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's Scroogenomics: Why You Shouldn't Buy Presents for the Holidays as a Christmas present this year. As this will be my last post of 2013, let me wish all my readers a prosperous 2014!
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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. W
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 !
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 lega
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.
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.
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.
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.
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.
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.
Queen’s University Management School is pleased to launch a new series of half day courses designed specifically for professionals with an interest in investment analysis and risk analytics. Given the structure and content of these courses, they can count towards Continual Professional Development (CPD) activity, as required under FCA guidelines. Each course can contribute towards four hours CPD, and upon completion of each course attendees receive a CPD certificate for their own records. The purpose of these courses is to develop a deeper understanding of financial markets, asset classes, and the inherent risk within financial markets. Emphasis throughout is placed on what this means in practice for the investor. These courses will be based in the First Derivatives Trading Room and make use of live market feeds via Bloomberg. Further information and online registration is available here .
The blueprint for Scottish independence was released a few days ago - you can read a summary here . For most people, whether or not independence is a good thing largely revolves around the economic costs and benefits of dissolving the union. What currency should an independent Scotland use? In the blueprint, Alex Salmond states that "the pound is Scotland's currency just as much as it is the rest of the UK's". See the super video below produced by the National Institute of Economic and Social Research which explains what money is, the alternatives facing an independent Scotland, and why Salmond's proposal may not be workable (hat tip: Chris Colvin).
Prof. Sheila Dow was the external examiner of my PhD thesis. She is an extremely thoughtful and insightful economist. Well before the financial crisis, she was talking about the need for economists to think more about uncertainty - there are many things in life we cannot measure or quantify. In the video below, she talks about uncertainty, the financial crisis and regulation among other things.
How mobile is our society? How easy is it to go from rags to riches? An integral part of the American Dream is that American society has high degrees of social mobility. Pew's Economic Mobility Project has been studying social mobility in the United States. In a recent report, they looked at the characteristics of those who are socially mobile (and note even these are the minority as most people are not socially mobile). In the United States, the upwardly mobile are more likely to be white, married and have a college degree. Wall Street Journal coverage of this research is here .
Does being an ethical investor pay? Does avoiding so-called sin stocks pay? See the FT video below which discusses the relative merits of an ethical investment strategy. Interestingly, a recent paper in the European Journal of Political Economy entitled Religion and Returns in Europe finds that the relative strength of Protestantism in a country depresses the share prices of alcohol and tobacco companies.
In a recent NEP-HIS Blog post , Chris Colvin reviews a paper by Mohamed Saleh (Toulouse) which looks at the relationship between socioeconomic status and religion. One of the big debates in this literature is whether religion results in better socioeconomic status or whether socioeconomic status determines religiosity. Saleh's paper looks at the effect of a tax on non-Muslims in Egypt which was imposed from 640 until 1856. He finds that poor Copts converted to Islam to avoid the tax whereas wealthier Copts didn't. This may explain why non-Muslims are traditionally better off than the Muslim majority in Muslim countries today. Saleh's paper is available here .
Economics has never been more popular. More students are taking it at A-level than ever before and the appetite of the general public for economics has probably never been greater. Why? The financial crisis and rising inequality have all played a role in making economics more popular. In the midst of this resurgence, the undergraduate economics syllabus has come in for a lot of criticism. Why? Economics as taught at many universities is too abstract and totally divorced from reality. Students spend too much time doing mathematics rather than learning about the actual economy. Economics is an empirical discipline, but economics students don't get immersed in economic data. Too little time is devoted to trying to understand how the banking and financial systems work. Too few students understand why the 2008 crisis happened. Too few students know about economic history and the history of economics. Thankfully, there is the beginnings of a change in direction. Diane Coyle, a p
Shadow banking played a major role in the 2008 financial crisis. In the video below, the FT looks at the growth of non-bank lenders such as REITs since 2008. This growth is a byproduct of cheap funding flowing from Quantitative Eeasing. The issue, of course, is that we could be simply storing up problems for the future.
What books should students of economics and finance read? FIVE has an interview with John Kay , where he recommends five books that every student of economics and finance should buy and read. I can endorse two of his recommendations - Germs, Guns, and Steel by Jared Diamond and The Wealth and Poverty of Nations by David Landes. Indeed, these two books should be read by anyone with an interest in economic development and economics.