- Industrie: Economy; Printing & publishing
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When total public-sector spending equals total government income during the same period from taxes and charges for public services. Politicians in some countries, such as the United States, have argued that government should be required to run a balanced budget in order to have sound public finances. However, there is no economic reason why public borrowing need necessarily be bad. For instance, if the debt is used to invest in things that will increase the growth rate of the economy--infrastructure, say, or education--it may be justified. It may also make more economic sense to try to balance the budget on average over an entire economic cycle, with public-sector deficits boosting the economy during recession and surpluses stopping it overheating during booms, than to balance it every year.
Industry:Economy
The number of people of working age without a job is usually expressed as an unemployment rate, a percentage of the workforce. This rate generally rises and falls in step with the business cycle--cyclical unemployment. But some joblessness is not caused by the cycle, being structural unemployment. There are also voluntary unemployment and involuntary unemployment. Some people who are not in work have no interest in getting a job and probably should not be regarded as part of the workforce. Others choose to be out of work briefly while they look for, or are waiting to start, a new job. This is known as frictional unemployment. In the 1950s, the Phillips curve seemed to show that policymakers could reduce unemployment by having higher inflation. Economists now say there is a NAIRU (non-accelerating inflation rate of unemployment). In most markets, prices change to keep supply and demand in equilibrium; in the labor market, wages are often sticky, being slow to fall when demand declines or supply increases. In these situations, unemployment often increases. One way to tackle this may be to boost demand. Another is to increase labor market flexibility.
Industry:Economy
The hardest sort of unemployment to cure because it is caused by the structure of an economy rather than by changes in the economic cycle. Contrast with cyclical unemployment, which can, in theory if not always in practice, be cut without sparking inflation by stimulating faster economic growth. Structural unemployment can be reduced only by changing the economic structures causing it, for instance, by removing rules that limit labor market flexibility.
Industry:Economy
Unemployment through opting not to work, even though there are jobs available. This is the joblessness that remains when there is otherwise full employment. It includes frictional unemployment as a result of people changing jobs, people not working while they undertake job search and ¬people who just do not want to work.
Industry:Economy
A bad, depressingly prolonged recession in economic activity. The textbook definition of a recession is two consecutive quarters of declining output. A slump is where output falls by at least 10%; a depression is an even deeper and more prolonged slump. The most famous example is the Great Depression of the 1930s. After growing strongly during the “roaring 20s”, the American economy (among others) went into prolonged recession. Output fell by 30%. Unemployment soared and stayed high: in 1939 the jobless rate was still 17% of the workforce. Roughly half of the 25,000 banks in the United States failed. An attempt to stimulate growth, the New Deal, was the most far-reaching example of active fiscal policy then seen and greatly extended the role of the state in the American economy. However, the depression only ended with the onset of preparations to enter the second world war. Why did the Great Depression happen? It is not entirely clear, but forget the popular explanation: that it all went wrong with the Wall Street stock market crash of October 1929; that the slump persisted because policymakers just sat there; and that it took the New Deal to put things right. As early as 1928 the Federal Reserve, worried about financial speculation and inflated stock prices, began raising interest rates. In the spring of 1929, industrial production started to slow; the recession started in the summer, well before the stock market lost half of its value between October 24th and mid-November. Coming on top of a recession that had already begun, the crash set the scene for a severe contraction but not for the decade-long slump that ensued. So why did a bad downturn keep getting worse, year after year, not just in the United States but also around the globe? In 1929 most of the world was on the gold standard, which should have helped stabilize the American economy. As demand in the United States slowed its imports fell, its balance of payments moved further into surplus and gold should have flowed into the country, expanding the money supply and boosting the economy. But the Fed, which was still worried about easy credit and speculation, dampened the impact of this adjustment mechanism, and instead the money supply got tighter. Governments everywhere, hit by falling demand, tried to reduce imports through tariffs, causing international trade to collapse. Then American banks started to fail, and the Fed let them. As the crisis of confidence spread more banks failed, and as people rushed to turn bank deposits into cash the money supply collapsed. Bad monetary policy was abetted by bad fiscal policy. Taxes were raised in 1932 to help balance the budget and restore confidence. The New Deal brought deposit insurance and boosted government spending, but it also piled taxes on business and sought to prevent excessive competition. Price controls were brought in, along with other anti-business regulations. None of this stopped – and indeed may well have contributed to – the economy falling into recession again in 1937–38, after a brief recovery starting in 1935.
Industry:Economy
That part of the jobless total caused by people simply changing jobs and taking their time about it, because they are spending time on job search or are taking a break before starting with a new employer. There is likely to be some frictional unemployment even when there is technically full employment, because most people change jobs from time to time.
Industry:Economy
A euphemism for the world’s poor countries, also known, often optimistically, as emerging economies. Some four-fifths of the world’s 6 billion people already live in developing countries, many of them in abject poverty. Developing countries account for less than one-fifth of total world GDP. Economists disagree about how likely--and how fast--developing countries are to become developed. Neo-classical economics predicts that poor countries will grow faster than richer ones. The reason is diminishing returns on capital. Since poor countries start with less capital, they should reap higher returns than a richer country with more capital from each slice of new investment. But this catch-up effect (or convergence) is not supported by the data. For one thing, there is, in fact, no such thing as a typical developing country. The official developing world includes the (sometimes) fast-growing Asian tigers and the poorest nations in Africa. Studies of the relationship between growth and GDP per head in rich and poor countries found no evidence that poorer countries grew faster. Indeed, if anything, poorer countries have grown more slowly. Development economics has argued that this is because poor countries have unique problems that require different policy solutions from those offered by conventional developed-world economics. But new endogenous growth theory instead argues that there is conditional convergence. Hold constant such factors as a country’s fertility rate, its human capital and its government policies (proxied by the share of current government spending in GDP), and poorer countries generally grow faster than richer ones. Since, in reality, other factors are not constant (not all countries have the same level of human capital or the same government policies), absolute convergence does not happen. Government policies seem to be crucial. Countries with broadly free-market policies – in particular, free trade and the maintenance of secure property rights--have raised their growth rates. (Although some economists argue that the Asian tigers are an exception to this free-market rule. ) Open economies have grown much faster on average than closed economies. Higher public spending relative to GDP is usually associated with slower growth. Furthermore, high inflation is bad for growth and so is political instability. The poorest countries can indeed catch up. Their chances of doing so are maximized by policies that give a greater role to competition and incentives, at home and abroad. Despite starting with a big disadvantage, there is evidence that some developing countries do not help themselves because they squander the resources they have. Institutions that produce effective governance of an economy are crucial. Those countries that use their resources well can grow quickly. Indeed, the world’s fastest-growing economies are a small subgroup of exceptional performers among the poor countries.
Industry:Economy
A policy intended to boost economic activity in a specific geographical area that is not an entire country and, typically, is in worse economic shape than nearby areas. It can include offering firms incentives to provide jobs in the region, such as soft loans, grants, lower taxes, cheap land and buildings, subsidized labor and worker training. Is it necessary? A region's problems should be somewhat self-correcting. After all, simple theories of supply and demand would suggest that firms will move to areas of low wages and high unemployment to take advantage of cheaper labor and surplus workers, or that workers will move away from such areas to where more and better-paid jobs exist. But some economic theories suggest that rather than moving to areas where wages are lowest, firms often cluster together with other successful businesses. Regional policy may need to be extremely generous to tempt firms to give up the advantages of being in a cluster.
Industry:Economy
Shifting activities that used to be done inside a firm to an outside company, which can do them more cost-effectively. Big firms have outsourced a growing amount of their business since the early 1990s, including increasingly offshoring work to cheaper employees at firms in countries such as India. This has become politically controversial in countries that lose jobs as a result of offshoring. However, a firm that outsources can improve its efficiency by focusing on those activities in which it can create the most value; the firm to which it outsources can also increase efficiency by specializing in that activity. That, at least, is the theory. In practice, managing the outsourcing process can be tricky, particularly for more complex activities.
Industry:Economy
Income you do not expect, such as winning a lottery prize. Economists have long argued about whether people are likely to save such windfalls or spend them. According to the permanent income hypothesis, favored by most economists, people save the lion's share of windfall gains. But real life often contradicts this; ask any lottery winner.
Industry:Economy
