Economic Interests

If you owe the bank £100, that's your problem. If you owe the bank £100 million, that's the banks problem.

Archive for the month “March, 2012”

The Student Loan Debt Time Bomb | Economy Watch


The Student Loan Debt Time Bomb | Economy Watch.

Good article about the Student debt problem in America

Daily chart: Location, location, location | The Economist


Daily chart: Location, location, location | The Economist.

Very useful tool on the economist website, where you can see the change in house prices over the last few decades.

Obama’s Economy: A Graphical Look – Businessweek


Obama’s Economy: A Graphical Look – Businessweek.

Good look at Obama’s term in office

Brazil – A Tough Nut to Crack


Brazil recently overtook the UK to become the 6th largest economy in the world; growing by 2.7% last year while the UK economy contracted by 0.8%. Brazil is part of the well known group of countries known as the BRIC countries (Brazil, Russia, India and China) which are expected to become the future super powers of the world (it is predicted they will overtake the G7 countries by 2027). Brazil is also currently the largest economy in the South American region which is finally starting to sort their economies out. It also surprisingly had the 8th largest number of billionaires in the world last year, far more than any of its neighbours could boast.

brazil uk

Brazil overtaking the UK in GDP. 

Brazil weathered the financial storms of the world recession and was one of the first emerging economies to spark a recovery in 2010. In fact, when investors were unsure of where to place their money after the crisis, Brazil’s economy became the in vogue choice, with millions of capital poured into the country.  An economy supported by ever rising commodity prices and generating a new emerging middle class can also boast the hosting of two big international events in the near future – The World Cup in 2014 and The Olympics in 2016. Brazil is in fact starting to look like a present world power rather than the “could-be nation” tag that still hangs around its neck.

Brazil logo for the world cup they are hosting in 2014

This is a big step forward from Brazil’s recent past, where dictatorships ruled, inflation remained at a constant high and poverty was widespread. Now a period of political stability with democratically elected governments has seen the country realise its true potential and emerge as a true global power.  A decade ago, Brazil was wrapped up in Argentina’s default and the widespread debt of South America, leading to its credit status to be labelled at “junk” level. But ten years on and Brazils bonds have now been upgraded and are attracting investors. This has been boosted if anything by the Euro crisis, as investors scared of a Greek default are looking to find safer markets for their money. Where would be safer than a top rated emerging economy, as the average debt of an emerging country is now lower than that of a developed country.

But dangers lie ahead for Brazil. Growth last year of 2.7% when compared to previous rates of around 4-8% showed an economy slowing down, with projections for 2012 at a disappointing 3.5%. There have many excuses put forward; the euro crisis has slowed down demand for Brazilian exports, falling commodity prices (which fuel Brazil’s economy) and a strong currency that doesn’t help an export lead country. But despite these factors damaging their economy, Brazil has still got to share the blame for slow growth.


Economic Growth for Brazil between 2000 and 2015

Brazil remains an uncompetitive country, ranking 53rd in the World Economic Forum index (behind Malta) and heavily losing out in its own back yard to China (despite themselves experiencing increased labour costs).  A current account deficit at 3% of GDP means Brazil might also have to rely on foreign finance to pay for future projects (like the World Cup and Olympics) and with a euro default still possible and the USA looking to tighten its budget, these funds may become harder to attain. Real interest rates also remain the highest of all emerging nations at around 4%, which deters investors and makes loans for smaller firms near impossible. An article on the economist http://www.economist.com/blogs/freeexchange/2012/01/emerging-economies found that by looking at the monetary and fiscal policies of emerging countries, Brazil had little room to improve growth through stimulus.  One main factor for this is a debt to GDP ratio of 65% and budget deficits of 3% of GDP, meaning Brazil has a lot of debt for a developing nation and are currently just adding to it when growth should be helping to cut the debt

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Shows how Brazil doesn’t have much room in its fiscal or monetary policy to induce growth

Brazil’s biggest problem however is their benefits system. Brazil has a younger population than any of the G7 member countries, yet spends an incredible 13% of GDP on pensions, more than any of those countries barring Italy (whose share of old people is three times that of Brazil). It has an unenviable ratio of 35 pensioners to every 100 workers (a worse ratio than that of the USA). Looking into the pension schemes, Brazil is incredibly generous as well, replacing 75% of average income. There are even options of early retirement with lower yet still bountiful pensions, leading to Brazils retirement age to be on average 54 for men and 52 for women and a tenth of 45 year olds already on their pension. This compares very unfavourably with child benefit schemes, where every family with a child receives 115 reais, whereas a family with a member over 65 would receive almost five times as much. This leads to almost a third of children living under the poverty line in Brazil but rarely any over-65 year olds. The Brazilian government is already trying to push through a bill to cap benefits at private sector levels, but this is only the start and Brazil will need radical changes if it doesn’t want to bankrupt the future of the nation.

Shows Brazil’s spending on GDP compared to amount of old people in the country

If Brazil could free up this money, then maybe it could increase investment in the infrastructure and education from its poultry 20% of GDP. New airports and roads are needed as well as more high paying jobs, not a nation of pensioners collecting unaffordable benefits. The inequality rife in Brazil will also needed to be fixed, as even though progress has been made, Brazil still had a Gini rating of 0.6  in 2009 (where 0= Total equality and 1=total inequality). New progressive taxes and better methods at stopping tax evasion (predicted to cost the government 2.5% of GDP) could help improve equality and lead to a nation that can truly call itself a developed country. A free-trade agreement with the rest of South America would also benefit Brazil massively, as their biggest customers remain in this region and could create the sort of benefits that German exports achieved when joining the EU. But that would require tearing down the barriers of trade that have been a part of the Brazilian economy for years and keep inefficient companies afloat through subsidies.

The map shows Brazil to have a Gini rating of between 0.55 and 0.59

Brazil have achieved much in the last decade, where a stable government and strong growth have lead its economy up the rankings to 6th in the world (with aspirations for 5th place) but without strong reforms we could see the country’s economy slow down, with growth last year already well behind the rest of the BRIC countries. The problem is Brazil tends to only make the big reforms when times are tight and the need for change is urgent. Brazil will need to buck the trend and push through reforms now while they can still take effect, otherwise the economy could slow down when growth is urgently needed to become a true world power.

Looking at constant growth for 2012 and 2012, Brazil has lagged behind its fellow BRIC members – Russia, India and China

Brazilian reforms like Brazilian nuts are tough to crack, but they are a must if Brazil is to realise their potential.

New Poll on Obama Care – Is it constitutional?


The Hunger Games: Could a real country have an economy like Panem’s? – Slate Magazine


The Hunger Games: Could a real country have an economy like Panem’s? – Slate Magazine.

 

Some really good insight in this article. Good if you have read the books, but not a must.

The UK Budget


The main points from the UK budget were:

  • The UK economy will avoid technical recession this year, with growth in the first quarter of 2012.
  • GDP growth is expected to be 0.8% this year and 2% next year.
  • Inflation is expected to fall to 2.8% this year and again to 1.9% in 2013.
  • Government borrowing this year is predicted to be £126 billion.
  • The Debt to GDP ratio is expected to keep rising until 2015.
  • Unemployment is expected to peak at 8.7% this year before gradually falling over the next few years.
  • Child benefits are set to be phased out gradually for any family with a member earning over £50,000, with those earning over 60,000 losing the benefits entirely.
  • Personal tax allowance (the amount where employees have to start paying income tax) will rise to £9,205 in 2013 from its level this year of £8,105.
  • The 50p tax rate will be dropped to 45p next year.
  • A new 7% stamp duty tax on properties valued at more than £2 million (up from 5%).
  • Corporation tax will be cut to 24% in April, and is expected to be cut to 22% in 2014.
  • Plans to double UK exports to £1 trillion this decade.
  • Relaxation of Sunday trading laws during the Olympics
  • Duty on tobacco products will rise by 5% above inflation, roughly 37p increase on a packet of cigarettes.
  • Taxes on alcohol will increase by 2% plus inflation, roughly a 10p rise in the price of a pint.
  • Government spending in Afghanistan will be £2.4 billion lower than planned over the remainder of parliament.
  • An extra £100 million is to be spent on accommodation for armed forces and their families.
  • The family welfare grant (used to help out families with members deployed in the army) is to be doubled.
  • There will be tax relief for video game/animation/high-end television producers.

Some of the explanations behind these points:

  • The 50p tax rate is basically a tax on the rich, taxing 50% of consumers earning over £150,000. But this has encouraged tax avoidance and only raised a third of the predicted £3 billion. It is also the highest rate in the G20 countries and has widely been seen a failing policy.  A drop to a 45p tax rate could make tax collection easier, and a new 7% stamp duty is expected to a better method of taxing the rich.
This shows the differences between the 45p and 50p tax rates. 
  • The government wants to make Britain the technological centre of Europe, so is trying to attract big gaming and television companies to produce in the UK.
Wallace and Gromit
“It is the determination of this government that we keep Wallace and Gromit exactly where they are.” George Osborne
  • It is going to take until 2016/17 for the UK to eliminate its “structural” budget deficit by numbers given in this budget. That means public borrowing will have to drop from 8% of GDP right now to little over 1% in 5 years time, a tough objective at a time when recovery has been weak. This also means the UK will keep increasing its debt until that year and will only start actually cutting the debt after that point. Threats of a loss of their AAA credit status also restricts the UK from spending beyond their means.
Borrowing chart
The UK borrowing decreasing sharply over the next five years, but is it possible?
  • Investment in Britain is weak compared to countries like America, and the government is trying to persuade corporations to spend money. The cash held by companies reached more than £700 billion last year, and the UK is a more cost effective place to invest since the recession, but still investment is low. The government has therefore lowered corporate tax this year and is set to decrease it further, enticing firms to invest in Britain. With the government struggling with a big deficit and consumers saving, corporate investment could help build a sustained recovery.
The first graph shows the cash pile up at firms over the last decade, and the second graph shows Britain investment sink below the USA’s.
  • Plans to increase exports in the decade are vague, but are the right idea. Britain still imports more than it exports, and plans to reduce imports are not enough, their needs to be more ideas for increasing exports and production in the country. The corporate tax and technology tax reliefs should help bring new production into the country, but more needs to be done. New plans to help smaller businesses, a review by Michael Heseltine on the economy and exploring the idea of enterprising loans for young people starting businesses could help boost exports.  This should also help improve unemployment, which is set to be high this year, but gradually fall (maybe due to the policy’s already in place). If the country can get producing more products, then we could see unemployment fall faster.
Unemployment chart
UK unemployment gradually decreasing, could there be more ways of getting it down?
  • The relaxation of Sunday laws during the Olympics is to help deal with the mass tourism set to come into London and the surrounding areas, though employees might not be too happy with having to work longer hours.
London Olympics Focus Of £100m Tourism Push
Mass crowds for the Olympics
  • Finally, the decrease in expected spending in Afghanistan looks a good idea as the money is set to be invested in the soldier’s families. But I hope it doesn’t mean more lax management of the situation in Afghanistan, as recent events have drawn bad publicity of the operation  and the UK (and USA) need to complete the job of training the Afghanistan government to be able to work by itself.

http://www.bbc.co.uk/news/world-us-canada-17454316

Is this the Online Golden Age, or are we facing a Modern-Day Tragedy of the Commons?


The tragedy of the commons is a concept that believes individuals will act on their own self-interests and eventually exhaust shared resources. The individual without regulation will consume more than society deems efficient, even if it is not in their own long-term interests. A classic example would be a lake where anyone is allowed to fish; individuals would deplete the lake and gain all the benefits (lots of fish) and none of the costs (no more fish in the lake). Ways around this problem are to either assign ownership of the lake to the individuals (maybe as a club) so that they now have long term benefits from restraining their fishing or the government could place taxes or quotas on the fish, thereby increasing the costs of catching more fish or simply forcing the individuals to stop fishing at a certain amount.

But a modern-day version of this problem could be the internet.  Everyday billions of people are using the internet to learn vast amounts of knowledge that in any other walk of life would have a price, but with the internet is only a click of a button away. The saying “Knowledge is power” is not really applicable with the internet, as information is available to anyone, but does this reduce the value of the knowledge?

The internet (as a universal resource) is killing off many traditional suppliers of knowledge; Newspapers, Magazines, Books. They have either been forced out of business or into the online world itself, where fierce competition means trying to place a price is out of the question. It has been argued this has reduced the value of information, as there is no incentive to produce quality reports/articles/statistics when you can’t make any money from it. This is how it has come to be seen as a tragedy of commons; Users have no incentive to pay for knowledge and overuse free knowledge that can be found online, this has the effect of decreasing the standard of quality of information and users lose out in the long-term. This could easily be applicable to Music, as users download free music, artists make decreasing returns on their music and so fewer artists make music.

The methods to fixing a tragedy of the commons (as mentioned above) are much harder to apply to the internet. Giving ownership to users over knowledge on the internet is nigh on impossible, as they could just find the information somewhere else. The other method of government intervention is already being started, but mass protests from sites and users could de-rail this, as well as the fact that control over the internet has many logistic problems as information travels between countries and is incredibly hard to tract.

But does this paint the full picture? I think not. The internet has become such a revolutionary tool by being available to everyone.  It is in its very essence to be accessible by the billions and has improved innovation immeasurably. Sites like Wikipedia, YouTube, Google, Facebook and Twitter have all helped share information at faster speeds to more areas of the world than any other device. Products and businesses are now being started online to gain access to the world population, and have become some of the most successful of their kind in the world (Google, Facebook). The internet has even renewed everyday services with more efficient methods like for example online Banking and online shopping.

The idea of the internet being a tragedy of the commons also has some holes in it. Knowledge may not have a price anymore online, but that doesn’t mean companies can’t make money. Sites as mentioned above (excluding Wikipedia) make billions from advertising nowadays, as users are bombarded with new products they can buy or new service they could try out. It also dismisses the idea that knowledge doesn’t have to be about power or making money, some individuals may just want to teach the world something new. There is also dispute over the internet being a renewable resource, as that would count it out of the tragedy of the commons problem.

The internet may have some problems over knowledge, as the jungle of information can make finding relevant data difficult and it does decrease the value of information. But the idea of the internet being controlled seems both impossible and unwanted. It has connected society now and severing those bonds would be harder than people think.

Though I have to say, I miss the days when a friend could ask a dumb question and not have everyone get out their iphone.

Daily chart: The sun never sets | The Economist


Daily chart: The sun never sets | The Economist.

Interesting article about Facebook.

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