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Economics Study Skills: Essay Writing

May 26, 2017 Leave a comment

With increasing numbers of students struggling to write well structured essays in economics I decided that they needed some guidance and therefore produced a booklet on how to plan and structure your essay – link to download at the bottom of the post. It looks at how you integrate the following into your essays  whether at CIE or NCEA Scholarship level and shows examples.

Knowledge and understanding – Demonstrate knowledge and understanding.

Application – Interpret and apply knowledge and understanding to information presented in written, numerical or graphical form.

Analysis – Analyse economic issues and arguments, using relevant economic concepts, theories and information, and communicate conclusions in a clear, reasoned manner.

Evaluation – Critically evaluate economic information, arguments, proposals and policies, taking into consideration relevant information and economic principles and distinguishing facts from hypothetical statements and value judgements.

It also contains – the box plan – 12 different sentence types (see below) – command words – PREC Point Reason Example Concluding sentence.

12 sentence types.png

I have taken some material from Dr Ian Hunter’s publications and would recommend the books he has for sale on the Write That Essay website.

Click the link below to download the booklet.

Essay Writing for Economics

Categories: Exam revision Tags:

A2 Economics – The Laffer Curve

May 24, 2017 Leave a comment

New to the A2 syllabus last year was the Laffer Curve. PBS Economics correspondent Paul Solman explores the question of just how high U.S. tax rates should or shouldn’t be and examines the relationship between economic activity and tax rates. There is a good explanation of the Laffer Curve which is the relationship between economic activity and tax rates.

In between, a smooth curve representing Laffer’s pretty simple idea: Somewhere above zero percent and below 100 percent, there is a tax rate where government will collect the most revenue in any given year. Now, the Laffer Curve applies to everyone, but the top so-called marginal rate is only relevant to the rich. It’s now 35 percent on all taxable income in excess of about $380,000 a year. Does that 35 percent rate maximize total tax revenue for the government?

Milton Friedman, Milton Keynes, Milton Schuman and Maynard Keynes

May 21, 2017 Leave a comment

Below is a very funny clip from Yes Minister where Humphery is advising Sir Desmond about the possibilities of making the Minister make the decision that they want him to make. However the start has Sir Desmond getting a little confused with his economists and giving his reason for buying the Financial Times.

Categories: Eco Comedy

China – a blessing or curse for Developing Countries of Africa?

May 20, 2017 Leave a comment

I recently read in the New York Times Magazine a very interesting article on China and how it has built up enormous holdings in poor, resource-rich African countries. Although it may seem as a blessing to the local economy it does have its drawbacks. You can read the full article here but I have edited it for students doing Development Economics topic at A Level.
—————————————————————
Everywhere you look on the globe China’s presence can be felt, driven by its insatiable demand for resources and new markets as well a longing for strategic allies. In 2000 China had 5 countries as their largest trading partner but that has increased today to more than 100 countries including New Zealand, Australia and the USA.  Although there has been a slow down in China, President Xi Jinping has indicated that over the next decade approximately $1.6 trillion will be put into infrastructure and development throughout Asia, Africa and the Middle East. This is serious money that makes a bold statement as to their intentions globally.

China hasn’t held back in trying to secure sufficient resources to keep their economy going. Besides oil and gas China’s state-owned companies have bought mines around the world eg:

  • Peru – copper
  • Zambia – copper
  • Papua New Guinea – nickel
  • Australia – iron ore
  • South Africa – iron ore
  • Namibia – uranium

However as the Chinese economy slowed recently the demand for imports of commodities dropped thus impacting on some of these commodity exporting countries – in particular mines in Western Australia, Zambia and South Africa have been forced to close.

When China met Africa
You maybe aware of a previous blog post in which I talked about the DVD documentary  ‘When China met Africa’ which focused on Chinese investment in Zambia – a very good look at the micro environment that businesses operate in.  Investment in Africa by the Chinese started in 1976 with a 1,156 mile railroad through the bush from Tanzania to Zambia but it wasn’t until the 2000’s that Chinese authorities realised that there was a need for resources to fuel its own internal growth. With this in mind Chinese companies were given free reign to go and seek these resources.

With the end of the Cold War and the Middle East becoming a major conflict area, the US involvement in Africa started to dwindle. Furthermore with the Trump administration raising doubts about free trade agreements and global warming there is an opportunity for China to push its own initiatives and push for global leadership. A Trans Pacific Partnership without the US is very appealing to the Chinese authorities as it allows to become a dominant player in negotiations with other members.

husab mine.jpegChina tends to provide no-strings financing that, unlike Western aid, is not conditional on human rights, clean governance or fiscal restraint. The Namibian finance minister welcomed China as an alternative but although the Chinese want you to be masters of your own destiny and dictate what you want, there are conditions which doesn’t necessarily make their presence truly beneficial. Namibia has seen significant Chinese investment especially in the Husab Uranium Mine ($4.6bn) the second largest uranium mine in the world. It is estimated that it will increase Namibia’s GDP by 5% when the mine reaches full production although almost all of the uranium will go to China for nuclear energy and thereby reducing its dependence on coal. Approximately 88% of China’s energy comes from fossils fuels, 11% from hydropower, solar and wind and only 1% from nuclear power. In order to reach clean energy goals and lose the mantle of chief polluter in the world, China has put a lot of emphasis on nuclear power and they have 37 nuclear reactors with another 20 under construction. The aim is to have 110 reactors by 2030 and become an exporter of nuclear-reactor technology.

The Chinese company China General Nuclear (CGN) has a 90% stake in the mine with the Namibian government 10%. Although Namibians are benefitting from all the infrastructure investment by the Chinese they have saddled the country with debt and have done little to reduce the 30% unemployment rate – Namibia has one of the most unequal societies in the world. In China independent unions are essentially illegal but Namibians have the Metal and Allied Namibian Workers Union (MANWU) which accused Chinese state-owned companies of paying Namibian workers only one third of the minimum wage and also using Chinese workers for unskilled jobs that by law should be going to Namibians. As the unions’s secretary said “the Chinese will promise you heaven but the implementation can be hell”. Also scandals involving Chinese nationals  include tax evasion, poaching endangered wildlife, money laundering have done little to enhance the mood of locals.

Over the last decade China has got a reputation for pillaging and pilfering the natural world with its growing demand natural resources as well as the illegal wildlife trade. Chinese businesses have had public backlash over their proposals that could do damage to the environment. One company wanted to clear a 30,000 acre forest so that it could plant tobacco – the soil in the forest is totally unsuitable for this purpose. Another wanted to set up donkey abattoirs to meet China’s demand for donkey meat and skin whilst a Nambian-based Chinese company requested to capture killer whales, penguins, dolphins and shark in Namibian waters to sell to aquatic theme parks in China. Under pressure from activists the Chinese firm withdrew their request.

Is China the World’s New Colonial Power?

Categories: Development Economics Tags: ,

J.Cole and the Hedonic Treadmill

May 15, 2017 Leave a comment

Below is a very good video from rapper J.Cole in which he talks about the insatiable demand for material things and how it will never make people happy.

Affluent youth in the USA have rates of depression and anxiety which is more than twice the national average. Wealth has been linked to high rates of depression, anxiety, psychosomatic issues and self-mutilation. It seems that the very wealthy have the same problems as the rest of us but only on a much larger scale. A research paper from Boston College entitled “Secret fears of the super-Rich found that the top fears of the rich are:

  1. The rich need increasing amounts of money to make them feel financially secure.
  2. They feel isolated and don’t share their concerns or stress as they will sound ungrateful.
  3. Thy worry that their children will become spoilt by inheriting so much wealth or resentful if its too little.
  4. You are unsure if your friends genuinely like you or your money
  5. There is constant dissatisfaction with consumption as something better / new is always being launched. They can’t get off the hedonic treadmill
  6. Parents are concerned that money will rob their children of ambition and getting a job.

“ONE OF THE SADDEST PHRASES I’ve heard,” Kenny says of his time counseling the wealthy, is when the heir to a fortune is told, “‘Honey, you’re never going to have to work.’” The announcement is often made, Kenny explains, by a rich grandparent to a grandchild—and it rarely sounds as good to the recipient as to the one delivering it. Work is what fills most people’s days, and it provides the context in which they interact with others. A life of worklessness, however financially comfortable, can easily become one of aimlessness, of estrangement from the world. The fact that most people imagine it would be paradise to never have to work does not make the experience any more pleasant in practice.

The Atlantic 

 

Trump’s tax cuts likely to have limited impact on growth

May 14, 2017 Leave a comment

Donald Trump has indicated that the US economy needs a big tax cut to stimulate some growth and aggregate demand –  C+I+G+(X-M). His rationale is that with consumers having greater income they will spend consume more (C) and businesses keeping more of their profits will invest more (I). He is even so confident that the tax cuts won’t put a dent in the overall tax revenue of the government. However economists are suggesting that the US economy is already growing as fast as it can and in order to improve its growth rate it needs to investment in productivity.

D Pull Inflation.jpegNevertheless, US tax cuts in the 1980’s under Ronald Reagan proved to be very effective in stimulating aggregate demand but the economic environment then was different to that of today. The 1980’s was an era of stagflation with the US experiencing 10% unemployment and inflation reaching 15%. Since the GFC in 2007 growth has been positive and unlike the 1980’s unemployment has been falling  – from 10% in Oct 2009 to 4.4% in April 20178. Tax cuts are all very well when you have high unemployment but with the rate falling to under 5% companies may find it difficult to respond to the greater demand for goods and services by taking on workers to increase supply. Tax cuts would then lead to an increase in inflationary pressure (see graph) which is turn would prompt the US Fed to increase interest rates.

ProductivityTrump’s plan would also increase the Federal deficit and borrowing from the government. This would put upward pressure on interest rates for the private sector which reduces the potential for further growth. As noted earlier the area that needs to be addressed is productivity, with a shift of the LRAS curve to the right – see graph.

Categories: Growth, Inflation, Interest Rates Tags: ,

Tight labour market in Japan but wages stagnant.

May 11, 2017 Leave a comment

As is mentioned in simple economic theory, when you have a good or service that becomes more scarce there is an increase in the value of that good or service. The labour market in Japan is becoming very tight in that the supply of labour is starting to decrease with the demand increasing – see graph. This should ultimately lead to higher wage demands by workers as they are becoming more and more scarce relative to the demand. Recent figures out of Japan show this situation:

Japan labour market* Working age population – 15-64 years in Japan – fallen by 3.8m since December 2012 = decrease in supply of labour = upward pressure on wages
* People actually working has increased by 2.2m = increase in demand for labour = upward pressure on wages
* Unemployment in Japan = 2.8% the lowest rate since 1994 = upward pressure on wages

Why has there been no increase in Japanese wages?

Japanese labour unions have not been very aggressive in wage bargaining and there was a wage increase of only 0.2% in 2016 but already in negative territory this year – see chart. Wages have remained stagnant as strong demand has resulted in an increase in supply of labour rather than the price of labour – wages.

Japan - wage growth
Supply of labour increase:
* Japan now has 1 million foreign workers as compared to 680,000 in 2012
* Numbers of elderly men and women in the workforce has increased by over 2 million
* There is a rising share of part-time work

Job security at the expenses of wage increases.
It seems that market forces don’t really affect those employed in large firms. The pay in these firms has been largely unresponsive to the pressure of supply and demand as employees of life-time employment do not worry about being made redundant but don’t expect significant pay rises during the good times. However in times of inflation they do request higher pay to offset the increased cost of living.

So if general workers pay does increase there is the possibility of the general level of prices will also go up which would in turn increases the wage demands of those in large firms. However as stated by The Economist

“Japan’s workers are hugely in demand but strangely undemanding.”

Categories: Labour Market, Unemployment Tags: ,
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