The Changing World of Central Banks

It seems week by week that central banking institutions are only becoming more uncertain about what kind of actions to take in the current economic climate.

There is considerable hesitancy surrounding the choice of the FED to leave the base rate unchanged, this had considerable international repercussions with having to continue handling its deteriorating situation with no clear resolution, while the ECB and Bank of England are waiting in the wings taking a strategy of what seems to be follow the FED.

Mark Carney has begun his warning to expect monetary tightening in the near future, continuing with a vague timeline. While commentators in the United States who have been investigating the FED’s books that have a two week lag are beginning to hypothesise that there won’t be a rate rise in early 2016.

The key element here is looking at the behaviour of inflation over 2015 with targets regularly missed, while lacking concrete explanations for why. Both UK and US economies are experiencing growth albeit at low rates. Therefore, acting upon base rate may seem to extreme at the moment. The Bank of England has instead taken up to involving itself in politics discussing the impacts of leaving or staying in the eurozone, while they haven’t made their stance that abundantly clear as some saw it as euro skeptic and others as reasons to stay in.

We are entering a unique period where these critical financial institutions are struggling to grip with conventional policy practice, and potentially look for better ways to understand the economic climate.

CNBC have a great report on the FED actions that I recommend reading, while Krugman had a great post along similar lines on Saturday


Sweet Sensations?

Recently a report has been released considering the increasing amount of sugar in the average diet, and the problems that it induces in regards to health and especially obesity.

The report outlined that a tax between 10% and 20% would be the most effective, while also stopping supermarkets from offering special deals. The idea is to effectively price people out of consumption. The report outlines how this has worked in Mexico, which implemented a 10% tax on sugar based drinks, resulting in a reported 6% decrease in sales.

This can be viewed as a conventional case of a negative externality. As the costs that arise from these drinks are not integrated into pricing. This is due to the increasing cases of diabetes in developed countries, as well as the adverse health affects caused by sugary drinks as well as the no sugar substitutes.

The British Medical Association recommended adopting the measures in the report, but the Food and Drink Federation director stated “we do not agree that international evidence does not supports the introduction of a sugar tax”.

Now cynicism obviously points towards the fact that some friends of government ministers are not keen on such taxation. Let alone the fact that it would effectively be waging war over huge corporations such as Coca-Cola.

Aside from the issues in resolving this, it is interesting to look at consumer relationships with addictive products that are legal. While there is a wealth of information that supports the negative impact of sugar it is largely ignored by consumers. Similar to when the adverse effects of cigarettes had only started to be revealed.

The question I often face in these areas is should the government be managing our lives in these scenarios. While my usual answer is no, one has to take into consideration the fact that it is a burden on public healthcare services, which each taxpayer contributes to. The prevalence of Type-2 diabetes in the U.K. is indicative of resources being redirected to deal with diagnosis and treatment. This is a problem that can clearly be reduced by putting this tax forward as a starting point. While high sugar content in foodstuff can make that particular food addictive, causing similar problems.

Good News

To all my consistent followers!

I will be back writing again in the coming weeks, the summer hiatus is over. The reasons were such that I needed to study for summer exams, and then I was working full time over the summer.

So after catching up with all my current work, you shall be seeing a nice stream of content flowing through!

Until my first post do peruse some of my favourite places to read about economics on the internet: