For example, is the rise in the UK savings ratio a good thing? yes in the long-term, but not in a recession. As the saying goes - make me virtuous - just not yet.
In the long-term, a good level of saving helps promote investment. But a rapid rise in savings during a recession contributes to lower consumer spending and a fall in real GDP. (the rise in savings in 2008-09 mirrored the fall in real GDP)
The good news is that with an improved level of savings, there is the potential for the UK consumer come to the rescue of the UK economy - just a slight fall in the savings ratio could see a significant boost to economic growth. The interesting thing is savings is increasing - despite the squeeze on real incomes.
- Would an increase in the savings ratio help the UK economy? - Not at the moment.
- Net lending and borrowing by sector - higher borrowing by government matched by increased lending (saving) by private sector.
The mystery of global stock markets. Why are stock markets doing well, when the outlook for the global economy remain depressed? - The stock market often defies economic reality. But, it is worth remembering the stock market is no higher than in 2000 - still a long way to go. But, Q.E. did put money in the pockets of quite a few in the city.
Is UK monetary policy too lax?
Some commentators have started to criticise the Bank of England for ignoring inflation targets and allowing the Pound to slide. I offer a defence of monetary accommodation - at the moment, there are still more pressing things to worry about that inflationary pressures. Criticisms of Bank of England
The problem with deficits
OECD – Budget deficits 2012
Spot the countries with the biggest borrowing problem. Hint, it isn't UK, US and Japan who have the three largest deficits.
- How important is the deficit? it depends when and how you borrow. Again, timing is very important.
Economic news is dominated by the effect of fiscal consolidation (austerity). Research by IMF shows that for highly indebted countries, fiscal consolidation can increase the debt to GDP ratio in the short-term. The impact of fiscal consolidation depends very much when you implement it. There's a big difference to cutting spending in a recession and cutting spending when there is growth - as Europe is finding out.
Unfortunately, it all made it rather hard to support our PM's hope that fiscal consolidation helped increase economic growth. The PM's bizarre logic of fiscal consolidation
An alternative - 8 policies to increase economic growth.
Unfortunately, the EU rules on fiscal stability give little room for manoeuvre and display a lack of flexibility. Greater flexibility on the timing of fiscal consolidation would make life less painful for everyone.
Economic Concepts in action
- The monopoly power of Amazon
- Examples of pricing discrimination
- Examples of elasticity
- Italy hopes to leave austerity behind, but do they have a choice?
- Universal credit - the new all encompassing benefit coming out in Oct 2013
- RPIJ - a new inflation measure, like RPI but calculated using a geometric mean - who said economics isn't interesting?
- Energy prices - they've gone up in past few years, but you probably don't need an economist to tell you that.
- Fuel consumption. Prices go up, demand goes down. Who said economics was difficult?