Introduction

Essay

Due Friday March 27 4pm.
Word limit: 2000, strict (no 10%).
- Words after 2000th will not be counted (it’s electronic submission).
  - Ability to write succintly and clearly an acquired skill.
- Footnotes do not count (but no obligation to read footnotes).
- Tables and figures do not count (but do not abandon them).
- Harvard style referencing (copy style in academic papers).
Question Choose one of the guest lectures by Joe Grice, John Redwood and Sam Juthani and answer the following questions:
1. Summarise the lecture given by your chosen guest.
2. Identify which economic theories covered in lectures that the lecturers referred to. Was the lecturer in agreement with the theory?
3. Explain whether you agree with the lecturer.
All parts equally weighted.

Thanks for participating!
Tutors gave me very positive feedback.
Attendance low again, but suspect those who fail to attend classes fail to attend lectures.
Next week:
- I’ll provide some reading material ahead of class on budget.
- Debate on what we should expect from the budget.

More than happy to answer questions.
- No obligation to review your scripts step by step.
- But happy to answer questions about exam.
- Exam marks not up for debate.
Midterm tests were marked as midterm tests.
- What I mentioned last week was an analysis of exam marks against class attendance.
- Attending more classes was consistent with getting higher marks.

Notes: https://www.dropbox.com/s/o2prysnpfiafaj0/midterm_exam_notes.pdf?dl=0
Definitions:
- Weak point: Unclear, too long, or plain wrong (evidence of lack of preparation).
- Definitions should be one sentence and should describe concept in question.
Essays:
- By and large, better.
- Facts/theory questions weaker, not least due to issue with proof.

GDP is total final output (at market/constant prices):
- Total value of final output produced in UK.
- Total income from what UK produces.
- Total available for UK to spend.
Timing:
- Output data available very quickly.
- Expenditure data available in medium term.
- Income data available last (but most reliable).
What’s wrong with GDP when it comes to welfare?
- Gross not net.
- Not per capita.
- Not at household level.
- No account of distributional issues.

Here: http://www.ons.gov.uk/ons/rel/naa1-rd/economic-well-being/q3-2014/stb.html#tab-Whole-economy-production-and-income
Net national disposable income:
- Net: Replacement investment/consumption removed.
- Disposable: Taxes removed.

Real household disposable income:
- Households are different units than individuals.
- Income spread over earners plus dependants.
- Often dual income, often single-income.

Firmly fits in with Core Lecture 1: http://rpubs.com/jjreade/corelec1
Measurement of national income.
- How is it done?
- What are the problems with it?
Correspondence between national income and welfare.

Does austerity work as an economic policy?
Step one: We must define austerity. Non-trivial.
- Redwood: “a country in debt with a large deficit should cut spending and raise taxes in order to reduce its deficit”.
- Wikipedia: “the policy of reducing government budget deficits during times of economic recession”.
Once defined, we can think about (1) theory and (2) evidence.
Theory:
- Large govt debts/deficits problematic: Crowding out (see tomorrow).
- Business cycles:
  - Keynesian insufficient demand: Govt can supply demand, aid co-ordination.
  - Automatic stabilisers lead to natural movement in deficit (see tomorrow).
Evidence:
- Given Redwood definition, movements in govt balance indicative of relative austerity levels.
- Hence claim US has had more austerity than UK, claim that austerity stronger now in UK than it was in 2010–11.
- But Wiki definition includes recession, which rules out such simple interpretations.
- US out of recession hence govt balance improved; UK only recently out, hence govt balance improving.

Labour wasn’t that bad:
- Financial crisis was international, was result of financial sector becoming too clever for regulators to keep up with.
- Counter point: Redwood argued Labour allowed leverage to get too high.
The Coalition has been really bad!
- Cutting deficit in “time of recession”: austerity.
- Targets on debt and deficit missed:
  - Does this matter? Can we cut through political blame game?
  - Grice talk gives sense of maybe why not: Different statistics tell different story.
- Interesting extra point about monetary policy:
  - Had to take burden of expanding economy given austerity, hence continued zero interest rates.