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Stephanie Flanders examines one of the most revolutionary and controversial thinkers of all. Karl Marx's ideas left an indelible stamp on the lives of billions of people and the world we live in today. As the global financial crisis continues on its destructive path, some are starting to wonder if he was right.

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Current Account Deficit - Expenditure Reducing and Expenditure Switching Policies

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Current Account Deficit - Expenditure Reducing and Expenditure Switching Policies. A video covering Current Account Deficit - Expenditure Reducing and Expenditure Switching Policies Instagram @econplusdal Twitter: https://twitter.com/econplusdal Facebook: https://www.facebook.com/EconplusDal-1651992015061685/?ref=aymt_homepage_panel

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Marshall Lerner Condition and J Curve Effect

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Marshall Lerner Condition and J Curve Effect - An in depth look at the Marshall Lerner condition and J curve effect in determining whether a fall in the exchange will improve a country's current account position

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Y1/IB 29) Policies to Rectify a Current Account Deficit with Evaluation

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AS/IB 28) Policies to Rectify a Current Account Deficit - An understanding of all the policies available to government of rectifying a current account deficit with evaluation Twitter: https://twitter.com/econplusdal Facebook: https://www.facebook.com/EconplusDal-1651992015061685/?ref=aymt_homepage_panel

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Current Account Deficit Consequences - An understanding of the consequences of a current account deficit on the balance of payments

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Understanding Fiscal Deficit & Economic Growth

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Y1/IB 13) Causes and Consequences of a Current Account Deficit

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AS/IB 12) Causes and Consequences of a Current Account Deficit - An understanding of the Causes and Consequences of a Current Account Deficit looking at causes from the demand and supply side of the economy Twitter: https://twitter.com/econplusdal Facebook: https://www.facebook.com/EconplusDal-1651992015061685/?ref=aymt_homepage_panel

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Y1/IB 12) Current Account of the Balance of Payments

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AS/IB 11) Current Account of the Balance of Payments - An understanding of the Balance of Payments focusing on the current account and the four sections within it Twitter: https://twitter.com/econplusdal Facebook: https://www.facebook.com/EconplusDal-1651992015061685/?ref=aymt_homepage_panel

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Why You Shouldn't Copy Your Classmates - RES 2015

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STUDENTS BEWARE! If you rely too much on your classmates, you all suffer. Based on prize-winning research by Giacomo De Giorgi and Michele Pellizzari talk in The Economic Journal.

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Middlebury Institute of International Studies

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What can the iPhone tell us about China's Trade? - RES 2016

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The 2016 Royal Economic Society Prize was awarded to Miaojie Yu (Peking University) at the society's Annual Conference. Here, Professor Yu explains how China's openness to processing trade - such as putting together iPhones to export around the world - has been responsible for a huge amount of its economic growth.

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Shafik issued what was described in the media as a "thinly veiled warning" to the Chancellor, Phillip Hammond. She stated that it was an "illusion" to believe that transforming the UK into a low tax, low regulation economy would give it a competitive advantage. Indeed, Shafik went further and offered the opinion that such polices risked "hugely disastrous consequences for the economy".

We have heard such prognostications before. In the run up to Brexit, the Treasury claimed that unemployment would rise by 500,000 by the end of 2016 in the event of a leave vote. It actually fell. The Bank signalled a similar opinion, that Brexit would be bad. Doom and gloom was prophesised by the OECD and the IMF.

These institutions seem permeated by what we might call "Davos liberalism", the sorts of opinions which would be congenial to George Clooney. Of course clever, well meaning people can design policies and regulations which will benefit ordinary people, who after all cannot be expected to understand these things and might hold incorrect views!

Shafik claimed that the UK economy has lost 16 per cent of GDP relative to trend because of the financial crisis. Looser regulation would run the risk of an even bigger loss in future. But the French economy is much more highly regulated than that of the UK. It has lost at least 20 per cent of GDP relative to trend, some £80 billion more than the UK. And France has at least 1 million more people who are unemployed.

Shortly after the Shafik statement, the government announced a major review of how the UK can become the world leader in artificial intelligence (AI) and robotics. We can take with a pinch of salt the unnervingly precise estimate that £654 billion can be added to the British economy by 2035 if the growth potential of AI is achieved. But we are clearly already a world leader in this area and, equally clearly, if we succeed in capitalising on this, GDP will be boosted by a very big number.

An essential ingredient for success is to attract the innovative thinkers who will push out the frontiers of the science, and the entrepreneurs who will help turn the ideas into practical tools. It is of course possible that a system of high personal and corporate tax rates could succeed in attracting such people. But it seems plausible that low tax rates are more likely to do the trick.

The high taxes imposed by President Hollande in France illustrate the point. Young French people have flocked to the UK. London is now the sixth largest French city in the world in terms of the population of native French speakers.

Our borders need to remain open to highly skilled individuals. But we need policies which continue to attract them rather than drive them away.

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Shafik issued what was described in the media as a "thinly veiled warning" to the Chancellor, Phillip Hammond. She stated that it was an "illusion" to believe that transforming the UK into a low tax, low regulation economy would give it a competitive advantage.

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Not all that long ago the International Monetary Fund was one of the biggest critics of UK economic policy. Back in Gordon Brown's day the Fund constantly warned him about overspending. George Osborne was told that his policies amounted to " playing with fire ".

But, on the face of it, those days are long gone. Not only does the latest IMF Article IV report (the in-house name for annual economic surveys of member economies) concede that Mr Osborne's austerity plans are "justified under the baseline scenario", it even goes so far as commending his barmy new fiscal surplus rule - though mainly because of its transparency rather than its good sense.

Even the Fund's conclusion about the EU referendum - that it is a risk to the economy but is difficult to quantify - is a little dull.

However, as is often the case, there are some more interesting technical findings buried away in the report. The first come in a lengthy section about Britain's enormous and persistent current account deficits, which are comfortably the worst in the developed world. Given a current account deficit is something that often precedes a serious economic crisis, this is something too many people are ignoring.

The "selected issues" paper is well worth a read - more so perhaps than the main report - if only for its analysis on this, a subject which has perplexed many an economist. The big question is why Britain's stream of income from overseas, which has typically been a perennial source of profits for the UK balance sheet, has now turned into a drain. On this front, the IMF trots out some of the standard responses: that the return from overseas assets is falling and so on, but adds another intriguing one: MightGeorge Osborne's corporation tax cuts have been responsible too?

According to the Fund, the Chancellor's cut in marginal business tax rates from 30% to 21%, alongside changes in international tax treatment:

The Fund also has another interesting idea: might banking fines have pushed up the deficit? It says fines paid by misbehaving banks to overseas regulators might have had a noticeable impact on the balance of payments - though it says the effect is not enormous.

The report also contains a warning (again, you have to dig deep to find it) about the commercial property market. While there is always plenty of attention on residential property prices, the behaviour of commercial property values in recent years has been even more outrageous. Indeed prime London prices are far, far above their pre-crisis peaks.

It says:

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Did George Osborne's tax cuts contribute to record UK current account deficit?

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Not all that long ago the International Monetary Fund was one of the biggest critics of UK economic policy. Back in Gordon Brown's day the Fund constantly warned him about overspending. George Osborne was told that his policies amounted to " playing with fire ".

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Rice is a big deal in Nigeria. People love eating it. So the BBC's Ijeoma Ndukwe asks: why don't they grow more of it instead of importing so much?

A long line of customers queue along a glass divide separating them from a rice food station at an eatery in Lagos, Nigeria's commercial capital. Diners can choose between white rice, fried rice and jollof at this popular local restaurant known as "The White House".

A steady flow of customers is served in the main hall, and in two packed adjoining rooms diners are enjoying Nigerian dishes.

Rice is the basis of the popular national dish jollof and a staple across the country.

The problem is not a lack of land, or that there are not enough people to grow it in Africa's most populous country.

During the grain market crisis eight years ago, Nigeria experienced shortages in rice that made the country rethink its food security and ability to supply the local market.

As a result, President Muhammadu Buhari has made rice farming a priority.

Nigerians' appetite for rice means that the country imported nearly 17 million tonnes of it over the past five years. Duties for imported rice are currently 60% and consumers have seen the price of a bag of rice double in the past 12 months.

Many domestic players have been entering the market. Olam, a multi-national agribusiness, set up a rice farm in 2012 in response to government calls for local players to help feed the 170 million Nigerians.

Nigeria's rice in numbers

Imported nearly 17 million tonnes over the past five years

Imported 2.3 million tonnes in 2016

2016 demand was 5.2 million tonnes

Spends $5m (£4m) a day for rice shipments

Rice accounted for 1.26% of the entire budget for 2017

It is a bumpy journey to Olam's farm in Rukubi village close to the Benue River in Nasarawa State. The lush green fields of the farm are an oasis among miles and miles of dusty red road and bushes.

Large metal silos carrying 228,000 tonnes of rice rise up from the ground, gleaming in the scorching afternoon sun. Manager Anil Nair, drives us around 4,500 hectares of the farm and mill.

Most of the farm hands have finished work for the day. They usually work in the rice paddies from 07:00, before the sun gets too hot. Only a few women remain, standing ankle deep in the paddies, planting rice seedlings.

This is one of the largest rice farms in Nigeria and although it grows 50,000 tonnes each year, that is still just a small fraction of the country's demand.

According to the United Nations Food and Agriculture Organisation (FAO), the country imported 2.3 million tonnes in 2016, about half of the country's estimated requirements.

Minister of Agriculture Audu Ogbeh says that the culture of importation has to stop.

"We can't afford $5m a day for rice shipments in this country. It's gone on for 40 years. And I assure you that it's our reckless policy of importation that's brought Nigeria down to where she is now.

Those who keep talking of imports either don't mean Nigeria well or simply refuse to recognise the fact that we can't afford the imports."

However, most farmers in Nigeria are small scale and struggle to get the financing they need to improve farming methods and boost their yield.

Members of the Rice Farming Association of Nigeria say they can only access high-interest loans from commercial banks.

Joseph Jatau Kudu has been farming near the town of Doma in Nasarawa State since 1982. He says the banks charge as much as 30% to lend money.

"It's too high. We end up earning nothing," he says.

Without the capital to mechanise, workers must do everything on his 15-hectare farm by hand.

"Sometimes the tractors are not available. So now I'm using manual labour. It's not as effective as in the case of using a tractor and it's one of the reasons I can't expand."

'Pipe dream'

The agriculture minister claims that Nigeria will become self-sufficient in rice production by the end of the year.

However, critics of government policy not only point to a lack of spending on agriculture, but also to an under-investment in the entire value-chain for rice, from field to cooking pot.

Ninety two billion naira ($302m; £240m) was assigned to the sector in the 2017 budget - only 1.26% of the entire budget for the year.

AgroNigeria's Managing Director Richard Mbaram says that achieving self-sufficiency in the next couple of years is merely a "pipe dream".

"Rice production isn't willed into existence. It is cultivated and systematically sown.

"There is research, there is mechanisation, there is warehousing and storage. There is market opening and market access.

"You cannot drive industrialisation or agro-industrialisation without connecting the farm gate where the production is happening. Do we have that? We're very far back in terms of achieving that."

In the meantime, Nigerians' appetite for rice shows no sign of slowing down.

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Rice is a big deal in Nigeria. People love eating it. So the BBC's Ijeoma Ndukwe asks: why don't they grow more of it instead of importing so much? A long line of customers queue along a glass divide separating them from a rice food station at an eatery in Lagos, Nigeria's commercial capital.

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As US President Donald Trump proceeds to destabilise the postwar global economic order, much of the world is collectively holding its breath. Commentators search for words to describe his assault on conventional norms of leadership and tolerance in a modern liberal democracy. The mainstream media, faced with a president who might sometimes be badly uninformed and yet really believes what he is saying, hesitate to label conspicuously false statements as lies.

But some would argue that beneath the chaos and bluster, there is an economic rationale to the Trump administration's disorderly retreat from globalisation. According to this view, the US has been duped into enabling China's ascendency, and one day Americans will come to regret it. We economists tend to view abdication of US world leadership as a historic mistake.

It is important to acknowledge that the roots of the anti-globalisation movement in the United States run much deeper than disenfranchised blue-collar workers. For example, some economists opposed the Trans-Pacific Partnership (a 12-country trade deal that would have covered 40% of the global economy) on the questionable grounds that it would have harmed American workers. It fact, the TPP would have opened Japan far more than it would have affected the US. Rejecting it only opens the door to Chinese economic dominance across the Pacific.

US populists, perhaps inspired by the writings of Thomas Piketty, seem unimpressed by the fact that globalisation has lifted hundreds of millions of desperately poor people in China and India into the global middle class. The liberal view of Asia's rise is that it makes the world a fairer and more just place, where a person's economic fate does not depend quite so much on where they happen to have been born.

But a more cynical view permeates populist logic, namely that in its excessive adherence to globalism, the US has sown the seeds of its own political and economic destruction. Trumpism taps into this sense of national mortality; here is someone who thinks he can do something about it. The aim is not just to "bring home" American jobs, but to create a system that will extend US dominance.

"We should focus on our own" is the mantra of Trump and others. Unfortunately, with this attitude, it is hard to see how America can maintain the world order that has benefited it so much for so many decades. And make no mistake: America has been the big winner. No other large country is nearly as rich, and the US middle class is still very well off by global standards.

Yes, Democratic Presidential candidate Bernie Sanders was right that Denmark is a great place to live and does many things right. He might have mentioned, however, that Denmark is a relatively homogeneous country of 5.6 million people with a very low tolerance for immigration.

For better or for worse, the globalisation train has long since left the station, and the idea that one can turn it back is utterly naive. Whatever might have been done differently before US President Richard Nixon visited China in 1972 is no longer possible. The fate of China, and its role in the world, is now in the hands of the Chinese and their leaders. If the Trump administration thinks it can reset the clock by starting a trade war with China, it is as likely to accelerate China's economic and military development as it is to slow it down.

So far, the Trump administration has only sparred with China, concentrating its early anti-trade rhetoric on Mexico. Although the North American Free Trade Agreement (Nafta), which Trump reviles, has likely had only modest effects on US trade and jobs, he has attempted to humiliate Mexicans insisting that they pay for his border wall, as if Mexico were a US colony.

The US is ill-advised to destabilise its Latin American neighbours. In the near term, Mexican institutions should prove quite robust; but in the long run, Trumpism, by encouraging anti-American sentiment, will undermine leaders otherwise sympathetic to US interests.

If the Trump administration tries such crude tactics with China, it will be in for a rude surprise. China has financial weapons, including trillions of dollars of US debt. A disruption of trade with China could lead to massive price increases in the low-cost stores - for example, Wal-Mart and Target - on which many Americans rely.

Moreover, huge swaths of Asia, from Taiwan to India, are vulnerable to Chinese aggression. For the moment, China's military is relatively weak and would likely lose a conventional war with the US; but this situation is rapidly evolving, and China may soon have its own aircraft carriers and other more advanced military capabilities.

The US cannot "win" a trade war with China, and any victory will be pyrrhic. The US needs to negotiate hard with China to protect its friends in Asia and deal with the rogue state of North Korea. And the best way to get the good deals Trump says he seeks is to pursue a more open trade policy with China, not a destructive trade war.
Topics

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Why Donald Trump can't bully China on trade

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As US President Donald Trump proceeds to destabilise the postwar global economic order, much of the world is collectively holding its breath. Commentators search for words to describe his assault on conventional norms of leadership and tolerance in a modern liberal democracy.

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A2 Economics Revision Webinar - Balance of Payments

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tutor2u's Geoff Riley explains the key aspects of a countries Balance of Payments and explores the policy options for dealing with a current account deficit

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A current account deficit happens when there is a net outflow of currency from a country on the trade, investment income and transfer account. It is an almost inevitable consequence of trade that there will be imbalances in doing so, thus some countries are left in surplus, others in deficit - and many stay in one of these two camps for extended periods of time. It is not difficult to observe that the UK has been subject to one such persistent current account deficit. Having not experienced current account trade surplus for 30 years now, the evidence is clear - despite the best claims the current Conservative party are making about the future. Of course, the UK is far from the only country with a current account deficit, but there are clearly different causes for different nations that lead to an imbalance in trade.

Find more statistics at Statista

One potential cause of a persistent current account deficit is that of sustained economic growth. Growth in an economy is indicated by a sustained rise in its real GDP, which in turn must mean that the total income of the nation has increased. If the incomes of at least some of the individuals within the economy are rising, then almost certainly a proportion of this increase will be spent on imported goods and services. In developing economies, this may be especially true as economic growth may coincide with changes in tastes towards luxury and higher-tech goods, which are often imported from developed nations.

Thus economic growth has a direct link to an increase in the value of imports which, ceteris paribus, will lead to an increase in the current account deficit. This is evident in economies such as Ethiopia and Rwanda, who both have current account deficits in excess of 10% of GDP, but are two of the fastest growing nations globally (10.3% and 7.7% respectively).

However, this much depends on the marginal propensity to import of the nation. This concept can be defined as the proportion of an additional unit of income that will be spent on imported goods. If the marginal propensity to import is high, then a rise in income (characterised by economic growth) will have a larger effect on the current account deficit than if it is low, since it implies that the level of imports will vary closely with changes in income.

The UK population has a characteristically high MPM, so the current account deficit is far more sensitive to growth rates than other countries - particularly those with high import tariffs (Djibouti has an average 18% tariff compared to the US' 1.5%). Furthermore, the marginal propensity to import also varies between individuals in a nation. Some classes (especially those reliant on commodity imports, such as the steel processing or energy generation industries) are more likely to spend a greater proportion of additional income on imported goods than others. Thus if the economic growth is concentrated in sectors with high MPMs, then the changes in the current account deficit will be magnified compared to if the rise in output and income is located in sectors with low MPMs.

Furthermore, it could be argued that high current account deficits caused by high growth rates are unsustainable, and therefore perhaps not persistent (depending on one's interpretation of the word). In the case of Rwanda and Ethiopia, such a large deficit will drain foreign reserves and - given that at least part of the deficit is caused by an inflow of borrowed money used to close the savings gap between investment and savings - accumulate debt. Extended periods of high current account deficits are therefore unsustainable in the long term, although if the deficit is used to build critical infrastructure that can later serve a self-sustaining economy, then there need not be one indefinitely.

Extended periods of high inflation can also lead to persistent deficits in the current account. High inflation indicates that the prices of domestic goods and services are rising rapidly, and this can mean that domestic production becomes less competitive compared to imported goods and services, since it is becoming comparatively more expensive relative to abroad. One such example would be Turkey, where inflation was 9% in 2013 and the current account deficit was a sizeable 5% of GDP.

However, this can be entirely offset if inflation is similarly high - or even higher - in the countries where the imported goods originate from. If prices are rising not just domestically, but also abroad, then there is no change in competitiveness and thus no effect on the balance of payments. In the case of Turkey, were inflation to be equally high within the EU (where over 50% of its imported goods originate from), then this would offset its high inflation as there would be no significant change in price competitiveness between foreign and domestic goods, ceteris paribus.

Finally, economies can also be subject to persistent current account deficits if their levels of investment are too low to allow for exports of high (or even moderate) value items. For instance, economies with low levels of investment may have to rely on exports of raw, unprocessed commodities that have the potential to be greatly increased in value if they were processed on site. Examples would include oil exports in Angola (where 80% is exported as unrefined crude oil), and coffee plantations in Ethiopia (where many of the beans are left unprocessed on site, to be roasted once they are exported). This results in price-uncompetitive exports, lowering the country's export capabilities and thus worsening the balance of payments. This may also include too little investment in human capital (i.e. insufficient spending on education), which translates into low productivity (so high unit labour costs and therefore uncompetitive goods and services), as well as a lack of the skills necessary for higher skill jobs.

Countries such as Romania (where there has been a sharp growth in the IT sector in the last couple of decades) can benefit from higher-value goods and services being exported per worker compared to other economies where human capital levels are lower, and thus where the value of goods produced per worker is also less. Insufficient levels of investment will therefore lead to the inability to export high-value goods and services, and thus may mean a diminished total value of exports and thus a worse current account deficit.

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Causes of a Current Account Deficit Exam Answer | tutor2u Economics

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A current account deficit happens when there is a net outflow of currency from a country on the trade, investment income and transfer account. It is an almost inevitable consequence of trade that there will be imbalances in doing so, thus some countries are left in surplus, others in deficit - and many stay in one of these two camps for extended periods of time.

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This Year 2 Macroeconomics topic video looks at the make up of the balance of payments and in particular the difference between the current account and the financial account.

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Current Account Surpluses (Balance of Payments)

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This short topic video looks at countries who run current account surpluses on their balance of payments. It focuses on the structural and cyclical causes of surpluses and the economic significance of a surplus.

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​The external value of the pound has been falling since the referendum vote to leave the European Union. ​But, so far, there is little sign of an improvement in the UK trade balance in goods and services.

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Here is a recording of our revision webinar on the balance of payments. We work through a number of multiple choice questions and cover the core parts of the accounts.​ ​The webinar then looks at recent trends in the UK current account and the differences between deficit and surplus countries.

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Understanding Fiscal Deficit & Economic Growth

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Current Account Deficits (Balance of Payments)

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This topic video looks at the structural and cyclical causes of current account deficits and also why a current account deficit can matter for an economy

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Balance of Payments & Currencies Revision Quiz | tutor2u Economics

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Try these revision MCQs on the Balance of Payments and Exchange Rates

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AS Economics Revision - Balance of Payments Quiz 1

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AS Economics Revision - Inflation Quiz 1

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Narrowing Trade Deficit due to falling oil prices bbc news article 12 March 2015