Chopping Board Economics

This morning I activated what I have been working on in my free time for a while (besides running after three pre-school kids). Chopping Board Economics is a venture to explain simple economics through topical subjects, using an everyday motivator: cooking. I started this venture by drafting a book manuscript but after 6 chapters I realised that the concept would work better on video. So here’s the first 5 episodes, discussing the economics of food waste, inequality, trade, collusion, and the IKEA effect. Two more episodes, on the price of food, and on the sugar tax are also ready to be released but I decided to drip feed them, releasing a new episode every few weeks.

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Brexit uncertainty: fewer mergers, big business winners

While it is widely recognised that last year’s EU referendum caused significant uncertainty for markets, some early indications were that it had not reduced the level of business confidence. Our results show that the uncertainty surrounding the referendum triggered a fall in the number of mergers and acquisitions, and M&A activity has not recovered. The mergers that have suffered the largest drop have been the ones that were large in comparison to the size of the acquiring firms. Finally, as a result of the post-referendum uncertainty, the businesses that have remained more M&A active have been typically the largest ones. Our results – that are based on a careful study design of a treatment and control group – contradict some of the earlier, more optimistic discussions, which were based on simple before-after comparisons. Read more of this post

Corbyn’s maximum wage idea? My unlikely defence

The talk of the day has been Jeremy Corbyn’s proposal for the introduction of a maximum wage. Much has already been said about it, so I’ll only give my quick, knee-jerk verdict, in favour of Corbyn’s proposal. When facing a choice between redistribution and the maximum wage, the latter might be a better solution. The intuition is simple: redistribution converts potential investment into consumption, whereas the maximum wage leaves it in the hand of businesses how the money is spent, meaning that more money is invested (rather than consumed), making everyone better off. Read more of this post

Sugar tax – good intentions, with unintended consequences

It looks like nothing’s going to stop the introduction of sugar tax on soft drinks in the UK. Draft legislation has been published and the new tax is set to start in 2018. There have been numerous studies demonstrating the need for this indirect tax, or predicting its likely impact (see the most recent one here). The problem is, that none of the previous studies (at least not the ones I’m aware of) consider the dynamics of what will unfold after the introduction of this new tax. Effects on the prices of other products are elegantly ignored. Because a hike in the price of sugary drinks is likely to be accompanied by an increase in the price of healthier alternatives, my bet is that the tax will not significantly reduce sugar consumption. On the other hand it will lead to a more general price increase, hitting the poorest more than the rich. Read more of this post

Rising xenophobia – a tragedy of the commons?

There have been a number of reports documenting the recent rise of xenophobia in our liberal democracies. In this short thought experiment I look at whether a tragedy of the commons type argument could be applied to this phenomenon, and if so, how its solutions could be adopted. The issue is massively complex, and this short piece isn’t going to do justice to it. This post is nothing more than a simple analogy that I thought up whilst ‘enjoying’ my early morning run in refreshing 7 degrees below zero. Read more of this post

The effect of Brexit on inequality – a stocktaking

Many interpretations claim that inequality was one of the key driving forces behind the Brexit referendum outcome. In the event that this is true it appears to make a lot of sense to look at how Brexit will affect inequality. In this post I look at some of the most widely anticipated effects of Brexit and discuss their likely impact on economic inequality. This short stocktaking suggests that Brexit will make Britain a more unequal place and much of this will be driven by unproductive (such as rent seeking) rather than productive sources of inequality.

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The liberating effect of killing off a state-owned rival

When the final flight of the Hungarian national flag carrier, Malev landed in Budapest there were widespread concerns about the European Commission’s decision to declare Government payments to the company as illegal state aid, leading inevitably to the company’s shut down. Four and a half years on, evidence appears to show that shutting down the incumbent state-owned fat cat was probably the best thing that could happen to Hungarian passenger air transport.  Read more of this post

Attitudes towards low and high-skilled immigration: the myth of rationality

A post-Brexit survey showed that the overwhelming majority of people would support the inflow of skilled workforce, but they would strictly limit low-skilled immigration. Unsurprisingly politicians now echo this argument. But allowing only skilled people in the country will increase competition and push down wages for the attractive jobs and lessen competition and increase wages for undesirable, low-skilled jobs. These arrangements would suggest a long term equilibrium, where high-skilled jobs are more likely to be done by migrants and low-skilled jobs by the indigenous workforce.

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Brexit: Inequality and the EU

The left wing case for Brexit often features reference to growing inequalities made worse by the EU. Most of these accounts seem to reflect a lack of knowledge about how the EU operates, or a simple cognitive bias, according to which many people think that if an individual’s (themselves) relative wealth deteriorates, it must be a sign of increasing inequality. When looking at the evidence, focusing on simple EU-wide trends, the data does not support the argument that the EU makes Europe a more unequal place. However, when focusing specifically on the UK, it appears that income inequality is reduced for most  individuals in the UK, but the gap between the most developed and most deprived regions has grown. Read more of this post

EU Referendum and Norfolk farmers – gambling with other people’s money

Sharing the same neighbourhood with farmers, I notice a lot of their preferences when it comes to politics. Of course voting is an individual practice so I’m sure this doesn’t apply to all farmers but some clear – local – trends are undeniably emerging. Norfolk farmers are generally pro-Leave. If this wasn’t obvious from the little conversations I have with them, the billboard size ‘VOTE LEAVE’ banners along their hedges make it fairly clear.

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