Few of the super-rich are scientists or inventors who have reshaped our understanding of our abilities and of the world around us. Think of Alan Turing whose mathematical genius provided the basis for much of our modern computer systems. Think of Watson and Crick who unravelled DNA. Think of Brattain and Shockley who invented transistors. So why are they not rich? And what is the contradiction here? Thomas Piketty and Joseph Stiglitz view capital as at least partly to blame, or at least the way our economic systems treat it.
Piketty argues that the beginning of this century once again saw r>g in the US and to a degree in Britain as well. Where r= average annual rate of return on capital (e.g. profits, dividend and rent), and g= the rate of growth of the economy. The argument is that wealth is growing quicker than wages or output. Few economics aside from those in the process of transitioning to a developed one e.g. China, can expect to achieve more than 2% growth, or at least certainly not the 4-5% increase as in wealth. The entrepreneur becomes a rentier, relying on their capital and increasingly dominant over those who have nothing to offer but their labour. This leads to a divergence in the economy as the wealth distribution becomes more unequal. Taken further and with an eye on history one could therefore argue that immense wealth inequalities “have little to do with entrepreneurial spirit and are of no use in promoting growth” ([1] page 571). Nor is it of any “common utility” to borrow a phrase from the 1789 Declaration of the Rights of Man and the Citizen.
However we are warned that indiscriminate capital tax would reduce incentives to those who are indeed entrepreneurs and those who are not acting in the role of a rentier. Instead Piketty advocates a progressive annual tax on capital to avoid an endless spiral towards an increasingly inegalitarian society, whilst preserving competition and incentives. Stiglitz backs up this view in his argument that the right wing in the US have overestimated the costs to incentives of progressive taxation and have underestimated the possible benefits. Indeed Stiglitz places particular emphasis on rent seeking and its links to inequality in his work. [4]
In 2016 Oxfam claimed that 62 people own the same wealth as the poorest half of the world’s population [2], and in 2017 revised that number down to 8 [3] (although the 2nd figure is somewhat disputed). In light of Wallerstein’s “world systems theory”* [5] if such ideas as rent seeking are applied to the global economic system one is left to question if global inequalities will become further entrenched as we turn towards the future.
*The idea that the global economic system has “core” countries with highly developed technology and high wages, and “periphery” countries with primary product based exports and lower wages. The periphery countries are kept in a place of dependency on the core via their exploitation. A neo-Marxist theory in which the core could be seen much like a global bourgeoisie and the periphery as the global proletariat.
Clemmie Rimmer
[1] Thomas Piketty: 2013: Capital in the Twenty-First Century: Harvard University Press
The state of China's financial system
China is a gargantuan ocean of accumulating debt. Over the last few years, China has suffered from shadow-banking defaults in 2014, a collapse in the stock market last year, and a gushing stream of capital fight to mark the beginning of this year. Likewise, its debt to GDP ratio has increased from approximately 148% in 2007 to almost 240% of GDP today (although these exact figures are disputed). [1] Unsurprisingly, this rapid increase is unsustainable, and is usually followed by either a financial crisis or a prolonged slowdown.
Furthermore, a debt crisis will have huge implications for the global economy. China is now the largest economy in the world [2] in terms of PPP, complete with four of the top ten largest banks in the world in terms of assets (including the largest) [3] and some of the largest stock exchanges in the world. [4] Imagine the damage done to the global economy if China was to go bust!
Nevertheless, there are some reasons to be optimistic. China has a large current-account surplus, [5] a high-savings rate [6], and the ability to transfer corporate debt (which is largely held by state-owned enterprises or local government) to the central government's balance sheet, which is still robust. Also, risky securities such as the subprime-mortgages that caused the 2008 financial crisis hardly exist in China. Moreover, whilst the economy is slowing, economic growth is still very strong. However, this will only mitigate the problem in the short-term. As such, China must undergo some serious economic reforms.
So how did all of this start?
In order to understand the main cause of this problem, some background knowledge on China's political economy is essential. The state controls huge swathes of China's financial system, including its largest banks and borrowers; a large amount of this debt is held by state-owned enterprises. Also, a high-savings rate and capital controls have granted these banks with large amounts of liquidity. As a result, China used its people's savings in its state-owned banks to pump credit into the economy, which funded huge amounts of investment and resulted in robust economic growth. If a crisis occurred, the state simply recapitalised the banks and continued this lending cycle.
This economic model, followed not only by China but also by Japan, Taiwan and South Korea, has been shown to be resoundingly effective for development - shown by the extraordinary progress of these countries. Unfortunately, as the population ages, the economy develops, and debt grows, this cannot continue. China now needs an economic model that allocates resources more efficiently.
Over the last few decades, the Chinese government has been surprisingly effective at policy making and implementing structural reforms when necessary. Indeed, as China's attempt to gain market economy status shows, China is now much more market-friendly. Despite this, the government is losing its credibility, as shown by last year's stock market crashes. Furthermore, officials have been slow to reform and are not bold enough; the Communist Party is still inclined towards state-control over the marketplace. This must change!
So what will be the effect of a Chinese debt crisis?
Fortunately, China's state controlled financial system deals mostly in the standard forms of lending - as does its shadow banking system. As mentioned earlier, risky securities such as subprime-mortgages hardly exist. Therefore, a Chinese debt crisis is unlikely to resemble the 2008 financial crisis.
Many people also compare China's situation with that of many Asian countries before the 1997-98 crisis, though these countries ran current-account deficits at the time; China still has a semi-closed capital account.
Some people attempt to make a comparison with Japan in the 90s. Again, this argument is flawed. Firstly, China is less developed than Japan, therefore it has more potential in terms of economic growth. Secondly, China's financial system is more volatile than that of Japan in the 90s, therefore the bust will be more sudden than Japan's everlasting stagnation. Thirdly, there is a lot more pressure for capital outflows than Japan experienced, as shown by the yuan's tendency to depreciate, in contrast to the yen appreciating.
Most importantly however are political differences between these nations. The Communist Party of China holds an almighty grip on every aspect of Chinese society, and the General Secretary, Xí Jìnpíng, is currently trying to consolidate its power. As you can imagine, this stifles the flow of ideas and talent necessary for China to reform.
The truth is that we do not know what will happen. Nonetheless, if weak Chinese demand is slowing down the global economy, the effect of this crisis will be hugely detrimental.
So if China deregulates, what will be the consequences?
Whilst I advocate deregulation (for reasons I will discuss shortly), there are clear risks involved. Due to the presumption that the government will come to the rescue during economic and financial hardships, financial institutions do not yet have the sufficient regulatory framework needed to tackle risk in the financial sector.
Moreover, the Chinese financial system is becoming increasingly complex. China's shadow banking system is extensive, [7] and the growth of shadow banking leads to a riskier financial environment and higher losses for legal banks. Furthermore, Chinese banks are increasingly relying on wealth-management products, [8] whereby depositors pay higher rates for short-term deposits and transfer them into long-term assets. Again, this is also risky.
The case for reform
Therefore, you may be wondering why I advocate deregulation. There are two main reasons. Firstly, burdensome regulations lead to the growth of the shadow banking sector. Secondly, China must rebalance its economy away from investment and credit and towards consumption - which would involve liberalising the economy.
However, deregulation is certainly not the only answer and is not appropriate in all cases. Indeed, a more effective regulatory framework is vital in order to tackle risk within the financial sector, as well as for more effective policy making in general. Likewise, capital controls should also be maintained in the short-term, in order to prevent a surge in capital flight.
Most crucially, China must hold off from the stimulus and credit; its economy is still growing rapidly despite slower growth and it is imperative that China stops piling on the debt. Like it or not, China's investment-based economic model is outdated! Yes, the inevitable consequence of this is a slowdown in the economy - however, which is worse, slower growth or a huge debt bust?
According to liberalism we are all of “equal moral worth”. Yet just look at the inequalities of this world; some starve whilst others commit gluttony, some toil for hours for pittance whilst others lounge around, and some are told they’re innately inferior, perhaps due to the colour of their skin. Our lives are not equal, so are we all worth the same?
Biologically speaking more or less we are. [1] Theoretically a human body is worth up $45 million US dollars, if all possible chemical elements were extracted. Legally (a lot less on the black market) a heart can make up to $990,000 dollars, and a liver $550,000 dollars, although the most expensive is by far bone marrow. If you don’t fancy dying anytime soon then a pint of blood is up to $337 dollars, whilst an egg for IVF is around $12,000. A question could be asked here from a utilitarian perspective; if we are worth the same then is it ok to kill a perfectly healthy person to harvest their organs and save the lives of 5 others? Morally we’d have to say no, but it also makes sense to refuse from an economic perspective. A healthy person is likely to be better able to work and so contribute to society.
It does transpire however that even our phenotypes are a method with which to decide a value. Even a quiz [2] supposedly for fun asks for your gender, ethnicity, eye colour… it uses this to determine a monetary figure for your life. These phenotypes are beyond our control yet it feeds into the worth society places on us, many would argue you only need to look at the “Black Lives Matter” campaign to argue some are viewed as more valuable than others.
Maybe it’s right we should value some more highly, a child is probably worth more to most than to someone terminally ill in a vegetative state. Maybe we should value people on their skills, education, experience and motivation, i.e. the output they produce. This is something we do do; people who have the best skills (in our supposedly meritocratic society, free from nepotism) have the best jobs, and so are worth more to us in hard monetary terms. In this respect an educated Western life has had much more invested in it than a poor illiterate sub-Saharan African and so purely economically would be seen as more valuable. This argument does completely ignore however the social value humans have, the wisdom and kindness we can give others. A Paralympian is on the face of it disabled, and so theoretically would be worth less than an able bodied person, however is this the case considering the inspiration they can give others? Is a charity worker worth the same socially as an ambitious egotistical bureaucrat? Our worth is as much what we do with our lives as it is who we are.
In the light of the Charlie Hebdo attack last year this idea that no human is worth the same was highlighted globally. Three young Muslims killed 12 satirical French artists and it received hours of coverage including a trend on social media -“je suis Charlie”. We in the West identified with the victims, in that they represented free speech “a fundamental value of Western society”, and so Europe mourned. However in 2016 Ethiopia suffered it’s worse drought [3] in 50 years, 18 million people needed aid and hundreds died, yet we cannot relate to them so readily. There was little news coverage at all. Perhaps one could argue they died due to nature, whereas those in France died prematurely due to man, but what would one argue to the thousands of Iraqi children murdered in the “illegal war”? Or the children trapped in Syria which the UK voted to bomb? “Our children are precious and worth anything. Their Children. Whatever.” [4] One murder is no more important than another, yet as a nation we believe them so, in doing so we must also admit to believing our lives are worth more than others.
Putting an actual figure on a human life is monstrous task, and there are questions about whether we should even attempt to morally. There is however still a slave trade in the modern world, reducing human trafficking is, coincidentally, one of Theresa May’s main vocal points. Studies have been done to try and hash out a value, the U.S. Office of Management and Budget eventually came up with a range of $7m-$9m [5].
Just be grateful you’re not a sardine, their entire life boils down to just pennies.
By Clemmie Rimmer
*Disclaimer- not all the arguments discussed necessarily reflects those of the author*
On the 23rd of June, a nationwide referendum on the UK’s membership of the European Union will be held, the outcome of which will shape the country’s future for years to come. Voters will have to decide between remaining a member of the European Union and leaving the European Union.
The ex-Mayor of London, Boris Johnson, believes that Britain’s economy would benefit from a decision to leave the EU and is the main figure in the ‘Vote Leave’ campaign. David Cameron, the current Conservative Prime Minister, is strongly against leaving the EU and, fears that the economy will suffer if such a decision is made. A question on many people’s minds is that if David Cameron is opposed to Brexit, why did he organise a referendum in the first place? As the last UK-wide referendum on the subject of EU membership was held was in 1975, David Cameron was under pressure from UKIP as well as members of his own party to give the country an opportunity to vote on the issue. This led him to promise that if he won the 2015 general election he would hold an EU referendum in the near future. Before people can make their decisions they must consider the various arguments for and against leaving the EU and then make the most rational decision based on the information available to them. Due to the large scope of the topic, this article is only able to cover a few of the main arguments.
Perhaps one of the most crucial demands of the Vote Leave campaign is to take back ‘sovereignty’: the freedom to introduce, amend or repeal any laws otherwise not permitted by the EU. If successful, it seems highly unlikely that all UK laws introduced previously via EU legislation will be rendered obsolete, but rather that individual laws will be examined on a case by case basis. Particularly unpopular examples of taxes and laws that will likely be scrapped following Brexit may include: the notorious ‘tampon tax’ (currently the website change.org hosts a petition to abolish such a tax with over 320,000 signatures as of writing) (1), compulsory fuel taxes, and also the Agency Workers Regulations (unpopular with employers as it demands that they provide equal treatment to those working temporarily and employed through external agencies). As it stands, attempting to change legislation through the EU can often be a rather cumbersome procedure, whereby the governments of twenty eight EU member countries must all agree before a change can be made (2). The exact proportion of UK laws influenced by the EU varies greatly, according to who you choose to believe, with estimates ranging from around 13% to 65% of laws. According to ‘Full Fact’ (an independent fact-checking charity), the true figure lies somewhere in between, with 13% likely to be ‘too low’ and 62% ‘much too high’ (3).
Unfortunately, the overall debate itself can be largely characterised by the use of scaremongering tactics and unreliable claims, on the behalf of both sides, rather than a reasoned overview of each respective argument. It wouldn’t be too unreasonable to believe that you, the reader, would have heard at least one unreasonable claim from either side every day, since the debate first launched into full swing. There are several possible examples we could allude to, but to keep matters concise here’s a few recent examples: Following Brexit campaign claims that a 5% rate of VAT on household energy bills would be cut (4), George Osborne (Chancellor of the Exchequer) responded, by threatening to introduce ‘emergency spending cuts and tax rises’ (5), in an attempt to undermine such a claim. Of course, this assumes that he and David Cameron are not promptly ousted by Eurosceptic politicians in the event of a Vote Leave result.
Meanwhile, the former Secretary of State for Work and Pensions, Iain Duncan Smith, makes claims that there will be no trade deal “on the table if we don’t keep control over our own borders” (6). However, leaving the EU would mean that Britain loses its access to the single market, meaning that if Britain wanted to trade with the European Union, it would be subjected to the full tariffs, quotas and other restrictions that are imposed on any other non-EU member. The good news for the UK is that it may be possible to negotiate back access to the single market, the bad news is that this will mean giving something back to the EU in return. One possible agreement that could be reached is that in return for free trade with EU countries, the UK must welcome EU migrants. The effects of this depend on their skills and abilities, as well as their willingness to use them. It may be beneficial for the UK to welcome immigrants if they possess skills that complement those of British workers. In other words, if the skills gaps in the British workforce can be filled by workers from other countries, everyone benefits. The Office for Budget Responsibility suggests that the economy is reliant on migrants (7), both through the labour they provide and the taxes they pay, in order to fund public services such as the NHS and state-provided education. If, however, the result of immigration is not new skills but an increase in those that are already in plentiful supply, the jobs market will become even more competitive and British workers may risk losing their jobs to migrants, possibly willing to work for a lower wage rate.
Nevertheless, it’s difficult to determine how Britain would cope with being potentially withdrawn from the single market, especially when we take into account the difficulty of gauging the reactions of investors to such a move. Currently, the UK’s outflows of demand and income greatly outweighs its inflows from other countries. This is largely a consequence of the UK importing more goods than it exports, and more recently, because of poor returns in retained profits from overseas investment. The Bank of England recently reaffirmed the importance of foreign investors (8), of whom the UK relies on to fund this ever-increasing ‘trade gap’ (deficit). Leading members of the Leave campaign may appear to claim that trade agreements can be quite easily re-negotiated because ‘they need us more than we need them’ (9), but there still remains other important complications. The general expectation of the renegotiated deals, following a potential ‘Brexit’ is that the EU will take a hard-line approach, in an attempt to deter other nations from also leaving the political union (such as Poland). During the time period of approximately two years in which these negotiations take place (as a consequence of Article 50) (10), it is unlikely that investors will be willing to continue funding the UK’s trade gap, it’s instead expected that they would merely invest elsewhere. And so, with a lack of foreign direct investment, the UK’s trade gap could rather suddenly transform into an economic crisis, seeing that we may be unable to pay for essential goods and services, or even pay back the interest rates on national debt (11).
Following the potential withdrawal of investors, the Pound Sterling should almost certainly depreciate in value (as demand for the pound from investors decreases), recent estimates from Absolute Strategy Research estimate possible depreciations of up to 30% (12), following Brexit. Indeed, when Boris Johnson first declared his official support for the Brexit campaign, the value of the pound suddenly plummeted (13), which is perhaps indicative of investors fearing the possibility of the Out campaign winning, with the guide of a popular politician. In addition to this, on the 10th of June, the value of the Pound Sterling fell by 1.6%, following a shift in some opinion polls towards Brexit (14). It’s important to note that a depreciation of the pound will yield some conflicting results, and it’s often difficult to predict the exact consequences and the extent to which the pound will depreciate. On one hand, the UK’s tendency to import large volumes of raw materials may mean that a depreciated pound could cause ‘cost-push inflation’, upon taking into account the rising costs of imported commodities (such as oil), which should rise the general price level of every-day goods for consumers. In this event, the Bank of England may be forced to rise base interest rates in an attempt to control inflation, and therefore increasing the costs of mortgages on variable rates of interest. On the other hand, some economists have increasingly called for the government and the Bank of England to try and encourage the depreciation of the pound, which may do much to increase the competitiveness of the British Export market, thereby potentially increasing economic growth.
Different organisations have produced various estimates as to the level of economic growth (or indeed decline) following a vote to leave the European Union. One such prediction comes from Open Europe, a think tank, who believe that the best case scenario is a 1.6% increase in GDP by 2030 (15). This estimate assumes that the government is able to negotiate trade deals with the EU such as access to the single market which, as mentioned earlier will not take place without the UK giving something back in return. A more pessimistic viewpoint is held by the Centre for Economic Performance of the London School of Economics who forecast a decrease in GDP by between 6.3% and 9.5% as a worse-case scenario. The CEP’s most optimistic forecast is a 2.2% loss of GDP, still a bleak prediction (16). One thing that can be said for sure is that no-one knows exactly what the effect on the economy will be following the referendum; there are too many unknown variables to consider. The best politicians can do is make a set of reasonable assumptions and then give as close an estimate as possible.
Though it’s argued that Brexit will help to make a ‘stronger Britain’, there may be some unintended consequences of such a decision with impacts even more difficult to measure, one of note being the possibility of it actually tearing the country apart as a result of a Vote Out. In 2015, the people of Scotland were provided the opportunity to vote for independence; it was thought at the time to be a ‘once-in-a-lifetime opportunity’, yet a vote for Brexit may well provide a second ‘once-in-a-lifetime opportunity’ for Scotland. If the vote of the Scottish people highlights disparity between the actual outcome of the vote and Scottish opinions, it could re-open the debate for Scottish independence. Brexiteers are sceptical as to the possibility of this happening, seeing that only UK parliament can authorise a second Scottish Referendum, but also because it’s believed that the SNP would not want to risk a second failed referendum. Nicola Sturgeon, however, refuses to rule out the possibility of another Scottish Referendum (17), and Scottish Parliament continues to reserve the right to host another referendum following a ‘dramatic change in circumstances’, most notably in this case, Brexit against the wishes of the Scottish people.
Given the confusing, complex and sometimes contradictory nature of the overall debate, perhaps it’s understandable why so many eligible voters may be very quick to choose a side early on, or otherwise remain undecided. Hopefully this blog entry may have provided some insight into some of the key arguments if you weren’t already aware of them, or alternatively, that it has encouraged you to challenge some of your own views. It’s tempting to become swept into the herd of public opinion, or to follow the judgements of those you closely relate to, but the sheer importance of the referendum means that it is important for you alone, to form your opinion. Social media in particular has allowed people to become particularly vocal about their views: experts, celebrities, and ordinary people alike, and while you should respect other people’s opinions on Brexit, it doesn’t mean their opinions should influence yours. Be wary of the hidden agendas of media outlets, seek out the independently gathered facts where possible, and vote wisely.
By Jack Ellis and Joseph Bartey
Sources:
Change.org petition to abolish ‘tampon tax’ (https://www.change.org/p/george-osborne-stop-taxing-periods-period)
The procedure for changing EU legislation (http://www.consilium.europa.eu/en/council-eu/voting-system/unanimity/)
Proportion of UK laws influenced by EU (https://fullfact.org/europe/uk-law-what-proportion-influenced-eu/)
Vote Leave pledges to cut 5% VAT on household energy bills (http://www.independent.co.uk/news/uk/politics/we-can-scrap-vat-on-energy-bills-if-we-leave-eu-say-johnson-and-gove-a7057146.html)
George Osborne threatens ‘emergency spending cuts’ (http://www.bbc.co.uk/news/uk-politics-eu-referendum-36534192)
Iain Duncan Smith “no trade deal on the table…” (http://www.bbc.co.uk/news/uk-politics-eu-referendum-36534802)
The Office for Budget Responsibility ‘reliant on migrants’ (https://www.theguardian.com/uk-news/2016/mar/16/budget-surplus-hopes-rely-on-high-level-of-net-migration-to-uk)
The Bank of England on how the UK relies on foreign investment (https://www.theguardian.com/business/2016/mar/31/uk-economy-growth-record-trade-deficit)
‘They need us more than we need them’ – Nigel Farage (http://www.telegraph.co.uk/opinion/2016/03/28/the-eu-referendum-is-a-choice-between-certainty-and-risk/)
Article 50 of the Lisbon Treaty (http://www.lisbon-treaty.org/wcm/the-lisbon-treaty/treaty-on-European-union-and-comments/title-6-final-provisions/137-article-50.html)
Some information on the possible impacts of an un-financed ‘trade gap’ or current account deficit (http://www.economicshelp.org/macroeconomics/bop/probs-balance-payments-deficit/)
Absolute Strategy Research estimates that the Pound Sterling could depreciate by 30% (http://www.absolute-strategy.com/x/video.html?play=338)
The Pound Sterling plummets as Boris Johnson pledges support for the Brexit campaign (http://www.telegraph.co.uk/business/2016/02/22/pound-suffers-biggest-drop-in-almost-a-year-as-boris-johnson-spa/)
The Pound Sterling falls as some polls show a shift in opinion towards Brexit (http://www.independent.co.uk/news/uk/politics/eu-referendum-poll-brexit-pound-dollar-value-fall-independent-poll-vote-leave-remain-a7075361.html)
‘Open Europe’s predictions for economic growth (http://openeurope.org.uk/intelligence/britain-and-the-eu/what-if-there-were-a-brexit/)
The CEP’s predictions for economic growth (http://cep.lse.ac.uk/pubs/download/brexit02.pdf)
Nicola Sturgeon refuses to rule out a second Scottish Referendum (http://www.independent.co.uk/news/uk/politics/eu-referendum-debate-nicola-sturgeon-refuses-to-rule-out-second-scottish-independence-referendum-a7073686.html)
Some useful sites for fact checking the Brexit debate:
“The Harvard Mental Health Letter of July 2010 stated that paedophilia "is a sexual orientation" and therefore "unlikely to change".” [1] The topic of child sex abuse has been all over the headlines in recent years, with Rotherham, Saville, and Harris to name a few cases, but who actually are these people? Is there, and should we consider an economic perspective to such devastating crimes?
Let’s be clear this article does not condone abusing children or necessarily reflect the author’s views, but instead offers arguments and ideas, for you, the reader to think on. Use a psychologist’s definition of paedophilia, and paedophilia is thoughts which cause distress relating to the sexual attraction to minors, paedophilia has also been on the DSM 5 which characterises certain personality disorders [2]. However not every paedophile will molest a child and not every child molester is a paedophile.
Psychopathy is a well-known personality disorder and is common, above the average, not just amongst violent criminals and serial killers but also CEO’s, some politicians and general high achievers. Whilst seeking their own ends they have contributed to society through the work they do in climbing the ladder, what if we could utilise paedophiles in a similar way? This sounds far-fetched, but through obtaining illegal pornographic images and grooming children skills have been developed. E.g. there are coded online groups where such images are shared in a “community”, if we could take these skills of communication and manipulation could we then be better adept at finding terrorists or hackers on the dark web?
When questioned about their crimes and disorder paedophiles have spoken of it developing around puberty, a natural time for sexual desire to kick in and sexualities start to become apparent. Sex and the need to reproduce is one of the things driving the animal kingdom, but it’s also a million $ industry. Child pornography websites could be supporting an industry worth as much as $20 billion [3], suggesting it’s not just the 1% of us previously thought to have these attractions, recent surveys range from 18% to 50%, whilst 50% does seem dramatically high (all surveys must be taken in perspective), it’s probably more common than we first assume. To deal with it the ways we currently do may not be in reality that feasible on such a scale.
If paedophilia is diagnosable how do we cure it? The answer is we can’t. Psychiatrists have spoken on trying to identify key moments in someone’s life that may explain their desires e.g. if they themselves were a victim. But although paedophiles are released from prison when the sentence is served “rehabilitated” may not be the right word to describe them, as the desires are still there. One increasingly common solution is chemical castration, and to completely remove sexual desire as a factor in their life. Any single sexual offence was “estimated by the Home Office in 2010 as costing society £36,952” [4], this is through law fees, medical treatment, help for the victim and rather bluntly their “loss of output” as they deal with the traumatic experience. Medication for a year to supress such desires can cost up to £2000, but even this if it prevents just a few cases, in the long run saves us money. However as before mentioned if paedophiles are 1/5 men we can assume that not all will offend and to treat them all would be more costly economically than the occasional court case. There’s also the legal side, in that can you force this medication upon someone who is innocent, in that they themselves have committed no crime? What do you do about those that haven’t and won’t necessarily commit a crime but have this disorder?
Face it society loves a good news story, and scandal provides it, it captures people’s emotions of justice, protection and sympathy for the victim but also our own nosy curiosities. We accept this; the tabloids, magazines and web are full of such stories with thousands of hits, hitherto making them money. Take “page 3” and the campaign to get it removed, for years society deemed it acceptable to stare at young women barely into adult hood themselves, but time moves on, likewise it was only the Victorians that increased the age of consent in England above 10, and even today the age of consent is 12 in Chile and 13 in Burkina Faso and Korea [5]. [1] Feelings on child abuse are strong e.g. after allegations came out against Jimmy Saville his grave was vandalized, but can we afford this? Some say we should impose capital punishment but again there’s the population size issue, but also every issue you could dream off to do with capital punishment itself, e.g. how can we do it humanely? Because, sorry but they’re just as human as me or you. Society needs to learn to accept that locking people up does not necessarily cure them, we need to work together to help and not just throw every uncomfortable topic under the rug.
Personality disorders continue to be controversial but if you are suffering with such thoughts, or thoughts of any nature which are of distress to you, please talk to someone, and you can do so anonymously online or with charities such as the Samaritans or Relate, amongst many others. (Some links below)
By Clemmie Rimmer
*Disclaimer- As stated above this article does not necessarily reflect the views of the author, nor does it condone any sexual or otherwise abuse of children. *
Talk to someone today:
General - http://www.samaritans.org/
Personality disorder or General - http://www.mind.org.uk/information-support/types-of-mental-health-problems/personality-disorders/?gclid=CjwKEAjwm8-6BRDgnb-Dk96UmRASJADbMycYjv7KXhziVnqhAWNK8FdjuClT0suumPwhsD6Jzm9iIRoCcsPw_wcB#.V1SkT9krLIU
No one in the world knows how to make a pencil. This sounds ridiculous considering the millions made and used each year. Indeed a pencil only costs about 40p, hardly anything too many in the western world. Yet no one actually knows how to make one.
This is because the work of innumerable people goes into its production. The pencil is made from wood, transported from the treatment centre, bought from the loggers, who cut the wood with capital goods they bought from another etc. There is therefore a multiplier effect for the production of a pencil, the loggers can earn a wage, and so buy food and other consumer goods putting money into the local economy. However as mentioned one pencil isn’t worth that much, and so the benefits of each will be small, yet put this into a scale of millions a year, and suddenly there is an industry directly worth over $2.7 billion. [1]
The price mechanism is in fact what allows this production to take place. A miner of lead does not even need to know what a pencil is to aid in its production, only the price for which the lead he mines is currently worth. In this way we see cooperation on a global scale, of different languages, cultures and beliefs, of people who may even hate each other. All unwittingly work together to produce the pencil, whilst seemingly only being interested in their own needs. The free market as Adam Smith wrote [2] is that one is “perfectly free to pursue his own interest his own way and to bring both his industry and capital into competition with those of any other man, or order of men”.
The pencil is ultimately produced because the price mechanism has the ability to transmit information, via prices. If demand rises or a resource becomes scare and depleted, prices also rise and so people buy less in response. It would be too complex for an individual or individual company to make the pencil in its entirety, one would have to know how every stage works, an instruction manual could help with this, but it would not suffice. This is because it could tell you how to make the pencil, but not the capital goods needed to make them, or even if it were assumed you had these goods, the time it would take to train in the appropriate skills, and to make each component would be immense, and during this period technology would develop and the cost of producing that pencil would just increase in trying to keep up with this. By the time that one pencil is produced, if you took it at 100 man hours and a living wage of £7.20 [3], that single pencil would cost £720. There is no incentive here. As well as this, the instruction manual couldn’t tell you how much demand there is, and where the demand is, you lack the basic rationing function of the price mechanism. This is a problem seen with the Government provision of public goods e.g. NHS in the UK. The Government is unlikely to have perfect information and so makes irrational decisions, e.g. overproducing one good in place of another more sought after, or not distributing goods correctly according to need.
By giving you a manual you have information and could compete in the pencil market, perhaps driving another less efficient manufacturer out of business, there is no incentive to share the market and so you are both forced to innovate and become more efficient in your production, in this way the price mechanism brings prices closer to the social equilibrium. Who’d have thought a pencil would be so complicated?
HS2, the continuation of an existing high-speed line between the Channel Tunnel and London, promises to bring with it a multitude of benefits ranging from closing the North/South divide to preventing damage to the environment. Whilst the project has a large number of supporters, there are many sceptics who refute the government’s claims of widespread economic gains. This article explores both sides of the debate.
One of the biggest selling points of HS2 is the potential for an increase in productivity for UK businesses. For most commuters there are two options regarding transport, travel by road or travel by rail. One of the most common journeys, Birmingham to London, takes around two and a half hours to complete by road and one and a half by train (1). The same journey using HS2 is estimated to take 49 minutes (2), a significant time saving of 41 minutes each way, or 1 hour and 22 minutes a day. Someone who currently drives from Birmingham to London spends five hours of their day behind the wheel of a car being unproductive and inefficient. Even if they use the train, where it is possible to work on a laptop or tablet (assuming that a seat is available), their level of output will be far lower than if they are at their place of work. A shorter (and most likely less stressful) journey will mean that when people do arrive at work they should be less tired and therefore more productive than they otherwise would have been.
Another benefit of HS2 is the creation of new jobs, both short term (as the network is under construction) and long term operational and maintenance positions. A recently published government report states that 30,000 apprenticeships in road and rail will be delivered over the 5 years to 2020 (3). The report does not specify how many of these apprenticeships will result directly from HS2 but a project of such scale is likely to represent a large proportion of this figure. Also, the new rail network will require a significant number of train drivers, conductors, station staff, repair crews and train maintenance teams in order to be able to operate and as a result many new jobs will be created. One point worth considering, however, is developments in technology which mean that more and more low skilled, repetitive tasks can now be carried out by machines and computers. As a result, many of the jobs associated with the running of a rail network are becoming (or will soon become) obsolete. For HS2, a project that will not be completed until 2032 at the earliest, (4) the number of jobs actually created is likely to be far lower than originally predicted.
Furthermore, HS2 promises to close the gap between the North and South of the country, allowing those who work in cities such as London to live in areas such as Wakefield. In theory, these people then spend the income they earn in their local area, boosting the economy closer to home. This works for those living in the South too as they will be able to visit places such as Birmingham, Manchester and Leeds without the need for excessive journey times. The North will benefit economically through both the tourism industry and also retail as customers come from further afield.
The estimated cost of HS2 varies quite significantly, as it largely depends on who you choose to believe. The Department for Transport in the summer of 2013 increased the estimated cost of HS2 from £32.7 billion to a new figure of around £50 billion (including the costs of ‘rolling stock’) (5). However, an independent free-market economic think-tank (The Institute for Economic Affairs) believes the true costs of HS2 to be worth around £80 billion (6), after taking into account the potential lobbying of opposition groups, who are likely to demand for the planning of alternative – longer – routes. There also lies the potential for various local councils to appeal for direct transportation connections to HS2, in order to reap the economic benefits.
Some equally important costs of HS2, such as the environmental impact, cannot be easily quantified. According to The Independent’s investigations, the construction of the high-speed railway alone threatens more than 350 wildlife sites (7), and the project in both its first and second phases could affect wildlife in an area equivalent to the size of Dorset. A study conducted in Spain also found that high-speed trains kill around 36 animals per kilometre (though important parts of the Spanish AVE high-speed railway line were not fenced at the time of the study). When this is applied to the end of Phase Two, 20,000 mammals, reptilians and amphibians could die on the railway line every year (8). Increased tunnelling could reduce the possible environmental damage, as HS2 Ltd recently proposed, though this will drastically increase financial costs.
Other opponents of HS2 point towards alternative possible schemes (the opportunity costs) of undergoing such a massive infrastructure project. The primary alternative option to HS2 being referred to by some as a, ‘patch and mend job’ of the West Coast Main Line. However, Network Rail (in a government commissioned report) made claims that such an operation could result in up to ’14 years of service disruption’ (9), whilst in the long-term, ‘not providing sufficient additional capacity’. It’s worth noting that members of the HS2 Action Alliance (critics of the massive infrastructure project) argue that the competence of the government commissioned report ‘has to be questioned’. (10)
Perhaps one rather unexpected advantage of HS2 is that it should provide more allocated space for freight trains than the existing West Coast Main Line network. The government claims that for every extra train provided by HS2, 40 heavy goods vehicles (HGVs) will be taken off of the roads (11), as their goods are instead moved onto the old railway. If this is the case, it’s likely that the quantity of road accidents will be reduced (12). HGVs also leave quite a significant carbon footprint, so if taken off the roads, the effects of negative externalities caused by pollution will be reduced (albeit not by a very significant amount). It’s possible that, in conjunction with plans to plant over two million trees (13) during the construction of HS2, the environmental impact will be mitigated.
On the other hand, one problem HS2 is meant to solve is the excessive journey times for business users who travel around the country to meet face to face with clients. The growing popularity of video communication tools such as Skype is reducing the need for face-to-face meetings and so as a result less time is spent on the road and more time is spent doing work. Although the current technology is far from perfect, by the time HS2 is completed it may be possible for a virtual meeting to be just as productive as one in which attendees meet face to face.
As well as journeys by car, many people also choose to travel by air for short haul flights within the country. If HS2 does go ahead air passengers will have another option, travel by rail. The exact number of people who choose to make this transition will depend on how close a substitute HS2 is deemed to be and what facilities the service offers besides simply getting to the destination faster.
Regardless of your opinion, it’s clear that the government should make efforts to increase transparency with the general public, and with direct opposition. The government’s occasional use of misleading studies has only served to provide ammunition for its more wary opponents, especially when these very studies attempt to dismiss any prospects of alternatives. The final blow to HS2 could lie in the potential for the cost to exceed current government estimations, though this will perhaps be necessary in order to satisfy the increasing demands of local councils. Consequently, one of the key challenges posed to the government is how it intends to handle the balance of its budget while appeasing the general public. Ultimately, whether or not HS2 can truly be considered cost-effective would certainly be considered a normative economic judgement – one that depends upon personal opinions and values.
By Jack Ellis and Joseph Bartey
Glossary:
Rolling Stock – The equipment available for use as transportation, as automotive vehicles, locomotives, or railroad cars, owned by a particular company or carrier.
Lobbying – When an organisation or a group of people with similar goals attempt to influence the decisions made by the government or by business leaders.
Negative Externalities – Costs imposed on third parties as a result of decisions made by others to produce or consume a good.
Opportunity Cost – The benefits of the next best alternative, foregone, when a choice is made.
Normative Economics – Based on opinions and therefore cannot be tested and proven to be either correct or incorrect.
Value Judgement – A subjective statement of opinion rather than a fact that can be tested.
Sources:
(1) Estimations of HS2 journey times (http://gouk.about.com/od/uktraveldirections/qt/london2Birmham.htm)
(2) Government report (http://www.theguardian.com/news/datablog/2014/mar/17/hs2-change-journey-times-london)
(4) Completed at 2032 at the earliest (www.parliament.uk/briefing-papers/sn00316.pdf)
(5) Estimations of the cost of the HS2 project (DFT) (http://www.publications.parliament.uk/pa/ld201415/ldselect/ldeconaf/134/134.pdf)
(6) Estimations of the cost of the HS2 project (Institute for Economic Affairs) (http://www.iea.org.uk/publications/research/the-high-speed-gravy-train-special-interests-transport-policy-and-government-s)
(7) The effect of HS2 on wildlife (The Independent) (http://www.independent.co.uk/environment/nature/ios-investigation-hs2-the-hidden-cost-to-britains-wildlife-8478609.html)
(8) The effect of HS2 on wildlife (Study conducted in Spain) (http://dumas.ccsd.cnrs.fr/dumas-00793156/document)
(9) Disruption as a result of upgrading the West Coast Mainline (alternative plans) (14 years) (https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/260525/strategic-case.pdf )
(10) HS2 Action Alliance – ‘must be questioned’ (http://stophs2.org/news/14190-dft-outbid-hs2-rail-disruption-ignoring-road-chaos )
(11) 40 HGVs taken off for every extra train (https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/480779/CS304A_HS2_Manchester_Regional_FS_V11.pdf )
(12) Reduction in the quantity of road accidents (http://www.voxeu.org/article/can-passenger-railways-curb-road-traffic-externalities-empirical-evidence )
(13) Plans to plant two million trees during the construction of HS2 (http://assets.hs2.org.uk/sites/default/files/inserts/Presentation%20Environment%20Protecting%20the%20environment.pdf)
Internationally, the cosmetics industry is one of the fastest growing markets, bringing in over $55 billion annually to the US[1], appealing to women of all ages and a considerable amount of men, with the social attitudes towards makeup changing significantly since the early 20th century, when brands such as Maybelline and Revlon made their debuts. It has become apparent in recent years that companies originated in America are expanding to the UK and various other locations, to dominate the cosmetics industry globally, putting national brands at potential risk of market failure.
Estée Lauder, an American manufacturer and marketer of mid-range skincare, makeup and fragrances, own a series of companies[2], including Bobbi Brown, Clinique and MAC Cosmetics. What Estee Lauder saw in MAC was the potential in the long-run profit maximization in their perfectly competitive market, to eliminate any economic loss or profit MAC’s entry to the market has made it more competitive, as the brand is well known for its colours to complement different types of skin tones. MAC Cosmetics produced a $9.71 billion revenue in 2012, as a result of their 529 free standing stores, 380 of which located outside of the US[3]. The global sales rate for MAC has doubled since the year of 2008, by heavily enforcing their branding strategies, which include their overseas retail establishment and their online shops. This begs the question as to why MAC has become an increasingly popular range with young teen girls, drawing light away from much more affordable UK brands. Celebrity endorsement from high profile figures such as Kim Kardashian and Kylie Jenner across social media pages like Instagram have seen a rise in popularity for particular MAC products. In recent months, Jenner’s MAC lip pencil experienced a worldwide shortage, after she revealed to her 30 million Instagram followers a few of her most wanted beauty secrets[4]. This created an excess in demand for MAC’s ‘Spice’ lip crayon, as the product became a ‘must have’ for Kylie enthusiasts and UK makeup artists, and MAC’s manufacturers were unable to keep production up to speed with the increasing demand. One of the main problems that MAC cosmetics is facing is the lack of supply of their products that they are providing for the society, when at the same time, their promotion system is creating a bigger demand in the market. By appealing to famous faces on the red carpet, the brand has tapped a whole new market of young shoppers who are discovering the benefits of using professional cosmetics products over those sold in UK stores such as Boots or Superdrug.
There have been some factors in recent years contributing to prevent the market failure of low end cosmetics alongside the ever increasing demand for more ‘professional’ brands. YouTube blogger Kaushal Beauty is just one of the current online beauty gurus who uses social media as her platform to promote affordable cosmetics, and also guide beginners into the application process of makeup. Her personal blog contains a section titled ‘Sunday Beauty Steal’ in which she states when referring to a drugstore eyeshadow, ‘at £3 a pop, it can rival so many shadows from brands such as MAC, Urban Decay and even Too Faced[5]’. For many people, buying a flawless foundation and a good brow pencil comes at the expense of other things, and this is all depending on a person’s disposable income. A number of young teens who live at home with their parents, may be in some sort of employment part time to gain a disposable income, making them more likely to spend their money on luxury beauty products from MAC or Urban Decay, that are seen as popular within society. The price of beauty has been calculated in a study that has found the average woman will spend more than £18,000 on her face in her lifetime, but for many women in the 21st century, their views on high end beauty products are relatively price elastic. Due to the right amount of competition in the market for makeup, it has created an elastic demand for MAC makeup, as consumers have other options as their substitute good. This generally applies to women who need to devote their incomes elsewhere, as the price of one unit from MAC cosmetics is not relatively cheap, with mineralized Highlighters starting at £24.00 for 10g[6].
With the long await launch of the Anastasia Beverly Hills Glow Kits, priced at $40 from US websites[7], being promoted on Instagram by Kim Kardashian’s own makeup artist, Mario Dedivanovic, can it be argued that the competition from US brands are shrouding the success of UK supermarket favourites? Or will Rimmel and Maybelline’s affordable prices keep them on the shelves for years to come? As so many trends come and go, it’s difficult to suggest whether the expensive makeup hype is ever going to die down, but with Instagram users on the rise from 100 million in 2013 to nearly over 400 million in 2015[8], I think it’s almost certain that as long as celebrities keep wearing it, we’ll keep buying it.
Recently, the UK government has announced a range of plans in an attempt to solve the consistent problems associated with transport within the country. However, some of these proposed changes are controversial and undermine the government's aim to make transport more sustainable. Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.[1] When applied to transport, sustainability refers to a reduction in negative externalities and energy use, as well as encouraging more sustainable modes of transport, such as public transport, while simultaneously discouraging unsustainable modes, particularly private car use.
By building new roads and expanding existing routes, congestion is likely to be reduced, due to an increase in road space per vehicle. As a result, road accidents, and the associated external cost to the National Healthcare Service, will be reduced. Furthermore, due to quicker journey times, because there is less congestion, air pollution is likely to decline. This suggests that the proposed investment into the UK's road infrastructure will make transport more sustainable, but that is not true.
In the long term, road investments create more congestion, resulting in a greater social cost. This is because, by increasing the amount of road space, the private cost to drivers would be lower, for example, journey times would be shorter. Therefore, the demand would increase, due to modal switch occurring, as there would be a greater incentive to use road transport than alternative modes of transport. As roads are larger, this results in a greater number of vehicles on them, increasing the total amount of carbon emissions. In summary, the proposed increase in road funding is likely to make transport within the UK less sustainable, as it would increase negative externalities and encourage road transport, especially private car use, which isn't an environmentally friendly mode of transport.
In addition to the government spending money on the UK's road network, the Chancellor also announced that fuel duty will remain frozen at 57.95 pence per litre.[4] This means that the cost of unleaded petrol and diesel will remain relatively the same, while wages and the price of other modes of transport increase. As a result, car use would become more affordable and relatively cheaper, leading to an increase in demand, which is unsustainable because there would be an increase in negative externalities which are associated with this method of transportation, such as air pollution. The demand for road transport will also increase in the near future because the prices of petrol and diesel are likely to fall over the next few months because of the current decline in the price of oil. However, this is likely to only have a minor impact on demand because petrol and diesel are relatively price inelastic, due to many consumers viewing them as necessities.
Furthermore, during the Autumn Statement, it was announced that Air Passenger Duty (APD) will be scrapped for children under the age of 12 on economy travel from May 2015 and, in the following year, will be abolished for children under the age of 16.[5] This may be good news for families planning a holiday, but it will not have the same effect on the sustainability of transport in the UK. As a result of this change, the cost of leisure travel, especially family holidays, will be reduced, leading to a rise in demand. At present, aviation is responsible for 12% of CO2 emissions from all transport sources, but this is likely to significantly increase as a result of this decision because leisure travel is price elastic, therefore, the fall in the price of flights would lead to a larger increase in the number of flights taken.[6]
On the other hand, George Osborne announced that the government will invest in new rolling stock for rail franchises in the north of England.[7] Journey times will be cut and trains will be modernised, resulting in modal switch, as there will be greater incentives to use rail transport. This would make UK transport more sustainable because rail transport is viewed as one of the environmentally friendly methods of transportation, as it doesn't produce massive amounts of carbon dioxide.
In addition, Chancellor Osborne outlined devolution plans for northern England in his Autumn Statement. Councils have long complained that they are powerless to stop companies over-providing on city centre routes, which cuts margins so they cannot subsidise unprofitable, but socially necessary, suburban and rural buses. As a result of this decision, Manchester and surrounding towns and cities would have a single, directly-elected mayor from 2017 to preside over regional issues.[8]
This, at least the government hopes, will allow local councils to solve the market failure that currently exists within their local transport market, due to allocative inefficiency. The decision to devolve more powers to councils in the north of England is based on the success of London, where the Mayor, Boris Johnson, sets the budget. In the capital, buses are franchised and, since 1986, passenger numbers have risen by 99%, but have fallen by 32.5% outside of London, where buses have been deregulated.[9] Furthermore, London operates a very successful congestion charge, which provides a disincentive to use private road transport within regions of the capital, but, because the revenue is hypothecated into public transport, consumers are encouraged to switch to more environmentally friendly modes of transport at the same time.
Overall, the UK government has made some decisions which will make transport more sustainable, such as investing more funds into rail services in the north of England, but, transport within the UK cannot be deemed sustainable until the government limits its investment, or stops investing altogether, into the UK's road network, which encourages private car use. However, this may prove problematic, as road transport is still the most common form of transportation within the UK and congestion is a severe problem, having adverse affects on the whole economy.[3] Nevertheless, the government has already taken steps to reduce the demand for private car use by announcing that more powers will be devolved to local councils, which will enable them to replicate the success of London. However, whether they do so is up to the local council and the local population, as Manchester has previously rejected a congestion charge.[10]
Is The Price Paid For Professional Footballers Getting Out Of Hand?
It is becoming increasingly difficult to find a day when we are not reminded of the billions of pounds spent in the football industry. With players wages, demands and lifestyles constantly at the epicentre of the debate surrounding the finance of football it has however been the significant amounts of money paid upfront by clubs for the signature of certain players which have grabbed most of the recent headlines.
The valuation of some players by their clubs has resulted in enormous lump sums being exchanged and many people feel that these figures are becoming ridiculously high for what they are worth. You only have to look at the £86 million spent by Spanish giants Real Madrid for the signing of Welsh-born Gareth Bale to see their reasoning, the same ex-Tottenham player who was almost sold to Birmingham city 4 years earlier for what seems to be a staggeringly low £3 million. But is it all feasible? Can clubs justify spending this amount of money and how has the money involved become so out of hand when other global corporations are reducing spending and making redundancies in order to keep afloat?
So where does the nations favourite sport meet economics? There’s one thing we do know and that’s having the top players and performing well will please the fans and if the club does well in the league and other competitions there is a lot of money to be made. Spending money and investing in new players shows the club’s achieving dynamic efficiency. The new players putting in good performances leading to match victories will achieve allocative efficiency as fan satisfactions will be maximised. Satisfied fans mean more people demanding season tickets and consuming club merchandise. The more fans the clubs attract means the more the club can benefit from economies of scale and will begin to achieve productive efficiency. In under a year Real Madrid claimed they had recouped the £80 million they spent on Cristiano Ronaldo just on shirt sales, regardless of his performance on the pitch.
Since 2012 the top rate of tax has returned to 45% for people earning over £150,000. This is the bracket that a lot of premier league footballers fall into. These drastic £200,000 a week salaries for certain players would be reduced to a “measly” £110,000. This tax contributes a lot to government revenue and can increase government spending. Also, the attraction of the top players has a lot of positive externalities. Increased crowds contribute significantly to tourism generating revenue for local businesses and hotels. This generates jobs, leading to a reduction in unemployment and less people claiming benefits which would create an opportunity cost for the government. Consequently if more people are earning, they pay more in income tax further increasing the government’s budget. A lot of fans come from far and wide to watch their favourite teams play, meaning the government may spend a lot on infrastructure to improve local communities surrounding stadiums, providing better transport links for the local community.
However it is the transfer fees which are hard to explain. In 2014 the current British transfer record was broken by Manchester United for the purchase of Angel Di Maria. A sum of £59.7 million was agreed for the Argentinian but how can this be explained? With more fans worldwide and more money to be spent on merchandise, the competition to be one of the best clubs with the most air time on TV and playing against the best clubs is fierce. Competitions such as the Champion’s League reflect the club’s and therefore the business’ success. Let’s take Arsenal, the London club spent £32 million pound on the Chilean Alexis Sanchez this summer; his goal which won them the match against Besiktas took Arsenal to the next round of the Champions League. This qualification to the next round is expected to bring the club an additional revenue of £32 million. This showing that his one goal has completely paid off his transfer fee, leaving any money he brings in from other performances and shirt sales to pay his wages and leave the rest to profit, never mind positive externalities playing in Europe creates not just for the club, but for the surrounding areas.
Therefore overall, it is possible that the transfer fees are not growing out of hand, simply because of how much there is to be gained not just by the clubs and business’ themselves but by the economy as a whole, due to the positives the prosperity of these clubs bring. The more successful they are, the bigger impact they are having and this is one of the key ways to achieve this progress.
A famous example is in the Dutch Golden Age, where the tulip was introduced into the Dutch market for the first time, from Turkey (around 1590). The uniqueness of the product resulted in consumers demanding the product and meant relatively high prices. Then the tulips developed a virus (mosaic virus) which didn’t wipe them out, but changed the appearance of the petals creating more unique petal colours. Thus, tulips had a price rise due to how the colour alterations were valued, or desired. Many people began to purchase the bulbs because they believed their price would still rise.
Wholesalers began to purchase the tulips to take advantage of the demand which depleted the supply and made the product become scarce, increasing demand. The Dutch continued to purchase the products as they thought that foreigners would purchase the tulips to demonstrate their wealth, regardless of the price. To fund the increased cost of bulbs the Dutch began to liquidate other assets which concentrated their asset spread into purely tulip bulbs.
Tulip prices became overly inflated and to such an extent that in the 1630s a sailor was imprisoned for eating what he thought was an onion, but it was in fact a tulip bulb. The cost of the bulb was the equivalent to the cost of feeding an entire crew for twelve months. In 1637, some tulip contracts reached a level 20 times more than the level of three months earlier. Some of the rarest tulips bulbs were even worth as much as a mansion in Amsterdam.
Then some traders decided to sell and take their profits which created a domino effect of progressively lower and lower prices which prompted more and more to sell and less to buy. The price began to dive, causing people to panic and sell regardless of losses. People began to sell at any price and sales contracts were not being enforced; traders then didn’t complete their contracts and disappeared. The government attempted to step in and halt the crash by offering to honour contracts at 10% of the value, but the market plunged even lower, causing restitution (the act of compensating for loss) impossible.
Economic Historian, Peter Garber thought that the public where responsible for the price increases. He believes that the advent of bubonic plague in Amsterdam made people more risky and adventurous. The Dutch thought their health was on a fine line and so, did not mind taking a risk.
The Tulip mania is heavily depicted in Wall Street: Money Never Sleeps, as it helps to explain the 2008 US crisis.
All of these countries are beginning to feel the economic effects of the crisis. According to the International Monetary Fund, Liberia is predicted to experience a relatively small GDP growth rate this year, around 2.5%, which is a lot lower than the average before the crisis.[5] The Finance Minister Amara Konneh believes the major problem that Liberia will face is the fall of international investment; as the world isolates the nation by closing borders, many investors are pulling out of projects. Sime Darby, a large palm oil producer, China Union and ArcelorMittal, both large iron exporter investors, are scaling down operations and pulling investment.[6]
Sierra Leone’s agricultural minister Joseph Sesay predicts a deflation of 30% in his nation’s economy. He also gloomily predicts serious food issues as many farmers are abandoning farms in fear, leading to shortages. In a nation where two thirds of workers are agricultural this is serious news. It will result in a large increase in the unemployment rate of the country, leading to a fall in incomes, and, with a high inflation rate caused by increased food prices, this will adversely affect those most vulnerable in Sierra Leone.
However what little aid and supplies that have been given to encourage continued work have been blocked by the government’s roadblocks.[7] The World Bank predicts at best that the economy in Sierra Leone will lose $59 million of its annual income in 2015 as a result.[8] Furthermore, the International Monetary Fund has forecast that Sierra Leone's GDP growth rate will fall to 8% this year, down from 20%.[5]
The forecast for Guinea's GDP in 2014 is around 2.5%, which is very close to their growth rate in 2013.[5] Therefore, Ebola seems to have had little impact on the country's economy. However, out of the three countries mentioned, Guinea will still experience the slowest growth.
Overall there seems to be a serious economic problem emerging from this outbreak. How serious the effects of this are depends on how willing the international community is to support and invest in the economies of West Africa.
The average price of a home in the UK peaked in late 2007, and then plunged during the recession. Following the financial crisis, banks reduced their lending, which reduced the number of mortgages available and, as a result, the housing market stagnated. Since 2013, the housing market has rapidly grown, with a Halifax survey stating that house prices had risen by 7.5% over the course of 2013.[1]
Strict planning regulations have limited the supply of new homes, which has led to demand outstripping supply, resulting in the price of housing increasing. Furthermore, record low interest rates, which have been at 0.5% since March 2009, have meant that more people are able to purchase a house, due to lower mortgage repayments. Also, the low rate of interest has discouraged people from saving, and therefore, they have looked for alternative investment opportunities, often turning to the property market. These factors have both helped to push the price of homes up by increasing the demand for housing.
The strong growth in the housing market in recent years has helped the UK economy recover from the recession. As house prices have increased over time, homeowners have become more confident, because they have experienced an increase in their wealth. This has enabled homeowners to borrow more capital and, therefore, has increased consumer expenditure. Household spending when compared with the same quarter a year ago has been rising each quarter since Q1 2012 and was 2.2% higher in Q1 2014.[2] This has stimulated the UK economy by injecting additional money into the circular flow of income and increasing aggregate demand.
Furthermore, rising house prices have reduced the number of households affected by negative equity, which occurs when the value of an asset falls below the outstanding balance on the loan used to purchase that asset.[3] This has lowered the risk of banks losing money on mortgages, if homeowners are no longer able to pay their mortgage repayments, which has encouraged banks to offer more, riskier mortgages.
Also, theoretically, an increase in house prices leads to an increase in the supply of housing, as there is a higher incentive for companies to build more homes, due to higher potential profits. This would create more construction jobs, helping to lower the UK’s unemployment rate and lead to a further increase in consumer expenditure, as well as reducing the number of people claiming Job Seeker’s Allowance, which enables the government to increase its spending, boosting the UK’s economic growth rate.
However, due to the lack of available land and planning restrictions, because of greenbelts, supply for housing is very inelastic. Therefore, rising house prices have not resulted in an increase in supply of new homes, and, as a result, companies are unlikely to expand their labour force, so no additional jobs are created, meaning that the UK economy doesn’t benefit from the potential reduction in unemployment.
Additionally, rising house prices generally only benefit homeowners, who experience an increase in their personal wealth as a result. First time buyers, however, are negatively affected by rising house prices because they will find it more difficult to get on the property ladder, as it would require a larger percentage of their income to afford a mortgage. This could lead to a reduction in consumer expenditure, because the disposable incomes of first time buyers are eroded.
Also, according to the Economist, UK house prices were over-valued by as much as 20% in 2013 and many homes are still estimated to be over-valued.[4] This means that when the market corrects, people would see a dramatic decrease in wealth, and people may experience negative equity, leading to the repossession of properties and a reduction in consumer confidence, which could adversely affect the UK’s recovery.
Furthermore, the rate of interest is expected to be increased in 2015. This could result in people with variable-rate mortgages plunging into debt, due to higher mortgage repayments, which would adversely affect the UK economy by causing a decline in consumer confidence and a reduction in consumer expenditure, which could slow down the growth of the economy. However, many people have fixed-rate mortgages and many people who have variable-rate mortgages are switching to the fixed-rate option, which would mean, if interest rates were to increase, less people would be affected, as mortgage repayments would remain the same.
In conclusion, although there has been strong growth in the housing market, especially over the past year, the market is now showing signs of 'cooling', which has reduced fears of a property bubble. This may be partially due to the recent increase in the construction of new homes, as there was 36,343 new home registrations between July and September - the highest number since 2007.[5] Furthermore, as people are anticipating a rise in interest rates to occur next year, consumers are now less likely to take out a mortgage and have started to look for alternative investments. The likely result is a reduction in UK house prices, which could have negative impacts on the growth rate of the economy. However, it may be too early to judge whether or not the growth of house prices will slowdown, as there still is uncertainty about future interest rates.
For years, people have been emigrating to foreign countries for the purpose of improving their financial position. These migrants are not being forced out of their country for political reasons or due to war, but to seek a better life for themselves. The UK is a known destination for economic migrants, due to its high minimum wage, free healthcare and social welfare system.
In recent times, figures show that net migration into the UK has been rising, with a 38% increase to 243,000 from 2013 to 2014. EU citizens, including an increased number from Romania and Bulgaria, accounted for two thirds of the growth from the previous figure of 175,000. At present, most immigration occurs due to people looking for work, and the attraction of the open British economy, where businesses can recruit from a continental marketplace, is a popular destination. Migrants to the UK are effective at plugging gaps in the labour market and sustaining the delivery of key public services. Many low paying jobs have vacancies, due to the reluctance of domestic British workers to fill them.
The benefit migrants give to businesses is evident, due to the influx of cheap labour. This allows businesses to produce at internationally competitive prices, due to the reduction in the costs of production. Immigration also increases the demand for goods and services, which increases aggregate demand because of the increased consumer expenditure. This combined with increased output allows the economy to enjoy inflation-free growth, which is highly beneficial to Britain. The benefits of migrants to Britain are backed up by the supermarket chain Sainsbury's, reporting that its East European employees are industrious and conscientious, which in the long term, 'could have a positive effect on their domestic colleagues.'
Benefits go further than plugging gaps in the labour market and benefiting businesses in Britain. Government revenue from taxes is increased, thousands of jobs are created by migrant entrepreneurs, and migrants help to reduce the dependency ratio; the ratio of retired to working age people.
However, the costs to Britain are significant too. A report by the University College of London, found that between 1995 and 2011, immigrants from non-EEA (European Economic Area) countries claimed more in benefits than they paid in taxes, mainly because they tended to have more children than the native population. However, immigrants who arrived after 1999 were 45% less likely to receive state benefits or tax credits than UK natives between 2000 and 2011.
From a British workers perspective, migrants may be viewed as a threat to jobs and a way of pushing down the wages. A lack of skills would also cause them to experience structural unemployment, contributing to the unemployment rate. British people only lose out on work if the human capital of the migrants is higher than their own.
For the UK, the economy may suffer from the lack of consumption from those who are sending remittances. Remittances are funds that emigrants earn abroad and send back to their home countries, mainly in order to support families left behind. According to the World Bank, remittances totalled $529 billion worldwide in 2012, with $401 billion of that money flowing into developing nations in 2013. Most crucially, these figures are only taken from money sent through formal channels, so the amount of remittances is likely to be much higher.
Overall, economic migration is most beneficial when the economy is at full capacity. Increasing output increases long run aggregate supply and boosts economic growth, which is particularly beneficial if an economy is suffering demand pull inflation. The problem comes when migrants do not work, claim benefits and send the money through remittances back abroad. If migrants enter the UK with the intention to work, the UK will benefit from the increase in output and reduction in wages, which enables the country to remain internationally competitive in the fast moving global economy of today.
Following the successes of the Tour de France 2014, which boosted the economy by £100 million and saw an estimated 3.5 million spectators line the streets, the Prime Minister has created momentum in the plan to bring the Grand Prix to the streets of London. By rushing in new laws to lift speed limits, the dream of a Monaco-style Grand Prix in London is becoming a reality. But is this a good idea?
One major advantage of hosting a Grand Prix would be the large amounts of revenue generated by the sales of tickets, sponsorship, endorsement and taxation. This revenue can be spent in the public sector, such as in the health service; additional funding would improve medical research, maintain salaries of those working in the health sector and improve treatment. This would benefit the economy and individuals in the long-term, by providing a healthy and capable labour force. This is one of a number of potential positive externalities that the event would generate. Also, as the racing event has already sparked concerns from environmental groups and campaigners, the revenue raised through taxation could be hypothecated into environmental protection agencies or spent on catalytic converters to convert harmful emissions and make them less dangerous to the environment, which would aim to compensate any environmental damage that may be caused by the event.
In addition, the much anticipated racing event would attract masses of people from around the world to the UK, contributing to tourism as the 5.1km circuit will incorporate London’s famous sights such as Buckingham Palace, Big Ben and Trafalgar Square, directly acknowledging the beauty of our capital. The rise in tourism would result a rise in demand for food, clothing, amusements, transportation and souvenirs. Therefore the expenditure of these tourists would not only stimulate the economy but benefit small, as well as large businesses based in the UK, increasing company revenues. An increase in revenue would likely result in higher profit levels, potentially leading to increased investment. This is essential for a healthy economy! Another benefit of bringing a Grand Prix to London would be the improvement to the road network. As a result of the racing and increased tourism, there is likely to be expanded infrastructure as well as other facilities such as hotels and transport, benefitting local residents.
The Grand Prix would bring a number of advantages to London, but that’s just one side of the story. One of the negatives would be the amount of pollution it would cause; this would be the complete emission of 75l of fuel per 100 km raced, which, in Australia 2013, amounted to 14.3 tons of CO2 released into the atmosphere. Air pollution is also one of the key contributing factors to breathing problems, such as asthma, increasing the burden on the NHS. This is just one of the many negative externalities associated with the event which affect third parties, such as taxpayers. Is it really worth destroying our planet, damaging health and reducing sustainability?
Another disadvantage would be the cost; F1 supremo Bernie Ecclestone has recently said ‘I don't know whether you'd have street racing in London, because it's not cheap to put on something that's safe. Street racing is bloody expensive’1. It would cost around £30-£35 million to stage the F1 races, which would be publicly funded. Money would have to be spent on security, infrastructure and building the street track, which for Singapore, totalled up to £130 million. Would tax-payers really want to fund a street racing event which will only last a few days? Moreover, the majority of these tax-payers may not even be interested in racing, and may believe that their taxes are going to waste on something irrelevant and uninteresting to them. This creates a huge opportunity cost, as vital areas such as the health sector are in desperate need of more funding.
Overall, although the potential environmental damage and costs are extortionate, these factors can be compensated by the benefits that could be gained. Taxation (VAT) from ticket sales can be hypothecated into healthcare, infrastructure and education. Moreover, the number of jobs created would reduce Britain’s unemployment rate, boosting growth in the economy. Overall, the hosting of the Grand Prix in London would be a good idea, as not only would it attract international media attention and tourists but it would benefit Britain as a whole, both socially and economically, by bringing together a nation.
To what extent was privatisation of the British Railway a success ?
Margaret Thatcher became the Prime Minister of the UK in May 1979 after winning the General Election. At the time the UK was suffering from an economic downturn; there was a high level of unemployment, a high inflation rate (17%) and a dwindling manufacturing sector.
In response to the situation, Margaret Thatcher used monetary policy changes in order to control the rate of inflation. The Bank of England base rate was raised to 17% in order to discourage consumer expenditure, and to ultimately reduce the level of aggregate demand.
However one of the Conservative Party’s main policies to aid an economic recovery was to privatise state owned businesses. The party believed that businesses such as British Telecommunications and Jaguar were being run inefficiently and that they required subsidies that the government could not afford, additionally the recent public sector strikes demanding higher wages interfered with the Party’s deflationary policy. By privatising and deregulating these industries as well as reducing the influence of trade unions, they hoped to initiate competition and thus an incentive to operate more efficiently. These supply side policies were used with the intent of allowing the economy to grow without any inflationary pressures.
Margaret Thatcher was apparently not an advocate for the privatisation of British Rail, claiming it was ‘a privatisation too far’. This is why the privatisation of the railways, didn't occur until 3 years after Margaret Thatcher had stepped down. John Major, the PM at the time was in charge of the privatisation. John Major introduced the Railways Act 1993 outlining how the rail network would operate after the privatisation.
British Rail was divided up. Ownership of the infrastructure, that is: tracks, bridges, tunnels and stations, would be transferred to Railtrack (now Network Rail). Passenger services were then franchised, companies have to bid for the right to operate their service on Railtrack’s infrastructure. The successful companies are known as train operating companies (TOCs). It’s not as simple as the company willing to pay the most money wins, although it probably helps, there are several criteria that the Department for Transport uses to identify a franchisee. For example, what enhancements they are going to make to their service throughout the franchise or the quality of service that would be available to passengers. Additionally the Office of Rail Regulation (ORR) was created to regulate the railway industry and to monitor the safety of it.
There are a few limitations to the franchising process. As a TOC buys the right to use a line, it’s rare to find two TOCs operating the same line. Therefore there is a limitation to the competitiveness between the companies; their prices can be similar. However the chance of a monopoly emerging, or train companies extorting their customers is highly unlikely, as a result of the ORR.
The extent to which the privatisation of British Rail is a success is hard to determine. Fares have not increased drastically since the privatisation, single fares have risen at an above inflation rate. Whereas seasonal fares have risen at roughly the same rate as inflation. In general the quality of the rail network has improved, Britain’s rail network is one of the safest in Europe. However many people may argue that the quality of the service has not improved, many people complain that there are not enough carriages and that trains are not punctual. Whether the improvements made to the rail network can be accredited to the privatisation of it, or rather the consistently large subsidies (£3.9bn in 2012) given to the industry is difficult to decide; especially when TOCs are seen to be using these subsidies to pay dividends. Another possible factor in the improvement of our rail network could also be developments in technology.
In conclusion, I would say that the privatisation of the railways has been successful. More people use the railways today than they did in the 1980s, in 2013 there was 1.588 billion journeys compared to 0.798 billion journeys in 1987. Additionally the amount of track available to TOCs has decreased (15002km in 1995, 14504km in 2012). This means that passengers are being transported more efficiently. Although, this could just be because trains are being operated at close to full capacity, resulting in a deterioration of the quality of service (as I mentioned earlier) especially during the peak times. In order to further improve the service for rail users, the capacity will have to be increased. This could be achieved through projects such as Crossrail, HS2 or the redesigning of carriages to accommodate more passengers. However, the inevitable upgrades to our rail infrastructure will no doubt be costly, but, will hopefully contribute to our economy through knock on effects, such as increased employment. Even though the government gives the rail industry large subsidies, I imagine this is still a relatively small percentage of the running costs for the TOCs. Despite thinking that the privatisation of British Rail was a success, I still think that it would be interesting to compare how passenger numbers and efficiency have changed in a country with a state owned railway, for example Germany.
It is not just Brazil’s economy that is set to benefit from the World Cup. Here in Britain, the retail sector typically experiences at extra $2 billion of sales, as consumers stock up on World Cup essentials: beer, pizzas, barbecues and new televisions. All this extra consumer expenditure increases aggregate demand for the British economy.
Productivity levels in the UK economy also fluctuate in accordance with the success of the national team; 62% of men and 52% of women suggested that if the England national team performed well it increased their morale and productivity. This would be highly beneficial to the economy, and an increase in aggregate supply would be seen.
However, there has been many negative externalities and social costs involved in hosting the World Cup in Brazil. On average, one construction worker per month has died whilst working on World Cup related projects. However, this is not only happening in Brazil, in Qatar, one worker per day dies working on World Cup projects for the 2022 tournament.
There have been high levels of civil unrest in the build up to the World Cup. Protesters throughout the country have demonstrated against the high cost of the World Cup, estimated at $14 billion, alleged corruption and spoke out in favor of more spending on schools, hospitals and other nonsporting infrastructure. This has further increased the Brazilian government’s expenses, with an estimated $855 million spent on extra security.
The future of the World Cup stadiums presents the Brazilian government with an important decision. The stadium in Manaus for example - Manaus is a city in the Amazon rainforest, so remote it cannot even be reached by car, the stadium will cost $270 million, yet it will only be used for four games in the whole of the tournament, and then does not even have a local team to use the stadium after the World Cup has finished.
This a similar problem throughout Brazil, with stadiums having the capacity for up to 75,000 fans, the local teams average less than 15,000 fans per game, presenting the Brazilian football federation a problem regarding the sustainability and opportunity cost of running such large stadiums.
A final problem with the World Cup, that affects everyone around the world, is the time difference. With games kicking off in the middle of the day, late evening and early hours of the morning it can soon take effect on the work force. The rate of absenteeism is expected to cost the UK economy £4 billion.
In conclusion, Brazil’s use of fiscal policy has led to a disgruntled population who question the long term impacts the World Cup will have. They felt the $14 billion spent preparing for the World Cup could have been better spent on improving infrastructure, e.g. removing favelas. With the Olympics set to be hosted in Rio de Janeiro in 2016, it seems as though only half of Brazil’s troubles are over.
