Equilibrium Lite March 2021

EQUILIBRIUM LITE IN THIS ISSUE UK & GLOBAL NEWS UPDATE MEATLESS MARKETS GDP AND LOCKDOWN: CHINA VS UK PANAMA'S ECONOMIC POLARITY TOURISM: THE PANDEMIC'S EFFECT ON LEDCS LEGO ECONOMICS MARCH 2021 ISSUE 3

UK & GLOBAL NEWS UPDATE ZOE ST JOHN & AALIYAH PATEL UK Update: The unemployment rate (Oct-Dec 2020) was 5.1% (ONS). The latest forecast from the Bank of England predicts that it will peak at 7.75%.

Inflation rose slightly, from 0.6% to 0.7% in January 2021 with no obvious signs that the UK’s exit from the EU has yet raised overall consumer prices.

Government borrowing hit a record high in January as public debt as a % of GDP at 99.4% reached levels not seen since the 1960s.

On the 3rd March the Chancellor announced a series of policy changes to support an 'investment led recovery' and restore public finances. An increase in the rate of corporation tax from 19 to 25% in 2023 together with a freeze in personal tax allowances will raise £29bn by 2025-6. The furlough scheme and top-ups to universal credit have been extended. Perhaps the most significant is the introduction of a 'superdeduction' which offers companies the chance to reduce their tax bill by 130% of any amount invested.

Global Update: Chinese President Xi Jinping has claimed to achieve the “miracle” of eradicating extreme poverty. Nearly 100 million people have been lifted out of poverty in the last 8 years.

US President Joe Biden passed his first and the US’ third major government spending package of the pandemic costing US$1.9tn (£1.4tn). This includes a direct payment of $1,400 per person for those earning less than $75,000.

According to Bank of America, China will likely double the size of its economy by 2035 and surpass the U.S. as the world’s largest economy along the way. The Chinese economy was one of the few economies that generated positive economic growth during the COVID-19 pandemic.

The Supreme Court ruled this week that the workers of Uber are not, in fact, self employed

MEATLESS MARKETS ZAVER DHANANI & JOSH HEIMANN Clean, green and lean. Revolutionary advances in technology are changing the way we think of food. Plant-based alternatives or so-called ‘clean meat’, which is meat grown in a cell culture rather than from an animal, is starting to make Sunday brunch a whole lot more ethical and environmental. With the rise of companies like Beyond Meat and Future Meat Technologies, we dive into the economics behind it and take a look at its future.

Economic Impact: The world’s population is developing at an alarming rate and carrying on with our current level of meat consumption is unsustainable. The University of Oxford estimates that if current trends of meat consumption continue it could cost the global economy up to $1.6 trillion by 2050 in direct and indirect costs.

Environmental and Social Impact: Many believe that if humans carry on with their current levels of meat consumption they will harm the environment and the animal population. The social and environmental benefits associated with a more plant-based diet is comparable with the economic benefits. It is believed at least 320,000 obesity and chronic related deaths could be averted each year. This, accompanied by the substantial benefits of reducing the level of greenhouse gas emissions puts the savings of eating less meat at about $2 -$3 trillion in the U.S, and $20 -$30 trillion worldwide according to the ‘value of statistical life’ measurement.

Beyond Meat's boom? Beyond Meat is a company that produces plant-based alternatives out of pea protein and aims that they taste, smell and cook exactly like normal meat. When Beyond Meat joined the stock market in early 2019, it had an initial public offering of $25 a share. Today its share price is around $164, valuing the company at over $8 billion. However Beyond Meat’s shares have been volatile during this period. Will this growth continue? In the third quarter of 2020, Beyond Meat reported only a 3% year-on-year growth.

So how likely is a more meat free future? If you look at the volatility of Beyond Meats shares you might think it could be a temporary trend. Looking past that in the meat-free market as a whole, more money flowed into the first quarter of 2020 than in the whole of 2019.

Developed economies are now starting to realise that eating a Big Mac has a much higher cost than just £3.19, and that the economic, environmental, and social impacts of today’s mass meat consumption have long term implications. With companies like Beyond Meat leading with alternatives, we think that the future is looking particularly positive and that the meat free market is going to see significant future growth, much like the plants it’s made of.

GDP AND LOCKDOWN: CHINA VS UK EMMA CHOPPING & TEMI ELESIN On 23rd January 2020, the city of Wuhan went into lockdown, six weeks after China’s first confirmed case of COVID-19. During the course of 2020, China’s Gross Domestic Product (GDP) increased by 3.2%, while the UK’s decreased by 9.9%. GDP is defined as the total value of all goods and services produced within a country’s domestic boundaries; it is an important measurement of the size and performance of an economy.

Subsequent to lockdown, China reported a 6.8% decline in GDP in the first quarter of 2020, its first contraction in 28 years. After China’s strict lockdown ended, their economy began to improve with GDP growth of up to 4.9% from the year prior in the third quarter of 2020, enabling China to complete the upward stage of a V-shaped recovery. It is worth noting that China and Turkey were the only G20 economies to grow in 2020.

In the UK, Boris Johnson announced the first national lockdown on March 23rd, closing all non-essential retail. In that month GDP fell 5.9% and then again in April by 20.4%, significantly greater than the decrease in China and the UK’s largest monthly drop on record, putting the UK in the deepest recession of any major economy.

The UK is currently in its third lockdown and is in its first double-dip (W-shaped) recession on record, with a negative 2.8% growth rate in November 2020. However, with positive growth in December of 1.2% and a successful vaccine rollout, predictions for the UK economic recovery are increasingly positive.

PANAMA'S ECONOMIC POLARITY JULIEN BORET Inequality is an issue prevalent around the world. One only has to look at the homeless population around London to get a first hand experience. However, is not just a UK issue, it exists in different forms (income, wealth, gender, racial etc) in almost every country globally. Panama, in Central America, is one of the fastest growing economies in the world with an annual economic growth rate over the last five years of 4.6 %. It is seen as one of the rising powers in the developing world. On the surface this economic growth looks hugely beneficial for Panama. However, Panama is one the Latin American countries with the worst wealth distribution.

Wealth is defined as a stock of assets, such as a house, shares, land, cars and savings.

Wealth inequality is the unequal distribution of these assets. Panama also has extremely unequal levels of income distribution, with the CIA stating that the income distribution is the second-worst in Latin America. In 2017, it was discovered that around 54.2% of the income generated in Panama was held by the richest 20% of the country. At that time, still 1 in 5 Panamanians were living in absolute poverty. Panama has experienced great economic prosperity through its economic growth however this benefit isn’t shared equally across its people. The Gini coefficient of Panama is 0.492 in 2018 down from 0.58 in 2007. This measures the income inequality of a country, with 0 meaning no inequality at all and 1 meaning one individual has all of the income. As such Panama’s inequality is improving.

Inequality, be it income or wealth, is an economic consequence of the world progressing at unequal speeds. The Economist Kuznets states that as society moves from agriculture to industry, so it develops, inequality within society increases, since the wages of industrial workers rises faster than farmers. However, one can argue that with all the technology, resources and government action available, is it every countries responsibility to lessen the costs of inequality in their country to improve the quality of life for their people. Should Panama be doing this?

COVID-19 AND TOURISM: THE IMPACT FOR DEVELOPING COUNTRIES MAYA TRICOT & KATYA ISRAEL The economies of numerous developing countries and the standard of living of their citizens heavily rely on tourism to bring in revenue and boost aggregate demand.

The COVID-19 crisis has hit the tourism economy hard, with unprecedented effects on jobs and businesses. Tourism was one of the first sectors to be deeply impacted by the pandemic, as measures introduced to contain the virus led to a near-complete termination of tourism activities around the world. The tourism sector also risks being among one of the last to recover due to on-going travel restrictions. This has consequences beyond the tourism economy, with the many other sectors that support tourism also significantly impacted.

Before COVID-19, travel and tourism had become one of the most important sectors in the world economy, accounting for 10% of global GDP and 320 million jobs worldwide (World Travel and Tourism Council).

Experts from the Organisation for Economic cooperation and Development (OECD) have expressed their concern regarding an expected 60% decline in international tourism 2020, which may even reach 80% if the recovery is delayed.

Russia community in Westmoreland, Jamaica. Credit: Mariana Kaipper Ceratti/World Bank Like many developing countries, Jamaica has relied upon growth in tourism to steer its economy away from dependence on volatile primary sector products. However, the World Bank now anticipates that due to the decline in tourism, Jamaica’s real GDP will decrease by approximately 10% in 2021 pushing the number of people living below the official poverty line above 20%.

Jamaican Prime Minister Andrew Holness recently accused rich nations of “hoarding” Covid-19 vaccines, while poorer countries wait months to get doses. Rather than wealthy countries stockpiling the shots, the vaccines should be shared across the world “to reach a certain threshold in vaccination in order for us to defeat the virus,” Holness said.

LEGO ECONOMICS MR G J HALL Soon we will be outnumbered: There are approximately 936 billion Lego bricks in the world; around 120 Lego bricks for each human. As Lego lasts forever, minifigures should outnumber humans by 2050. Yet the value of Lego cannot be measured by bricks alone; playing with Lego reveals much about economics.

Lego Efficiency: Measures of efficiency include allocative, productive, and dynamic efficiency. Just as when choosing a Lego set, we cannot have them all; sometimes a distribution of resources is efficient in one way, but not another.

One blessing of economics, though, is that we can make “simplifying assumptions”; we can pretend that many things do not exist and focus on just one or two others. If we agree that each Lego brick has the same value and consider the current distribution of Lego bricks, some interesting themes emerge: The distribution of Lego bricks is Pareto efficient. We cannot redistribute them in a way which makes one person better off without making another worse off.

Brick Distribution: It would be a sorry world if measured only on Pareto improvements. Thankfully, Lego bricks teach us that equity and efficiency matter and that we should search for resource allocations that improve both.

Kaldor and Hicks built on the work of Pareto to develop Kaldor-Hicks efficiency.

A re-distribution of resources is Kaldor-Hicks efficient if those who gain could theoretically compensate those who lose out. The compensation level needed would vary between individuals which demonstrates that it is challenging to measure the gains and losses of any re-distribution of resources.

Back to basics: The world of behavioural economics developed by theorists including Khaneman and Ariely licenses us to explore real-world behaviour to gain new insights. Enthused by this, I allocated my oldest son fifty white and red bricks and my youngest son fifty blue and green bricks. Watching them play was revealing; soon “exchange-rates” were agreed, and the bricks were redistributed in a way which made both boys happier. Knowing too that my boys sometimes give Lego to charity, reminded me that gifting things can bring utility and that, as humans, we sometimes care about equity.

Piecing things together: Lego can inspire us to search for efficiency gains.

Rather than consider the value we gain from our possessions, we might consider what value they would provide to others, and how we can become happier by making others happier. Were five hundred people to read this article and resolve to give away twenty possessions this year, the thousand possessions re-distributed might be a “good thing” for all, regardless of how efficient it was.

EDITING AND DESIGN TEAM: JOSH HEIMANN ZAVER DHANANI TEMI ELESIN EMMA CHOPPING STAFF SUPPORT TEAM: MRS G LYONS MS M SOROHAN

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