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economic-truth http://www.economic-truth.co.uk economics resources for students Wed, 07 Feb 2018 07:27:30 +0000 en-US hourly 1 https://wordpress.org/?v=4.8.5 31695883 Implementing the wishes of the minority http://www.economic-truth.co.uk/?p=569 http://www.economic-truth.co.uk/?p=569#respond Mon, 03 Oct 2016 14:17:48 +0000 http://www.economic-truth.co.uk/?p=569 Continue reading ]]> Before we start, I should make it clear: I feel that Brexit is a supremely bad idea, and if I had any say at all we would not be doing it.  It will mean huge economic and political upheaval and pain in the short term, for no gain in the long term.  The referendum was won on lies, misinformation, and encouraging ignorance.

But vote out the UK did, and the question ever since has been what form the break will take.  Economists have, in the main, been hoping for a ‘soft Brexit’, where access to the Single Market would be retained and the UK would suffer less of a financial shock.  However, recent reports from the government have indicated that a ‘hard Brexit’ is more likely – leaving the Single Market with the aim of controlling immigration and regulations.

This is likely to have disastrous implications for the economy as a whole.  Around 45% of British exports currently go to Europe, and without access to the Single Market it is unclear how this can continue.  This goes hand in hand with movement of labour.  Many small businesses are either run by or rely on immigrant labour – as well as the NHS –  and it has been shown by numerous studies that immigration, particularly from the EU, is a net contributor to tax.

This desire for leaving the Single Market is not driven by economics or strategy, it is driven by Theresa May’s wishes to reduce immigration and to increase the ability of the government to monitor its citizens – work she began while at the Home Office, albeit ineffectually.

The problem that the government could have, however, is that controls on immigration are not what the referendum was about.  The message that is endlessly repeated is that the government must abide by the wishes of the people, despite the referendum being an advisory poll.  But the wishes of the people when it comes to the Single Market, or immigration are not known.  The referendum only asked whether the UK should leave the EU.

The closeness of the result amplifies this.  1,269,501 more people voted to leave than remain – a margin of just under 4%.  We can assume that all of the 48.1% who voted to remain wish to stay in the Single Market.  If anything more than 3.65% of leave voters wished to stay in the Single Market, then the result of the referendum is reversed – and there is plenty of evidence that significant numbers of leave voters support membership of the Single Market, including those who led the leave campaign.

The Conservative party is claiming it has a mandate for leaving the Single Market and stopping immigration, when it has no such thing.  Indeed, the Conservative manifesto from the 2015 general election – from which the government derives its current power – specifically stated:

We are clear about what we want from Europe. We say: yes to the Single Market.

If there is a mandate, it is to leave the EU while retaining membership of the Single Market.  Unfortunately, there seem to be few who have the ability and inclination to stand up to this point – particularly with the Labour party being an ineffective opposition.

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12 million Turks are not planning on moving to the UK http://www.economic-truth.co.uk/?p=545 http://www.economic-truth.co.uk/?p=545#comments Tue, 24 May 2016 12:30:28 +0000 http://www.economic-truth.co.uk/?p=545 Continue reading ]]> Part of a series looking at the spin behind a Daily Express article – see this post for details.

Now that we have established that Turkey is not about to join the EU, and even with the visa-free travel scheme which might be implemented for the Schengen Area, Turkish citizens are not allowed to move to the UK, it might seem a little pointless examining the Daily Express’s claims and survey findings.  However, comparing the newspaper article to the actual survey that was commissioned is a useful exercise in showing how statistics can be misleading and how, very often, journalists don’t understand the numbers they are reporting on.

The full survey can be found here.  It has been undertaken by Konda, a Turkish market research and survey company, who should be ideally placed to ensure that the sample was balanced and fair.  The full survey methodology is included in the report, and shows that 2685 respondents were used to collect data, spread over 153 villages or neighbourhoods.  In each village or neighbourhood quotas were used to ensure the results were not swung by outliers – but this quota number was only three respondents for each age group and sex.  It is possible that some of the more disaggregated analysis may be adversely affected by this, but for the sake of this post it is acceptable.

Size of sample

Is a sample of 2685 too few to draw conclusions from?  When compared to the population size of Turkey – 74.9 million, it is a very small figure, meaning that only 0.0036% of the population has actually been surveyed.  Importantly, Konda’s report does not at any point give any indication what the overall figures would be for the country as a whole.  While it is likely that the sample was chosen to try to represent the Turkish population, there are indications that it was selected so that disaggregated results could be obtained.  For example:

  • “The sample was selected through stratification of the data on population and educational attainment level of neighborhoods and villages based on the Address Based Population Registration System (ADNKS), and the results of the 2011 General Elections in neighborhoods and villages” (p6) – this implies that when choosing the sample, people from all political parties (and potentially religions) were included in each neighbourhood, even if they comprised a tiny proportion of the total.
  • “Among the 18 surveys conducted in each neighborhood, quotas on age and gender were enforced” (p6) – it is unclear from the phrasing if these were strict limits or simply minimum numbers.  If the former, it is imposing rigid constraints on the make-up of Turkish society.  If the latter, it may have impacts in some areas where one of the groups is in reality significantly underrepresented.

In the report, Konda state:

The survey is designed and conducted with the purpose to determine and to monitor trends and changes in the preferences of respondents who represent the adult population above the age of 18 in Turkey. The margin of error of the survey is +/- 1.7 at 95 percent confidence level and +/- 2.3 at 99 percent confidence level.

Without seeing the full data, it is difficult to verify these claims, particularly since the unit for the margin of error is not defined.  The normal way of calculating standard errors for surveys gives a different answer of 1.38% at 95% confidence – this can be verified using the second tool on this page using values of 2685, 74,900,000, and 15.8% for sample size, population and percentage respectively.  In any case, this indicates that the size of the sample, assuming it was randomly chosen, should give an idea about intentions of the population at large.

The Express’s claims

While the survey itself appears to have been carried out professionally, this cannot be said about the Express’s interpretation.  It is worth looking at each of the statements in the Express’s article, and comparing it to the evidence presented in Konda’s report.

The Express says:

“12 MILLION Turks say they’ll come to the UK once EU deal is signed” … “more than 12 million Turkish citizens are planning to move to Britain when the country joins the European Union”.

Konda’s report shows that the question asked was in fact “… would you, or any member of your family, consider relocating to Britain?”  This is nobody saying they will relocate, this is nobody saying they have plans to do so.  This is a group of people saying they may consider it.  If Turkey becomes a full member of the EU.  If the UK remains in the EU.  This is willfully dishonest phrasing by the Express.

Indeed, in the next sentence the Express corrects themselves:

“almost 16 per cent of Turkish adults said they would consider re-locating to the UK once their country becomes a full member of the EU”

Their correction doesn’t go very far, and again contains the determination that Turkey will become a member of the EU, which is incredibly unlikely as shown in my previous post.  This is a lie that they continue to push to their readership, hoping that repetition will create certainty.

“According to the poll, which saw more than 2,600 adults interviewed across all 27 provinces of Turkey, most of those keen to come to Britain are either unemployed or students”

They have the number of respondents correct, but after that the statistics fall down.  The statistics included in the Konda report do not show that the majority of people who are considering relocating (again, not “keen to come to Britain”) are unemployed or students.  The table on page 2 of Konda’s report instead shows what percentage of each demographic group are considering relocating, and the two groups who have the highest propensity to consider it are students (with 34%) and the unemployed (with 36%).  This makes sense, of course, since seeking work or education is a key reason to relocate.

This does not mean that 70% of people considering relating are students or unemployed – this can easily be verified by looking at the total percentage over all employment statuses, which comes to 176% – this is a meaningless number.

Instead, we can get a better idea of the makeup of those considering relocating by looking at the makeup of the survey panel contained on page 9 of Konda’s report.  Of those surveyed, 9% were students and 4.1% were unemployed.  Combining the tables on page 9 and page 2, we can see the relative makeup of the 15.8% of respondents who said ‘yes’.

To get the total number, we must work out the sum of products for each category.  This is made difficult due to the fact that for some categories there are too few observations, so the percentage saying ‘yes’ is not reported.  If we simply ignore these, the total percentage is 13.94%, which is close enough to the 15.8% reported to show this is a valid calculation.

Calculating the sum of products for unemployed and students gives a figure of 3.64%.  This is the percentage of the total population that said yes and is either a student or unemployed.  Dividing one figure by the other shows that only 23% of those saying they would consider relocating were unemployed or students.  This is not, by any definition of the word, ‘most’.

“Today’s poll reveals for the first time the intention of those living in Turkey if it joined the EU, with 15.8 per cent of the population – the equivalent of 12.6m people – in favour of making a new home for themselves and their families in Britain.”

The population of Turkey is 74.9 million.  If the survey was scaled up to the entire population, this would give a number of 11.83 million people who would consider relocating to the UK. This figure would include the families, whereas the Express implies that the families would be coming as well.

“Foreign Office Minister James Duddridge said: ‘These figures reveal the huge pressure our public services will come under if we stay in the EU.  We will be powerless to stop millions of Turks accessing our schools, hospitals and housing, who will be attracted to the UK by our higher wages and living standards.'”

This quote makes the several leaps of logic that are discussed in this series of posts in one go.  It assumes that Turkey will join the EU, it assumes that the UK will have no power to stop migration, it assumes that this will put pressure on services.  It is a classic case of scaremongering.

“Prominent Tory eurosceptic Peter Bone added: ‘These figures demonstrate the true danger of remaining in the EU.  Our public services are at breaking point and our housing stock depleted with the current situation of uncontrolled migration. Our country cannot accommodate another 12 million people. Unless we leave the EU, there is absolutely nothing we can do to stop this influx of Turks.'”

12 million people would consider relocating.  Only a small fraction would actually do so.

“lurking amongst the results were 10 per cent of religious hardliners who would also consider emigrating and nine per cent of women who wear head coverings such as the burka.”

The way piety is defined does not match up to the Express’s description of “religious hardliners” – those in the ‘pious’ category are those “who completely fulfils the requirements of the religion”.  The Express’s language is designed here to create links in the reader’s minds to extremists and hate preachers, who have been demonised over the past few years by the papers.

Omitted statistics

There are many questions in the Konda report which are not discussed by the Express, likely because they do not satisfy their agenda.

  • The group most likely to consider relocating are those with university degrees, indicating the UK could gain a skilled workforce.
  • Those with higher incomes are more likely to consider relocating, again indicating that successful businesses would be built up by migrants (and they would be likely to pay more tax).
  • Younger people are more likely to consider migrating, which would be good for the UK’s pension issues.

Building on shaky foundations

Having established that the UK is shortly to be filled with unemployed students from Turkey, the Express moves on to other partially related fears.

“Analysis by Vote Leave suggests Turkey’s membership in the EU would result in far higher numbers of criminals coming to the UK.  Figures released by the campaign group show the crime rate in Turkey far exceeds that of the UK, with the murder rate at least four times that of Britain.”

There is no attempt at correlation between these two points, or with the survey.  It is left to the reader to make the logical connection that unemployed people coming to the UK would mean higher crime.

“There are also nine million privately-owned firearms registered to its citizens.”

There are millions of guns registered across the UK and the current EU, which has no bearing on anything.  Anyone travelling from Turkey to the UK would not be able to bring a gun, as they would need to go through UK immigration and customs where it would be seized without the proper paperwork.

“Responding to the poll, the former shadow home secretary said: ‘You cannot blame young people who want a better life in Britain, but it will overwhelm our public services; it will have an extraordinarily depressing effect on wages and as a result it will cause real pain and penalties for the poorest in Britain.  It will be the least well off who will be competing for the same jobs; competing for the same public services.'”

This is the only place the Express acknowledges that it is younger people who were more in favour of considering relocating.  However, the other statistics contradict David Davis’s concerns.  Those thinking of relocating are not going to be competing for the same jobs as the current less-well-off in the UK – instead, they are more likely to be well-educated on higher salaries.  The idea of putting pressure on services will be covered elsewhere.

“Turkey, which has an 80 million strong population, is pressing its case to become a full EU member after wrestling the right to visa-free travel for its citizens across the Schengen Zone.  Full-membership would give the country’s predominantly Muslim population the right to free-movement across Europe, with un-fettered access to Britain.”

Full membership would – but we’ve covered that elsewhere.  This isn’t going to happen, but the Express is wording it as if it will.

A final word

“Last night Malcolm Rifkind, former Foreign Secretary and Chair of the Intelligence and Security Committee and member of Britain Stronger in Europe, said: ‘This is a totally meaningless poll as Turkish membership of the EU is simply not on the cards.  In nearly 30 years of negotiation, they have completed just one of the 35 tests they need to fulfil to apply to join.  At this rate it would take them over 1,000 years to meet these criteria. And even then, the British Government has a cast-iron veto on any new country joining, including Turkey.  If in the very distant future, they did become a member, our Government has the power to introduce rules to restrict immigration from Turkey.'”

The poll is not meaningless.  The conclusions the Express reaches are.


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12 million Turks are not allowed to move to the UK http://www.economic-truth.co.uk/?p=547 http://www.economic-truth.co.uk/?p=547#respond Tue, 24 May 2016 07:27:59 +0000 http://www.economic-truth.co.uk/?p=547 Continue reading ]]> Part of a series looking at the spin behind a Daily Express article – see this post for details.

Having established that Turkey is not going to be joining the EU any time soon, it it should be a relatively simple step to say that we are not going to see an influx of Turkish migrants on the UK’s borders.  Unfortunately, the Express and Mail have been putting out misleading stories about Turkey for months, and their reporting is designed to be vague enough that their readership sort of assumes it’s all the same story.

This story about 12 million Turks planning to move to the UK will immediately resonate with an audience who remember the front-page stories about Turkish citizens being given visa-free access to ‘the EU’, with subsequent analysis of how large migration would lead to infrastructure and services in the UK being stretched to breaking point, and massive unemployment.  However, that was and is a very different story, one which the papers have been very dishonest about.

The EU and Turkey have been negotiating visa-free travel deals for a number of years now, and of late there has been a strong push for this as part of the talks held regarding the migrant crisis.  There were 72 conditions placed on Turkey, of which almost all have been met, and the aim is that the visa-free travel scheme will be in place before the end of June.  More details can be seen here.

So, what the Express said, that 77 million Turks are on the way to the UK, is true then?  Not at all.

First, the visa-free scheme applies to short-term tourist visas only.  People who enter under such a visa can stay for 90 days and are unable to take employment.  There is no way of legally entering on a short-term visa and then living in the country.

Second, the scheme applies to the Schengen Area only.  The Schengen Area covers most, but not all, of the EU member states, as well as a number of countries which have entered into free trade agreements, such as Norway and Switzerland.  Crucially, it does not apply to the UK or Ireland, meaning that Turkish citizens will still need to apply for a visa to visit those countries.

On these two points, Nigel Farage almost acknowledges that they directly contradict the headline figures, but uses some leaps of logic to return.  Once the Turks are in the EU, probably Germany, they will disappear – although why they can’t do that while requiring a visa is unclear.  After disappearing, they will then somehow acquire a German passport.  Once they have German citizenship they will be free to live and work in the UK.  How an illegal immigrant can get hold of a German passport isn’t explained!

Third, there is the question of where the potential 77 million migrants are coming from.  In various reports, the number has been reported as 77 million and 79 million.  The population of Turkey is currently just under 75 million – and as even the Express’s new survey shows, only a small proportion of them have any thoughts of moving to the UK (let alone plans – but we’ll deal with that later).  This shows another trick employed by the papers in their propaganda-style reporting – using extreme numbers as fact.

Finally, the negotiations have actually broken down over Turkey’s human rights records and other political issues, meaning that the visa-free scheme may not happen.  This has been generally unreported, but where it was covered it had a heavy political spin put on it:

  • “It is a huge embarrassment for the EU, which is set to miss its own deadline” – there is no deadline, and the lack of a deal is due to the EU’s requirements meaning there’ll be no embarrassment there.
  • “… allowing its citizens to freely enter the European Schengen ‘borderless’ zone for up to three months without the usual security checks” – it’s not about security checks, it’s about not needing a visa. Turkish citizens will still be subject to passport checks when they enter the zone.
  • “‘The proposed visa liberalisation for Turkish citizens travelling to the EU could potentially have an impact on the terrorist risk in the EU,’ stated the report” – but there is no indication in the newspaper as to what this impact actually is.
  • “‘The EU is being held over a barrel by Turkey; Erdogan holds the cards so Brussels needs to bribe them to help do something about this continual flow of migrants, potential terrorists, drugs and weapons flowing from middle eastern countries into Europe,’ claimed Mike Hookem MEP, Ukip defence spokesman” – portraying the EU as powerless rather goes against the Express’s usual story of it being all-powerful. There is no need for the EU to do anything beyond the negotiations it has already taken part in.

Really, this question is a side note to the current report, but it’s one which is being conflated by those supporting the leave campaign in an effort to confuse and worry voters.  The questions over what large-scale immigration might do to the UK economy will be examined in a later post.

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Turkey isn’t going to join the EU any time soon http://www.economic-truth.co.uk/?p=542 http://www.economic-truth.co.uk/?p=542#comments Mon, 23 May 2016 16:39:08 +0000 http://www.economic-truth.co.uk/?p=542 Continue reading ]]> Part of a series looking at the spin behind a Daily Express article – see this post for details.

The Daily Express is very sure of the future.  In their masthead, they state:

MORE than 12 million Turkish citizens are planning to move to Britain when the country joins the European Union, an explosive poll for Express.co.uk has revealed.

There are many things wrong with this single sentence, and over the next few posts we’ll look at some of them in depth – the number of Turks involved, what they are planning to do, and what the survey actually shows.  However, this post concerns the single word ‘when’.

There are five countries which are currently applying for membership of the EU – Albania, the former Yugoslav Republic of Macedonia, Montenegro, Serbia and Turkey.  Only the last three of these are currently in significant negotiation, but the EU has made funds available to all five to assist with reforms which will assist their application.  There is a long process that must be undertaken before any new country joins, with states needing to fulfil political, economic and legislative conditions which were defined in a 1993 summit in Copenhagen.  These include:

  • Democracy, including free elections with a secret ballot and the right to set up political parties with no interference;
  • Rule of Law, meaning that the legislative framework overrides parliamentary decisions;
  • Human Rights, which are generally defined by a body entirely separate to the EU, the ECHR;
  • Protection of Minorities, including laws against discrimination;
  • A Market Economy, which is able to cope with competition within the EU;
  • Entry into the Euro, with associated monetary and fiscal criteria; and
  • Legislation to bring the county in line with the EU legislative framework.

These conditions are onerous for all countries who are applying for membership, and even though Turkey has been in talks since 1987 (other countries applied after 2005) it does not meet many of the economic criteria, and is still some way off the legislative framework.  The big political issues, however, are human rights (with the government failing to recognise rights such as freedom of expression) and the Turkish occupation of North Cyprus.

Given this, it is clear that Turkey is not going to be able to join the EU any time soon, and there is no desire within Europe to attempt to fast track its application – indeed, many countries have their own reasons for scepticism. France has historically pointed to the Armenian genocide; Greece and Cyprus will not allow entry while Turkey is occupying land in North Cyprus; Germany has voiced concerns over heavy-handed policing of protests.  Across the EU, a 2007 survey showed that the majority (59%) of respondents were against Turkey joining.  These lone voices cannot be ignored; for a new country to join, every other member state must unanimously agree.

Even if the EU President had a strong desire for Turkey to join (he doesn’t – Juncker specifically stated “under my Presidency of the Commission … no further enlargement will take place over the next five years. As regards Turkey, the country is clearly far away from EU membership”) it only takes one existing member state to say no for entry to be blocked.

Turkey is not going to join the EU any time soon, and the Daily Express is being willfully dishonest when it uses the word ‘when’ to describe that event happening.

A side note: there are four other countries looking to join the EU at the moment, but the newspapers – not just the Express – are focussing only on Turkey.  Why is this?

Certainly, Turkey is the largest of the states, with the potential for more migration if it were to ever join.  However, it also has an educated workforce, good quality infrastructure, and good standard of living.  The main difference which drives the choice of Turkey as the bogeyman is religion.

Although Turkey is a secular state with no official religion, the largest faith group is Islam.  As the UK media has been demonising Muslims since even before 2001, it is easy to use the Turkish link with Islam to make the country itself sound unsafe, corrupt and, well, different.  By confirming readers’ xenophobic beliefs, more papers can be sold.


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There’s no need to be worried about a Turkish invasion http://www.economic-truth.co.uk/?p=540 http://www.economic-truth.co.uk/?p=540#comments Mon, 23 May 2016 11:01:23 +0000 http://www.economic-truth.co.uk/?p=540 Continue reading ]]> The Daily Express has published a story about how 12 million Turks will come to the UK once ‘an EU deal is signed’ – the subheading indicates that this ‘EU deal’ is about Turkey joining the EU.

As a bit of background for those currently not up to speed with UK (and European) politics, the UK will shortly hold a referendum on whether to remain a member of the EU.  Many are concerned about a loss of sovereignty or the money that is sent to the EU; many more are concerned about immigration.  Those in favour of remaining tend to concentrate on economic benefits from membership of the single market (a free trade zone), benefits from harmonised regulation, and benefits from free movement of labour.  The arguments are too complex to cover in a short blog post.

The Express is firmly in the “leave” camp, for two key reasons: Richard Desmond, the paper’s owner, stands to benefit from the UK leaving the EU through reduced press regulation and controls on financial dealings; and the paper has increasingly built up a readership of UKIP supporters which it must cater for in order to remain in business.  Because of this, the newspaper has been printing stories for the past few years which argue against the EU – although in many cases the factual basis for these stories is shaky, if it exists at all.

The story that ran on Sunday is a classic example of this, and serves as an interesting case study on how statistics can be misused, propaganda built, and lies spread.  It’s too large for a single blog, but over the course of this week I aim to look at a number of aspects of this story and explain whether they are true or not:

If you have any other questions over this topic, please get in touch.

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Is the US a secretly socialist nation? http://www.economic-truth.co.uk/?p=518 http://www.economic-truth.co.uk/?p=518#comments Fri, 14 Nov 2014 14:44:31 +0000 http://www.economic-truth.co.uk/?p=518 Continue reading ]]> If asked about the economic politics of the US, you’ll probably think of them as relatively conservative, right-wing, and capitalist.  You hear of the richer becoming richer, and a growing underclass of the very poor who do not have access to any sort of financial safety net.  To accompany this lack of social benefit, you hear of how wealthy, successful people are attracted to the US because of their favourable tax systems.

That may not be true.  This graph paints a very different story.

Here we can see that the US favours progressive taxation – in the form of income tax – much more than other countries do on average.  In contrast, sales tax is much lower, meaning that the total tax bill for the very poor is much lower in the US.

Does this mean the US is a socialist country?  Not really, due to the low social benefits and the outcasting of the poor.  Instead, it could be that the US is reaffirming its capitalist status here – it’s trying to adjust the market so that the poor can take part in the same economy as everyone else.

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The effect of inflation on loyalty schemes http://www.economic-truth.co.uk/?p=512 http://www.economic-truth.co.uk/?p=512#respond Tue, 14 Oct 2014 14:39:43 +0000 http://www.economic-truth.co.uk/?p=512 Continue reading ]]> Earlier today, Sainsbury’s supermarkets sent out an email informing people that they were reducing the rate at which they would earn reward points on the Nectar scheme – halving the amount, in fact, from 2 points per pound to one per pound.  They were also removing the bonus points available for reusing carrier bags.

Nectar has been running for a long time now, and there have been relatively few changes to the scheme. A few partners have entered and left (notably Barclaycard, one of the founding members, who have since set up their own rewards scheme), and there was one instance of a point devaluation – however, as both spending power and earning rate were changed in synchronisation, there was only an impact on anyone holding points.  One reason for this is that an abstract scheme like this does not need to adjust for inflation in the same way as a currency; the spending power of points is automatically related to the amount of money spent to acquire them.

As Sterling reduces in value, consumers will need to spend more on their shopping in order to buy the same goods.  This means that, if there is no change in earning rate, consumers will earn more points in each shop.  However, simultaneously the cost of using points will go up, with more points needed to buy any reward.  The system will remain in equilibrium.

There are two exceptions.  Again, any points held by customers and not spent will depreciate in value as their buying power is reduced by (Sterling) inflation.  Also, not all points are earned through a flat rate scheme.  In the email from Sainsbury’s, the shop appeared to reassure customers:

While this means you’ll earn fewer points on your shopping, you’ll still earn 1 point per litre of fuel as before.

While this reads as a positive, it is in fact very negative.  In the UK, a litre of fuel currently costs around £1.30, meaning that customers would be better off if they earnt one point per pound on petrol purchases.  What’s more, as the price of petrol increases over time, the amount of points earnt will not – despite the cost of rewards also rising.

This is a curious move by Sainsbury’s, occurring at the same time as rival Morrison’s is introducing a loyalty card for the first time.  It is clear that Sainsbury’s does not see that it is getting enough benefit from the scheme to continue to offer a 1% reward rate, but it may find that other supermarkets are then able to offer better rewards to tempt customers away.

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Can Scotland use Sterling? http://www.economic-truth.co.uk/?p=506 http://www.economic-truth.co.uk/?p=506#respond Tue, 16 Sep 2014 15:58:47 +0000 http://www.economic-truth.co.uk/?p=506 Continue reading ]]> A great deal of the Scottish independence referendum has centred on the question of currency and the economy – the ‘yes’ camp say they will enter a currency union with the rest of the UK, while the ‘no’ camp say that wouldn’t be in the best interests of other countries so would be blocked.

A currency union would be something similar to the euro – a common central bank, working for the benefit of all members.  It looks increasingly likely that Scotland, in the absence of a full currency union, would instead just either use Sterling as it is, or would peg its own currency to Sterling.  Some on the ‘no’ side have said that Scotland wouldn’t be allowed to do even this.

So how could the rest of the UK prevent Scotland from using Sterling as their currency?

They can’t.

However,  if Scotland continues to use the pound in the absence of a currency union, they are similar to a country such as Ecuador or Panama, which use the US dollar.  They have no say in policy on interest rates or money supply, and are restricted to fiscal policies instead.  If the Bank of England decides that the best thing for the rest of the UK (in terms of savings domestically and also encouraging exports to the rest of the world) is to raise interest rates to 5%, this might have a catastrophic impact on the Scottish economy if it had been pursuing a policy of encouraging personal lending.  Similarly around money supply – the amount of money issued is carefully controlled to avoid excessive inflation, with other policies in place to keep that in check.  This massively limits Scotland’s abilities to vary its economic policy from that of England; if they did they could face inflation of 35% at the drop of a hat.

Some have compared it to Greece or Ireland within the euro.  But the ECB has an obligation to base its decisions around making sure that all eurozone countries are not going to suffer unduly from any decisions made.  The Bank of England would have no such obligation.  As a short-term measure it might work, but in order to have a strong economy in the longer term, Scotland will need to find another answer, whether it be forming a new currency or joining the euro.

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Pareto improvements: a cautionary tale http://www.economic-truth.co.uk/?p=522 http://www.economic-truth.co.uk/?p=522#comments Sat, 16 Aug 2014 13:45:52 +0000 http://www.economic-truth.co.uk/?p=522 Continue reading ]]> I heard this week of a friend who was writing a paper on supermarket pricing.  Some of the research that the shop had carried out (which, unfortunately, remains confidential) showed that people were, at times, put off buying items if they were in a buy-one-get-one-free deal.  Indeed, there were a few items that actually sold worse when they were in a deal than when they were out of it, particularly when you looked at individual shopping habits – yes, those Clubcards are pretty useful from a econometrics point of view.

Why would this be?  There’s an economic principle of a Pareto improvement, which describes a situation where a consumer is better off in one way while all other measures of welfare or utility are as good (or better) as they were previously.  If a consumer were getting the same basket of goods for the same price, but with one extra (say) box of cereals, then surely this is a definite improvement?

The trick in this case is to think a little less like an economist.  The person may own more, but the added goods may actually decrease utility.  They may feel guilty for having cereal that may well get thrown away.  They may feel stressed about having to find somewhere to store it.  They may find it a hassle to have to carry an extra box to the car.

In that case, why not simply buy only one box and ignore the offer?  People have been observed to consider things as being less valuable if they are not taking up an offer – that is, they may suddenly think that a box of cornflakes is not worth £1.50 if you can buy two boxes for the same amount.  Similar research has seen that consumers consider buying two items at half price to be a different proposition to buy-one-get-one-free.

In short, consumers are not rational.  When economists start many theories by assuming they are, we can find ourselves coming unstuck.

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New mobile site http://www.economic-truth.co.uk/?p=497 http://www.economic-truth.co.uk/?p=497#respond Fri, 11 Jul 2014 09:46:17 +0000 http://www.economic-truth.co.uk/?p=497 Continue reading ]]> With upgrades to WordPress’s standard tools, economic-truth now has a new look on mobile sites, enabling you to catch up on articles anywhere.  There area few features missing – search for one – which will be added over time.  Your comments are appreciated!

economic-truth mobile screen

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