Economics Unit 4 Context

Robert Peston's solutions to the UK economy: i) Create a system of delayed gratification. ii) Invest more into education. iii) Invest more in manufacturing and bring jobs back into the UK i.e Dyson outsources to Malaysia. iv) Reduce reliance on banks, peer 2 peer lending like Zopa encourages stability. v) Lower wealth inequality and tax evasion. i.e Average UK FTSE 100 Exec paid 184X more than the average full time British employee.

'How Do We Fix This Mess?' (5 Points)

Diane Coyle - policy should focus on the long term & economic growth is not always representative of happiness.

'The Economics Of Enough'

Has shown steadily declining inequality in the UK in the last 15 years, income inequality not as bad as many fear.

580/520 Ratio in UK

Have grown rapidly from the fast uptake of mobile phones in recent times.

African Social Networks

Poorer countries (Africa) specializes in fewer and more volatile sectors, as a result only 28% of Africans have access to a stable wage paying job.

African's labour markets

Help to establish trust within an economy, makes tax collection easier; helps markets to function.

Benefits of Social Networks

Very poor, in 2011 only 14% of roads were paved, ranked 104th of 142 in the WEF's competitiveness report for infrastructure.

Brazil's Infrastructure

Remain outliers in the EU, per capita incomes are still less than half the average.

Bulgaria and Romania

The uncertain and rapid movement of large sums of money from a country.

Capital Flight

Are set to decline by 10% or more.

China & Japan's populations

Linda Yueh, needs to focus more on raising consumption and domestic private sector than on exports.

China's Rebalancing of AD

Has fallen since 2010 due to a period of relatively strong consumer spending that has outpaced the growth of real disposable income. This low savings ratio at this stage of the economic cycle makes the UK unprepared for a future recession.

Comments on the UK's savings ratio

66%

Consumption Percentage of UK AD

2013. (Most recent member)

Croatia joined the EU in

Benefits business confidence for Croatia but Croatia is uncompetitive due to low diversified exports and an overblown public sector. The shadow markets of Croatia count for an estimated 40% of GDP.

Croatia joining the EU

Where GDP falls by more than 10% from the peak of the cycle to the trough. For Greece GDP reached 25% lower than the peak.

Depression

When countries export natural resources such as oil this increases their exchange rate and causes exports in other sectors to become uncompetitive.

Dutch Disease

19 of the 28 members.

EU states in the single currency =

Is declining from net migration upon joining the EU.

Eastern European Population

Paul Romner, growth comes from improving the quality of factors of production by innovation i.e improving human capital, rather than just increasing the amount of factors of production.

Endogenous Growth Model

29%

Exports Percentage of UK AD

The total value of output within an economy.

GDP

Been stagnating at its '07 level, whilst the G7 average has been steadily increasing. Britain is 1/5th less productive than the G7 average.

GDP per hour worked in the UK (General Trend)

Nobel prize winning economist, argues the importance of improvement in human capital by education and healthcare.

Gary Baker

11% more productive than the UK.

Germany GDP per worker employed is

75% of exports in gold, oil and cocoa, high public debt of 56% due to importing goods and infrastructure, inflation of 10.9%, 52% live on less than $2 a day.

Ghana

26%

Government Spending Percentage of UK AD

Fallen from 93 to 73.

Greece's per capita incomes as an index number to the EU average from 2003-2013 have

The final value of income flowing into a country's owned factors of production. (GDP +NPIA)

Gross National Income

Healthy, averaging 0.5% per quarter but hints that it could be slowing as was below 0.5% in Q3 of 2015.

Growth from 2013 onwards in UK

Grown 2-4% from 2010 to 2015.

Growth in household's final consumption in the UK

Chang argues markets are a means and not and end, a well functioning state should promote well functioning markets and intervene where necessary. Quah argues markets should be used outright but baggage such as social injustice and inequality should be managed by the government so that the free market may be maintained.

Ha Joon Chang (Cambridge Uni) vs. Danny Quah

31%

Imports Percentage of UK AD

On average, how much each citizen earns. A basic measure of living standards.

Income Per Capita

From 1990-2012 India experienced GDP growth of 6% p.a, but the GINI increased from 32.5 to 37 from 1993-2010.

India's growth and Inequality

Simon Kuznet's, Kuznet inequality curve. Inequality is concave from pre-industrial society to more developed economies.

Inequality Curve

The commercially successful exploitation of ideas. Distinction between product and process innovation.

Innovation

10%

Investment Percentage of UK AD

Training issues can mean a delayed shift of LRAS, there is also a risk of diminishing returns to capital investment.

Issues sometimes faced with investment

Creative destruction, innovators & imitators explains the business cycle, Austrian School of Economics. Recession clears out unproductive capacity and creates space for new efficient economies.

Joseph Schumpeter

Angolia - 97%.

Large export dependence on oil

Q3 of 2015 = £450bn, well above what it was in 2008, ONS argues recovery is complete in this sense.

Latest GDP in UK

In Uganda $899m is lost a year as workers get sick and become less productive over time as a result of having malnutrition as a child.

Malnutrition Holds Back Economic Growth

State funded investment often more successful than the private sector. E.g Google's search algorithm was found by research from the US National Science Foundation.

Mariana Mazzucato

Net property income from abroad; the net value of interest, profits and dividends coming into a country from owned factors of production overseas minus profits and other income from foreign owned assets within the country.

NPIA

The monetary value of the flow of output of goods and services produced within an economy over a period of time.

National Income

Robert Solow, exogenous growth model. Growth comes from more labour, capital and technology. At the steady state growth path all of the factors grow at the same rate and so productivity per worker stays constant. Catchup growth is present for LEDC's due to good capital-output ratio's.

Neo-Classical Economic Growth

£9bn p.a We pay £13bn in and get £4bn out in CAP etc.

Net contribution to the EU from the UK is

Has fallen from 10% of GDP to 5% from 2009 to 2016.

Net government borrowing as a percentage of GDP in UK.

Weaknesses in management and upkeep of capital lead to severe productivity problems.

Nicholas Bloom

4%.

Number of UK exports that go to China (observatory of economic complexity)

11%.

Number of UK exports that go to Germany (observatory of economic complexity)

11%.

Number of UK exports that go to IMF declared developing economies (observatory of economic complexity)

12%.

Number of UK exports that go to US (observatory of economic complexity)

500 million.

Number of consumers in the EU single market

10, an increase of 15 to 25. All of these countries had lower income per capita than the EU average but these have converged.

Number of new members to the EU in 2004

800,000

Number of those on zero hour contracts has risen to in the UK

A geographical area where it is thought to be beneficial to maximise welfare and economic performance to have a single currency.

OCA

Leaving the EU would put substantial cost on the EU, the gain from no fiscal contributions to the UK does not compensate for the negative effect on growth. Much depends on the relationship the UK builds with the EU. Welfare loss of 1-3% predicted.

On Brexit: Centre for Economic Performance (LSE, Summer 2014)

By 2030 a permanent loss of 0.8% of GDP to a potential gain of 0.6%. Norwegian and Swiss models are not appropriate for Brexit comparison.

Open Europe Report (March 2015)

-0.5%. Little room for more demand side growth.

Output Gap in UK

14% less than if the UK had grown at the pre-crisis level; productivity issues.

Output is

Risen from 48 to 67.

Poland's per capita incomes as an index number to the EU average from 2003-2013 have

Provides 90% of jobs.

Private sector jobs in developing nations

Has been slow, just 1% higher now than at the start of 2008 - has been harsh on living standards.

Real GDP Growth Per Capita in UK

Been stagnating, steadily increased between 2000 and 2007 but since '09 in the UK has been flat.

Real household disposable income per head in the UK

Where GDP picks up from the trough reached at the low point of the recession.

Recovery

Bolivia renationalized industries such as energy to maintain government profits - puts off future investor confidence when ad-hoc nationalization occurs.

Renationalized Utilites

28 member states, 30% of global GDP, 7% of global population.

Size of the EU

The value of social networks on improving productivity in the economy. Social networks = Bridging Capital (Work colleagues), Bonding Capital (Family & Friends), Linking Capital (Political Parties, Student Unions).

Social Capital

Estonia, fast improving competitiveness from growing in line with the Washington Consensus. Highest startup per head ratio of any country. No tax for reinvested profits. Rated 2nd of 144 nations by the WEF for access to internet in schools. Has a flat rate of tax. Skype runs on Estonian made software.

Soviet State to free market

Brazil has grown by state intervention by subsidisation, Bolsa Familia, and currency market intervention. South Korea has used protectionism to grown infant industries in early stages of growth.

State intervention led growth

45% of exports and 53% of imports of goods.

The EU accounts for the UK's X&M (Largest trading partner)

In 2009, real GDP down 4.3%, capital investment down 13%, unemployment averaging over 11%.

The EU and the '09 recession

largest single source, 46% of the UK's FDI at £453bn.

The EU's FDI to the UK

Rate of growth is dependent on the level of national saving and productivity of capital investment (the capital output ratio). Catchup growth is present for LEDC's due to good capital-output ratio's. LEDC's often spend and do not save leading to domestic savings gaps though.

The Harrod-Domar growth model

Is set to rise from 1.8bn to 3.2bn by the end of the decade (The Brookings Institute).

The Middle Class

Pickett & Wilkinson, wealth inequality leads to social tension and loss of social capital.

The Spirit Level

Fallen from 123 to 109.

The UK's per capita incomes as an index number to the EU average from 2003-2013 have

Has been steadily appreciating. In the last 18 months has weakened against the dollar but appreciated towards the euro.

The UK's trade weighted index currency

John Williamson, market friendly policies to promote the free market mechanism.

The Washington Consensus

2.5bn do not have access to a formal account at a financial institution worldwide.

The global bank problem

Slow in the UK, AD is still very much focused on consumption.

The pace of defecit reduction has been

500,000

Those out of work for 1 year or more in the UK

178,000 (46,000 from Romania & Bulgaria)

Total EU net migration to UK in 2014

Services surplus is widening, goods defecit is too.

Trade of services and goods in UK

0%

UK Average inflation rate for 2015

0.3% & steadily growing, still well under the 2% target.

UK Current Rate Of Inflation

123rd of 144 countries. HIGH.

UK government debt rank for global competitiveness in WEF 2015 report

29th of 144 countries.

UK infrastructure (specifically roads) rank for global competitiveness in WEF 2015 report

9th of 144 countries.

UK infrastructure rank for global competitiveness in WEF 2015 report

5th of 144 countries.

UK labour market efficiency rank for global competitiveness in WEF 2015 report

10th of 144 countries.

UK overall rank for global competitiveness in WEF 2015 report

3rd of 144 countries.

UK technological readiness rank for global competitiveness in WEF 2015 report

£1bn per week in 2014.

UK trade defecit per week to EU

38% more productive than the UK.

US GDP per worker employed is

Has been steadily worsening. In 2015 the largest current account defecit was run since 1948. For the first time all components were in defecit. -5.2% total defecit.

Uk's current account over recent years

5.1%, has been floating around 5%, many argue it could fall to 4% - something that has not been seen for nearly 40 years.

Unemployment Rate in the UK

The increase in the value of goods or services as a result of the production process.

Value Added

On average someone works 26hrs a week but 1/3rd would work more hours if they could.

Zero Hour Contract Stats