Bellerbys Economics - Mr Stephenson

Monday, November 26, 2007

RFID - Really Fried

This one's not strictly Economics - except in the general sense that everything is Economics - but with Bellerbys about to launch an exciting new Management Computing Systems Foundation course in 2008, my mind's been hovering in that area just recently.

Who knows what RFID is? It stands for Radio Frequency Identification Device - and it's going to be the big new thing in our new security conscious world - buy shares in RFID companies now!!

A school in Doncaster is testing the system. Every student has an RFID chip - flat and no bigger than half a thumbnail - embedded in their uniform. A series of wall-mounted scanners around the school can read them. So, the staff know where you are at any moment - 'Now we're really fried,' as one quote put it. The chip can store information in real-time - like when you're late or absent - as staff have hand-held monitors (like the tricorder in Star Trek - cool!) that can interact with the chip.

The chip can hold almost infinite amounts of information about you - your current grades, subjects, personal details, medical stuff, perhaps even financial details (though hopefully this would be locked from anyone except the bank and cashpoint). You wouldn't need to carry money anymore, it would just be deducted from the credit on your chip as you passed the scanner in the canteen.

In shops, we wouldn't need checkout staff either. Each product would have printed on it a 'Do you want to buy me?' section and your thumbprint will register a purchase by pressing against the hidden chip in the packaging, which would then deduct it from your own chip (by this stage, the chips will be embedded under your skin - don't worry it's painless - and anyway, it would probably be done at birth, so you wouldn't remember).

With webcams in every classroom, your image could be beamed to your parent's mobile whenever they want to see what you're up to - won't that be fun!

Here's a serious Economics question - evaluate the introduction of RFID chips in terms of the five areas of efficiency that we have studied - there's a (small) prize for the best answer. What's the prize? Well, here's a clue - this one doesn't come with fried fish.

Friday, November 23, 2007

Sick as a Parrot

It's not just Steve McLaren, the luckless or possibly hapless England football manager who will be feeling sick as a parrot this morning as he collects his P45 from the FA - many British businesses will also be feeling a tad frustrated at England's failure to qualify for the European championship finals. The team played with all the cogency and coherence of the Kazakh reserve team - they deserved to lose.

According to the Coventry Business School (who have many vacancies available for a January start by the way - both undergraduate and postgraduate) England's exit may cost British business as much as £2bn - severely reducing aggregate demand in the UK economy next June.

Firstly, there are shirt manufacturers - all those England football shirts are now valueless. Ironically, mine turned up in the post today - the day after our exit - after having been held up somewhere in the postal strike. C'est la vie! As I walked home from New Bellerbys yesterday, I also noticed Sport & Ski now had England shirts on sale for £20, reduced from £35 the day before. They'll be lucky to sell them at 20p! And as for the new England reserve strip due out in January - well, all I can say is that Nike must be kicking themselves for having bought up England shirt manufacturers Umbro a couple of weeks ago - not exactly the deal of the century. (Note to all data mining software: the key words here are: 'Sell Nike shares now')

Then there are the pubs and clubs - no packed pubs during the long summer evenings with roaring fans, drinking contests and open wallets. The tour companies will also suffer as hundreds of thousands of fans suddenly cancel their trips to Austria for the the finals. (On the other hand, non-soccer playing tourist centres like India and Thailand, might suddenly find more tourists arriving.)

And then there are the plastic flag manufacturers - what will become of them? Perhaps now's a good time to ask for a quote for a Bellerbys plastic flag?

The advertising industry will suffer as prices will plummet for slots during the half-time breaks at the championship in the UK......and with less people watching, the TV industry will also suffer generally.....and with less adverts being watched, businesses as a whole may make less sales - who knows how far aggregate demand will fall. As the UK enters a period of slower growth, the England loss couldn't have come at a worse time. Steve McLaren's tactical ineptitude may make him personally responsible for the collapse of the UK economy. I hope he's happy now.

Booksellers will gain, however, as English people, driven to distraction by the sense of humiliation at our absence from the tournament - our hopes trampled into the dust by countries my wife has never even heard of - try to lock out the world for a couple of weeks by reading a good book. One I recommend is "The Economics of Sport & the Media" by Claude Jeanrenaud - ask the librarian to get it for you. She'll be pleased to do so.

Thursday, November 22, 2007

UK Inflation

The UK has two major ways of measuring inflation - now called CPI and RPI. The Government's prefered measure is CPI and currently rests at 2.1%, a little above the Bank of England's target of 2%. Normally, in this situation, the BoE would increase interest rates a little to slow down the economy - but it hasn't done so for a number of reasons:

Firstly, they are already very high at 5.75% for the base rate - this is damaging our trading position - last month saw a record current account deficit at £-4.7bn. The high interest rate also incidentally inflates our purchasing power, making us look richer in world terms than we really are - as the Americans found to their cost fairly recently when the currency value went through a sharp correction.

Secondly, it already looks as though there are problems in the economy that will make it slow during the next year - the collapse of Northern Rock, the rippling effect of the credit crisis in the US and the nervousness this is creating on the stock market and in banks' lending decisions.

Thirdly, the high levels of debt in the UK - now above £1 trillion - equal to the whole GDP of the UK, is likely to affect retail sales in the new year.

So, the BoE is trapped. It knows it should raise interest rates but it can't do it. Meanwhile, the RPI - the other measure of inflation - has risen to a dangerous 4.2%. Most economists would argue that once inflation pushes above 4%, money illusion fails and people begin to notice. They then start agitating for pay rises and this can then lead to other forms of economic disruption.

The next year will be an interesting one for the UK economy.

Monday, November 12, 2007

Is Brazil the new Kazakhstan?

News of the discovery of major oil reserves off the coast of Brazil has certainly gladdened a few hearts in this large South American country - it now finds itself in much the same position as Kazakhstan ten years ago - about to become self-sufficient in terms of oil - and very soon now, it will be earning large sums of money from selling its oil abroad.

It will take a little while of course - as it did in Kazakhstan - about 10 years worth of investment perhaps - but the signs are good.

But is Brazil going to be the new Kazakhstan. Well, probably not - the two societies are at the moment, very different. Kazakhstan has one of the world's lowest Gini coefficients, suggesting it is one of the world's most equal societies, whereas Brazil is one of the world's most unequal societies.

Brazil is much bigger with a population of 187 m (and growing by about 2% a year) whereas Kazakhstan has only 15m and a stable population. However, they both share similar rates of economic growth and have similar levels of oil reserves (about 40 years worth at current production levels).

Brazil have the world's best football team and Kazakhstan has possibly the worst - like the old joke - eleven young men in search of a goal.

What is certain is that - like Kazakhstan - the influence of Brazil on the world stage should now begin to grow significantly and we will all be hearing a lot more about the Brazilian economic miracle as the profits begin to filter through the different levels in the economy - provided the rich in Brazil aren't allowed to take all their profits overseas of course.

Thursday, November 08, 2007

Bad Moon Rising

As the native Americans might have said - there's a bad moon rising over the US economy.

In fact, it could be argued that there are three bad moons rising - Alan Greenspan, Warren Buffet and now George Soros. All three of these economic heavyweights have spoken out over the last few days about the state of the US economy. After years of easy-credit, largely financed by the Chinese government and Japanese and German banks, the chickens have now come home to roost - the housing market is on the verge of collapse and the volume of bad debts has increased to hundreds of billions of dollars, severely damaging Citigroup, the biggest US bank and bringing poor old Northern Rock in the UK to the verge of bankruptcy.

Last week it was Warren Buffet and now yesterday, George Soros recommended to all his followers that they should dump their dollar assets as quickly as possible (I hope the Chinese government is listening - and if your parents have dollar accounts, tell them to switch to Euros, yen or spaghetti or something). Of course being George, he will then hoover up the cheap dollars later and hope to make a killing but that's just his job. Remember, George made a billion dollars (not a million, a billion) when he drove the pound out of the ERM on Black Wednesday nearly fifteen years ago - but that's another story. (And don't think I've forgotten that part of that billion was some of my taxes - grrr!)

So who is George Soros? Well, probably one of the top five most influential investors in the world today - not just because of his own considerable fortune (the world's 80th richest person) but also because of the enormous investment fund he controls. He was born in Hungary in 1930. His first name was Georgy Schwartz. His family were Jewish in origin but were secular in belief. However, when the Nazis took over Hungary in 1944, these fine distinctions didn't mean very much - so George's father sent him to England. He graduated from the LSE in 1952. He moved to the USA in 1956 and slowly worked his way up through the investment houses until he was able to start his own fund in 1970.

Apart from Black Wednesday, George was also largely responsible for the Asian economic crisis of 1997 when he advised his followers to start dumping the Thai baht (ring any bells?) The Malaysian Prime Minister called him a vampire who sucked the blood of the people. Of course, the US economy is much, much, much stronger than the Thai economy in 1997 - but even so...

George is a lifelong Democrat - remember his family suffered under Nazism - and he has used his great fortune to promote democracy in Eastern Europe since the 1970s, supporting many human rights movements in the region, including Charter 77 and Solidarnosc. More recently, he has supported education, recently donating $100 million to the development of an internet structure for Russia's regional universities. He is also an active supporter of Mohammed Yunus' Grameen Bank which provides microcredit to poor farmers in Bangladesh and India.

He has fought tirelessly against George Bush and is an active supporter of Hilary Clinton for the next presidency.

Philosophically, he argues that investment markets are not perfect markets as suggested by economic theory but suffer from reflexivity - a herd instinct. The secret of success in the markets is in judging when the herd instinct has gone too far in one direction and then betting against it. He also argues that this applies to other areas of life - that people are mimetic and would rather 'go along' with the general view than take a stand when they have to - this is why humanity has suffered from philosophies, governments and 'common wisdoms' that are simply irrational - and eventually cost money. Well, it seems to have worked for him so far - so why not think about it and let me know your views?

Have a good day in the education market!

Wednesday, November 07, 2007

Petrochina - World's no.1

Investors are still reeling from the launch of Petrochina on the world's stock markets on Monday - mostly in Shanghai and Hong Kong.

Incredibly, the company was valued at $1 trillion - the world's first trillion-dollar company - and incidentally making it the world's eleventh-biggest economic unit after Brazil! This valuation is more than twice as big as any other company in the world.

Questions are already being asked about whether this can possibly be a true valuation. It will have been inflated by the usual first-day bubble effect of institutional investors trying to bull the market to make a quick killing - added to this is the mid-term bubble we are seeing in the Chinese stock markets - Shanghai has doubled so far this year - this can't go on forever - but no one wants to jump ship whilst the bubble continues to rise, this is always the problem. However, it's worth noting that super-investor - and the world's third richest man, Warren Buffet - SOLD HIS SHARES in Petrochina late on Monday, after having made $3.5billion profit on an earlier investment of $0.5bn. Perhaps he knows something we don't.

However, the underlying factors for Petrochina look strong - good oil stocks, high levels of investment in new fields in Africa and protected from domestic competition at home.

So, overall, it's likely that the valuation may slip a little over the next couple of weeks - but should remain strong for the mid-term.

More than anything, this event has signalled once again the shift in the world economy to the East with China now having two strong stock exchanges in Shanghai and Hong Kong and a number of smaller active stock exchanges in the south.

Thursday, November 01, 2007

Economics Jokes

One of my friends suggested that teaching Economics must be a bit boring - what on Earth can he mean when there are so many fantastic Economics jokes around:

1) Tony Blair and George Bush were meeting at a summit. 'George,' says Tony - with the microphone accidentally left on, 'I've got a big problem. I've got 100 spin doctors but I'm convinced one of them is telling the truth, but I can't tell which one,'

'So what,' says George, 'I have to listen to 100 economists every day and only one of them is telling the truth. The trouble is, it's a different one every day.'

2) A woman is told by her doctor she has only one year to live. 'What should I do?' she asks. 'Marry an economist,' he replies. 'Will he be able to cure me?' she asks. 'No,' the doctor replied, 'But it'll make the year seem a lot longer.'

3) How many economists does it take to screw in a lightbulb?

The answer is 10 + 1 student.

That's one economist to construct a model of the event; one to complete a regression analysis, one to calculate the input factors, one to evaluate the externalities, one to supervise the student whilst he screws in the lightbulb and five to argue about the range of possible outcomes when the switch is thrown.

4) People came from kilometres to see
The two economists who agreed to agree
But oh what anguished cries there were
When we saw both economists concur
That one and one always make three

5) If you rearrange the letters in Economics, you get Comic Nose

6) What is an IMF economist? Someone who gets rich by explaining to others why they are poor.

7) Economics - the knowledge of everything in trapped in a language that no one understands

8) It's said that President Theodore Roosevelt, a great bear of a man - who talked straight and stood taller than most - once asked for a one-handed economist. 'Why's that?' his advisor asked, 'Because all the ones I have now keep saying.....on the one hand, such-and-such is true....but on the other hand.....'

9) What do Business Studies graduates say in their first job? 'Do you want french fries with that, sir?'

10) A 30-year-old economist visited his old college. His old teacher was handing out exam papers. 'Hey!' said the economist, 'That's the same paper I did ten years ago!' 'Yes,' said the teacher, 'But now the answers are different.'