Economics
Blowing bubbles but for how much longer? Nvidia is nowadays the most valuable company in the world, an amazing feat for a business some of us will remember as the producer of humble graphic cards for your DIY PC project. Times have moved on since then, with Nvidia describing itself as a world leader in Artificial Intelligence and one of the “Magnificent 7” tech stocks driving the global stock markets. Are we now in bubble territory or is this time really different? Even Google boss Sundar Pichai seems to think that there is some ‘irrationality’ in the AI boom, so some market correction might be on its way. What could happen if the tech bubble burst? With much of recent USA economic growth attributed to AI investment, a stock market crash could have severe consequences for the global economy (video). See also the Bank of England’s recent discussion of the financial stability risks of the AI boom.
Your money is safe…investing in confidence Talking about financial stability risks, if you are lucky enough to hold £120k in your bank account you will be pleased to know that the government will guarantee this amount from 1 December 2025 onwards in the event of your bank failing. This is a substantial increase on the £85k limit set in 2017, made necessary by the high inflation over recent years. Generous deposit protection has its roots in the global financial crisis of 2007-08, which originated in the US sub-prime mortgage market and led to a collapse of confidence in the global financial system. In the UK, Northern Rock suffered a bank run and had to be nationalised, while other banks were either part-nationalised or received significant government financial support. Before 2007, only the first £2k of savings were protected in full, while 90% of the next £33k were protected if your bank failed. £120k per account in case of bank failure seems like a lot but could turn out to be very good value for money, especially if it helps to avoid a collapse of confidence in the first place. After all, economics is not only about hard facts but also a lot about psychology.
Navigating the economic landscape without a compass What do you do as a policymaker when you must make important decisions but don’t have the data to tell you what to do? For various reasons policymakers have been faced with this new challenge. In the US, the recent government shutdown forced the Bureau of Labor Statistics (BLS) to postpone the publication of crucial labour market statistics by more than six weeks just when the Fed was contemplating lowering its interest rates. Moreover, President Trump’s recent sacking of Erika McEntarfer as BLS Commissioner on the grounds that she had apparently “rigged” statistics to make him look bad has raised question marks regarding the credibility of future data releases. Back in the UK, the Office for National Statistics (ONS) has had its own data quality issues, leading the government to set up an independent review over the summer. The ONS is now determined to improve the quality of its data. In September the Bank of England, which relies heavily on ONS data, and the ONS agreed to share information to improve quality. In economics we talk a lot about policymaking but generally take it for granted that we have the information we need to make the right choices. We should probably not make that assumption so lightly.
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