Economics always wins!

Stephen Hawkins recently said “We cannot quite know what will happen if a machine exceeds our own intelligence, so we can’t know if we’ll be infinitely helped by it, or ignored by it and sidelined, or conceivably destroyed by it”. Humans need not apply

If we take the positive perspective and assume that AI will aid humans and that we are smart lazy beings, what will we do when the “bots” takeover the world?

Do you live to work or rather do you work to live?

 

Greece’s brain drain.

Europe’s economic woes don’t seem to be abating, but in comparison to Greece’s they appear trivial.  Since the Great Recession over 200 000 thousand Greeks have left for North America or other countries within Europe and it does not appear to be stopping.  The implications for the Greek economy are worrying and we can apply some useful diagrams to aid our analysis.  Obviously the long term unemployment here is a good starting point.  Unemployment is over 50% and unemployment hysteresis postulates that a temporary shock to aggregate demand (AD) can permanently lower the potential output of the economy and increase the equilibrium level of unemployment.  The diagram below shows that higher unemployment and reduced incomes results in an inward shift of AD but the structural unemployment, evident here, results in an inward shift of the LRAS.

For ease of explanation we can use the PPF diagram to help illustrate the effects of the above as well as the impact of a significant exodus of human capital from the Greek economy.

greece’s brain drain

 

The pros and cons of Walmart.

A fantastic article highlighting how deregulation has led to increased market concentration in the retail and food manufacturing sectors in the US and pretty much around the world.  It can be argued that monopsony power can increase econonic welfare through reduced prices for the consumer and higher profits for the monopsonist, but at what expense?  Depressed wages of the workers in the supply chain and possible reduced quality of products as suppliers attempt to cut costs.

Should government intervene and regulate the market to protect smaller businesses either competing or supplying the monopolist/monopsonist?  Is it in the interests of countries like India to let the likes or Walmart and Tesco have free reign?

A good opportunity to develop your chains of analysis and evaluation points.

Breaking up Walmart?

A world without OPEC and a halt to global warming?

The recent drop in oil prices lends itself to fascinating analysis.  OPEC members are finding it difficult to agree on a strategy to increase price and are more inclined to ‘cheat’ and sell more for less to protect revenues and market share.  High expenditure projects in Venezuela and some Middle Eastern countries  have placed greater emphasis on generating revenues to balance the books and, with the falling price of oil, they are perilously close to fiscal deficits.  As an aside one of the articles below questions the motives for such spending and  thus begs the question as to what may occur when such spending ceases?

The increase in US shale oil appears to exacerbate the situation further as supply is outstripping demand and on the face of it would signal the beginning of the end of OPEC.   Combined with the latest UN backed report stating that the use of fossil fuels should be fazed out by the end of this century if irreversible damage to the planet is to be avoided, countries like Kuwait need to restructure their economies sooner rather than later.

Great opportunity for development of chains of analysis and evaluation with diagrams.

A World Without OPEC?

Fossil fuels to go!

 

Would you buy an Huawei?

The potential answers to the above question, once explained are revealing.  Why would you prefer an Apple or Samsung phone or are you more cost sensitive?  Huawei has successfully broken into the oligopolist smart phone market based on a low price strategy.  But it is not just phones that Huawei produce: a third of the population of the world indirectly use an Huawei product.  But just as a strong brand acts as a barrier to entry, can a country ‘brand’ prevent a company developing a strong brand identity? China has long been associated with low cost and poor quality products.  If money was not an issue would you really buy a Huawei phone? Innovation in processes and products can lead to significant average cost reductions leading to increased competitiveness and market share.  Chinese firms are now the third largest owners of patents behind the US and Japan.  Has China unleashed ‘the gales of creative destruction’?  Below is a podcast from the BBC’s Business Daily that explores the change occurring in China with its focus on Huawei.  Plenty of chances to practise your chains of analysis and diagrams.

AR, MC and Scottish independence.

Scottish independence is an emotive subject and the results of the referendum this coming Thursday will potentially have huge ramifications for the future of Scotland and UK economy. As economists we attempt to remain objective in our analysis and evaluation of events and one could argue that the debate on Scottish independence is awash with normative statements such as  Alex Salmond stating independence would make Scotland better off.

The article below analyses and evaluates the potential pitfalls of an independent Scotland based on the premise that oil will be able to sustain economic development. David Smith argues that the marginal cost of producing a barrel of oil has increased 500% in the last 10 years while revenues have fallen and are predicted to keep falling for the foreseeable future, (A2 students should be able to illustrate this diagrammatically).

What implications does this have on fiscal policy?  Will the Scots be able to continue to spend 14% more per head than the remaining UK population?

Then there is currency.  Will an independent Scotland be able to survive without a ‘lender of last resort’ or will the EU club be too much of a temptation to turn down (if indeed their application is successful)? And if an application is successful what really is the difference in being governed from London or Brussels?

Scottish Independence