SCOPE OF THE COURSE: UNIVERSITY OF MARYLAND LONDON PROGRAMME ECON398L: The UK Economy and Financial System Lecturer: Michael Ashcroft Office hours: by appointment This course provides: a conceptual framework for assessing the policy, structure and performance of the UK economy since 1945. an introduction to the role and operations of the financial institutions and markets of the City of London placed in the context of the world financial crisis 2007 to date. an examination of the international dimension of the UK economy, with particular reference to Britain s membership of the Bretton Woods System, European Union and to the special relationship between Britain and the USA. A common thread in this discourse will be the selective use of relevant economic theory to illumine events and policies of the period. Particular emphasis will be placed on the continuities and discontinuities in UK economic policy in the post-war period. Necessarily, coverage cannot be comprehensive nor can analysis of any particular topic be exhaustive. LEARNING OUTCOMES: Students should: 1) Be able to make economic comparisons over time and space using the relevant conceptual tools to organise perceptions and data. 2) have an awareness of the importance of economic theory in analysing problems, of its limitations as a guide to policy and of the need to relate it to some political and historical context. 3) have an appreciation of the distinctive nature of some important British financial institutions and of the difficulties of replicating elsewhere, institutions which have been shaped by the peculiarities of British economic, political and cultural evolution. 4) have some experience of the need for constant and rigorous editing of the written word. COURSE TEXTS: How to Read the Financial Pages, M. Brett. Random House (This is an excellent introduction to how the City works) Economics: The User's Guide: A Pelican Introduction, Ha-Joon Chang. Guide to Financial Markets, M. Levinson. Economist/Profile Books (This a complement to Brett, above) TO CONSULT IN THE LIBRARY: Applied Economics, A. Griffiths & S. Wall. Financial Times/Prentice Hall (This is a compendium which is a blend of theory and data related to the UK economy) 1
ADDITIONAL READING: On a daily basis you should read a quality newspaper - The Times, The Telegraph, The Independent or The Guardian. The best daily paper for domestic and international economic and financial news is The Financial Times. An indispensible source of information about UK and International social, economic and political matters is The Economist which is published weekly. The Economist also publishes a very useful Guide to Economic Indicators. Economist/Profile Books and The City. A Guide to London s Global Financial Centre. Useful texts on the recent financial crisis include: The Financial Crisis: Who is to Blame? Howard Davies. Polity Press Keynes: The Return of the Master. R Skildesky. Allen Lane WHOOPS... John Lanchester. Allen Lane Boomerang: The Meltdown Tour. Michael Lewis. Allen Lane Capital of Capitals. Y Cassis. Cambridge Excellent historical complements to Skidelsky s book are: Lords of Finance: The Bankers Who Broke the World. L Ahamed. Heinemann Capitalist Revolutionary: John Maynard Keynes. RE Blackhouse and BW Bateman. Harvard The Summit. Ed Conway. Little, Brown The European Economy since 1945. B Eichengreen. Princeton The History of Europe since 1945. T Judt. Penguin The Euro Crisis and aftermath. J. Pisani-Ferri. Oxford The Cambridge Companion to Keynes. R.E. Backhouse and B.W. Bateman. Harvard Old World, New World. K. Burke. Little Brown The Last Thousand Days of the British Empire. P. Clarke. Bloomsbury Press Hall of Mirrors. B Eichengreen. Oxford Further reading references will be given during the course. ASSESSMENT - based on four elements: a. 2000 word essay (30%) b. Class presentation (15%) c. End of course examination (50%) d. Overall grade for attendance, punctuality and participation (5%) NB: During the course there will also be periodic self-test question sheets designed to reinforce and extend understanding of material so far covered. These will not count towards the formal assessment. Final grades will be letter grades, but marks will be made in line with the British system of percentages. A conversion table is set out below. Class Percentage Letter grade 1 70 and above A 2.1 67-69 A 65-66 A- 2
63-64 B+ 60-62 B 2.2 58-59 B 56-57 B- 54-55 C+ 50-53 C 3 48-49 C 45-47 C- 43-44 D+ Pass 40-42 D Fail 39 and below F ESSAY TO BE SELECTED FROM ONE OF THE FOLLOWING: 1. Compare and contrast any two contemporary economies. 2. What factors were significant in the evolution of the City of London as a world financial centre? How has the recent financial crisis affected its position in the world economy? 3. Explain the origins of the financial crash which occurred in the first decade of the 21 st century. Discuss the adequacy of the measures that have been taken in Britain and the USA to avert a similar crisis in the future. 4. With reference to the history of the 19 th and 20 th centuries, explain why different types of exchange rate systems have been adopted. 5. Why has the Eurozone been in crisis? What conditions are necessary for its survival? 6. Give an account of the rise and fall of Keynesianism. Why is it back in fashion? 7. Examine the origins of the special relationship between Britain and the USA. Comment on the current nature of this relationship. INDICATIVE CRITERIA FOR DETERMINING ESSAY GRADE a) Are sentences grammatically correct, clear and precise in meaning and punctuated correctly? b) Are there spelling mistakes? c) Is the relevant economic theory presented and, where appropriate, illustrated graphically? d) Is the argument supported with relevant data? e) Does the essay have a discernable structure with an introduction, a main body and a conclusion, rounded off with a bibliography? NB: i) leave a margin of at least one inch on both sides of the text for tutors comments. ii) ensure that the essay is headed by the precise title selected from the options given above, i.e. do not paraphrase the title. PRESENTATION TO BE SELECTED FROM THE FOLLOWING TOPICS: 1. Discuss the similarities and the differences between the UK and US social security systems? 2. Compare and contrast recent European, UK and US economic performance. 3. Discuss the main issues confronting the World Trade Organisation (WTO). Which do you think is the most pressing issue and why? 3
4. Examine the problems which have been and are associated with the programme of privatisation in the UK. 5. Compare and contrast the UK Financial Conduct Authority (FCA) and the US Securities and Exchange Commission (SEC) INDICATIVE LECTURE CONTENT AND REQUIRED READING 1. COMPARING ECONOMIES Economic structure: GDP ratios output, expend, trade, tax, etc Performance indicators: GDP per cap., unemployment, inflation, growth, trade, productivity Policy: types of policy instruments & targets Relations between structure, performance & policy SOME IMPORTANT THEMES Conceptual Framework Importance of measurement READING: Griffiths and Wall (G & W) chapters 1 & 23. Guide to Economic Indicators chapters 3 & 4 2-3. STRUCTURE & ROLE OF FINANCIAL SECTOR Financial Markets Sources of London s competitive advantage Role of derivatives: options, futures, swaps Financial crisis: origins, development and policy response Sector analysis Regulatory change READING: G & W chapter 21. Brett chapters 1, 2 and 13-19. Levinson chapters 1-5, 8-9. Chang, chapter 8. Guide to Economic Indicators chapter 12. Skildesky chapter 1. The City chapters 2-3 4. ASPECTS OF UK MONETARY POLICY (MP) Review of quantity theory and monetarism Targeting: money supply, exchange rates, inflation Institutional reforms of 1997: operation of MPC New departures in MP 2007 to date Policy innovation Performance READING: G & W chapters 20 & 22. Levinson chapter 3. The City chapter 10. 5-6. KEYNESIANISM TO THATCHERISM & BEYOND Review of Keynes: context, model, policy implications UK post-war economic performance: relative decline hypothesis Breakdown of consensus & Keynesianism Characteristics of Thatcherism: political stance, ideology, policy Blairism: Thatcherism plus MP reform, fiscal rules etc Dramatic reversals in fiscal policy Policy reversals Relative performance Emergency of new policy consensus READING: G & W chapter 30. Skildesky chapters 2-5. Cambridge Companion chapters 2, 3, 5, 6, 15. 7-8. EXCHANGE RATE POLICY Synopsis Determinants Bretton Woods System: origins, institutions, operations phases, 4 Role of UK in int. Economy Policy reversals
breakdown, forms of floating & pegged rates post-1972 Analysis of UK entry to & exit from ERM 1990-2 Maastrict Treaty convergence conditions for EMU participation READING: G & W chapter 25. Levinson chapter 2. Cambridge Companion chapter 6. Pisani-Ferri chapters 2-3. Conway. 9-10. ECONOMIC AND POLITICAL CONTEXT: RELATIONS BETWEEN UK, USA & EUROPE Lend-lease and reciprocal aid, dollar loan & convertability crisis of 47 Marshall aid & US support for USE: European ambivalence towards USA; creation of ECSC & EEC UK from Free Trade Area (EFTA) to Customs Union (EEC) Role of UK in int. Economy Policy reversals READING: G & W chapter 27. Clark chapter 11-12. Burk chapter 6, 8. Judt, chapters 3-5, 9, 10, 22. Eichengreen. 11. BRITAIN & EMU/CONCLUSION Significance of EMU policy option Pros & Cons of participation Concept of an optimal currency area Prospects for EMU UK 1945-2009: structure, policy performance compared Changing role of UK in the world economy Key policy decisions of the 20c READING: Pisani-Ferri NB: LECTURE TOPICS WILL BE ACCOMPANIED BY HANDOUTS VISITS: These are an integral part of the course. Participation will be taken into account when assessing the overall grade. IT IS ESSENTIAL TO BRING PHOTOGRAPHIC I.D For the City visits meet me promptly at the times shown below at BANK UNDERGROUND TUBE STATION (Royal Exchange exit 3 at ground level) @ 9.00am for Bank of England and City visit ACADE MIC INTEGRITY: The University of Maryland has a nationally recognized Code of Academic Integrity, administered by the Student Honor Council. This Code sets standards for academic integrity at Maryland for all undergraduate and graduate students. As a student you are responsible 5
for upholding these standards for this course. It is very important for you to be aware of the consequences of cheating, fabrication, facilitation, and plagiarism. For more information on the Code of Academic Integrity or the Student Honor Council, please visit http://www.studenthonorcouncil.umd.edu/whatis.html The University of Maryland is one of a small number of universities with a student-administered Honors Code and an Honors Pledge, available on the web at http://www.jpo.umd.edu/aca/honorpledge.html. The code prohibits students from cheating on exams, plagiarizing papers, submitting the same paper for credit in two courses without authorization, buying papers, submitting fraudulent documents, and forging signatures. The University Senate encourages instructors to ask students to write the following signed statement on each examination or assignment: "I pledge on my honor that I have not given or received any unauthorized assistance on this examination (or assignment). ACADEMIC ACCOMODATIONS: If you have a documented disability, you should contact Disability Support Services 0126 Shoemaker Hall. Each semester students with documented disabilities should apply to DSS for accommodation request forms which you can provide to your professors as proof of your eligibility for accommodations. The rules for eligibility and the types of accommodations a student may request can be reviewed on the DSS web site at http://www.counseling.umd.edu/dss/receiving_serv.html. RELIGIOUS OBSERVANCES: The University System of Maryland policy provides that students should not be penalized because of observances of their religious beliefs, students shall be given an opportunity, whenever feasible, to make up within a reasonable time any academic assignment that is missed due to individual participation in religious observances. It is the responsibility of the student to inform the instructor of any intended absences for religious observances in advance. Notice should be provided as soon as possible but no later than the end of the schedule adjustment period. Faculty should further remind students that prior notification is especially important in connection with final exams, since failure to reschedule a final exam before the conclusion of the final examination period may result in loss of credits during the semester. The problem is especially likely to arise when final exams are scheduled on Saturdays. 6