China: consumption booms, industry falters

800px-Chinese_draakConsumption spending is booming in China, according to the Economist magazine. Rising household income is fuelling spending in the retail sector, which has grown 10.5% in the last year. This may even be an underestimate as it does not include service sector output.

Since retail sales are growing faster than the overall economy (officially around 7%), this is contributing to a rising share of consumption in overall output and a falling share of saving. While Chinese industrial output is falling, the service sector is still growing. Continue reading

George Osborne’s deceit on the deficit

Money-poundsSimon Wren Lewis draws attention to further evidence that UK chancellor George Osborne is a cunning, some would say deceitful, political tactician. His goal: to shrink the size of the state. His excuse: the size of the budget deficit.

Austerity was never mostly about economics, more about politics, although I would argue that the two are best analysed together. One can have debates about the appropriate size of the state, but Osborne has not done this in public. To that extent, he has been deceitful about his aims in government. Instead of honestly making the case, he has insisted that the deficit must fall, and ‘difficult decisions’ (the poorest must accept a reduction in their incomes) need to be taken.

The brunt of deficit reduction has fallen on reductions in public spending rather than tax increases. Osborne has done both, but those right at the bottom of the income scale will continue to suffer the most.

The UK and China: exporting our way to prosperity?

george-osborneBBC Economics Editor Robert Peston has an interesting post on his blog today on the UK chancellor George Osborne’s visit to China and his attempt to boost exports to the world’s second biggest economy. Apparently Osborne wants China to be the UK’s second biggest export market. Given China’s already vast domestic market, and even vaster potential given its population of 1.3 billion and the scope for incomes to catch up with the richest countries, this aim is to be welcomed. Continue reading

Sustainable development and economic progress

Mombasa-KenyaBack in 2010, having not studied formally for over eight years, I took a risk and signed up for a postgraduate module in Understanding Sustainable Development, run by the Centre for Development, Environment and Policy (CeDEP). CeDEP runs distance learning courses through SOAS, where I took my MSc in Political Economy of Development in 2000-01.

Distance learning requires plenty of motivation. CeDEP did offer support through an online forum, but I was largely on my own. It was mostly a fascinating course, and broadened my outlook as to what constitutes ‘development’. Continue reading

UK productivity, investment and economic performance

vdl-nedcar-production-lineProductivity in the UK lags substantially behind its competitors in the G7, according to the Office for National Statistics. It is now 18% down on the pre-recession trend, or nearly one fifth. This has become known as the ‘productivity puzzle’, as UK performance has persistently lagged behind the other major economies in recent years. It is productivity, or how much output workers produce over a given timeframe, that determines our standard of living. Continue reading

German imbalances and the future of Europe

1024px-Der_Deutsche_Bundestag_Plenarsaal-Gebäude_Reichstagsgebäude_Platz_der_Republik_Berlin_-_Foto_2009_Wolfgang_Pehlemann_Steinberg_DSCN9832Dirk Ehnts has a useful post on the persistent and growing imbalances in the German economy. The latter’s current account surplus is forecast to reach a record 250 billion euros or 8% of GDP in 2015, partly due to the weakness of the euro which has boosted demand for German exports.

A significant proportion of German exports go to the rest of the EU and this creates a problem for those who wish to see the continent’s economy recover at something more than the current painful crawl, alongside a major reduction in unemployment. Continue reading

What I have learned from post-modernism

Andy%20Warhol%20Marlyn%20Monroe%20ScreenprintPost-modernism has something useful to offer economic analysis. Some of its wilder assertions are that truth is relative, and therefore ‘anything goes’ when it comes to theory. If this is the case, it would seem to be debilitating. Debates in the social sciences would reach no firm conclusion and simply result in a plethora of ‘discourses’ without end. More interesting is the idea that the theories chosen by those who would put them into practice are done so from positions of power. Continue reading

State interventions and the theory of the second best

Eclipse_aviationWhen should governments intervene in the economy? A fairly mainstream view is that interventions should aim to correct market failures when they arise, to move the economy towards greater efficiency or welfare. Many governments around the world engage in forms of industrial policy, which generally involves the promotion of particular firms and sectors which are thought to have large positive spillovers or linkages to the rest of the economy. Continue reading

The downsides of an economic boom

Contando_Dinheiro_(8228640)Despite the inevitability of the economic cycle under capitalism, a great deal of time is spent by policy-makers attempting to prolong the boom and prevent or mitigate the recession. In recent history, some of them have avoided a repeat of the Great Depression of the 1930s, but the recovery has been at best sluggish and economies in the Eurozone have done especially badly, in some cases worse than during the 30s.

I have written before of the potentially ‘good’ aspects of recessions, but what of the boom? Continue reading