Therefore, the UK government has decided to apply a 5p charge to plastic bags in order to stop this over consumption. Hopefully this will make people more aware of the true costs of plastic bags, the amount of resources used to produce and dispose of plastic bags, and encourage consumers to recycle and re-use their trusty shopping carriers.
A 5p charge will increase the cost to consumers who use plastic bags, therefore the demand will likely decrease, resulting in less consumption, less production and an overall decrease in the quantity produced and consumed. Plastic bags should no longer be overvalued. The negative externalities - such as the impact on the environment - will be reduced, correcting the market failure and internalising the externalities.
Recently, it has been suggested that the increased revenue from the sale of plastic bags will be donated to charity and local community projects, especially the charities associated with helping the environment, of course this seems wise given the environment has been affected by the consumption of plastic bags. Therefore, there will be some compensation to third parties.
Starting from 2015, the government will try to implement this charge through supermarkets and large stores, although recently, the Association of Convenience Stores (ACS) has tried to extend this to smaller, local stores - stores with less than 250 workers. This will ultimately reduce demand further and again help to reduce the negative externalities.
As this scheme has already seen success in other countries, the government is positive that this charge will be successful in reducing the negative externalities of plastic bags here in the England. For example, Wales has seen benefits from introducing a 5p charge on plastic bags, which started in 2011, as they have been able to save money on correcting the external costs of the use of plastic bags and have used this opportunity cost to help fund community project. It is estimated that there has been a 75% reduction in the use of plastic bags, which can only be a good sign. Likewise, major supermarkets in Northern Ireland have seen an estimated 80% reduction in plastic bag use. The scheme has also been backed by the Scottish government a plastic bag charge set to be introduced in 2014.
Although, the charge will benefit the environment and the economy, by reducing waste and reducing the amount of resources wasted on the production and disposal of plastic bags, the government is likely to see a slight increase in unemployment, as fewer workers will be required in the manufacturing of plastic bags. Yet it has to be seen that perhaps the benefits of a fall in plastic bags will be far greater than the costs to the economy.
In total the European Commission has fined eight banks. Surprisingly The Royal Bank of Scotland is amongst one of the banks to have been fined a substantial amount of money (In total 391 million euros.) Amongst the other banks also to be fined includes: Barclays, UBS, Deutsche Bank, Societe Generale, JP Morgan, the stock brokers RP Martin, and Citibank. However it is known that two of the banks, UBS and Barclays, were exempted from paying their fines, as they told the European commission of the Cartel’s involvement in interest rate rigging.
Barclays and RBS have in fact already been fined before, prior to the current scandal. Both firms, 81% owned by the government, were fined for rigging the price of the interest rates if the London interest rate market (libor.) It comes as a shock that despite the previous fines, both firms continued to rig interest rates. Barclays was the first company to be fined, and therefore the first to come under heavy scrutiny from the public, press, and politicians.
The European competition commissioner, Joaquin Almunia, has warned that three more banks (including HSBC) are expected to come under further scrutiny and receive more fines, as the companies have refused to settle matters from the current investigation. He stated that “The authorities were in the process of unmasking a fresh scandal in the currency markets that could further damage the industry and add to the vast sums banks have had to pay for their mistakes since the financial meltdown.
Several banks including HSBC, Credit Agricole, and JP Morgan, have not yet settled their fines, and are still under series investigation by the European Union Commission. At the current JP Morgan has accepted fines for rigging in one market, yet denies rigging in another.
The first issue with Bitcoins is concerned with anonymity. The Bitcoin system has been designed so that each and every transaction is publicly logged, meaning that anyone can see the flow of Bitcoins from one address to another. This is not an overt problem in itself, as public addresses are just random numbers and so cannot be used to identify a specific person. However, using network analysis, surveillance or even by just Googling the address, it is possible to tie down an address to a specific identity. This is when public transaction logs become a problem, because it is then possible to work back through transactions and identify everyone involved in the transactions using those specific Bitcoins. It has been discovered through practical research that it is relatively easy to collect public addresses and therefore track the flow of Bitcoins, which is a substantial flaw as a major attraction of Bitcoins is there (apparent) anonymity and security. But perhaps the most significant revelation in regards to anonymity is that the Bitcoin technology is able to support strong anonymity, but the current implementation of this technology is usually not very anonymous.
Secondly, the Bitcoin system has been designed so that mining Bitcoins becomes harder as more are mined, therefore, as the hardware for mining improves, mining itself subsequently becomes harder. This has led to increasingly expensive equipment becoming necessary to mine Bitcoins, thus reducing potential rewards for other miners unless they buy this expensive equipment.
It will inevitably reach the point when only those whom have access to cheap, or even free electricity will be able to continue mining Bitcoins. To further add to this problem, all Bitcoin miners are required to retain a copy of the Bitcoin chain, a log of all Bitcoins mined. This chain has already reached 11GB in size and is constantly growing, which has and will have the effect of deterring casual users from mining Bitcoins.
A final problem is the fragility of the system itself. Unlike physical currencies, such as the Great British Pound or the US Dollar, Bitcoin is not reliant on a governing body. This may seem advantageous, as it means that it is not subject to inflation, however, it also means that there is no one to bear the brunt of a drop in the value of Bitcoin, if this was to happen. Paper currency has value as it is backed by the state, however Bitcoins only have value because the users in the Bitcoin market think they do, and there is not safety net if it fails. This is entirely possible, as research has shown that up to 78% of mined Bitcoins are not in circulation, therefore, if a large amount of these hoarded Bitcoins are currently brought into circulation, the value could plummet.
The Bitcoin system are also fragile due to the process by which changes are made. The programmers who work on Bitcoin software have no special authority to implement them indepedently; instead, proposals must be taken up by 80% of users before they become permanent. All improvements to the Bitcoin system are up to the community, which, whilst making it flexible, also makes it very fragile and unsecure.
The success of Bitcoins, therefore, can not be accurately predicted, due to there high volatility and the possibility that the entire system may crash at any point. The consequences of their increasing popularity is also unknown, and so Bitcoins much be judged solely on a ‘day-to-day’ basis, for fear of inaccurate predictions leading to its collapse.
The bus market is an oligopoly because there are only a few firms dominating the market. This shows which firm has the most market power. FirstGroup, Stagecoach, National Express, Arriva and Go-Ahead are price makers with relatively low price inelastic demand around 0.36, while the rest of the independent firm are price takers. This could result in greater non-price competition, i.e. loyalty schemes, quality of service, to attract more customers from their rival.
The market share of these firms varies depending on the region. FirstGroup has 95 bus operators in The UK, with high concentration of operators in Glasgow, competing with Arriva and Stagecoach, yet FirstGroup is the dominant of the firm. Although, in Scotland they have fixed prices, this could lead to price fixing in this region to maximise revenue, therefore firms forming a cartel or collusion to exploit they market power and generate supernormal profit.
FirstGroup is also competing in the North-West of England with the other 2 firms, but Arriva has more bus operators in this area.
Arriva is also operating in selected areas, such as London, where they mostly dominate, with some parts of Wales where they would be classed as a local monopoly.
It is clear that Stagecoach is one of the dominating firms in this oligopoly market as they are scattered all over Britain, with a local monopoly or duopoly in certain parts of Scotland.
National express has a local/natural monopoly only in Worcester, with no close substitutes available therefore can exploit this position to either generate supernormal profit with high bus fares or generate losses to encounter social benefits as most buses are subsidised by the government.
In the London bus market Go-Ahead is at the top, alongside Arriva, ComfortDelGro and Stagecoach. The 3-firm concentration ratio = 61% and 4-firm concentration ratio = 75%. Go-Ahead has strategically placed 17 bus operators around London (with 6 in the central of London) to provide convenience and target busy London passengers and tourists. Having more buses available and different routes creates flexibility for passengers.
Lost business competitiveness and tourism – without increased capacity, firstly enterprise would be heavily held back. For instance business plans which consist of firms wishing to expand across the country or even the world would be made significantly more complex and more expensive. Additionally, even to simply trade with foreign companies to perhaps source cheaper or higher quality raw materials leading a positive outcome on the final product for the UK. It’s said that the total net economic benefit to this scheme would be a surplus of between £5.1 to 5.9 billion. Moreover, tourism would suffer since the current high levels of demand but lower levels of supply would cause pressure on the price level, leading to inflation. This means air travel to the UK becomes unaffordable for more people since families from abroad may choose to now come to the UK for a vacation once every two or three years instead of yearly, leading to the tourism industry losing out dramatically. Similarly, firms from abroad may adopt the same idea and instead of sending out employees on business trips to the UK by air travel, may seek a cheaper alternative such as the Euro Star or in some cases simply converse through a conference call which leads to everyone losing out.
Existing infrastructure – with the new plans at Heathrow being located in London, the area is more than fitting since it has the best transport links already which could be improved slightly (e.g improving efficiency) to make them one of the best in the world. This would be opposed to building a costly new infrastructure out of town which would never be as successful as an improved version of that in London which obviously would be significantly more cost effective. In addition, the High Speed 2 could also be extended to Heathrow offering not only a fast connection to Birmingham, but the north as a whole.
Employment – this is a key factor always considered on schemes of this scale and in this case, in the area of Heathrow, this hub is responsible for 250 000 jobs. Therefore as you can imagine, as well as the construction involved within the plans but also the third runway and new extended terminals would need new staff leading to a lower level of unemployment in the south. Consequently, more people will be paying taxes instead of receiving benefits therefore greater tax revenue for the government which could be spent on improving healthcare leading to a higher quality of life for Londoners.
Predicted air travel growth - in 2000, for the UK alone, it was predicted that there would be an increase from 160 million passengers per annum (mppa) in 1998 compared to over 400 mppa by 2020. In addition it was further found that by 2030, air traffic would have grown to levels to that of between 400 to 600 mppa. Most importantly, a high proportion of these passengers are expected to pass through those airports in the South East of England which obviously could include the expansion of Heathrow. As you can imagine, this would be ideal to not just London but the UK’s economy as a whole whether it be bringing more people out of unemployment or simply improving the social welfare and morale of the workforce leading to higher levels of output.
Disadvantages:
Highly population density – the proposed area is said to be unacceptable and not ideal for an airport since currently, 725 000 already live under the flight path. As a result, alternatively it’s thought that the issue of limited capacity should be dealt with elsewhere with a lower population density.
Social & Environmental impacts – each of the three options would consist of the need for the compulsory purchase of some properties without residents having a say in the ordeal therefore these properties would without a doubt be bought for rock bottom prices meaning existing residents would maybe have to downgrade into a less familiar area. Conversely, especially with regard to the proposed South West runway, reservoirs would need to be destroyed to make way for the 3500 metre runway. As a consequence, habitats and ecosystems of the local species would be destroyed maybe leading to the extinction of minor species.
External costs – noise and air pollution being to two main focuses, it’s said that both of these would increase with the expansion of Heathrow even though the current levels are considered to be with in excess of suitable levels. To support this, John Stewart of the Airport Watch campaign stated that Heathrow would without a doubt, become the highest emitter of Carbon Dioxide (CO2) in the country. Therefore, rather than expanding short haul flights, the cost of flying should be kept high to reflect the social costs of fling, deterring customers.
Growth of internet & tele conferencing – without a doubt, with major advances in technology and the widespread availability of it through various workforces across the world could see fewer and fewer business trips and increased numbers of meetings and conferences being held within the comforts of one’s own office, similarly with those across the world. With reduced time lags, output can increase substantially and employees offered higher wages with the funds saved on air travel.
Alternatives – Borris’ Thames Estuary scheme with the potential to become a major dedicated hub airport could see many more benefits compared to the expansion of Heathrow, such as there no longer being the need for major work on the M25, compulsory purchase of properties and demolition.
Evaluation
There are many valuable points put forward both for and against the scheme however one thing that stands out at this moment is that the Thames Estuary alternative does not quite have the credentials for it to be considered further. This is because there are fundamental flaws with the scheme such as the environmental impacts with the major disturbance of local wildlife and maybe the interaction of birds and jet propellers. Moreover the considerable lack of infrastructure currently available suitable enough for a major hub airport isn’t in place, which would, with a cost need to be put in place in order for the airport to run efficiently. Conversely, Heathrow even with two runways manages one of the highest numbers of flights with 990 departure flights each week to the world’s key business centres. However this should not be frowned upon and seen as to be ‘enough’ or ‘too many’ but instead be furthered to advance the UK’s competiveness and cutting edge against rival nations. Therefore, in order to avoid bottlenecks in London’s infrastructure, the proposed plans for the third runway should go ahead, especially regarding the predicted growth in air travel in years to come which should be taken advantage of.
Will the recent spark in retail sales lead to an expensive Christmas?
The Office for National Statistics calculates retail sales figures from conducting a monthly survey of around 5,000 UK retailers, and these figures generally give an indication as to whether or not sales are increasing, and in a wider picture suggest whether the economy is growing or going towards a decline that could perhaps be as severe as the UK economy going into a recession. In addition to this picture of the wider economy, this information tells firms about consumer spending, and provides an indication of current consumer confidence. If this data fluctuates, it shows that there is instability, whereas if sales figures increase consistently for several months, this suggests that consumer confidence has increased and has led to an increase in consumer spending. This ultimately shows a rise in aggregate demand, as consumers are demanding more products.
It was unveiled recently by the Office for National Statistics that in September 2013, sales volumes had risen by 2.2% in comparison with September 2012. In recent months, retail sales have fluctuated more than usual, the main finding being that sales have risen to higher levels than expected. Major contributions to these figures are the unexpected rise in demand for barbecue food due to the good weather over Summer this year, but unfortunately sales slumped in August, the following month. When sales fall in a particular month, it is usually predicted that sales will either continue to fall the following month or to begin to rise again but at a slow rate. It was therefore a surprise that in September, sales rose significantly, leading Q3 2013 (July – September) to be the most successful quarter in terms of retail sales growth since prior to the recession in 2008.
It’s expected that retail sales are volatile, they’re always increasing and decreasing, but factors such as the weather alone cannot be responsible for an increase or decrease in them. Further data showed that retail sales grew by 0.6% in September in comparison with August. As inflation consumes more and more of our disposable incomes, you’d expect that we’d be buying less. If goods are more expensive, what incentive do we have to purchase them?
One of the biggest retail areas that saw growth was in clothing and textiles, which saw an increase in sales of 1.2% when compared with August. A problem we’re facing, however is that although confidence appears to be rising, many consumers cannot respond as wages have remained low, with little sign of increasing in the near future. Low wages with no sign of an increase, and the threat of inflation absorbing the little income that consumers have would suggest a change in either of these factors could cause a significant rise or fall in retail sales in the upcoming months. The economy is slowly recovering from the recession, but for the recovery to be sustainable, there needs to be a rise in wages so that the consumer can actually benefit. Without a wage rise, many consumers will simply be unable to increase their level of spending, regardless of increased confidence.
To answer my question, yes, this rise in recent retail sales volumes suggests that Christmas could be expensive, in the sense that many households could perhaps buy more gifts this year than they did last year. But on the other hand, it could be expensive due to rises in the inflation rate, meaning we could actually end up buying less than we bought last Christmas. Based on this quarter alone, the future looks promising, but until consumers have more disposable income, high retail sales over Christmas look unlikely, and only differentiated products with effective branding, or firms with good brand loyalty are set to have a successful Q4. Preliminary GDP figures are released towards the end of the month, and this should give us some indication of what’s really happening in terms of retail and growth, which is just as volatile as ever.
There are some positives that come out of growing cocaine. For example, during the 1970s and 1980s the drugs business generated real estate booms, raising Colombia’s GDP rate. Standards of living increased as a result of jobs in the drug trade being given to families struggling financially, and also workers in the construction sector benefited from the boom. The working class effectively benefited from the drugs trade as more jobs were created in the construction sector, and farmers benefitted from growing the drug plants. Both of these groups had more real disposable income. The drugs trade in Colombia generates huge profits of about $4 billion per year, around 2% of Colombia’s GDP. Farmers started cultivating coca because the traditionally grown plant, coffee, faced competition from foreign producers that were cheaper, causing coffee prices to fall. Coca was easier to plant, maintain and transport and has longer storage life, so there was a higher demand for cocaine than coffee in Colombia. Some say that the recent recession in Colombia was due to the economic void generated by the imprisonment of the leading members of various drug cartels. Lately cocaine operations have moved to Peru and Bolivia, which has led to a small drop in cocaine sales in Colombia, but there is still no immediate end in sight to the production of drugs in Colombia, despite the best efforts of Colombian authorities.
However there are detrimental effects that the drugs trade has on the Colombian economy. A big problem of the drugs trade is the income inequality it produces. Drug lords make a lot of profit on the exportation of drugs, whilst farmers receive very little in return for risking imprisonment by growing coca leaves. The IMF reported that in 2001, the highest 20% of households earned 60% of income, whilst the lowest 20% earned 2% of income. Another problem of the drugs trade is that the drugs cartels use drugs profits to purchase goods abroad. They then sell these products at a cut price to locals, as they have already gained a profit before the sale. This is a form of money laundering. There is no expansionary effect on the economy as a result of this money laundering. As a result, local legitimate businesses are undercut by the drugs cartels, which mean that legitimate firms lose profits and inevitably go out of business. There are also problems faced by exporters such as the stigma attaching to Colombian products, because of the association of the country with the drugs trade. Colombian goods can spend days awaiting inspections in the US even though there are extensive and expensive security measures in Colombia, such is the concern in the USA that goods imported from Colombia could be used to smuggle in drugs to the USA. The stigma attaching to Colombia can also restrict investment into the country, as well as outward investment as Colombians face barriers in trying to expand their businesses overseas. An obvious effect of the drugs trade is that government officials are using resources to fight drug cultivation instead of on education and health that would improve the legitimate side of the economy.
Approximately 30% of Colombia’s agricultural land is owned by persons affiliated with drug cartels. Eradication of the coca crop affects agricultural productivity as the chemicals used to destroy illegal drug crops also make it difficult to grow legal crops. These statistics are alarming, and the issues are difficult to address because of the wealth and power of drug traffickers; however Colombian officials are working hard to eradicate the drugs trade from Colombia.
If the Colombian government is successful in eradicating the coca crop from farms and consequently in eliminating the trade in illegal drugs, then one would hope that the economic losses that this would represent would be made good by the government, by ensuring that investment in legal economic activities replaced what the drugs business had offered Colombia.
In both cases ‘bubbles’ played a large role in the causation of the crisis. A bubble occurs when speculative buying leads to the inflation of the price of a good relative to its actual value. People see that the value of shares for example are rising, and therefore purchase some themselves, contributing to demand which can lead to further price increases. As prices are seen to be steadily increasing more people buy in an attempt to make a quick profit, however once demand for the product in question has reached its limit the price no longer rises, causing investors to sell their assets, this decrease in demand, followed by an increase in supply, leads to a fall in the market price for said assets, which in turn leads to further selling. Hence the bubble has burst and the assets in question return to prices more representative of their actual value.
Both the asset bubble of the 1920s and the housing bubble of the last decade share many characteristics with the ‘Ponzi’ schemes often used by fraudsters, as they both rely on infinite demand so as to keep offering returns to investors, this of course is impossible and the scheme is bound to collapse at some point.
The problem caused by such asset bubbles is amplified by the ready availability of credit which so often coincides with these ‘bubbles’. Banks are more willing to lend to investors as steadily rising prices in the field of investment suggest that the bank is likely to see repayment of the loan in question. This was the case in both the housing bubble of the 2000s and the 1920s stock market bubble, buying ‘on the margin’ was as much a characteristic of 1920s America as the Model T Ford. The credit market causes a problem when bubbles burst as the collateral which the bank accepts is often in the form of the asset itself, meaning that once the asset price collapses the banks are left with an outstanding debt greater than the value of the collateral. This in turn causes a loss of confidence in the banking system and many savers rush to withdraw their savings from the bank as they fear they are at risk. Banks do not carry enough money to be able to pay everyone back at any given time; instead they have much of your savings tied up in investments. As people demand their money back from the bank the bank soon runs dry its money reserves and either faces collapse or a state bailout. These bank ‘runs’, such as those on Northern Rock in 2007 and on many banks in late 1929, are just one of many characteristics shared by the Wall Street Crash and the current financial crisis.
The economist Hyman Minsky hypothesised that there are three types of borrowers within any bubble ultimately leading to its collapse. Firstly are what are described as ‘hedge buyers’, who are able to meet both interest repayments and capital repayments on the loan through his or her own income, secondly come those who can only meet the interest payments on the loan, and must hence refinance the loan so as to maximise his or her benefit from the growing asset prices. In the final stages come those who can meet neither the interest or capital repayments through their own income and must therefore ‘flip’ the asset to make a profit and to repay the loan. It is these borrowers who are the most dangerous in any asset bubble and are a suggestion that it is about to burst, this is because they are reliant on others like themselves if they are to make a profit, they are in many ways similar to the final layer of buyers in a pyramid scheme. They also cause the largest problems for the banks as the bank relies on the sole value of the asset for repayment and when this falls the borrower is unable to meet payments and the bank loses out. This structure has been reflected in the current crisis as credit became more available throughout the 2000s, even to those who could not afford repayments under normal circumstances.
As well as having a similar structure in terms of causation, both crises have led to an increase in support for extremist political parties. This was shown in the support for Mussolini’s fascist party in Italy during the 30s as well as in the support for the communist and more notably the Nazi party in 30s Germany. Unfortunately this is being echoed in modern day Europe, with the far-right Golden Dawn party gaining over 400,000 votes in recent Greek elections, perhaps to a lesser extent the growing popularity of the anti-immigration UKIP party in the UK is testament to the polarising effects of Global recessions. France has also seen its centre-right government replaced by a new one headed by the socialist candidate Francois Hollande.
Thus we can see that both the Wall Street crash have share many factors in terms of causation and political impact, we are yet to see whether these similarities continue in terms of long lasting impact, although hopefully this will not be the case.
