The possibility of recession in the UK, the USA and Europe has attracted a great deal of media attention and in this podcast Andy Beharrell considers whether there is any real evidence of recession. The podcast considers the definition of recession, the causes of recession and the different approaches taken by governments to try to keep their economies out of recession. While the UK and Europe have adopted essentially rules-based policy approaches, the USA has taken a more interventionist and discretionary approach with a significant loosening of both monetary and fiscal policy.
Category: Essentials of Economics: Ch 12
The potential relevance of Keynesian economic theory has been sharply brought back into focus as governments struggle to find an appropriate mix of policies to try to avoid or mitigate the impact of recession on their economy. Chancellor Alistair Darling has relaxed fiscal rules to allow spending to rise in an attempt to boost aggregate demand and compensate for falling consumer demand.
How to kick start a faltering economy the Keynes way BBC Magazine (22/10/08)
Situation vacant: a theorist is sought to succeed Mr Keynes Guardian (11/10/08)
In praise of ….. John Maynard Keynes Guardian (9/10/08)
Spend, spend, spend: Alistair Darling adopts John Maynard Keynes doctrine Times Online (20/10/08)
Darling invokes Keynes as he eases spending rules to fight recession Guardian (20/10/08)
Follow Gordon Brown again and spend out of recession Times Online (14/10/08)
Economists condemn Chancellor Alistair Darling’s spending plan Telegraph (26/10/08)
Keynes, the man to get the Government out of a crisis The Independent (20/10/08)
Questions
| 1. | Explain briefly the Keynesian approach to the management of the level of aggregate demand. |
| 2. | Using diagrams as appropriate, show the impact of the relaxation of fiscal spending rules on the UK economy. |
| 3. | Discuss the extent to which a Keynesian approach to economic policy is likely to help the government avoid a recession in the UK. Is leaving the control of interest rates in the hands of an independent Bank of England a constraint on the effectiveness of this policy approach? |
The financial crisis and economic downturn have started to impact on unemployment which, in the UK, has risen at the fastest rate for 17 years. A study by the International Labour Organisation (ILO) has said that the downturn may add 20 million to the global unemployment total bringing the figure to around 210 million.
Unemployment rises at fastest rate in 17 years Times Online (15/10/08)
Smoke clears to reveal the monster of rising unemployment Guardian (19/10/08)
Unemployment total may be more than 2 million by Christmas Guardian (16/10/08)
Back to the future? No, thanks Guardian (15/10/08)
White collar workers next victims as unemployment accelerates Times Online (16/10/08)
World jobless ‘to add 20 million’ BBC News Online (20/10/08)
UK recession is here to stay, experts warn Telegraph (26/10/08)
Recession Britain: Just how bad is it … and will it get much worse? The Independent (25/10/08)
Questions
| 1. | Explain the likely impact of the economic downturn on the UK labour market. |
| 2. | Discuss the view that “Unemployment won’t be solved by labour market flexibility ……. “. |
| 3. | Assess policies that governments around the world can adopt to try to mitigate the likely impact of a 20 million rise in unemployment. |
During his lifetime Galbraith warned extensively of the problems likely to be associated with financial excesses, and if alive today would almost certainly allow himself a ‘told you so’ moment. He was a lifelong liberal who argued that capitalism was inherently a fragile and unstable system. So what relevance does his work have to the current financial crash?
Galbraith saw this coming Guardian (15/10/08)
In praise of …The Great Crash 1929 Guardian (15/10/08)
Questions
| 1. | Write a short paragraph summarising Galbraith’s life and work. |
| 2. | Assess the extent to which his arguments in relation to the fragility of the financial system are still relevant today. |
| 3. | Galbraith commented that all stockmarket bubbles exhibit “seemingly imaginative, currently lucrative, and eventually disastrous innovation in financial structures“. Discuss the extent to which this kind of innovation (e.g. derivatives and sub-prime mortgages) may have been responsible for the current financial crisis. |
“‘Capitalism,’ Schumpeter wrote, ‘is by nature a form or method of economic change and not only never is but never can be stationary … This process of Creative Destruction is the essential fact about capitalism”. In the article below William Keegan looks at this process of creative destruction and relates it to the current financial crisis and the downturn in the business cycle.
Moral hazard? It’s just another danger along the capitalist way Guardian (5/10/08)
Time To Drop The Baggage That Comes With Moral Hazard Financial Times (4/10/08)
Questions
| 1. | Explain what is meant by the term ‘Creative Destruction’. |
| 2. | Explain what is meant by the term ‘Moral Hazard’. |
| 3. | “In theory, enlightened economic policies can moderate the workings of the business cycle”. Discuss possible policies that can moderate the workings of the business cycle. |
| 4. | Discuss the extent to which the recent economic boom was an ‘asset-price boom’ rather than a ‘traditional one’. |