In a tit-for-tat move by the Kremlin, Moscow has announced that it is enacting sanctions of its own on the US and EU. Russia will lay a blanket ban on all agricultural imports from the US, and all fruits and vegetables from the EU. The move will likely be a major blow to Europe, for whom Russia is the largest export market for fruits and vegetables, accounting for 28% and 21.5% of the market, respectively; the sanctions will hurt the US much less, as the country forms only 1% of the US’ exports. Many analysts say the sanctions are ill-advised as they may end up hurting Russians more than their target audience. Russia imports over 40% of its food, and the country has little ability to immediately account for the loss of EU and US imports, which is likely to stoke already high 7.5% inflation.
FINSUM: For a nationalist government, one can see that attempting to stoke domestic supply makes sense as a backdrop to sanctions, but this just seems like it might inflame the country’s already doubtful economic situation.
A new study by S&P is proving to be a very significant symbolic step for consideration of wealth equality in economic forecasting. The S&P has released a report which finds that high wealth inequality in the US may be holding back the economy, and is likely responsible for the country’s feeble recovery from the Financial Crisis. Considering wealth inequality as a source of economic underperformance has until now been the domain of left-leaning academics, but the fact that the S&P, who is a premier economic and ratings house servicing the mainstream investment market, has taken such a step to highlight it give the idea much more credence. S&P argues that because wealthier people tend to save a higher proportion of their incomes, the fact that so much of America’s economic output is funneling back into wealthy hands correspondingly means that proportionally less is being spent than would be if middle and lower income families were earning more.
FINSUM: This is a very good study which plausibly and rationally explains why wealth inequality may be hurting the economy. Such a study could be a start towards a wider call for change that might lead to a policy shakeup.
In what is likely to prove an explosive bit of news, London Mayor Boris Johnson has just received the outcome of a major study he commissioned, and the results are very important. Johnson commissioned a study into whether London would be economically better off if it were in or out of the EU. The study found that Britain would be significantly better off independently than if the status quo relationship with the EU persisted, and the report makes eight demands for reform of Britain’s relationship to Brussels. Johnson, who is considered a potential candidate for prime minister, is planning to announce the results tomorrow and give them his backing. The results are likely to hasten calls for a referendum vote to take place before PM Cameron’s planned poll in 2017, though Johnson favours using the report as leverage to simply renegotiate the EU relationship on more favourable terms for Britain rather than fully depart the Union.
FINSUM: This is likely going to be a major explosive report, as it gives the unexpected, though politically dubious, result that the UK may be just a well off economically if it were independent. Fear of an economic downturn is about the only thing that holds back Britain from leaving the EU.
This Financial Times piece shows how foreign investors’ opinions, particularly large business within the country, will be a major factor in shaping Scotland’s economic future. Over 30% of the country is employed by major international businesses, which Scotland has been successful in courting over the last few decades. However, doubts about the country’s future are making such employers nervous, as the major aspect of their settling in Scotland was the country’s membership in the UK. This likely means that Scotland could see a flight of business and investment should it leave the UK. In fact, it has happened before. Tens of thousands of Scots lost their jobs after the dotcom crash, as major tech businesses, which had set up factories in Scotland to make hardware, pulled out en masse in search of cheaper manufacturing after the bubble burst. At one point, Scotland made fully one-third of all computers in Europe, and was dubbed “Silicon glen”, but that industry completely disappeared, leaving many worrying it will happen again.
FINSUM: This is a good piece for considering the economic implications should Scotland leave the UK. In some ways the country is more protected than in the dotcom era, but it is still a major risk.
This New York Times piece turns a sharp eye on the current debates over climate change and the actions the world should take to stem the phenomenon. The piece argues that the world has clung to a number of easily debunked myths in order to stall any action. The author directly refutes 6 common myths about climate change: including the idea that cutting emissions would hurt American jobs, and the notion that adjusting the emissions system would be prohibitively expensive. Using past evidence, including the 1990s curbs on sulfur dioxide emissions (which cause acid rain), the essay argues that businesses would be able to adjust quickly to new standards, essentially taking the position that the cost-savings to be earned by innovating around the carbon dioxide curbs would foster new technologies. Finally, the piece also argues that cuts in emissions would have a drastic effect on climate change, a direct counter to the oft-touted view that all of the pain of the cuts might be in vain.
FINSUM: Whatever your view on climate change and emissions policy, this is an interesting article to consider as it focuses on the economics of climate change rather than the more common strain of dire predictions.
Speaking from a staunchly capitalist perspective, this Financial Times article takes the unique approach of viewing global wealth inequality from the lens of labour productivity. The article asserts that those who blame capitalism for inequality are misguided, and argues that people should instead blame corporatism for the world’s imbalances in wealth. The author shows a strong link between periods of high innovation and growing equality, and points out that inequality started to rise just as innovation began to fall around the 1970s. As growth in capital investment slid from over 7% in the 1960s to about 2% by 1990, global inequality rose significantly. The author believes that the corporatist values of solidarity, security, and stability are to blame for the current bout of inequality, but contends that such values were stimulated by a series of poor policy measurements by government, including patronising interest groups, stifling competition, and directing industrial policy, thereby reducing the incentive to innovate. Finally, the piece also blames short-termism, as part of an emerging set of corporatist values, for diminishing the role of innovation by the demanding profit every quarter.
FINSUM: This piece certainly may have some arguable conclusion (e.g. web technology does not count as “innovation”?), but it raises a number of valuable points about the link between corporate behavior and rising inequality across the western world. It also hints at a new area where governments might be able to focus in order to help wage growth.