The second largest economy in the world, with a record expansion to its current economic status: China. With a phenomenal population, massive migration to the cities and incredible infrastructure development, China has fast become a key economic player, with environmental and pollution problems to match.
The price of China’s economic development may be too high for some people. Increases in incomes, growth and employment may be good news, but is the cost too high? Do economic growth and progress mean poor health and if so, is this a price worth paying
Another big topic within China is the impact on inequality. With growth accelerating in urban areas, population movement from the rural to the urban has been a common feature across China, but this has also created greater inequality. This population movement has separated families and played a role in creating barriers of access to health and education.
The following article from the BBC considers a range of indicators within China and you may also want to review some earlier blog postings on the Sloman News Site which analyse the Chinese economy.
Cement and pig consumption reveal China’s huge changes BBC News (21/9/15)
Questions
- What are the key drivers of China’s development?
- What are the costs and benefits of rural-urban migration?
- To what extent do you think there may be a trade-off between quality and quantity when it comes to infrastructure projects? Or is Chinese labour simply more efficient relative to countries such as the UK?
- How should we measure economic development? If access to education and health care is limited in the more rural areas, but widely available in the larger cities, does this suggest a country that is developing?
- What are the main externalities that China must tackle? Are they domestic issues or global ones? What about the solutions?
- If a key driver of Chinese growth and development is government investment in infrastructure projects, is this true and sustainable growth or do you think it might slowly disappear if the government doesn’t continue to invest?
- Do you think the relative success of China can be replicated in other emerging nations and in particular in nations within Africa?
Jeremy Corbyn, the newly elected leader of the Labour Party, is proposing a number of radical economic policies. One that has attracted considerable attention is for a new form of QE, which has been dubbed ‘people’s quantitative easing’.
This would involve newly created money by the Bank of England being directly used to fund spending on large-scale housing, energy, transport and digital projects. Rather than the new money being used to purchase assets, as has been the case up to now, with the effect filtering only indirectly into aggregate demand and even more indirectly into aggregate supply, under the proposed scheme, both aggregate demand and aggregate supply would be directly boosted.
Although ‘conventional’ QE has worked to some extent, the effects have been uneven. Asset holders and those with large debts, such as mortgages, have made large gains from higher asset prices and lower interest rates. By contrast, savers in bank and building society accounts have seen the income from their savings decline dramatically. What is more, the indirect nature of the effects has meant time lags and uncertainty over the magnitude of the effects.
But despite the obvious attractiveness of the proposals, they have attracted considerable criticism. Some of these are from a political perspective, with commentators from the right arguing against an expansion of the state. Other criticisms focus on the operation and magnitude of the proposals
One is that it would change the relationship between the Bank of England and the government. If the Bank of England created money to fund government projects, that would reduce or even eliminate the independence of the Bank. Independence has generally been seen as desirable to prevent manipulation of the central bank by the government for short-term political gain. Those in favour of people’s QE argue that the money would be directed into a National Investment Bank, which would then make the investment allocation decisions. The central bank would still be independent in deciding the amount of QE.
This leads to the second criticism and that is about whether further QE is necessary at the current time. Critics argue that while QE of whatever type was justified when the economy was in recession and struggling to recover, now would be the wrong time for further stimulus. Indeed, it could be highly inflationary. The economy is currently expanding. If banks respond by increasing credit, the velocity of circulation of narrow money could rise and broad money supply grow, providing enough money to underpin a growing economy.
Many advocates of people’s QE accept this second point and see it as a contingency plan in case the economy fails to recover and further monetary stimulus is deemed necessary. If further QE is not felt necessary by the Bank of England, then the National Investment Bank could fund investment through conventional borrowing.
The following articles examine people’s QE and look at its merits and dangers. Given the proposal’s political context, several of the articles approach the issue from a very specific political perspective. Try to separate the economic analysis in the articles from their political bias.
Jeremy Corbyn’s proposal
The Economy in 2020 Jeremy Corbyn (22/7/15)
Articles
People’s quantitative easing — no magic Financial Times, Chris Giles (13/8/15)
How Green Infrastructure Quantitative Easing would work Tax Research UK, Richard Murphy (12/3/15)
What is QE for the people? Money Week, Simon Wilson (22/8/15)
QE or not QE? A slippery slope to breaking the Bank EconomicsUK.com, David Smith (23/8/15)
We don’t need “People’s QE”, basic economic literacy is enough Red Box, Jonathan Portes (13/8/15)
Is Jeremy Corbyn’s policy of ‘quantitative easing for people’ feasible? The Guardian, Larry Elliott (14/8/15)
Corbynomics: Quantitative Easing for People (PQE) Huffington Post, Adnan Al-Daini (7/9/15)
Corbyn’s “People’s QE” could actually be a decent idea FT Alphaville, Matthew C. Klein (6/8/15)
Jeremy Corbyn’s ‘People’s QE’ would force Britain into three-year battle with the EU The Telegraph, Peter Spence (15/8/15)
Would Corbyn’s ‘QE for people’ float or sink Britain? BBC News, Robert Peston (12/8/15)
Strategic Quantitative Easing – public money for public benefit New Economics Foundation blog, Josh Ryan-Collins (12/8/15)
People’s QE and Corbyn’s QE Mainly Macro blog, Simon Wren-Lewis
You can print money, so long as it’s not for the people The Guardian, Zoe Williams (4/10/15)
Questions
- What is meant by ‘helicopter money’? How does it differ from quantitative easing as practised up to now?
- Is people’s QE the same as helicopter money?
- Can people’s QE take place alongside an independent Bank of England?
- What is meant by the velocity of circulation of money? What happened to the velocity of circulation following the financial crisis?
- How does conventional QE feed through into aggregate demand?
- Under what circumstances would people’s QE be inflationary?
The cost of living is a contentious issue and is likely to form a key part of the political debate for the next few years. This debate has been fuelled by the latest announcement by SSE of an average rise in consumer energy bills of 8.2%, meaning that an average dual-fuel customer would see its bill rise by £106. With this increase, the expectation is that the other big energy companies will follow suit with their own price rises.
Energy prices are made up of numerous factors, including wholesale prices, investment in infrastructure and innovation, together with government green energy taxes. SSE has put their price hike down to an increase in wholesale prices, but has also passed part of the blame onto the government by suggesting that the price hikes are required to offset the government’s energy taxes. Will Morris, from SSE said:
We’re sorry we have to do this…We’ve done as much as we could to keep prices down, but the reality is that buying wholesale energy in global markets, delivering it to customers’ homes, and government-imposed levies collected through bills – endorsed by all the major parties – all cost more than they did last year.
The price hike has been met with outrage from customers and the government and has provided Ed Miliband with further ammunition against the Coalition’s policies. However, even this announcement has yet to provide the support for Labour’s plans to freeze energy prices, as discussed in the blog Miliband’s freeze. 
Customers with other energy companies are likely to see similar price rises in the coming months, as SSE’s announcement is only the first of many. A key question is how will the country provide the funding for much needed investment in the energy sector? The funds of the government are certainly not going to be available to provide investment, so the job must pass to the energy companies and in turn the consumers. It is this that is given as a key reason for the price rises.
Investment in the energy infrastructure is essential for the British economy, especially given the lack of investment that we have seen over successive governments – both Labour and Conservative. Furthermore, the government’s green targets are essential and taxation is a key mechanism to meet them. Labour has been criticized for its plans to freeze energy prices, which may jeopardise these targets. The political playing field is always fraught with controversy and it seems that energy prices and thus the cost of living will remain at the centre of it for many months.
More energy price rises expected after SSE increase BBC News (10/10/13)
SSE retail boss blames government for energy price rise The Telegraph, Rebecca Clancy (10/10/13)
A better way to take the heat out of energy prices The Telegraph (11/10/13)
SSE energy price rise stokes political row Financial Times, John Aglionby and Guy Chazan (10/10/13)
Ed Miliband condemns ‘rip-off’ energy firms after SSE 8% price rise The Guardian, Terry Macalister, Angela Monaghan and Rowena Mason (28/9/12)
Coalition parties split over energy companies’ green obligations Independent, Nigel Morris (11/10/13)
Energy price rise: David Cameron defends green subsidies The Guardian, Rowena Mason (10/10/13)
‘Find better deals’ users urged as energy bills soar Daily Echo (11/10/13)
Energy Minister in row over cost of taxes Sky News (10/10/13)
SSE energy price rise ‘a bitter pill for customers’ The Guardian, Angela Monaghan (10/10/13)
Energy firm hikes prices, fuels political row Associated Press (10/10/13)
Only full-scale reform of our energy market will prevent endless price rises The Observer, Phillip Lee (27/10/13)
Questions
- In what market structure would you place the energy sector?
- Explain how green taxes push up energy bills? Use a diagram to support your answer.
- Consider the energy bill of an average household. Using your knowledge and the articles above, allocate the percentage of that bill that is derived from wholesale prices, green taxes, investment in infrastructure and any other factors. Which are the key factors that have risen, which has forced SSE (and others) to push up prices?
- Why is investment in energy infrastructure and new forms of fuel essential? How might such investment affect future prices?
- Why has Labour’s proposed 20-month price freeze been criticised?
- What has happened to energy prices over the past 20 years?
- Is there now a call for more government regulation in the energy sector to allay fears of rises in the cost of living adversely affecting the poorest households?
The 2020 Olympics has just been awarded to Tokyo, beating Madrid and Istanbul. Concerns over the safety of the games in Tokyo, with the city being perceived as relatively close to the Fukushima nuclear plant, were overcome with the help of an address by the Japanese Prime Minister, Shinzo Abe. So, what are the economic implications of this latest development in the sporting world?
When London was awarded the 2012 Olympic Games, estimates suggested that it would generate a £16.5 billion contribution to GDP. With many new construction projects, there was the inevitable injection of government expenditure. This led to the creation of new jobs and thus successive employment multiplier effects were generated. This is also likely to be true for Tokyo, with current proposals suggesting that ten new permanent sites will be built to host the various sports of the Games. This will undoubtedly generate new jobs and will provide an almost certain boost to the construction industry. This, in turn, will generate further multiplier effects across a multitude of industries and across the rest of the country.
There will also be further economic effects, for example on Japanese investment and stocks and shares, with a boost in confidence and optimism. A Tokyo-based fund manager, Hiroshi Fujumonto, said:
Olympics-related stocks are yet to fully price in the decision, even though they’ve already outperformed … In the short term the entire Japanese share market will get a boost from celebratory buying and expectations for the event’s economic impact.
This was also confirmed by Shinzo Abe, when he commented after the victory was announced that ‘I want to make the Olympics a trigger for sweeping away 15 years of deflation economic shrinkage.’ 
The Japanese economy has been struggling for many years and this may be the much needed boost to the country’s optimism, infrastructure and economy.
As the world’s third largest economy, this economic boost is also likely to have knock-on effects on other countries across the world, though it is more likely to be the long-term impact that is important here. Just as it was with the London Olympics, the final effect and cost will only be known some years after the Olympics are held, but for now the work will start for Japan.
Olympics 2020: Tokyo wins race to host games BBC Sport (7/9/13)
Tokyo Olympics win seen boosting infrastructure, recovery Bloomberg, Yoshiaki Nohara and Satoshi Kawano (8/9/13)
Tokyo wins bid to host 2020 Olympic Games Telegraph, Ben Rumsby (8/9/13)
Tokyo chosen as ‘safe pair of hands’ to host 2020 Olympics Financial Times, Benedict Mander (8/9/13)
Japanese bid’s passion earns Tokyo the 2020 Olympic Games Guardian, Owen Gibson (7/9/13)
Olympics 2020: Why Tokyo is a ‘safe pair of hands’ to host Games BBC News, David Bond (8/9/13)
Questions
- What is the multiplier effect and how is it calculated?
- How can the overall economic benefits of the Olympic Games be estimated?
- Which industries in Tokyo are likely to be the ones that benefit from the Olympic Games?
- Outline a cost–benefit analysis of the Olympic Games.
- Why are share prices likely to go up in Japan based on this news? Look at both the demand and supply factors that will affect share prices.
- Is it possible that there will be wider multiplier effects on other countries besides Japan?
The Preliminary Estimate of the UK Q2 GDP figures by the Office for National Statistics show that the UK economy grew by 0.6% in the second quarter of 2013: double the growth rate of the first quarter and almost back to the long-run average growth rate prior to 2008.
At first sight, this would seem to be good news – certainly from the government’s point of view. What is more, unlike the previous quarter, growth is spread relatively evenly across the three main sectors: the production (manufacturing, mining, water supply, etc.) and services sectors both grew by 0.6% and the construction sector by 0.9% (this sector fell by 1.8% in the previous quarter). (Click here for a PowerPoint of the chart below.)
But while growth in the latest quarter may be balanced between the broad sectors, the rise in aggregate demand is not balanced between its components. As an earlier news item (A balancing act) showed, the rise in aggregate demand has been driven largely by a rise in consumption, and a corresponding fall in saving. Exports are rising only slowly and investment is some 25% lower than in the boom years prior to 2008.
So will the latest growth be sustainable? Will investment now begin to pick up and what constraints are there on investment? The following articles consider some of the issues.
Articles
Economy firing on all cylinders as growth hits 0.6pc The Telegraph, Philip Aldrick (25/7/13)
The good, the bad or the ugly? How the UK economy stands up. The Telegraph, Philip Aldrick (25/7/13)
George Osborne’s 0.6% growth is good but unspectacular The Guardian, Larry Elliott (25/7/13)
The (not-so) green shoots of recovery The Economist, John Van Reenen (23/7/13)
Economic recovery slow to take root for some in UK Reuters, William Schomberg and Max De Haldevang (25/7/13)
GDP figures offer hard evidence for political narrative BBC News, Paul Mason (25/7/13)
Ignore the hype: Britain’s ‘recovery’ is a fantasy that hides our weakness The Observer, Will Hutton (21/7/13)
UK economy: Half-speed ahead BBC News, Stephanie Flanders (25/7/13)
BoE guidance can help sustain the UK recovery The Economist, Kevin Daly (22/7/13)
George Osborne’s description of the economy is near-Orwellian The Guardian, Ha-Joon Chang (26/7/13)
Economic growth: more must be done to encourage investment The Guardian, Phillip Inman (1/8/13)
Data
Gross Domestic Product: Preliminary Estimate, Q2 2013 ONS (25/7/13)
Questions
- Compare the macroeconomic situation today with that prior to the financial crisis of 2007/8 and subsequent recession.
- What factors will determine the sustainability of the UK economic recovery?
- What is meant by the ‘accelerator’ and what will determine the size of any accelerator effect from the latest rise in UK GDP?
- What supply-side constraints are likely to limit the rate and extent of recovery?
- Why do economies that are in recession ‘naturally bounce back’ without any government intervention? Have the macroeconomic policies of the UK government helped or hindered this bounce back? Explain.
- What monetary measures by the Bank of England are most appropriate in the current circumstances?
The second largest economy in the world, with a record expansion to its current economic status: China. With a phenomenal population, massive migration to the cities and incredible infrastructure development, China has fast become a key economic player, with environmental and pollution problems to match.
