talked about unemployed houses recently, amongst other things.

But we usually think about workers being unemployed - not employed, not put to work. Every month the UK statistical agency reports unemployment figures for the UK and they are usually pored over with great interest, particularly in times like the current (will we have a double dip? Can we blame the Tories yet?) ones. Apparently the number of people being employed (hence leaving the state of unemployment) increased by nearly 200,000 this last month.

This would seem to be great news, but as Stumbling and Mumbling points out, things ain't always as they seem. Most of all, the numbers of people becoming employed are not necessarily coming from the pool of unemployed workers. Many other things are possible: People who were not previously actively seeking work (hence not counted as unemployed, e.g. mothers returning to the workforce after raising kids or the retired) may have taken jobs, or immigrants may have taken jobs in the UK (not likely at the moment thanks to the incoming government's arbitrary caps).

The bottom line is: Much of these numbers are people becoming self-employed or taking part-time work. In fact, full time employment has fallen in these latest released numbers.

It most certainly isn't a particularly encouraging story about UK Plc...

Economics of Everything

If you're a new student here at Birmingham, keen to learn your economics, can I point you in the direction of Marginal Revolution? It's a blog written by two economists, Tyler Cowen and Alex Tabarrok and contains many posts each day, often relating every day or topical events into the thinking of economists.

For example today they comment on the contract the Chilean miners have apparently signed in order that none of them attempts to individually profit from the group's experiences underground for over two months. Will it hold up? How will they enforce it if one of the group deviates?

All these kinds of things are intriguing economic issues relating to such actions of individuals and groups. Marginal Revolution's Markets in Everything series of posts are highly illuminatings and I'd highly recommend them as you begin your economics degree and start attempting to think like economists...

Welcome to Birmingham!

The new term and academic year is upon us.  If you are just arriving at Birmingham for the first time, welcome!  If you're returning, welcome back!

This blog is something I've set up for the part of econ101ab (Principles of Economics), an introductory economics course at the University of Birmingham.  I teach the second part ("b"), which is macroeconomics.  In the coming term before Christmas you'll have lectures from Martin Jensen on microeconomics.

If you're unsure of the difference between the two, PJ O'Rourke has helpfully obliged with a definition:

One thing that economists do know is that the study of economics is divided into two fields, "microeconomics" and "macroeconomics". Micro is the study of individual behaviour, and macro is the study of how economics behave as a whole. That is, microeconomics concerns things that economists are specifically wrong about, while macroeconomics concerns things economists are wrong about generally.

Enjoy microeconomics this term!

The New Year

It's mid August, but fairly soon the academic year will be starting.

A huge amount has been happening in the macroeconomy over the spring and summer of this year, and so I'll start to make posts on here for keen econ101ab students at Birmingham, and students elsewhere who might be interested.

As a taster, the big debate over the summer has been over austerity vs spending. The Tories have started drastically cutting government spending, waxing on repeatedly, with ad nauseum, about Labour's supposed recklessness. Here's an example I saw today.

Were Labour reckless? Or are the Tories the reckless ones, potentially plunging the UK back into recession? It's the kind of question that gets right to the heart of what economics is. Keep tuned for more...