Shumpeter Issue 3

8/14/2019 Shumpeter Issue 3

1/15

THE SCHUMPETERThe Economics Society Magazine

The Need for More Skyscrapers in London

David Osborne

Financing Student Life

Francesca Satturley

Another Fine Mess

Adrian Booth

Lessons from the Great Depression

Adrian Booth

Issue 3

News and Extra

Superpowers of World Past, Present & Future

Fahad Memon

Going on the Cheap

Habeeba Anjum

Islamic Banking Explained

Anaam Raza

theschumpeter.blogspot.com

The Economics Society Magazine is funded by

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2/15

Another Fine Mess

By Adrian Booth

he art of economics, as described by Henry

Hazlitt, consists in looking not merely at

the immediate but at the longer effects of

any act or policy; it consists in tracing the

consequences of that policy not merely for one

group but for all groups1. Using this quote we

need to analyse not just the short term effects of

a policy decision by central bankers and policy

makers, but the intermediate and longer term

effects on the structure of the economy. To

many economists, Ben Bernanke, the chairman

of the Federal Reserve, has saved the world

economy from collapse and should be

applauded. To

others, he is

seen as

nothing but a

money printer

hell bent on

destroying theAmazon

rainforest for

the sake of

bailing out the

banks. The

latter argue

that with the unprecedented

explosion of the monetary base

(the total amount of money in circulation plus

bank reserves) double digit inflation is a likely

scenario (See the chart).

The likes of Alan Greenspan, former Chairman

of the Federal Reserve, and Martin Wolf,

Financial Times Economics Editor, have both

argued that expansionary government policies

could produce significant inflation in the

medium to long term if excess reserves and

newly printed money are not reined in. "It's

critically important the Fed's doubling of itsbalance sheet be reversed," Greenspan said. "If

you allow it to sit and fester, it would create a

serious problem.2. An expansion of the money

supply on that scale would have produced

catastrophic inflation in normal times. The fact

is; we no longer live in normal times.

The new money that central banks have issued is

not circulating the economy and therefore not

producing inflation in prices. The excess

reserves are currently deposited at central banks

earning tiny amounts of interest. We need to ask

the question; what happens once the banks lend

the money out and prices start to rise? Will

central bankers

rein in the

money supply

or allow a

further

weakness in

the currency inorder to ease

the debt

burden. It is

not in the

interest for

those countries

in debt, like the US and UK, to

have stronger currencies and have

to pay back debt in higher valued paper. Nor,

rather, is it in their interest for a currency

collapse. Harvard professor Kenneth Rogoff

came out recently and recommended a 6%

inflation rate to ease the debt burden. Im

advocating 6 percent inflation for at least a

couple of years, it would ameliorate the debt

bomb and help us work through the

deleveraging process.4 He is correct in saying

that policymakers are aiming for an inflation

rate around that level to help with the gigantic

debt mountain.

T

Source: research.stlouisfed.org (2009)


3/15

THE SCHUMPETER ANOTHERFINE MESS

In a recent article, The Economist expressedconcern over the future of the international

monetary system weve had since 1971. On

August 15th of that year Richard Nixon closed

the gold window and took the world off the gold

standard. For the first time in history, the entire

worlds monetary system was based on fiat

money. This monetary experiment has been

running for 38 years and some would argue

contributed to global trade imbalances that

contributed to the crisis and the huge build up of

debt in the western world. It is hard to think of

a parallel in history. A country heavily in debt to

foreigners, with a government deficit it is

making little attempt to control, is creating vast

amounts of additional currency. Yet it is allowed

to get away with very low interest rates3.

We have heard for some time now that recovery

is imminent and that government policies have

averted total collapse. Some economists argue

that the crisis has not been averted, but merelypostponed. The transfer of debt from banks and

the private sector onto the balance sheets of

central banks and governments poses a serious

risk of a sovereign debt default or currency

crisis in the medium to long term.

We could yet have another phase where, instead

of credit drying up for banks and private

businesses, credit dries up for governments and

interest rates sky rocket along with inflation.

David Bowers of Absolute Strategy Research

says; Its the last game of pass the parcel.

When the tech bubble burst, balance sheet

problems were passed to the household sector

(through mortgages). This time they are being

passed to the public sector (through

governments assumption of banks debts).

Theres nobody left to pass it to in the future.5

Economists Philipp Bagus and Markus H.

Schiml recently wrote an article on the Federal

Reserve showing that its balance sheet isleveraged at 50:1. This means that a 2% fall in

the value of the feds assets would declare thecentral bank insolvent.6 Even the Bank of

International Settlements (BIS) has expressed

concern with recent policy actions. The big and

justifiable worry is that, before it can be

reversed, the dramatic easing in monetary policy

will translate into growth in the broader

monetary and credit aggregates. This will lead

to inflation that feeds inflation expectations or it

may fuel yet another asset-price bubble, sowing

the seeds of the next financial boom-bust

cycle.7

With the central bank of the US on the edge of

insolvency and the US government having to

borrow $6 billion a day just to survive, we

cannot expect the world economy (particularly

the West) to begin a period of healthy economic

expansion. Russell Napier, stock market

historian and author of Anatomy of the Bear,

recently said in an interview that "The most

mispriced financial instrument on the planettoday is US government debt and the unwinding

of that will be the story of this generation,"With

bond vigilantes and gold bugs circling the US

Dollar and Treasuries like vultures, we can only

expect further crises in the future; only this time

governments and central banks being the main

focus.

References:

1. Economics in One Lesson, Henry Hazlitt, Three RiversPress 1946, pg 17, lines 9-12.2. Greenspan says Fed balance sheet an inflation risk

http://www.reuters.com/article/newsOne/idUSTRE5913TX20091002

3. The Economist, Chucking the buck, September 26th-October 2nd, pg. 90.

4. U.S. Needs More Inflation to Speed Recovery, SayMankiw, Rogoff, Bloomberg, Rich Miller, 19/05/09

5. Financial Times, A Risky Revival, John Authers,26/09/09, pg 8.

6. The Insolvency of the Fed, Philipp Bagus and Markus H.Schiml | Posted on 2/5/2009, http://mises.org/story/3281.

7. BIS Sees Risk Central Banks Will Raise Interest RatesToo Late, Simone Meier, Bloomberg,http://www.bloomberg.com/apps/news?pid=20601068&

sid=aOnSy9jXFKaY
http://mises.org/articles.aspx?AuthorId=336http://mises.org/articles.aspx?AuthorId=1156http://mises.org/articles.aspx?AuthorId=1156http://mises.org/story/3281http://mises.org/story/3281http://mises.org/articles.aspx?AuthorId=1156http://mises.org/articles.aspx?AuthorId=1156http://mises.org/articles.aspx?AuthorId=1156http://mises.org/articles.aspx?AuthorId=336


4/15

Islamic Banking-Explained

By Anaam Raza

Image source: http://www.worldpoliticsreview.com

bank is a financial intermediary

between two groups of people in the

society; those who have more financial

resources than they need (savers) and those

who need more than they actually have

(borrowers). But banks can only make

money if they charge interest for loans and

charm savers by paying them interest.

However an Islamic bank is one that abides

by the Shariah (Islamic Law) in all itstrading activity. Hence interest/usury (Riba)

is banned. This is done as the Shariah

prohibits the earning of money from money

alone. Instead depositors funds are pooled,

invested in acceptable projects and the

profits finally shared.

As Sheikh Mufti Taqi Usmani, a leading

Islamic cleric, recently told a banking

conference in London: The basic principle

of Islamic finance is that money is that isalways backed by assets, it is equity

financing and not debt.

The Islamic model disallows Maysir

(gambling, speculation and pure games of

chance), Gharrar (avoidable ambiguity in

contract essentials such as price) and any

activity which may be considered to be

morally or socially injurious to society such

as pornography, alcohol and pig products.

Yet it both promotes and applauds trading of

real assets, risk-reward sharing, and

entrepreneurship and at the same time

emphasising the inviolability of contracts.

All this however is not unique to Islam.

Jewish tradition also frowns on usury, as did

the Catholic Church until five centuries ago.

In 1140, for example, the Church declared

that anybody charging interest would beexcommunicated (a move which induced

Christians to use Jews as money lenders,

since they were believed to be already

excommunicated).

The Model

There are two basic models which are the

most common methods of providing Islamic

finance in the world and are considered by

Islamic practitioners and scholars to be themost suitable methods for Shariah

compliant products. These include "Ijara"

and "Murabaha".

The first,Ijara, works very similar to a lease

with low cost buy out at the end of the term.

The second, Murabaha, works on a cost

plus model.

Ijara is an Islamic form of leasing in which a

customer selects the asset to be financed and

the bank then purchases it from the supplier

and leases it to the customer for an agreed

period. At the same time the bank being the

owner of the asset is paid rent whereby

exercising all the lessor's rights and

obligations such as maintenance, insurance

and repair.

A Murabaha, on the other hand incorporates

a locked-in return in which the bankfinances the purchase of an asset by buying

it on behalf of its client and then adding a

"mark-up" in its sale price which is paid by

the client on a deferred basis.

Other instruments include Mudaraba (Fund

Management) and Musharaka (Financing

through equity participation) are desired

forms of Islamic banking even though their

current use is not dominant.

A


5/15

THE SCHUMPETER ISLAMIC BANKING EXPLAINED

Despite having an Islamic equivalent formany financial products there are some

hindrances as certain artefacts are difficult

to equate to their conventional counterparts.

Forward and future contracts are just some

examples.

Some investors express utter astonishment

at the very idea of Islamic hedge funds,

because prohibitions in Sharia do not allow

short selling because it involves assets thatthey usually do not

own. Forward and

futures are equally

banned as they too

are construed as

selling promises.

The forbiddance to

speculate means that

transactions must be

based on tangible

assets, such as

commodities,

buildings or land implying the inevitable

exclusion of exotic derivatives in intangibles

such as weather or terrorism risk.

Islamic Banking in Practise

Although Islamic finance has done well toreduce its costs and expand its product

range, it has yet to tackle numerous other

hurdles as further growth itself is a peril. On

one side of the coin, foreign investment

banks are worried that the restricted

implementation of Sharia could possibly

throttle growth; on the other hand somebelieve that Islamic finance is becoming so

keen to drum up business that the outcomes

will simply fail to comply and Sharia will

be twisted.

Of the worlds Islamic countries, only Iran

and Sudan have imposed interest-free

banking on their population, Pakistan is still

trying. Malaysia and Kuwait are the places

where the sector is booming; nonetheless theindustrys ability to

steer its way through

storms remains

largely unproven,

although Malaysian

banks do have

reminiscence of the

Asian financial crisis.

With tongue partly in

cheek, some say that

Islamic finance

should by rights displace the conventional

banking system altogether. Western finance

cannot comply with Sharia pre requisites;

but Islamic finance can please everyone as

their ethical credentials mean that they are

attractive to a wide spectrum of consumers.

Faith and finance are two principles that

Islamic finance is channelled by. The

success of the industry depends on fulfilling

both, even if the price of that is less growth

and more inefficiency.

Copyrights of Khalil Bendib, www.bendib.com. All rights reserved.
https://outweb.city.ac.uk/owa/redir.aspx?C=019867679abb41dda9133f6fc7063a95&URL=http%3a%2f%2fwww.bendib.comhttps://outweb.city.ac.uk/owa/redir.aspx?C=019867679abb41dda9133f6fc7063a95&URL=http%3a%2f%2fwww.bendib.com


6/15

The Need for More Skyscrapers in London

By David Osborne

n any global financial centre, the typical

morning would involve seeing thousands of

suited men and women parading through the

central business district, dwarfed by the dozens

of high rise buildings surrounding them

except, maybe in London.

Why has London been so slow at adopting

skyscrapers?

London along with New York and Tokyo are

global cities: central nodule points in the global

economy. Impressive high-rise skylines are the

expected norm in such cities. In New York and

Tokyo, these expectations are met, but not

necessarily in London.

Historically, London has had quite an unfriendly

approach to high rise office buildings. One can

attribute this to London not being constrained

geographically (such as Manhattan Island inNew York). London, in recent times has not

been severely devastated by any disaster (unlike

Tokyo in the 1923 earthquake and in World War

II). More significantly, however, London has

had strict controls on building heights up until

the 1960s, by which time, New York and Tokyo

had already constructed scores of high rise

buildings. When the controls were lifted, there

was quite a boom in building in London. This

saw the rise of the tower block. Neverthelessthere was still limited ambition or precedence to

building tall office buildings. In fact, the first

skyscraper by international standards in London

(the 183 m Tower 42) was not completed until

1980.

From then on, construction of high-rise

buildings has been more or less confined to two

clusters, the City and Canary Wharf with a few

outliers. They have also become more

ambitious, most notably with the regeneration of

the Docklands and the construction of buildings

such as 30 St. Mary Axe (The Gherkin).

However, there are still restrictions on building

due to protected views of St. Pauls, the Tower

of London and the Palace of Westminster.

Why the need for Skyscrapers?

In order to remain competitive as a world city,

London will need to cater for its clients,

especially in terms of reasonably-priced office

space.

According to the Greater London Authoritys

report: Interim strategic planning guidance on

tall buildings, strategic views and the skyline in

London (2001), on average, office space in

London is the most expensive in the world, at

1005 per square metre, compared with 500 in

New York.

Due to greenbelt restrictions London cannotextend much more outwards (and as a matter of

fact already takes up 1579 km2

of this Island); so

as a result needs to expand upwards, much like

the pressure that New York Faced in the mid-

20th

century.

Between 2001 and today, there have been

significant improvements on the skyline of

London, probably the most noticeable being the

180 m Gherkin. Further evidence comes in the

form of reduced average prices of office spacein London. According to CB Richard Ellis, a

commercial Real Estate Advisor, the average

office price in Central London at the end of the

first quarter of 2009 was 720 per square metre.

We must keep in mind, however that the effects

of the Financial Crisis severely distort the

impact that new skyscrapers have had on office

prices.

I


7/15

THE SCHUMPETER THENEED FORMORE SKYSCRAPERS IN LONDON

Why is London a global city? What is itsoutlook for the future?

Londons characteristic as a global city, does not

depend on its buildings, but in the variety and

quality of skills found in the City. The

geographical positioning, of the metropolis also

makes it convenient for trade with all the

worlds time zones. According to the London

Development Agency, The result of this is that

over 40% of the worlds foreign equities are

traded in London, and the city handles 30% ofthe worlds foreign exchange (thats more than

Tokyo and New York combined). This equates

to nearly 80% of Londons business being

international.

When the economy starts to recover from the

Financial Crisis, the amount of companies doing

this international trading is likely to increase,

and hence many of them would seek locations in

London. These firms would prefer a prestigious

location in the City or Canary Wharf, where

their competitors are. As a result of this, there

would be upward pressure on the price of office

space, making them even more expensive and

deterring for other companies seeking to locate

in London. The risk of this is exacerbated by therise of the BRIC economies, whose rapid growth

has the potential to take a significant portion of

business away from London.

Every economist is more than familiar with a

standard supply & demand curve, which shows

that the price of a good will decrease if the

supply of that same good increases. By this

logic, we can see that the competitiveness of

office rents in London may be improved by

increasing the stock of office space.

Currently, there are nine buildings over 100

metres tall under construction, the most

noteworthy being the 305 m Shard London

Bridge and the 299 m Pinnacle. In addition to

this, there are over 50 buildings over 100 metres

proposed to be built in London within the next

decade.

Londons key role in the global economy must

not, however undermine its character as a

unique city. This is to say that by no means

should the Greater London Authority attempt to

turn London into Manhattan or Tokyo, but

rather to use skyscrapers to enrich the citys

current landscape and economic potential.
http://upload.wikimedia.org/wikipedia/commons/6/6e/London_Thames_Sunset_panorama_-_Feb_2008.jpg


8/15

Lessons from the Great Depression

By Adrian Booth

or those who studied the Great Depression,

we learnt that the wildcat free market was

the cause and the New Deal got us out of it. We

also learnt that Hoover was a tightwad who idly

sat back whilst the markets descended into

chaos. Firstly, our present day crisis mirrors that

of the 1920s quite ominously. The boom

preceding the 1929 crash was fuelled by massive

credit expansion by the Federal Reserve, the

central bank, in an attempt to bail out the Bankof England who faced an outflow of gold. Lionel

Robbins quotes from Mr A. C. Miller, the most

experienced member of the Federal Reserve

Board, before a Senate Committee on Banking

and Currency in his book, The Great

Depression:

In the year 1927...you will note the pronounced

increase in these holdings (Federal Reserve

holdings of United States securities) in thesecond half of the year. Coupled with the heavy

purchases of acceptances it was the greatest and

boldest operation ever undertaken by the Federal

Reserve System, and, in many opinions, resulted

in one of the most costly errors committed by it

or any other banking system in 75 years.

Miller admitted the aim was to bring down

money rates, the call rate among them to

reverse the previous inflow of gold into the

country.2

Alan Greenspan, before he became Chairman of

the Federal Reserve, wrote about this in a now

infamous article called Gold and Economic

Freedom. He writes, When business in the

United States underwent a mild contraction in

1927, the Federal Reserve created more paper

reserves in the hope of forestalling any possible

bank reserve shortage. The Fed succeeded: it

stopped the gold loss [from the Bank of

England], but it nearly destroyed the economiesof the world, in the process.

2

Policymakers believe the correct prescription to

arrest the crisis is more expansionary monetarypolicies. In fact, Nobel Prize Winner Paul

Krugman even argued this back in 2002 after the

crash of the dot coms: To fight this recession

the Fed needs soaring household spending to

offset moribund business investment. [So] Alan

Greenspan needs to create a housing bubble to

replace the Nasdaq bubble.3 This is what was

prescribed to the economy back in 2002 to deal

with the recession at the time, and some believe,

led to our present recession. But some have

argued that it was monetary tightening by

governments that accelerated the crash in the

early 1930s. Lionel Robbins provides an

alternate view: The moment the boom broke in

1929, the Central Banks of the world, acting

obviously in concert, set to work to create a

condition of easy money. From October 1929 to

December 1930 no less than $410 million was

pumped in the market in this way (securities

purchases).4 During the years 1920-1921 the US

also experienced a severe decline that, judging

by the figures, mirrors the decline of the early

F

Image source: The Daily Mail


9/15

THE SCHUMPETER LESSONS FROM THE GREAT DEPRESSION

1930s. The fundamental difference was theresponse by the monetary authorities. What may

surprise those who believe monetary and fiscal

stimulus is the right prescription to a recession,

is that the Fed and the government enacted tight

policies during this period. The decline in

production became very severe, falling at 21

percent over the twelve months. Keynesian

economist Robert A. Gordon admitted that

government policy to moderate the depression

and speed recovery was minimal. The Federal

Reserve authorities were largely

passive....Despite the absence of a simulative

government policy, however, recovery was not

long delayed.5 During this steep decline, the

Fed decided to increase interest rates from 4.75

percent up to 6 percent in one hike. With

unemployment at 11.7% in 1921 and interest

rates at an all time high, it is any wonder the

economy recovered at all. Deflation was also 50

percent more severe than any twelve month fall

during the depression; with prices falling 15.8percent from June 1920 for twelve months.

Keynesian fiscal pump- priming has also been

prescribed to the economy in our present

recession. Policymakers look back to the 1930s

as evidence that deficit spending and active

government involvement are good for the

economy. Herbert Hoover has been criticised for

attempting to balance the budget and refusing to

intervene in the economy. A look at past figuresshows this is misleading. In Fiscal Year (FY)

1933, which ran from mid-1932 to mid-1933,

the Federal government ran a $2.6 billion

deficit, at a time when it took in only $2 billion

in tax receipts. That would be equivalent to a

$3.3 trillion deficit in FY 2007.6 In the FY 1933,

the deficit was 4.5 percent of GDP. In the first

three years of the New Deal, the deficit averaged

5.1 percent of GDP. Some economists claim that

the 4.5 percent deficit under Hoover, allowedthe economy to sink into the worst Depression

in US history, with monthly unemployment ratesabove 25 percent. Yet by bumping up the

deficit's share of the economy by a mere 60

basis points (0.6%), FDR was able to achieve

the most spectacular turnaround in US history.

When discussing remedies for our present

recession, it is sensible to look back in history to

see what has been most effective. From these

figures, we can conclude that deficit spending

and monetary expansion are not as magical as

policymakers expect. The theories of stimulating

and manipulating the economy through

monetary stimulus go back to the days of Kuan

Tzu, who died in 645 BC. When money is high

goods are low; when goods are high money is

low...the ruler should manipulate the values of

grains and money and gold, and the empire can

thereby be stabilized.7

It could be argued that both remedies could

potentially make the situation worse (asKrugman prescribed in 2002 for the Fed to

create a housing bubble). In order to set us on a

path of viable economic recovery, economists

shouldnt just roll over and take past theories for

granted; but should accept the fact that the

economy isnt a machine that can be toggled and

tweaked with continuously with no future

consequences.

References:

1. The Great Depression, Lionel Robbins, pg. 53, 19342. Gold and Economic Freedom, Alan Greenspan.3. Dubyas Double Dip; Paul Krugman, 2/08/02

http://www.nytimes.com/2002/08/02/opinion/dubya-s-

double-

dip.html?scp=4&sq=krugman%20mcculley%20bubble&

st=cse

4. The Great Depression, Lionel Robbins, pg. 73, 19345. Economic Instability and Growth: The American

Record, Robert Aaron Gordon, pgs 21-22, 1974

6. Federal Budget Receipts and Outlayshttp://www.presidency.ucsb.edu/data/budget.php

7. Kung-chuian Hsaio, A History of Chinese PoliticalThought, vol 1, Princeton University Press, 1979, pg.317


10/15

Superpowers of World Past, Present & Future

By Fahad Memon

Note:All gross domestic product (GDP) and

population data comes from InternationalMonetary Fund (IMF) records.

All mentions of GDP data in this article ismeasured in purchasing power parity(PPP) terms and in units of the currentinternational dollar, unless statedotherwise.

The information accounts for 182countries, according to IMF sources.

mong particular animal groups likebears and gorillas, there exists the

presence of superior beings proclaimed bytheir respective packs as undisputableleaders. These alpha males uphold the

responsibility of guiding and sustaining thelivelihood of their fellow creatures.Throughout humankinds history, select

nations have demonstrated similarcharacteristics.

The British Empire held this acclaimbetween years 500 to 1000 AD, operatingwith an iron fist in such lands as India andAustralia. Aptly named, the Dark Ages, itwas a retrospectively abysmal period forsociety as a whole. The common individual

was a peasant, an over-utilized worker; withno human rights, who laboured endlessly aslong as capital lasted. Had it not been for thebirth of a new factor of productionenterprisethe world may have been verydifferent.

Pronounced the Renaissance, (the timebetween the 14th and 17th centuries), it was amovement that began from Italy and carrieda reignited torch of humanitys future

potential. This rebirth (English translation ofRenaissance) of human beings from their

Dark Age coma brought with it the soul ofbusiness activity: the initiative forcommerce. Businesspeople, known plainlyas merchants at the time, began whatconstitutes now as a trade-off system forbusiness transactions.

Goods and services were produced for theconsumption of people, whom in returnprovided the merchants with compensation

for their supply of merchandise. The regionformerly known as the Roman Empire, inessence, planted the seeds for how weprimarily measure a countrys economicwelfare: national income, or what ispopularly cited by Economics studentssimply as Y. And while it is recognised as

an empowered territory of its time, there isno record of Renaissance-era Italysmeasure of gross domestic product, makingit hard to compare with its successors.

Among those that have succeeded, onenation has emerged as the frontier of todays

international economy: the United States ofAmerica. Both economically and politically,it has established itself as the fundamentalfigurehead for the majority of the pastcentury. Considering that The Economistscover stories featured either John McCain orBarack Obama in eight out of fifty-twoeditions over the course of a year, prior to

the inauguration of a new President; there isno doubt that Americas political climate

holds much worldwide significance.

This authority isnt without value, for when

you observe that its 304 million inhabitantsenjoy a per capita income of $47,440 (betterthan 95.3% of the world); the land ofopportunity certainly lives by its moniker.

Accounting for a grand $14.4 trillion inGDP for the year 2008, the United States isresponsible for 20.6% of the worlds total

A


11/15

THE SCHUMPETER SUPERPOWERS OFWORLD PAST,PRESENT AND FUTURE

production. Its substantial global reach: be itthrough media (e.g. Hollywood), worldaffairs (e.g. Operation Iraqi Liberation), orproducts (e.g. Coca-Cola), has allowed theUSA to establish universal presence. Fact ofthe matter is that its notoriety speaksvolumes for itself. With vast multinationalknowledge of such places as Wall Street andDisneyland and their output, devoting morearticle space into explaining why the US hasacquired superpower status would be fairly

pointless.

Rather, ones attention should be directed

toward the 16th of June of this year, whereYekaterinburg, Russia took the Earthscentre stage and planned for its future. Asfour emerging economies officially madetheir cohesive presence felt, an unspokenmission statement laid claim to the planets

prospective hierarchy of powers top ranks.

The quartet: Brazil, Russia, India and China(termed BRIC in Goldman Sachs Global

Economics Paper No. 66 Building BetterGlobal Economic BRICs), are poised tosurpass todays heads of power as the

worlds leading markets, moving forward

into this millenniums first half-century.And with 2008 estimates of a combinedpopulation of 2.9 billion (42.7% of theworld) and combined GDP of $15.5 trillion(22.2% of the world), there is little doubt in

the BRIC blocs projected domination.

While it would be unfair to compare them tothe singular United States, it must beclarified that these four nations are on aneven grander course. According to GoldmanSachs (GS) Global Economics Paper No.

99 Dreaming With BRICs: The Path to2050, if things go right, in less than 40years, the BRICs economies together couldbe larger than the G6, the six beingGermany, France, Japan (as well as thepreviously discussed), USA, UK and Italy.

This spectacular growth, for the still-developing foursome, can also be identifiedwhen looking into IMF forecasts for 2009and the near future.

The following IMF figures approximateGDP levels (in trillions) for the ten countriesconcerned (in alphabetical order):BRZ: $2.00 (2009), $2.10 (2010), $2.60

(2014)CHI: $8.73 (2009), $9.67 (2010), $15.03

(2014)FRA: $2.11 (2009), $2.16 (2010), $2.52

(2014)GER: $2.81 (2009), $2.86 (2010), $3.28

(2014)IND: $3.53 (2009), $3.81 (2010), $5.51

(2014)ITA: $1.75 (2009), $1.78 (2010), $2.02

(2014)JPN: $4.19 (2009), $4.32 (2010), $5.05

(2014)RUS: $2.13 (2009), $2.19 (2010), $2.75

(2014)UK: $2.16 (2009), $2.22 (2010), $2.65

(2014)USA: $14.26 (2009), $14.70 (2010),

$17.42 (2014)

Some of these trends garner support from

the aforementioned Global Economics PaperNo. 99. China and India are perceived to


12/15

THE SCHUMPETER SUPERPOWERS OFWORLD PAST,PRESENT AND FUTURE

undertake rapid growth whereas Japan andthe US continue to experience progressivepatterns. The data however, does indeeddiffer drastically due to the varyingassumptions of the IMF and GS Group aswell as their methodology (Goldman Sachsmeasures in US dollar terms and withconstant prices wherein 2003 acts as thebase year). In accordance to the paper, Indiais expected to surpass Japans economic

performance by 2032 while China could

exceed five of the G6 in seven years timeand the USA by 2041. Conclusively, GSforesees that the BRICs, as a whole, havethe potential to best the G6 by 2039.

Time changes everything: as the reins havebeen passed on from Britain to Italy to theUnited States of America, so it appears thatthey will do so once again. While the factsvividly paint a future skewing towardsBrazil, Russia, India and China; projections

come with an assortment of assumptions.Bearing this in mind, it will be important tosee how these economies plan for theforthcoming decade. Goldman Sachssupports its position on the grounds that thisgroup of four abides by its well-structureddevelopment policies. While a few othercountries have come under similarobservation, namely Mexico and SouthKorea (prompting the acronym BRIMCK)they were excluded from studies related to

BRICs due to such differences as theirelevated economic levels of origin. Whetherits one of these two becoming a bigger part

of the equation or the modified G6 of 2050coming into form even sooner; the core idearemains. The Earths balance of power

appears to shift quite dramatically over theapproaching course of time.

To entirely understand the truths andconsequences behind these insights, payingcareful attention to regional news will be

vital. The only certainties we can moveforward with are the details at present:correspondence from Goldman Sachs (inBRICs Monthly, Issue No. 09/05: BRICs

Lead the Global Recovery) states thatBRICs [lead] both the advanced economiesand the rest of the emerging world in thisprocess. Does the alpha male notion soundfamiliar?

Need and want are two

different things, but when youwant something... go on thecheap By Habeeba Anjum

Staff may have the tiniest (really the greatest)tendency to complain about low wages, long hoursand short breaks at stores such as Primark (One canusually hear the rants of the Primark clique whennear the changing rooms at the back). Not to mentionbickering about the constant assorting and endlessfolding of clothes. This isnt to express an anti-tradeunionist view, but what about the war thats ragingbetween the average shopper and their bank account.Surely that needs to be taken into consideration.Every quarter an envelope comes through the post,which happens to be the dreaded Bank Accountstatement. The word statement refers to the bankssaying youve given us your money- we win and ontop of that were charging you interest! A cleverperson would open a savings account destroy anycredit cards and get a nice healthy debit card whichdoesnt charge interest! The Banks arent so clever

now are they?Back to the point; People like to aim bigPrada,Gucci, Louis Vuitton, but spending more than 30 ona plastic hair band (even if you can afford it) is, dare Isay, a rip off! It would make much more sense to getthe same thing from Primark for 29 less! It maypossibly look like a cleverly crafted knockoff, butwear 11 inch heels and people will not be able tocheck for the designer labels on the top of your head.It will also give you height and oomph. Justremember take a few lessons in poise before youactually go out in those heels, especially when

probability states that you have an 80% chance ofbreaking a limb. But fashion does have its sacrifices!Moral of this story: Do not buy cheap plastic fromSelfridges, buy it cheaper from Primark.


13/15

Pointers on Financing Student Life

By Francesca Satturley

f you are leaving home for the first time

and beginning university, financing your

studies in the most effective manner

possible can seem like a huge hurdle to

overcome. Figures show you could end up

owing more than 23,000 after graduating,

so here are some tips to help you budget

effectively.

Take out a student loan

It is the cheapest way to borrow. Debt owed

to the student loan company (SLC) is taken

out of a students salary after graduation at

9% of annual earnings over 15,000.

Interest rates are based on the Retail Price

Index and set in March each year, but as the

RPI has recently fallen below zero, student

loans are currently interest free.

Students would be wiser to take out more

than they need rather than less, as the excess

can be deposited in a bank account where

interest can be earned on it, rather than fall

short on funds and have to borrow through

alternative methods such as a bank

overdraft. It should however be considered

whether borrowing more money would

encourage more money to be spent, and so aweekly budget should be used as a guide to

work out how much of the student loan to

apply for.

Some students will also qualify for a grant if

they are from a low income family. A grant

is finance supplied by the government that

does not have to be paid back. For more

information about grants and student

support contact the student support helpline.

Work out a weekly budget

This can be done by working out roughly

what will be spent each week and sticking to

it. A weekly allowance should be set for

food, transport, accommodation plus any

additional bills such as heating and lighting,

and cash for going out. Multiply this by the

number of weeks you will incur these costs

for this university year and add on any one

off costs such as books. This will give you a

rough estimate as to how much finance you

will need to apply for in order to fund you

academic year. You will need to budget so

that you are living within your means, and it

must be realistic if you are to stick to it!

Focus on the biggest free overdraft

Times are tough but banks are still eager to

hold a slice of the student banking market

this year. Many offer cash incentives and

freebies, for example NatWest is offering a

five year young persons railcard worth

130. Andrew Hagger from price

comparison service Moneynet.co.uk states

that; the main focus should be the size of

the interest free overdraft, if youre likely to

need to borrow 1,500 or more for year one,Halifax, Barclays and The Royal Bank of

Scotland should be your first port of call.

Hagger has also stated that; If you are in

danger of going over your authorised

overdraft limit dont bury your head in the

sand. Speak to your bank as soon as you

can, if theres a branch on campus youll

usually be able to speak to a student

specialist who can help you out.

I


14/15

THE SCHUMPETER POINTERS ON FINANCING STUDENT LIFE

Avoid credit cards and store cards. They arean expensive way to borrow money- most

store cards have a typical APR of 29.9%.

Look for additional sources of finance

Many universities offer scholarships, and

will have information about these on their

websites. If students are edible to apply for

them then they should go for it! There is

nothing to lose!

Universities may also offer bursaries for

students in financial hardship. Students

finding themselves under these

circumstances should look at the universities

website for more details.

Think about transport

Over a year transport

costs tend to add up, so,

they need to be

considered when

choosing modes oh

transport. If the

destination is within

walking distance then

take advantage of this

free means of transport.

The next cheapestmethod of transport is often

the bus which is generally lower than the

tube or a taxi. When travelling using the

tube or bus, be sure to invest in a student

oyster card. They will save you a lot of

money in the long run and only cost 5. A

young persons railcard is also a wise

investment when using rail services on a

frequent basis, providing the holder withone third off rail travel.

Use a student card

Many shops and entertainment venues offer

discount for students so take advantage.

Clubs and bars often host student nights

where drinks and entry into clubs are

discounted. Money can be made to go

further by logging into websites such as

studentbeans which give a range of student

offers and deals.

Keep your house in order

Students who look after their property and

stick to the terms of their contract will get

their deposit back. The deposit is often quite

a large sum of money and definitely proves

very useful at the end of the

academic year.

Before moving into the

property it is wise for students

to see a copy of the gas safety

certificates and see who is

responsible for the bill. By

taking a meter reading and

giving this to the supplier,

students can also see if they

are able to switch to a cheaper

utility tariff.

By budgeting effectively,

ensuring you have enough finance to cover

your budget and researching the deals are

out there; financial worries will be eased and

student life will become less stressful.

Students years at university are said to be

the best in their lives. This should not be

ruined by financial difficulty!

Copyrights of Ryan Barclay,www.textlister.com . All rights reserved.


15/15

We are committed to advance the reform of

international financial institutions so as to reflectchanges in the world economy. The emergingand developing economies must have a greatervoice.

- Leaders of Brazil, Russia, India and China;in a joint statement at the first BRIC Summit.

Islamic finance has not escaped unscathed from

the global financial turbulence of the past year.As the credit crunch hit, the market for sukuk, orIslamic bonds, took a pause, with new issuespostponed and months going by without a singledollar-denominated bond being sold. Despite thesetback, however, the pool of liquidity in the oil-rich states of the Gulf, and the still-growingappetite for financial products that comply withthe prohibition on the use of interest, have keptthe $800bn Islamic finance industry marchingon.

- Roula Khalaf, Middle East editor of the

Financial Times, in a FT.com Islamic Finance

report, titled Grappling with problems of

success.

If you believe that markets operate in AlanGreenspan fashion, then you don't inquire intothe details.

- Oliver E. Williamson (see under News

Summary), in a statement to The Age.

I received over 800 emails on the first day. Inever thought about winning the Nobel Prize. Isimply want to do more research.

- Elinor Ostrom (see under News Summary),in a statement to Peoples Daily Online.

Fifty per cent of sod all is still sod all,

- Boris Johnson, in a statement referring to

Ken Livingstones policy on fifty per cent

affordable housing in new developments.

Sveriges Riksbank Prize in Economic Sciences in

Memory of Alfred Nobel

The Nobel Memorial Prize in Economics

2009 laureates:Elinor Ostrom ("for her analysis ofeconomic governance, especially the commons")

and Oliver E. Williamson ("for his analysis ofeconomic governance, especially the boundaries ofthe firm")

By winning the Economics Nobel Prize this year,Elinor Ostorm became the first woman to earn thehonour since its inception in the late 1960s.

Nobelprize.orgEconomics 2009http://nobelprize.org/nobel_prizes/economics/laureates/2009/index.html

It is good to see the finished product of the effort thatmyself, Fahad and everyone who wrote articles haveput in. I look forward to everyones contributions forthe next edition and would like to thank the EconomicsDepartment and everyone that has helped with thecompletion of this edition.

David Osborne, co-Editor of The Schumpeter

A big thanks to the contributing students; withoutwhom this would be a mere two-person ensemble byDavid and I. Gives me great pleasure to see our Citystudent body take on an active role beyond the lecturehalls. Its for this reason that The Schumpeter pridesitself on giving todays young minds the opportunity tostate their opinions and extend their knowledge via thepower of the proverbial pen. Be it an economistworking on the Schumpeter or a Schumpeter workingitself into The Economist, it is nice to see the world ofeconomics integrate.Fahad Memon, co-Editor of The Schumpeter

Dear students,

I would like to congratulate the student-led andfocused Economics Society, in particular FahadMemon and David Osborne, for having brought out thefirst edition of the Schumpeter of 2009/10. Thispublication reflects the deep engagement of theSocietys members with economics in both itsacademic and its practical aspects. I hope that those ofyou who are not yet members of the Society will beinspired by this publication to become active in itsaffairs, whether through contributing to future issues orby participating in one of the events that the Societywill organize over the year.

I hope you enjoy the coming year and that you do verywell in your studies.Saqib Jafarey, Head of Department.

Any Comments/Contributions, contact: [email protected] or [email protected] Pictures credits: Fred R Conrad/The New York Times www kremlin ru www primark co uk and Umair Shuaib through public

News Summary

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