8/14/2019 Shumpeter Issue 3
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THE SCHUMPETERThe Economics Society Magazine
The Need for More Skyscrapers in London
David Osborne
Financing Student Life
Francesca Satturley
Another Fine Mess
Adrian Booth
Lessons from the Great Depression
Adrian Booth
Issue 3
News and Extra
Superpowers of World Past, Present & Future
Fahad Memon
Going on the Cheap
Habeeba Anjum
Islamic Banking Explained
Anaam Raza
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8/14/2019 Shumpeter Issue 3
2/15
Another Fine Mess
By Adrian Booth
he art of economics, as described by Henry
Hazlitt, consists in looking not merely at
the immediate but at the longer effects of
any act or policy; it consists in tracing the
consequences of that policy not merely for one
group but for all groups1. Using this quote we
need to analyse not just the short term effects of
a policy decision by central bankers and policy
makers, but the intermediate and longer term
effects on the structure of the economy. To
many economists, Ben Bernanke, the chairman
of the Federal Reserve, has saved the world
economy from collapse and should be
applauded. To
others, he is
seen as
nothing but a
money printer
hell bent on
destroying theAmazon
rainforest for
the sake of
bailing out the
banks. The
latter argue
that with the unprecedented
explosion of the monetary base
(the total amount of money in circulation plus
bank reserves) double digit inflation is a likely
scenario (See the chart).
The likes of Alan Greenspan, former Chairman
of the Federal Reserve, and Martin Wolf,
Financial Times Economics Editor, have both
argued that expansionary government policies
could produce significant inflation in the
medium to long term if excess reserves and
newly printed money are not reined in. "It's
critically important the Fed's doubling of itsbalance sheet be reversed," Greenspan said. "If
you allow it to sit and fester, it would create a
serious problem.2. An expansion of the money
supply on that scale would have produced
catastrophic inflation in normal times. The fact
is; we no longer live in normal times.
The new money that central banks have issued is
not circulating the economy and therefore not
producing inflation in prices. The excess
reserves are currently deposited at central banks
earning tiny amounts of interest. We need to ask
the question; what happens once the banks lend
the money out and prices start to rise? Will
central bankers
rein in the
money supply
or allow a
further
weakness in
the currency inorder to ease
the debt
burden. It is
not in the
interest for
those countries
in debt, like the US and UK, to
have stronger currencies and have
to pay back debt in higher valued paper. Nor,
rather, is it in their interest for a currency
collapse. Harvard professor Kenneth Rogoff
came out recently and recommended a 6%
inflation rate to ease the debt burden. Im
advocating 6 percent inflation for at least a
couple of years, it would ameliorate the debt
bomb and help us work through the
deleveraging process.4 He is correct in saying
that policymakers are aiming for an inflation
rate around that level to help with the gigantic
debt mountain.
T
Source: research.stlouisfed.org (2009)
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THE SCHUMPETER ANOTHERFINE MESS
In a recent article, The Economist expressedconcern over the future of the international
monetary system weve had since 1971. On
August 15th of that year Richard Nixon closed
the gold window and took the world off the gold
standard. For the first time in history, the entire
worlds monetary system was based on fiat
money. This monetary experiment has been
running for 38 years and some would argue
contributed to global trade imbalances that
contributed to the crisis and the huge build up of
debt in the western world. It is hard to think of
a parallel in history. A country heavily in debt to
foreigners, with a government deficit it is
making little attempt to control, is creating vast
amounts of additional currency. Yet it is allowed
to get away with very low interest rates3.
We have heard for some time now that recovery
is imminent and that government policies have
averted total collapse. Some economists argue
that the crisis has not been averted, but merelypostponed. The transfer of debt from banks and
the private sector onto the balance sheets of
central banks and governments poses a serious
risk of a sovereign debt default or currency
crisis in the medium to long term.
We could yet have another phase where, instead
of credit drying up for banks and private
businesses, credit dries up for governments and
interest rates sky rocket along with inflation.
David Bowers of Absolute Strategy Research
says; Its the last game of pass the parcel.
When the tech bubble burst, balance sheet
problems were passed to the household sector
(through mortgages). This time they are being
passed to the public sector (through
governments assumption of banks debts).
Theres nobody left to pass it to in the future.5
Economists Philipp Bagus and Markus H.
Schiml recently wrote an article on the Federal
Reserve showing that its balance sheet isleveraged at 50:1. This means that a 2% fall in
the value of the feds assets would declare thecentral bank insolvent.6 Even the Bank of
International Settlements (BIS) has expressed
concern with recent policy actions. The big and
justifiable worry is that, before it can be
reversed, the dramatic easing in monetary policy
will translate into growth in the broader
monetary and credit aggregates. This will lead
to inflation that feeds inflation expectations or it
may fuel yet another asset-price bubble, sowing
the seeds of the next financial boom-bust
cycle.7
With the central bank of the US on the edge of
insolvency and the US government having to
borrow $6 billion a day just to survive, we
cannot expect the world economy (particularly
the West) to begin a period of healthy economic
expansion. Russell Napier, stock market
historian and author of Anatomy of the Bear,
recently said in an interview that "The most
mispriced financial instrument on the planettoday is US government debt and the unwinding
of that will be the story of this generation,"With
bond vigilantes and gold bugs circling the US
Dollar and Treasuries like vultures, we can only
expect further crises in the future; only this time
governments and central banks being the main
focus.
References:
1. Economics in One Lesson, Henry Hazlitt, Three RiversPress 1946, pg 17, lines 9-12.2. Greenspan says Fed balance sheet an inflation risk
http://www.reuters.com/article/newsOne/idUSTRE5913TX20091002
3. The Economist, Chucking the buck, September 26th-October 2nd, pg. 90.
4. U.S. Needs More Inflation to Speed Recovery, SayMankiw, Rogoff, Bloomberg, Rich Miller, 19/05/09
5. Financial Times, A Risky Revival, John Authers,26/09/09, pg 8.
6. The Insolvency of the Fed, Philipp Bagus and Markus H.Schiml | Posted on 2/5/2009, http://mises.org/story/3281.
7. BIS Sees Risk Central Banks Will Raise Interest RatesToo Late, Simone Meier, Bloomberg,http://www.bloomberg.com/apps/news?pid=20601068&
sid=aOnSy9jXFKaY
http://mises.org/articles.aspx?AuthorId=336http://mises.org/articles.aspx?AuthorId=1156http://mises.org/articles.aspx?AuthorId=1156http://mises.org/story/3281http://mises.org/story/3281http://mises.org/articles.aspx?AuthorId=1156http://mises.org/articles.aspx?AuthorId=1156http://mises.org/articles.aspx?AuthorId=1156http://mises.org/articles.aspx?AuthorId=3368/14/2019 Shumpeter Issue 3
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Islamic Banking-Explained
By Anaam Raza
Image source: http://www.worldpoliticsreview.com
bank is a financial intermediary
between two groups of people in the
society; those who have more financial
resources than they need (savers) and those
who need more than they actually have
(borrowers). But banks can only make
money if they charge interest for loans and
charm savers by paying them interest.
However an Islamic bank is one that abides
by the Shariah (Islamic Law) in all itstrading activity. Hence interest/usury (Riba)
is banned. This is done as the Shariah
prohibits the earning of money from money
alone. Instead depositors funds are pooled,
invested in acceptable projects and the
profits finally shared.
As Sheikh Mufti Taqi Usmani, a leading
Islamic cleric, recently told a banking
conference in London: The basic principle
of Islamic finance is that money is that isalways backed by assets, it is equity
financing and not debt.
The Islamic model disallows Maysir
(gambling, speculation and pure games of
chance), Gharrar (avoidable ambiguity in
contract essentials such as price) and any
activity which may be considered to be
morally or socially injurious to society such
as pornography, alcohol and pig products.
Yet it both promotes and applauds trading of
real assets, risk-reward sharing, and
entrepreneurship and at the same time
emphasising the inviolability of contracts.
All this however is not unique to Islam.
Jewish tradition also frowns on usury, as did
the Catholic Church until five centuries ago.
In 1140, for example, the Church declared
that anybody charging interest would beexcommunicated (a move which induced
Christians to use Jews as money lenders,
since they were believed to be already
excommunicated).
The Model
There are two basic models which are the
most common methods of providing Islamic
finance in the world and are considered by
Islamic practitioners and scholars to be themost suitable methods for Shariah
compliant products. These include "Ijara"
and "Murabaha".
The first,Ijara, works very similar to a lease
with low cost buy out at the end of the term.
The second, Murabaha, works on a cost
plus model.
Ijara is an Islamic form of leasing in which a
customer selects the asset to be financed and
the bank then purchases it from the supplier
and leases it to the customer for an agreed
period. At the same time the bank being the
owner of the asset is paid rent whereby
exercising all the lessor's rights and
obligations such as maintenance, insurance
and repair.
A Murabaha, on the other hand incorporates
a locked-in return in which the bankfinances the purchase of an asset by buying
it on behalf of its client and then adding a
"mark-up" in its sale price which is paid by
the client on a deferred basis.
Other instruments include Mudaraba (Fund
Management) and Musharaka (Financing
through equity participation) are desired
forms of Islamic banking even though their
current use is not dominant.
A
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THE SCHUMPETER ISLAMIC BANKING EXPLAINED
Despite having an Islamic equivalent formany financial products there are some
hindrances as certain artefacts are difficult
to equate to their conventional counterparts.
Forward and future contracts are just some
examples.
Some investors express utter astonishment
at the very idea of Islamic hedge funds,
because prohibitions in Sharia do not allow
short selling because it involves assets thatthey usually do not
own. Forward and
futures are equally
banned as they too
are construed as
selling promises.
The forbiddance to
speculate means that
transactions must be
based on tangible
assets, such as
commodities,
buildings or land implying the inevitable
exclusion of exotic derivatives in intangibles
such as weather or terrorism risk.
Islamic Banking in Practise
Although Islamic finance has done well toreduce its costs and expand its product
range, it has yet to tackle numerous other
hurdles as further growth itself is a peril. On
one side of the coin, foreign investment
banks are worried that the restricted
implementation of Sharia could possibly
throttle growth; on the other hand somebelieve that Islamic finance is becoming so
keen to drum up business that the outcomes
will simply fail to comply and Sharia will
be twisted.
Of the worlds Islamic countries, only Iran
and Sudan have imposed interest-free
banking on their population, Pakistan is still
trying. Malaysia and Kuwait are the places
where the sector is booming; nonetheless theindustrys ability to
steer its way through
storms remains
largely unproven,
although Malaysian
banks do have
reminiscence of the
Asian financial crisis.
With tongue partly in
cheek, some say that
Islamic finance
should by rights displace the conventional
banking system altogether. Western finance
cannot comply with Sharia pre requisites;
but Islamic finance can please everyone as
their ethical credentials mean that they are
attractive to a wide spectrum of consumers.
Faith and finance are two principles that
Islamic finance is channelled by. The
success of the industry depends on fulfilling
both, even if the price of that is less growth
and more inefficiency.
Copyrights of Khalil Bendib, www.bendib.com. All rights reserved.
https://outweb.city.ac.uk/owa/redir.aspx?C=019867679abb41dda9133f6fc7063a95&URL=http%3a%2f%2fwww.bendib.comhttps://outweb.city.ac.uk/owa/redir.aspx?C=019867679abb41dda9133f6fc7063a95&URL=http%3a%2f%2fwww.bendib.com8/14/2019 Shumpeter Issue 3
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The Need for More Skyscrapers in London
By David Osborne
n any global financial centre, the typical
morning would involve seeing thousands of
suited men and women parading through the
central business district, dwarfed by the dozens
of high rise buildings surrounding them
except, maybe in London.
Why has London been so slow at adopting
skyscrapers?
London along with New York and Tokyo are
global cities: central nodule points in the global
economy. Impressive high-rise skylines are the
expected norm in such cities. In New York and
Tokyo, these expectations are met, but not
necessarily in London.
Historically, London has had quite an unfriendly
approach to high rise office buildings. One can
attribute this to London not being constrained
geographically (such as Manhattan Island inNew York). London, in recent times has not
been severely devastated by any disaster (unlike
Tokyo in the 1923 earthquake and in World War
II). More significantly, however, London has
had strict controls on building heights up until
the 1960s, by which time, New York and Tokyo
had already constructed scores of high rise
buildings. When the controls were lifted, there
was quite a boom in building in London. This
saw the rise of the tower block. Neverthelessthere was still limited ambition or precedence to
building tall office buildings. In fact, the first
skyscraper by international standards in London
(the 183 m Tower 42) was not completed until
1980.
From then on, construction of high-rise
buildings has been more or less confined to two
clusters, the City and Canary Wharf with a few
outliers. They have also become more
ambitious, most notably with the regeneration of
the Docklands and the construction of buildings
such as 30 St. Mary Axe (The Gherkin).
However, there are still restrictions on building
due to protected views of St. Pauls, the Tower
of London and the Palace of Westminster.
Why the need for Skyscrapers?
In order to remain competitive as a world city,
London will need to cater for its clients,
especially in terms of reasonably-priced office
space.
According to the Greater London Authoritys
report: Interim strategic planning guidance on
tall buildings, strategic views and the skyline in
London (2001), on average, office space in
London is the most expensive in the world, at
1005 per square metre, compared with 500 in
New York.
Due to greenbelt restrictions London cannotextend much more outwards (and as a matter of
fact already takes up 1579 km2
of this Island); so
as a result needs to expand upwards, much like
the pressure that New York Faced in the mid-
20th
century.
Between 2001 and today, there have been
significant improvements on the skyline of
London, probably the most noticeable being the
180 m Gherkin. Further evidence comes in the
form of reduced average prices of office spacein London. According to CB Richard Ellis, a
commercial Real Estate Advisor, the average
office price in Central London at the end of the
first quarter of 2009 was 720 per square metre.
We must keep in mind, however that the effects
of the Financial Crisis severely distort the
impact that new skyscrapers have had on office
prices.
I
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THE SCHUMPETER THENEED FORMORE SKYSCRAPERS IN LONDON
Why is London a global city? What is itsoutlook for the future?
Londons characteristic as a global city, does not
depend on its buildings, but in the variety and
quality of skills found in the City. The
geographical positioning, of the metropolis also
makes it convenient for trade with all the
worlds time zones. According to the London
Development Agency, The result of this is that
over 40% of the worlds foreign equities are
traded in London, and the city handles 30% ofthe worlds foreign exchange (thats more than
Tokyo and New York combined). This equates
to nearly 80% of Londons business being
international.
When the economy starts to recover from the
Financial Crisis, the amount of companies doing
this international trading is likely to increase,
and hence many of them would seek locations in
London. These firms would prefer a prestigious
location in the City or Canary Wharf, where
their competitors are. As a result of this, there
would be upward pressure on the price of office
space, making them even more expensive and
deterring for other companies seeking to locate
in London. The risk of this is exacerbated by therise of the BRIC economies, whose rapid growth
has the potential to take a significant portion of
business away from London.
Every economist is more than familiar with a
standard supply & demand curve, which shows
that the price of a good will decrease if the
supply of that same good increases. By this
logic, we can see that the competitiveness of
office rents in London may be improved by
increasing the stock of office space.
Currently, there are nine buildings over 100
metres tall under construction, the most
noteworthy being the 305 m Shard London
Bridge and the 299 m Pinnacle. In addition to
this, there are over 50 buildings over 100 metres
proposed to be built in London within the next
decade.
Londons key role in the global economy must
not, however undermine its character as a
unique city. This is to say that by no means
should the Greater London Authority attempt to
turn London into Manhattan or Tokyo, but
rather to use skyscrapers to enrich the citys
current landscape and economic potential.
http://upload.wikimedia.org/wikipedia/commons/6/6e/London_Thames_Sunset_panorama_-_Feb_2008.jpg8/14/2019 Shumpeter Issue 3
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Lessons from the Great Depression
By Adrian Booth
or those who studied the Great Depression,
we learnt that the wildcat free market was
the cause and the New Deal got us out of it. We
also learnt that Hoover was a tightwad who idly
sat back whilst the markets descended into
chaos. Firstly, our present day crisis mirrors that
of the 1920s quite ominously. The boom
preceding the 1929 crash was fuelled by massive
credit expansion by the Federal Reserve, the
central bank, in an attempt to bail out the Bankof England who faced an outflow of gold. Lionel
Robbins quotes from Mr A. C. Miller, the most
experienced member of the Federal Reserve
Board, before a Senate Committee on Banking
and Currency in his book, The Great
Depression:
In the year 1927...you will note the pronounced
increase in these holdings (Federal Reserve
holdings of United States securities) in thesecond half of the year. Coupled with the heavy
purchases of acceptances it was the greatest and
boldest operation ever undertaken by the Federal
Reserve System, and, in many opinions, resulted
in one of the most costly errors committed by it
or any other banking system in 75 years.
Miller admitted the aim was to bring down
money rates, the call rate among them to
reverse the previous inflow of gold into the
country.2
Alan Greenspan, before he became Chairman of
the Federal Reserve, wrote about this in a now
infamous article called Gold and Economic
Freedom. He writes, When business in the
United States underwent a mild contraction in
1927, the Federal Reserve created more paper
reserves in the hope of forestalling any possible
bank reserve shortage. The Fed succeeded: it
stopped the gold loss [from the Bank of
England], but it nearly destroyed the economiesof the world, in the process.
2
Policymakers believe the correct prescription to
arrest the crisis is more expansionary monetarypolicies. In fact, Nobel Prize Winner Paul
Krugman even argued this back in 2002 after the
crash of the dot coms: To fight this recession
the Fed needs soaring household spending to
offset moribund business investment. [So] Alan
Greenspan needs to create a housing bubble to
replace the Nasdaq bubble.3 This is what was
prescribed to the economy back in 2002 to deal
with the recession at the time, and some believe,
led to our present recession. But some have
argued that it was monetary tightening by
governments that accelerated the crash in the
early 1930s. Lionel Robbins provides an
alternate view: The moment the boom broke in
1929, the Central Banks of the world, acting
obviously in concert, set to work to create a
condition of easy money. From October 1929 to
December 1930 no less than $410 million was
pumped in the market in this way (securities
purchases).4 During the years 1920-1921 the US
also experienced a severe decline that, judging
by the figures, mirrors the decline of the early
F
Image source: The Daily Mail
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THE SCHUMPETER LESSONS FROM THE GREAT DEPRESSION
1930s. The fundamental difference was theresponse by the monetary authorities. What may
surprise those who believe monetary and fiscal
stimulus is the right prescription to a recession,
is that the Fed and the government enacted tight
policies during this period. The decline in
production became very severe, falling at 21
percent over the twelve months. Keynesian
economist Robert A. Gordon admitted that
government policy to moderate the depression
and speed recovery was minimal. The Federal
Reserve authorities were largely
passive....Despite the absence of a simulative
government policy, however, recovery was not
long delayed.5 During this steep decline, the
Fed decided to increase interest rates from 4.75
percent up to 6 percent in one hike. With
unemployment at 11.7% in 1921 and interest
rates at an all time high, it is any wonder the
economy recovered at all. Deflation was also 50
percent more severe than any twelve month fall
during the depression; with prices falling 15.8percent from June 1920 for twelve months.
Keynesian fiscal pump- priming has also been
prescribed to the economy in our present
recession. Policymakers look back to the 1930s
as evidence that deficit spending and active
government involvement are good for the
economy. Herbert Hoover has been criticised for
attempting to balance the budget and refusing to
intervene in the economy. A look at past figuresshows this is misleading. In Fiscal Year (FY)
1933, which ran from mid-1932 to mid-1933,
the Federal government ran a $2.6 billion
deficit, at a time when it took in only $2 billion
in tax receipts. That would be equivalent to a
$3.3 trillion deficit in FY 2007.6 In the FY 1933,
the deficit was 4.5 percent of GDP. In the first
three years of the New Deal, the deficit averaged
5.1 percent of GDP. Some economists claim that
the 4.5 percent deficit under Hoover, allowedthe economy to sink into the worst Depression
in US history, with monthly unemployment ratesabove 25 percent. Yet by bumping up the
deficit's share of the economy by a mere 60
basis points (0.6%), FDR was able to achieve
the most spectacular turnaround in US history.
When discussing remedies for our present
recession, it is sensible to look back in history to
see what has been most effective. From these
figures, we can conclude that deficit spending
and monetary expansion are not as magical as
policymakers expect. The theories of stimulating
and manipulating the economy through
monetary stimulus go back to the days of Kuan
Tzu, who died in 645 BC. When money is high
goods are low; when goods are high money is
low...the ruler should manipulate the values of
grains and money and gold, and the empire can
thereby be stabilized.7
It could be argued that both remedies could
potentially make the situation worse (asKrugman prescribed in 2002 for the Fed to
create a housing bubble). In order to set us on a
path of viable economic recovery, economists
shouldnt just roll over and take past theories for
granted; but should accept the fact that the
economy isnt a machine that can be toggled and
tweaked with continuously with no future
consequences.
References:
1. The Great Depression, Lionel Robbins, pg. 53, 19342. Gold and Economic Freedom, Alan Greenspan.3. Dubyas Double Dip; Paul Krugman, 2/08/02
http://www.nytimes.com/2002/08/02/opinion/dubya-s-
double-
dip.html?scp=4&sq=krugman%20mcculley%20bubble&
st=cse
4. The Great Depression, Lionel Robbins, pg. 73, 19345. Economic Instability and Growth: The American
Record, Robert Aaron Gordon, pgs 21-22, 1974
6. Federal Budget Receipts and Outlayshttp://www.presidency.ucsb.edu/data/budget.php
7. Kung-chuian Hsaio, A History of Chinese PoliticalThought, vol 1, Princeton University Press, 1979, pg.317
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Superpowers of World Past, Present & Future
By Fahad Memon
Note:All gross domestic product (GDP) and
population data comes from InternationalMonetary Fund (IMF) records.
All mentions of GDP data in this article ismeasured in purchasing power parity(PPP) terms and in units of the currentinternational dollar, unless statedotherwise.
The information accounts for 182countries, according to IMF sources.
mong particular animal groups likebears and gorillas, there exists the
presence of superior beings proclaimed bytheir respective packs as undisputableleaders. These alpha males uphold the
responsibility of guiding and sustaining thelivelihood of their fellow creatures.Throughout humankinds history, select
nations have demonstrated similarcharacteristics.
The British Empire held this acclaimbetween years 500 to 1000 AD, operatingwith an iron fist in such lands as India andAustralia. Aptly named, the Dark Ages, itwas a retrospectively abysmal period forsociety as a whole. The common individual
was a peasant, an over-utilized worker; withno human rights, who laboured endlessly aslong as capital lasted. Had it not been for thebirth of a new factor of productionenterprisethe world may have been verydifferent.
Pronounced the Renaissance, (the timebetween the 14th and 17th centuries), it was amovement that began from Italy and carrieda reignited torch of humanitys future
potential. This rebirth (English translation ofRenaissance) of human beings from their
Dark Age coma brought with it the soul ofbusiness activity: the initiative forcommerce. Businesspeople, known plainlyas merchants at the time, began whatconstitutes now as a trade-off system forbusiness transactions.
Goods and services were produced for theconsumption of people, whom in returnprovided the merchants with compensation
for their supply of merchandise. The regionformerly known as the Roman Empire, inessence, planted the seeds for how weprimarily measure a countrys economicwelfare: national income, or what ispopularly cited by Economics studentssimply as Y. And while it is recognised as
an empowered territory of its time, there isno record of Renaissance-era Italysmeasure of gross domestic product, makingit hard to compare with its successors.
Among those that have succeeded, onenation has emerged as the frontier of todays
international economy: the United States ofAmerica. Both economically and politically,it has established itself as the fundamentalfigurehead for the majority of the pastcentury. Considering that The Economistscover stories featured either John McCain orBarack Obama in eight out of fifty-twoeditions over the course of a year, prior to
the inauguration of a new President; there isno doubt that Americas political climate
holds much worldwide significance.
This authority isnt without value, for when
you observe that its 304 million inhabitantsenjoy a per capita income of $47,440 (betterthan 95.3% of the world); the land ofopportunity certainly lives by its moniker.
Accounting for a grand $14.4 trillion inGDP for the year 2008, the United States isresponsible for 20.6% of the worlds total
A
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THE SCHUMPETER SUPERPOWERS OFWORLD PAST,PRESENT AND FUTURE
production. Its substantial global reach: be itthrough media (e.g. Hollywood), worldaffairs (e.g. Operation Iraqi Liberation), orproducts (e.g. Coca-Cola), has allowed theUSA to establish universal presence. Fact ofthe matter is that its notoriety speaksvolumes for itself. With vast multinationalknowledge of such places as Wall Street andDisneyland and their output, devoting morearticle space into explaining why the US hasacquired superpower status would be fairly
pointless.
Rather, ones attention should be directed
toward the 16th of June of this year, whereYekaterinburg, Russia took the Earthscentre stage and planned for its future. Asfour emerging economies officially madetheir cohesive presence felt, an unspokenmission statement laid claim to the planets
prospective hierarchy of powers top ranks.
The quartet: Brazil, Russia, India and China(termed BRIC in Goldman Sachs Global
Economics Paper No. 66 Building BetterGlobal Economic BRICs), are poised tosurpass todays heads of power as the
worlds leading markets, moving forward
into this millenniums first half-century.And with 2008 estimates of a combinedpopulation of 2.9 billion (42.7% of theworld) and combined GDP of $15.5 trillion(22.2% of the world), there is little doubt in
the BRIC blocs projected domination.
While it would be unfair to compare them tothe singular United States, it must beclarified that these four nations are on aneven grander course. According to GoldmanSachs (GS) Global Economics Paper No.
99 Dreaming With BRICs: The Path to2050, if things go right, in less than 40years, the BRICs economies together couldbe larger than the G6, the six beingGermany, France, Japan (as well as thepreviously discussed), USA, UK and Italy.
This spectacular growth, for the still-developing foursome, can also be identifiedwhen looking into IMF forecasts for 2009and the near future.
The following IMF figures approximateGDP levels (in trillions) for the ten countriesconcerned (in alphabetical order):BRZ: $2.00 (2009), $2.10 (2010), $2.60
(2014)CHI: $8.73 (2009), $9.67 (2010), $15.03
(2014)FRA: $2.11 (2009), $2.16 (2010), $2.52
(2014)GER: $2.81 (2009), $2.86 (2010), $3.28
(2014)IND: $3.53 (2009), $3.81 (2010), $5.51
(2014)ITA: $1.75 (2009), $1.78 (2010), $2.02
(2014)JPN: $4.19 (2009), $4.32 (2010), $5.05
(2014)RUS: $2.13 (2009), $2.19 (2010), $2.75
(2014)UK: $2.16 (2009), $2.22 (2010), $2.65
(2014)USA: $14.26 (2009), $14.70 (2010),
$17.42 (2014)
Some of these trends garner support from
the aforementioned Global Economics PaperNo. 99. China and India are perceived to
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THE SCHUMPETER SUPERPOWERS OFWORLD PAST,PRESENT AND FUTURE
undertake rapid growth whereas Japan andthe US continue to experience progressivepatterns. The data however, does indeeddiffer drastically due to the varyingassumptions of the IMF and GS Group aswell as their methodology (Goldman Sachsmeasures in US dollar terms and withconstant prices wherein 2003 acts as thebase year). In accordance to the paper, Indiais expected to surpass Japans economic
performance by 2032 while China could
exceed five of the G6 in seven years timeand the USA by 2041. Conclusively, GSforesees that the BRICs, as a whole, havethe potential to best the G6 by 2039.
Time changes everything: as the reins havebeen passed on from Britain to Italy to theUnited States of America, so it appears thatthey will do so once again. While the factsvividly paint a future skewing towardsBrazil, Russia, India and China; projections
come with an assortment of assumptions.Bearing this in mind, it will be important tosee how these economies plan for theforthcoming decade. Goldman Sachssupports its position on the grounds that thisgroup of four abides by its well-structureddevelopment policies. While a few othercountries have come under similarobservation, namely Mexico and SouthKorea (prompting the acronym BRIMCK)they were excluded from studies related to
BRICs due to such differences as theirelevated economic levels of origin. Whetherits one of these two becoming a bigger part
of the equation or the modified G6 of 2050coming into form even sooner; the core idearemains. The Earths balance of power
appears to shift quite dramatically over theapproaching course of time.
To entirely understand the truths andconsequences behind these insights, payingcareful attention to regional news will be
vital. The only certainties we can moveforward with are the details at present:correspondence from Goldman Sachs (inBRICs Monthly, Issue No. 09/05: BRICs
Lead the Global Recovery) states thatBRICs [lead] both the advanced economiesand the rest of the emerging world in thisprocess. Does the alpha male notion soundfamiliar?
Need and want are two
different things, but when youwant something... go on thecheap By Habeeba Anjum
Staff may have the tiniest (really the greatest)tendency to complain about low wages, long hoursand short breaks at stores such as Primark (One canusually hear the rants of the Primark clique whennear the changing rooms at the back). Not to mentionbickering about the constant assorting and endlessfolding of clothes. This isnt to express an anti-tradeunionist view, but what about the war thats ragingbetween the average shopper and their bank account.Surely that needs to be taken into consideration.Every quarter an envelope comes through the post,which happens to be the dreaded Bank Accountstatement. The word statement refers to the bankssaying youve given us your money- we win and ontop of that were charging you interest! A cleverperson would open a savings account destroy anycredit cards and get a nice healthy debit card whichdoesnt charge interest! The Banks arent so clever
now are they?Back to the point; People like to aim bigPrada,Gucci, Louis Vuitton, but spending more than 30 ona plastic hair band (even if you can afford it) is, dare Isay, a rip off! It would make much more sense to getthe same thing from Primark for 29 less! It maypossibly look like a cleverly crafted knockoff, butwear 11 inch heels and people will not be able tocheck for the designer labels on the top of your head.It will also give you height and oomph. Justremember take a few lessons in poise before youactually go out in those heels, especially when
probability states that you have an 80% chance ofbreaking a limb. But fashion does have its sacrifices!Moral of this story: Do not buy cheap plastic fromSelfridges, buy it cheaper from Primark.
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Pointers on Financing Student Life
By Francesca Satturley
f you are leaving home for the first time
and beginning university, financing your
studies in the most effective manner
possible can seem like a huge hurdle to
overcome. Figures show you could end up
owing more than 23,000 after graduating,
so here are some tips to help you budget
effectively.
Take out a student loan
It is the cheapest way to borrow. Debt owed
to the student loan company (SLC) is taken
out of a students salary after graduation at
9% of annual earnings over 15,000.
Interest rates are based on the Retail Price
Index and set in March each year, but as the
RPI has recently fallen below zero, student
loans are currently interest free.
Students would be wiser to take out more
than they need rather than less, as the excess
can be deposited in a bank account where
interest can be earned on it, rather than fall
short on funds and have to borrow through
alternative methods such as a bank
overdraft. It should however be considered
whether borrowing more money would
encourage more money to be spent, and so aweekly budget should be used as a guide to
work out how much of the student loan to
apply for.
Some students will also qualify for a grant if
they are from a low income family. A grant
is finance supplied by the government that
does not have to be paid back. For more
information about grants and student
support contact the student support helpline.
Work out a weekly budget
This can be done by working out roughly
what will be spent each week and sticking to
it. A weekly allowance should be set for
food, transport, accommodation plus any
additional bills such as heating and lighting,
and cash for going out. Multiply this by the
number of weeks you will incur these costs
for this university year and add on any one
off costs such as books. This will give you a
rough estimate as to how much finance you
will need to apply for in order to fund you
academic year. You will need to budget so
that you are living within your means, and it
must be realistic if you are to stick to it!
Focus on the biggest free overdraft
Times are tough but banks are still eager to
hold a slice of the student banking market
this year. Many offer cash incentives and
freebies, for example NatWest is offering a
five year young persons railcard worth
130. Andrew Hagger from price
comparison service Moneynet.co.uk states
that; the main focus should be the size of
the interest free overdraft, if youre likely to
need to borrow 1,500 or more for year one,Halifax, Barclays and The Royal Bank of
Scotland should be your first port of call.
Hagger has also stated that; If you are in
danger of going over your authorised
overdraft limit dont bury your head in the
sand. Speak to your bank as soon as you
can, if theres a branch on campus youll
usually be able to speak to a student
specialist who can help you out.
I
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THE SCHUMPETER POINTERS ON FINANCING STUDENT LIFE
Avoid credit cards and store cards. They arean expensive way to borrow money- most
store cards have a typical APR of 29.9%.
Look for additional sources of finance
Many universities offer scholarships, and
will have information about these on their
websites. If students are edible to apply for
them then they should go for it! There is
nothing to lose!
Universities may also offer bursaries for
students in financial hardship. Students
finding themselves under these
circumstances should look at the universities
website for more details.
Think about transport
Over a year transport
costs tend to add up, so,
they need to be
considered when
choosing modes oh
transport. If the
destination is within
walking distance then
take advantage of this
free means of transport.
The next cheapestmethod of transport is often
the bus which is generally lower than the
tube or a taxi. When travelling using the
tube or bus, be sure to invest in a student
oyster card. They will save you a lot of
money in the long run and only cost 5. A
young persons railcard is also a wise
investment when using rail services on a
frequent basis, providing the holder withone third off rail travel.
Use a student card
Many shops and entertainment venues offer
discount for students so take advantage.
Clubs and bars often host student nights
where drinks and entry into clubs are
discounted. Money can be made to go
further by logging into websites such as
studentbeans which give a range of student
offers and deals.
Keep your house in order
Students who look after their property and
stick to the terms of their contract will get
their deposit back. The deposit is often quite
a large sum of money and definitely proves
very useful at the end of the
academic year.
Before moving into the
property it is wise for students
to see a copy of the gas safety
certificates and see who is
responsible for the bill. By
taking a meter reading and
giving this to the supplier,
students can also see if they
are able to switch to a cheaper
utility tariff.
By budgeting effectively,
ensuring you have enough finance to cover
your budget and researching the deals are
out there; financial worries will be eased and
student life will become less stressful.
Students years at university are said to be
the best in their lives. This should not be
ruined by financial difficulty!
Copyrights of Ryan Barclay,www.textlister.com . All rights reserved.
8/14/2019 Shumpeter Issue 3
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We are committed to advance the reform of
international financial institutions so as to reflectchanges in the world economy. The emergingand developing economies must have a greatervoice.
- Leaders of Brazil, Russia, India and China;in a joint statement at the first BRIC Summit.
Islamic finance has not escaped unscathed from
the global financial turbulence of the past year.As the credit crunch hit, the market for sukuk, orIslamic bonds, took a pause, with new issuespostponed and months going by without a singledollar-denominated bond being sold. Despite thesetback, however, the pool of liquidity in the oil-rich states of the Gulf, and the still-growingappetite for financial products that comply withthe prohibition on the use of interest, have keptthe $800bn Islamic finance industry marchingon.
- Roula Khalaf, Middle East editor of the
Financial Times, in a FT.com Islamic Finance
report, titled Grappling with problems of
success.
If you believe that markets operate in AlanGreenspan fashion, then you don't inquire intothe details.
- Oliver E. Williamson (see under News
Summary), in a statement to The Age.
I received over 800 emails on the first day. Inever thought about winning the Nobel Prize. Isimply want to do more research.
- Elinor Ostrom (see under News Summary),in a statement to Peoples Daily Online.
Fifty per cent of sod all is still sod all,
- Boris Johnson, in a statement referring to
Ken Livingstones policy on fifty per cent
affordable housing in new developments.
Sveriges Riksbank Prize in Economic Sciences in
Memory of Alfred Nobel
The Nobel Memorial Prize in Economics
2009 laureates:Elinor Ostrom ("for her analysis ofeconomic governance, especially the commons")
and Oliver E. Williamson ("for his analysis ofeconomic governance, especially the boundaries ofthe firm")
By winning the Economics Nobel Prize this year,Elinor Ostorm became the first woman to earn thehonour since its inception in the late 1960s.
Nobelprize.orgEconomics 2009http://nobelprize.org/nobel_prizes/economics/laureates/2009/index.html
It is good to see the finished product of the effort thatmyself, Fahad and everyone who wrote articles haveput in. I look forward to everyones contributions forthe next edition and would like to thank the EconomicsDepartment and everyone that has helped with thecompletion of this edition.
David Osborne, co-Editor of The Schumpeter
A big thanks to the contributing students; withoutwhom this would be a mere two-person ensemble byDavid and I. Gives me great pleasure to see our Citystudent body take on an active role beyond the lecturehalls. Its for this reason that The Schumpeter pridesitself on giving todays young minds the opportunity tostate their opinions and extend their knowledge via thepower of the proverbial pen. Be it an economistworking on the Schumpeter or a Schumpeter workingitself into The Economist, it is nice to see the world ofeconomics integrate.Fahad Memon, co-Editor of The Schumpeter
Dear students,
I would like to congratulate the student-led andfocused Economics Society, in particular FahadMemon and David Osborne, for having brought out thefirst edition of the Schumpeter of 2009/10. Thispublication reflects the deep engagement of theSocietys members with economics in both itsacademic and its practical aspects. I hope that those ofyou who are not yet members of the Society will beinspired by this publication to become active in itsaffairs, whether through contributing to future issues orby participating in one of the events that the Societywill organize over the year.
I hope you enjoy the coming year and that you do verywell in your studies.Saqib Jafarey, Head of Department.
Any Comments/Contributions, contact: [email protected] or [email protected] Pictures credits: Fred R Conrad/The New York Times www kremlin ru www primark co uk and Umair Shuaib through public
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