Most students have a student loan: you need it to live; to buy text books; to survive. So, what do you do if your student loan hasn’t appeared in your bank account? This is a problem that many students have been facing. The Student Loans Company said that even after most courses had started, 175,358 students had still not had their loan application processed. This represented 16% of applications. There are various reasons given for this delay, but one that appears more often is the current economic downturn. This has been a crucial factor in so many students being without the necessary finance to begin university. Another reason is that many documents have been misplaced. On the other hand, a spokesman for the Student Loans Company (SLC) said that actually delays this year were no worse than in previous years, even though this is the first year when students applied directly to the SLC. Does this suggest that actually the whole system of student loans is still inefficient and needs to be overhauled again? Is there a better method?
In order to help students, many universities have made emergency payments to those without their loans. What’s the opportunity cost of this money? Surely it could be used for other purposes. Universities have seen their highest ever number of applications, although there has been a drop in Scottish student numbers and there are suggestions that tuition fees will increase again. What are the implications of the problems with student loans and the massive increase in university applications?
Minister ‘sorry’ for student loan delays ePolitiX (15/10/09)
140,000 miss university places The Press Association (17/10/09)
Student loan firm explains delays BBC News (12/10/09)
Student loan delay hits 175,000 students Telegraph, Graeme Paton (9/10/09)
Enquiry to be held over late payments of student loans Guardian, Jessica Shepherd (13/10/09)
Watchdog fears over poor students BBC News (29/9/09)
Student tuition fees could increase Telegraph, Graeme Patton (14/10/09)
Student debt to soar Daily Express, Alison Little (14/10/09)
Questions
- Why has the recession had an impact on university applications?
- Should universities be able to set their own fees? What are the advantages and disadvantages of such a system? How could fees be determined?
- Primary and Secondary education is a merit good and free in the UK. What do we mean by a merit good and how can we illustrate the positive externalities associated with education? Why is higher education not free to the student? Aren’t there positive externalities associated with it?
- If tuition fees increase, student debt levels after graduation will be higher. What is the likely impact of this on the students themselves and on the economy?
- What the likely consequences for (a) students (b) universities of the delays in student loans?
Elinor Ostrom and Oliver Williamson shared the 2009 Nobel Prize for Economics (and a prize of $1.4m) on Monday for their work on how economic transactions operate outside markets in common spaces and within companies. Their work includes topics such as the free-rider problem and how this can lead to a sub-optimal over-consumption of a resource. Their work also considers economic governance and how this has led to the increasing popularity of outsourcing for companies.
Despite the prestige of a Nobel Prize, there have been suggestions that a Nobel Prize in Economics should not have been awarded this year, given the inability of economists to predict the financial crisis and mixed opinions about how to prevent another one in the future. What do you think?
US duo wins Nobel for economics Financial Times, Chris Giles (12/10/09)
Two Americans win Nobel economics prize MSNBC, Associated Press (14/10/09)
What this year’s Nobel Prize in Economics says about the Nobel Prize in Economics The New York Times, Steven Levitt (12/10/09)
Humbling year for bickering economists Financial Times, Alan Beattie (11/10/09)
Questions
- What is market failure and how does the free-rider problem fit in?
- Do you think economists were at fault for not foreseeing the financial crisis?
- Do you think that the research of Elinor Ostrom and Oliver Williamson was deserving of the Nobel Prize and how important is their research in the context of economic theory?
In 2008, as the economy was on the verge of recession, the UK Prime Minister said that we would ‘spend our way out of it’ despite rising levels of public-sector debt. In recent weeks, however, the focus has been much more on tackling the debt, which has now increased to over £800 billion (58% of GDP) – it was £500 billion at the end of 2006 (37% of GDP).
Although the current level of general government debt in the UK as a proportion of GDP is still one of the lowest of the G8 countries, it is rising the fastest. In other words, the general government deficit as a proportion of GDP is the highest (see Table A8 in IMF World Economic Outlook, Statistical Appendix A). The IMF’s forecasts suggest that, by 2014, government debt could be as much as 92% of GDP – the highest since World War II – and lower only than Japan (144%) and Italy (126%) of the G8 countries (although the USA, Germany and France are forecast by then each to have government debt over 80% of GDP).
Gordon Brown has said that public spending will have to be cut back once the recession is over, mainly by cutting out waste in the public sector. Conservatives too are looking to make substantial cuts in public expenditure if they come to office next year and have talked of an era of austerity.
But will such cuts be too little too late? Has government spending on saving the banks and trying to boost the economy by cutting VAT actually damaged our recovery prospects and are the British people going to be the ones to suffer? Or should the fiscal stimulus be retained for some time yet to prevent a lurch back into recession? The following articles look at the public debt situation, which poses some interesting policy questions, especially with the Party Conferences!
£805,000,000,000: UK’s monstrous debt The Mirror (19/9/09)
Osborne gambles with cut plans BBC News (6/10/09)
Governments will have legal obligation to reduce UK’s debt Telegraph (28/9/09)
We’ll spend our way out of recession Independent (20/10/08)
Public sector borrowing soaring BBC News (18/9/09)
Govt spending cuts ‘could help pound’ Just the Flight (21/9/09)
Deficit danger worries Cameron BBC News (4/10/09)
Public debt hits £800 billion – the highest on record Times Online (19/9/09)
Pay freeze ‘to protect UK services’ The Mirror (6/10/09)
This recession demands that we employ logic and spend our way out of it Telegraph (11/1/09)
Cuts and pay freezes ‘just the beginning’, Tories admit Telegraph (7/10/09)
Robert Stheeman: So what’s worrying the banker in charge of our £1trn debt? Independent (8/10/09)
Has Darling or Osborne the best plan for cutting the deficit? Observer (11/10/09)
This public-spending squeeze will be much tighter than people expect Independent on Sunday (11/10/09)
Tax and spending squeeze will keep Bank rate low Sunday Times (11/10/09)
UK rates ‘to stay low for years’ BBC News (11/10/09)
Questions
- According to economic theory, how does increasing government spending or reducing taxation aim to boost the economy?
- What do we mean by a budget deficit or budget surplus? How does a budget deficit differ from national debt?
- What is the ‘golden rule’ for fiscal policy? Discuss the advantages and disadvantages of such a rule-based approach to fiscal policy.
- What are the advantages and disadvantages of a policy of ‘spending our way out of a recession?’
- With spending cuts looming, many will be affected. How will cuts in government spending affect the UK’s ability to recover from the recession? Will you be affected and, if so, how?
- Last year £85.5 billion was spent by the government on bailing out banks. Do you think this was money well spent, or is it the main cause of the current spending cuts that could see the recession worsen?
The housing market has been very volatile over the past year or so. House prices crashed, but then appeared to stabilise. Since then, however, different sources have given very different opinions and predictions about future movements. According to Nationwide Building Society, house prices have increased by an average of £53 a day during September, but others suggest that they remain stable and that they may fall again in 2010.
Not only are house prices important to those buying and selling, but the state of the housing market is also crucial for the recovery of the economy. For example, the construction industry has suffered over the past year and, as of the 2nd October 2009, unemployment in this sector stood at 17.1%. As more and more workers lose their jobs, their disposable income falls and hence demand in the economy is affected. With the possibility of an election debate between the party leaders, many will be waiting to see what their strategies are to revitalise a struggling economy.
House prices rise an average of £53 a day’ Daily Record, Clinton Manning (3/10/09)
Mortgage approvals dip in August BBC News (29/9/09)
Construction contracts at slowest pace for seven months Construction News, Nick Whitten (5/5/09)
House sales ‘stalled’ in August BBC News (22/9/09)
Housing market needs ‘feel-good’ factor to recover City Wire, Nicholas Paler (26/6/09)
Double whammy for first-timers as prices stabilise and loans dry up Scotsman, Jeff Salway (3/10/09)
Head-to-head view on house prices BBC News, Kevin Peachey (27/8/09)
UK construction industry still contracting, says Cips Guardian, Kathryn Hopkins (2/10/09)
House prices see ‘slight decline’ BBC News (28/9/09)
House prices ‘back to 2008 level’ BBC News (2/10/09)
Construction unemployment rises to 17.1% HomeTown Sources (2/10/09)
House prices up – but so are insolvencies Management Today (2/10/09)
Financial shadow cast by city apartments BBC News (8/10/09)
For house price data see:
Nationwide House Prices
Halifax House Price Index from the Lloyds Banking Group
Housing Market and House Prices from the Department of Communites and Local Government
Questions
- Why are recent movements in the housing market going to be a problem for first-time buyers?
- The ‘Stamp duty holiday’ will soon come to an end. What do you think will be the impact on the demand for and supply of houses and hence equilibrium prices over the next 6 months?
- One of the reasons why house prices have stabilised is a lack of supply. How does this affect equilibrium prices?
- Why is the economy so affected by changes in house prices? Think about what happens when construction workers lose their jobs and how this affects aggregate demand. Then consider how the macroeconomy will be affected.
- When demand for houses increases, why do prices increase so rapidly? Consider elasticity.
The following two clips look at John Maynard Keynes’s contribution to macroeconomics and whether his theories have been proved to be correct by the events of the past two years.
“What would John Maynard Keynes make of the financial crisis and the credit crunch?” In the first clip, “Author Peter Clarke, former professor of modern British history at Cambridge University, and the former Conservative chancellor Lord Lamont consider whether Keynes’s ideas were twisted by modern politicians to support their desires to run big spending deficits.”
What would Keynes make of the crisis? BBC Today Programme (25/9/09)
Is Keynes influencing today’s politics? (video) BBC News (2/10/09)
Questions
- How is the recent crisis and recession similar to and different from the Great Depression of the inter-war period?
- Can recent fiscal policies adopted around the world be described as Keynesian?
- How would a government of a Keynesian persuasion attempt to manage the move from recession to economic growth and deal with the problem of mounting public-sector debt?