A Level Economics Pass or Fail?

As thousands of teenagers receive their A level grades, I am sure many of them would be able to do a better job of sorting out the economy than our present chancellor, who’s qualifications for the job include a degree not in Economics or Maths - but History..

We hear now that half of the economists who strongly supported the George Osbourne’s deficit-reduction-austerity plans are now asking for a rethink and urging the Treasury to take advantage of low borrowing costs to boost spending on infrastructure projects. 

Unlike George Osborne (and David Cameron) economists can see that the evidence now points to the need for a change of course. They know that without growth we can't get the deficit down – George Osborne is already forecast to borrow £150bn more than planned.

Output is now lower than it was when the coalition was formed two years ago while the Bank of England believes it will take until 2014 for gross domestic product to return to the peak reached in early 2008. The economy is expected to contract by 0.2% this year.

Roger Bootle, managing director of Capital Economics, said: "If I were chancellor at this point, I would alter the plan, I would stop the cuts to public investment and I might even seek to increase it. Supply-side reform might be welcome but what we're talking about here is a shortage of demand. The key thing is to try and get the private sector to spend its money and that may require a bit of government spending to prime the pump."

What he is referring to in simple terms is ‘the multiplier effect’

The Multiplier Effect

Every time there is an injection of new demand into the economy there is likely to be a multiplier effect. This is because an injection of extra income leads to more spending, which creates more income, and so on. The multiplier effect refers to the increase in final income arising from any new injection of spending.

The size of the multiplier depends upon household’s marginal decisions to spend, called the marginal propensity to consume (MPC), or to save, called the marginal propensity to save (MPS).  This in turn is largely dependent upon economic confidence.

When income is spent, this spending becomes someone else’s income, and so on. Marginal propensities show the proportion of extra income allocated to particular activities, such as investment spending by UK firms, saving by households, and spending on imports from abroad. For example, if 80% of all new income in a given period of time is spent on UK products, the marginal propensity to consume would be 80/100, which is 0.8.

The following formula to calculate the multiplier uses marginal propensities, as follows:

1/(1-mpc)

So, if consumers spend 0.8 and save 0.2 of every £1 of extra income, the multiplier will be  

1/(1-0.8)

= 1/0.2

= 5

This means the multiplier is 5, which means that every £1 of new income generates £5 of extra income.

The multiplier concept can be used any situation where there is a new injection into an economy for example when the government funds building of a new motorway or invests in a home building programme, as has been suggested.

Of course, there is also the downward or ‘reverse’ multiplier..

A withdrawal of income from the circular flow (austerity cuts, reductions in public spending etc etc) will lead to a downward multiplier effect which will further lead to a reduction of spending and economic activity...

Or in other words, just what George has been doing for the last year.

The Drum fauxlympics

Drum Magazine has been running a twitter and facebook campaign and competition called the #thedrumfauxlympics and the entries are some of the best spoof ads I've seen for a long time.

Have a look at all the entries here and cast your own vote on their facebook page.

Anti-Clockwise - better for right-legged athletes?

A great weekend of Olympic Sport and well done to ‘TeamGB’ on their medal tally so far, although I understand from an Australian friend of mine that actually ‘Silver is the new Gold’!  

Watching Mo Farah on Saturday night, I wondered why do they always run round the track in an anti-clockwise direction?  And, thanks to the BBC, here’s the answer:

According to a certain Paul Cartledge, professor of Greek History at the University of Cambridge, at Olympia and elsewhere in Greece both the running track and the hippodrome were straight, using up-and-back "laps" and even in the early modern Olympics - Athens (1896 and 1906), Paris (1900), St Louis (1904) - athletes ran clockwise.

At the time of the 1896 Games, most track races in England were also run clockwise and at Oxford and Cambridge University, both important athletic institutions, races also ran clockwise  (Oxford until the late 1940s and Cambridge until the 1950s)

But a number of countries began to settle instead on the American custom of running counter-clockwise... 

One theory is that early races were run on horse tracks, which ran in that direction. 

Anti-clockwise became the norm by the early 1900s and the Olympic organisers came under pressure to conform. The change was compete world-wide between between 1950 and 1954 and Roger  Bannister's four-minute mile was run in the anti-clockwise direction.

So we have the Americans to thank it seems – but does running anti-clockwise make a difference to left or right-legged athletes?

Answers on a postcard please.

UK - Closed for Business?

With the Olympics in London, there has been much debate in Travel and Tourism circles about the tourism benefits of  hosting the Olympic games this year.  London can rightly be proudly of the fact that the Olympics will attract more visitors than any other previous Olympic host city. That's 60,000 international visitors coming purely to see the Olympic games (and twice as many that visited Athens for example)


Critics however argue that this increase in visitors to the Olympics is massively offset by the huge fall in international leisure visitors - or in other words, the huge number of visitors who will actively seek to travel elsewhere in order to avoid visiting London when the Olympics are on!


(For more on this see BlogPost - The Ups and Downs of London Tourism )


However, there is also one other major reason why tourists are choosing to travel elsewhere other than the UK - and it has nothing to do with the Olympics.  It's the difficult and obstructive process of obtaining a visa!  A process so difficult and absurd in its application that many people simply give up!


The European Tour Operators Association (ETOA) have been campaigning and lobbying for a revision of the visa application process for many years seeing a simplification of the visa application process as conducive to boosting to incoming tourist business, and (multiplier) spend.


Last week there was a Radio 4 'Face the Facts' programme dedicated to this very subject  - have a listen to the arguments.  Some will say relaxing visa controls will lead to increases in illegal immigration and terrorism -  other, more rational people will argue that a sensible visa application system will boost visitors to the UK and  generate millions of extra consumption into the UK economy.


(Tom Jenkins of the ETOA and visa-reform-evangelist features in the programme)

The Crate Escape

Carlsberg’s latest Ad is a take on the film ‘The Great Escape’, and takes place in a health spa where the men are unwilling participants in a luxury spa weekend. After being tortured by the all-female staff the men join together to hatch a plan to break out of the spa and smuggle in a crate of Carlsberg.  

I particularly like the way they dispose of the mud in the bath..

The Ad was created by Creative Agency Fold 7 who add, “For a global ad, you need an internationally recognised scenario that translates across all markets”

Sven Langeneckert, VP of Carlsberg gives us the marketing angle, “With ‘The Crate Escape’ we demonstrate our continuing commitment to the line ‘That calls for a Carlsberg’ and positioning of the brand as a reward”

Created as a 90, 60 and 30 second ad, ‘The Crate Escape’ will be shown in Ireland, Sweden and Belgium from July 8 and other regions in August before rolling out to global markets.

BBC 2012 Olympic Trail

For those that missed the amazing title sequence and marketing trail for the BBC 2012 Olympics - here it is!

The animation will be used for each Olympic event, as well as being used for marketing purposes. At just over a minute long, the sequence sees athletes running through terraced streets; cyclists tackling the Scottish highlands and gymnasts somersaulting along the London bridge.

The animation was created by design agency RKCR/Y&R, who describe themselves as 'the UK's most creative agency'. 

The production was handled by Passion Pictures and Red Bee Media, with Passion Pictures also taking care of the animation. Director Pete Candeland has also worked with the likes of Coca Cola and the Gorillaz. 

A full two-minute, forty second version will be aired on BBC One on July 3rd. Sixty, Forty, Thirty and Five second versions of the titles will be used throughout the games coverage.

I would love to know how much it cost!   Any ideas?

New Breathalyzer laws in France

Going to France on holiday?  Taking the car?  Don't forget your breathalyzer?

As of yesterday (01 July), motorists and motorcyclists will face an on-the-spot fine unless they travel with two single-use breathalyser kits in their cars  (along with your compulsory warning triangle, high visibility vest and first aid kit!) as part of a government drive to reduce the number of drink-driving-related deaths 

The new law, which exclude mopeds, will also include foreign drivers from 1 November after a four-month period of grace. Anyone failing to produce a breathalyser after that date will receive an €11 fine.

French police have warned they will be carrying out random checks on drivers crossing into France via ferries and through the Channel tunnel.

The French government hopes the laws will encourage drivers who suspect they may be over the limit to test themselves, and will save around 500 lives a year.

The French government is hoping that the requirement will encourage French motorists to test themselves before driving if they have consumed any alcohol - and that using the kit will become as normal as reaching for a condom before sex, they claim.

Alcohol is responsible for almost a third of fatal car accidents on French roads, compared with one in five British and just one in ten German accidents. 

The French drink-driving limit is 50mg of alcohol in 100ml of blood – less than the UK limit of 80mg. 

Only kits bearing the letters 'NF' for 'French Norm' will be recognised by the police - so pack a couple of these into your car