| Economics
News Articles: September 2002 |
| Welcome to the first set of news articles
for the academic year 2002/3. A new set will be appearing each month. They
should help to give you insights into the world of economics and show how
the subject can contribute to explaining a whole range of current events.
They should also help you see the use that politicians and other decision
takers can make of economic principles and ideas. I hope that you will
find the articles interesting and useful for your studies. |
|
John Sloman
|
1.
Lies, damned lies, statistics and surveys
2.
Cruel summer for the UK record industry
3.
Coffee prices and the plight of coffee growers
4.
House prices: a 'bubble' or a true reflection of long-term changes in demand
and supply?
5.
Oil prices and the threat of war with Iraq
6.
Will shares wilt if there's a war?
7.
The state of UK agriculture
8.
All that's left is reformism
9.
Is the minimum wage effective in reducing poverty?
10.
Call to pay students for gap-year jobs in NHS
11.
Number of cars keeps on rising but experts have few solutions
12.
The danger of deflation
13.
Is the world economy weakening?
14.
Is fiscal policy off-track in the EU?
15.
Stimulating the Japanese economy
16.
International trade and the WTO
17.
End of the high dollar
18.
Should the UK join the euro and, if so, when?
19.
The international Earth Summit
20.
A new development policy agenda
News
Item 1: Lies, damned lies, statistics and surveys
| Relevant to: |
| Economics (4th
edition), Chapter 1 |
| Essentials of Economics
(2nd edition), Chapter 1 |
| Economics for Business
(2nd edition), Chapter 2 |
| |
| Economists examine statistics about
the economy and make predictions based on this evidence. But how reliable
are the figures that they use? The following linked article, taken from
the personal site of David Smith, Economics editor of The Sunday Times,
looks at the use of surveys to gather data and suggests that the 'evidence'
that they supply is not always reliable. |
Lies,
damned lies, statistics and surveys
| Questions |
| 1. |
What are the advantages
of surveys over official statistics? |
| 2. |
Why may the results of
surveys conflict with (a) official statistics; (b) other surveys? |
| 3. |
Should the lack of reliability
of surveys make decision-making bodies, such as the Bank of England, cautious
about basing any decisions on them? What might be the dangers of such caution? |
Go back to contents
News
Item 2: Cruel summer for the UK record industry
| Relevant to: |
| Economics (4th
edition), Chapters 2, 7 |
| Essentials of Economics
(2nd edition), Chapters 1, 2, 4 |
| Economics for Business
(2nd edition), Chapters 4, 5, 12 |
| |
| The following article, taken from
the Guardian of 13 August 2002, reports that sales of CDs fell dramatically
over the summer. But why did this happen and what can the record companies
do? The article seeks to explain. |
Cruel
summer for the UK record industry
| Questions |
| 1. |
What are the determinants
of the demand for CDs? |
| 2. |
Why have CD sales fallen?
To what extent are the reasons (a) temporary; (b) permanent? |
| 3. |
What can record companies
do to prevent declining profits from CD sales? |
Go back to contents
News
Item 3: Coffee prices and the plight of coffee growers
| Relevant to: |
| Economics (4th
edition), Chapters 2, 7, 8, 9, 26 |
| Essentials of Economics
(2nd edition), Chapters 1, 2, 4, 5 |
| Economics for Business
(2nd edition), Chapters 4, 5, 23 |
| |
| The prices that coffee growers are receiving
have slumped to a 30-year low, falling by half over the past three years.
Yet the prices charged by coffee companies, such as Nestlé, have
remained virtually constant. What is the reason for this, and what can
be done to protect the livelihoods of millions of coffee growers in the
developing world facing economic ruin? The following linked articles, taken
from the Financial Times, the Independent and Oxfam's
press office, all of 18 September and from The Times of 16
September 2002, look at the causes and consequences of the current situation.
They also look at the attitudes of the coffee companies and of possible
things that can be done to help the coffee growers. |
Campaigners
target collapsing coffee price
High
coffee prices leave bitter taste in mouths of impoverished farmers
Coffee companies
under fire as millions face ruin
Nestle
acts to put a lid on coffee price fall
| Questions |
| 1. |
Why have coffee prices
slumped to a 30-year low? Use a demand and supply diagram to illustrate
your answer. |
| 2. |
What is the significance
of the following concepts price elasticity of demand, price elasticity
of supply and income elasticity of demand - in explaining the magnitude
of the price changes? |
| 3. |
What is Oxfam proposing
as a solution to the problem? Discuss its likelihood of success in achieving
its objectives. |
| 4. |
What actions are in the interests of the four
big coffee companies? |
Go back to contents
News
Item 4: House prices: a 'bubble' or a true reflection of long-term changes
in demand and supply?
| Relevant to: |
| Economics (4th
edition), Chapter 2 |
| Essentials of Economics
(2nd edition), Chapters 1, 2 |
| Economics for Business
(2nd edition), Chapters 4, 5 |
| |
| House prices are rarely out of the
news. With UK house prices rising at around 20 per cent in 2002, many people
are asking whether this is a bubble about to burst, with a house price
crash as the outcome, or whether prices will go on rising, albeit at a
somewhat slower rate. The following articles look at the evidence and the
arguments. |
The
house price bubble is an illusion The Times
13/8/02
Prescott's
housing blueprint under attack Guardian
12/8/02
House price
rises 'cooling' BBC News Online 3/9/02
As
safe as what? The Economist 29/8/02
| Questions |
| 1. |
Why have house prices
been rising so rapidly in recent months? |
| 2. |
What is the relationship
between stock market prices and the price of houses? How do price expectations
influence this relationship? |
| 3. |
What is likely to happen
to house prices over the next 12 months? |
Go back to contents
News
Item 5: Oil prices and the threat of war with Iraq
| Relevant to: |
| Economics (4th
edition), Chapter 2, 7 |
| Essentials of Economics
(2nd edition), Chapters 1, 2, 4 |
| Economics for Business
(2nd edition), Chapters 4, 5, 12 |
| |
| As US threats of war with Iraq have
grown, so fears of disruption of oil supplies have affected the price of
oil. The following articles look at the various influences on oil prices
at this time. |
Oil
price slumps as war fears recede BBC News Online
3/9/02
Oil price
plummets on Baghdad offer BBC News Online
17/9/02
Oil
prices rise as UN split over Iraq Financial Times 18/9/02
Opec keeps
oil output unchanged BBC News Online 19/9/02
Opec
defies western pressure Guardian 20/9/02
| Questions |
| 1. |
What have been the main
factors affecting the price of oil over the past few weeks? Have these
factors influenced demand or supply? |
| 2. |
What can OPEC do to stabilise
the price of oil? Is it in OPEC's interests to keep the price stable at
current levels? |
| 3. |
How is the volatility
of oil prices affected by the price elasticity of demand for and supply
of oil? |
Go back to contents
News
Item 6: Will shares wilt if there's a war?
| Relevant to: |
| Economics (4th
edition), Chapter 2 |
| Essentials of Economics
(2nd edition), Chapters 1, 2 |
| Economics for Business
(2nd edition), Chapters 4, 5, 18 |
| |
| Why have stock markets continued to
fall, and what role has the threat of war against Iraq played in the process?
The answer lies in the forces of supply and demand. How have worries by
investors affected demand and supply? The following articles, taken from
the Independent of 15 September and the Guardian of 20 September
2002, examine the determinants of the demand and supply of shares in the
current context. |
Will
shares wilt if there's a war?
World
counts cost of war's siren call
| Questions |
| 1. |
What factors have led
to a fall in shares in 2001/2? Are they factors that have affected demand
or supply or both? |
| 2. |
Why may 'the effect of
any military conflict on the stock markets not be as severe as many private
investors are anticipating'? |
| 3. |
If people anticipate bad
economic news, when the bad news becomes reality the effect on shares may
often be negligible. Why should this be so? |
Go back to contents
News
Item 7: The state of UK agriculture
| Relevant to: |
| Economics (4th
edition), Chapters 3, 11, 20 |
| Essentials of Economics
(2nd edition), Chapters 2, 4, 10 |
| Economics for Business
(2nd edition), Chapters 4, 5, 15, 19, 30 |
| |
| 22 September 2002 saw a march on London
by some 250,000 people from rural areas. The march, organised by the Countryside
Alliance, was partly to protest about the proposed ban on fox hunting.
But it was also to draw attention to the huge grievances that people working
in farming and related industries have about their perilous economic plight.
The following article by Will Hutton, from the Observer of 15 September,
looks at the causes of the crisis in farming. His article begins: 'Without
a radical overhaul, agriculture will go the same way as mining and shipbuilding,
but are our farmers wise enough to see this?' |
Sorry,
Phil Archer, but your time is up
| Questions |
| 1. |
Why have farm incomes
fallen by three-fifths since the mid-1990s and why will things get worse
if nothing is done? |
| 2. |
What 'different institutional
structures' could help farming? |
| 3. |
Provide a critique of
Will Hutton's proposals from the point of view of farmers seeking more
financial support from the government and the CAP. |
Go back to contents
News
Item 8: All that's left is reformism
| Relevant to: |
| Economics (4th
edition), Chapters 1, 9, 11, 12 |
| Essentials of Economics
(2nd edition), Chapters 5, 6 |
| Economics for Business
(2nd edition), Chapters 1, 2, 3, 5, 17,
19, 23 |
| |
| 'The myriad scandals currently rocking
corporate America would have come as little surprise of Karl Marx.' So
begins the following article, taken from the Guardian of 12 August
2002. But would Marx have agreed with the analysis and solutions of the
anti-globalisation movement? Is the solution today to the excesses of capitalism
the overthrow of the the system? |
Marx
was the first anti-capitalist. But it's unlikely that he'd be one now
| Questions |
| 1. |
To what extent is capitalism
currently experiencing a 'crisis'? |
| 2. |
Why may Marx, had he been
alive today, no longer be an 'anti-capitalist'? |
| 3. |
What are the alternatives
to state socialism as a means of dealing with the excesses of capitalism?
Why is the current world climate not favourable to the implementation of
such alternatives? |
Go back to contents
News
Item 9: Is the minimum wage effective in reducing poverty?
| Relevant to: |
| Economics (4th
edition), Chapters 9, 10 |
| Essentials of Economics
(2nd edition), Chapter 5 |
| Economics for Business
(2nd edition), Chapters 1, 2, 3, 5, 17,
19, 23 |
| |
| The minimum wage, which is rising
from £4.10 to £4.20 in October, is seen by many as too low
to make a significant difference in relieving poverty. What is more, as
many as 36% of employers are paying less than the minimum wage! So is the
answer to raise the minimum wage rate? The following four articles from
BBC
News Online of 12 August and 13 September 2002 and from the
Guardian
of 28 March and 11 September 2002, report on some of the background facts
and on the attitudes of employers and unions. |
TUC
bids for £5 minimum wage
Workers underpaid
by millions
Labour
market weathers minimum wage
Stakes
raised as target of £5-plus is set for minimum wage
| Questions |
| 1. |
What are the arguments
for and against raising the minimum wage to £5 per hour; £8
per hour? |
| 2. |
What determines whether
a particular minimum wage will cause increased unemployment? |
| 3. |
How successful is the
raising of the minimum wage likely to be in reducing poverty? |
Go back to contents
News
Item 10: Call to pay students for gap-year jobs in NHS
| Relevant to: |
| Economics (4th
edition), Chapters 9, 10 |
| Essentials of Economics
(2nd edition), Chapter 5 |
| Economics for Business
(2nd edition), Chapter 17 |
| |
| 'Students could be rescued from dead-end
part-time jobs and encouraged to work in schools, hospitals or charities
under radical proposals to help them pay for their university education.'
So begins the following linked article from the Independent of 26
August 2002. This recommendation comes from the Institute for Public Policy
Research. But what would be the economic effects if this proposal were
adopted by the government? |
Call
to pay students for gap-year jobs in NHS
| Questions |
| 1. |
What would be the benefits
and costs to students if these proposals were put into practice? |
| 2. |
What would be the benefits
and costs to (a) the government; (b) society at large? |
| 3. |
What would be the effect
on wage rates (a) in the public services; (b) in fast-food outlets? |
Go back to contents
News
Item 11: Number of cars keeps on rising but experts have few solutions
| Relevant to: |
| Economics (4th
edition), Chapters 11, 12 |
| Essentials of Economics
(2nd edition), Chapter 6 |
| Economics for Business
(2nd edition), Chapters 19, 21 |
| |
| Despite various measures taken by
the government and local authorities, car traffic continues to grow at
about 2 per cent a year and lorry traffic by 3 per cent. But should reducing
traffic be a government target, or is reducing congestion a better target?
If so, how do you measure congestion and what can governments do to reduce
it? And if you do reduce it, will this be at the expense of economic growth?
The following linked articles from the Guardian of 30 August and
the Observer of 15 September 2002 attempts to answer these questions. |
Number
of cars keeps on rising but experts have few solutions
Traffic
mayhem to get worse - official
| Questions |
| 1. |
What do you understand
by a 'socially optimal ' level of congestion? |
| 2. |
Is it possible to make
significant reductions in congestion without reducing traffic? |
| 3. |
Compare the relative advantages
of motorway tolls, electronic road pricing and building more roads as means
of dealing with congestion. |
| 4. |
How would you attempt to measure the cost of
congestion in money terms? |
Go back to contents
News
Item 12: The danger of deflation
| Relevant to: |
| Economics (4th
edition), Chapters 13, 16 |
| Essentials of Economics
(2nd edition), Chapters 7, 8 |
| Economics for Business
(2nd edition), Chapters 25, 28 |
| |
| According to the following linked
article from The Economist of 12 September 2002, the world economy
is in danger of experiencing deflation. The term 'deflation' has two meanings
in economics. In the simplest sense it can mean negative inflation, i.e.
falling prices. It can also mean something more serious. The falling prices
may be a symptom of a deflated level of demand, with the economy as a result
growing significantly below its potential rate. Such has been the experience
of Japan for much of the time since 1990. But is the rest of the world
about to experience Japan's woes? |
Dial
D for deflation
| Questions |
| 1. |
What is meant by the 'output
gap'? Does economic growth necessarily close the output gap? |
| 2. |
What is the relationship
between the rate of inflation and the output gap? |
| 3. |
Why might the world's
three biggest economies all have negative inflation rates by 2003? |
| 4. |
Why is deflation 'much more harmful than inflation'? |
Go back to contents
News
Item 13: Is the world economy weakening?
| Relevant to: |
| Economics (4th
edition), Chapters 13, 16 |
| Essentials of Economics
(2nd edition), Chapters 7, 8 |
| Economics for Business
(2nd edition), Chapters 25, 28 |
| |
| Investment demand, especially in manufacturing,
remains very weak in all the major economies of the world. A world recession
has been largely averted so far because of buoyant consumer demand. But
is this about to change? What would be the effect on consumer spending
if the rise in house prices (which, as the fourth item in News Item 4 showed,
has been world wide) slowed down significantly? The following articles
examine the facts and the arguments. |
Consumers
1; Investors 0; David Smith's EconomicsUK.com
6/02
World investment
falls by half BBC News Online 17/9/02
Bargain
hunters save UK Guardian 20/9/02
Economic
Outlook: Now the glass is half full The Times 15/9/02
French
output falls unexpectedly CNN.com 18/9/02
| Questions |
| 1. |
Why has investment fallen
in many countries while consumer demand has remained buoyant? |
| 2. |
What is likely to happen
to consumer demand in the coming months? |
| 3. |
How might consumers (a)
gain and (b) lose from global competition forcing prices lower? |
| 4. |
What might cause an upturn in investment? How
is the accelerator theory relevant here? |
Go back to contents
News
Item 14: Is fiscal policy off-track in the EU?
| Relevant to: |
| Economics (4th
edition), Chapter 17 |
| Essentials of Economics
(2nd edition), Chapter 8 |
| Economics for Business
(2nd edition), Chapter 29 |
| |
| Under the 'Growth and Stability Pact'
each eurozone country is supposed to keep its budget in balance over the
course of the business cycle and not to allow a budget deficit to exceed
3 per cent in any one year, unless its economy is declining by more than
2 per cent a year (see Box 17.1 in Economics, 4th ed). But, as the
two linked articles from The Economist of 22 August and 19 September
2002 point out, budget deficits in Germany, France and Italy are moving
into deeper deficit and approaching the 3 per cent ceiling (with Portugal
having passed it). So what should they do? Should they pursue a tighter
fiscal policy to restore budgetary balance? |
The
case for co-operating
Catch
2002
| Questions |
| 1. |
Why have Germany, France
and Italy experienced worsening budget deficits? |
| 2. |
What are the arguments
for deliberately breaching the Pact's budgetary limit? |
| 3. |
What would be the short-term
and longer-term results of these countries attempting to cut their deficits
by pursuing tighter fiscal policy? How would interest rates be affected
and how, in turn, would this affect the eurozone economy? |
Go back to contents
News
Item 15: Stimulating the Japanese economy
| Relevant to: |
| Economics (4th
edition), Chapters 17, 19, 20 |
| Essentials of Economics
(2nd edition), Chapters 8, 9, 10 |
| Economics for Business
(2nd edition), Chapter 29 |
| |
| The Japanese government is preparing
a package of tax cuts. At the same time the Bank of Japan (Japan's central
bank) has announced that it will buy £42bn of shares held by various
commercial banks in order to support the ailing banking system. But will
this stimulate confidence and bring faster economic growth, or could it
have the opposite effect? The following articles, from BBC News Online
of 18 September and the Guardian of 20 September 2002 give some
of the details of the measures. |
Japan
prepares stimulus package
Bank
of Japan intervention begs the eight trillion yen question
| Questions |
| 1. |
Distinguish the possible
supply-side and demand-side effects of a package of tax cuts. |
| 2. |
Describe the process whereby
the purchase by the Bank of Japan of shares held by banks could stimulate
the economy. |
| 3. |
For what reasons may investor
and consumer confidence be (a) boosted and (b) dampened by the above measures? |
Go back to contents
News
Item 16: International trade and the WTO
| Relevant to: |
| Economics (4th
edition), Chapter 23 |
| Essentials of Economics
(2nd edition), Chapter 11 |
| Economics for Business
(2nd edition), Chapter 22 |
| |
| In early September, the World Trade
Organisation backed EU proposals to impose £2.6bn of sanctions against
the USA. These are in retaliation for America's large-scale protection
for its industries, including the imposition of tariffs on steel imports,
subsidies for farming and tax relief for industry. So are all rich countries,
other than the USA, in favour of free trade? Or are all rich countries
similar in that they support free trade when it suits them? And what of
the poor countries? Would they benefit from more or less free trade? The
following two articles look at the issues. The first is from the Guardian
of 15 April and the other from BBC News Online of 3 September 2002. |
Morals
of the brothel
New WTO boss
backs poor
| Questions |
| 1. |
Under what circumstances
will free trade (a) benefit, (b) harm the interests of developing countries? |
| 2. |
Should trade liberalisation
by developing countries precede the development of their export industries,
or should these countries open up their markets only after these
industries have been established? |
| 3. |
In what ways are Oxfam's
proposals (referred to in the first article) 'squarely in the Keynesian
tradition'? |
| 4. |
If trade benefits the rich counties of the world,
why is the USA so keen to resort to protectionist measures? |
Go back to contents
News
Item 17: End of the high dollar
| Relevant to: |
| Economics (4th
edition), Chapters 14, 24 |
| Essentials of Economics
(2nd edition), Chapter 12 |
| Economics for Business
(2nd edition), Chapter 26 |
| |
| In February 2002, the US dollar was
trading at 70 pence and €1.15, and its exchange rate index was 124.1
(1990 = 100). These rates were typical of those prevailing over the previous
two years. By September 2002, the exchange rate had fallen to 64p and €1.02,
and the index was 113.7. But why has the rate fallen and will it fall further?
The following linked article, from the Guardian of 27 May 2002,
looks at the reasons for the end of the high dollar and at the consequences
for the global economy. |
The
bubble to beat all bubbles
| Questions |
| 1. |
Why did the dollar remain
so high for so long? |
| 2. |
In what ways did the high
dollar (a) benefit, (b) harm the global economy? |
| 3. |
Why has the dollar depreciated
recently? |
| 4. |
What will be the consequences of this depreciation
for the global economy? |
Go back to contents
News
Item 18: Should the UK join the euro and, if so, when?
| Relevant to: |
| Economics (4th
edition), Chapters 17, 25 |
| Essentials of Economics
(2nd edition), Chapters 8, 12 |
| Economics for Business
(2nd edition), Chapters 29, 31 |
| |
| As the first of the following linked
articles (from Ananova of 20 September 2002) reports, Sir Edward
George, Governor of the Bank of England, argues that euro membership could
bring substantial benefits to the UK. However, monetary policy would then
be determined by the European Central Bank and fiscal policy would have
to be conducted within the framework of the EU's Growth and Stability Pact.
In the second article (from the Independent of 16 September 2002),
Stephen King, Managing Director of Economics at HSBC, argues that the timing
of any entry to the euro and the exchange rate at which such entry took
lace would have a crucial impact on fiscal policy and aggregate demand. |
Bank
of England Governor says UK manufacturers would benefit from joining euro
Timing
of euro entry critical for long-term fiscal policy
| Questions |
| 1. |
In what ways would UK
industry (a) benefit, (b) lose from UK adoption of the euro? |
| 2. |
What would be the impact
on the government's budget balance if euro entry involved a depreciation
of the exchange rate and a cut in interest rates? |
| 3. |
What impact would this
have on fiscal policy, assuming that the UK government abided by the terms
of the Growth and Stability Pact? |
| 4. |
In what ways might short-term factors concerning
euro entry and fiscal and monetary policy have long-term consequences for
economic performance? |
Go back to contents
News
Item 19: The international Earth Summit
| Relevant to: |
| Economics (4th
edition), Chapters 12, 26 |
| Essentials of Economics
(2nd edition), Chapters 6, 12 |
| Economics for Business
(2nd edition), Chapters 21, 23 |
| |
"The Johannesburg world summit on
sustainable development took place between August 26 and September 4 2002.
It aimed to build on the Rio earth summit of 1992." This is how the Guardian
index to the Earth Summit (the first link) begins. It provides links to
a range of articles about the summit.
But is it possible to achieve
economic development that benefits the poorest people of the world while
at the same time achieving environmental sustainability? The remaining
linked articles look at these issues and also at the political difficulties
in achieving international agreement when the interests of rich and poor
worlds seem to conflict - at least in the minds of the world's most powerful
leaders. |
Index
to Guardian Special Reports from the Earth Summit
Sustainable
development is a hoax: we cannot have it all Guardian
5/8/02
More
business as usual Guardian 18/9/02
Summit
agreement is struck, but US blocks deal on clean energy Independent
3/9/02
After
days of intense negotiations, leaders settle on a blueprint to keep the
planet alive Independent 3/9/02
| Questions |
| 1. |
Why, according to the
second linked article, is sustainable development a 'hoax'? |
| 2. |
What were the main agreements
reached in Johannesburg? Will they make a genuine difference to the lot
of poor people in developing countries and/or to the environment? |
| 3. |
Why was the USA opposed
to a deal on increasing the proportion of energy generated from renewable
resources? |
Go back to contents
News
Item 20: A new development policy agenda
| Relevant to: |
| Economics (4th
edition), Chapter 26 |
| Essentials of Economics
(2nd edition), Chapter 12 |
| Economics for Business
(2nd edition), Chapter 23 |
| |
| For our last 'news item' we turn to
a recent paper by Thomas I. Palley appearing on the Oneworld.net development
site and published by Foreign Policy in Focus. It questions whether
the approach to development based on the 'Washington consensus' of freeing-up
markets and reducing the role of government is the right way forward for
developing countries. It proposes a new 'paradigm' - one of domestic demand-led
growth. |
A
New Development Paradigm: Domestic Demand-Led Growth
| Questions |
| 1. |
What are the features
of the 'Washington consensus' to development policy? |
| 2. |
What, according to the
article, are the weaknesses of this consensus? |
| 3. |
What alternative policy
is the author of the paper proposing and what, in his view, are the advantages
of this approach? |
| 4. |
What policy changes by the rich countries and
by institutions such as the IMF and World Bank would be necessary if a
domestic demand-led approach to development were to succeed? |
Go back to contents