UK output falling fast

UK output fell over the last year (12 months to June) at a rate of 5.6% (see this BBC page for details). This is almost the same as the negative growth experienced in the worst 12 months in the Great Depression (-5.8%), although current records began in 1955 so it may not be strictly comparable. The last quarter's decline, while much smaller than the previous one (see graphic from the BBC), was worst than expected. These figures tend to get revised after a bit---see Stephanie Flanders' blog for a guess about which way the current figures might be revised.

The state of economics

This week's Economist has some articles on the credit crunch and the science of economics. It is fairly critical of both macroeconomics and financial economics. My feeling is that it is a bit harsh to half-blame economics, particularly financial economics, for causing the crisis. There are a number of reflections on the Economist articles in the blogosphere by Stephanie Flanders here, Paul Krugman and Brad DeLong. Krugman is partly defensive, but DeLong isn't:

In my view, when you have Nobel Memorial Prize-caliber economists like Arizona State's Edward Prescott, Chicago's Robert Lucas and Eugene Fama, and Harvard's Robert Barro claiming that there are valid theoretical arguments proving that fiscal stimulus simply cannot work, not even in a deep depression--even though they cannot enunciate such theoretical arguments coherently--it is entirely fair for outsiders to conclude that academic economics as a profession is useless.

China bounces back

China's economy grew at an annual rate of 7.9% between April and June, up from 6.1% in the first quarter, thanks to the government's big stimulus package. The country's quickening economic expansion comes as most nations in the West continue to experience recession. Beijing now expects China to achieve 8% growth for 2009 as a whole, which compares with a predicted contraction of between 1% and 1.5% in the US. (BBC News; click figure to enlarge.)

Everyone seems surprised that the Chinese economy has recovered so quickly. This is being ascribed to the stimulus package announced in last November, but it is surprising that it could come through so quickly.

July 2009 Graduations

Congratulations to everyone who graduated earlier this month.

Unemployment rising rapidly

UK unemployment rose by a record 281,000 to 2.38 million in the three months to May, the Office for National Statistics has said. (See BBC report here.) This is according to the ILO (survey) approach to measuring unemployment. In fact those claiming jobseekers' allowance did not increase in number last month very much, so there seems to be a discrepancy. It may simply be that many of the new unemployed are not bothering to apply for the allowance, which isn't very much (around £65 a week). Everyone expects unemployment to carry on rising until at least early next year as changes in unemployment usually lag output changes.

The paradox of thrift — for real

If you don't understand the paradox of thrift - and every self-respecting first-year economics student upwards really should (I know we don't teach this stuff any more!) read this recent post by Krugman.

UK Inflation falls (a little)

UK annual inflation fell in June as the Consumer Prices Index (CPI) dropped to 1.8% from 2.2% in May, the Office for National Statistics (ONS) said. This is below the Bank of England's target of 2%, but it is surprising perhaps that it is only now below target given general defaltion fears. This is the year on year rate, so measures price changes over the last 12 months, rather than how prices have changed just over the last month or so.

The Retail Prices Index (RPI), a key inflation figure which includes mortgage interest payments and housing costs, became even more negative, falling to -1.6% from -1.1%, the lowest figure since the statistic has been collected in 1948! However given that monetary policy has pushed interest rates down so much, this is perhaps not such a good measure of inflation.

See this page from the BBC for an explanation of inflation and how the statistics are calculated.

Markets and Morals

This year's Reith Lectures were given by Michael Sandler of Havard (rumoured to be the person on whom Montgomery Burns of the Simpsons was modelled!). I liked the first lecture which was on the morality of markets and can be listened to here (or click for transcript). Should we have markets in immigrants, body parts? Should we pay children who do well in tests? Market triumphalism has given way to a new market scepticism. Almost everybody agrees that we need to improve regulation, but this moment is about more than devising new regulations. It’s also a time, or so it seems to me, to rethink the role of markets in achieving the public good. There’s now a widespread sense that markets have become detached from fundamental values, that we need to reconnect markets and values. But how? Well it depends on what you think has gone wrong. Some say the problem is greed, which led to irresponsible risk taking. If this is right, the challenge is to rein in greed, to shore up values of responsibility and trust, integrity and fair dealing; to appeal, in short, to personal virtues as a remedy to market values run amuck...ll in test scores? What about carbon trading?

Inspiring Green Innovation

There was an excellent programme this week in the BBC's Analysis series by Tim Harford, The Undercover Economist, who examines the economics of different ways to inspire the creators and inventors who may come up with solutions to global warming. Is innovation best left up to the market (with price incentives supplied by the state) or is this issue too big to leave the private sector to its own devices? This can be listened to by going here or play directly (not sure how long the BBC keeps this available).