Economics in Action

Economic history is a bit of an unloved child within economics. Once at the centre of the subject it has fallen by the wayside in the rush to be scientific of recent years. Indeed most undergraduate courses no longer teach any economic history as a core subject and many don’t offer any option whatsoever. So why am I going on about economic history? Well, it turns out it’s very interesting indeed…

A Scientist for Every Issue

What sparked my interest in economic history was actually a book which had very little to do with the past. (more…)

A house of cards

Unless you have been living in a hole for the last year then you have probably heard that the European financial system is in a bit of a mess. Put simply, the countries of the Euro-zone have borrowed quite a lot of money. Some of the people that governments have borrowed this money off of have become less than convinced that the euro-zone countries pay it back. As a result debt holders have been selling a lot more than buying, which has forced the price/value of these loans down and interest rates up. All-in-all, not too pretty.

The question most people are asking, is how likely is it that the cost of debt gets so high for a country (say Italy), that it will have no choice but to default on its debt. This is a very hard question to answer.

So turning to the other side of the story, what happens if a country defaults? I thought it would be interesting to take a look back at one of the more colourful periods in financial history, the Spanish Bankruptcies. (more…)

I was originally going to write a bit on the crisis in Europe. However, when I started looking for the chart that sparked off the idea, I stumbled upon The Economist’s Daily Chart section (you can see it here).

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 calender!

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 what’s going on in just a small area. Not only that but they can be great tools 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 their money back. Fundamentally this graph shows just how little liquidity and how much paranoia is driving the behaviour 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 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.

Here is a personal take on the situation in Iceland and the rest of Europe by our new contributor Harry Simmons:

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?
(more…)

Recently, the Centre for Economic Performance (CEP) celebrated its 21^st Birthday by holding a series of lectures at the London School of Economics and Political Science (LSE). The chief economist at the International Monetary Fund, Olivier Blanchard, gave the first lecture on the state of the world economy. Last Tuesday, the second lecture of the series was given by Professor John Van Reenen on the topic of restoring economic growth.

The Economics Network received an invitation to attend both lectures, and as a new guy on the job, I was appointed to go. However, being a second year student with a very busy schedule means I could only attend one of the lectures. Since I was doing economic growth as part of my macro course, I decided to go to the latter lecture.

I arrived in London quite late, but managed to quickly find my way to the lecture theatre in the LSE’s Old Building where the talk was held. The CEP has reserved a front row seat for me, so not only did I have the best view; I also managed to take many photos. There was a brief introduction of John Van Reenen by Stuart Corbridge before the lecture started.

John divided the lecture into three sections: (more…)

Here is the first article we received from Josh Taylor – our new contributor.

As a student of Economics and a political neutral, the recession has been particularly interesting, with the revelations of how much debt we as a country are in. This is not just governmental overspending revenue incomes, but the public and the culture of buying now paying later on credit. For proof you only have to watch TV for an hour or so and you’ll be amazed at how many advertisements (ok not BBC) there are for quick-money, consolidating your debt etc. The conservatives and now the newly-informed liberal-democrats are for reducing the debt of the nation, by limiting the size of governmental spending i.e. “The Cuts”, I don’t intend to get into any sort of political debate as to whether we need to cut or not, but the nation’s majority have decided democratically that this is the way that we are going to get out of this “crisis”.

But, I can’t but help see the contradiction in raising university fees at this moment in time. (more…)