Economics in Action

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…)

These radio programmes give a brief history of economics from three different periods. They also discuss some of the most fundamental concepts in economics using simple examples. Well worth a listen!

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?
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Is economics useless?

So given all the recent ‘mess’ in world economy what value does ‘modern’ economics have to offer us?  Well it depends on who you ask. Here Stephanie Flanders offers some news and views on whether economics is a ‘busted flush’.

For those of you who don’t/cant be bothered to read the whole thing her argument in a paragraph

‘So, all in all, not an edifying list of complaints. But does that mean economics is a busted flush? I’m afraid not, because even if you think economics got a lot of this stuff wrong, you’d be hard-pressed to understand – or to fix – what’s happening in the global economy today without it. ‘

Maybe it’s not such a good time to be an economist. But it’s one helluva time to study economics.

http://www.bbc.co.uk/blogs/thereporters/stephanieflanders/2009/07/is_economics_a_busted_flush.html

Money seems to be disappearing. The value of homes has gone down and the banks are in huge amounts of debt and have to be bailed out by the government. But where has all of the money gone?

Money consists of two main elements.

The first is cash (notes and coins). The total amount of cash in the UK is just over £50bn, with about £43bn circulating outside the banks and £7bn in banks’ safes, tills and cash machines.

But cash is a relatively small proportion of the total amount of money. So what is the rest?

Read More: Where has all the money gone? John Sloman

In the last of our podcasts supporting the Royal Economic Society Conference 2008, Romesh Vaitilingam talks to Jacques Melitz about how increased spending on Social Security benefits may help to keep us out of recession.

Increased public spending on incapacity benefits, health and pensions can all help the economy recover in a slowdown or recession. That is one of the findings of new research by Professors Julia Darby and Jacques Melitz presented at the Royal Economic Society’s 2008 annual conference.

In a slowdown some policies help the economy recover automatically. A recession increases the total amount spent on unemployment benefit (as more people are claiming it) and reduces the total tax take (as people’s tax bills drop). This helps to stimulate the economy without any active government intervention.

The report finds that these automatic stabilisers play an even greater role smoothing the business cycle than previously thought. This is because programmes such as incapacity benefit, pensions and health spending all act as such stabilisers as well.

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