Here’s an exciting bit of news. Lake Eyre in South Australia is filling and the Lake Eyre Yacht Club’s sailing regatta started on 5 July. So what, you may ask! Well, Lake Eyre is in the middle of one of the driest deserts in the world. It virtually never rains there and most of the time, the ‘lake’ is one huge dry salt pan.
But just a few times per century, the rainfall many kilometres away is heavy enough to fill the dry river beds of Cooper Creek, Finke River, Georgina River and Diamantina River. These ‘rivers’ drain about one sixth of the whole of Australia (about the size of Germany, France, Italy combined) – but a sixth where rainfall is normally very low. But this season’s rains have been exceptionally high; the rivers are flowing – and the lake is filling.
When the lake does fill, it teems with life. Fish eggs that have lain buried in the salt for years hatch. Sea birds fly in nearly 1000 kilometres from the Southern Ocean. And it’s then that the enthusiasts come to play.
What’s this got to do with economics? Well economics is about scarcity and choice. Many of the choices we make are not simple buying and selling choices. Many clubs and other organisations thrive on the enthusiasm of their members. They’re not there to make money but certainly add to people’s ‘utility’. And enthusiasm, and hope, is what the members of the Lake Eyre Yacht Club have in abundance. Let’s hope they get lots of utility from sailing in the desert over the coming weeks.
Articles
Outback Sailors 10 News (6/7/10)
Floods and boat race brings life to desert lake ABC News (7/7/10)
Flightseeing Lake Eyre Stuff.co.nz, James Shrimpton (25/5/10)
Gone (not fishing) flying over Lake Eyre Australian Daily Telegraph, Maralyn Parker (6/6/10)
The Lake Eyre Yacht Club Lounge of the Lab Lemming, Chuck Magee (21/3/10)
Lake Eyre Regatta ExplorOz, The Landy blog (14/6/10)
Boom follows boom in the Lake Eyre Basin ABC Western Queensland, Julia Harris (23/3/10)
Entries flood in for rare outback regatta ABC News (23/6/10)
Yacht club sails into history with a desert regatta The Age (7/7/10)
Chasing water to Lake Eyre ABC Rural, Caitlyn Gribbin (6/7/10)
Lake Eyre brims with life ABC News, Paul Lockyer (15/6/10)
Yachting regatta in Australian desert for first time in 20 years Telegraph, Bonnie Malkin (7/7/10)
Plain sailing for desert regatta Gulf Times (7/7/10)
Information sites
Lake Eyre Yacht Club
Current Lake Status Lake Eyre Yacht Club
Lake Eyre Wikipedia
Lake Eyre Rita’s Outback Guide
Questions
- What attitude do the members of Lake Eyre Yacht Club have towards risk and uncertainty?
- How would you set about estimating the consumer surplus that members are likely to gain from attending the regatta and sailing on the lake?
- How price elastic would you expect the demand for and supply of services to be, such as ferry crossings and accommodation?
- What business opportunities are likely to be associated with sailing on the lake? Would it be ‘rational’ to set up such a business?
Transport issues in the UK are always newsworthy topics, whether it is train delays, cancelled flights, the quality and frequency of service or damage to the environment. Here’s another one that’s been around for some time – high-speed rail-links. Countries such as France and Germany have had high-speed rail links for years, but the UK has lagged behind. Could this be about to change?
The proposal is for a £30bn 250mph high-speed rail link between London and Birmingham, with the possibility of a future extension to Northern England and Scotland. This idea has been on the cards for some years and there remains political disagreement about the routes, the funding and the environmental impact. Undoubtedly, such a rail-link would provide significant benefits: opening up job opportunities to more people; reducing the time taken to commute and hence reducing the opportunity cost of living further away from work. It could also affect house prices. Despite the economic advantages of such a development, there are also countless problems, not least to those who would be forced to leave their homes.
People in the surrounding areas would suffer from noise pollution and their views of the countryside would be changed to a view of a train line, with trains appearing several times an hour at peak times and travelling at about 250mph. Furthermore, those who will be the most adversely affected are unlikely to reap the benefits. Perhaps the residents of the Chilterns would be appeased if they were to benefit from a quicker journey to work, but the rail-link will not stop in their village. In fact, it’s unlikely that they would ever need to use it. There are significant external costs to both the residents in the affected areas and to the environment and these must be considered alongside the potential benefits to individuals, firms and the economy. Given the much needed cuts in public spending and the cost of such an investment, it will be interesting to see how this story develops over the next 10 years.
Podcasts and videos
£30bn high-speed rail plans unveiled Guardian, Jon Dennis (12/3/10)
Can we afford a ticket on new London-Birmingham rail line? Daily Politics (11/3/10)
All aboard? Parties disagree over high-speed rail route BBC Newsnight (11/3/10)
Articles
The opportunities and challenges of high speed rail BBC News, David Miller (11/3/10)
Beauty of Chilterns may be put at risk by fast rail link, say critics Guardian, Peter Walker (11/3/10)
High-speed rail is the right investment for Britain’s future Independent (12/3/10)
Hundreds of homes will go for new high-speed rail line Telegraph, David Milward (12/3/10)
Questions
- Make a list of the private costs and benefits of a high-speed rail link.
- Now, think about the external costs and benefits. Try using this to conduct a Cost-Benefit Analysis. Think about the likelihood of each cost/benefit arising and when it will arise. What discount factor will you use?
- There are likely to be various external costs to the residents of the Chilterns. Illustrate this concept on a diagram. Why does this represent a market failure?
- How would you propose compensating the residents of the Chilterns? Are there any problems with your proposal?
- Will such a rail link benefit everyone? How are the concepts of Pareto efficiency and opportunity cost relevant here?
- To what extent would this rail link solve the transport problems we face in the UK. Think about the impact on congestion.
The most popular sport in the world: football. What else?! Huge games and salaries to match. But is it really as glamorous as we think? We may see some top players receiving a salary per week that most people can’t hope to come close to in a year, but players at Portsmouth have had to go without their wages on three occasions, as the club entered financial strife. It is these high salaries that prevent many clubs from breaking even, let alone making a profit. Whilst a lack of salary to footballers is a rare occurence, the football industry isn’t the money-churning machine that it appears to be.
We’re used to seeing full stadia and fans decked out in their club’s regalia, so surely football clubs are awash with money? But things aren’t so rosy. Research published by the Centre for the International Business of Sport at Coventry University in 2008 revealed that clubs in the top four tiers of English football between the 2001/2 and 2005/6 seasons made an aggregated loss of more than £1bn. In addition, 56 clubs in the English leagues went bankrupt between the Insolvency Act’s introduction in 1986 and June 2008.
We’ve seen a number of buyouts of clubs in recent years by extremely wealthy families. The Glazer family bought Manchester United in 2005, yet this buyout and many others are heavily leveraged and servicing their debts is now proving a problem. Whilst some clubs publish annual profits, it doesn’t mean they are without debt. Manchester United, defending champions of the English football league, earned profits of £48.2 million in the 2008/9 season, but its debts are estimated at around £700 million. The club received a loan of £509.5 million and had to pay £41.9 million in interest.
The owners of Chelsea and Manchester City have recently converted £340 million and £304.9 million of loans into equity respectively. Financiers, however, say this is simply “moving money from their left pocket to the right”. Manchester City reported a massive loss of £92.6 million for the 2008/9 financial year. Unfortunately for them, these figures ignore outlays since May 2009 for Carlos Tevez, Kolo Toure and Emmanuel Adebayor. Portsmouth’s £7 million share of TV revenue has been diverted directly to other clubs to whom they owe money for transfers.
So, how much of a money-maker is football? Well stadia are still full and it’s certainly growing in popularity in Asia. Premier teams are now appreciating how much money can be made out there by selling television rights. However, in 2008 the FA chairman Lord Triesman still estimated that English football debts stood at £3bn. With all this debt, are there any positives? Just one – at least it’s less than the UK’s public debt!
Abu-Dhabi family reduce debt for Manchester City Campden FB (7/1/10)
Manchester City post massive loss BBC News (6/1/10)
What a waste of money – the Premier League’s best paid flops Guardian, Jamie Jackson (10/1/10)
Portsmouth players still not paid as Premier League expresses concern at crisis Telegraph, Paul Kelso (6/1/10)
Paying by the rules The Lawyer, Adam Plainer (11/1/10)
Jacob unimpressed by fan protests Press Association (11/1/09)
Cardiff City to face winding up order BBC Sport (8/1/10)
Debt swap is ‘window dressing’ The Independent, Nick Clark (7/1/10)
Manchester United aim to raise £500m in bond sale in bid to reduce mounting debt Telegraph, Mark Ogden (11/1/10)
Chelsea debt wiped off by Roman Abramovich but club still record loss Telegraph (30/12/09)
Manchester United to raise £500m BBC News (11/1/10)
Cristiano Ronaldo saves Man-Utd – Again Sky News (11/1/10)
Tony Fernandes and David Sullivan vie for control of West Ham Telegraph, Jason Burt (16/1/10)
One thing at Manchester United isn’t going downhill – their debt Guardian, David Conn (6/1/10)
Premier League looks to cash in on Asia BBC News, Guy de Launey (29/12/09)
Questions
- Why do footballers receive such high wages? Illustrate why wages in the Premier League are so much higher than those received by players in non-league teams. What’s the key factor?
- What is debt swapping?
- In the Independent article: ‘Dept swap is Window dressing’, what does it mean by (a) window dressing and (b) debt swap is ‘moving money from their left pocket to the right’?
- How can a club such as Manchester United record a profit, but have substantial debts?
- What is leveraging and why is it a problem for some football teams?
- How will an issue of bonds enable a football club to refinance its debt?
- What opportunities does Asia present to English football?
Paul Samuelson, who died on 13 December at the age of 94, was one of the greatest economists who ever lived. A generation of economics students had their first exposure to the subject through his textbook, Economics, first published in 1948 and now in 19th edition. His research covered many topics in economics and he brought a rigour to economic analysis that has had a profound influence on the development of the subject.
Tributes have flowed in from around the world and many obituaries have been written. The following is a selection that give you a feel for the huge contribution he made to the subject.
Thinking about his achievements, try answering the question below.
Nobel Prize-winning economist advised several U.S. presidents Washington Post, Patricia Sullivan (14/12/09)
‘Samuelson was the pre-eminent economist of our times’ Business Standard (India), Amartya Sen (19/12/09)
Across the Spectrum, Economists Mourn Paul Samuelson the Atlantic Wire, Max Fisher (14/12/09)
Pioneer who turned economics into a science Financial Times, Stephanie Flanders (14/12/09)
Paul Samuelson, RIP The Hindu Business Line, T.C.A. Srinivasa-Raghavan (14/12/09)
Paul Samuelson Telegraph (14/12/09)
Paul Samuelson The Economist (17/12/09)
Question
What makes a great economist?
At a three-day event from 27 to 29 November, people were given the opportunity to barter for works of art on display at the Rag Factory gallery in London. Works by many famous contemporary artists were displayed, although none of the works was signed and the artist’s name was not displayed.
The idea was that people would barter for works on their own merits rather than because of the name of the artist. People could offer anything they chose. They simply wrote the offer on a slip and then the artist would choose which ever offer appealed to them the most. Offers ranged from a lettuce, a curry and even a song, to a Ferrari and a person’s own kidney.
As Stephanie Hirschmiller writes in the third linked article below, “Bartering has long been a mechanism on which the art world spins – from Picasso exchanging sketches for meals and London’s YBAs running tabs at The Ivy in exchange for pieces of their work to adorn the venues walls. Even Manhattan’s Chelsea Hotel, home to a slew of famous residents including Bob Dylan, Allen Ginsberg, Dylan Thomas and William Burroughs would once accept art in lieu of rent from its cash strapped incumbents.”
So is barter a realistic alternative to the market – at least for works of art and some other items? Does it have any advantages? The following articles consider the issues.
Barter for Art (video) BBC Today Programme, Evan Davis (28/11/09)
Pick up an Emin for a song Independent, Annie Deakin (27/11/09)
Barter Economy The Handbook, Stephanie Hirschmiller (24/11/09)
Don’t believe the hype New Statesman, Stephanie Hegarty (27/11/09)
Saving on Art the Old-Fashioned Way New York Times, Alice Pfeiffer (23/11/09)
Questions
- What are the necessary conditions for successful barer to work? Can it ever be an efficient form of exchange?
- What are the advantages of barter over normal market exchange with money and prices?
- For what other products and services might barter be an appropriate form of exchange?
- Do you take part in barter at all? If so, under what circumstances and why?