This week's news about the "shock" contraction in the economy is exactly the sort of thing that made me want to study economics in the first place.
I have so many questions about this sort of thing, and so few answers. Although I suspect that the "so few answers" thing may be shared by a lot of fully qualified economists as well.
So, first thing: why was the contraction a shock? Why was no-one expecting it? And was it really a shock? When it's described as a shock, is that because the government hadn't predicted it, but plenty of independent economists had? I must say I don't find it that surprising myself. You only have to look around to see that the economy isn't doing well. Case in point: I went out to the pub for lunch today with some of the folks from work. The pub was almost empty. It wasn't so long ago that the pub on a Friday lunchtime would be standing room only. Surely a sign of the times.
What's really worrying is that we are seeing a contraction in the economy at the same time that inflation figures seem to be on a relentless upward trend, so called "stagflation". Apparently the traditional remedy for this is a tightening of monetary policy (ie higher interest rates) to curb the inflation, together with a loosening of fiscal policy (ie lower taxes and higher government spending) to try to stimulate the economy.
Neither looks likely in the current climate.
With the enormous fiscal deficit, surely any loosening of fiscal policy is simply not on the cards. Some commentators say we should, but the government seem to be of the view that it's not an option, because of the risk of causing a crisis in the bond markets.
Who is right? I don't know, and sadly I have a sneaking suspicion I still won't know even when I've finished my studies, although perhaps by then I might know some better questions to ask.
One thing that strikes me about all this is that talk of simple measures such as changing interest rates is likely to be such a hugely simplified version of what's really going on that it's probably not very useful. The economy is a hugely complicated thing, and I doubt that simple interventions can ever have controlled and predictable effects.
Perhaps that's why no-one appears to really understand what's going on.
Help! We're all doomed!
This week's news about the "shock" contraction in the economy is exactly the sort of thing that made me want to study economics in the first place.
I have so many questions about this sort of thing, and so few answers. Although I suspect that the "so few answers" thing may be shared by a lot of fully qualified economists as well.
So, first thing: why was the contraction a shock? Why was no-one expecting it? And was it really a shock? When it's described as a shock, is that because the government hadn't predicted it, but plenty of independent economists had? I must say I don't find it that surprising myself. You only have to look around to see that the economy isn't doing well. Case in point: I went out to the pub for lunch today with some of the folks from work. The pub was almost empty. It wasn't so long ago that the pub on a Friday lunchtime would be standing room only. Surely a sign of the times.
What's really worrying is that we are seeing a contraction in the economy at the same time that inflation figures seem to be on a relentless upward trend, so called "stagflation". Apparently the traditional remedy for this is a tightening of monetary policy (ie higher interest rates) to curb the inflation, together with a loosening of fiscal policy (ie lower taxes and higher government spending) to try to stimulate the economy.
Neither looks likely in the current climate.
With the enormous fiscal deficit, surely any loosening of fiscal policy is simply not on the cards. Some commentators say we should, but the government seem to be of the view that it's not an option, because of the risk of causing a crisis in the bond markets.
Who is right? I don't know, and sadly I have a sneaking suspicion I still won't know even when I've finished my studies, although perhaps by then I might know some better questions to ask.
One thing that strikes me about all this is that talk of simple measures such as changing interest rates is likely to be such a hugely simplified version of what's really going on that it's probably not very useful. The economy is a hugely complicated thing, and I doubt that simple interventions can ever have controlled and predictable effects.
Perhaps that's why no-one appears to really understand what's going on.