THE SCHUMPETER The Economics Society Magazine

Issue 5

theschumpeter.blogspot.com

Happiness and Money: A Social Science Experiment

Fahad Memon

Who Says Crime Doesn’t Pay?

Folarin Araromi

Meaningless Numbers

Anna Reitman

Minsky’s Instability Theory and the Financial Crisis

Miles Hamilton

The Economics of Prohibibion

Adrian Booth

The End of a Dream, Time to Wake Up

Bhavina Bharkhada

What Happened to Haiti?

David Osborne

THE SCHUMPETER CONTENTS

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From The Department

News & Extra

Economics Society News Upcoming Events: Please make note of the following dates: Banks of England Tour;

Wednesday, 10 March 2010.

Talk on Fiscal Monetary Policy; Wednesday, 17 March 2010.

For more information, please contact the following Economics Society members: President, Sammy Sung:

sienhangsung@googlemail.com Vice President, Scott Doughty:

scott.doughty.1@city.ac.uk Alternatively, contact the Economics So-ciety via Facebook.

THE SCHUMPETER ECONOMICS SOCIETY NEWS

Dear Readers,

Apologies to those of you who haven't heard from the Society for a long time. We have had some difficulties processing e-mails. Many of the e-mail addresses we have did not seem to work, some of your handwriting was quite interesting to read. Anyhow for those of you that want to be added to the e-mail list, send us your addresses and I will add you.

The Society Council is now actively seeking new members to fulfill a variety of roles within the team. If anyone is interested in joining the Economics Society Council or get-ting more involved, feel free to contact me. It is probably best to speak with me on Facebook (Scott Doughty). Alternatively, we will have regular council meetings, which will be announced via email or via the Facebook group.

Throughout the year the Society holds various academic and social events, such as Bank of England Tours, Talks from authors (Tim Harford visited us recently) and other guest lecturers.

We will be having a trip to the Bank of England very shortly; the planning of which will be discussed at the next meeting.

So why join the Society?

It’s a great opportunity to interact with your peers in economics.

Current members have found the contacts they have made invaluable; it provides an example of commitment that will set you apart from some of your peers.

The experience / example of teamwork can be helpful to use in interviews (as being proactive / involved in extra curricular activities is something employers look for).

If you’re interested or have any queries, don't hesitate to get in touch with me at scott_david_doughty@hotmail.co.uk

Kind Regards ,

Scott Doughty Vice President of the Economics Society

Meaningless Numbers

M illions, billions and trillions have been around for a while, but at the

beginning of the new millennium, quad-rillions have made an appearance. The Bank of International Settlements 2009 figures for total notional amounts of de-rivatives are at just over one quadrillion USD. Andy Denis, senior lecturer in political economy at City University London, calls it “a meaningless number.” He said: “Astronomers joke that they are going to stop talking in astronomical numbers and start talking about economics ones be-cause the economics ones are bigger now.” At the risk of oversim-plifying, here is what one quadrillion repre-sents. You buy a house and get fire insurance on it for protection. There is never any intention to collect on it because that would mean your house and every-thing you love has burned down. In 2005, a new law allows other people to insure your house and nine people do, some us-ing a very small amount of borrowed money. All ten people will receive the value of your house if it burns down. So m e o f t ho s e p eo pl e ar e yo ur neighbours who are concerned about the risk to their own property if your house is burning, but two of those people are ar-sonists. Translating into the language of finance, the amount of money you are protected for but are not supposed to plan on col-

lecting is the notional amount and the two arsonists out of the ten insurance policy holders are the approximate pro-portion of derivatives that are credit de-fault swaps. Spreading a rumour that a company is about to default would have the same effect as burning down your house and triggering an insurance payout to all ten policy holders. It is important to realise that derivatives do not create wealth. For every winner on these contracts, there is a loser. Those losers are insurance companies that have to pay out on the contracts and, by exten-

sion, present and future citizens who are saddled with enormous debt when governments bail out in-surance companies that run out of money and creditors. An estimate of the value of our collective house, the earth and its resources, is 100 trillion dollars, so one quadrillion is the sum to-

tal of ten contracts that stand to be paid out if the earth burns down. At the mo-ment, every citizen on earth owes a little over 150,000 dollars. The potential wins and losses for derivatives are infinite. At this point you’re thinking, yeah, but those same arsonists can’t burn the earth down, can they? Well, not really, but evi-dence is all around us that the earth is burning up and being destroyed for profit motives; global warming, polar ice caps melting, water and soil contamination, deforestation, species extinction, eight major wars, the list of infinite losses con-tinues on and on.

Anna Reitman

The financial crisis revealed the giant magnitude of money that has been cre-ated out of nothing and how quickly it can disappear back into nothing. One of the consequences of these revelations is an acknowledgement that something is not working. Dr. Denis thinks the failure is not in eco-nomics, but in a dominant trend within the discipline that assumes ideal condi-tions. He adds that some new theories, such as those discussed in Wilkinson and Pickett’s book, “The Spirit Level,” argue powerfully that we have reached the point at which further economic growth isn't producing any additional benefits and that we would all, including the rich-est, be better off if resources were shared. He said: “sacrificing their material bene-fits is not going to impact very highly on satisfaction but what is gained is living in a society which is more secure, more sta-ble, less violent, one which enjoys better health, a higher cultural level.” A wider range of economic theories is

likely to get a more receptive hearing, but they have yet to be meaningfully imple-mented. Top bankers are hanging onto their bonuses with a vengeance and the establishment is fighting regulations that attempt to protect against risk while in-vestment banks largely regarded as the cause of the crisis are making record profits. Climate change deals that focus on limiting industry are failures, but promises from heavily indebted countries are made to spur economic growth for ‘green’ industry using giant piles of money. The earth’s resources are due for a massive re-evaluation, making any pre-dictions of future production costs uncer-tain. Often, names for large numbers enter common language use because of exces-sive inflation. I don’t know whether quad-rillions is a common term yet, but maybe when we get to quintillions; it will be more widely used. As the kids say, quad-rillion is the new trillion.

THE SCHUMPETER MEANINGLESS NUMBERS

Happiness and Money: A Social Science Experiment

Fahad Memon

D efinition: economics is a social sci-ence that studies man as he seeks to

satisfy unlimited wants with resources that are not only finite but have alterna-tive users. Four years ago, the subject of economics was introduced to me in this manner. As a matter of fact, rather than introducing himself; my high school eco-nomics teacher went with a more dra-matic approach by first asserting said statement. Subsequently, he picked apart the phrase and stressed the fact that: ‘economics is a social science.’ All social scientists are aware (or at least they should be) of this specification as it pertains to any other form of science. Their knowledge is not con-crete; it is a constant accu-mulation of information based upon observation. This final word, due to its variability, proposes a po-tential threat to the integ-rity of the data. Hence, to accept economic facts, economists are required to comprehend relevant the-ory, challenge presumptions and test this via empirical study again and again (and again). One such intriguing social topic is that of the ‘economics of happiness.’ Though ques-tions the likes of “what is happiness?” may sound familiar to everyone, not all arrive at the same conclusion (assuming at least some are prohibited the aid of a dictionary). Opting to answer the query as an economist (via glossary), I define: “happiness [as] the measure of one’s

overall utility (a term interchangeable with well-being, welfare or life satisfac-tion).” Utility, in itself, is determined by the consideration of factors that Easterlin (2001) identifies primarily as “making a living, family life, and health.” Thus ac-cordingly, it may suffice to pronounce that so long as all these facets are well catered to, one shall effectively realise optimum life satisfaction. In conjoining the concepts of economics and welfare, I seek to observe how one’s happiness is affected by the controversial factor of money (ceteris paribus). For

clarification purposes (and to avoid the debate over stocks and flows) it must be stated that the specific factor in question precisely represents one’s level of in-come. Within the context of the model for con-sumer theory, basic undergraduate learn-

ing tells us that a rise in income emulates a north-eastern shift mechanism on a person’s budget constraint. Combining this knowledge with the fact that an indi-vidual’s utility increases as he or she moves further north-east from their ex-isting equilibrium position in the model, we can firmly declare that as income rises, overall well-being should inevitably rise as well. An application of the model, as illustrated, confirms that as income rises from M to M’; real income also ex-pands as we consume more of both X and Y normal goods. Taking into account the corresponding model assumption of “more is better,” consumers will be hap-pier with their new state of equilibrium. By examining data reported in the 1994 United States’ General Social Survey, Easterlin (2001) finds that just 16% of individuals from the lowest income band stated they were very happy. Conversely, those of the highest income band whom

stated they were very happy account for a greater 44%. While this only reveals in-formation with regards to the extreme ‘very happy’ category, Richard Easterlin’s facilitation of a happiness rating system (where a score of 4=‘very happy’, 2=‘pretty happy’ and 0=‘not too happy’) shows that on average the lowest income earners report a rating of 1.8 while the highest income earners disclosed a score of 2.8. In terms of real income, Frijters et al. (2004), utilizing the case of East Ger-many’s reunification with West Germany, finds that overall well-being increased by 20% between 1991 and 2001 where 35-40% of the effect was accounted for by rises in real household incomes. Funda-mentally, both results verify what has al-ready been stated in theory—money brings people happiness. The nature of a social science, however, leaves plenty of room for further analysis. As per varying income characteristics

THE SCHUMPETER HAPPINESS AND MONEY: A SOCIAL SCIENCE EXPERIMENT

over time, a number of paradoxes contest the theoretical relationship found be-tween earnings and welfare. For one, as retirement age draws nearer—and thus, as income tends to level off or decline—the correlation between one’s income and respective well-being weakens considera-bly. According to the findings of Easterlin and Schaeffer (1999) happiness tends to-wards a constant value (i.e. becomes in-dependent of income level) over the span of a life cycle. Nevertheless, people seemed to believe that they are better off now than they were in the past and will be more so in the future. Why would this be the case if happiness converged to-wards a fixed value? In order to understand this, Richard East-erlin assumed the following: the general population’s preferences are more or less parallel in the early part of the life cycle, but as time elapses, preferences tend to-

ward more luxurious goods as income raises are achieved. In assuming so, East-erlin cites that persons make critical measurement errors that alter their per-ceptions. When making comparisons to their past, they maintain current (increased) preferences but evaluate these in terms of the lower income they earned at the time. The problem with this is that the material aspirations in the pre-sent were only made feasible because of the fact that earnings increased. Though one can understand that once grander preferences are met, it is hard to revert back to the preferences one had before-hand; from an economics perspective, it is unpardonable. In the same sense, higher income expectations in the fu-ture—taking material preferences to be the same as today—provide fulfilment in an unjustifiable manner, since anticipated preferences growth is unaccounted for. What the individual does not grasp is:

THE SCHUMPETER HAPPINESS AND MONEY: A SOCIAL SCIENCE EXPERIMENT

once the future date does finally arrive, they conform to the same situation they are at present; faced with the same in-come-to-preferences issue and a re-cording of happiness that follows con-stantly.

Kahneman et al. (2006) further objects to the simple basics of consumer theory by presenting an unsettling concept. The fundamental idea behind the article—that of “focusing illusion”—finds that people tend to overestimate the impact of a particular force on welfare, in the spur of the moment, because they’ve had their attention drawn specifically towards it. Correspondingly, Schkade and Kahneman (1998) cite that, “nothing in life is quite as important as you think it is while you are thinking about it.” In light of previous discussions on money as a factor of well-being, Kahneman et al. (2006) essentially dismisses its perceived immense signifi-cance. Considering that money adheres to a derived demand function, people are mostly interested in what they can buy with it (i.e. real income) rather than the money itself. When foreseeing income promotions however, people, while in-clined to think in terms of greater pur-

chasing opportunities; fail to identify the coinciding adverse ramifications. Evi-dence presented in the 2006 paper pro-poses that high-income earners are on average not happier but instead more stressed than low-income earners. Since

raised income levels are achieved by occupying more demanding positions, it leaves one with less time to engage in leisure. The “focusing illu-sion,” in essence, misdirects one’s thinking by disregarding the additional hours spent working, commuting and sac-rificing for the sake of acquir-ing more pay. This concept, thus, suggests reasons for why utility approaches a con-stant rate in the long term, despite changes in income: “because attention eventually shifts to less novel aspects of daily life [Kahneman et al.

(2006), p. 1910].” While conventional wisdom would de-note that more money would translate to greater well-being, an in-depth look into the ‘economics of happiness’ insists that this hypothesis is both controversial and false. Money, as medium of exchange, may indeed be needed for carrying out one’s life, but it is most certainly not the key to life satisfaction. Nonetheless, con-sidering that the area of study remains a highly debated matter among scholars, it may be impulsive on my part to declare the study’s final conclusions. The exercise showcases, however, why the subject of economics is so fascinating. While a natu-ral science teaches one irrefutable facts, a social science develops knowledge by in-creasing one’s exposure to ideas and sub-sequently, prompting one to venture into comprehensive study—thus accordingly, it has produced this article.

THE SCHUMPETER HAPPINESS AND MONEY: A SOCIAL SCIENCE EXPERIMENT

Austrian businessman, Karl Rabeder, relinquished a $5 million fortune because it made him miserable.

T he late Harvard trained Hyman P. Minsky (1919–1996) was considered

somewhat of a maverick on account of the extreme pessimism he reserved for the capitalist system. But with the world winded by the worst financial crisis ever seen, one cannot help but hear ‘I told you so’ in the wind. In this article, I will en-deavour to briefly explain Minsky’s Fi-nancial Instability Hypothesis and how it links to the current financial crisis. The financial turmoil has recently brought to prominence the ideas of Min-sky and his Financial Instability Hypothe-sis (FIH), a theory rooted in the belief that all capitalist economies are perpetually poised on a precipice, plunging into the great abyss of financial crises at the slightest touch. Fundamentally, this instability stems from individuals’ behaviour during differ-ent stages of the business cycle. The pros-perous upstage of the business cycle is characterised as a period of intense activ-ity typified by rapid output and invest-ment growth. Underlying all this is a tre-mendous amount of credit creation as banks try to quench the insatiable thirst for euphoria. Profit seeking firms push for maximum gains and borrow to provide funds, in the process increasing the pace of debt accumulation. In short lived euphoric states, the major-ity of firms operate in a position of good financial health in which units are domi-nated by hedge finance, meaning that borrowers can meet all debt payments from their outflows. However, over a pro-tracted period of euphoria, the pace of debt accumulation starts to rise much faster than borrowers' ability to repay

and serve the debt. This leads to a finan-cial structure in which there is large weight to units engaged in speculative and Ponzi finance. Speculative borrowers can meet interest payments but must constantly roll over their debt to be able to repay the original loan. Ponzi borrow-ers can repay neither the interest nor the original loan. In the most recent euphoria, banks lent to ‘sub-prime’ individuals and allowed highly leveraged positions to de-velop. The essence of the Hypothesis is that the longer people make money by taking risk, the more imprudent they become in risk- taking. They make the psychological mis-take of mentally protracting the position of stability they are in into the future. Es-sentially, Minsky shows that stability is destabilising. Rosenberg (2009) sums this point up brilliantly in the following ex-tract: “To a certain extent, this is an inevitable outcome of human reason-we understand the unfamiliar, the distant, the uncertain, the abstract, in terms of the familiar, the near, the certain, the concrete. But this also means that we tend to ignore what we know exists, but what we can't fully grasp, control, or use to our advan-tage. And so it is that even though we know there are cycles of boom and bust, we tend to ignore them, and somehow convince ourselves that ‘this time it's dif-ferent’…” The thrust of Minsky’s argument is that credit creation is not a dangerous phe-nomenon in itself—as he did recognise that credit creation leads to economic growth—but it is dangerous when it is not backed up by real savings. This essen-

Minsky’s Instability Theory and the Financial Crisis

Miles Hamilton

tially criticises the ‘fractional reserve’ banking structure which en-ables the accruing of illiquid as-sets (loans) and liquid liabilities (deposits). This system works as not all depositors require funds at the same time and they in turn obligingly trust the bank to honour deposits made. Subse-quently, the borrower who holds the empty money takes from the pool of real savings without any additional real sav-ings having taken place. As the pace of un-backed credit ex-pands, relative to the supply of real savings, less becomes avail-able to genuine wealth genera-tors. Consequently, with less real savings, less real wealth can now be generated. Should any doubts about the validity of this ‘contract’ arise then the tightly-knit financial system quickly unravels – as seen briefly in Britain in September 2007. Another aspect of the FIH is that financial crises can sometimes arise from ‘financialization bubbles.’ This essentially entails that during the euphoria, financial intermediaries—who Minsky labelled as ‘merchants of debts’—try to lure inves-tors to buy the debts by means of sophis-ticated innovations. This is what McCulley (2009) called ‘shadow banking’ and the result is that there was an “explosive growth in leverage and liquidity risk out-side the purview of the Fed.” Ratings agencies fuelled the problem by provid-ing ratings on some overly complex struc-tures when they did not understand the underlying risks. Lured by high rates of return, investors put their money in prod-ucts that were very opaque and when they became more transparent the sys-tem unravelled. This has been observed in both 1929 and

1990 but the extent of the present finan-cial speculation has not been paralleled. Gov-ernment regula-t o r y m e c h a -nisms had apti-tude limitations that could not handle the ra-pidity and ex-tent of complex credit products and other illiq-uid assets of un-certain value being pushed through the sys-

tem. As Pandit (2009) noted “we have been riding on a high-speed train… but on rails laid more than sixty years ago for a simpler, slower-paced world.” Ultimately, many suggest that Minsky’s FIH has value as it suggests that capital-ism does not work, as suggested by Shostak (2007); “doesn't this prove that capitalism might indeed have inherent tendencies of self-destruction.” I, how-ever, disagree that this is the reason that the theory has value because many peo-ple can and do invalidate Adam Smith’s theory of the invisible hand. Thus, I be-lieve that the financial instability hy-pothesis has value on the basis that it suc-ceeds in fulfilling a much harder task, of providing a framework for how and when the invisible hand would break. In the end, as we slowly emerge out of the recession, many people have been ques-tioning how to prevent recessions from reoccurring in the future by use of policy measures. If Minsky’s Financial Instability Hypothesis is believed, then financial cri-ses will inevitably strike again and there is nothing we can do about it.

THE SCHUMPETER MINSKY’S INSTABILITY THEORY AND THE FINANCIAL CRISIS

The End of a Dream, Time to Wake Up

D ubai, the glittering city in the desert has gone from being the pinnacle of

the world’s economic boom to the brink of bankruptcy. So where, why and how did it all go wrong? Situated on the Persian Gulf coast of the United Arab Emirates, Dubai is neighbour to the oil and gas giant Abu Dhabi. The City of Gold’s main revenue is generated through tourism and real estate develop-ment, contributing 22.6% to the econ-omy’s GDP (before the construction boom). Large increases in oil prices after the Persian Gulf War encouraged Dubai to continue to focus on free trade and tour-ism, and the success of this led to the constructions of Burj Al Arab, the world’s tallest free standing hotel and The Palm Islands. Since 2002 private property development has recreated Dubai’s skyline and robust economic growth and high inflation (11.2% in 2007) has highlighted Dubai as an emerging financial city. Ambitious projects such as The Dynamic Tower, The World, Burj Dubai and aforemen-tioned Palm Islands brought busi-nesses and consumers from all over the world to invest in the promising

city (without questioning what exactly this exponential growth was built on). In attracting all this attention, Dubai has be-come a leader in the Middle East; a global city, and a hub for service industries such as IT and Finance. In 2003, the government de-cided to diversify from a trade based, oil-reliant economy to one that is based on services and tourism. It meant property

become more valuable, resulting in the property appreciation from 2004 to 2006. The opening of the Atlantis hotel was ru-moured to have cost a staggering $20 mil-lion but alas, it would soon come to light that this was to be the last party. The property bubble was certainly going to pop one day with rising property prices daily fuelled by speculation. So where did the problems start? Dubai World is a renowned investment com-pany that manages a portfolio of projects and businesses for the Dubai govern-ment; its property arm developed The Palm Islands and The World. Caught up in

Bhavina Bharkhada

Dubai World chairperson, Sultan Ahmed bin Sulayem.

the euphoria surrounding this emerging city, nobody questioned the money used to fund these developments as credit checks and lending companies could not wait to join the bandwagon. “Dubai was immune” — maybe not quite. After a six year boom the real estate market began to descend, and fast. Revelations that the company could not pay back its loans, asking for an extension to at least May 2010 and laying off 10,500 employees most from Asia (India in particular), sent shockwaves through the financial mar-kets. One of Dubai’s biggest problems is the small number of official statistics avail-able to reassure investors that it is not on a downward spiral. It was simply a case of investments built on borrowed and bought money. Now, Dubai World’s debt stands at approximately $59 billion, something not to take lightly. The oil rich emirate Abu Dhabi has already bailed out Dubai almost $10billion, something it was forced to carry out again. Its international reputation has been damaged by this out-come; four banks have had their credit ratings cut due to exposure to Dubai World debt and fears among investors are growing. The financial crisis has hit Dubai hard; empty beaches, hotels and shopping malls are a result of heavily in-vesting into real estate and construction. The stock market dropped a record 7.3% in a single year and investors have left, the real question is will they come back? However, it is not all bleak; many inves-tors believe that Dubai or the Federal Government of Abu Dhabi will step in to pay off Dubai World’s debt. Despite the falls in the stock market they were not as severe; some analysts believed the 10% fall was predicted. There is a lesson to be learnt in all this chaos, the same one which has been echoed across the world.

Reckless lending, exponential growth based on borrowed and bought money and assumptions of an ever expanding economy, sound familiar? The sandy foundations of Dubai’s growth have crumbled; let’s hope the over ambi-tious projects such as Burj Khalifa and the Meydan racecourse do not follow.

THE SCHUMPETER THE END OF A DREAM, TIME TO WAKE UP

What Happened to Haiti?

T here are some similarities between the United States and Haiti. They

were the first two countries in the west-ern hemisphere to gain independence, and there was widespread carnage and civil war during the struggle for inde-pendence of both countries. What is in-teresting, however is that the United States is the world’s richest country, whereas Haiti ranks among the poorest. Why, despite in the colonial era, being the world’s richest colony, does the average Haitian now earn less than $790 per year? Why does almost 40% of govern-ment spending depend on foreign aid? “Chicago school” economists have gone to great lengths to point out that free trade is a primary aspect of economic growth and development. However, Haiti’s inde-pendence in 1804, and the fact that slav-ery no longer existed in Haiti, was a dan-gerous precedent to the slave-driven economies of France, England as well as the newly-independent United States. These countries, consequently blocked trade with Haiti and decided they would show Haiti no favour, boycotting Haitian goods and services – a severe blow to the country’s economic development. Fur-thermore, Haiti was not recognised as a nation by its former colonial power, or for that matter, by any of the European powers, and as a result had to pay an in-demnity to France for recognition. This resulted in a gargantuan debt hovering over Haiti for two decades short of a cen-tury. Of course, due to the long term na-ture of its debt to France, the interest on the debt built up to become more than the debt itself, plunging the nation fur-ther and further into poverty.

Economists study education as a benefit in kind and positively correlate it to eco-nomic growth, because of its impact on productivity, as an internal effect, as well as an externality. According to UNESCO, Haiti’s literacy rate hovers around 54.8%, considerably less than it’s than its neighbour, the Dominican Republic (89.1%), and well below the average lit-eracy rate for the Caribbean and Latin America (90%). Scrutinising statistics even further, we observe that only 67% of children start primary school, and only a third of this number finish. Further-more, only 20% of eligible students at-tend secondary school, and even fewer finish. The Haitian education system is based on the French system, and is taught exclu-sively in French. However, the mother tongue of the Haitian masses is Creole, which can explain the high drop out rate of Haitian students. The average poor Haitian feels out-of-place in a French-speaking institution, and as a result, their education is more or less characteristic of the middle classes and the elite, who tend to keep French as their comfort zone. For the poor Haitians who do manage to com-plete their education, they tend to emi-grate, and use their skills in a place and a way that will benefit them and their fami-lies many times more than if they were to stay in Haiti – a phenomenon known as the Brain Drain. In fact, a report by the World Bank, states that approximately 90% of college-educated Haitians live abroad, making it the country with the highest percentage of citizens living abroad. Haiti’s percentage doubles that of Ghana, which ranks second on the list.

David Osborne

Inequality in education, also leads to ine-quality in wealth, and this can be traced back to the colonial days. In fact, the ma-jority of the present Haitian elite are di-rect descendants of the Haitian elite at the time of independence two centuries ago. According to the United Nations, the Gini coefficient for Haiti is 59.2. This ranks it as the most unequal country in the Latin America. In an interview in April 2009, the Prime Minister of Haiti Michèle Pierre-Luis stated that: “All the Elites – the mulatto elites, the university elites, the peasant elites – are like a huge elephant sitting on this country and you cannot move it, because there is no politi-cal class, because there are no political parties, and everything becomes cor-rupted and perverted. If you can’t go into that system, the system rejects you. And so far we have not found the wrench that will move this thing.” Her statement gives clear evidence to the scale of corruption and the influence that the wealthy Haitians hold, and the fact that they stagnate the economy. Corruption has plagued Haiti since its in-dependence, and has continued to play a major part in its poverty. Just the mention of the Duvalier dynasty—“Papa Doc and

Baby Doc”—should give a vivid picture of the scale of corruption that Haiti has gone through. There is also the peculiar case of Jean-Bertrand Aristide, who came into his first term in office with the resolve to purge the nation of corruption. After a coup d’état in 1991, Aristide was power-less until 1996, when he was re-elected. However, in his second presidency, he had changed, and appeared to be more money-driven than he was prior. In his second presidency, millions of dollars of Haitian government money were “lost in sophisticated financial transactions.” In-vestigators have claimed that this money was either laundered or embezzled. In any case, this money could have been bet-ter used for the greater benefit of the Hai-tian people. Haiti’s economic misfortune is a combina-tion of the factors mentioned and many other socio-political issues. Many people also claim that the use of voodoo in Haiti adds a reason for its poverty, being a maverick in the Western world: the only country to practise voodoo in the West, and the poorest – this is a matter of opin-ion. The fact of the matter is that Haiti is in need of economic reform. The nation needs a strategy to combat organised crime, and also one that has the support

of the country’s peo-ple and the interna-tional community. They say that ‘it’s hard to teach an old dog new tricks,’ but t h e u n f o r t u n a t e earthquake in Haiti may just be the cata-lyst to its economic reform. Only time will tell.

THE SCHUMPETER WHAT HAPPENED TO HAITI?

Who Says Crime Doesn’t Pay?

T he last few decades have marked the creation of an increasingly global

economy. This globalisation has been fa-cilitated by the removal of regulatory bar-riers to international trade. Technological advances have connected buyers and sell-ers across the world, through transac-tions that were not even possible twenty years ago. At the helm of economic liber-alisation came the creation of the World Trade Organisation in 1995, extending trading beyond just goods to the transna-tional provision of services. With the pro-duction and distribution of goods and services now internationalised, economic activity was able to move to locations in which it incurred lower costs and reaped higher profits. These movements were the manifestation of Smith’s ‘invisible hand’, and Ricardo’s principle of com-parative advantage. However, lurking in the shadows were criminal organisations that leapt at the chance to attack as the world let down its guard.

Drug smuggling, arms trading, and hu-man trafficking are just a few of the illicit activities that have flourished due to the advances of technology, and the free movement of goods and services that characterises the modern world. In 1980-90, following a series of free trade agree-ments, U.S. federal spending on drug con-trol quadrupled from $1.5 billion to $6.7 billion, and the number of drug related arrests rose from about 103,000 to more than 404,000. Thus it came as no surprise when international policy of the 1990s was largely dominated by the USA, and its efforts to exert its influence in the domes-tic affairs of other nations. Contemporary transnational crime is largely a continuation of historical prac-tices, such as piracy and slavery, albeit now with far more sophisticated means of organisation. Like other forms of eco-nomic activity, organised crime conforms to the profit maximising model, and in-creasingly this has meant ‘outsourcing’

crime to countries with loose leg-islation. This migration is espe-cially evident from countries in the West, where cost-imposing regulation and enforcement makes crime considerably less lu-crative. Just like Microsoft and Nike, profit-driven crime relocates to poorer countries to capitalise upon cheaper labour and produc-tion costs, achieving greater economies of scale. The organised crime industry is a curious form of oligopolistic competition, con-forming to some of its characteris-tics, whilst completely defying others. For example, like legiti-mate firms criminal organisations engage in non-price competition.

Folarin Araromi

In legitimate markets this usually takes the form of brand wars and advertising campaigns. However, in the criminal in-dustry it takes the form of turf wars be-tween private militias, sometimes even fighting against governments for control over territories. In a similar fashion, the criminal industry echoes some of the economic conse-quences of the market mechanism; how-ever the causes of these effects differ substantially. This is specifically evident in the case of the ‘kinked demand curve’ of oligopoly. If one organisation in-creases its prices its competitors will not react and the firm subsequently loses market share, however if it reduces its prices, competing organisations will not follow suit. Instead, they will threaten their customers to prevent them from switching to the cheaper cartel, thus the firm that reduces it prices gains little ex-tra demand. In some cases, certain or-ganisations enjoy monopoly within cer-tain countries. In these countries, the ab-sence of significant competitors allows

the organisation to use its powers of en-forcement to charge prices that far sur-pass the norm, becoming purely extor-tionist. The criminal industry, however, is also a contestable one; that is, open to threat of new entrants in the market. With free en-try, we would expect an organisation’s profits to be reduced in the long run, however unlike legitimate markets, crimi-nal organisations typically employ vio-lence to quell competition. The implica-tion of this is that devoting resources to deterring competition results in fewer resources for production. This means even greater prices for consumers and reduced efficiency. Hence, contrary to economic theory, greater competition in the criminal industry actually reduces production and efficiency. However, the influx of crime has not been as detrimental to some countries as ex-pected. There are instances where crime might be considered desirable from the view point of local jurisdictions. These are crimes whose production process might carry economic benefits, so that

THE SCHUMPETER WHO SAYS CRIME DOESN’T PAY?

some jurisdictions have an incentive to adopt lenient policies, thus “insourcing” crime. This is especially the case where the costs of crime are separate from its benefits. For example, most of the world’s cocaine is produced in Colombia (GDP per capita, $4400), where it yields bene-fits, such as the creation of jobs for the locals, stimulating the economy. How-ever, the majority of the cocaine is shipped abroad to wealthier countries like the USA (GDP per capita, $47400),

where it is sold for as much as up to 40 times what it costs to produce. In some countries, what sometimes occurs is a complex pattern of regulatory competi-tion. For instance, in less developed coun-tries, certain relatively prosperous dis-tricts might escalate their sanctions to-wards crimes to deter it, whereas rela-tively poor districts might lower the criminality of certain ‘victimless’ activi-ties to attract them. Organised crime typically flourishes when a central government is disorgan-ised or absent, and this occurs most com-monly in the developing world. Under

these circumstances, criminal organisa-tions can operate with less fear of inter-ference from law enforcement, and may actually serve to provide their localities with a semblance of order and structure that would otherwise be unavailable. For similar reasons, organised crime also of-ten takes root in countries with many so-cially marginalised groups, whose mem-bers do not trust local governments or their agents. This lack of trust serves both to insulate the criminal organisation from

the risk that law en-forcement will find co-operative witnesses, as well as to encourage community members to entrust the criminal or-ganisation to handle dis-putes and protect the community, rather than the police. In effect, these organisations be-come the judge and pa-tron of the people, and this sometimes leads to situations where law-abiding citizens may ac-tually act to defend the organisation from the law.

Evidently there are still many cracks in law enforcement that are created not just by the prohibition of certain activities, but also by cleavages of ethnicity, race, and class that modern societies still have. As long as these cracks exist, organised crime will continue to emerge to fill them. Any attempt to eliminate organised crime is not likely to be successful unless it ad-dresses the forces that create these fis-sures. At the least what can be said is that without active legislation and enforce-ment, the boundary between following and breaking the law and could be com-pletely eroded.

THE SCHUMPETER WHO SAYS CRIME DOESN’T PAY?

Mexican drug lord, Joaquín "El Chapo" Guzmán Loera, ranks among the world’s richest at an estimated net worth of $1 billion.

The Economics of Prohibition

“I contend that, strange as it may sound, we have lost our most important right: the right to our bodies” - Thomas Szasz — Our Right to Drugs: The Case for a Free Market

W hy do we want drugs? For the same reasons we want other

goods. To change our moods, to enhance our endurance or simply to make us feel better. We want drugs the same way we want cars, or go horse riding or skiing; to make our lives more enjoyable and pleas-ant. Just like alcohol, cars, and skis, we use drugs to enjoy ourselves. Yet with the amount of people who die skiing or horse riding each year we don’t hear people talking of ‘skiing abuse’. We hear of teen-agers ‘abusing’ cannabis despite the near zero death rate from the drug. A free market system is based on individ-ual property rights and the right of each person to their own lives. A system which punishes people for experimenting with their own bodies, without harming others around them, does not deserve the same

title. Thomas Szasz writes about this in his excellent book, Our Right to Drugs: The Case for a Free Market. The beginning focuses on the assault on liberty the drug war has resulted in. “How can a person lose the right to his body? By being de-prived of the freedom to care for it and to control it as he sees fit”(i). Szasz finds it absurd that laws should be introduced telling people what they can and cannot do with their own bodies. The War on Drugs is a war on liberty that refuses to acknowledge economic logic. Milton Friedman provided the case against the War on Drugs by attacking government’s attempts to destroy supply. One argu-ment he presented was that by destroy-ing supply, thereby shifting the supply curve to the left, the authorities were do-ing more harm than good. By shifting the supply curve from S2 to S1 (see chart), when there is fixed inelastic demand, the government simply entices suppliers to supply more drugs over the long run. The other unintended consequence of ma-nipulating supply is the crime it causes. With a higher price, addicts commit more

crimes and steal from more peo-ple to feed their habit. In conclu-sion, government policy to re-strict the supply of illicit drugs does not work in the long run and ends up making the situa-tion worse. A recent paper showed that cannabis use in the US has remained constant for decades; despite the federal gov-ernment spending hundreds of billions attempting to eradicate the drug and its consumption. The inconsistency of drug laws makes their very existence hard to justify when 20% of deaths in America each year are directly

Adrian Booth

attributed to tobacco and alcohol. The re-cent news story about a 49 year old Scot-t ish lady who died after taking mephedrone(ii), a legal drug that’s used as a substitute to MDMA, has led to calls for the drug to be prohibited. The fact that policymakers are calling for mephedrone to be outlawed after a few deaths shows the inconsistency of their thinking. Fig-ures from January show that 9,031 peo-ple died from alcohol consumption in 2008 in the UK alone. The table below proves the bias towards illegal drugs such as cannabis, cocaine and ecstasy and the distortion the media presents when it comes to illicit drugs and their dangers. Over reporting deaths from illicit drugs

and under reporting deaths from legal drugs such as al-cohol and paracetamol. The economic and social costs of drug prohibition make it hard to justify the existence of these laws. In 2008 Jeffrey Miron produced a study estimating that legal-ising drugs would inject $76.8 billion in to the US economy. By taking drugs such as cocaine and canna-bis, $32.7 billion would be raised and $44.1 billion would be saved from law en-forcement. The use of canna-bis in the US, despite the bil-lions spent attempting to re-duce consumption, has had minimal impact. According to the US government, nearly 15 million Americans use cannabis at least once a month. That's equal to every man, woman and child in the states of Oregon, Nebraska, Indiana and Oklahoma com-bined. It's nearly as many

Americans as those who will buy a new car or truck in a year. The fact remains that demand will always be there no mat-ter how much money is spent trying to curb it. As governments place strict pen-alties on consumption and the sale of drugs, the price rises to reflect the in-creased risk of punishment. As price rises, more suppliers come onto the mar-ket and provide more drugs. From an eco-nomic point of view the war is completely unwinnable. It is a dire mistake to catego-rise certain drugs as a ‘dangerous enemy’ we must ‘attack’ and ‘eliminate’ instead of accepting them as potentially helpful as well as harmful substances, and learning to cope with them competently.

THE SCHUMPETER THE ECONOMICS OF PROHIBITION

THE SCHUMPETER FROM THE DEPARTMENT

On Monday March 22nd, the Economics Department will host a public lecture:

This Time is Different: Eight Centuries of Financial Folly

Series: The 23rd Sir Robert Birley Memorial Lecture.

Speaker: Kenneth S Rogoff, Harvard University.

Date: Monday 22 March 2010.

Time: 18:30.

Location: Oliver Thompson Lecture Theatre, City University London, Northampton Square, London, EC1V 0HB

Note: Registration and refreshments 18:30, Lecture 19:00, Networking and re-freshments 20:00

This Time is Different: Eight Centuries of Financial Folly

The lecture will discuss how quantitative analysis of financial history can provide

valuable benchmarks for assessing crisis vulnerability and for projecting the course

of a financial crisis as it unfolds. One key lesson from history is that public debt typi-

cally explodes in the aftermath of financial crisis. Thus it should be little surprise that

waves of international banking crises are often followed by waves of sovereign debt

crises. The lecture will also discuss some features of the novel data base on which the

analysis is based, together with some background on the challenges of constructing

it. The lecture will draw heavily on the author’s joint work with Carmen Reinhart,

including both their recent book (This Time is Different) as well as some related aca-

demic papers.

Kenneth Rogoff is Thomas D. Cabot Professor of Public Policy and Professor of Eco-

nomics at Harvard University. From 2001-2003, Rogoff served as Chief Economist

and Director of Research at the International Monetary Fund. He is also a former Di-

rector of the Center for International Development at Harvard. Rogoff’s treatise Foun-

dations of International Macroeconomics (joint with Maurice Obstfeld) is the stan-

dard graduate text in the field worldwide, and his monthly syndicated column on

global economic issues is published regularly in over 50 countries. He is on the Eco-

nomic Advisory Panel of the Federal Reserve Bank of New York and the Central Bank

of Sweden. His recent book with Carmen Reinhart, This Time is Different: Eight Cen-

turies of Financial Folly (Princeton University Press), builds on a massive new data

set covering 66 countries and 800 years.

Sir Robert Birley

Sir Robert Birley, the first head of Social Sciences at City University London, had a

passion for education and its practical significance for society and the individual.

THE SCHUMPETER ACKNOWLEDGEMENTS

Polina Sheverdyakova

Cover

“Meaningless Numbers.”

(i) 1st pg., top — “Derivatives Reform.” (n.d.). ConveraNet. [Online]. <http://www.converanet.co m/business-finance/blog/derivatives-reform-strugg les-consequences-crisis>. [Accessed: February 27 2010].

(ii) 1st pg., centre — “Numbers.” (n.d.). University of West Georgia. [Online]. <http://www.westga.edu/~distance/distancestats/>. [Accessed: February 27 2010].

(ii) 2nd pg. — Stein, E. (2009). “Derivatives, Death and Taxes.” USA Gold. [Online]. <http://ww w.usagold.com/op-ed/stein20090928.html>. [Acces-sed: February 27 2010].

“Happiness and Money: A Social Science Experi-ment.”

(i) 1st pg., top — Pashley-Corbis, G. (n.d.). “Money Happiness.” Newsweek. [Online]. <http://w ww.newsweek.com/id/43884>. [Accessed: February 27 2010].

(i) 1st pg., right — Memon, F. (2010). “Model of Consumer Theory.”

(ii) 4th pg. — Yasin.at (2009). “Karl Rabeder.” NY Daily News. [Online]. <http://www.nydailynew s.com/news/2010/02/10/2010-02-10_karl_rabeder _gives_away_67_million_fortune_says_money_stops_you_from_being_happy.html>. [Accessed: February 27 2010].

“Minsky’s Instability Theory and the Financial Cri-sis.”

(i) 1st pg., top — New School (n.d.). “Hyman Min-sky.” Minn Post. [Online]. <http://www.minnpost.co m/stories/2008/09/17/3542/financial_meltdown_ hyman_minsky_warned_us_this_would_happen>. [A-ccessed: February 27 2010].

(ii) 2nd pg. — ”The Minsky Moment.” (2008). New Yorker. [Online]. <http://www.newyorke r.com/talk/comment/2008/02/04/080204taco_talk _cassidy>. [Accessed: February 27 2010].

“The End of a Dream, Time to Wake Up.”

(i) 1st pg., top — “Dubai 7 Star Burj Al Arab.” (2009). El Centinela del Mundo. [Online]. <http://elcentineladelmundo.wordpress.com/200 9/12/02/the-dubai-crisis-por-patrick-seale-the-new -york-times-29112009/>. [Accessed: February 27 2010].

(ii) 1st pg., left — ”Dubai at night, City of Gold.” (2008). Travelling Board. [Online]. <http://tra vellingboard.net/countries/dream-homes-in-dream-land-dubai/>. [Accessed: February 27 2010].

(iii) 1st pg., bottom — Jebreili, K. (2008). ”Sultan Ahmed bin Sulayem, Chairman of Dubai World, talks to the audience about the Nakheel Harbour & Tower project, a more than 1 kilometer high tower of 270 hectares, in Dubai, United Arab Emirates, Sunday, Oct. 5, 2008.” Associated Press. [Online]. <http://dub ai.travellop.com/tag/dubai-world>. [Accessed: Feb-ruary 27 2010].

(ii) 2nd pg. — Mohammed Al-Naser (2009). ”Burj Khalifa.” [Online]. <http://brexmother3.blogspot.co m/2010_01_01_archive.html>. [Accessed: February 27 2010].

“What Happened to Haiti?”

(i) 1st pg., top — “L'Union Fait la Force.” (n.d.). Ymib. [Online]. <http://ymib.com/daily-inspiration/culture-politics/blogs/7-0-ea-rthquake-hits-haiti.ht ml>. [Accessed: February 27 2010].

(ii) 2nd pg. — The Daily Mirror (2008). “Haiti Earthquake Disaster.” Associated Press. [Online]. <http://www.mirror.co.uk/2010/01/18/haiti-earth quake-disaster-latest-pics-115875-21977619/>. [A-ccessed: February 27 2010].

“Who Says Crime Doesn’t Pay?”

(i) 1st pg., top — “White Collar Crime.” (n.d.). Joystiq. [Online]. <http://www.joystiq.com/2007/0 2/14/take-twos-ex-ceo-pleads-guilty-to-white-colla r-crimes/>. [Accessed: February 27 2010].

Picture References

THE SCHUMPETER ACKNOWLEDGEMENTS

ence, 312, pp. 1908–1910.

(v) Schkade, D.A. and Kahneman, D. (1998). ”Does Living in California Make People Happy? A Focusing Illusion in Judgments of Life Satisfaction.” Psychologi-cal Science, 9(5), pp. 340-346.

“Minsky’s Instability Theory and the Financial Cri-sis.”

(i) Rosenberg, P. (2009). “Understanding the Fi-nancial Crisis: Hyman Minsky’s ‘Financial Instability Hypothesis’.” Open Left. [Online]. <http://openleft.com/diary/15283/unders tanding-the-financial-crisis-hyman-minskys-financial-instabil ity-hypothesis>. [Accessed: February 22 2010].

(ii) McCulley, P. (2009). “Global Central Bank Fo-cus: The Shadow Banking System and Hyman Min-sky’s Economic Journey.” PIMCO. [Online]. <http://www.pimco.com/LeftNav/Featured+Market+Commentary/FF/2009/Global+Ce ntral+Bank+Focus+May+2009_Shadow+Banking+and+Minsky+McCulley.thm>. [Accessed: February 22 2010].

(iii) Pandit, V. (2009). “Remarks by Vikram Pandit at the London School of Economics: 'A Global Finan-cial System for the Next Generation'.” LSE. [Online]. <http://www2.lse.a c.uk/publicEvents/pdf/20090305_VikramPanditSpeech.pdf>. [Accessed: February 22 2010].

(iv) Shostak, F. (2007). “Does the Current Financial Crisis Vindicate the Economics of Hyman Minsky?” Mises Daily. [Online]. <http://mises.org/story/2787>. [Accessed: February 22 2010].

“The Economics of Prohibition.”

(i) Szasz, T.S. (1992). “Our Right to Drugs: The Case for a Free Market.” New York: Praeger.

(ii) BBC News (2010). “Legal high warning after 'bubbles' drug death.” [Online]. <http://news.bbc.co.uk/1/hi/scotland/edinburgh_and_east/8482711.stm>. [Accessed: Feb-ruary 20 2010].

(ii) 1st pg., bottom — Rockstar Games (2008). “Grand Theft Auto screenshot.” IGN. [Online]. <http://uk.retro.ign.com/articles/863/863037p 1.html>. [Accessed: February 27 2010].

(i) 2nd pg., left — THQ (2009). “Crime Craft screenshot.” Techno Sensation. [Online]. <http://technosensation.wordpress.com/2009/08/27/crim e-craft/>. [Accessed: February 27 2010].

(ii) 2nd pg., right — “Crime Pays.” (n.d.). The Bal-timore Spectator. [Online]. <http://baltimore specta-tor.blogspot.com/2009/07/profit-motive-crime-doe s-pay.html>. [Accessed: February 27 2010].

(ii) 3rd pg. — Llera, F. (2009). “El Chapo Guzm{n Millionario.” [Online]. <http://fernandoller a.blogsp ot.com/2009/03/crime-pays-mexican-drug-lord-el-chapo.html>.[Accessed: February 27 2010].

“The Economics of Prohibition”

(i) 1st pg., top — (2007). “Ecstasy tablets.” ABC News. [Online]. <http://www.abc.net.au/news/stori es/2008/01/22/2143988.htm?site=news>. [Access-ed: February 27 2010].

(ii) 1st pg., bottom — Booth, A. (2010). “Market

Text References

“Happiness and Money: A Social Science Experi-ment.”

(i) Easterlin, R.A. (2001). “Income and Happiness: Towards A Unified Theory.” Economic Journal, 111(473), pp. 465-484. (ii) Easterlin, R.A. and Schaeffer, C.M. (1999). “Income and Subjective Well-Being Over the Life Cy-cle,” in (C.D. Ryff and V.W. Marshall, eds.). The Self and Society in Aging Processes, New York: Springer, pp. 279-301.

(iii) Frijters, P., Haisken-DeNew, J.P. and Shields, M.A. (2004). “Money Does Matter! Evidence from In-creasing Real Income and Life Satisfaction in East Germany Following Reunification.” American Eco-nomic Review, 94(3), pp. 730–740.

(iv) Kahneman, D., Krueger, A.B., Schkade, D.A., Schwarz N. and Stone A.A. (2006). “Would You Be Happier If You Were Richer? A Focusing Illusion.” Sci-

Text References

The Department of Economics at City University London hosted the 5th PhD Meeting of the Royal Economic Society on January 16th &17th 2010. The conference attracted more than 150 scholars nearing completion of their PhDs in Europe, the UK and the USA. ————————————————————— The UK inflation rate rose to 3.5% in January 2010. This is the fastest annual pace annual rise for 14 months. In December 2009, inflation was 2.9 %.

Any comments / contributions, contact: david.osborne.1@city.ac.uk or fahadmemon_73@hotmail.com

News Summary

"Quadrillion? That is a number only super comput-ing engineers and astronomers used to use, not economists and bankers!" —Tom Foremski (of Silicon Valley Watcher). "Money is counterproductive – it prevents happi-ness to come." —Karl Rabeder, Austrian million-aire who gave up his $4.8 million fortune to the less fortunate. "Stability is unstable" —Hyman Philip Minsky. "What began as a pharaonic construction site is suddenly sinking in economic quicksand, its future as an archeological attraction possibly more prom-ising than its pretensions as a global financial cen-ter." —Amotz Asa-El (of MarketWatch) on Dubai. "The Chinese use two brush strokes to write the word 'crisis.' One brush stroke stands for danger; the other for opportunity. In a crisis, be aware of the danger – but recognize the opportunity." —John Fitzgerald Kennedy. "We have to decentralize... this catastrophe is an opportunity to create the new Haiti Inc. where every single Haitian is a shareholder." —Jim Wyss (of Miami Herald). "Obviously crime pays, or there'd be no crime." —George Gordon Liddy. "Marijuana never kicks down your door in the mid-dle of the night. Marijuana never locks up sick and dying people, does not suppress medical research, does not peek in bedroom windows. Even if one takes every reefer madness allegation of the pro-hibitionists at face value, marijuana prohibition has done far more harm to far more people than mari-juana ever could." —William Frank Buckley Jr. "I'm in favor of legalizing drugs. According to my value system, if people want to kill themselves, they have every right to do so. Most of the harm that comes from drugs is because they are illegal." — Milton Friedman.

Quotes

THE SCHUMPETER NEWS & EXTRA

“Working on this edition of The Schumpeter from sunny Barcelona has been challenging as well as fun. The fun part, as always is reading the remarkable submissions. Every new edition of The Schumpeter, brings new talent, and builds on our old talent. I hope that we can keep this momentum and see The Schumpeter grow, for the next edition, which will be the ultimate publication for this academic year. I would like to thank everyone who has submitted arti-cles, and my co-Editor, Fahad, without whom this edi-tion would not have been possible. I also must com-mend our cover artist, Polina for her amazing work.” David Osborne, co-Editor of The Schumpeter “Truth be told, whilst editing this issue’s submissions, I declared to my co-Editor, David, “I'm thinking we should all get together in a few years and start a na-tionally-distributed Schumpeter of our own!” Though I may come across as a ‘broken record,’ I truly believe that I am surrounded with immensely talented and passionate individuals, here at City. It has been my honour to know the likes of Adrian, Anna, Bhavina, Folarin and Miles as well as previous contributors like Anaam, Balraj, Francesca and Habeeba. David’s idea of integrating a cover image for the magazine has also brought forth the likes of Cora and Polina; both of whom I would like to thank for producing such splen-did works for The Schumpeter. Finally, I would like to thank David for being such a pleasure to work with. We hope those reading this edition of The Schum-peter realize what I have: City University’s student body is a force to be reckoned with.” Fahad Memon, co-Editor of The Schumpeter

Words from the Editors