Economics Demystified: Principles October 2010, Nigel F Jump, Chief Economist

Scarcity, Choice & Resource Allocation

Effectiveness & Efficiency, Benefit & Cost

Uncertainty / Risk & Reward

Macro & Micro

Economics Is

Politics - value judgements/prescription

Money

- unit of account, store of value, payments mechanism

Forecasting

Economics Is Not

Economics Is Micro

Demand & Supply

household & business behaviour

- price, income, tastes, - utility & opportunity cost- motives, aspiration & welfare- externalities & market failure

Economics is Macro

• Growth

- wealth & productivity• Inflation

- pull & push, always money• Unemployment• International Trade• Structure & Cycles - trend & volatility

Economic Policy is

• Stabilisation - fiscal & monetary policy• International relations

- trading & currency groups, & markets

- trans-national agencies• Development

- regional & local policy

- intervention, technology & regulation

Economic Sectors are

Primary – resources = agriculture, mining & minerals

Secondary – goods = manufacturing, construction & utilities

Tertiary – services = retail & distribution, hotels & catering, = transport & communication= banking & finance, & business services= leisure, social & personal services= public, education & health services

Economics Principles: Summary

Economics is choice & resource allocation

Economics is micro – consumers, households, businesses & markets

Economics is macro- growth & inflation, international trade

Economics Demystified: Growth & ProductivityOctober 2010, Nigel F Jump, Chief Economist

Increase in value created between times

a flow … not a stock

Issues: purchasing power

- nominal & real

- absolute & per capita

- measurement:

real GDP, wealth, happiness

Growth Is

zero sum game – winners & losers

invention, aspiration, population

Growth = productivity + employment

3 = 2 + 1, but boom & bust

= f ( R, K, L, T )

Accounting for growth

Incomes: Y = w + s + p + oy

Output: Q = m + e + g + s

Expenditure: S = C + I + G + nX + ^S

the “no” growth mirage

Ratio of outputs to inputs

- labour productivity

- total factor productivity

- resource productivity

Drivers

- investment in physical capital/infrastructure

- skills & innovation

- enterprise / entrepreneurship

- competitiveness

Productivity Is

Productivity in UK regions

GVA per Head £ ('000) Index Rank

UK 20.5 100.0

North East 15.9 77.4 11

North West 17.6 85.6 7

Yorks & Humber 17.1 83.3 9

East Midlands 18.0 87.9 6

West Midlands 17.5 85.1 8

East of England 19.5 94.9 4

London 34.8 169.5 1

South East 21.7 105.7 2

South West 18.8 91.5 5

England 21.0 102.4

Wales 15.2 74.3 12

Scotland 20.1 97.9 3

N Ireland 16.2 78.9 10

source: ONS, 2009

Productivity in SW England

GDP per Head (2007) £ ('000) Index

Cornwall & Isles of Scilly 12.7 64

Devon 15.2 76

Dorset & Somerset 16.8 84

Gloucs, Wilts & N Somerset 21.8 109

GDY per Head (2008) £ ('000) Index

Cornwall & Isles of Scilly 13.0 87.5

Devon 13.6 91.4

Dorset & Somerset 15.4 103.5

Gloucs, Wilts & N Somerset 15.2 102.4

source: ONS, 2009-10

Peripherality – cost, ICT & infrastructure, access

Population – demographics & choice

International Trade – FDI & competitiveness

Fiscal & regulatory framework

Urban hubs, local labour markets, agglomeration

Capital funding access/availability

Best v worst

Productivity : SW issues

Human Capital

- education (formal & informal)

- skills (accumulation & use)

Physical Capital

- technology, dissemination and use, innovation & R&D

Environmental Capital

- resource stock & flow

- waste management

Social/cultural Capital - risk takers, partnership

Productivity : investment base

Economics:Growth & ProductivitySummary

Growth is desirable

High & growing productivity is the means

Value adding productivity is what SW lacks/needs