current issues in economics g. t. jedrzejczak, phd lecture 1 1

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Current Issues in Economics

G. T. Jedrzejczak, PhDLecture 1

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Current Issues in EconomicsIntroduction

About myself• Master in Economics, PhD/habilitation in

management• 1974-89 Faculty of Management UW• 1989-91 Government: privatization, stock market • 1992-94 private business• 1994-2013 World Bank: Washington DC, Kiev,

Baku• 2013 – free lance, IoBD, FoM UW

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Business new challenges• Global financial crisis triggered a number of

fundamental changes in the global economy which have had profound impact on the business activities.

• The course will address the impact of the secular economic and social changes due to introduction of the revolutionary technologies, changes in the demography, and globalization.

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Forces behind emerging new economy• Global Financial Crisis was the trigger but not a cause• Perfect storm of secular trends in politics, social,

demography, economy and technology:– Political correctness– Social changes (leisure middle class)– Demography (ageing societies)– Globalization (chasing the lower costs of labor and the public

contribution) – Technology (from container transport to program trading via

Internet)

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Economist’s toolbox• Macroeconomics in the decades preceding the crisis - a

worldview in which economic fluctuations occurred but were regular, and essentially self correcting.

• Small shocks had small effects and a shock twice as big as another had twice the effect on economic activity - assumption, called linearity,

• Economists did think of the economy as roughly linear, constantly subject to different shocks, constantly fluctuating, but naturally returning to its steady state over time.

• Rational expectations

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Topic’s Overview• Knowledge and Social Capital as the production factors • Labor demand perspectives in the time of robots• Internet Economics• New era of inequality • Aging societies and pensions’ dilemma• Austerity vs. stimulus debate in the time of the global

recession • New Industrial Policy• Global imbalances and secular stagnation

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Knowledge and Social Capital as the production factors The main difference between a knowledge-based economy and a traditional economy is in the way in which knowledge is generated and introduced into the production process.

Social capital – source of collective economic benefits derived from the cooperation between individuals and groups

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Labor demand perspectives in the time of robots• For decades, people have been predicting how the

rise of advanced computing and robotic technologies will affect our lives, but expectations differ:– On one side, there are warnings that robots will displace

humans in the economy, destroying livelihoods, especially for low-skill workers.

– Others look forward to the vast economic opportunities that robots will present, claiming, for example, that they will improve productivity or take on undesirable jobs.

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Internet Economics

• The Internet began as a way of linking different computers over the phone network, but it now connects billions of users worldwide from wherever they happen to be via portable or fixed devices.

• People with no access to water, electricity or other services may have access to the Internet from their mobile phone.

• The Internet is a multi-billion dollar industry in its own right, but it is also a vital infrastructure for much of the world’s economy.

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New era of inequality• Globalization:– Reduced inequality between developed and

developing countries by exporting jobs, but– Symmetrically reduced jobs for lower middle class

in developed countries

• Do we witness return t the inequality of chances in addition to the inequality of wealth?

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Aging societies and pensions’ dilemma• Demographic projections: longer lives and

lower fertility older societies• Impact on GDP growth and social

expenditures including pensions• Should I be sorry for you?

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Austerity vs. stimulus debate in the time of the global recession • Six years after the global crisis erupted, the world’s mature

economies – especially the Eurozone – find themselves with shockingly fragile economies.

• Have the austerity programs adopted by several EZ countries since 2011 been cutting too much and too soon? Has austerity triggered a self-defeating ‘doom loop’ whereby budget cuts and tax rises widen deficits by throwing economies into tailspins?

• Is spending more by increasing public debt a solution?

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New Industrial Policy• It is essential to increase productivity in

manufacturing industry and associated services to underpin the recovery of growth and jobs, restore health and sustainability to the EU economy and help sustain our social model (EC 2014)

• In the last decade the global business environment has changed radically. EU industry competes with China, Brazil, India and other emerging economies also on high-value products.

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Global imbalances and secular stagnationThe mid-2000s was a period of strong economic performance throughout the world. Economic growth was strong; inflation low; international trade and financial flows expanded; and the emerging and developing world experienced widespread progress and a notable absence of crises. This apparently favorable equilibrium was underpinned, however, by three trends that appeared increasingly unsustainable as time went by: • real estate values were rising at a high rate • a number of countries were simultaneously running high and

rising current account deficits • leverage had built up to extraordinary levels in many sectors

across the globe among consumers and financial institutions

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Five Nobel Prize winners indicate the biggest problem facing the global economy of the future • Global Warming• A persistent lack of adequate demand• Secular Stagnation• Accommodating the growth of developing

economies and completing the convergence• Inequality - The Economy Should Serve Society

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Selection Objective Develop sound understanding of the new trends in the world economy with the consequences for the business activities.

Why to bother you?Willie Sutton answer when asked why he robbed banks "because that's where the money is.“ORb/c there is no money to make in traditional production and services any longer

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Credit: PP of 5 slides sent to me, up to 3 people, on the following:

• “I must say I find television very educational. The minute somebody turns it on, I go to the library and read a good book”. Groucho Marx

• “I think there is a world market for maybe five computers.” T. Watson, president of IBM, 1943

• “640 kilobytes floppy disc ought to be enough for anyone.” Bill Gates, 1981

• “Who would like to pay for a message sent to no one in particular?” Advise to D. Sarnoff not to invest in radio

• “The Americans need phones but we do not, we have plenty of messenger boys” Chief, British Post, 1878

• “It’ll be gone by June” Variety Magazine on Rock n’Roll, 1955

current issues in economics g. t. jedrzejczak, phd lecture 1 1

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