Call for caution amid fears government intervention could lead to costly mistakes and prompt subsidy battle
Graham Watson's insight:
The IMF has warned that aggressive use of government intervention, such as the Inflation Reduction Act perhaps, is likely to prompt future trade wars. Additionally, seeing pro-active industrial policy as a panacea could both have a high opportunity cost and result in government failure.
However, I can't help but wonder whether or not this particular horse has bolted?
Industrial policy such as a green growth plan is no longer a dirty word as nations realise shorter supply chains and a strategic state role are necessary
Graham Watson's insight:
Larry Elliott's piece for tomorrow's Guardian - yes, tomorrow's economic news today folks! - suggests that we've entered a different era as far as trade is concerned.
Although rumours of the death of globalisation are "greatly exaggerated", it seems to be the case that economies have moved away from seeing it as a panacea, and retrenching in the sense that nations are looking for shorter supply chains and the government intervening strategically in trade. Again, he refers to green growth. It's almost if the Guardian is taking up the cudgels in defence of the Green Investment Plan in a week where it's seemingly going to come under greater scrutiny.
Elon Musk’s Tesla has been overtaken by China’s BYD as the world’s top selling electric carmaker. BYD’s rise is the result of long-term strategic thinking by both the company and the Chinese government. And it’s setting up China to be a dominant player in the global automotive industry. Here are the three most important things that have made BYD the king of EVs.
Graham Watson's insight:
This is a fascinating insight into the rise of BYD, and how collaboration between the firm and the Chinese government have allowed it to overtake Tesla.
The estimated $30bn in tax exemptions since 2010, with the prospect of more to come means that the company has been a massive beneficiary of this. Equally, the fact that BYD sells 10 models for less than Tesla's cheapest car, gives it access to low-to-middle income consumers - the average BYD car is half the price of the average Tesla as a result of the extent to which the company is vertically integrated and the degree to which is makes its own batteries.
As a result, is it the case that the Chinese have stolen a march in the EV sector.
Unlike their US counterparts, EU policymakers still face the roadblocks of no money and no common treasury, says economist and author Yanis Varoufakis
Graham Watson's insight:
Yanis Varoufakis writes in the Guardian arguing that contrary to what many might think, the EU isn't interventionist enough. Or rather, that when it is, it moves at a glacial pace. He argues that slow intervention exacerbated problems after the global financial crisis, and a similarly slow response to the green measures of the US Inflation Reduction Act, the EU is lagging behind. That said, he also notes that the EU has relatively little left in the coffers, which might explain the reluctance to act.
When banks like Silicon Valley Bank collapse, money floods to bigger ones like JPMorgan. Clients know they’re ‘too big to fail’
Graham Watson's insight:
I think that this is a really interesting Robert Reich piece highlighting a fairly significant contradiction in the way that big banks are treated in relation to everyone else. Whereas small banks, and other firms can go to the wall, it seems that the big banks are "too big to fail" as the saying goes and effectively state-protected. Hence the eye-catching headline.
And if you think about it, this seems to be true. Throw in a couple of tidbits about the former CEO of Silicon Valley Bank selling a sizeable chunk of his shares in the recent past and it does make you think that there's one rule for one...
PM Pedro Sánchez backs aid for households amid an energy crisis prompted by Russia's war in Ukraine.
Graham Watson's insight:
The Spanish government have announced a package of measures designed to help with the cost of living crisis with a cut to VAT and a 200 euro one-off payment for some of the poorest households.
It's part of a Europe-wide series of measures enacted by governments to offset the ill-effects of the ongoing war in Ukraine on inflation and living standards.
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One-off full reimbursement will be followed by subsidy scheme in spring to cap bills
Graham Watson's insight:
It is interesting to see how other economies are intervening to overcome the energy and cost of living crises. In the case of Germany, this will involve the government paying December's gas bills for households and businesses and the subsequent introduction of a differentiated subsidy scheme that is also looking at incentivizing consumers to cut gas consumption.
Managing director Kristalina Georgieva says state subsidies can help with the cost of living.
Graham Watson's insight:
The IMF have spoken out, arguing that global governments should be subsidising food and energy to protect the world's poor from rising prices. It's not something that's normally advocated by this organisation, which generally proposes free market solutions as part of the broader so-called Washington Consensus.
Move follows warning from head of UN World Food Programme about high prices leading to social unrest
Graham Watson's insight:
And it looks like the World Bank have recognised the danger of a global food crisis by announcing that they've set aside $12 billion to support low-income countries hit by shortages.
Editorial: The trade liberalisation of the 1990s did not lead to higher economic growth rates. This should raise serious concerns for backers of globalisation
Graham Watson's insight:
With the cancellation of the scheduled WTO meeting, the Guardian editorial asks whether or not everyone's gained from globalisation, and concludes that far from boosting global growth, one of the most marked effects of free trade has been to enrich the developed world through resource transfers.
Indeed, it is clear that trickle-down economics, either within a country or globally, simply doesn't work in the manner its proponents claim. It seems that the developed world is happy to pursue its own agenda with regard to vaccinations, green technology and debt repayments and the developing world has suffered, and will continue to do so as a consequence. As a result, the editorial suggests, it would be perfectly understandable if they turned their backs on economic liberalisation and sought more local, state-sponsored solutions, given that they seemed to have worked for India and China.
Sirad Suldan survived one of the worst droughts to hit Somalia. In 2016, about 40% of the country’s population was food insecure due to drought.
Graham Watson's insight:
The World Bank marks World Desertification Day with a clip looking at the recent 2016 drought in Somalia and how the World Bank and the UN Food and Agriculture Organization (FAO) intervened in the form of universal cash transfers, facilitating infrastructure projects and offering agricultural support to those in greatest need.
It is the latest car company to forecast sagging demand for electric cars.
Graham Watson's insight:
Interesting article reporting that Elon Musk is forecasting slower sales growth in 2024, presumably a function of low levels of growth - a nice application of YED.
However, I'm more intrigued by the suggestion that "Chinese rivals 'will pretty much demolish most other car companies in the world' unless trade barriers are put in place."
Obviously, it's a self-interested plea:but wouldn't it be perfectly acceptable for Western consumers to buy cheaper Chinese-manufactured electric cars? Or is Musk arguing that protectionism would be appropriate because of the state support these firms receive? Of course, Tesla have never received a single penny of state aid...
Support aims to stop production being lured overseas with promise of bigger foreign subsidies
Graham Watson's insight:
The EU is intervening in the market for electric batteries and other green technologies, such as heat pumps and solar panels, in an attempt to see of Chinese competition. It is offering nearly 4 billion euros to a variety of firms with Swedish battery producer receiving over 900m euros.
Joe Biden’s Inflation Reduction Act spurred similar efforts worldwide, but care must be taken when targeting subsidies
Graham Watson's insight:
Barry Eichengreen celebrates the return of activist intervention, and a pro-active role for government in formulating industrial policy, with the introduction of the Inflation Reduction Act, Infrastructure Investment and Jobs Act and Chips and Science Act.
However, he also warns that there's not unlimited grounds for intervention and that when it comes to the award of subsidies, there's a need for independent assessment of the relevant sectors, and that then poses all sorts of question about how this 'independence' is ensured and an appropriate candidate chosen.
Deputy treasury secretary tells the BBC the US wants other countries to invest in clean energy as well.
Graham Watson's insight:
The US' Inflation Reduction Act has caused a great deal of consternation, despite its green credentials. A number of the US's trading partners see it as protectionism by any other name, designed to advantage US firms and attract inward investment. And that's the difficulty: it's difficult to oppose something that claims to be doing good, a point implicit in the Deputy Treasury Secretary's defence of the measure.
The deal, backed by the Swiss government, follows weekend-long talks aimed at preventing the bank's collapse.
Graham Watson's insight:
It seems as thought the Swiss have taken pre-emptive action to prevent the collapse of Credit Suisse, with banking giant UBS stepping in, with the support of the Swiss government.
Some Covid help was not targeted enough and the same is happening with energy bills, its president says.
Graham Watson's insight:
The World Bank has determined that in the face of the current energy crisis, an untargeted response supporting all households is both inappropriate and unaffordable. It's something that was responsible for the panicked reaction of financial markets to the mini-Budget.
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The move to shield citizens and businesses comes as Europe struggles to wean itself off Russian energy.
Graham Watson's insight:
The Germans have gone first, announcing a raft of measures designed to tackle the energy crisis, focusing on getting money into the hands of the most vulnerable, caps on energy bills, tax breaks for energy-intensive industries and a windfall tax on energy companies. It will be interesting to see how our response measures up.
Millions set for summer of cheap travel on all modes of transport
Graham Watson's insight:
Germany has adopted a really interesting response to the cost of living crisis, with the government offering a 9 euro monthly ticket for public transport, which the government is effectively going to underwrite - paying back any shortfall in income to transport companies and reimbursing season ticket holders.
It's a fascinating measure - the poorest are most dependent upon public transport and it's environmentally sound - but critics argue it's going to create overcrowding and may drive ticket prices higher in the longer-term. Additionally, it also has fair opportunity cost. However, it's a radical attempt to find some sort of solution to a common problem.
Leading thinktank raises global inflation forecast to 7.5% as cost of food staples, minerals and energy soars
Graham Watson's insight:
The OECD sees the Ukraine conflict as lifting global inflation to 7.5% and is asking for government intervention to help the poorest households pay their bills. It really is a global phenomenon, and one that you should be capable of analysing using AD-AS analysis.
Rather than address stagnant wages for hourly workers and yawning inequality, corporations are blaming a ‘labor shortage’
Graham Watson's insight:
An interesting take on the nature of inequality in the US - with the rate of growth of executive pay far outstripping that of ordinary workers.
You might have a think about the factors that have contributed to this, and whether or not you think it is 'fair'. If you don't think it is, is this a justification for government intervention?
In recent years, natural vanilla has sometimes been more expensive than silver by weight. Vanilla farmers in Madagascar are cashing in—but violence, theft and volatile markets are threatening their prospects.
Graham Watson's insight:
It could be a D&S clip but the real issues here involve the implications of primary product dependence. It is clear that vanilla is a luxury good, and 80% of the product comes from the North East of Madagascar.
However, the price of vanilla is highly volatile, meaning that there's a degree of uncertainty about export earnings. The cause of the volatility is the deregulated nature of the market, and the Malagasy government is look at trying to regulate the market.
This is an important aspect of development - and the picture is further complicated by rising levels of theft in the sector.
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The IMF has warned that aggressive use of government intervention, such as the Inflation Reduction Act perhaps, is likely to prompt future trade wars. Additionally, seeing pro-active industrial policy as a panacea could both have a high opportunity cost and result in government failure.
However, I can't help but wonder whether or not this particular horse has bolted?