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Welcome to Stephanomics

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Stephanie Flanders | 09:33 UK time, Friday, 23 January 2009

I'm an economist who always wanted to be a journalist. Or maybe a journalist who always wanted to be an economist. Either way, I've spent most of my life trying to bring economic ideas to a wider audience. And that's what I want to do in this blog.

Not so long ago, economics was a dry and dismal backwater. The "macro" issues had more or less gone away. We all lived in a Goldilocks world economy where the mix of growth and inflation was "just right". And the "micro" side of economics - all that stuff about incentives and why people do what they do - well, that was safely locked in the impenetrable prose of academic journals.

money and newspaper cuttings. debt, credit, recession, coinsNot any more. The fairytale economy of the nineties and noughties has turned out to be just that - a fairy tale. Old-fashioned macroeconomics is back, and the commentators are brushing up on the formal definition of a slump. Thanks to books like Freakonomics, The Undercover Economist, and others, the "micro" side of economics has come out of the woodwork as well.

So I don't think I'll be short of subject matter for this blog. There will be plenty of day-to-day observations on economic events - and plenty of economic events to write about. But I hope to also find time for some more considered entries along the way. And I've spent a fair bit of my career in the US, so don't expect me to focus only on the UK. You live in a global economy, and so does Stephanomics.


  • Comment number 1.

    I trust you will be doing occasional collaborations with Paul Mason, Evan Davis and Robert Peston - maybe a weekly video blog from a Friday pub lunch ?

  • Comment number 2.

    Excellent, glad to see the BBC aiming to provide some education on economics theory.

    Any chance you can cover the objections raised against standard economic theory by ecological economics?

    I'm reading 'Ecological Economics and Sustainable Development by Herman E. Daly' at the moment, I think it would be highly useful if the topic could be taken to a wider audience.

  • Comment number 3.

    Welcome back!

  • Comment number 4.

    Hello Stephanie

    I have just criticised your other blog.

    I felt it only right that I welcome you also.

  • Comment number 5.


    Macro economic issues never go away; the fundamentals are always there, and always critical in the medium term, it's just that the media/government obfuscate them and disguise/hide/lie when it's all going horribly wrong.

    Some truisms on this front which the media/brown have refused to admit are:

    1) You can't spend more than you earn for more than a certain length of time without going bankrupt (that length of time is longer for governments than individuals/businesses, but it's still essentially just a question of time regarding how long you overspend for).

    2) Economic bubbles do exist, and will always exist in one sector or another.

    3) The natural economic cycle is not something you can eliminate.

    4) Doubling a percentage rate does not set it to zero.

    It'd be fantastic if you could publish some economic truisms on your blog and compare them to government policy. But my guess is you wouldn't get to keep a BBC job for very long if you voiced the truth on economic issues/policies.

  • Comment number 6.

    I think I'll add you to my RSS reader.

  • Comment number 7.

    Forget economics theory.

    My Northern Rock fixed rate mortgage (5.1%) expires in May.

    As lending is back in fashion, would Stephanomics please hazard a guess at the new rate we are told this Nationalised Treasure will now be offering?

  • Comment number 8.

    Welcome to the BBC blogosphere

    Hopefully you can shine some light on the situation and certain incompetances.

  • Comment number 9.

    Thanks for the warm welcome to "Stephanomics"....

    ~Dennis Junior~

  • Comment number 10.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 11.

    All this borrowing by various Governments makes me ask the question, 'Is there enough money in the world economic system for all the gilts and bonds that are being offered?'.
    It seems that everyday we are hearing of new loan guarantee schemes (Peter Mandelsohn) or the stimulus package of the Canadian Government.

  • Comment number 12.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 13.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 14.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 15.

    Global countries are going into debt, and printing money to kick start their economies.

    What are the indicators of all this printed money stimulating the economy to the point that it flips over to hyperinflation?

  • Comment number 16.

    Last year I read a well researched book entitled "The Dollar Crisis" by Richard Duncan, published in 2002 and revised in 2005. Not only does this book predict almost precisely what was about to happen and why but also how governments would be likely to respond and why these responses were unlikely to work. It should be enforced reading for Gordon Brown, the Treasury, Bank of England the FSA etc.

  • Comment number 17.

    as I understand it-and unlike GB I've been wrong before -QE merely changes the composition of the asset side of the selling bank' by reducing their holdings of gilts(low capital requirement under basel2 rules) and corporate bonds(capital requirement a function of rating?) and , hopefully,increasing their commercial loanswhich will, presumably, require a higher capital cushion under basel2, how can the bank expand its loan book as the government desires?....surely it will actually require more capital for the same size balance sheet? the exercise reminds me of the old adage about banks...."we lose money the old-fashioned way, we lend it."

  • Comment number 18.

    When will the MPC be out of a job , now they have cut interest rates to almost zero with no sign that this is having any effect whatsoever is it time disband this shower of clowns ?.
    Instead of keeping interest rates at a decent level to induce people to save they have given handouts to all the people who over extended themselves with mortgages and also the buy to let brigade . Now we see the pound falling again which no one seems to have picked up on which will push up the cost of imports such as our food bills and it will be interesting to see if inflation has fallen as much as the MPC predicted, my bet is interest rates will have to rise in the near future, you heard it here first.

  • Comment number 19.

    I'm trying to understand - but could you please explain to me the grammar of the sentence: "Though George Osborne has suggested otherwise, nor is he asserting that the earlier fiscal stimulus was a mistake."
    Then I'll think about taking it from there.

  • Comment number 20.

    We now have the economics of a madhouse; we hear of 500k mortgages where the monthly repayment is one penny and all those who saved responsibily get next to no interest income. On top of this we are printing money (correct me if I wrong but in world history has this ever worked?) so inflation will follow so those in debt benefit those who saved suffer again. Come on Brown time to go I'm afraid.

  • Comment number 21.

    We need some fresh thinking. The current crisis is not caused by banks lending too much credit. If this were the case substantial inflation would have resulted which it has not. Rather the crisis has been caused by a substantial long term increase in productivity in the real economy which means that wages have become insufficient to buy the output of goods and services, or to repay the credit used to buy them. This process occurs gradually over time if productivity gains are not fully fed into real wages but partially into increased business profit, and if that increased profit is not fully channelled into dividend income and consumer expenditure. This appears to have been the case in 2005-2007. Credit has therefore been excessive against household income but not against GDP output. Without the credit, GDP would go into recession. The only policy corrective for this is to fund aggregate demand by alternative instruments such as a citizen’s income. This would be funded by a government bank with a flexible credit ratio to achieve the aggregate citizen’s income required. Current policy instruments have been exhausted. This is because they are based on the initial false diagnosis of excessive credit. See more at

  • Comment number 22.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 23.

    I'm interested to know what Stephanomics actually is ... and what philosophies it espouses?

    Traditional 'economics' is out-of-date and effectively 'dead' ... and Poweromics* has had its day too ...

    But what will replace it and when will it be replaced ... some of us are already working out the answers ... as a few highly insightful leaders predicted it over 20 years ago ...

    * Poweromics = People using position and power for their own personal gain, based on poor moral values, self interest and greed ...

  • Comment number 24.

    IMHO traditional 'economics' is 'too narrow' in scope and also 'out-of-date'. It has also 'failed' hard-working people and is now effectively 'dead'.

    But attempts to improve it, change it or widen it, will always be resisted. Dr W Edwards Deming, a creative outsider and a real 'leader', uncovered the "System of Profound Knowledge" and referred to the need for a "New Economics" (nearly 20 years ago) ... but, when terms are so out of date new words/definitions are needed, and for that reason, and for those interested, I am continuing his work ... using the definitions below:

    * Leanomics = People taking responsibility for adding value and continuously improving the situation for others (e.g. customers, communities, overall environment), based upon fundamental values such as trust, honor, responsibility and respect.

    * Ignoromics = People are either effectively ignorant of the situation (e.g. the overall environment) or not prepared to take responsibility to make sure it changes for the better.

    * Poweromics = People using position and power for their own personal gain, based on poor moral values, self interest and greed.

    It is worth noting virtually everything fundamentally centres around 'people' and the 'values' they uphold. It is also worth noting that Ignoromics is what allows Poweromics to flourish, and in my view this summarises the current (and widened) definition of 'economics' that prevails today.

    Why not take a look at what 'leaders' everywhere are doing (e.g. your boss, company, service provider, government, politicians, media ...) and look at how many people understand this and/or prepared to do something about it ... I think you'll find its small ... albeit steadily growing (helped by the internet, and recent activities of banks/MP's etc).

    IMHO the battle of the future is really one of values, and given the above definitions, can be simply summarised as ...

    Leanomics v Poweromics & Ignoromics

    For those interested I hope this is helpful ... and I would certainly recommend the work of Dr. W. Edwards Deming ( as well as ) as a good starting point for looking into this further ... people are still amazed (and learning) how profound his insight actually was ...

    David Clift, a Future 500 leader

  • Comment number 25.

    My dear Stephanie, I fear that you, like Robert Peston, may be out of your depth when analysing the current situation. This Labour Government has plainly and empirically bankrupted the UK and is now focusing on its owen, self-interested pursuit of another term in power. This would have grave consequences for the country. The Conservative party, on the other hand, appear to be pursuing a policy of improvement, effectiveness and a change of mindset from one of entitlement to one of collaboration, service and duty.

  • Comment number 26.

    Stephanie Being new to your blog, I don't know if you have ever looked at the Australian economy and how it is working. The recent OECD report says that Australia will come out of this downturn better than most.
    The reason for this, I believe is during the previous Liberal administration the government run surplus budgets for 10 years and our banking system is highly regulated. Is this something the UK should aim at? The present Labour government is spending a lot on roads, railways, hospitals and schools. What are your thoughts?

  • Comment number 27.

    Stephanie - perhaps you can help me understand something. Currently the bank of england is embarking on QE by printing money and using this to but back government debt. As I understand the meaning of printing money the bank is literally just creating money out of thin air without any corresponding debt. To the extent it is then using this newly created money to buy back government debt, is it not effectively reducing the governments debt burden as the owner of the debt is now the government. In normal times this could be seen as hugely inflationary, but in current times it is hard to see this stoking inflation as money supply has contracted sharly due to bank lending shrinking. As such this seems a relatively straight forward way to reduce government borrowing without a major cost. What am I missing?

  • Comment number 28.

    Post 27 - for a simple description of what's going on you may want to look at this

  • Comment number 29.

    Currency peg gone?
    Just that I would mention this on the economics blog………

    See the URL below this message. You (BBC) state that the Chinese currency is no longer pegged to the US dollar, please can you clarify this, state a source and provide a link to an official statement, because I do not believe that it is true. Or if it is, I missed a VERY big announcement. And, if you have indeed reported this incorrectly it is a huge mistake that you must rectify. As much as I admire the bbc, if this is an error it suggests there is a real problem with the editorial staff who deal with business and economic issues.

  • Comment number 30.

    There so much talk about the economic meltdown the condition mentioned but if only economists can look at the International Monetary Fund (IMF) managing director Mr. M. Gutt address at Harvard University on the 13th February 1948, when he presented a paper entitled The Practical Problem of Exchange Rates he said, “the official direct Sterling-US dollar rate ruling in Britain and the United States is one Sterling pound to US$4, but the Lira-Sterling and Lira-US dollar direct rates are such that the Sterling pound-US dollar cross-rate in Italy is one Sterling pound to US$2.6”.
    Americans found it cheaper to purchase goods from the UK via Italy until the IMF stepped in and imposed the IMF fixed cross-rate system in favour of the UK and not Italy nor the US. Corporate Britain lost out on the increased consumer demand, as Americans demanded from the UK British products that appeared cheaper through the Italian money markets. Corporate America also had to pay more US dollars to import goods direct from the UK, rather than at a reduced cost via Italy.
    Corporate and ordinary Americans at the end of the day, because of the IMF fixed cross-rate system, had to pay out more US dollars for the pound, while corporate Italy lost out on US dollar inflows because the market price of the US dollar to the Sterling pound was temporary in a pseudo-free floating Lira driven market system based on available Lira liquidity against US dollar inflows, and Sterling liquidity as found in Italy's money markets as opposed to the different price levels set on the UK's money markets that had different liquidities and cash flows.
    Thus the 2009 global crisis at its core is one of the IMF's fixed cross rates system. The IMF fixed cross-rate system is seen across many developing countries including Zambia. In Zambia (Zambian local currency is called the Kwacha) a US dollar in local currency is worth K4,795.95 on the 4th of June 2004, and the Sterling pound then was placed at around K8,803.98.
    Dividing the two Kwacha values of the exchange parities being K8,803.98 by K4,795.95 gives the exchange parity of US$1.8357 per Sterling pound. This same pattern is still seen in today’s exchange rate parity.
    The question that arises here is that does Zambia in her local Kwacha money markets have the exact trade levels and monetary liquidities as the two transatlantic states day in and day out as reflected in the exchange rate parities? Does this imply a defacto currency swap agreement without Kwacha cash flows directly involved but only in value terms?
    The answer to these questions is a simple "no". In fact, the demand for South African Rands in Zambia outstrips the demand for Sterling pounds, and therefore the IMF fixed cross-rates system does not reflect what exists on the ground for Zambia' money markets, let alone the true trade and currency value positions between the US dollar and the Chinese Renminbi, hence the currency disputes between both the nations.
    Yet if the US to get around the problem of acquiring cheaper imports to deal with China’s cheap labour so as to be more competitive, it means for the US getting a cheap "1948 Sterling pound" while at the same time getting around the US dollar depreciation and its effects as a reserve currency, against trade deficit, then the US must introduce free floating cross rates.If all currencies are fully convertible and price determined the degree of convertibility it produces an advanced monetary order in which price determines the degree of convertibility as the US dollar value would vary from one nation to another as would the value also of African currencies, including other national currencies.
    Then again the problems of the global economy are seen in the LME despite the so called liberialised economies of the developed world the LME needs to change.
    The LME clearing policy permits only the use of the Sterling pound, the new Euro, the Japanese Yen and the US dollar. Neither the Zambian Kwacha nor the South African Rand including other African currencies of other African producers that supply the LME with commodities for over a century are still banned in this age of liberalization.
    The permitted currencies are guaranteed by UK banks and not Zambian banks, as ninety five per cent of the world’s tin, aluminum, copper, lead and nickel pass through the LME together with US$10 billion a day through broking firms. It is all about the supply of copper against a demand for it by those willing to pay US dollars. It is not about Adam Smith’s forces of supply and demand but Benjamin’s forces of supply and demand. Thus the LME in one day may sell 70,000 tons of copper, for example, at a price arrived through market forces of US$2,000 per ton. The total revenue in a day would be US$140 million for copper producers.
    However Zambian mining companies naturally demand US$2,000 per ton as if they produced and contributed 70,000 tons in a day, and earned US$140 million. Reality shows Zambia produces usually 700 tons in a day, and earns US$1.4 million. The ‘state of mind’ of Zambia by demanding LME prices claims a ghost production of 69,300 tons and a ghost revenue of US$138.6 million. This naturally is a form of derivative as the price of copper is based on a non existent production level.
    The LME prices are based on an aggregate supply of copper from many countries against an excessive US dollar liquidity when compared to Zambia’s market parameters and Kwacha liquidity. Zambia’s Kwacha liquidity is worth in US dollar terms US$100 million and about US$13 million worth is in banks as notes and coins, against the US$10 billion guaranteed by UK banks flowing through LME.
    LME prices are based on aggregate supplies of copper from many countries against excessive US dollar liquidity. Looking at it another way to see if the same laws apply to the Kwacha as the do to the US dollar, is that what would happen if the LME accepted only Kwachas worth roughly in US dollar terms today at around US$150 million? Would the LME be able to derive the same copper price of US$5,000 per ton based on Kwacha liquidity worth just US$150 million? With Kwacha in circulation at K32.7 million in 1966 against Zambia generating US$520 million in exports, while the same liquidity has to run domestic demands, at what price would be the price of copper if the Kwacha was the sole LME accepted currency? Would the LME Kwacha driven price be less than a US dollar driven LME price? What would be the impact on markets prices and production costs in the US, EU and their market edge of producing quality products?
    Thus the high US dollar driven copper prices, as well as oil prices cannot compensate for the depreciation of the US dollar because the US dollar is operating in an imperfect competitive system. As a result of a depreciating US dollar the value of copper at say US$7,500 today is worth in real terms to Zambia when weighted to 1964 only US$1,125 worth of imports.
    What happens is that a condition of excessive production occurs within the US without necessarily having the market demand, as a result of floating downwards the US dollar, to support the entire amount of goods produced. As a result when one item is sold out of ten, the sold one is priced at such a level that it pays for the remaining nine and this describes imperfect competition. Consequently the declaration of high GDPs or GNPs without the necessary market to pay for the GDP means that the national currency would have to pay for the excess by depreciating. It is here that consumer demand plays as an important indicator than the inflation rate itself.
    Therefore the Bretton Wood crisis of the 1960s when the US dollar and Sterling pound by the early 1970s were forced to move from a fixed exchange rate system to a floating exchange, which is a continuous devaluation, indicated mainly a symptom of the LME price structure with regards to imported resources obtained.
    Instead of commodity prices being floated downwards against national currency liquidities of the Kwacha, it is the US dollar and Sterling pound that floated instead and held on to the LME permitted currency system. The Triffin Dilemma is still manifesting in high commodity prices driven by US dollar liquidity. In effect this did and still continues to affect Zambia’s US dollar holdings , including China's, Russia's and Japan's reserves perpetuating the Triffin Dilemma crisis further.

  • Comment number 31.

    I'm not sure about the pub lunch, but there again, I'm not sure much lunch would be eaten! They would not be able to stop Robert Peston talking!

  • Comment number 32.

    And....if 'Twinny' turned up (who posted comment above )it looks like him and Pesto would get on like a house on fire!~~~~no food for a month!

  • Comment number 33.

    Hello stephanie
    You are an economist,maybe you can enlighten me about QE. So the bank of england has printed £200 Billion in a year. How does this compare with the amount of money in circulation in the economy? If it is 10% surely what they have done is devalue the value of the currency by 10%. i.e. devalue debts by 10% , but also devalue cash balances by 10%. i.e.increase inflation by 10% (it may be that the inflation is not apparent just yet due to the lack of demand in the economy).
    Unless the bank of england at some point in the future destroys the extra printed money surely this inflation must arrive at some point in future. Is this likely?? Or has the gov't / bank thrown out the concept of a store in value of our currency. Please enlighten me.

  • Comment number 34.

    World doesn't care if we rot whole nations have done so under our noses and did we care? No. British influence is declining the world is sick of us the Queen is getting old and there are more interesting states than us. We succeeded because english was the first language of the old empire but former glory means a world full of people who have been trodden on for years.

    There is no-one left to tread on except us! Our turn. We're in decline and not used to losing, others are on the up. Personally I'm not interested in competing with others for the top spot and don't really have a personal stake in the national identity. I'm not nationalistic at all.

    I just don't care about the things brits do. I just like walled gardens. Walled gardens are interesting. They stay warmer than unwalled gardens even in winter and spring.

    Maybe have me some fun cementing broken glass over the top of it. That's about it. No country tears itself apart like we do and succeeds globally. old fashioned like.

    I've lived in britland all my life never earned more than a fiver. Made more money when I was washing cars as a teenager, before was put out of business by jetwashes, than I did entering the IT market. Never saw the goldilocks economy we all lived in.

    Been scumming it for years and I promise you that you can rot in the Uk and people just look at you dumbly. They seem to be frightened of skinny people.

  • Comment number 35.

    Had a wonderfully fun moment this afternoon while reading the bunsiness news article 'Euro train booking system shelved'


    about Railteam scrapping their plans for a Europe wide booking system, and running right alongside the article is an advert for Railteam's Europe wide booking system. It seems adverts on the BBC do have their upsides... humour on a Friday afternoon.

  • Comment number 36.

    I nearly missed my flight when I found "Squandered" by Craig at Stannstead....and got captivated to reading Browns plundered finances. I know it's against the rules giving names and titles but under the circumstances this paperback make easy reading for the newcomer finance novice.

  • Comment number 37.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 38.

    Hi Stephanie,

    Interest piece on the current net debt supply in the market and what might happen when the BoE decides to phase out quantitative easing.

    It is entirely possible, like you have suggested, that UK banks are to be persuaded to buy these debt. However, this will have a very negative effect on the banks' capital positions, even if we consider where the banks can obtain the necessary funding to buy up these papers. Should the UK loses its AAA rating, the capital charge on non-AAA rated sovereign debt will mean each of the banks will need to hold additional capital. They will either have to raise capital from somewhere or rein in lending in other areas. We can only guess what this would mean in terms of additional corporate lending to UK companies.

    In every scenario, someone somewhere will have to find funding buy up these debt from the government. There are interesting alternatives, but they are all QE in all but name and every one of them has negative side effects of one sort or another. My take is that the funding problem should be kept within the government and the BoE, rather than spreading it out to the fragile UK banking sector.

  • Comment number 39.

    In 1967 Harold Wilsons Government devalued the Pound and made the infamous quote "It does not mean that the pound here in Britain, in your pocket purse or Bank account has been devalued"
    How do you feel our country has feared since then i.e The £10 i had then what is that relly worth today bearing in mind that the dollar exchange was $2.40 and the Pound/Euro has dropped from 1.6 at inception to 1.12 now?

  • Comment number 40.

    Re quote at 11:10am on 05 Jan 2010, Robert Capps re Harold Wilsons devalued pound..

    But hang on.. times have changed as now S America is well on line compared to 1967.
    Oil rich Chavez has devalued his bath towel by 17% against the dollar, a slick move. The Japs are also thinking of devaluation.I get suspicions this is part of a big slash....with ripples eventually reaching elsewhere.If everyone does a run on devaluating currencies, then what is there to stop any country not doing it, and implications for bankrupt sterling ? This way won't get rid of Brown..but just prelonging the agony of payback time for everyone in the UK.

  • Comment number 41.

    What a hollow thinking for economic development?? Lack of credit/borrowing is the only reason for the debacle? When too much of credit and borrowing were responsible for the current situation across most parts of the Western world (spend what is not ours, consume and destroy), at a time when a common American prefers to walk away from his home on which he paid no deposit, you want to give them more credit? Why dont we talk about the foundation - beginning with elementary education, quality University education that can be compared to the rest of the best in the world, producing goods and services, increasing productivity, enhancing value systems?? Economies do not develop in Vacuum, if they do, they dont last forever. Excess credit at this point in time (for what when there is hardly any manufacturing taking place)would mean bigger deficit, higher inflation and finally, stagflation. Please read from Harvard/MIT, no learned person would talk of 'credit crunch' as the cause of the prolonged recession. Why can't the Government open shops and give money to all the passers by so they can spend?? After all, BOE can run an effective printing press!!


  • Comment number 42.

    Many businesses have made cuts in other areas in order to retain staff, hoping for an upturn. If the cost of borrowing rises then I expect to see further job losses from the SME sector. The public sector has been artificially "stuffed" with workforce over the last ten years and once the government cuts become real later this year then job losses from the public sector are likely to be severe. I believe the "good news" figures to be a blip.


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