I say tomato, you say turnip Enjoying your bacon lettuce turnip sandwich while reading this? Most of us would probably agree that tomatoes and turnips are not perfect substitutes so what to do when the supply of one of them dries up? Economics tells us that there are two options in the short run: either prices go up for demand and supply to equilibrate or there is rationing – empty tomato shelves. Supermarkets had notably empty shelves with only fervent tomato aficionados queuing up at dawn getting hold of them … but prices rose too. The ‘surprise’ inflation in February 2023 of 10.4% was partly driven by a massive 18.2 percent annual price rise in food and non-alcoholic beverages.
What price resilience? Over the past few years we had shortages in toilet paper, petrol and pretty much anything involving microchips. The recent tomato shortage was apparently the result of a perfect storm of bad weather, high energy prices, trade restrictions and labour shortages. We just about avoided gas shortages this winter. Sometimes not being able to get hold of something is merely annoying, at other times it could be life threatening – think pharmaceuticals.
There is clearly a value in resilient supply chains. We need resilience in other areas too to absorb shocks, for example by earthquake proofing buildings to minimise human tragedy or regulating banks to avoid another financial crisis. As recent experiences show, there is absolutely no place for complacency. Economists will increasingly need to consider resilience alongside costs and economic efficiency when giving policy advice. This will become even more important when considering the likely impact of climate change on our domestic and international economic system.
The cost of living crisis – a quick history lesson We are all still coming to terms with the sharp increase in inflation and in food prices in particular. Just imagine what hyperinflation must feel like. 2023 marks the centenary of hyperinflation in the Weimar Republic. In May 1923 a loaf of bread cost 474 Marks, in July 2,200 Marks, in October 14,000,000 Marks and in November 5,600,000,000 Marks (that’s 5.6bn). Should the same happen again, at least we have technological progress: we can use contactless to pay. Germans had to use wheelbarrows to take their cash to go shopping. The repercussions of this chapter in history are felt to this day.
Budget 2023 Jeremy Hunt’s secret ambition for the 2023 budget was probably to avoid a similar fate to that of his predecessor back in September 2022. In that sense the current Chancellor clearly succeeded – capital markets were not spooked (at least not by him!). It helped that he didn’t make the mistake of not asking the independent Office for Budget Responsibility to provide him with forecasts. On 16 March Catherine Connolly of economicsense chaired the SPE Post-Spring Budget Briefing with Andy King, member of the OBR’s Budget Responsibility Committee – to view you can watch here.
Sport and video gaming – economics and finance in action Take Two In our Christmas 2022 newsletter we talked about the role of Sovereign Wealth Funds and other major investors in European football. The ink had barely dried when it was revealed that a Qatari investor was bidding to take over Manchester United. With the Qatar Investment Authority (QIA) owning Paris St Germain, everybody is now trying to figure out the QIA’s relationship with the investor. This matters as clubs with the same owner are officially not allowed to participate in the same European competition at the same time. Given the amounts of money involved, expect competition lawyers and economic consultancies to move in quickly.
In our Christmas newsletter we also talked about Microsoft’s planned $69bn takeover of Activision-Blizzard, the producer of Call of Duty. Regulators everywhere are currently scrutinising the planned takeover. To convince regulators that consumers would benefit from the deal Microsoft, the producer of the popular XBox gaming console, is running full-page adverts in the British media and promising to licence the game to Sony, the producer of the PlayStation gaming console, for ten years. Microsoft must be very keen to close the deal.
Upcoming events and courses
Courses are currently delivered both online and in person. SPE Courses are run by economicsense on behalf of the Society of Professional Economists.
SPE Courses Cost-benefit analysis with applied example 9.30am–12.30pm, 3 – 5 July 2023 This popular course is ideal for analysts who want an overview of cost-benefit analysis. Run online over three half days we cover all basics of a good CBA and then bring the theory to life with an applied example conducted in excel. To book: Cost-Benefit Analysis with Applied Example.
Cost-benefit analysis for non-economists 9.30am–12pm, 27 – 29 June 2023 Ideal for government analysts (outside economics), and policy and finance professionals who are involved in preparing and reviewing business cases and impact assessments. The course will give participants the skills to critique CBA analysis quickly and effectively. This course is run online. To book: Cost-benefit-analysis for non-economists
Strategic Career Development for Analysts 10am – 1pm, 7, 14 July and 22 September 2023 This course is designed to support strategic career development for experienced analysts. Whether you are considering promotion, looking to deepen your knowledge as an expert in your analytical field or simply deciding what to do next, the course will provide you with tools to develop a fulfilling career. This course is run online. To book: Strategic Career Development for Analysts
Economics for non-economists 9.30am–12pm, 26 – 28 September 2023 This course provides an accessible overview of economics. Topics include market structure and competition, market failure and government failure, and international trade. At the economy-wide level we will discuss growth, fiscal policy, and monetary policy. To book: Economics for non-economists