This House is for CAP

CAP is a very controversial policy and has undeniably resulted in  some form of government failure. The CAP began in 1962 as a way to increase food production. It costs around Euro 55 bn per year in subsidies to farmers, funded by taxpayers. The Commission wants farmers to earn some of their subsidies, for example by protecting the environment, but farm ministers are fighting back. The subsidies available to some of the largest farm businesses can top Euro 1 million each year.  Below are some interesting links to help you develop your understanding of the scheme and therefore aid you in your preparation for next week’s debate.
cap in detail           
for and against        
food security     
needs to be skimmed                                                                 
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Who exports what to who?

http://atlas.media.mit.edu/explore/tree_map/export/usa/all/show/2010/

Click on the above link and complete the task below:

  1. Wine is what fraction of Chilean exports?
  2. And Chile represents what fraction of world trade in wine?
  3. And how has that share been growing over time
  4. Are there any new entrant countries  into this market who could be described as more dynamic?
  5. Who imports wine?
  6. How much is each of these top 3 players buying from Chile?
  7. Has the share of Chilean wine been growing in German market?
  8. Is the wine import market changing?
  9. So how is Chile doing in the Chinese and Hong Kong markets?
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Market failure is the misallocation of resources resulting in either no equilibrium or an undesirable equilibrium from the perspective of society.  Is there one panacea governments can introduce to increase economic and social welfare or is it a combination of policies?  Is it a given that once government wield their magic wand all is remedied or can they actually worsen the situation? How many different types of government intervention can you spot?  Remember that examiners will credit candidates that use  their own examples.

For your presentation task, you are to introduce an article in the below format:

1) What is the externality you’ve researched e.g. positive/negative, consumption/production?

2) Illustrate and explain the situation fully using a welfare diagram

3) If there is any government intervention, what is it? Has it led to any unintended consequences?

4) Choose an alternative method of correcting this particular market failure and explain it it fully.

making things worse            plastic bags at the supermarket       congestion charge and ped        fracking and some unit 2minimum price of labour     one more coke please    kuwait #1 for water consumption     subsidies in the gulf                   lift the ban       speed kills                                     KD 500 for not going to school         get advice early and reduce the opp cost

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The Chinese Economy by D Malik

Huge thank you to Daniyal Malik for this blog entry:

If there is one thing that can be learned from not-so-recent economic history, it is that the economic cycle is usually that: a cycle. A bust follows a boom; a peak follows a trough, and so on. Countless past examples highlight the single, growing thought in the back of every prospering country’s mind; the good times don’t last forever. However, in China, with a population of 1.3 trillion, this theory has been reversed year after year, with statistics and evidence to back up what many would call the most important continuation of industrial growth in economic history.

 

  Since the early 90’s, China’s annual GDP has increased by more than 10% per year. While the American and European economies have faltered (most notably within the last decade), China’s consistent increase in productivity, manufacturing and output of goods has seen them become the world’s second-largest economy, with a current GDP of $8.4 trillion. With the world’s highest foreign exchange reserves of $2.9 trillion, and an international trade value of $3.84 trillion, China is by far the world’s largest trade power. The USA, supposedly managing the world’s ‘wealthiest and ‘most efficient’ economy, owes more than $1.2 trillion to their economically-inferior counterparts from the Far East; as the US governments scramble for money, China continues on it’s steady rise to the top of the financial world.

 

  Much of China’s seemingly unstoppable growth is due to a huge manufacturing output; raw materials are shipped to the country, where they are converted into finished goods in the hundreds of thousands of inner-city factories. A significant exporter of electronic equipment to many foreign countries, China receives billions of dollars worth of revenue from its US exports alone; and trillions in revenue from other countries worldwide. Medical equipment, textiles, fabric, software and so much more is produced in China and exported worldwide, leading to an increasing reliance on Chinese goods to fill up European and American stores.

 

  Equipped with a workforce of almost 1 billion people subject to a 40-50 hour working week, China’s productivity is by no means taken lightly. Despite an employment rate of 94%, many workers are competing for single job opportunities, and employers work these employees to their maximum potential in order to produce the quality of goods being exported. The Chinese economy is almost a machine; although the one-child policy has slowed population growth, the existing workers are far from complacent in their jobs and continue to help the economy flourish to it’s full capacity.

 

  To conclude, the Chinese economy is one of immense strength when compared to its peers in the financial world. Ranked at (or near) the top of every economic statistic table imaginable (within the last 30 years), it is difficult to envisage this economy ever halting or being severely affected by an economic obstacle. The labour force, the quality/number of exports, the productivity and the government structure simply would not allow such an event to occur; for China, it seems the good times are set to roll on…

 

Daniyal Malik

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Remembering Nelson Mandela’s Unsung Economic Legacy

Nelson Mandela, who died Thursday at age 95, was the most important leader in South Africa’s history and one of the global giants of his time. What people often overlook, however, is the role Mandela played in building up Africa’s largest economy. Nearly as consequential as Mandela’s moral example was his skill in managing the transition from apartheid without widespread violence, repression, or economic collapse.  Soon after his release from prison, Mandela argued that there must be “a fundamental restructuring of our political and economic systems to ensure that the inequalities of apartheid are addressed.”

South Africa’s gross domestic product growth rate picked up considerably under Mandela. Economic growth rose from less than 1.5 percent from 1980 to 1994 to slightly under 3 percent from 1995 to 2003.

What Mandela has done in achieving equality within South Africa will never be forgotten. We must see what he has done for the Republic’s economy, and how it helped the apartheid struggle..

http://finance.yahoo.com/news/remembering-nelson-mandelas-unsung-economic-215427325.html

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China’s Environment: How Economic Growth Is Strangling Sustainability

For anyone who didn’t attend the society meeting today, here’s the presentation that Ashna and I gave and the notes that we used to deliver it. It’s got a wealth of information on the fascinating and extremely relevant topic of the darker side of economic growth, so feel free to trawl through it whether you want to use it as a resource for your own work or are merely interested in an issue that will define the global politics of our generation.

china environment – notes china environment

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Expo 2020

 

Even though we see signs all around Dubai advertising the emirates’ bid for the World Expo 2020, very few of us actually know what it is. This post will hopefully expand your knowledge not only of the event, but also of the implications that it has on the local economy if the bid is successful

The World Expo is basically a large trade exhibition, or ‘World Fair’, in which a large number of countries come together to showcase and demonstrate their latest products. The first noted World Expo was held in London in 1851. Famous landmarks and inventions such as the Eiffel Tower, the Telephone, and even Heinz Tomato Ketchup can all be linked to the World Expo.

Dubai is bidding to be the host city for the World Expo in 2020, with the next one scheduled to be held in Milan, Italy in 2015. Shanghai was the last city to host the Expo in 2010, and it was a resounding success, with 1.03 million visitors visiting the event. It generated profits for the Chinese economy in excess of $157 million! This gives you an idea of the fervent advertising around Dubai, as the rewards could potentially be enormous.

Firstly, experts estimate that should Dubai win the Expo 2020 bid, 25 million visitors could be entering the region. This will inevitably lead to a giant increase in consumer spending in the region, which will stimulate economic growth. A knock on effect of this will be a an estimated 277,000 jobs created, which will not only generate even more growth, but it will also be a huge boost for the job market.

Dubai is also planning to greatly improve the cities infrastructure, with ambitious plans such as the Dubai World Central Airport (DWC), which plans to overtake Heathrow in the coming years, which is a huge probability given the cities central location. The event will advertise what the emirate has to offer, which will undoubtedly attract a large number of tourists in the future, which will be good news for the many top hotel chains across the region.

To sum up, the Expo 2020 will be great for the economy, should Dubai’s bid be successful. However, the negative externalities produced can not be overlooked, as the huge surge of people in the region will undoubtedly result in a massive spike in pollution.

For More Information:

http://gulfbusiness.com/2013/11/expo-2020-what-is-it-and-does-it-affect-me/#.Unu9PfnI1qV

http://expo2020dubai.ae/en/

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Should we be imposing higher taxes on sugar?

There is clear evidence of the ruinous harm excessive sugar consumption can cause to the body and that most people in the developed world do consume too much sugar. Higher rates of obesity, heart disease and type 2 diabetes can all be attributed to the substance, and the effect this has on the global healthcare system is enormous. The Credit Suisse video (link below) estimates that the cost to global healthcare systems of diseases related to sugar consumption is $470 billion, or in other words, 10% of all healthcare costs. Just think of the opportunity cost of this amount of money: education, infrastructure, medical research… we can think of countless ways the money might be better spent.

The problem is a very real one and excise duties on sugar might be a viable solution. If it works for tobacco and alcohol, then why not sugar? The impact of this should be straightforward; less consumption of sugar overall, leading to fewer health risks relating to it. Government expenditure in the area reduces and the money is allocated in a better way. Sugar can be seen as too much of a necessity to be taxed, but what if there were only taxes on substances with the highest sugar content, such as fizzy drinks, rather than all kinds of sugar? Fizzy drinks are not necessary at all, and a tax on fizzy drinks is likely to go a long way in mitigating the sugar problem.

Having said this, higher taxes on sugar will almost certainly come with protests from the public, as the majority of people, would be affected as a result of the tax. This may make it difficult for any government to implement it. A tax on sugar would have an impact on a much larger group of people than a tax on alcohol or tobacco, which is the main difference between the natures of these taxes. Nevertheless, there is a strong case for introducing the measure because of the huge socioeconomic benefits it would bring.

http://www.youtube.com/watch?v=HMKbhbW-Y3c&feature=youtu.be

 

 

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The Iranian Dilemma.

Hassan Rouhani’s election to the post of president of Iran in August of this year saw the world, particularly the West, brim with optimism for future talks on Iran’s controversial nuclear programme. Rouhani, unlike his hardliner predecessor, Mahmoud Ahmedinejad, was sure to make clear that his intentions were pure and ‘goodwill and mutual respect’ for the US were on his agenda. This hopeful view of talks with the US to lift sanctions on Iran whilst simultaneously resolving the nuclear issue is infectious, yet Rouhani’s attempt to rescue the crippled Iranian economy by means of talks with the US are indeed proving unsuccessful.

Since 1979, the US has imposed successive rounds of sanctions, causing the Iranian economy to crumble. As a result of the EU embargo and the US sanctions targeting other major importers, Iran’s oil exports had fallen to 700,000 barrels per day (BPD) by May 2013, compared with an average 2.2 million BPD in 2011. With exports at a low, losses up to $26bn from oil alone in a single year have been endured. This state of the Iranian economy must be improved, and soon. Rouhani made great promises of alleviating the state of the economy, while standing his ground on the nuclear situation, yet this vow may be difficult to carry through.

If Rouhani does decide to deliver on his promise of rebooting the economy which has stagnated for thirty odd years with the blessings of the US, his nuclear plans may not fall into place. With Israel driving US foreign policy (from the back-seat one hastens to add), Washington is unlikely to relent with its demands for concessions on the nuclear programme if sanctions were to be lifted.

If, however, Rouhani prioritises a firm stance on the nuclear deal over the lifting of sanctions, he has the entire starving and strife-ridden Iranian population to answer to. Tehran will eventually be faced with this simple choice, and will unfortunately have to endure the lasting consequences; either facing no improvements on the sanctions front, or suffering the humiliation of a failed nuclear initiative. Rouhani’s lofty promises in his election campaign set him up for economic and diplomatic disaster. Damned if you do, damned if you don’t.

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A rich man is nothing but a poor man with money. W.C. Fields

Why Are the Rich Becoming Richer?

It’s always been a shock to me how much money some people make. Take footballers, (again the victims of this accusation….sorry) Weekly they make more than most people make in a year. Arsenals forward Lukas Podolski has played 81 minutes in this seasons Barclays Premier League yet is paid over 100,000 pounds per week. “Last year Forbes pegged Tiger Woods’ income at $78 million. Elton John made $80 million, and Oracle CEO Larry Ellison pocketed a cool $98 million.” Disgusting amounts of money when you compare to the average US salary of $39,963. That means that Elton John made over 2000 times as much money as the average American in 2012. So why has the average income for the bottom 90% of American families fallen 1.2% since 1983 according to numbers from University of California, Berkeley, Economist Emmanuel Saez. (That’s after adjusting for inflation). Incomes for the top 1% have surged 145%.

I think that fundamentally its down to 3 main reasons:

1) Globalisation and the power of the media
Ever since the emergence of a substantial middle class, advertising has sky rocketed. This means that firms and individuals can really assert themselves over the people, who effectively fund these high salaries. For example footballer Neymar has signed many sponsorships as his reputation rapidly grew from the age of 17. In March 2011, he signed an 11-year contract with American sportswear company Nike.[120] In the same month, Panasonic paid US$2.4 million to secure Neymar’s services for two years. He has also signed other sponsorships from Volkswagen, Tenys Pé Baruel, Lupo, Ambev, Claro, Unilever and Santander. All of his sponsorships have earned him a total of an estimated €20 million per year. In addition FC Barcelona covered the players transfer cost of 50m within weeks purely on official shirt sales. The effects of globalisation here are unprecedented and really show how an ever larger market and spending by passionate fans all over the world have contributed  to the richest people in the world becoming even richer.

2) The Winner Takes all Theory

This theory contends that there are some people that are just really good at their jobs. As technology improves and markets get larger, the best workers know how to leverage those advances to take an ever larger share of the economic pie.

This extends not just to celebrities and CEOs, but also to top performers in many professions, said Robert Frank, an economist at Cornell University who wrote a book on the subject in the 1990s.

Thanks to email, cell phones and other technology, the best sales person, doctor, lawyer, etc. “can handle a much larger share of the load than before,” said Frank. “It’s a real bad time for mediocre people.

3) Taxation

In politics around the world, governments are winning voted by promising to shift left on the political spectrum. They promise to put on their Robin Hood masks and tax the rich in order to redistribute income more fairly, and so lower the gini coefficient and change the image of the Lorenz curve. Really theyre lying. Since 1980s the tax burden upon firms has been heavily reduced and so they are more likely to dish out fatter cheques to their CEOs etc. Prior to the 1980s, taxes were much higher for the rich. The top income tax rate in 1980 was 70%. In 1945 it was 94%. Now, the top tax rate is 39.5%. With higher tax rates firms are less likely to pay higher salaries as most of it would end up with the government.

In essence I think this is the reason why the rich are becoming richer. Unfortunately that bottom 90% are just seen as more expendable than the elites, and so firms are battling rising costs by cutting salaries elsewhere. An inconvenient truth. I leave you with a quote:

If it weren’t for baseball, many kids wouldn’t know what a millionaire looked like.

(1917 – 2012) comedian & actress

 

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