Current Issues in Economics
G. T. Jedrzejczak
Lecture 1
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Current Issues in Economics
Introduction
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 – on Faculty of Management UW
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Current Issues in Economics
Introduction
Business new challenges, the world we live in
• 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 innovations,
changes in the demography, and globalization.
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Current Issues in Economics
Introduction
Forces behind emerging new economic order
• Global Financial Crisis was the trigger but not a cause
• Perfect storm of secular trends in politics, social,
demography, economy and technology:
– Political economy and pure politics
“Nations have no permanent friends or allies, they only have
permanent interests.” Lord Palmerston 1784-1865
– 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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Current Issues in Economics
Introduction
Economist’s toolbox: is it still useful?
• 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 big shocks big
effect – assumption of linearity,
• Economists did think of the economy as
constantly fluctuating, but naturally returning to
its steady state over time.
• Rational expectations
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Current Issues in Economics
Introduction
Topic’s Overview
• Knowledge and Social Capital as the production
factors
• Labor demand and supply in the time of robots
• Internet Economics
• New era of inequality?
• Aging societies and pensions’ dilemma
• Austerity vs. stimulus in the time of the recession
• New Industrial Policy
• Global imbalances and secular stagnation
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Current Issues in Economics
Introduction
Knowledge and Social Capital as production factors
• The main difference between a knowledge-based
economy and a traditional economy is in the way in
which knowledge is generated, used, costed, sold and
consumed
• Social capital (cooperation between individuals and
groups):
– How much it matters?
– Can it be engineered?
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Current Issues in Economics
Introduction
Labor demand and supply in the time of robots
Are people to become horses of XXI century?
• For decades, people have been predicting how the rise
of advanced computing and robotic technologies will
affect our lives, but untill now results positive.
• 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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Current Issues in Economics
Introduction
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.
• Network: a new structure of global economy:
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Current Issues in Economics
Introduction
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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Current Issues in Economics
Introduction
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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Current Issues in Economics
Introduction
Austerity vs. stimulus in the time of the recession
• Eight 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
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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Current Issues in Economics
Introduction
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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Current Issues in Economics
Introduction
Global imbalances and secular stagnation
Are we entering prolonged slowdown?
The 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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Current Issues in Economics
Introduction
Selection Objective
Develop sound understanding of the new trends
in the world economy with the consequences
for the business activities, public sector, and
policies
Why to bother you?
B/c there is no money to make in traditional
production and services any longer
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Current Issues in Economics
Introduction
Credit: PP of 5 slides sent to me, up to 3 people, on one of 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
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