Bellerbys Economics - Mr Stephenson

Friday, September 28, 2007

The £50 Laptop

Today sees the launch of the £50 laptop project - called the One Laptop Per Child machine (OLPC).

Apart from anything else, it demonstrates the way in which mobile phone technology, palmtops and handheld devices are all merging into a single portable device that even a child can use.

The XO laptop is a Linux-based device with built in wi-fi. This means that data can be transferred through the air from one device to another. If any one laptop is close to an internet hotspot, then all the laptops within range of each other have access to the internet. A typical range is about 1oom - so it's possible to daisy-chain access to the internet over a wide area with each laptop acting as a router for the others.

The laptop uses free open source software which covers all the usual applications - it even has a built-in digital camera - and the word processor is MS-Word compatible.

What will be the economic effects of this? Well, the explosion of mobile phone technology in Africa in recent years has been partly responsible for an increase in GDP averaging 5% a year across the continent as a whole. Even better improved communications may accelerate this further. From an educational point of view, the project also offers potential for e-learning schemes in an area where only 30% of children have access to education on a daily basis. That will lay the foundation for future economic growth.

In terms of competition, it has the laptop manufacturers worried - they will need to rapidly produce their own versions or perhaps die. Also, the fact that the XO comes with a built-in media player and software that can emulate MS-Word will have Microsoft worried too.

The next five years should be very exciting in terms of the economic impact on the world electronics industry.

Thursday, September 20, 2007

Being Saarcastic

Hands up all those who have heard of SAARC? The truth is you are more likely to be able to name the manager of Alloa Athletic football club than be able to name the chief executive of this organisation.

Everyone knows of the EU and ASEAN - and yet SAARC has the potential to be even richer and more powerful - perhaps even within the next fifty years. SAARC, you see, is the South Asian Association for Regional Cooperation and it includes India, Pakistan, Bangladesh, Sri Lanka - and the Himalayan countries of Nepal and Bhutan and the tourist islands of the Maldives. That's about 22% of the world's population. Afghanistan has also been invited to join.

So far, nothing much has happened. There are differences linked to religion, politics, the environment and culture that have kept them apart. However, things are changing quickly. The area now has the fastest growing economy after East Asia; small businesses are booming - thanks to the pioneering work of Nobel prize Economics winner Amartya Sen on microcredit - and old political and cultural differences are slowly being put to one side - Bollywood movies have started playing in Pakistan once again. All the countries, except Pakistan, have agreed to reduce tariffs to 20% between all member countries in 2007. This is a good sign.

Of course, there are potential problems - recent American threats to invade Pakistan have not helped business confidence for example; and the democratic deficit in Pakistan is also keenly felt in the region. In Sri Lanka, there is continuing ethnic conflict - and in Bangladesh, if global warming continues, much of the country may simply disappear. In Nepal, where the SAARC headquarters are based, there is political dissent. Also, India has jumped from being an agricultural nation into a service-based nation (50% of GDP is from services) without taking the trouble to build up a manufacturing sector of small-to-medium sized businesses first. Consequently, it has to import much of what it consumes and has a current account deficit.
Education is valued and the Health professionals are first-class but inequality is high and amazingly 30% of Indians are still illiterate - mostly in rural communities and living in some degree of poverty.

But things are definitely moving. The potential is enormous - so much so that China has expressed an interest in joining (so it would be in the world's two biggest economic blocs!) and has been reaching more and more bilateral agreements with India over the last ten years - the most recent last week when the foreign ministers of both countries met.

Let's see what happens in the next five years!

Wednesday, September 12, 2007

Welcome Back !!

Welcome Back to all returning students!

Second-year A-level students and Foundation students will be wanting to look for their university courses as soon as possible. Here's a good place to start - an interactive map of all the universities which leads you to each of their websites and course information:

League Tables are not very reliable - for example, in the Premier League at the moment, West Ham United are only shown as being eighth - when clearly they are the best football club in the country.

However, students do like to look at the university league tables, so here they are:

These are also broken down into subject area. For example, the league table for Economics is here:

Good luck with your search!

Tuesday, September 11, 2007

Chinese Inflation

As we start our work on indicators, let's take into account that Chinese inflation in China this month is 6.5%.

What's caused this? Well, you don't need to look very far. The trade gap has increased by 33% since last year - increasing demand. In addition, the number of pigs in the country has fallen by 10% because of blue-ear disease. Why are pigs an important indicator in China? Because pork forms part of the staple Chinese diet and demand is very inelastic. A 10% cut in supply has led to a 49% increase in pork prices. Non-food inflation is actually very low - so the solution is to either eat less pork (chicken is equally good for you) or breed more pigs.

Unfortunately, breeding more pigs would lead to the same factory-farming practices that led to the rapid spread of blue-ear disease in the first place. So it looks like chicken is king in China at the moment. Buy shares in KFC now!

Friday, September 07, 2007

iPhones - Apple Suicide Bid Part 2 - Emergency Treatment

Further to the recent posting here about how Apple were developing a level of control in the market which enabled them to create abnormal profits:

We learn today that Apple have decided to cut the price of iPhones by $200 today - a significant victory for 'property rights' - the phrase we use when we mean that the consumer is able to exert moral, social or legal pressure on an organisation to change its behaviour. This is more commonly used in the field of externalities - but can also be applied in other cases of market failure.

In fact, the 8-gigabit version has been slashed in price by $400. Steve Jobs, the President of Apple, has even said he will pay back any customers who have 'overpaid' for the product.

Apple have clearly decided that the special relationship they have built up with their customers over many years - the brand image - is worth preserving as it will safeguard future earnings - or maybe it's because Steve Jobs is just a nice person.

Wednesday, September 05, 2007

Sub-Prime Disaster Explained

A couple of weeks ago the US sub-prime market collapsed - sending the world's financial centres into a panic - share prices plummetted - things were looking bad - and then the central banks stepped in to inject an incredible $400 billion dollars to rescue many of the major banks and financial institutions that had been put at serious risk by the catstrophe - so what's it all about?

For the last 10 years, financial institutions in the US have been lending money more-and-more easily to Americans to buy homes. Many of these loans have been in the sub-prime market. Basically, these are high-risk borrowers who would not normally/should not be able to borrow the huge sums of money being offered.

In order to spread their risk, these financial institutions then passed on the loans to a variety of other lenders through a complex range of refinancing packages. Every time money moves hands, of course, someone takes a commission - and someone has to pay for it - in this case, the poor borrowers at the bottom of the pile - those least able to do so.

As money for mortgages became easier and easier, house prices rose rapidly. The original borrowers were then able to borrow more money using the increase in the value of their houses to back the loan.

This couldn't go on forever. Eventually, interest rate rises in the US drove many borrowers into bankruptcy, house prices collapsed as demand fell, the financial institutions panicked. Some very major banks looked seriously at risk - including France's no.1 bank, BNP.

The world's central bankers stepped in. They injecting $400 billion into the market, often buying securities or shares that they wouldn't normally touch by a million miles.

In the end, we will all pay for this disaster. As share prices fall, our pensions will be hit, businesses will find it harder to raise money for investment, confidence will suffer, many of the investments made by the central banks will fail diminishing the national asset.

The question is - will we learn from this?

Tuesday, September 04, 2007

Happy Planet Index

During the first steps in Module 6, we will be looking at the standard indices for economic well-being - GDP, PPP, HDI and so on. We will then be concentrating on GDP, Economic Growth, the Economic Cycle and the causes of short-term and long-term economic growth.

However, before we get too deeply sucked into what might be called traditional economics, it can be fun to look at some of the other work that is going on in this field at university level.

The New Economics Foundation produces the Happy Planet Index - this attempts to analyse GDP in relation to the amount of Carbon Dioxide that is produced - in this ranking, the UK comes 21st out of 30 European nations - with Iceland coming out top. You can read more about the Index here:

Interestingly, when I clicked on the page above, I received a pop-up advertising cheap air travel linked to their site!

The Canadian Government have attempted to create and Index of Economic Well-being that takes into account income, wealth, inequality and economic security. The work was done for the MacDonald Commission and can be viewed here:

The Genuine Progress Indicator is a recent attempt to link economic growth with the environment. There's a good Wikipedia article on this here:

The Chinese government also recently attempted a similar exercise but abandoned it when it emerged that it showed very little progress in some provinces.

The Big Mac Index, organised by the 'Economist' started out as a fun way of looking at economic well-being and PPP. It started by measuring how long you have to work in order to buy a Big Mac in your country. It's very crude and was never intended to be taken seriously. However, it can also be used as a way of estimating whether your currency is over- or under-valued, as we can see here:

It took on greater significance recently when US commentators used the index as a way of claiming that the Chinese government was deliberately under-valuing the yuan by linking it to the dollar.

It's perhaps the European Union that has taken this whole field of social indicators into the 21st century. It uses a net of indicators called the Laeken Indicators:

The great debate in economics, of course, is which of these indicators are truly independent indicators and can therefore be combined into a super-index and also - which of these indicators are leading, contemporary or lagging. As undergraduate and post-graduate students, you will enter the debate when you progress to your university - but for the moment, let's focus on GDP!

Monday, September 03, 2007


Have a quick look at the World Population Clock:

Scary, huh?

But why should economists care about that? Well, first of all, it affects the way in which we read Economic Growth figures. Most magazines, including the 'Economist' show economic growth as the change in GDP for the country as a whole - but a more useful figure is the change in GDP per person. The USA at the moment has economic growth of 1.9% a year - but its population is growing by 1% a year - so the growth per person is roughly 0.9% a year - almost in recession.

Similarly, the UK has economic growth of 3% a year but the population is growing by 0.75%, making it more like 2.25% per person. Russia, on the other hand, has economic growth 0f 7.9% but the population is falling by 0.5% a year - making it more like 8.4% growth per person.

Population growth is a good thing in many ways. If the growth is through young skilled immigrants entering the country, as it mostly is the USA and UK, it will bring productive workers into the economy, helping to support perhaps a naturally ageing workforce. However, if growth is too rapid, it may cause problems with housing and pressure on schools, healthcare and other resources - especially water in some parts of the world.

As individuals become wealthier, it has historically been the case that they have fewer children. If this trend continues, it's quite likely that world population will peak at 9 billion - sometime around 2050.