Tag Archive for economics

Would a Maximum Wage Make the UK Fairer?

The world is full of extreme inequality, arguably globalism has made this worse but although there are plenty of idealistic rants against this disparity it’s difficult to find genuine real-world solutions.  Unfortunately Jeremy Corbyn, the Uk Labour leader, also seems to be struggling finding a sensible solutions too. His latest suggestion is that the British Government should instigate a cap on maximum wages in order to address this issue.

Let’s think about it for a minute, it’s about rich people right?  Rich people have too much money, take most of it off them and set a ceiling and we’ll all be more equal.  It might work in a socialist economic workshop but unfortunately in the real world there are many reasons why it would be a complete disaster.

Most successful Western economies are pretty aspirational, people generally don’t hate high earners.  They don’t boo the overpaid Premiership footballers off the pitch because of the size of their wage packets.  In fact you could guarantee the cries of despair if the millionaire superstars left to play in more lucrative leagues.  We don’t despise rock stars, well paid actors or a host of other overpaid people – mostly we feel just a little jealous and hope to be in the same situation.

Imagine a country where you knew if you became successful past a certain level the government would take all your cash off you.  How would they do it, is just one of the obvious problems.  You can guarantee that there would be a mass exodus of high achievers before they reached that level. A guaranteed  consistent brain drain would obviously help with inequality as everyone would get significantly poorer and the rich would move countries.

Even those who stayed would likely have numerous method of avoiding any ceiling, their wages would be transferred in shares, dividends, bonuses and routed through a selection of financial instruments in order to avoid whatever legislation was in place. Say goodbye to economic growth, to wealth generation, to risk taking and investment,  to job creation – to the rewards that create entrepreneurs and new businesses.

Even for those of us who think there is a genuine problem in how wealth is distributed in the global economy – this is a seriously flawed idea. It just makes everyone poorer, the economics of envy simply doesn’t work in the real world.

John Galway

Free Trade Agreements – the Road to Prosperity?

For those of us stuck in the middle of post-Brexit political chaos, one of the expressions that is being increasingly bandied about is that of ‘free trade’ agreements.   Free trade with the Commonwealth, free trade with China or simply protecting free trade with the European Union – it all sounds a simple and easy way to ensure a booming economy.

shipping-containers-1096829_640

All a country needs is to have lot’s of these free trade agreements and goods and services will be flying out of the country in no time, jobs, money and prosperity are bound to follow.   Except that isn’t really the case and such an opinion represents a dramatic over-simplification of a subject which has divided economists for decades – international trade.

In fact it’s more than decades, try centuries and at least from the time of David Ricardo who suggested the way to maximise world output is a theory called Comparative advantage. He’s a man who deserves to be listened to – an economist who became fabulously wealthy! His theory basically suggested that each country specialised in the areas in which it had an advantage and let other countries do the same. Sounds great, but if you sign a completely open free trade agreement with another country who does have such an advantage then prepare to see that industry be completely destroyed in your country.

Economics and Politics often don’t sit well together, it would seem from an economics perspective that letting the British Steel industry die would be a sensible option however it won’t look that way to tens of thousands who rely on this industry to pay their mortgages.

Free trade will also rarely mean fair trade, if country A supports workers rights and welfare, and promotes high standards of health and safety – it’s goods are unlikely to be competitive in price if country B does’t protect workers and utilizes child labor.   Free trade will lose jobs and income for country A because there is no level playing field.

In many developed countries there are even more costs to production which can often wipe out advantages from efficiency. Most Western countries now have strict rules on levels of pollution that can be produced in manufacturing – if you ignore these you can drastically reduce the cost of production too.

There are reasons why ‘free trade’ agreements take years to negotiate, it’s because they can equally be potentially disastrous to an economy just as they can be beneficial.  They work best in similar economies using the same currency which is why the most successful example exists between the European countries however it’s evident even this isn’t a guarantee to economic success.

John Collins

Technology, Economics Writer

 

Brazil’s Economic Downturn Deepens

It doesn’t seem so very long ago that we were discussing the economic successes of emerging nations like Brazil.  From Europe we looked across at huge growth rates, rising living standards and a vibrant economy with a sense of extreme jealously.

brazilian-currency-1139100_640
However Brazil is now facing much bleaker economic prospects and it is a prime example of how quickly market sentiment can turn against an economy. The risks were always there, in this blog we highlighted here the fact that much of the success in Latin American countries was due to US economic policies – which meant that there was always a lack of genuine fundamentals underlying the growth. Much of the investment in these emerging countries was simply driven out of the US and Europe by very low interest and bond rates, when stability returned then the investment dried up in places like Brazil too.

The economic prospects for Brazil continued on a downward slope with this weeks decision for the credit rating agency Moody downgrading Brazil’s sovereign debt status to junk. The decision in itself will have little consequence, partly because it was anticipated and had largely been already priced into the markets. That’s not likely to be much relief though, more simply a confirmation of the bleak prospects of the Brazilian economy as a whole.

The reality is that Brazil has simply been spending too much with huge levels of debt and an ongoing fiscal deficit making it even bigger. As always in these situations, the talk is of a debt default which could be the catalyst for even more pressure on the country’s currency and a deepening recession.

Only a few years ago Brazil’s economy was growing at over 4% a year, whilst many other economies in the world were basically stagnant. Now that growth has been reversed and this year it is expected that it will contract by around 3-4% this year. This would represent Brazil’s worse recession in more than a hundred years, and with little indication of a turnaround the deficit is likely to increase.

The political situation is also unlikely to offer any relief for Brazilians, which desperately needs strong policies to deal with the economic crisis. However if you invest a few short minutes in looking at the Brazilian media online, possible with an online IP changer then you’ll see that there’s little sign of this happening. As one correspondent highlighted, the report by Moody’s is like a medical report which states the patient is sick yet is maintaining the same lifestyle which caused the problem.

Technical Citation

UK Economic Recovery- Tech Driven?

The UK economy took a little breather in the last quarter of 2014, with economic growth slowing down across many sectors.  However there were exceptions which demonstrate that certain areas of the UK economy are driving forward the recovery with others relatively stagnant.

electronic-devices-514179_640

One of the most important surveys in the last few weeks is that of the KPMG/Markit UK report which tracks various economic indicators.  It is particularly interesting to monitor the performance of the UK technical sector and compare it with other areas.   The UK Technical sector has been of increasing importance to the UK economy for many years and it seems that it growing by the year, the last quarter of 2014 demonstrated the highest performance gap for the last 8 years.

The tech sector continues to outstrip virtually every other sector of the economy, with new business gains, new products and even allowing for slow cost inflation (which can often effect demand for technical products).  Many new product launches helped perhaps inflate this difference but it has also resulted in a higher investment spending across the sector.

This is of course important to jobs as well and there is evidence of substantial employment increases to help fuel this growth.   Employment in the IT sector is also traditionally fairly well paid and can contribute to other sectors and overall growth of GDP.  The outlook remain positive, although perhaps with some slight reservations along with the rest of the economy.

There is no doubt that the IT sector is becoming in increasingly important to the UK economy.  There is also evidence that the pattern of employment in the UK is diversifying from the traditional roles.  There is much evidence to demonstrate  that more and more people are becoming self employed or working across several roles rather than the standard 9-5 one company employment model.   It is important to develop these sectors as they typically create highly skilled, adaptable and well paid employees.

One area which has shown a huge increase is that of people who leverage the internet to provide their main source of income.  Many thousands of people now do business purely online, with virtual businesses contributing a small but growing contribution to the internet.  Digital products and services like this from Ireland are bought and sold all across the world, providing income for thousands.

Jane Hallins

http://www.anonymous-proxies.org/

Scotland and the Debt Problem

It may be a moot point, in a couple of days time depending on the result of the Scottish referendum, however it represents one of the biggest decisions if they vote yes to independence. The basic premise is that Scotland want to maintain the pound as it’s currency, the UK Government have rejected this. In response Alex Salmond has said that Scotland will renege on it’s share of the UK National debt if they stick to this line.

It’s an interesting gambit, whatever happens a Nation needs to be trusted in order to succeed. Without trust in the financial markets borrowing costs can sky rocket. The National Institute of Economic and Social Research (NIESR) suggested that if Scotland did not honour it’s debt obligations it could cause huge economic problems for them.

scotland-13584_640
The first likely result would be a plummet in the credit rating that Scotland enjoys. This is almost certain to happen simply because it would be one of the first decisions that the new country would take and so it’s trust would be severely affected. This would leave the country unable to raise funds for a decade or more, at a time when the country would desperately need funds to build up it’s own infrastructure.

Whether this situation actually occurs or whether it’s brinkmanship is difficult to say. But most economic predictions suggest that Scotland would be a lot more expensive place to live at least for a few decades. The issue is that smaller economies have to pay higher costs simply due to economies of scale plus the huge rise in uncertainty in almost every area of life. Where do Scots get a passport, how do they pay their taxes, how do they tax their cars are just a small selection of the challenges that will be faced.

This will also be combined with reduced investment due to this uncertainty, higher costs in association with credit cards, food bills, and things like insurance and pension costs. There are probably thousands of other small challenges that will need to be faced, things like replacing the national broadcaster – the BBC and you won’t even be able to watch online without using a Smart DNS service or something similar.

The situation will be very similar to that of the Canadian and US border where you cannot access the other TV channels online when you happen to drift across a few mile. They are two different countries and although there’s no real physical barrier, if you connect from an independent Scotland you will need to change your IP address if you want to access any UK resources.

Czech Economic Programme produces Growth

Many have claimed these are long overdue, but the Czech Government currently working as a coalition have released it’s predictions for the period up to 2017. Overall it’s a fairly optimistic outlook, with public spending recovering without any increase in debt levels.  It is expected that this increase in public spending will largely be covered by higher growth levels.  There was some expectation about information on various efficiency drives and cost cutting initiatives promised by the coalition – unfortunately there was little about these.

czechprague_640

For anyone who follows Czech economics and politics there will be little surprise that one of the hot topics is that of the level of Value Added Tax (VAT) being set.  This has been a major source of disagreement between the parties who make up this coalition.  It is thought that there will  be some sort of agreement with a plan to introduce a lower level of VAT in the near future.  In the interim period is it expected that the current rates will drop a single point to 14 and 20% respectively.  Many want these drops to be much higher as well as simplifying the current rates into a single VAT and removing the lower and higher rate levels.

Growth figures look encouraging yet unspectacular, it is hoped that the Czech economy will grow by 2.0 % in the 2015 period.  This is up a few ticks from the current growth rate of 1.7%, public deficit figure currently are running at 18 and look set to rise over the next year before falling back to a manageable 1.7% of GDP in 2017.

There are specific reasons that public spending has jumped over the last 12 months.  One of the major reasons is the end of certain measures in the country’s austerity programme.  This year sees the end of a public sector pay freeze, and increased wage settlements will pay a large part in the increase in the levels of the public deficit rise.  There are also several large infrastructure projects being initiated over the next few years, some of these supported by EU grants and loans.  Some of the most important are directed at increasing the country’s telephone and broadband infrastructure.  This is especially important as there is a growing need to support the digital marketplaces and economy – there are many encouraging start ups which could end up being the next Facebook or Twitter!

Henry Cavanagh

 

Economic Dependency Causes Risks

We can see that many political events across the world are heavily influenced by economic links.  Ukraine seeks greater ties with Europe but is heavily reliant on Russian gas as an energy sources.  Russia seeks to flex it’s muscles internationally but is hampered by the fact that it’s economy is almost wholly reliant on selling raw materials like gas to European countries.  Stock markets and currencies tumble when political events cause instability in these relationships.

Australian Economics

Of course some of these links bring economic prosperity to a nation too, take the almost symbiotic link that Australia has with China.  The huge growth in China has required a huge amount of raw materials to satisfy it, as the smog clouds over Beijing testify too.  A lot of these materials come from the nearby resource rich Australia, which has even been dubbed ‘China’s mining pit’.

It’s hard to find an economy anywhere in the world that is so dependent on another, China buys 31% of Australian output.  This is usually incredibly beneficial except that it makes the Australian economy very reliant on how China fares economically.  So last week when a few weak statistics suggested that China’s growth was stalling – Australia got to share the pain.

Many investors already buy Australian stock as a means to leverage the Chinese market.  It’s much safer to invest in stocks and shares in Australian as opposed to the state controlled stock exchange in China.  Chinese restrictive practices have already started to impact it’s growth especially those on digital communication.  Many firms try to avoid setting up headquarters or offices in China due to the heavily filtered internet access.  Companies and individuals are forced to invest in a fast proxy simply to make their usual infrastructure work in that environment – for many it’s simply not worth  the effort choosing to settle nearby in places like Singapore which is not regulated as dramatically.

There is probably little that Australia can do in the short term about it’s reliance on Chinese success.  The worry that the Chinese economy is looking very fragile at the moment is a very real one however. It’s currency is overvalued, there are little sign of productivity gains or the vital structural reforms many hoped for.  Inflation is rising and there is a growing outflow of capital to investment markets abroad.  Australia has little options though to continue to trade heavily with China whilst seeking to develop other trading partners to try and reduce their exposure.

For more information on this subject see this video explanation of how to access Australian media sites.

Torrid Times in Emerging Markets – G20 Focus

This weekend in Sydney, the finance ministers of the G20 group of countries meet.  Every meeting has an official theme, and this one is no exception – the subject is restoring global group.

Over the last few years we have seen amid the turmoil in the developed economies of the world, the emergence of huge growth in Asia and South American economies in particular.  Much of this growth had in part been due to the other countries problems particularly the US.  The US Federal Reserve for example  has been buying bonds in order to keep money cheap and interest rates low – this has helped the US economy return to growth but it has many other economic impacts.  For example funds were driven towards the emerging countries seeking to invest in the higher growth rates and higher interest rates.

money-195833_640

Now this money is being returned to a more prosperous US, also because the risks in developed countries are much lower. This is causing a huge problem with big falls in currencies in Argentina and India for example.  The US has faced some criticism that it’s own economic policies have caused such instability in other countries.

Over the last few years, we amongst others have reported some of the incredible rises in the economies of some of these nations particularly the likes of Brazil and Argentina.  However it seems that the underlying instability and weaknesses of these economies means that they could be subject to damaging fluctuations when big economies like the USA change their policies.

It’s unlikely that we will ever see the situation where a country like the US will alter it’s economic policy in order to reduce global instability, western democracies really aren’t built like that.   However it is hopeful that meetings like this with the other G20 countries will at least make them ‘mindful’ of the affect that their policies can have on other countries with less stable infrastructure.

There are some interesting debates on the US media both print and online, you can access the US online news services from ABC, CNN and NBC by using a US proxy service like this.

Additionally there is coverage of the G20 meeting itself on the BBC website, the majority is accessible internationally although to view the news and broadcast documentaries  – you may need to watch this video.

Additional
For accessing the above reports on an iPad please see this post