Essentially the lovely people over at The Economist publish a chart every day on pretty much everything. Not only are they extremely shiny, they are also usually both topical and interesting. They even have an advent calander!

So apart from all of the eye candy, just why are graphs so awesome? I think they allow you to summarize a huge amount of whats going on in just a small area. Not only that but they can be great tool on which to frame a discussion. Here are some charts that I found particularly interesting:

1. European Borrowing and Lending

This graph shows how much banks have been able to raise in the bond markets. Put simply, how much extra cash they have managed to get invested into their business. Investors in exchange for providing this money now, get a rate of return on what is called a bond. The graph firstly shows that banks are having major issues in getting more cash, which they need to meet the new Basel Rules*. Secondly it shows that investors are unwilling to issue these bonds unless they are covered. A covered bond is a bond which is linked to an asset proportional in value to the bond issued. So if the bank cannot pay the bond interest then the investors can take control of the asset to get there money back. Fundamentally this graph shows just how little liquidity and how much paranoia is driving the behavior of European banks.

*(Basel 3 is the latest set of guidelines issued for global banking. Passed after the financial crisis they required banks to keep a far greater proportion of their assets as cash, the kind of money you carry around in your pocket everyday, as opposed to investments, say mortgages)

2. Bribery and Corruption

This graph shows perceived corruption within the public sector on the Y-axis graphed against a survey-based score for how likely private companies are to engage in bribery on the X-axis. A higher score suggests bribery is less common. It is worth noting that the companies Bribe Payers Index is the likelihood of companies using bribes when doing business in foreign  countries. There are some interesting results here. Italy and Turkey rank as the most corrupt amongst the OECD (developed) countries. Hong Kong has one of the least corrupt administrations in the world, despite being part of the China which ranks quite poorly on this scale. Perhaps unsurprisingly the Russian oligarchy is bringing up the rear amongst the major economies.

3. Dangerous Places

When it comes to crime it is often very difficult to make comparisons between countries, partly because the chance of a crime being reported differs greatly across cultures. One of the better measures to get around thus problem are murder rates, as murders tend to be reported. It seems that less developed countries have higher murder rates. Rather surprisingly while Mexico hasn’t topped the chart, they didn’t even make the top ten. Afghanistan has a lower homicide rate than the USA. Quite whether this makes Afghanistan a safer country would be hard to believe.

http://www.zerohedge.com/news/charting-fundamental-cash-supply-demand-dilemma-europe

http://www.economist.com/blogs/dailychart/2011/11/bribe-payers-index

http://www.economist.com/blogs/dailychart/2011/10/homicide-rates

Disclaimer: All of the charts here are reproductions from the websites linked above.

Iceland has been the world’s whipping boy for the last few years.  The collapse of its banking system uncovered huge international systemic failures leading to the economic crisis.  The snowy nation has had a rough time of it.  But as we begin 2011, I ask the question, are they really still in that much trouble?  Figures released by the International Monetary Fund in December 2010 showed that Iceland’s GDP grew by 1.2% in the third quarter, ending the recession caused by the actions of those in its banking sector.  What about those European countries still in economic strife?

In direct contrast to the actions taken by almost all other western countries and most significantly Ireland, Iceland let its banks fail.  It was able to do so because the international risk of contagion is comparably lower than many of the European countries currently receiving bail-outs.  This forced foreign creditors and the banks themselves to foot the bill of failure, rather than the taxpayer.  Essentially, Iceland stuck to free market principles.  Those institutions that operated in an economically viable manner were able to survive; those that chose to take on too many liabilities in foreign currency must face the consequences.  In a system such as banking where when times are good, the mechanisms of capitalism and free market economics define the actions of agents in market, why should those mechanisms not also define what happens when it goes wrong?  In addition to the economic reasoning, there is also the moral issue of the taxpayer having to pay for the mistakes of a small elite.  The actions of many other governments in bailing out the banks served as an attempt to prop up an already unsustainable bubble.  These actions have exacerbated existing public finance problems further, the implications of which are to be felt by those who have not caused the problem.

During the recession Iceland’s economy shrank 11 – 15% depending on your source, but it did so with inflation peaking at 18%, which devalued its debt.  The soaring inflation was furthermore caused by the Icelandic central bank’s decision to halve the value of its currency, the Kroner.  The difference in terms of inflation between Iceland and those euro-zone countries thought to be in the worst economics position, the PIGS (Portugal, Ireland, Greece and Spain), is quite stark.  Iceland’s inflation soared whilst Ireland, for example, is still going through through a sustained period of deflation

Iceland’s inflation is now down to a respectable 3%, hence interest rates are now at 4.5% from an 18% peak.  These inflation rates are, however, higher than the PIGS.  Iceland’s debt situation is also looking up.  Forecasts for 2011 predict a deficit of 6.3% which will soon turn to surplus approaching the mid-point of the decade.  The IMF said Iceland has turned a corner and that its economic performance “compares favourably against other countries hard hit by the crisis”.

Iceland’s current account balance suffered greatly at the beginning of the crisis with the nation running a 26% of GDP trade deficit with the rest of the world, which is much greater than any of the PIGS.  However, due to the high inflation rates and devaluation of its currency, the trade deficit in 2010 fell to just 0.9% of GDP, with a surplus forecasted in 2011.  Comparably, the PIGS are still running significant deficits approaching and exceeding 10% of GDP.  The long-term effects of these deficits are yet to be seen.  One thing is clear, the PIGS do not have the monetary sovereignty of Iceland and hence cannot devalue their debt, they must in effect, toe the economic line of the European Monetary Union and European Central Bank.

Many have portrayed the path chosen by Iceland and subsequent recovery as a model for other beleaguered economies, such as the PIGS group in the EU.  However, such comparisons must be contextualised.  Iceland’s economy is comparably tiny and would have little chance of bringing the entire world economy down if it walked away from its liabilities compared to the aforementioned PIGS.  Defaulting in one of those economies would risk contagion throughout the euro zone and possibly beyond.

Iceland’s monetary independence from the European Monetary Union has been sighted by many as a possible reason for its recent good performance.  Having experienced the worst financial crisis in memory, the country has emerged ahead of many of its contemporaries having endured less punishment than many EU member states.  Greece and Ireland have already been forced to accept bail-outs, and it appears Portugal will soon follow with an €80bn rescue package mooted.

But how sustainable is this recovery?  Iceland’s public debt has reached in excess of 115% of GDP, over four times what it was in 2007.  Furthermore, Government bonds issued in foreign currency are becoming more and more expensive to repay due to the devaluation of the kroner.  Domestic austerity was aided by this devaluation and the subsequent increase in inflation; however, many commentators have indicated this had little to do with the recent return to positive growth.  The turnaround is attributed to the return to current account surplus from deficit.  Moreover, the aforementioned debt burden is not only applicable to government finance; house prices have plummeted in the crisis leaving many homeowners in negative equity.  By no means is Iceland out of the woods, its current account turnaround from deficit to surplus has been accredited to falling imports rather than a surge in exports.  More tough times are ahead.

The implications of bail-outs on the PIGS are also uncertain.  What is obvious is the political motivation behind their economic choices; the European Union needs the single currency.  It is those with vested interests in the Union that have the most to lose; there is an unnerving air of inevitability in what is happening.  Interest rates are remaining low, aimed at a sluggish Germany, whilst those euro-zone countries experiencing increasing inflation desperately need interest rates to rise.  Where the European project falls down is, in throwing hugely different nation economies under a single monetary policy, it lacked the complete supranational economic governance and social mobility required.

On balance, Iceland has taken a radical path of devaluation which saw violent shifts in economic measures, which all looked terrible whilst it was happening.  It may however appear preferable to the long-term damage that may be seen in those countries which have chosen austerity, debt deflation and bail-outs, but like driving a car using only the rear-view mirror, we will not know until it has happened.

About the author: Harry is a fist year undergraduate studying Politics and Economics (BA) at the University of Leicester.

A degree in economics will have given you the ability to explain complex data in easily understandable terms to different audiences.

“Public and private sectors alike recruit economics graduates, so the opportunities are wide-ranging.”

Postgraduate study can also offer an advantage to those wanting careers in competitive areas such as investment banking.

After all, it’s just paper…right?

If there is anyone who should know, it’s Andrew Bailey, because if you look at the bank notes in your pockets and wallets, his signature will be on all of them. Robert Peston, the BBC ‘s business editor, went to the Bank of England to chat to the man who makes the money we use. He examines how we got into the recent financial crisis and what you can do to protect yourself.

You can find it Here

Stephine Flanders writes that

“Like other governments that are borrowing a lot, ours would be vulnerable if international investors decide, overnight, that sovereign debt isn’t a safe bet after all. We recently won the chance to host the Olympics. But there the similarity ends…

That may change. We may, after all, have some serious political uncertainty coming down the track. But market movements today are a good reflection of the distance between London and Athens.

Investors may worry a lot more about Britain’s public finances than they did a few years ago. But they worry half as much about it as they worry about Greece.”

Its worth a read you can find it here.

Why does this matter? Well think back to the banking crisis two years ago and the knock on effect that one shake can have on a nation. Imagine rather than banks whole nations collapsing.  Economist Jonathan Loynes, of Capital Economics, said that Greece could be a “sovereign equivalent” of Lehman Brothers; the bank which started the collapse.

Will we have to bail out a whole country? Several countries? Time will tell.

We’re not out of the woods yet.

Econstories.tv is a place to learn about the economic way of thinking through the eyes of creative director John Papola and creative economist Russ Roberts.

In Fear the Boom and Bust, John Maynard Keynes and F. A. Hayek, two of the great economists of the 20th century, come back to life to attend an economics conference on the economic crisis.

Before the conference begins, and at the insistence of Lord Keynes, they go out for a night on the town and sing about why there’s a “boom and bust” cycle in modern economies (as you do) and good reason to fear it.

Get the full lyrics, story and free download of the song in high quality MP3 and AAC files at www.econstories.tv

Discuss and enjoy guys!

In English, Incentives make you want to do something you otherwise wouldn’t want to do. Today let’s talk about an incentive which is in the media at the moment, the oft criticised, proposed marriage tax break.

The plan is essentially an easy one. Cut the costs for people who want to get married via a tax rebate, and it makes sense. There is a lot of evidence to support the claim that marriage is good for society.

As the Telegraph reports

The statistical evidence is overwhelming: children brought up by two parents do much better, on average, than children brought up by just one. They are less likely to drop out of school or end up in prison, and more likely to pay taxes and remain in employment. This is not to deny that single parents do an excellent job and raise children who grow up to contribute much to society. It is simply to point out that across the population as a whole, two-parent families are more likely to achieve that result – and couples who marry are five times more likely to stay together, and provide that positive environment, than those who cohabit without any public commitment.

We all benefit from well-adjusted children, who are ‘polite, well educated and contribute to society’ this is what economics calls an ‘externality’ a benefit by a party that is not directly involved in the transaction. Parents are paying an extra  cost which we all benefit from.

Well the first is the claim by Ed Balls that the tax is “trying to socially engineer family life through a tax policy… [it] is hugely expensive and unfair.”. An economist would claim however that “Ahhhh! All taxes change peoples behaviour”  and The Working Families Tax Credit increased the benefits available to single mothers who sought employment thus penalising women who stayed home to look after their children or who remained with their husbands.(the latter claim being VERY  VERY contentious)

The second claim is that the credits “could stigmatise children” whose parents are not married. Again many feel that this is false by providing tax incentives for marriage it is difficult to see how it would  “stigmatise” the children of the unmarried, any more than providing incentives for single parenthood would “stigmatise” those whose parents live together.

There is of course one issue with the above arguments, they all involve children,  supporting and subsidising ALL married couples regardless of their parental status, in effect , penalises everyone else. So should the ‘tax break’ be administered to just  married couples with children? I don’t know?  Of course, nothing will replace a loving, stable, family; interested in their child’s upbringing and this is something that no taxbreak can fix.

There has been a lot of talk in the media about debt. Whether it’s Greece’s spiraling debt, Iceland’s refusal to pay its debt, Dubai having its debt bailed out, Football clubs fighting to stay afloat in sea of debt, student loans and student debt, or the spiraling levels of consumer debt, debt is in the news a lot at the moment. The UK is currently at a record level of national debt, and so is the United States.

But what is debt, and what does economics have to say about it? Debt is borrowing something; an asset, and then paying it back over time.  This immediately leads to some issues; how do you know the person you’re lending to can pay you back? Why would you lend your money to someone? And how do you make money out of lending your money to other people?

One way this is dealt with is via the interest rate. This is a percentage that is paid on top of the amount borrowed, for example a 10% rate on a 100-pound loan results in £110 to be paid back (10/100*100=10). This economic revelation results in all 3 criteria being fulfilled, money being made, money being lent to those who can pay it back (via a method known as self-selection) and therefore an incentive to lend.

Economics teaches us a wide variety of ways to calculate the interest rate. This seemingly asinine thing is fascinating the more you study it. You see the interest rate affects all sorts of things. If the rate of interest falls, then the charges on a loan to buy larger items like cars, furniture, electrical equipment and so on is also likely to fall. Therefore total sales of these goods are likely to increase. Holidays are likely to become more likely and more houses will be sold. You will likely see more tourists as the exchange rate falls (and pounds become cheaper) One of the key things you will learn from economics is that changes to things like the interest rate have knock-on effects (also called externalities). This principle applies to a whole variety of things from signage to coffee prices. Your question this week is what implications could there be to Iceland not paying off their debt?

Answers on a postcard please.

The journey involves Seddiqui experiencing jobs ranging from working as an archaeologist in Arkansas to being a model in North Carolina. Seddiqui is exploring all of the different cultures, environments and careers available in the USA.

Seddiqui is keeping us updated on his whereabouts and experiences on his website – Living in the Map. So far Seddiqui has been offered several permanent jobs and a Hollywood production company are developing a movie about his journey. It seems that unsuccessful interviews are a thing of the past for Saddiqui.

Source:  Sky News.

For some reason maths isn’t often seen as the fascinating subject it is. It allows us to build bridges, measure stars, play hopscotch, make cars, cook; the list seems endless. Economics uses maths to frame and test its theories.

The Radio 4 show More or Less which “is devoted to the powerful, sometimes beautiful, often abused but ever ubiquitous world of numbers” asked well-known guests and contributors to say why they love numbers. The short films include Konnie Huq, Vince Cable and Rick Edwards.