EMANUEL ECONOMIST
THE EMANUEL ECONOMIST
BOOK REVIEWS
DECEMBER 2023
ISSUE 1 1
THE EMANUEL ECONOMIST
CONTENTS MUSIC INDUSTRY 1
“Look What You Made Me Do” How Taylor Swift has influenced many to spend thousands on eras tour tickets despite the cost-of-living crisis.
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The Economics of the Vinyl Record Revival Has nostalgia overturned creative destruction?
ECONOMIC HISTORY 12
Reaganomics: The Economic Revolution That Redefined America
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What was the 2008 Financial Crisis and how did it shape the world economy today?
COMPANY PROFILES
ECONOMIST PROFILE 3
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Claudia Goldin The winner of the 2023 Nobel Prize in Economics
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Vinted and the Circular Economy Redefining Fashion Sustainability
SPORT
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The rise (and fall?)of Farfetch Has the ‘Amazon of luxury fashion’ reached its peak?
Are the high wages for top tier sportspeople justified?
UK WATER INDUSTRY 5
Should the Water Industry in England be Renationalised?
DEBATE - CIGARETTE BAN 16 The argument for a Smokeless Generation 17 Sunak is wrong to ban cigarettes
UK INFLATION 6
The Dynamics of UK Inflation and Interest Rates What’s next for the cost of living crisis?
ECONOMIC THEORY 7
The Impact of Artificial Intelligence and Automation on Labour Markets
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Stock Prices: Undervalued, Overvalued, or Fair Value? An exploration of the Efficient Markets Hypothesis
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Mastering the Game of Life:The Power of Game Theory
BOOK REVIEWS Animal Spirits by George Akerlof and Robert Shiller 18 Exposing the practicality of human behaviour that economic theory lacks 19
Doughnut Economics: Seven ways to think like a 21st century economist by Kate Raworth
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Elon Musk by Walter Issacson A portrait of the troubled genius
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Going Infinite: The Rise and Fall of a New Tycoon by Michael Lewis
ENVIRONMENT Can the UK achieve economic growth and prevent 10 climate change? In search of the Kuznets Curve 11
The economics of Meat Free Mondays A fleeting trend or revolutionising the economy and environment?
Are the high wages for top tier sportspeople justified? - Page 4
The Impact of Artificial Intelligence and Automation on Labour Markets- Page 7
THE EMANUEL ECONOMIST
MUSIC INDUSTRY
‘LOOK WHAT YOU MADE ME DO’ HOW TAYLOR SWIFT HAS INFLUENCED MANY TO SPEND THOUSANDS ON ERAS TOUR TICKETS DESPITE THE COST-OF-LIVING CRISIS. Meg Upper Sixth In general, concerts, professional sports games, and other major events have always been known for boosting host cities’ economies by attracting large numbers of out-of-town visitors. While the economic impact of these events varies, a commonly used multiplier suggests that every $100 spent on live performances generates around $300 in other expenses, including hotels, dining, and transportation. Taylor Swift’s Eras Tour took the US by storm, leaving a profound economic impact across 20 U.S. cities. Taylor Swift Fans known as ‘Swifties’ - shattered typical spending patterns, with an astonishing average expenditure of $1,300 per person in local economies. That amount of spending is on par with the Super Bowl, but this time it happened on 53 different nights in 20 different locations over the course of five months. This widespread tour schedule brought an incredible influx of visitors to downtown areas throughout the country, resulting in a significant boost in local spending. Local businesses, including hotels, restaurants, and retail establishments, benefited immensely from the surge in visitor spending. The multiplier effect was clearly in motion, as concertgoers’ dollars rippled through the local economy. Travel expenses, hotel stays, food, merchandise, and even costumes contributed to this unprecedented economic transformation.Taylor Swift’s tour not only bolstered the local economies but also enriched the cultural and social fabric of the host cities. When Taylor Swift’s tickets to The Eras Tour first went on sale in November 2022, the pop star broke the internet after Ticketmaster crashed with hundreds of thousands left without seats. The average price of a resale ticket for the US sector of the Tour was $3,801. That’s up 2,321% from Taylor Swift’s last tour. The immense
price of tickets has left many swifties with ‘bad blood’. So why are UK fans spending a fortune despite the cost-of-living crisis? Firstly,Taylor Swift concerts offer a unique and emotionally charged experience for her fans. Her ability to connect with her audience through her music and storytelling makes her live performances highly sought after. This uniqueness leads to inelastic demand, where fans are willing to pay a premium for a once-in-a-lifetime experience, regardless of economic challenges.
Secondly, Taylor Swift’s touring schedule is limited, with this potentially being the last time ever for fans to hear all eight of her albums in one concert. This scarcity of supply creates a sense of urgency among fans, driving up the prices as demand outstrips availability. This Gen Z phenomenon of FOMO (The Fear of Missing Out) has acted as a powerful motivator for Taylor Swift fans to purchase tickets at extortionate rates. This, amongst other psychological factors, has caused consumers to act irrationally as fans do not want to miss out on the opportunity to see her all out tour. Swift’s UK sector of the tour is
set to do even better than that of the USA as a result of her recent release of ‘1989 (Taylor’s Version)’. Her replica album has sold nearly 1.7mn copies in the first week of its release, the pop star’s biggest hit yet in a multiyear project to regain ownership of her music after her catalogue was sold to a private equity group. Swift’s catalogue of generationdefining hits and canny marketing sense have helped her achieve a level of whitehot demand and media saturation not seen since the 1980s heyday of Michael Jackson and Madonna — a dominance that the entertainment business had largely accepted as impossible to replicate in the fragmented 21st century. Although Swift, and her promoters do not publicly report box-office figures, the trade publication Pollstar estimated that she has been selling about $14 million in tickets each night. By the end of the full world tour, which is booked with 146 stadium dates well into 2024, Swift’s sales could reach $1.4 billion or more — exceeding Elton John’s $939 million for his multiyear farewell tour, the current record-holder. In the world of music and entertainment, Taylor Swift has not only defied conventional expectations but also redefined the magnitude of an artist’s impact. Her ability to inspire fans to invest thousands of dollars in Eras Tour tickets, even amidst economic challenges, is a testament to the deep connection she fosters with her audience. The resounding success of the tour, its massive economic impact on local economies, and the unwavering loyalty of Swifties worldwide underline the enduring power of Taylor Swift’s music and her influence on the cultural and economic landscape. As she continues to captivate audiences across the globe and reach new heights in her career, one thing remains clear: Taylor Swift’s journey is far from over, and her legacy as a trailblazing artist and cultural icon is firmly cemented in the records of music history.
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EMANUEL THE EMANUEL ECONOMIST ECONOMIST
MUSIC BOOKINDUSTRY REVIEWS
THE ECONOMICS OF THE VINYL RECORD REVIVAL HAS NOSTALGIA OVERTURNED CREATIVE DESTRUCTION?
Mr J FitzGerald Teacher of Economics & Business The music industry has been one that has been transformed over the last number of decades by creative destruction. Coined by the Austrian economist Joseph Schumpeter, creative destruction is the process through which innovation replaces older products that are no longer valued by society. 8-track, vinyl, cassettes, CDs, digital downloads, and now streaming: the way we listen to music has changed, becoming more portable and versatile. But there is a new trend emerging to counter the wave of creative destruction in this industry: nostalgia is leading us once again to buy and listen to music on vinyl records, me included.
According to the New York Times, vinyl records are now the music industry’s most popular and highestgrossing physical format, with fans choosing it for collectability, sound quality or simply the tactile experience of music in an age of digital ephemerality. Last year vinyl sales outsold CDs for the first time since 1987, according to the Recording Industry Association of America, making it the number 1 physical format of recorded music. In 2022, 41 million vinyl units were sold compared to 33 million CDs, highlighting a “remarkable resurgence” of the physical music format, according to the RIAA, bringing in a total of $1.2 billion in revenue.
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Vinyl records initially dominated the way we listened to music, but this was overtaken initially by the cassette tape in the 1980’s, with the Walkman being a key innovation that meant people could listen to their favourite albums on the move. In 1982, Phillips introduced the CD player with the boast ‘from now on, the conventional record player is obsolete’. It took until 1991 for CDs to occupy the number 1 spot and then 20 years later digital downloads took over. Amazingly, only 10 years ago, streaming represented just 9.2 percent of all recorded music sales, now it is just below 85 percent dominated by firms like Spotify and Apple Music. Each of these are classic examples of creative destruction as innovation left shelves full of unlistened to and unloved records, cassettes and CDs. What is behind the revival of this seemingly antiquated form of consuming music? People have grown nostalgic for the aesthetic, tactile pleasures of records, the look of the sleeve, and the feel of the disc. For me, it the opportunity to root through vinyl in a record store or secondhand record fair, hoping to find a gem that jumps out at you, ready to be logged on Disgogs, an online record database. It takes patience and can be frustrating at times. Even taking the record out of its sleeve, placing it on the turntable and setting down the stylus takes more effort. From an economic point of view, this is not the behaviour of a rational utility maximising consumer. But it is more fun. The British Phonographic industry claim the increase in demand for vinyl is ‘driven by the passion fans feel for the format and the emotional connection it provides with the music they love’. Many consumers also see vinyl collecting as an investment, as the price of records often increase over time. The Beatles’ first pressing of ‘Please Please Me’ recently fetched £5,100. Incredibly, it has been estimated that up to 50% of vinyl purchases are by people who do not own a record player, indicating its value as an investment. Initiatives like Record Store
Day (next one: 20 April 2024) have also been hugely successful in increasing sales, as diehard fans queue early in the morning outside independent record stores seeking limited edition releases of their favourite artists. Recently, vinyl has become a victim of its own success. Supply chains and the manufacture of vinyl records cannot keep up with demand. Adele’s most recent album ‘30’ had its release date pushed back by some 6 months due to the time lag in getting it pressed on vinyl. Very few of the world’s vinyl pressing plants have the capacity to produce such a volume to keep up with demand, so prices have risen as a result, with a new release easily exceeding £20 these days, £30 for a double album. There is even evidence that the bigger labels are using their monopsony power to purchase larger volumes of orders from the manufacturers at the expense of smaller record labels. However, the price mechanism is seeming to kick in; many record labels are now setting up their own manufacturing facilities, so hopefully this will keep downward pressure on prices. But it does seem that the prohibitive prices for vinyl records could put many consumers off, especially with the more general cost of living squeeze. This does not seem to put off vinyl lovers. In the first 6 months of 2023, record sales are up 21.7% on last year – this vinyl revival shows no sign of slowing.
THE EMANUEL ECONOMIST
ECONOMIST PROFILE
CLAUDIA GOLDIN: THE WINNER OF THE 2023 NOBEL PRIZE IN ECONOMICS ALL WORK AND NO PAY? Isabella Lower Sixth Claudia Goldin is a trailblazer in the economic world. Her numerous achievements include being the first woman to receive tenure in Harvard’s economics department in 1989, as well as being the first ever solo female winner of the Economics Nobel Prize in 2023. Goldin has stated that economics is believed to be a subject which appeals more to men, but if we explained that economics was about ‘inequality, health, household behavior and society’ then there would be a much greater gender balance. Inequality between men and women in the workplace and the gender pay gap are the major themes of her research. Why do women still tend to earn less than men? In the UK, the gender pay gap stands at 14.3% in 2023 (ONS). This is particularly the case in high-paying occupations such as finance and law where the gaps remain stubbornly large. Explanations for this include: discrimination, pay transparency, lack of confidence and mentors. Goldin’s answers tells us how to fight unfairness, but also how to create sustainable and more productive working lives for everybody.
In her research, Goldin collected over 200 years of data in the US relating to gender differences in earnings and employment rates. She showed that opportunities for women rose in the 20th century due to higher educational levels and the contraceptive pill. However, the gender pay gap remains.While historically the earnings difference between men and women could be blamed on educational choices made at a young age and career choices, Goldin found that the current earnings gap was now largely
due to the impact of having children. Her extensive research shows that straight after higher education or university, pay for men and women is very similar. In the first few years of employment, the gaps remain small and are largely explained by different fields of study or occupations. But about 10 years after graduation, things begin to change. Those changes typically set in a year or two after people start their families. There are a few obvious explanations for this. One is outright discrimination, something Goldin examined in a celebrated study of the leading US orchestras. As those orchestras started to ask job applicants to audition from behind a screen, the proportion of women who were accepted increased dramatically. Goldin’s research also suggests that much of the gap between men and women is more properly described as a gap between mothers and non-mothers. The reason being that there are certain jobs, ‘greedy jobs’, that often pay very well but require longer continuous hours, with greater round-the-clock availability. For mothers (who are culturally and historically the primary caregivers for children) it becomes increasingly more difficult to be available for these opportunities. So, what is a ‘greedy job’? If you need to work late, take work phone calls at the weekend, or travel internationally for a meeting, all without much notice, then you have a greedy job. If you are also the primary caregiver for children, that’s a greedy job too. The nature of these intensive jobs is that you can only have one of them at a time. A common arrangement between highly educated, highly employable couples, is that one of them (often the woman) takes the unpaid job of parenting, perhaps alongside a more flexible paid job. This leaves the other partner (often the man) available to take the well-paid, all-consuming job, such as a corporate lawyer, investment banker or high level management. 82% of women in the UK and the US are mothers. This means that 82% of women will experience the struggle between balancing their time between their work and their children. Even for the most well organised people this will lead to less availability at work for longer hours. Lack of
availability will lead to less advancements in these women’s careers compared to their male counterparts.They will also miss out on bonuses and other larger pay checks which come with the advancements made in their career. Goldin’s book ‘Career and Family’ explores how to reduce this gender inequality gap. She suggested that if caregiving responsibilities are the root issue, then men taking on more domestic responsibility, greater support for parents, and changing the nature of ‘greedy jobs’ would go a long way towards solving the problem. This may be why labour force participation is higher in Sweden than it is in the UK. Sweden has longer paternity leave which can be shared between both parents and cheaper, government subsidised, childcare for working families. This enables both parents to focus equally on their career. The solution will involve changes in the labour market, especially how jobs are structured and renumerated to enhance flexibility. The gender gap in pay would be considerably reduced if firms did not have an incentive to disproportionately reward individuals who laboured long hours. Such change has begun to take off in various sectors,such as technology,science,and health, but is less apparent in the corporate, financial, and legal worlds. One of the long-term positive legacies of the pandemic might be that lots of tasks can now be done remotely. However, our society has a long way to go until a woman’s career progression is not disadvantaged due to caring responsibilities.
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THE EMANUEL ECONOMIST
SPORT
ARE THE HIGH WAGES FOR TOP TIER SPORTSPEOPLE JUSTIFIED? THE ECONOMICS OF SPORT Tom Upper Sixth Sports are a monumental part of society, whether it’s watching, playing or supporting. Those sportspeople who compete professionally have become some of the wealthiest people in the world. Michael Jordan, a basketball superstar with 13 seasons for the Chicago Bulls, is known as the richest sportsperson ever with a net worth of $1.6 billion. However, Jordan hasn’t made his money from sports alone, he has also earnt $1.7 billion off the court from brands like Nike, Coca Cola and McDonalds. The current best paid athlete in the world is Cristiano Ronaldo with an estimated income of $136 million, including $46 million from his playing salary and bonuses and $90 million from endorsements, appearances, licensing income and other business endeavours, according to Forbes. Many people question the fairness of these extremely high wages, whether these sportspeople deserve such high rewards when their job may seem less important than many other industries, or whether such large payments in the sporting world takes away from the meaning and competitiveness of the sport. Firstly, the high wages of sportspeople are simply a result of market forces. For the top tier sportspeople, they possess skills and abilities that are extremely rare and very low in supply. In this extremely competitive workspace, top tier sportspeople spend their entire career developing skills in order to play at the highest level of their sport; for example less than 0.5% of academy footballers go on to become professional. Furthermore, the demand for top tier sportspeople is incredibly high, with millions of people tuning in to watch their favourite teams and players each week. This leads to huge competition for teams to own the best players in order to provide the highest quality performances, aiming to compete in the top leagues. Since the beginning of professional sports,
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in around 1920, the competition for teams to own the highest skilled players has risen exponentially. As the quality of the top sports teams is often very similar, they only have one option which is to compete on price (player salaries and bonuses). Adjusted for inflation, in the 1930s the average income per game in the top league of professional basketball was about $1,445 compared to an average income of $144,270 per game today. Although this may seem like an unnatural growth, the increase in sports wages has matched the trend of the growth of the entire sports industry. With more revenue generated from tickets and screenings, teams and players will naturally be paid more.
Some argue that playing sports professionally is not worthy of such high payment, and that jobs such as doctors or surgeons provide a greater social benefit than sports. These doctors or surgeons work in a much more stressful industry where one small mistake could have catastrophic impacts such as serious injuries or death.However, the importance of top tier sports should not be neglected. As well as the obvious impact on the local economy through increased tourism, it has been proved to have huge social benefits. It has been reported that just the action of watching sports is associated with higher levels of life satisfaction and lower levels
of loneliness. Watching sports also serves as a healthy distraction, allowing viewers to switch off stress inducive thoughts, therefore leading to gaining a sense of calm and happiness. Furthermore, it is unfair to assume that a surgeon’s role is more stressful than a top athlete. In the men’s FIFA world cup 2022, close to 1.5 billion people watched the final between France and Argentina. This puts unimaginable pressure upon the players, with entire country’s hoping for a good performance. Even in smaller football games, those teams who are not competing for the title must still strive to gain the highest position in the league. In the 2022/23 season of the Premier League, in the mid table, just by finishing one position higher the club would be awarded with an additional £2.2 million. This shows how much every game counts and how much pressure these top sportspeople are under to perform each week. The huge amounts of money involved in the top sporting leagues could be argued to make the sport more centred about profitmaking rather than the pure joy of playing, competing and winning. Furthermore, the differences in the funds that each team has can make the top leagues much less competitive. In the Premier League, Manchester United had the highest wage bills in 2023 at $222.9 million, compared to Brentford with the lowest valuation at $15.2 million. This could be seen as an unfair advantage, making the top leagues less competitive as those teams with lesser funding to spend on players have very little chances when playing against the bigger teams with more expensive players; transforming each game into a money-making event rather than a passionate game with both teams striving to win. This is a valid argument against the high sports wages, however this type of price competition will always occur, no matter the sport, funding or league. Therefore, it can be shown that the high wages are justified, as they have come about as a result of an extremely competitive and profitable industry.
THE EMANUEL ECONOMIST
UK WATER INDUSTRY
SHOULD THE WATER INDUSTRY IN ENGLAND BE RENATIONALISED? STONGER REGULATION IS THE ANSWER Freja Upper Sixth The dumping of sewage into rivers and onto beaches around England has once again reignited calls for renationalisation. The Regional Water Authorities (RWAs) were privatised in 1989. The water industry is currently comprised of 11 regional water and wastewater authorities as well as an additional five water only companies. Upon privatisation all water industry debts were written off, however, since then they have accumulated over £60 billion of debt. This, along with high levels of dividends has sparked outrage. Moreover, the precarious position of the water industry in England has been exemplified by the near collapse of Thames Water in June. Although the performance of the water industry as of late has in many cases been unsatisfactory, renationalisation would not necessarily resolve the current issues. Much of the research on the impact of ownership type on efficiency has been inconclusive, so despite the water industry being a natural monopoly which could achieve greater economies of scale, there is no guarantee that after renationalisation there would be any efficiency gains. Furthermore, there is evidence to suggest that the managers of publicly owned services are less efficient in their utilisation of resources due the lack of a profit incentive. The cost of renationalisation has been deeply contested and is an important consideration, notably as the level of government debt was at 97.8% of GDP in September 2023, according to the ONS. Therefore, renationalisation may not be a viable option. Moreover, there is an opportunity cost for the government. Although they would acquire a profitgenerating asset, they could still have to divert spending from areas such as education or healthcare in order to fund the maintenance and improvement of infrastructure. Renationalisation of the water industry could therefore have adverse effects on reaching critical climate targets. Ofwat, the water industry
regulator, should also accept responsibility for allowing the accumulation of the unsustainable levels of debt and companies to exploit the loopholes in regulation. The high level of gearing in the water industry in combination with higher interest rates is an alarming combination as it could undermine their financial resilience. Ofwat allowed their financial restructuring at the turn of the century. As a result, water companies could take on greater risk and justify higher dividends payments, all whilst still adhering to the conditions of their licenses. This is an example of the water industry exercising
their rentier power. This has only been further encouraged by the weaknesses of regulation. However, with regulatory reform, the influence of efficient regulation can have a significantly greater impact on the performance of the water industry than renationalisation. With an £11.3mn funding boost granted in April this year, Ofwat is expected to improve their enforcement capabilities to drive improvements in the performance of water companies and take greater action when they fail to meet performance targets and obligations. For example,following the unacceptable dumping of sewage into waterways, Ofwat is planning to introduce changes for the price review in 2024. There will be greater monitoring of sewage dumping with underperformance payments issued to companies which do not adhere to new guidelines. Renationalisation is not only costly but also does not guarantee improvements
in water services in England. For example, in the 1980s, before privatisation, England nearly failed to meet the European directives on the water quality standards. What will prevent this underinvestment again? The issues that we are seeing today are a combination of successive failures of regulators and of course the water companies themselves. Much of the time, Ofwat and the Environment Agency have been too slow to react. Sewage discharges, disproportionate dividends, debt. This could have been avoided with stronger regulation. For example, the operating licences of the water companies are vague and imprecise. This makes it difficult for Ofwat to take them away as proving blatant violations is nearly impossible. Additionally, these companies have been allowed to form complex corporate structures, enabling tax avoidance and concealing debt. The privatisation of the water industry has not resulted in the levels of investment initially anticipated, however, there have been improvements in the water industry’s performance in terms of water quality and the level of investment. For example, leakages have been reduced by one third and customers are five times less likely to suffer from interruptions to supply. These advancements are overshadowed by the dumping of sewage and financial instability, once again reigniting calls for renationalisation. However, there is no guarantee that renationalisation will improve the performance of the industry or enact sufficient change in its operation. Rather, the regulation needs to improve. For example, there could be a requirement for water companies to have a single company structure, improving transparency and reinforcing responsibility. Alternatively, the instances where taking on debt is permitted could be narrowed to funding infrastructure projects. The performance of the water companies has been unacceptable, however Ofwat should not escape responsibility. If there had been more stringent and forceful regulation, these issues may have been circumvented.
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THE EMANUEL ECONOMIST
UK INFLATION
THE DYNAMICS OF UK INFLATION AND INTEREST RATES WHAT’S NEXT FOR THE COST OF LIVING CRISIS? Seb Upper Sixth In recent times, the United Kingdom has found itself at the heart of a financial rollercoaster, with rising inflation rates and fluctuating interest rates capturing the attention of economists, policymakers, and the general public.The Bank of England, in the most recent Monetary Policy Committee meetings, decided to maintain its policy interest rate at 5.25%, marking the first time since November 2021 that the cost of borrowing remained unchanged. This decision comes in the wake of data revealing that consumer price inflation remained stubbornly high at 6.7% for the year ending in September. In the financial world, inflation and interest rates are closely intertwined. As inflation rises, so does the nominal interest rate. Lenders seek higher nominal interest rates to compensate for the expected increase in inflation, ensuring they receive a positive real interest rate on their lending. This relationship is illustrated by the historical correlation between inflation and interest rates in the UK. During periods of high inflation, interest rates tend to be high, while low inflation periods are accompanied by relatively low interest rates. This relationship has been particularly evident since the middle of the pandemic period in June 2021 when both inflation and interest rates started to rise, as indicated by data from the Bank of England and the Office for National Statistics. When inflation exceeds the target rate of 2%, central banks, including the Bank of England, increase interest rates to mitigate inflation. Higher interest rates make borrowing more expensive, leading to reduced spending and encouraging savings among households and businesses. Consequently, lower consumer and business spending contributes to a slowdown in inflation. Conversely, in periods of low inflation or economic stagnation, central banks lower interest rates to make
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borrowing more affordable, stimulating spending and increasing inflation. Quantitative easing (QE) is another tool used by central banks to influence economic conditions, particularly when interest rates are near zero. By purchasing government bonds on the open market, central banks influence long-term rates and stimulate economic activity. On the other hand, quantitative tightening (QT) reverses QE by not reinvesting proceeds from maturing bonds or selling bonds directly,
aiming to contain inflation by reducing the money supply and raising longer-term interest rates. The Bank of England initiated QT in 2022 when inflation significantly exceeded the 2% target, beginning with the non-investment of proceeds from maturing bonds, followed by a program of gilt sales. To understand the drivers of current inflation in the UK, it’s essential to dissect the Consumer Price Index (CPI) into its various components.The latest data from the Office for National Statistics revealed that the CPI increased by 6.7% in the 12 months to September 2023, a slight decrease from 6.8% in July. The largest contributor to this inflation was ‘Food and Non-alcoholic Beverages.’ Additionally, with energy price hikes exiting the CPI basket from April 2023, inflationary pressures have shifted towards rising prices in food, non-energy goods, and services.The compounded effects of various shocks, including the COVID-19-induced supply shock, Russia’s invasion of Ukraine,
Brexit, and a tight labour market, have driven higher wage growth and increased inflation. The UK’s reliance on imported goods and commodities, coupled with its service sector dominance and trade barriers stemming from Brexit, have deepened the inflationary crisis. Predicting the exact timing of inflation reduction is challenging, as it depends on a multitude of factors, including global events and domestic demand. Nevertheless, recent data suggests that inflation may decrease gradually. The Bank of England will monitor sustained decreases in both headline and core inflation to be confident of a return to the 2% target. The National Institute of Economic and Social Research (NIESR) projects a drop in CPI inflation to 5.2% by the end of 2023 and expects inflation to range between 2-4% by the first quarter of 2025. However, underlying inflationary pressures in the economy remain a concern, and if risks to inflation escalate, it could remain higher than forecast. To summarise the intersection of high inflation and fluctuating interest rates in the UK has captured the attention of both experts and the public. The Bank of England’s decision to maintain its policy interest rate at 5.25% reflects the delicate balance between mitigating inflation and sustaining economic stability. While the UK’s inflationary challenges are influenced by global and domestic factors, the path forward is marked by uncertainty. The future hinges on the persistence of inflationary pressures and the resilience of the overall economy, including labor market tightness, wage growth, and service price inflation. In this complex economic landscape, policymakers must continue to monitor the situation closely, considering the time lag associated with monetary policy changes and the imperative to manage inflation effectively. The outlook for UK inflation is critical for making informed monetary policy decisions, shaping the nation’s financial future.
THE EMANUEL ECONOMIST
ECONOMIC THEORY
THE IMPACT OF ARTIFICIAL INTELLIGENCE AND AUTOMATION ON LABOUR MARKETS Ewan Lower Sixth The rapid advancements and accessibility improvements of artificial intelligence (AI) have made its integration into businesses much more feasible and realistic. The introduction of this new technology brings with it new possibilities for firms to increase their productivity growth, with Goldman Sachs suggesting generative AI could raise global GDP by 7%. However, along with these promising opportunities for growth within firms, the employment of improved AI systems raises great risks to individuals and their job security.Therefore, the government may need to intervene
through introducing policies to protect individuals and to fulfil the full potential of AI. One of the positive impacts of the introduction of AI and automation on labour markets will be an increase in output for firms. Automation in the past would require a technician to programme a machine with a set of rules for it to operate; this is no longer required. The adaptive nature of technology enables AI systems
to learn from mistakes and improve by itself, saving firms time and money. In the past, new technology has enhanced the abilities of high skilled workers, making them more productive and more desirable to employers. However, the introduction of AI may have the opposite effect with high skilled jobs such as legal services, accountants, teachers, and lecturers being potentially replaced by AI. Through employing fewer workers, firms can benefit from paying out less money in the form of wages.This would greatly decrease costs to firms, increasing their output per unit input and increasing profits. Another positive of these advancements may be a decrease in inflation. The ability for firms to produce
more output at a lower cost may benefit consumers in the form of lowered prices, leading to disinflation. This may prove vital in this current time of high inflation in the UK (and the world in general) with the consumer price index being at multidecade high for six of the G7 countries. Inflation is still stubbornly high in the UK at 4.6% at the time of writing, well above the government’s target of 2%.
The benefits of AI and automation to firms and inflation rates also come with risks to individuals and workers. The Department for Business, Energy & Industrial Strategy commissioned PWC to undertake research on the potential impact of AI on the UK Labour Market.The report which was published in October 2021 found that 7% of jobs were at risk of being automated in the next five years, with this figure rising to 30% after 20 years. This information was clearly very alarming to workers as it shows that many jobs may be replaced by AI, with people becoming displaced and unemployed as a result. However, this research also showed that many jobs would be created and adapted as a result of the introduction of AI. While some roles within the labour force may be replaced by AI, the majority of jobs will adapt to these advancements, while some new jobs may even be created. Joseph Schumpeter’s theory of ‘creative destruction’ could well be at play here as new jobs created by AI replaces the structural unemployment of those whose skills are no longer needed in the labour market. Therefore, this study showed that the most realistic conclusion is that the long-term effect on employment levels would be largely balanced. In order to negate these risks as well as ensuring they maximise the possible positive effects of AI’s introduction, it will become highly important for the government to regulate the actions of firms to protect their workers. The government must also increase technological training to give people the skills they need to work in the newly created jobs. This will ensure that the labour force is not only suitable to manage these new technologies, but also mobile to adapt to these new jobs. Education on AI at schools must be a priority to ensure that workers of the future are adapted to changing work conditions. It may also be beneficial for the government to offer free courses to workers with their jobs under threat, or looking to seek employment in new jobs, to maximise the possible economic benefits as a result of the implementation of AI.
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THE EMANUEL ECONOMIST
ECONOMIC THEORY
STOCK PRICES: UNDERVALUED, OVERVALUED, OR FAIR VALUE? AN EXPLORATION OF THE EFFICIENT MARKETS HYPOTHESIS Mr T Gooderham Teacher of Economics & Business As the clock ticks to 8:00am the London Stock Exchange opens, share prices begins to rise and fall, swayed by the internal and external influences of business dynamics as well as human sentiments or those ‘animal spirits’. Institutional traders, employed by investment companies, portfolio managers, pension funds, or hedge funds, as well as increasingly individual non-professional (retail) traders, which have doubled as a share of investors in Europe, search for undervalued equities to purchase or overvalued shares to short. The laws of supply and demand determine the price, and investors use forecasting and analysis to help them decide whether the stock is undervalued or overvalued.The art, or perhaps more accurately science, to understand why prices change and how those changes take place has long been held as the holy grail of financial economics. Within markets if there is perfect information (of prices, products, production methods and costs), high levels of competition, low or no barriers to entry and exit as well as similar products, most economists would recognise this as a competitive or perhaps even a perfectly competitive market.The price within these markets will perfectly reflect the market forces of demand and supply. If this is then applied to the stock market, especially the notion that information relevant to stock prices is freely available and shared with all traders, then the price of a share should perfectly reflect all information and therefore trade at their fair value. For example, if Tesla announced a breakthrough in battery technology or Lloyds Banking Group announced higher profits, then these pieces of information would instantaneously cause an increase in their share price, thereby reflecting fair market value. In addition, future price expectations will also be capitalised into the price for a share through the mechanics of demand, such as the potential of a breakthrough by Tesla or the future profit announcement by Lloyds Banking Group. It also means that as stocks are always trading at their fair value then no
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level of analysis will allow opportunities for consistent outperformance of the markets. There are no under or overvalued stocks, only fair valued stocks which completely reflect the information available at the current time; before an investor has had time to respond to new information the market and current share price has already. In fact, it is supported by the popular experiment where a chimpanzee throws darts at a list of stocks and has through many studies outperformed the market;a study by Cass Business School in 2013 found ‘most monkey indices outperformed the market cap weighted index’. A random portfolio of stocks would do as well as expert investors.This idea of shares perfectly reflecting fair value due to perfect information is known as the Efficient
Market Hypothesis (EMH). This was highlighted as part of Eugene Fama’s work‘Efficient Capital Markets:A Review of Theory and Empirical Work’ in 1970. In this seminal piece Fama suggests the stock market is generally informationally efficient, however, there are three categories within this efficiency: weak, semi-strong and strong form efficiency. The weak form states that traders are aware of past prices and therefore the current stock price reflects all the data of past prices. This means analysis of past trends will not be able to be used predict whether a share is under or overvalued. Semi-strong theory furthers this by assuming past price trends as well as publicly available data, including companies’ financial statements, is reflected in the share price.This form of the theory means only information that is not available to the public will enable traders to create arbitrage positions that allow them to consistently outperform the market. The strong form posits that all private and public information is accounted for in share
prices and therefore no information can give investors an opportunity for abnormal returns. Academics and professionals have tested these theories using a variety of different methodologies to see whether they hold in different capital markets and over different time frames. Fama (1991) and Borges (2008) found evidence for weak form efficiency in American and European markets respectively, however, De Bondt and Thaler (1988) and Nisar and Hanif (2012) found that there was correlation between past prices and current prices, as such disproving the weak form theory. Research into the semi-strong theory further provides disagreement, especially surrounding the phenomenon of shares increasing in value in the months preceding a takeover and then falling in value the months after the takeover has taken place (Agarwal et al., 1992). There have been further criticisms of the paradoxes that EMH creates. If markets are efficient then there will be no way to generate consistent returns which will cause investors to leave the market rendering it less competitive and therefore less efficient. Furthermore, there will be no incentive for investors to spend money researching undervalued or overvalued stocks using publicly available information as due to the weak and semi-strong theory they don’t exist. Furthermore, these models came under further attack especially under the banner of behavioural economics, including the idea that heuristics, namely anchoring, herd mentality, optimism and overconfidence, contradict the rational investors Fama saw in the markets. Furthermore the availability and universality of information as well as the ability to analyse it efficiently has further been questioned as institutional investors are more likely to have access to greater and more in-depth information than non-professional traders. In today’s world the significance of Fama’s EMH theory remains, however, not as a prediction about the efficiency within financial markets, but as an anchoring point and framework for continued analysis and evaluation of financial markets and their workings.
THE EMANUEL ECONOMIST
ECONOMIC THEORY
MASTERING THE GAME OF LIFE: THE POWER OF GAME THEORY A MATHEMATICAL MODEL OF BEHAVIOUR Hope Upper Sixth Game Theory is the mathematical study of decision-making. This can be applied to many aspects of life and has been used in biology, software design, political science, and most importantly economics. It can be used to try to understand how individuals, firms and governments can make decisions in situations where their choice is dependent on the choice of others- this is called a strategic interaction. This can help to produce economic models and predictions. Some areas this can be applied to in economics are in market behaviour, oligopolies, international trade, and in auctions. Game Theory is very important in geopolitical situations and was developed significantly during the Cold War as the US and Soviet Union tried to figure out the best way to respond to each other and what the other was planning on doing. From 1910-1930 game theory was mostly focused on two-person zero-sum games, where the payoffs for one player will be directly opposite to the other player, and therefore cooperation would be pointless (see below). John von Neumann was one of the most important contributors to this and wrote ‘On the Theory of Parlor Games’ (1928), developing extensive form where games can be described using a game tree which helped to describe sequential games. Later on Neumann and Oskar Morgenstern did extensive work to introduce the idea of a
cooperative game to game theory, and to then apply this to help analyse economic behaviour, The prisoner’s dilemma is the classic example of game theory. Two prisoners are arrested for robbing a bank, they are both held and interviewed separately. If neither of them confess, they will both only get one year’s sentence, however if one of them confesses and the other doesn’t, the confessor will walk free while the liar will be sentenced to three years. If both prisoners confess, they will each get two year’s sentence. The most likely outcome is that both prisoners will confess, as this will have the best payoff regardless of what the other does.This is called a Nash equilibrium, if one person is making the best decision based on what the other is doing, there is no incentive for this person to change their decision. The same theory behind the prisoner’s dilemma can be applied to oligopolistic markets using a payoff matrix (see right). Firms in oligopolistic markets must decide whether to raise prices or lower prices based on what they believe the other firm will do. Both firms lowering the price is the most likely outcome, as it has the best payoff. However if the firms were to collaborate and both decide to raise prices, there would be the greatest net benefit as both would make $80m. Firms in oligopolistic markets cannot collaborate is this is deemed as collusion which is illegal because it is anti-competitive, but the payoff matrix helps to explain why firms act a certain way.
However there are many types of game theory: cooperative, non-cooperative, simultaneous, sequential, asymmetric, and symmetric. The prisoner’s dilemma is a noncooperative simultaneous game as the prisoners are individually making their decision to maximise their self-interest at the same time as the other prisoner.Cooperative game theory is able to model the benefits of some free trade agreements like the EU. One example of this is by using the Shapley value, which is the average expected marginal contribution for one player and is a way to distribute the total gains to the players, assuming that they all collaborate. This is extremely useful because it considers which players have contributed more. Cooperative game theory is used to explain that even though in economic deals
such as trade agreements, one country may contribute more (in terms of risk or in their compromises in the agreement) but this country may also receive a greater payoff.This models a situation where both gains and costs are fairly distributed, and players are working in cooperation. Game theory is a tool which can help predict outcomes and where incentives lie, but it does not make a moral recommendation. It typically assumes each individual to be self-maximising, and so the outcome a person chooses should be that of the greatest benefit to them, however this is not always the case. Other factors that may influence a decision include a lack of perfect information, differences in the value people attribute to things, and emotions which can be unpredictable and imperfect.This is one of the limitations to game theory however game theory has still been immensely important into developing economic thought.
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THE EMANUEL ECONOMIST
ENVIRONMENT
CAN THE UK ACHIEVE ECONOMIC GROWTH AND PREVENT CLIMATE CHANGE? IN SEARCH OF THE KUZNETS CURVE Marley Upper Sixth Since the global financial crisis in 2008 UK economic growth rates have more than halved, according to the Financial Times, and post-COVID-19, the government has been desperate to implement policy to kick start the economy once more. However, in order to increase economic growth, it often comes at the cost of environmental damage, such as we have seen recently, with the UK deciding to open its first new coalmine in over 30 years in Whitehaven, Cumbria as a bid to increase UK energy supply and steel production to help stagnating growth. The mine is predicted to produce over 2.8 million tonnes of coal per year, predominantly for the production of steel, at the expense of the local environment, with the mine expected to produce over 400,000 tonnes of greenhouse gases per year, the equivalent of putting 200,000 cars on the road. There are many mixed opinions on the ethics of this project, with most environmentalists and Cumbrian locals arguing against its use, and pro-growth economists and governmental figures tending to argue that this increases in output will in the long run allow economies to clean up their environments and reduce pollution. But what is for sure is that in the short run, there is certainly a correlation between economic growth and increased pollution. Since 1990, there has been growth in global GDP of over 140%. In the same time period, CO2 emissions have also grown by over 60%, likely resulting from increases in production and output of economies, such as increases in industrial activity, mechanisation, technological advances etc. Using the example of China,
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since 1978, China’s GDP growth has averaged itself at 9% per year, the third fastest growing economy in the world. However, since 2013, China has emitted 80 billion tonnes of carbon dioxide into the atmosphere. To put that into perspective, since 1750, the UK has emitted just 78 billion tonnes of CO2, indicating that the rapid environmental decline that China is experiencing is resultant from its fastgrowing economy. This correlation is also true in reverse, for economies where growth is falling see improvements in carbon emissions, such as during the 2008 financial crisis, with GDP growth falling by 5.9% over 5 consecutive quarters, yet CO2 emissions fell by 1.9% in China, equivalent to 76 million tonnes. However, the argument that economic growth may not necessarily lead to an increase in greenhouse gases is supported by the Kuznets curve, which shows as economies progress towards a post-industrial service sector economy, the level of environmental degradation begins to decrease. Can economies ‘decouple’ from this positive correlation between economic growth and greenhouse gas emissions? Switching from fossil fuel-based to low-carbon energy sources can help sustain the same or even higher levels of production while reducing emissions. This is aided by general technological development and the ongoing digital transformation of the economy through the development of information and communication technology (ICT). Germany is a prime example of successful decoupling as a move towards its aim of being greenhouse gas neutral by 2045. 2022 statistics show that where the economy grew by 1.8%, greenhouse gas emissions decreased by 2%. The causes of the decreases in greenhouse gases was likely through phasing out of energy sources such as coal in replacement for other renewable sources, such as wind power, which in 2022 alone accounted for 46.2% of Germany’s overall electricity demand, compared to in 1990, where total combined renewable energy source output accounted for just 3.4% of electricity demand. The synergy between Germany’s economic performance in consideration
of the state of its environment supports the Kuznets curve theory (see below), as it has resulted from switches to more sustainable, future-proof growth methods. The question to be asked is the ability of other nations to implement decoupling policy in the same way as Germany and how successful this would be. There are certainly many economies, especially those still classified as developing or emerging may not have the infrastructure or the funding to do the same. Moreover, many developing governments will not necessarily care for what is happening to the environment as long as it delivers the economic performance their nation requires.
The Nobel laureate William Nordhaus suggests a more radical approach to help reduce the trade-off between economic growth and climate change by the introduction of a carbon tax. His approach includes a $40 tax per tonne of carbon emitted that ramps up over time, charging firms for the levels of pollution they emit, almost forcing them to reduce pollution and switch to other means of energy consumption. Although Nordhaus has been criticised for his approach, it is arguably the radical approach that the world needs to deliver the benefits of decoupling for economies across Kuznets curve.
THE EMANUEL ECONOMIST
ENVIRONMENT
THE ECONOMICS OF MEAT FREE MONDAYS A FLEETING TREND OR REVOLUTIONISING THE ECONOMY AND ENVIRONMENT? Yasmin Lower Sixth Meat Free Mondays is a simple notion that has been implemented into people’s routines globally, including here at Emanuel. Nonetheless, the effectiveness of Meat Free Mondays in terms of both cost savings and environmental benefits remains a passionately debated subject among students, leaving some individuals unsure on whether they should opt for the traditional Big Mac or environmentally conscious McPlant. The campaign was started in 2003 by Sid Lerner, the Founder of The Monday Campaigns with the intent of encouraging less consumption of meat and promoting us to consider the implications of our daily choices on the wellbeing of our planet. Livestock farming is a significant contributor to greenhouse gas emissions, claiming approximately 14.5% of global emissions, according to the UN.This is partly due to the extensive land use involved in raising livestock, a practice that leads to a multitude of environmental dilemmas such as deforestation, habitat loss and loss of biodiversity. Surprisingly, despite occupying nearly 80% of global agricultural land, livestock production only contributes to less than 20% of the world’s calories supply, highlighting the significance of what we eat rather than how much we eat in determining the amount of land required to produce our
food. This highlights that resisting the urge for a meat-heavy plate during Monday meals could result in a more effective allocation of land resources. Plant-based agriculture typically demonstrates greater efficiency in land use, requiring fewer acres to dish out the same caloric or nutritional yields when contrasted with the land-intensive practices of livestock farming. Livestock farming’s resource intensive production also requires significant volumes of water for their sustenance. A singular hamburger made with one quarter pound of beef requires 425 gallons of water to produce (enough to fill 10 bathtubs). This water use primarily comes from growing feed crops, raising the animals, and waste treatment. With a rapidly growing population that is expected to exceed 9 billion by 2050, according to the UN, the strain on these resources will intensify leaving opting for the McPlant a crucial step in ensuring a sustainable food supply for a soaring population. If the idea of completely abolishing meat for just one day a week does not seem feasible, it’s important to consider that not all meats are created equal when it comes to resource consumption. Making a simple switch from a steak to a roast chicken can have a significant impact on the sustainability of your meal. It’s a small change that packs a powerful punch in reducing resource intensity while still savouring a delicious dish. As people reduce their meat consumption in favour of plant-based proteins like beans,chickpeas, and lentils, the food industry is adapting accordingly. The rise in demand of plantbased proteins has led to a burgeoning market for plant-based food products, including meat alternatives, dairy substitutes, and protein-rich vegetables. Companies in this sector are experiencing increased sales and market share such as Beyond Meat and Impossible Foods which have both gained significant market presence.
A report by Meticulous Research forecasts that the global plant-based meat market is projected to reach $14.6 billion by 2027, with a CAGR growth rate of 13.4% from 2021 to 2030. This demonstrates the economic potential of meat alternatives. Unfortunately, many feel labgrown meat alternatives have not quite reached the level of replicating the flavours and nutritional value of traditional meat, leaving lentil burgers for lunch a shining example of plant-based culinary creativity. Even so, shifting consumer demand to plant-based meats is fuelling a substantial surge in investment by food companies into the research and development of new plant-based products, ushering significant innovation and breakthroughs in food technology, flavour and texture to mimic properties found within natural meats. As the meat alternative market continues to grow and consumer preferences evolve,businesses are increasingly recognizing the appeal that ‘Meat-Free Mondays’ can have in their restaurants. However, it’s crucial to emphasise that Meat-Free Monday is not just a catchy slogan to slap onto the front of menus as a superficial PR tactic without making any substantial efforts to improve sustainability. This movement goes far beyond mere token gestures, it represents a broader need for environmentally friendly day-today actions. In an era where customers are actively seeking out eco-conscious dining options, businesses must understand that Meat-Free Mondays should be part of a more comprehensive sustainability strategy rather than a mere facade. It’s about embracing the shift toward environmentally responsible practices and contributing to a greener future through authentic, long-term commitment. So, while the immediate benefits of passing on that appetising hamburger might not be readily apparent, if the world reduced its meat consumption by 15% (meatless Monday) it would have the same impact on greenhouse gas emissions as taking 240 million cars off the road each year. It’s these seemingly small sacrifices that sets in motion considerable environmental and economic change, guiding us one step closer to rescuing our planet.
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THE EMANUEL ECONOMIST
ECONOMIC HISTORY
REAGANOMICS: THE ECONOMIC REVOLUTION THAT REDEFINED AMERICA Hope Upper Sixth Ronald Reagan, former actor, and governor of California was elected President of the United States in 1980. He had a grand vision of how he wanted to change the American economy following a period of stagflation (high inflation and high unemployment) in the 70s. He was ideologically opposed to a large government; he thought that the government typically caused problems rather than solving them. It was this conservative ideological belief that defined his policies. Reagan pushed the image of the American Dream, believing that this could be achieved by hard work and determination, not through relying on the government. Originally the phrase ‘Reaganomics’ was coined by critics, but soon it was to be embraced by this name by almost everybody. There were four pillars in the proposals for Reaganomics: deregulation, cuts to domestic social spending, tax cuts, and reducing inflation. Reagan wanted to pursue deregulation to boost the productivity of businesses, in particular reducing environmental regulation; large areas of public land were opened for drilling oil. In addition, he deregulated deposit rates and restrictions on the financial services industry. During his time as President productivity growth measured in real GDP per workingage adult increased by 1.8%. However, it can also be argued that his deregulation of financial services started a trend which inevitably led to the 2008 financial crisis, with his successors pushing this further. Did he set a precedent for unnecessary deregulation, or was he simply following supply side economics? In addition, Reagan made cuts to domestic social spending. He supported a limited government with limited intervention and saw many areas of social spending as unnecessary and unhelpful. During his presidency he cut or reduced funding to domestic welfare programs including Food Stamps, Medicaid, and Social Security. Furthermore, he tightened the enforcement
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on benefits that disabled people received, a highly controversial decision which saw over 1 million recipients lose their benefits. Whilst partially ideological, the economic purpose of these policies was to reduce government spending and incentivise people to get back into jobs and to stop relying on the government. However, whilst he cut domestic social spending, he also increased defense spending significantly, by around 35%. This coupled with significant tax cuts meant that the US ended up with a significant budget deficit and subsequently, very high national
debt, increasing from 22.3% of GDP to 38.1% during his presidency. The tax cuts that happened under Reagan’s presidency are widely considered to be some of his most significant changes. Most notably when Reagan came into power the top rate of income tax was 70%, which was reduced to 28%. Reagan believed that lower taxes would incentivise people to work harder, and although he never referred to it as such, his ideas very much reflected ‘trickledown economics’. This reasons that if you give the wealthiest people and businesses more money, this will then trickle through the economy in the form of greater employment and spending. This is a widely debated and divisive theory. By engaging in policies like this, there was a more unequal distribution of income, causing wealth inequality to rise in the US, and the middle class was seen to decline.
The reduction of inflation might be considered Reagan’s most successful economic goal. Inflation fell from 14% to 4% throughout his presidency. This can mainly be attributed to the tight monetary policy that the Federal Reserve under Paul Volker pursued through high interest rates.Although the Federal Reserve is independent to the government, the president nominates the chair.Volker was initially appointed by President Carter but was reappointed by Regan. As during his presidency, the US overcame their stagflation problem, as inflation fell and employment generally rose, this can be seen as a successful part of Reaganomics. Reagan made other notable decisions in his time as President. He was very antiunion. When the Professional Air Traffic Controllers Organisation (PATCO) went on strike in 1981, Reagan boldly responded to these strikes, saying that if the workers did not return to work quickly, they would not retain their jobs. Subsequently around 12,000 air traffic controllers were fired. Whilst controversial, Reagan drew a hard line when it came to strikes, and the membership of unions in the US has dwindled significantly since its peak around the 70s. The shortterm economic impact of this is a reduction in strike days and greater GDP growth as there was less disruption to work. However, ignoring displeased workers leads to resentment and in the long-term lower productivity, so lower long-term growth, especially in these overlooked industries. Not only were Reagan’s economic policies extremely controversial, it can be argued that they set precedent for future decisions. Making such conservative decisions changed the American perception of government. Reagan pushed the idea that the big government was not helpful but rather the enemy, a sentiment which is now reflected by many Republican voters today in the opposition to more liberal changes to healthcare and education.
THE EMANUEL ECONOMIST
ECONOMIC HISTORY
WHAT WAS THE 2008 FINANCIAL CRISIS AND HOW DID IT SHAPE THE WORLD ECONOMY TODAY? Tom Upper Sixth The 2008 Financial Crisis (commonly referred to as the Global Financial Crisis) is widely known as one of the most significant and important economic events in modern history. So, what actually happened to cause such global turmoil, what were the impacts at the time and how did it shape the world economy today? One of the main reasons for the Financial Crisis was the housing bubble, in particular in the United States. In the years leading up to the crisis, house prices were relentlessly spiralling upwards, with many individuals being drawn to property ownership. Easy access to credit and low interest rates spurred the huge growth of home purchases, as countless people sought to become homeowners and investors. There existed a prevailing belief that housing prices would continue to rise indefinitely. At the core of this housing bubble, there was extremely lax lending practices within the financial industry. Mortgage lenders were handing out loans with minimal risk assessment, often requiring little to no down payment and disregarding creditworthiness. Labelled ‘subprime mortgages’, these loans carried significantly higher risks, while being frequently bundled together and sold as complex financial products. In simple terms, the banks were giving out loans to almost anyone who wanted to buy a property, with very few background checks, selling these loans on to investors, portraying them as safe, fool-proof investments. There was a widelybelieved assumption that these mortgagebacked securities (the mortgage loans which were sold on to investors) were completely reliable, with a booming housing market and a low reported amount of loan defaults. With more and more risky mortgages being issued, the housing market bubble continued to grow. However, it was only a matter of time until the bubble burst, with a few signs of trouble surfacing in 2007. The first cracks appeared as housing prices started to decline, due to an increase in interest rates, leading to a wave of mortgage defaults from those people who couldn’t afford their homes. By September 2008,
average U.S. housing prices had declined by over 20% from their mid-2006 peak. Major financial institutions across the world faced huge losses because of their exposure to the downfall of the mortgage-backed securities. Lehman Brothers, a highly reputed bank on Wall Street, was one of the first to file for bankruptcy, spreading huge uncertainty and panic across the world. This marked the beginning of a chain reaction throughout the financial system, stock markets plummeted, credit markets froze, and the economic growth rate fell below zero. Millions of people across the world lost their homes,
unemployment soared upwards, doubling in the US across the next year. Governments worldwide scrambled to prevent further economic damage by sending huge bailouts and stimulus packages to stabilise the global economy. In the UK, the government took Northern Rock into public ownership to prevent that following Lehman Brothers into insolvency, as well as taking large stakes in RBS and Lloyds Banking Group in order to ensure their survival. The Dodd-Frank Wall Street Reform and the Consumer Protection Act in the United States, and similar measures in other countries, aimed to address the main weaknesses that had surfaced during the Financial Crisis. These regulations were implemented worldwide around 2010 to prevent such a disastrous event from taking place again. Central Banks such as the United States Federal Reserve and the European Central Bank implemented a near-zero bank rates and significant Quantitative Easing to
stimulate economic growth and stabilise the financial system. Quantitative Easing is the process of a central bank creating more money to invest into bonds from the largest banks.This injection will hopefully allow these banks to invest and lend more freely, often reducing the interest rates. These devices, which once seemed illogical and impossible, have been added to the options available to these banks for preventing national and global economic downturns. Furthermore, the crisis has exaggerated the need for risk assessment and risk management for investors, credit providers and credit borrowers. It is clear that the idea of a completely bullet-proof investment with great reward does not exist. This was shown when the mortgage-backed securities collapsed, which were previously seen as some of the most reliable and rewarding investment strategies, by millions around the globe. The United States, and those other countries impacted by the crisis, have somewhat recovered from the damage caused by the colossal event. For the UK, there are obvious signs of the monumental damage to the economy as a result of the crisis. Gross Domestic Product (our measure for economic growth) is just 11% higher today than it was at its pre-crisis peak in 2007–08. As a result, the economy is 16%, or £300 billion, smaller than it would have been had it followed the pre-crisis trend. The idea of a repeated Financial Crisis is likely to haunt economists for decades to come, with the remembrance of the event still continuing to guide economic decision makers and national leaders around the world.
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THE EMANUEL ECONOMIST
COMPANY PROFILE
VINTED AND THE CIRCULAR ECONOMY REDEFINING FASHION SUSTAINABILITY Sophia Lower Sixth For decades the fashion industry has been known for its microtrends and mass production and, although many choose to ignore it, its negative impact on the environment. With new trends cycling in each year and going out the next it’s not hard to understand why an estimated 92 million tonnes of textile waste is created each year, according to the BBC. However, in recent years 90’s and 00’s trends have regained popularity and people have begun searching for sustainable unique pieces, which gave rise to the popularity of apps such as Depop and Vinted. Vinted was founded in 2008 and is a Lithuanian online marketplace which has over 45 million users, making it Europe’s biggest app for buying and selling used clothes, according to the Financial Times. In recent years, the cost-of-living crisis has caused Vinted to grow rapidly as consumers are looking to make easy money in a sustainable way. From it’s very beginning the
website, now app, was designed to extend the lifespan of clothes and accessories to help minimise the fashion industry’s ecological footprint and its growing success is due to its dedication in promoting the circular economy in the fashion industry. The circular economy model is where materials found in everything we produce are reused or transformed instead of being wasted.This differs from the linear economy model that has been adopted by many industries where items are discarded after use. The fashion industry has long
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been associated with the linear model where clothes typically have a lifespan of 2.2 years, according to the Guardian, before they are discarded. Another website called The Roundup found that only 1% of these discarded clothes are actually recycled with the majority ending up in landfill or being incinerated. Unfortunately, these statistics are caused by our consumerist society where strategic marketing and fast-evolving trends fuel our desire to cycle through trends at an accelerating pace. This is not only limited to fashion, but technology as well which requires scarce resources such as cobalt used in the production of microchips.That is why the development of website and apps including eBay, Facebook Marketplace, Depop and Vinted are so important in implementing the model of a circular economy and giving a new life to thousands of products. In recent years Vinted has grown more competitive as it is fee-free for sellers, unlike Depop, allowing people to sell items faster. Vinted items are typically cheaper than those on Depop and it’s not rare to find the exact same item on both apps, only the seller is selling it for half the price on Vinted. Sellers have recognised that their items will only sell for cheaper on Vinted, especially with the cost-of-living-crisis, and know to lower their prices to maximise their sales as the demand for second hand clothing is relatively price elastic. This has encouraged more sellers and buyers to join the app as consumers know that the prices are fair, and sellers know that there are
profits to be made. Gradually since 2008, the number of buyers and sellers have increased, which has allowed more clothes to be diverted from landfill and incineration sites and move the fashion industry away from the linear economic model. Vinted isn’t just a fashion marketplace, it is quickly becoming a catalyst for change in the fashion industry for its accessibility to consumers and wide range of items. Since 2008 it has been transforming consumers into sellers of their own clothes which has allowed them to promote an eco-conscious approach to fashion which aligns with the principles of a circular economy. As people are becoming increasingly aware of their carbon footprint and looking for ways to earn money during this cost-of-living crisis, platforms such as Vinted have played a vital role in creating a sustainable future for the fashion industry and serves as hope for the adoption of a circular economy in the future.
THE EMANUEL ECONOMIST
COMPANY PROFILE
THE RISE (AND FALL?) OF FARFETCH HAS THE ‘AMAZON OF LUXURY FASHION’ REACHED ITS PEAK? Vanessa Lower Sixth
THE BACKGROUND OF FARFETCH Farfetch is an e-commerce company focused on luxury fashion and beauty products.The company sells products from several hundreds of brands, boutique, and department stores globally; it has therefore managed to gain the nickname the ‘Amazon of fashion’. Founded in 2007 by Portuguese entrepreneur, Jose Neves, Farfetch has managed to rise to the occasion with its largest sales in Europe and the Middle East, closely followed by Asia. Headquartered in London, Farfetch has become a leading online luxury fashion retail platform with a vast network of over 1,300 luxury brands and boutiques from around the world. Disrupting traditional retail fashion, the company’s unique business model enables customers to shop for a selection of high-end fashion items, from footwear to jewellery, all through a single, user-friendly platform.
HOW DID FARFETCH BECOME SUCCESSFUL? Farfetch achieved its success through a combination of innovative strategies and a clear understanding of the evolving fashion and e-commerce industry.With their business model, the company allows customers to connect with a global network of luxurious brands and boutiques where they can seek hard-to-find fashion items all in one place. Farfetch has also prioritised technology and data analytics, using artificial intelligence
to enhance the user experience and to personalise recommendations to consumers who use the website. Moreover, the pandemic massively increased sales revenue for Farfetch. This was due to physical shops closing which led to an increase in popularity of online websites, Farfetch included. Due to this popularity, the
demand for the company’s products increased as well as their revenue. Additionally, strategic partnerships and a commitment to staying at the forefront of e-commerce trends have contributed to Farfetch’s position as a leader in the luxury fashion marketplace.
OPPORTUNITIES Luckily, there are many opportunities for a company like Farfetch. This includes an increase in the growth of online retail as many consumers are not turning to online for fashion. Farfetch has also managed to take advantage of opportunities to collaborate with luxury brands, designers, and retailers, offering exclusive collections and limited – edition items. THREATS
SWOT ANALYSIS STRENGTHS Firstly, Farfetch has a massive global presence which allows them to ensure a widespread customer reach, which allows access to luxury fashion worldwide. The company has also taken part in strategic partnerships, such as Reebok, which helps expand their market presence. Another strength of Farfetch is that its online marketplace model allows it to offer a wide range of luxury products, catering to customers looking for unique fashion pieces. WEAKNESSES Farfetch also carries some weaknesses including how the company relies on thirdparty boutiques and brands, making them vulnerable to changes in their partner network. Another weakness of Farfetch is that operating in the luxury fashion segment can be costly due to the need for premium customer service, marketing and maintaining relationships with high-end brands and boutiques.
This includes intense competition from firms in the online fashion retail industry. Examples of Farfetch’s competitors include Net-a-porter which is a leading online luxury fashion retailer that offers a selection of high-end fashion. Another competitor is Mytheresa which is another prominent luxury fashion e-commerce platform that offers a wide range of designer clothing. The biggest threat to this innovative firm that persuaded many luxury brands to embrace online sales, is that it has yet to reach breakeven because of high technology and marketing costs.
THE POTENTIAL DOWNFALL OF FARFETCH As of January 2022, Farfetch was a successful and prominent player in the luxury fashion industry. However, there have been many factors which have decreased the success of the company, the main being economic fluctuations where tastes from consumers have changed away from luxury ecommerce brands, impacting not only Farfetch, but its rivals too. Additionally, competition between businesses in the retail industry has really affected the success of Farfetch as there can be difficulties when trying to expand market share in such a competitive market. According to the Financial Times, Farfetch shares have slumped about 98 per cent since their 2021 peak, its market capitalisation crashing from about $26bn to less than $600mn today.
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THE EMANUEL ECONOMIST
DEBATE
THE ARGUMENT FOR A SMOKELESS GENERATION Dónal Lower Sixth As announced by the Prime Minister Rishi Sunak in early October and further confirmed in the King’s Speech on 7 November, the government plans to prohibit the sale of tobacco to all born in January 2009 or later, creating a better and brighter future for England’s children.This is a significant step towards the government’s plan for a ‘smoke free generation.’ Many believe this bill will be a huge blow for the UK economy, affecting not just the tobacco industry but also the government’s revenue from excise duties. However, this article will highlight why creating a ‘smoke free generation’ brings greater benefits to the UK economy and society. The first (and most obvious benefit) is the effect on healthcare services. Smoking is the UK’s biggest preventable killer, causing around 1 in 4 cancer deaths and 64,000 deaths a year in the UK alone. This puts a huge amount of pressure on healthcare services, with almost one hospital admission every minute attributable to smoking, and up to 75,000 GP appointments each month taken up by smoking-related illnesses.As a result, smoking costs the NHS around £2.4 billion each year in healthcare services, along with a further £1.19 billion for social care costs. This is a burden on the economy, as the government could be using these funds in more productive ways, such as investing in education to increase the productivity of workers. The effect of this bill may not be felt immediately, or even make a noticeable difference in the next few years, but will in the long run lead to a fall in government spending on healthcare and, by 2075, there will be up to 1.7 million fewer smokers in the UK, saving the government an estimated £85 billion in NHS spending, with the knock on effect of generally easing pressure on the health system. It is also important to note that the UK has an aging population; within the
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next 25 years, the number of people older than 85 will double to 2.6 million. An aging population will lead to a greater need for health and social care services and so the reduction of smoking-related illnesses will be even more pressing for the NHS. As regards to the wider economy, smoking reduces worker productivity. Not only do smokers tend to take longer and more frequent work breaks (to smoke), but they are also more likely than non-smokers to become ill while of working age, leading to an increase in worker absenteeism. Smoking also has the effect of decreasing concentration and it is noted that the overall
determination and ambition of smokers is lower than non-smokers overall. Action on Smoking and Health have estimated that this loss of productivity costs the UK’s economy £13.17 billion in just income tax each year. A study from the International Longevity Centre shows that if current or ex-smokers had never smoked, overall earnings could be 1.9% higher, boosting the UK economy by £19.1 billion every year. Smoking workers also lose a substantial proportion of their income to tobacco. On average, smokers smoke twenty cigarettes a day; with a packet of cigarettes costing £13.30, which equates to a spend of £93.10 per week, or £4,841.20 per year. For that you could buy a family holiday abroad, including hotel, flights and entertainment and spending money. Alternatively, the average food shop in 2020 for a family of four was £99.00 per week, meaning the average smoker spends
just over 48 weeks of food shopping a year on cigarettes. The cost to workers does not solely come from their direct purchase of tobacco, but also from the increased cost of their life insurance. From a life insurance perspective, smoking increases the risk of making a claim sooner, resulting in higher insurance premiums for smokers.According to a confused.com estimate, the average monthly premium for a smoker is £30, compared to £22 for a non-smoker. These costs add to a large amount of lost income each year, as this consumer spending leads to nothing but a wide range of negative externalities. In respect of existing government measures, a survey taken by YouGov found that 49% of adults in England think the government is not doing enough to address smoking. The 2006 ban resulted in only a 4% decrease in smoking among adults and clearly shows current measures, along with the advertising ban and package images, are not enough to effectively reduce smoking. The main economic argument against this effective ban on smoking is the lost revenue the government makes from excise duties on tobacco, thus negatively affecting the economy as the government is less able to reinvest to further boost it. However, I have found that in completely nominal terms, smoking is more of a cost to government than it is a source of revenue. Its costs add up to £17.04 billion each year, while the government’s revenue from tobacco tax last year was £10.2 billion, therefore making tobacco trade a £6.84 billion net cost to the UK government each year. This further justifies the prohibition of tobacco for all children born January 2009 and later as a completely rational action, and one that further ensures not only health and safety for the future generation, but also the sustainability of the UK’s economy.
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SUNAK IS WRONG TO BAN CIGARETTES Ates Lower Sixth The tobacco industry has been one of the main contributors to the UK economy, having two of the largest five Big Tobacco companies in the world. Started by the American industrialist James Duke, the tobacco industry started to sell heated tobacco in 1902, now producing a range of products from cigarettes to e-cigarettes to tobacco. Last October, the UK PM Rishi Sunak introduced a new law where people born after 1st January 2009 won’t be able to buy cigarettes legally, introducing a smoke free generation. Whilst Sunak intends to improve public health, the drawbacks of prohibiting cigarettes could have a larger impact in the UK. According to British American Tobacco, the tobacco industry generates £23 Billion per year in revenue in the UK, being a significant component of the economy as well as providing job opportunities. Banning cigarettes may lead to an economic fallout, leaving thousands of people jobless, as well as a government with a massive leakage in generating revenue. The UK government approximately makes £10.3 billion in tax revenue from tobacco products.The increasing revenue generated would lead to greater funding which could be used to improve living standards across the country through better quality investment in infrastructure. However, with the introduction of a smoke free generation, the tax revenue will significantly decrease and may well lead to an increase in the black market of tobacco. Prohibiting products usually leads to an increase in the black market. According to the British American Tobacco, around 372 billion cigarettes are being smuggled per year, leading to a tax avoidance of $40 Billion worldwide. This stolen revenue is used to fund illegal activities. Instead of having a healthy impact on humanity, the government would have to face the unintended consequences of an expanding black market. For some people, smoking is a tool to cope with stress and anxiety. Banning cigarettes, without introducing alternatives, could have a negative impact on work efficiency. People who are happy work
more efficiently and have greater work output and greater income. With the ban on cigarettes, workers will have one less tool to alleviate their stress and would have to potential to lower work efficiency across the UK, leading to a significant loss in GDP. What is behind the stress taking form of cigarette? People have tried multiple ways to create a tool that takes stress away without any short-term impacts. In the production of cigarettes, a chemical called dopamine is added and when inhaled, it makes the brain feel good for a certain period of time. However, dopamine levels deplete rapidly which leads to a smoker craving another cigarette. Also, a cigarette contains nicotine which is a highly addictive substance. Nicotine is the main reason people are addicted to smoking, leading to craving another cigarette. It is easy to say “We’re banning cigarettes” but is it that easy to deal with the consequences? The banning of cigarettes would lead to a greater amount of time being spent by the police tracking and prosecuting offenders, as the consumption of tobacco will become illegal for the majority of the population. This will create an opportunity cost for the police as they will not be able to spend sufficient time dealing with other crimes. In the future, cigarettes are likely to be a part of the drug trafficking which is one of the main reasons for organised crime groups to form.
Wouldn’t it be more beneficial if there was a drastic price increase via excise duty on cigarette prices rather than banning them? Higher prices would lead to less people buying due to not being able to afford them. According to the BBC, around one out of seven million smokers quit smoking in the past five years. Furthermore, due to the inelasticity of demand of cigarettes the Government could impose even higher taxes on them and receive an even greater amount of tax revenue which it could then use to mitigate against or manage some of the negative impacts of smoking. Despite the good intentions behind Rishi Sunak’s proposal to outlaw cigarettes, there are several issues that need to be taken into consideration. It puts individual liberties in jeopardy, creates a booming illegal market, and jeopardises the country’s economy. In addition, it casts doubt on the idea of personal accountability and can have unforeseen effects on wellbeing and mental health. A more balanced strategy that prioritises education, quitting smoking, and support for individuals impacted by smoking-related issues may be a more successful and considerate way to lower smoking rates and enhance public health than an absolute ban. It is crucial to find a balance between individual freedom and government action in the pursuit of a better society.
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ANIMAL SPIRITS BY GEORGE AKERLOF AND ROBERT SHILLER EXPOSING THE PRACTICALITY OF HUMAN BEHAVIOUR THAT ECONOMIC THEORY LACKS Daniela Lower Sixth How many times have you heard the term ‘rationally’ when being taught the theory behind the economic choices that cause significant shifts in economies and societies world-wide? The main assumption that underlines all macroeconomic theory is that producers and consumers will act ‘rationally’. All economic agents will therefore make their decisions with rational thought processes stemming from economic motives. However, if we are looking at this theory realistically and ‘rationally’, why are we not considering the factors that cause economic activity that is irrational, with non-economic motives, that occur constantly? Animal Spirits by George A.Akerlof and Robert J. Shiller explains how human psychology drives the economy; the fact that this is majorly ignored in traditional economic theory matters to our understanding of changes in the economy. Both Akerlof and Shiller are renowned economists, having won the Nobel prize in economics (separately), who wanted to provide people with a detailed explanation of what animal spirits are in modern day economics and why they are important.A term originally coined by John Maynard Keynes, animal spirits are ‘restless and inconsistent elements in the economy. It refers to our peculiar relationship with ambiguity and uncertainty.’ This definition alone does not capture the full meaning of the term or even begin to imply the extent of their effects in the economy; however, it is a good way of introducing the concept. Writing during the 2008 financial crisis, they use the current state of the global economy, focusing on the U.S., as one of many real-life examples of the causes and effects of animal spirits, including how they could play a part in the recovery from the financial crisis. Part one introduces each of the five animal spirits,which are easy to comprehend as they largely form a part of human psychology and emotions: confidence, fairness, corruption, money illusion, and stories. Each chapter has developed explanations that go hand in hand with examples to aid your understanding. Confidence is one of the most prominent animal spirits, as it seems to be of great
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importance in each of the historical scenarios (mainly recessions and depressions) that they explain, spanning over more than a century. No matter the generational or cultural differences in these time periods, confidence, or a lack of, is one of the key factors in economic change. Fairness and corruption can easily illustrate how these animal spirits are immeasurable, ever-changing elements of the economy as they are very subjective and do not always follow the line of rationality as expected. The authors outline how the ‘money illusion’ is present and influence people’s decisions, as consumers are somewhat deceived with nominal values as opposed to real inflationadjusted figures.This contradicts the traditional economic assumption of rational behaviour,
which assumes that every economic agent would be fully aware of all aspects of the economy in real terms. (This might be particularly relevant today as our ‘increase’ in wages is far outweighed by higher prices at the checkout!) Finally, the idea of ‘stories’ is surprisingly revealed to play a key part – the narratives of past economic events get passed on and change, and so influence markets and economic policy.
Part two applies these animal spirits and discusses fundamental questions in economics. For example, why do economies fall into depression? We understand that recessions form part of the boom-bust cycle, but what warrants the length and severity that classifies them as a depression, such as in the 1930’s? They question why there is a trade-off between inflation and unemployment in the long run, highlighting the importance of the effect of undermining fairness as the money illusion is present in the setting of wages.Why is saving for the future so arbitrary when it is so important? Typical economic theory alone does not provide a full answer; this is because we lack the inclusion of animal spirits that guide human behaviour. I found the language used in this book very sophisticated, as one would expect from Nobel Laureates, and sometimes more advanced than my current economic knowledge, requiring me to re-read sections to ensure I had understood.Whilst I could keep up with all the terminology, there were some passages that I struggled to process more than others, but in general I understood their point and how everything tied in together. The book is written clearly but could be classed as quite fast-paced for someone with limited economic knowledge and familiarity with economic concepts. I would recommend this book to those that have a developed understanding of economics and have an interest in deepening their understanding of how economies function taking real life into consideration. The most engaging thing about this book was the blend of psychology with economics as it added a new element to the previously ‘scientific economic theory’ I have been taught. The ideas they present in the book of understanding the economy and the way it changes in terms of animal spirits are provocative. The reasoning behind the complex web of decisions suddenly becomes more relatable in the sense that one can understand the causes of such significant economic events with more clarity, due to the familiar human psychology that takes place; it succeeds where the purely academic theory fails to explain, with cohesion, our reality.
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DOUGHNUT ECONOMICS: SEVEN WAYS TO THINK LIKE A 21ST CENTURY ECONOMIST BY KATE RAWORTH Sophie Lower Sixth Kate Raworth, often called the ‘John Maynard Keynes of the 21st century’ is a professor at Oxford University. Her book ‘Doughnut Economics’ proposes a new, hopeful outlook for a world where traditional economic thinking has often led to environmental degradation, income inequality, and social unrest. Raworth outlines the ‘Doughnut’ framework, which is the central concept of this book, by painting a picture of an economic sweet spot between the ‘social foundation’ and the ‘ecological ceiling’. By identifying this balance, Raworth offers us a future where it is possible to meet everyone’s needs without breaching the Earth’s ecological boundaries. Raworth puts forward seven core principles for rethinking economics, such as ‘Change the Goal’, ‘Nurture Human Nature’, and ‘Be agnostic about Growth’. Raworth’s clear and concise recommendations make it abundantly clear that a new approach to economics is not only necessary but achievable. The principle ‘Change the Goal’ suggests shifting from the traditional economic goal of endless GDP growth to
a more sustainable objective. It recognises the limitations of our planet’s resources and advocates for an economic model that focuses on improving well-being and reducing inequality instead of solely pursuing economic growth. The principle ‘Nurture Human Nature’ tells the story of the evolution of our self-portrait from the twentieth-century rational economic man who is self-interested, isolated, and ‘insatiable in his wants’ to the twenty-first-century portrait that is social, interdependent, and self-controlled.
The principle ‘Be agnostic about Growth’ suggests that constant never-ending economic growth may not be the best priority for an economy or even possible in some cases. There are no long-term (over several centuries) GDP growth graphs in any textbooks because it is so challenging to predict. Economists either have to find a way for economic growth to be sustainable or admit that there is eventually a limit to growth. Early economists drew an S curve when plotting GDP against time ‘acknowledging what most of their successors have since ignored’ that economic growth cannot continue forever. One of the most powerful aspects of this book is its unwavering optimism. Raworth doesn’t just criticize the shortcomings of traditional economics; she also offers a hopeful path forward. Her book proposes practical solutions, emphasizing the importance of circular economies and sustainable technologies. She also advocates for the importance of strong, progressive policies that ensure economic prosperity doesn’t come at the cost of social or environmental well-being. Raworth’s ‘Doughnut Economics’ is not without its drawbacks. Other critics of the book may argue that the proposed framework is too ambitious or that the transition to a doughnut-shaped economy is idealistic. They may also think that the ‘Doughnut’ model oversimplifies the complexities of economics by condensing it into a single diagram. Critics also question the feasibility of transitioning from current economic systems to the ‘Doughnut’ model as it could be disruptive, costly, and especially difficult for countries without an effective government. However, Raworth’s book serves as a crucial starting point for a conversation that’s long overdue. It doesn’t claim to have all the answers but provides a clear direction for a
much-needed shift in economic thinking. The diagram above depicts some research from Leeds University plotting 3 countries’ performance relative to the doughnut of social and planetary boundaries. It shows how according to the Doughnut Framework, Costa Rica could be seems as performing better than the UK, overshooting its ecological ceiling in fewer areas, despite having a lower national income per capita. In conclusion, ‘Doughnut Economics’ by Kate Raworth is a platform for change in a world that desperately needs it.With compelling case studies and a vision that is as inspirational as it is practical, Raworth demonstrates that we can reimagine economics to benefit both people and the planet. Raworth’s ‘Doughnut’ is a symbol of hope and a call to action for a more sustainable and fair future.
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ELON MUSK BY WALTER ISSACSON A PORTRAIT OF A TROUBLED GENIUS Mr J FitzGerald Teacher of Business and Economics Elon Musk is a divisive figure. The richest person in the world, he is the mastermind behind Tesla, PayPal, SpaceX and now the owner of X (Twitter). As a result, biographies of Musk can tend to take a side, either a visionary entrepreneur that has generated societal leaps forward in electric vehicle production and space science, or a egomaniacal tyrant who has destroyed Twitter. But this biography of Musk is worthwhile due to its author, Walter Issacson, who brings a balance and rigour to his assessment of Musk and his character. Issacson is known for his superb biography of Steve Jobs (well worth a read in its own right) that was released shortly after his death in 2011.Thoroughly researched, with hundreds of hours of interviews with Jobs over two years and hundreds of interviews of colleagues and rivals of Jobs, it provides an unflinching account of his driven personality and undoubted genius. It was so unflinching that Jobs’ family didn’t like it, which shows how balanced Issacson’s work is. He researched this biography of Musk in the same fashion and provides a picture of a ferociously driven and brilliant but deeply flawed leader who often risks hubris. Musk had a tough childhood growing up in South Africa, where he was bullied in school and, after his parents divorced, suffered emotional abuse from his father. The psychological impact of his childhood is seen to be a determining factor behind his ferocious drive, as if his relentless success would prove him right against his bullies and father, from whom he is now estranged. His maniacal intensity and focus on developing new innovative products, that he feels will make an impact on humanity, is the double-edged sword of Musk’s personality. After founding Zip2 with his brother Kimbal, Musk founded X.com which later merged with PayPal, becoming its CEO. But in both instances Musk’s abrasiveness and free attitude towards risk taking meant he was ousted as CEO twice in three years in the late 1990’s.When PayPal was bought by eBay, Musk got a payout of around $250million,
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which became useful founder finance for his later ventures like Tesla and SpaceX. From here, Musk revolutionised electric car manufacturing withTesla;built reliable reusable rockets with SpaceX, generating billions of dollars in NASA contracts; developed satellite internet infrastructure with Starlink, which provides internet links to Ukrainian forces, and gives Musk huge political power; and a new AI company called xAI, not to mention the Boring Company and Neuralink.
I was fascinated by the insight Issacson proves into the type of autocratic leader Musk is. Moving between his various businesses, he declared ‘surges’ on projects he felt were not progressing as fast as he would like, declaring that Space X would launch a new rocket in a few days without consulting his engineers, or that Tesla would increase capacity to produce 5,000 electric cars per week, which at the time was unfathomable. These surges were hardcore, a term Musk often used about work ethic, questioning every element to increase the speed of the production process, spending nights sleeping on the factory floor, and pushing employees to breaking point (once recalling his brother
from his honeymoon to help with a Tesla battery factory). Here Musk has clear parallels with Steve Job’s ‘reality-distortion field’, which pushed the boundaries of technological capabilities, but also of what is generally acceptable behaviour. Lashing out at junior employees,rubbishing ideas as‘the most stupid thing I have ever heard’ and firing workers on a single bad impression were regular features of his unempathetic behaviour.This nasty side also came out in his relationships, calling one of his wives a ‘moron’ and an ‘idiot’. Isaacson draws parallels between Musk and his father’s manipulative and abusive behaviour. Reading this book, it is hard to come away with a positive view of Musk. An amazing visionary and talent, yes, but not the type of person you would like your son to become. Musk’s purchase of Twitter encapsulates the reckless elements of his behaviour. At the time, his companies were thriving, and he had become the wealthiest person in the world. But his penchant for verbal spats on Twitter was addictive (getting him into legal trouble on occasion; see ‘funding secured’ and ‘pedo guy’), as well as a relentless and sometimes reckless nature that never allowed him to settle in life. So, he made an offer of $44billion, far above Twitter’s market value, then tried to put the deal ‘on-hold’ as he got cold feet, supposedly due to the number of spam accounts, and was then sued by Twitter shareholders keen to cash in on this well-above market offer. As a result, Musk was forced to buy Twitter for $44bn, with $13bn of debt, requiring an annual service cost of $1bn. Advertisers left in droves, fearing reputational damage of being associated with the loose cannon Musk, which decimated revenues. He then proceeded to fire 80% of the workforce and completely transform the culture of the organisation from one of the most nurturing workplaces to the other extreme. Fortune recently reported that Twitter, now called X, is only worth $4bn, a loss of 90% of its value. For a person whose vision through SpaceX to allow humans to colonise and live on Mars (seriously), it seems with Twitter that Musk, like Icarus, has finally flown too close to the sun.
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GOING INFINITE: THE RISE AND FALL OF A NEW TYCOON BY MICHAEL LEWIS ANOTHER PORTRAIT OF A TROUBLED GENIUS Olly Upper Sixth In this book, Michael Lewis, the celebrated American author behind The Big Short and Moneyball, tells the story of the rise and fall of Sam Bankman-Fried, an American entrepreneur who was the founder and CEO of the cryptocurrency exchange, FTX, and its associated trading firm, Alameda Research. BankmanFried was ranked the 41st richest American and the wealthiest person in the world under 30, with a net worth of $26 billion before his highprofile chapter 11 bankruptcy in 2022. He was convicted on multiple charges of fraud in a Manhattan federal court on 2 November 2023. ‘Going Infinite’ is a dual narrative about the spectacular rise of Bankman-Fried alongside the growing ambiguity surrounding his character. Lewis describes him as an exceptional mathematician turned billionaire, driven by a vision to use his wealth for global benefit. He tells an exciting story of his growing success, with interesting anecdotes and fascinating descriptions of his life. However, his narrative gradually uncovers a more problematic side to Bankman-Fried’s personality, uncovering the moral complexity of his character to reveal his questionable ethics and professional mismanagement, as well as a disregard for professional integrity, ultimately leading to his involvement in a series of fraud charges. Lewis apparently shadowed Bankman-Fried for nearly a year with the intention of writing a book and came away impressed when he first met him two years ago, at a time when his crypto exchange FTX was highly successful, and many were speculating that he might become history’s first trillionaire. However, he could not avoid recording the facts around Bankman-Fried’s downfall. Bankman-Fried improperly used nearly $10 billion of FTX customers’ deposits to pay debt obligations of Alameda, a trading firm that he also founded. As crypto prices fell throughout 2022, a run on deposits left
FTX with an $8 billion shortfall, forcing the firm to file for bankruptcy in November 2022. This exposed a potential conflict of interest between the two associated businesses leading to the fraud case which Bankman-Fried is now involved in. It has also destabilised other crypto companies and created widespread distrust of the technology that is used in these exchanges.
Lewis tells a compelling story, transforming complex financial concepts into an engaging narrative accessible to all readers. Nevertheless, the book struggles to reconcile the duality of its central character, alternating between portraying BankmanFried as a visionary with noble intentions and an individual whose actions often border on arrogance and irresponsibility. Lewis does appear to have some admiration for Bankman-Fried, which explains his apparent reluctance to interrogate his flaws or the darker aspects of his behaviour. For critics, this raises concerns about the thoroughness
of the depiction of his character and whether Lewis has some possible bias in his portrayal, which impacts the reliability of his narrative. The evidence against BankmanFried was clear as he was recently convicted of money laundering and fraud, likely to send him to prison for several decades. He was accused of orchestrating ‘one of the biggest financial frauds in American history’ after an $8bn hole in FTX collapsed his crypto hedge fund, Alameda, and consequently FTX. Alfred Lin, who led venture firm Sequoia Capital’s $225 million investment into FTX, claimed that he ‘misled and deceived so many, from customers and employees to business partners and investors’. Lewis’ portrayal of Bankman-Fried’s journey raises pertinent questions about the unchecked power of wealth and the ethical implications of individuals wielding enormous financial influence. It serves as a cautionary tale, highlighting the dangers of unbridled ambition and the potential consequences of prioritising personal gain over ethical responsibility within the volatile world of cryptocurrency and highstakes finance. In this context it implies the need for greater scrutiny and accountability in the face of unchecked financial expertise, emphasizing the importance of transparency and ethical conduct in today’s society and the global economy. Overall, ‘Going Infinite’ is an engaging narrative which encourages critical reflection on the complexities of wealth, ambition and ethical responsibility, although Lewis’s reluctance to confront BankmanFried’s moral ambiguities may leave readers questioning the depth of the portrayal. Despite this, the book serves as a timely reminder of the pitfalls of unbridled ambition, urging a more conscientious approach to wealth, power, and ethical decision-making in the modern world.
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