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Showing posts from December, 2013

The Economics of Christmas Shopping

Most of us have experienced the following: we get a gift at Christmas that is not going to be used - think Christmas pullovers, naff ties and useless (but momentarily-amusing) gadgets. What a waste! My own highlights of all the naff gifts which I've purchased was buying my sister a Mr Blobby video and my future wife a Peter Beardsley video (it is a wonder that she married me). Click here to read an op-ed by Cass Sunstein which applies insights from behavioural economics and our cognitive biases (such as the egocentric bias, focusing illusion, projection bias, spotlight effect, and cumulative-cost neglect) to Christmas shopping. Interested readers should give Joel Waldfogel'sScroogenomics: Why You Shouldn't Buy Presents for the Holidaysas a Christmas present this year.

As this will be my last post of 2013, let me wish all my readers a prosperous 2014!


Economic Circumstances for the Kids of the 60s and 70s

The Institute for Fiscal Studies has published a report today which looks at the economic circumstances of cohorts born between the 1940s and 1970s.  It makes for depressing reading for those, like me, born in the 1970s. Basically, we're going to be worse off as a cohort than previous generations. I dread to think of the prospects for those born in the 1980s! The bottom line seems to be that we need to save more. Here is a snippet from the report's executive summary: This report compares and contrasts the economic circumstances of individuals born between the 1940s and the 1970s, currently aged between their mid-30s and mid-70s. In doing so, it aims to provide a sense of the likely economic position of the younger cohorts in later life, in absolute terms and relative to their predecessors. The main conclusion is that individuals born in the 1960s and 1970s are likely to be reliant on inherited wealth if they are to be any better off in retirement than their predecessors. When…

Reforming ECO 101

I started my lecturing career in 1997 and the first course I taught was ECO 101 (introductory economics). My class had 200 students and it took two technicians 30 minutes to set up the huge data projector for my PowerPoint slides - this was the first time PowerPoint was used in the university to teach economics! It was a fun course to teach. This was the first time that most students had come across economics, and the power of economics to explain what happened in the real world really captivated them. My first assignment required students to write a paper explaining why house prices in Northern Ireland had increased 50% between 1992 and 1997!
ECO 101 is one of the most popular courses at universities today. Click here to read a piece on Bloomberg which makes a variety of suggestions as to how ECO 101 could be changed to make it more realistic and relevant (hat tip: Chris Colvin). One suggestion is that students play Deregulated Monopoly!

Nelson Mandela

The beatification of Nelson Mandela by the world's press and politicians sits uneasily with me as with some others (see the piece by Simon Jenkins at the Guardian). All statesmen and leaders have their weaknesses, and sometimes it takes the distance of time to truly assess the greatness of someone like Nelson Mandela. South Africa today is riven by inequality, unemployment, social deprivation, corruption and crime. Mandela's new South Africa has economic apartheid, with large chunks of the nation's wealth in the hands of a few (mainly white) elites. The new South Africa has all the trappings of democracy, but, in effect, it is a one-party state with all the problems that this brings. The big challenge for South Africa is how it becomes a competitive democracy which spreads wealth around without destroying the businesses and corporations which produce, and will continue to produce, that wealth. Click here to read an op-ed at the New Yorker on Mandela's economic legacy.

Housing Bubble 2.0

The housing market in the UK and US have been described as 'frothy' in recent months. The Bank of England has even gone as far as removing its Funding for Lending scheme from households with effect from 2014. The housing market in many economies has been indirectly supported by extensive nursing of banks by taxpayers. In addition, low nominal borrowing rates and near-zero (if not negative) real interest rates have provided the fuel for yet another housing boom and bust. None other than Nouriel Roubini is also concerned about overheating housing markets around the world - click here to read more.

Language, Saving, Spending and Risk-taking

Following on from yesterday's post, click here for a 5-minute YouTube video produced by Ebay which looks at how language affects our spending, saving and risk-taking.


Language and Economic Behaviour

M. Keith Chen has written a fascinating paper looking at the effect of language on economic behaviour (hat tip: Chris Colvin). A short video clip of Chen talking about his work is below and the paper's abstract is as follows:
Languages differ widely in the ways they encode time. I test the hypothesis that languages that grammatically associate the future and the present, foster future-oriented behavior. This prediction arises naturally when well-documented effects of language structure are merged with models of intertemporal choice. Empirically, I find that speakers of such languages: save more, retire with more wealth, smoke less, practice safer sex, and are less obese. This holds both across countries and within countries when comparing demographically similar native households. The evidence does not support the most obvious forms of common causation. I discuss implications for theories of intertemporal choice.

The Future for China's Economy

I've just come from a fascinating QUCEH seminar by Ting Xu on the role of useful knowledge in explaining the Great Divergence between China and Europe which emerged c.1600. China, of course, has come a long way in the past 30 years. However, a recent NBER working paper, which will be the first chapter in the Oxford Companion to the Economics of China, suggests that China faces at least three challenges if it is to maintain its current growth trajectory. First, it has an overstretched natural resource base - air pollution and water scarcity are major problems in China going forward. Second, inequality between regions and within regions is high. Such inequality could create political instability and stunt economic growth. Third, state-owned enterprises, because of weak governance structures and subsidised inputs, are distorting the economy and will hamper its growth moving forward.   

Financial Stability

Since 2011, the Bank of England has had a Financial Policy Committee. Just as the Bank's Monetary Policy Committee has responsibility for ensuring price stability, this new committee has responsibility for ensuring the financial stability of the UK. In the short video below, Don Kohn, one of the external members of the FPC explains the functions and workings of this committee.

The Rationale for Universities

Click here to read a fascinating piece by Derek Bok, former Harvard President, where he argues that politicians, economists, and students misconstrue the rationale of a university education. For the vast majority today, it is about young people getting good middle-class jobs and getting the tools needed for competing in the global economy. Bok argues that this focus could back-fire and result in less useful education, which could end up harming students and society. I've seen this at first hand - too many students just want a degree and don't want to learn and discover amazing things about the world around them.
Bok suggests that the rationale of a university education is to strengthen students' moral character and prepare them to be active, informed citizens. Maybe our governments and political elite don't want this, which is why they lay such great stress on the material rationale for universities.


Asian Financial Crisis

The Asian Crisis of 1997 occurred as I was finishing up my Ph.D. on banking stability. This crisis had a major effect on the so-called Asian tigers and it marked a major shift in economic power towards China. In the short video below, Jan Kregel explains why the Asian crisis happened and the role played by derivative instruments and U.S. investment banks in the crisis.