IN DEMAND
by Habs Economics Society
04
EDITOR’S NOTICE
A small message from the editing team 05 07 09 10 11 13 14
TRUMPONOMICS: BOLD PROMISES, MIXED RESULTS AND ECONOMIC LESSONS FOR THE FUTURE
Explore the impact of sweeping tax cuts, trade policies, and job creation plans, revealing a complex mix of triumphs and setbacks under a Trump administration
IKEA: A CASE STUDY IN ECONOMIC EXCELLENCE
Discover how a small Swedish furniture company revolutionised the industry and grew to dominate the market with innovative strategies, global expansion, and a keen understanding of consumer behaviour
READING LIST
Three Fascinating Reads: Exploring Capitalism’s Evolution, the Legacy of Conservative Economics, and the Innovation That Shrank the World
CHRISTMAS FOOD ADVERTS AND GAME THEORY
How Game Theory Explains the Christmas Ad Battle Between Retail Giants
MONEY MATTERS: FRIEDMAN AND SCHWARTZ’S TAKE ON MONETARY POLICY IN THE GREAT DEPRESSION
How the Federal Reserve’s missteps turned a crash into a catastrophe Friedman and Schwartz reveal the monetary policy failures that deepened the Great Depression
GREEN GOLD RUSH: HOW DEVELOPING NATIONS CAN LEVERAGE CRITICAL MINERALS FOR GROWTH
An examination on how developing nations can capitalize on the growing demand for critical minerals in clean energy production
BRICK BY BRICK: UNPACKING THE UK HOUSING MARKET CRISIS AND ITS RIPPLE EFFECTS ON THE ECONOMY
An examination of the knock-on effects of the UK housing crisis
Editors letter
As we enter a new year, we reflect on the dynamic and ever-changing landscape of economics Understanding how different economic forces interact and shape our world is essential, and this issue of ‘In Demand’ delves into some of the most intriguing aspects of the subject
This edition includes a range of articles that explore pivotal themes in both historical and contemporary economic thought One of the key pieces looks back at the Great Depression, with Friedman and Schwartz’s insightful analysis of monetary policy during that turbulent period Their work remains highly relevant today, as the debate on central banking and monetary policy continues to evolve We also take a closer look at the recent era of "Trumponomics," examining its bold promises and mixed results, while drawing valuable lessons for the future
On the practical side, we have a compelling case study on IKEA, an example of economic excellence in both production efficiency and international trade strategy The piece explores the global success of the company and how its business model continues to influence industries worldwide
Following the festive season, we’ve also included a fascinating article by Dr StJohn, which applies game theory and the Nash Equilibrium to the competitive nature of Christmas food advertising in supermarkets. This piece blends economics with cultural trends, offering a fresh perspective on a topic that is far more complex than it may initially appear. In addition, we turn our attention to global development with a focus on critical minerals. As developing nations increasingly turn to these resources, the "Green Gold Rush" is set to play a pivotal role in the next phase of economic growth, reshaping markets and industries on a global scale. Lastly, we examine the UK housing market, unpacking the factors contributing to the crisis and the wider economic ramifications that affect individuals, businesses, and government policy.
We trust that this issue will provide you with fresh insights and thoughtprovoking perspectives on key economic topics. Whether you're interested in historical lessons or contemporary issues, we hope you’ll find articles that resonate with your interests and provide new angles on the world of economics
Best wishes, The In Demand Team
Trumponomics: Bold Promises, Mixed Results and Economic Lessons for the Future
Introduction
Trumponomics, Trump’s bold economic vision, promises a revitalised America through sweeping tax cuts, protectionist trade policies, and ambitious job creation initiatives. At its heart are reduced corporate taxes to stimulate investment and growth, and tariffs targeting imports to bolster domestic manufacturing. Beyond these headline policies, Trump launched plans to launch initiatives like Opportunity Zones and the $500B ‘Platinum Plan,’ both designed to improve economic growth and job creation in underprivileged communities Will Trumponomics deliver on its promises, or is it more style than substance? This article dives into the numbers and narratives of his previous Presidential term to tackle the promises, pitfalls and long-term lessons of Trumponomics t
Tax Cuts and Economic Growth
The Tax Cuts and Jobs Act (TCJA) of 2017 represented one of the most significant overhauls of the U S tax code in decades The policy was grounded in the supply-side economic theory,
, often called "trickle-down economics," which postulates that reducing the tax burden on corporations and high-income earners incentivises investment, increases productivity, and ultimately benefits the broader economy. The TCJA aimed to create a more competitive corporate tax environment by lowering the top corporate tax rate from 35% one of the highest among OECD (Organisation for Economic Cooperation and Development) countries to 21% This reduction was coupled with provisions allowing full expensing of certain capital investments, encouraging businesses to reinvest earnings into equipment and technology.
Additionally, the act shifted the U S from a worldwide tax system, where corporations paid taxes on all income regardless of where it was earned, to a territorial system, taxing only domestic profits This shift was intended to stem the outflow of profits to tax havens and bring offshore earnings back into the U S economy The economic rationale for these changes rests upon several key assumptions By lowering the effective corporate tax rate, the TCJA sought to reduce the cost of capital,
theoretically encouraging businesses to undertake new investments in infrastructure, innovation, and workforce development
Supporters argued that these investments would drive long-term economic growth and increase wages by improving worker productivity. The act also included changes to individual income taxes, such as doubling the standard deduction and reducing the number of tax brackets, which aimed to increase disposable income for middle-class households and stimulate consumer spending
On the other hand, the TCJA’s reliance on supply-side economics has drawn criticism for its assumptions about the responsiveness of businesses and individuals to tax incentives While the policy boosted corporate after-tax profits, much of this windfall was funnelled into stock buybacks totalling $806 billion in 2018 rather than directly contributing to wage growth or new hiring Stock buybacks are when a company reduces the total number of shares by purchasing its own stock, in effect giving more of that profit to remaining investors rather than reinvesting those profits for business growth This reflects a disconnect between theoretical models and realworld corporate behaviour, illustrating how corporations prioritise shareholder value over broader economic gains in practice.
In essence, the TCJA reflects the broader ideological debate surrounding supply-side versus demand-side economics By prioritising corporate incentives and reducing taxes on highincome earners, the act embodies a supply-side approach, emphasising investment and productivity as drivers of economic growth
On the other hand, the broader economic costs and retaliatory measures by trading partners significantly offset these gains by straining international relations and disrupting global supply chains By mid2019, American businesses and consumers had paid an estimated $46 billion in additional costs due to tariffs, with industries reliant on imported goods, such as automotive manufacturing and agriculture, bearing the brunt of the burden Retaliatory tariffs imposed by countries like China, Canada, and the European Union further exacerbated these challenges. For example, U S soybean exports to China plummeted by over 50% between 2017 and 2019, resulting in billions in losses for American farmers.
However, its uneven distribution of benefits and questionable long-term impacts highlight the challenges of translating economic theory into effective policy
Protectionism and Tariffs
The protectionist trade policies enacted during the Trump administration were a cornerstone of Trumponomics, representing a sharp departure from decades of U S support for free trade These policies were largely driven by the administration’s belief that global trade imbalances and unfair practices, particularly by China, were harming American industries and workers
Central to this agenda were significant tariffs imposed on a wide range of imports, including steel, aluminium, and over $360 billion worth of Chinese goods These tariffs, averaging between 10% and 25%, were justified on grounds of protecting national security, preserving critical industries, and reducing the U S trade deficit
Economically, these policies were rooted in neo-mercantilist principles, which emphasise trade surpluses and the protection of domestic industries as a path to national prosperity By raising the cost of imports, tariffs were intended to incentivise domestic
production, create jobs, and reduce reliance on foreign goods. For instance, the tariffs on steel and aluminium aimed to revitalise the struggling U S metals industry by shielding it from cheaper foreign competition, particularly from China Similarly, tariffs on Chinese technology and electronics were part of a broader strategy to challenge China's industrial policies, including its controversial state subsidies and alleged intellectual property theft
Proponents of these policies argued that they would restore a level playing field and enhance America’s industrial base
On one hand, U S steel production did experience a temporary rebound, with capacity utilisation rising from 73% in 2017 to over 80% by late 2018 Some manufacturers and industries reported increased domestic demand and job creation in the short term. Additionally, the trade deficit with China narrowed slightly in 2019, dropping from $418 billion in 2018 to $345 billion These outcomes were cited as evidence that protectionist measures could deliver tangible benefits
A Case of Snake-Oil Economics
A snake-oil salesman might sell you a magic potion, saying it will solve everything, but in reality, might just be snake oil, causing more problems than it solves Similarly, Trump’s economic policies, characterised by aggressive tax cuts, protectionist trade policies, and deregulation, has often been criticised as a form of snake-oil economics due to its reliance on exaggerated promises and selective presentation of short-term gains while ignoring long-term consequences For instance, the 2017 Tax Cuts and Jobs Act (TCJA) slashed the corporate tax rate from 35% to 21%, with claims that the move would unleash a wave of investment and create sustained economic growth. While corporate profits did surge, with U S companies reporting a record $2 53 trillion in profits in 2018, capital expenditures by corporations grew only 2 7% in 2019, far below the anticipated boom Additionally, wage growth for middle-class workers remained stagnant, with real median household income increasing by just 1 8% annually between 2017 and 2019 hardly the transformative effect promised, having little tangible economic benefits for the average American Another contentious aspect of Trumponomics is its disregard for fiscal sustainability Despite Trump's campaign promises to eliminate the national debt, his administration added nearly $7 8 trillion to it an increase of roughly 39% due in part to the tax cuts and increased federal spending By 2020, the federal deficit had ballooned to $3 1 trillion, nearly triple the previous record of $1 4 trillion in 2009, driven by COVID-19 relief spending but exacerbated by pre-pandemic structural imbalances This debt-driven growth model raises questions about its sustainability, with interest payments on the debt projected to exceed defence spending by 2029 Economists argue that such short-term boosts, financed by borrowing, are emblematic of "snake-oil economics" creating the illusion of prosperity while leaving future generations to bear the burden
Conclusion
If Trump’s second term mirrors the economic strategies of the first, the U S is likely to experience an environment characterised by heightened protectionism, fiscal strain and policy uncertainty Overall, while Trumponomics might maintain the appearance of economic growth through measures like tax reductions, its longterm effects could exacerbate structural weaknesses and inequality, leaving the U S economy in a precarious position for the future
by Gautham Arun
IKEA: A Case Study in Economic Excellence
IKEA was started in 1943 by the seventeen-year-old Ingvar Kamprad Initially, IKEA focused on mail-order sales of small goods like pens and wallets. Five years later, as a reward for his performance in school, Ingvar’s father invested a small sum of money in his son, allowing him to transition into selling furniture. Ingvar strove to provide the best prices available but not at the expense of quality He described his approach as keeping prices low through “a high turnover, direct delivery from the factory and very low overheads” IKEA still tries to adhere to the philosophy of maintaining low prices to this day Throughout the 1950s, IKEA expanded its presence over Sweden and introduced its revolutionary flat-pack packaging Over the coming years, IKEA opened locations across Scandinavia and the rest of Europe They now own locations in all habitable continents, with over 400 stores in more than 50 countries worldwide.
IKEA is now a household name, known for its affordable yet stylish furniture but IKEA’s success isn’t just about its products it’s about how the company has leveraged economic principles to maximize growth and efficiency
Keeping Prices Low
They now own locations in all habitable continents, with over 400 stores in more than 50 countries worldwide IKEA is now a household name, known for its affordable yet stylish furniture but IKEA’s success isn’t just about its products it’s about how the company has leveraged economic principles to maximize growth and efficiency The most notorious example of this is IKEA’s iconic flat-pack packaging This involves intentionally designing items to be assembled from flat basic shapes that can fit precisely into as thin a box as possible
Donal Trump’s Official Presidential Portrait
The repercussions of this approach have been crucial in IKEA cutting costs throughout IKEA’s supply chain Firstly, since IKEA aims to strip furniture down to its base requirements, less resources are expended per item and thus IKEA pays a lower cost for manufacturing per item Secondly, since the flat packs occupy less space, more of them can be transported from a factory to a franchise at once, resulting in cheaper transportation costs Furthermore, more items can be stored in a warehouse at once leading to a higher possibility of sales Additionally, the lack of assembly allows IKEA to cut labor costs These cost cuts in conjunction are what allow IKEA to maintain such low, competitive prices for their products
Global Transport and Supply Chains
In a similar vein, the manner in which IKEA manages its global transportation network contributes to their astoundingly low prices IKEA coordinates with suppliers and manufacturers to ensure that their product arrives just in time to warehouses for sale (JIT), utilizing ‘demand sensing’ to prepare for times of increased demand and ensure their supply chains are ready to respond quickly to changes in the market This approach allows IKEA to slash costs as less money is expended on storage and handling. Similarly, since products are sold quickly upon arrival at a warehouse, there is a smaller risk of products depreciating over their shelf life. Ordering products to correlate with demand decreases the chance of overstocking which would be counterproductive in selling items It also allows a certain degree of flexibility, meaning IKEA can respond to shifts in demand as the in-store supply is kept low and constantly restocked
However, the JIT system relies on smooth, timely deliveries from suppliers
Any disruption in the supply chain such as transportation delays, labor strikes, or natural disasters can lead to stockouts Additionally, IKEA’s reliance on suppliers to deliver components or finished goods just in time for sale can make the company vulnerable to supplier-related issues, such as capacity
constraints, quality problems, financial instability or bottlenecks JIT inventory systems are built around forecasts and typically carry limited stock If there’s a sudden, unexpected increase in demand for a particular product, IKEA may struggle to restock quickly enough to meet customer needs, leading to missed sales opportunities JIT requires frequent deliveries of smaller batches of materials or products
This can increase overall transportation costs, especially for IKEA, which operates on a global scale. Additionally, any logistical failures or errors can cause over or understocking of an item, introducing inefficiencies into IKEA’s supply chain, detracting from potential profits
Economies of Scale
IKEA benefits greatly from economies of scale, as the mass production of their goods works well in conjunction with the nature of IKEA’s products The mass production of IKEA products allows them to cut costs across the board IKEA’s mass production allows them to spread the fixed costs of production (capital, overheads etc ) over many products allowing them to have a lower price per unit, reducing total costs Additionally, the large production volumes allow IKEA to purchase raw materials in bulk, leading to lower expenditure on manufacturing Similarly, it allows IKEA the ability to more effectively reduce inefficiencies in their production as they can invest in particular areas of the supply chain to improve their efficiency
IKEA has substantial investments in its wood providers, especially in Eastern Europe where they have purchased extensive plots of forest From here, IKEA has built numerous plants capable of manufacturing multipurpose boards and through their subsidiaries they have further amassed control over the manufacturing of their products For example, through Swedwood (an IKEA subsidiary specializing in the manufacturing and distribution of woodbased products) , IKEA can harvest their own resources, while maintaining environmental safety
In terms of forward integration IKEA owns and operates its stores worldwide, allowing them direct access to consumers, eliminating the cost of any third parties IKEA owns its own transport network with a large range of warehouses and distribution centres, granting them further control and oversight of their operations IKEA has even invested in its own container ships, allowing them to maintain administration of their transport network to ensure apt management
This allows them greater oversight and influence over their supply chain meaning they can cut costs associated with any middlemen (i e transport, production) Furthermore, IKEA has the liberty to reduce any inefficiencies when they see fit in their supply chain, allowing them to maximize their output Additionally, it strengthens IKEA’s negotiating power allowing them access to cheaper goods from suppliers IKEAs network of suppliers and manufacturers spans across the globe; from factories in China to loggers in Eastern Europe IKEA’s global reach has allowed them to further cut costs on their products and expand their company IKEA can take advantage of lower material and labour costs in countries like China, Poland and Vietnam, allowing them to cut costs. Additionally, IKEA can mitigate the risks of supply chain disruption by sourcing materials from all over the world This allows them to quickly adapt and respond to market changes, as their supply is not dependent on any one supplier
However, significant competition still exists in the furniture market which IKEA is forced to grapple with With such a plethora of substitutes to IKEA’s goods, the homogeneity of these goods and the low barrier of entry to the contestable furniture market, IKEA is forced to rely on various business strategies to continually retain its market share (approx 7 5%)
Behavioural Economics
One of IKEA’s most fascinating strategies is its use of behavioural economics to influence consumer behaviour inside the store The layout of IKEA stores is designed as a continuous one-way path, which leads customers through different sections This design encourages people to see more products, increasing the likelihood of impulse purchases Additionally, IKEA stores lack windows and clocks, which subtly encourages customers to spend more time inside
Typical Example of an IKEA Flatpack
Example of an IKEA warehouse
The longer people stay in the store, the more they are likely to buy Another clever strategy is the placement of the food hall in the middle of the store This gives shoppers a break, but also encourages them to stay longer and continue shopping after their meal. IKEA also uses the 'treasure hunt' experience, where customers are constantly discovering small, affordable items as they navigate the store. Lastly, IKEA uses the anchoring effect placing higher-priced items next to lower-priced alternatives to make the latter seem like a better deal.
In conclusion, IKEA's success as a global furniture retailer stems from its innovative application of economic principles and its commitment to cost leadership By mastering efficient production and supply chain strategies, such as flat-pack packaging and just-intime inventory, IKEA has maintained its ability to offer affordable, stylish furniture to consumers worldwide Its economies of scale, vertical integration, and strategic investments in raw materials and manufacturing further reinforce its competitive edge, ensuring sustained growth and profitability Additionally, IKEA's behavioural economics strategies within its stores enhance customer experience and drive sales, solidifying its market presence despite fierce competition Ultimately, IKEA's blend of operational efficiency, global reach, and consumerfocused innovation has established it as a household name and a model for business success in the modern era The company’s relentless pursuit of quality at affordable prices continues to resonate with customers across diverse markets, ensuring its legacy as a leader in the furniture industry
by Benjamin Sivalingam
Recommended Books
Burns
The first full biography of America s most renowned economist Milton Friedman was alongside John Maynard Keynes the most influential economist of the twentieth century His work was instrumental in the turn toward free markets that defined the 1980s and his ful -throated defenses of capitalism and freedom resonated with audiences around the wor d It’s no wonder the last decades of the twentieth century have been called “the Age of Fr edman” or that analysts have sought to hold him responsible for both the rising prosperity and the social ills of recent times
In Milton Friedman, the first full biography to employ archival sources, the historian Jennifer Burns tells Friedman’s extraordinary story with the nuance it deserves She provides lucid and l vely context for his groundbreaking work on everyth ng from why dent sts earn less than doctors, to the vital importance of the money supply, to inflation and the limits of government planning and stimulus She traces Fr edman s long-standing collaborations with women including the economist Anna Schwartz; his complex relationships with powerful figures such as the Federal Reserve chairman Arthur Burns and the Treasury secretary George Shultz; and his direct nterventions in policymaking at the highest levels Most of all, Burns explores Fr edman s key ro e n creating a new economic vision and a modern American conservatism The result is a revelatory biography of America s first neoliberal and perhaps its last great conservative
by Marc Levison
In April 1956 a refitted oi tanker carried
IKEA retail sales for financial years 2022, 2023 and 2024
An IKEA floorplan
Techno Feudalism: What Killed Capitalism by Yanis Varoufakis
Milton Friedman: The Last Conservative by Jennifer
Christmas Food Adverts and Game Theory
One of the surest signs that Christmas is approaching is that from November each year our screens are awash with expensive adverts by the major retailers Marks and Spencer, Tesco, Asda and of course John Lewis. Why do these retailers advertise so much? It’s slightly odd, since, really, few people need to be reminded to buy food for Christmas, and the costs of these adverts are very high according to Forbes, the John Lewis advert this year cost $8m It is quite likely that the various retailers would be better off not advertising at all, and just enjoy the pure benefit of the increased Christmas spending This, of course, is just what does not happen And game theory helps to explain why Why do firms advertise at all? In most cases it’s not to increase total demand for the given product they make; it is, rather, to increase their share of the total market Food adverts at Christmas will, probably, make each of us buy a bit more food But the reason Asda or Sainsburys advertise is so that we buy our Christmas food from them and not some rival The problem is, they are essentially locked in a Prisoner’s Dilemma
Consider two rival retailers, Tesco and Sainsbury’s Their payoffs from advertising are as follows (in millions of pounds) In each box the payoff to the Row player is given first (Tesco) and the payoff to the second player (Sainsbury’s) is given second
The Nash Equilibrium for this game is for both firms to advertise, even though they would both be better off if neither advertised (so the outcome is similar to a Prisoner’s Dilemma, when both prisoners would be better off being silent but both confess) Starting with Tesco, if Sainsbury’s advertises, Tesco will need to advertise too, since if it does not its share of the Christmas market will be squeezed and its profits will be only £20m, whereas if it advertises its profits will be £30m So we put a tick next to Tesco £30m payoff in the top left hand box But if Sainsbury’s does NOT advertise, Tesco will benefit even more by advertising as it can gain market share from the silent Sainsbury’s, so hence we put a tick next to the payoff to Tesco of £70m in the top right hand box Obviously, ‘Advertise’ is Tesco’s Dominant Strategy it will run a Christmas advert whatever Sainsbury’s does The same reasoning applies for Sainsbury’s. So, if Tesco advertise, Sainsbury’s will do better to advertise too, since their payoff then will be £30m, compared to only £20m if they don’t advertise So place a tick next to £30m for Sainsbury’s payoff in the top left hand box And if Tesco do NOT advertise, Sainsbury’s will do even better and earn £70m if they advertise and thereby take market share off Tesco. So we place a tick next to £70m for Sainsbury’s in the bottom left hand box
As can be seen, the only box with two ticks is the top left-hand box where both retailers run Christmas adverts and earn £30m in profits each This is the Nash Equilibrium which means that, in the light of what the other retailer does, neither retailer regrets its decision to run a Christmas advert campaign By contrast, suppose Tesco had decided not to run a campaign and now it finds Sainsbury’s has well then Tesco would regret that decision and would (if it could) reverse it, since by not advertising it makes only £20m profit to Sainsbury’s £70m Advertise-Advertise is the only outcome that neither retailer would change even if it could. The irony is, of course, that both firms would be better off if they abandoned Christmas adverts altogether, for then each would earn £50m in profits compared to £30m The problem is neither firm will occupy that position for, as we have seen, it is always in the individual retailer’s interest to advertise irrespective of what the other retailer does. Any shop seeking not to advertise and make the bottom right-hand box possible will be badly hit by the other firm that DOES advertise So no one takes that chance and both firms advertise and as a result our screens are saturated with Christmas adverts by oligopolistic retailers Whether this is an optimal outcome for consumers is another question though these adverts do seem to kick off the season of festive cheer!
by Dr Ian St John
Money Matters: Friedman and Schwartz’s Take on Monetary Policy in the Great Depression
Friedman and Schwartz concluded that while the initial wall street crash was not the fault of the Federal Reserve, the actions of the Federal Reserve exacerbated the problem through poor monetary policy, resulting in the Great Depression – which would not have occurred (at least not to a remotely similar extent) if the Federal Reserve had not existed They blame the Federal Reserve for the contraction in money supply (which fell by 27% between 1929-1933) as caused by the Federal Reserve allowing the closure of many banks (there were 25000 banks in the USA in 1929 and just 12,000 on March 14th, 1933)
Failure to Loan
Firstly, they argued that the Federal Reserve was not aggressive enough in cutting discount rates (the interest rate it charges on its loans to banks) and buying open-market bonds While discount rates were cut from 6% to around 2% in mid 1930, this was not enough to support commercial banks during the first banking crisis in October 1930 In this crisis, 256 banks failed in November with $180 million in deposits, while this panic led to further bank runs – resulting in 352 banks failing in December, with over $370 million deposits They argued that the Federal Reserve should have employed expansionary monetary policy and increased loans to commercial banks with lower discount rates
This would have meant that the banks would have had enough liquid reserves to pay back the deposits This would have avoided the knock-on effect that a bank failure has on the public distrust of banks, as the failures of banks in November sparked further bank runs in December in the Mid-west, as the public were wary of bank failures meaning they lose their deposits – leading them to increase the currency to deposits holdings Moreover, Friedman and Schwartz argued that because the Federal Reserve was supposed a last resort lender to banks, banks were less concerned about keeping higher reserves and overextending themselves, and this meant that when the banking crisis ensued, they did not enact a restriction of payments, as they expected the Federal Reserve to bail them out The Federal Reserve, hence, they argued, failed in its role by not loaning to banks
The failures of these banks also led to a contraction of money supply, as the public were unable to liquidate their deposits This caused deflation during the Great Depression, causing a deflationary spiral – meaning that consumers delay non-essential purchases as prices are dropping –decreasing AD and causing high unemployment (as firms struggled to sell goods and services and therefore had to lay off workers)
An image of Milton Friedman
An image of Anna Schwartz
An image of Milton Friedman
This further decreased real incomes per capita and hence further decreased AD Friedman and Schwartz argued that loans from the Federal Reserve could have avoided this as they would have stopped banks from failing and avoided the contraction of monetary supply
Despite some recovery between December 1930 and March 1931, the Federal Reserve cut its loans to banks during this period, leaving them vulnerable to a surge of bank runs beginning in March 1931 Banks began liquidating assets from April, but the public and bankers both reacted more vigorously than before, resulting in an even larger contraction in monetary supply From February to September 1931, Commercial bank deposits fell by 9% and the money stock decreased at a rate of 11% a year They argued that the Federal Reserve once again did not do enough to stem to contraction in monetary supply This became worse in September 1931 as Britain left the gold standard and France, Netherlands, Belgium, Switzerland and Sweden began converting a significant amount of its dollar holdings to gold due to a lack of faith in the gold standard This meant that the gold stock decreased by $725 million between September 16 (1931) and the end of October 1931 Friedman and
Schwartz argued that the Federal Reserve handled balancing the external and internal drain poorly The Federal Reserve increased the discount rate to 2 5% on October 9th and then again to 3 5% on October 16th – representing the highest increase in discount rates in history While this stopped the external drain of gold, it exacerbated the internal drain, as in October, 522 commercial banks failed with combined $471 million in deposits, and this continued for the next few months They argued that the Federal Reserve should have accompanied the increase in the discount rate with increase open-market government securities, which would have given commercial banks enough money to pay depositors Rather, the Federal Reserve decreased their holdings of government securities by $15 million between mid- September and the end of October This meant commercial banks were unable to deal with the pressures from gold drains and the internal drains, and hence 1860 banks failed between August 1931 to January 1932, with $1,449 million suspended deposits While some actions were taken in reaction to this –notably a private National Credit Corporation (October 1931),
the Reconstruction Finance Cooperation (RFC) (January 1932), The Glass-Steagall Act (February 1932), the Federal Home Lone Bank Act (July 1932) – with the aim to increase loans to banks, Friedman and Schwartz proved these not fully successful as production, personal income and wholesale prices continued to decline till the middle of 1932 Meanwhile, increased taxes in June 1932 (to try to balance the government budget) depressed demand further
However, Friedman and Schwartz argued that there was some improvement in monetary policy in 1932 Particularly, security holdings were raised by open market purchases of $1billion by August, while the actions taken to increase loans to banks helped stem the bank failures in early 1932 They argued that the increased bond purchases stopped the wave of 40 bank failures in Chicago in June growing into another major crisis They argued that this type of action should have been used from 1929 and would have severely restricted the Great Depression This can be seen by an increase in the stock of money during this period
However, an Act in January 1933, publishing names of banks to which the RFC had given loans caused another panic and invoked more bank runs on these banks, while the RFC was not able to give capital loans until Emergency Banking Act of March 9, 1933 In response to further public distrust of banks, Roosevelt called a weeklong bank holiday, which worked to somewhat restore the public’s trust in the banking system but also led to the closure of 5000 banks, of which 2000 never reopened – further restricting the stock of money
In terms of explaining the Federal Reserve’s poor monetary policy, Friedman and Schwartz note the pressure caused by the gold standard They argued that because the USA had to maintain the gold standard, the Federal Reserve was extremely sceptical of inflation because it would mean the USA would have to increase their gold reserves and would weaken the global trust in the gold standard This meant that policy makers use contractive monetary policy which repressed demand and restricted the stock of money, causing a deflationary spiral and leading to widespread bank failures and public distrust in the banking system Overall, Friedman and Schwartz argued this poor monetary policy was at the heart of the Great Depression
By Rehaan Nurmohamed
An image of the US Federal Reserve, Washington, D C
Green Gold Rush: How Developing Nations Can Leverage Critical Minerals for Growth
An estimated $1 7 trillion is expected to be invested into the global mining economy, posing a huge opportunity for developing nations such as the Democratic Republic of Congo to capitalise on such demand However, a huge challenge is to make such growth sustainable as these minerals are unrenewable, meaning the use of profits made from increased demand into mining must be handled carefully to ensure long-term growth Therefore, effective policy decisions and delicate use of minerals should be used to reap the greatest rewards from material wealth This article will consider some policies that may support developing nations in taking advantage of mineral wealth
Making mining environmentally friendly
The rise of demand for the environmentally friendly technology, it serves to reason that the companies building them will want the minerals to be environmentally sourced, as ‘the consumers of future (renewable)
technologies at the forefront want responsibly produced products’
(Demetrios Papathanassiou – World Bank Global Director for Energy and Extractives, at Mining Indaba 2022) Therefore, it is essential that developing nations that are rich in minerals focus on making extraction environmentally friendly as otherwise customers may choose to source the minerals elsewhere due to the negative environmental externality, which would paint the nation as a less appealing source of minerals
In order to facilitate environmentally friendly mining, there are some policies that should be implemented Firstly, laws must be made that limit the carbon footprint of mining by enforcing the use of electric machines with no tailpipe emissions, as well as making companies use biosolids to quickly restore any land damaged by mining (reducing soil erosion) Moreover, selective mining should be used as it causes the least impact to the community as only high-grade materials are extracted
Nationalising mining means that the government would have more control over the mining process as foreign companies may leave the market if too many restrictions are placed Lastly, part of the profits should be invested into researching and constructing new and environmentally friendlier technology, as new technology drives greater profits as it can make mining cheaper (when it is used) and more efficient, increasing the output of the nation However, at first, developing nations may find it difficult to fund investments into the mining sector and should look to negotiate loans from developed nations, which would facilitate such investments
While these policies may make mining raw materials more costly, they also increase the profit margin for the nation as they can charge a premium price because their minerals will be more environmentally friendly in comparison to other nations, making demand for their minerals more price inelastic due to the lack of substitutes Henceforth, minerals from that nation would be easier to sell, as the nation would pose a more competitive offer,
and new technology could increase the profit margin further
Securing the most money from mineral supplies
There is only a limited amount of these mineral resources in the developing nations and demand may not remain if new technology that no longer requires a specific mineral is developed This poses a significant difficulty to mineralrich developing nations.
The first way to combat this is to nationalise mining It is imperative that nations do this soon to avoid any legal troubles – such as the one between Argentina and Respol which forced Argentina into a $5 billion settlement –and reducing compensation of mining companies By nationalising, the government can take control of all operations in mining, which would allow them to implement the environmental policies already suggested Moreover, it would allow them to tax the profits of mining at a higher rate because, unlike a foreign company which can leave the market, the government’s company is forced to comply This means that the country is likely to have a more positive balance of trade
After nationalising mining, the next step that should be taken is processing and refining the mineral locally This is clearly beneficial as the Democratic Republic of Congo was able to raise its unit price in 2022 from $5 8 per kilogram to $16 2 per kilogram of cobalt after refining cobalt locally, meaning the country exported $6 billion in 2022 of processed cobalt compared to $167 million in raw cobalt ores It is clear therefore, that by refining minerals locally, nations can add value to their minerals, hence making the most of their limited supplies of minerals
fluctuations in the market preventing them from maximising their mineral reserves as the price will be made permanent in the contract
This article has shown how nationalisation of mining, along with a few other policies can aid developing nations in maximising the economic boost from their mineral reserves It is also essential, however, that the nations do not become more reliant on mineral reserves, and instead invest some of the money made back into their country, improving education and public services – where the multiplier effect will cause induced spending, boosting real GDP, while increased AD will stimulate decreased unemployment Through the Solow Model, it can be observed that a less developed nation has a higher marginal rate of return on invested capital, which shows that by investing profits from minerals back into the country, nations can ‘catch-up’ to more developed nations and set themselves up for long-term stability, even if the demand for minerals decrease, as they are no longer dependant on minerals.
By Rehaan Nurmohamed
Brick by Brick: Unpacking the UK Housing Market Crisis and Its Ripple Effects on the Economy
Lastly, they should seek to sign long term contracts for their minerals This leaves them less vulnerable to spill over as they will continue to have a buyer/buyers for as long as the contract lasts This therefore reduces the chance of a decrease in demand and
f The UK housing market, long considered a cornerstone of economic stability, has entered a period of unprecedented crisis A toxic combination of soaring house prices, stagnating wages, rising interest rates, and dwindling supply has left millions unable to afford a home, with rippling effects across the economy While government schemes like Help to Buy and stamp duty holidays aim to alleviate the crisis, critics argue that such measures often exacerbate inequalities and fail to address the root causes This article dives into the structural challenges,
policy interventions, and broader economic implications of the UK housing market crisis, uncovering lessons for policymakers and the public alike
Skyrocketing Prices and Accessibility Challenges
Over the past decade, the UK housing market has experienced relentless price growth, with the average house price rising from approximately £165,000 in 2010 to over £280,000 in 2023.
A typical power plant cooling tower
This growth outpaced wage increases, creating a widening affordability gap While low interest rates during the 2010s initially made mortgages more accessible, the Bank of England’s recent interest rate hikes, intended to combat inflation, have significantly increased mortgage costs Firsttime buyers now face average monthly mortgage payments exceeding 30% of their incomes, compared to 20% a decade ago
The underlying issue is a chronic housing shortage The UK has consistently failed to meet its target of building 300,000 homes per year, with annual completions often falling short by tens of thousands Factors like restrictive planning regulations, local opposition ("NIMBYism"), and labour shortages in the construction industry have compounded this problem Government programmes like Help to Buy aimed to assist first-time buyers but inadvertently inflated demand without corresponding increases in supply, pushing prices higher Similarly, buy-to-let investorsencouraged by tax incentives - have dominated the market, limiting opportunities for owner-occupiers and contributing to skyrocketing rents
Impact on Renters and Broader Inequalities
The housing crisis has disproportionately affected renters, with rents rising at their fastest pace in decades In London, for instance, average rents have surged by over 15% since 2021, reaching record highs This has left many households struggling to save for deposits, trapping them in a cycle of renting
The crisis has also deepened generational and regional inequalities Younger generations, burdened by student debt and stagnant wages,
face greater barriers to homeownership than their predecessors
Meanwhile, parts of the North and Midlands despite lower prices suffer from insufficient infrastructure and employment opportunities, discouraging migration and investment
Geographically, areas like London and the South East have experienced the steepest price increases, leaving prospective buyers in these regions with limited options
Economic Ripples of the Crisis
The UK housing market crisis has farreaching consequences for the broader economy
High housing costs reduce disposable incomes, dampening consumer spending a critical driver of economic growth The construction industry, traditionally a major source of employment and GDP contribution, remains constrained by supply chain disruptions and rising material costs Moreover, housing insecurity exacerbates social issues, from mental health problems to reduced labour mobility
Many workers are unable to relocate for better job opportunities due to prohibitive housing costs in economically vibrant areas This mismatch between housing availability and economic activity undermines productivity and long-term growth potential
Policy Responses: Progress or Perpetuating the Problem?
Successive UK governments have introduced policies to tackle the crisis, but their effectiveness remains hotly debated Stamp duty holidays, implemented during the COVID-19 pandemic to stimulate the market, temporarily boosted transactions but also drove prices higher, benefiting existing homeowners more than prospective buyers
Proposals to relax planning restrictions and encourage brownfield development have gained traction but face significant resistance from local councils and residents
The Renters Reform Bill, aimed at improving tenant protections, marks progress but falls short of addressing systemic affordability issues
A more radical approach, such as largescale public housing construction or stricter regulations on buy-to-let investments, could help rebalance the market However, these measures require significant political will and financial resources, both of which are often in short supply
Conclusion
The UK housing market crisis is a complex, multifaceted issue with no quick fixes While policy interventions have provided temporary relief, structural challenges like housing supply shortages, affordability gaps, and regional disparities require bold, long-term solutions Without decisive action, the housing crisis risks entrenching economic inequalities and stifling the country’s economic potential for generations to come The lessons from this crisis underline the need for sustainable, inclusive housing policies that address not just the symptoms but also the root causes of one of the UK’s most pressing challenges
By Akshan Ragulasingham
IN DEMAND
by Habs Economics Society
January 2025, Issue 1
CREDITS
Writers
Benjamin Sivalingam
Gautham Arun
Akshan Ragulasingham
Rehaan Nurmohamed
Dr St John
Chief Editor - Benjamin Sivalingam
Editor - Akshan Ragulasingham
Teacher - Mrs Raisinghani
