Economics Newsletter Edition #24

DUBAI KEYNES SOCIETY NEWSLETTER DECEMBER 2021 ISSUE

CONTENTS

2 EDITORS' NOTE

Sehaj Choukse, Viha Kedia, and Arjun Sisodia

3COVID-19 & UK POLITICS

Viha Kedia

5MINIMUM WAGE

Arjan Vohra

8PANDEMIC ECONOMICS

Kian Kazranian

12 THE STOCK MARKET 13HISTORY OF ECONOMIC INEQUALITY

Jasim Yousaf

Aishwarya Srinath and Vidhi Bhansali

15 THE EFFECTS OF MIGRATION ON THE ECONOMY

17 NUDGE: BOOK REVIEW

Mayher Tyagi

Amal Dhanesh

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THE UNDERCOVER ECONOMIST: BOOK REVIEW

Tess Ruddell

19 TEST YOUR KNOWLEDGE: QUIZ! 1

EDITORIAL

The first term of the academic year of 2021-2022 has been a rather successful one for the Keynes Society.

We have had the pleasure of hosting many different speakers this term, both internal as well as external, presenting on a vast range of apt concepts. We were able to incorporate the teachings of many different aspects of economics, including finance, geography, and history, as opposed to merely looking at standard economics offered by the GCSE and A level course.

So far, we have had three external speakers, the most recent one being Timothy Power. Mr. Power graduated DC in 2002 and went on to work at Merrill Lynch, JP Morgan, Citibank, and other such organisations before starting his own venture capital fund, called Elektron Ventures. We had the privilege of welcoming him to discuss his career trajectory and impart the learnings of his experiences onto many of the budding economists in DC. We have also welcomed students across different year groups to present on topics of most interest to them. We had Mayer Tyagi (year 9) discuss the impacts of migration on the economy which coupled up her passion for economics as well as geography into an extremely informative talk. We also had Jasim Yousaf (year 11), two-time winner of the DC stock market challenge with over 1000% returns each time. He gave some insight into the world of stocks and trading as well a live demonstration of buying and selling stocks on market watch. Likewise, Aryaansh Rathore (year 11) has also displayed his inclination towards finance through his internship at JP Morgan. He is now a fund manager at Blueridge Capital and the co-founder of CareerBird as well as Soar Education Ventures. He discussed his professional experiences and the tools of getting started with finance. Most recently, we had Aishwarya Srinath and Vidhi Bhansali (year 12) talk about the history of economic inequality, looking at economics in a more historic perspective in our penultimate session of the term. Finally, to wrap up this fruitful term, representatives from 'Crimson Education' also came in to guide students through the process of admission into the top business and economics programs at universities worldwide. Not only was this a great opportunity for sixth form students applying to university soon but also some of the younger students looking for general advice to prepare themselves.

As well as hosting speakers, we have had group discussion sessions on topics ranging from 'women in economics' to 'COP 26' and more. This allows students and teachers alike to share their knowledge and interests of prevalent discussion points within the field.

We hope you enjoy our first newsletter of this academic year that compiles the hard work, passion and dedication of many of the economists at DC. We are grateful for all those who have contributed to the ongoing success of the society, Mr. Christopher in particular, as well as all those who express their findings on fascinating topics to a wider audience, and all the pupils and teachers who consistently attend the sessions and actively engage in the talks.

Sehaj Choukse, Viha Kedia, and Arjun Sisodia 2

HOW HAS COVID CHANGED UK POLITICS?

Financial Times, PSA, UK Parliament Essay Shortlist

Viha Kedia The scale of the coronavirus crisis draws parallels between major events that reshaped UK history, like the 2008 crisis, changing everything from education to jobs and basic civil liberties. But what kind of change has it created in UK politics?

To a 16-year-old with minimal knowledge on politics, the first change seen was UK lawmakers going virtual. What does this mean? Of course, this move was medically necessary, but it had ancillary benefits.

Lawmakers will be closer to the voters they represent and more likely to be more sensitive to perspectives and issues. Parliamentary conformity might loosen with UK representatives remembering local loyalties over party duties. The need and power of local politics in the UK has never been more obvious, from sourcing PPE to housing the homeless. However, it has also further disconnected the bond between the local and centralized government, as well as the ability of leaders to engage with their supporters. Processes vital to the UK democracy, such as prime minister’s questions have been insulated from the typical riotous scrutiny as well as the ability of leaders to lead their parties.

We could also say, nothing has really changed. Post COVID, the extent to which wealthy, well connected communities have coped in comparison to marginalized, contingent and poor communities will be obvious. This is proof that coronavirus hasn’t really changed politics, but further deepened issues like inequality. The issues and people are same, whereas we need change on other fronts like issues that concern the UK youth. To create meaningful change, a political rapid action force to have uncomfortable discussions on a national platform, is required.

The coronavirus has increased the mobilization and pace of political action in the UK; there have been numerous multibillion dollar bailouts and projects, albeit only if the cause is urgent. So many policies that our UK lawmakers have long told us were impossible and impractical were actually possible and practical all along.

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It has shown us, that the policies and rules just made UK society more fragile and unequal. Through the power of UK politics and the coronavirus impetus, statutory sick pay could be created, evictions avoidable, and debtors could be given relief, because in a crisis, the rules don’t apply. But why are there rules in the first place?

Coronavirus created precedent for UK politics to permanently alter the rules, to prevent people from becoming vulnerable in the first place.

Within the crowded political marketplace for demands in the UK, coronavirus has reflected the stark link between health and economy, making it a political priority of the highest order, with stark increases in budget allocation to healthcare, and restored faith in healthcare institutions. The shared external threat of COVID has united politicians under the demand for better health care, more facilities for health workers and faster vaccinations. The ‘common enemy’ effect has further been reinforced through the multiple relief and support bills passed in parliament, showing the sheer importance of a unified political front in the UK. The change in UK politics can also be seen through its vocabulary, with rather unfamiliar words like ‘vaccine’, ‘quarantine’, ‘antibodies’ entering the landscape, forcing politicians back to accepting that expertise matters.

The pandemic has created a political return to faith in serious experts to determine UK policies.

Politics has certainly changed for worse and for the better in a multitude of ways, but there are still issues that remain unresolved and have scope for change in the UK. We cannot expect UK to progress without youth and other demographics being able to create change.

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SHOULD WE ABOLISH THE MINIMUM WAGE?

John Locke Essay Shortlist

Arjan Vohra As per the Cambridge dictionary, the minimum wage (or living wage) is ‘the smallest amount of money that employers are legally allowed to pay someone that works for them’, essentially a price floor in the labour market.

Some argue that the minimum wage should be abolished completely, however in this essay it will be argued that the minimum wage should most certainly not be removed. Some of the reasons for this are the possible effects of removing the minimum wage, such as: higher unemployment, lower productivity, violations of workers’ rights and the worsening of the government’s budget. This essay will also explore some of the benefits of having a minimum wage, including: worker happiness, GDP growth and government revenue from tax.

The presence of a minimum wage ensures that workers are paid moderate and sustainable wages. This provides an incentive for those who are unemployed to find jobs because they are able to feel confident and secure about future income, therefore encouraging them to seek employment. As a result, unemployment rates may fall. This was seen in the UK in 1998, when the rate of unemployment fell from 7% to 5% after the introduction of a minimum wage. One of the government’s main macroeconomic objectives is to reduce the rate of unemployment, and we can clearly see that the presence of a minimum wage is a policy that helps achieve this. However, a minimum wage is essentially a price floor in the market for low skilled labour. As a result, it can prevent firms from employing extremely cheap labour. Consequently, it is possible that this may disincentivise firms from hiring. It can be argued that minimum wage especially hurts teenagers and young adults who possess limited skills and/or experience, as firms may be reluctant to hire them. Clearly, the abolition of the minimum wage would negatively impact low paid workers to a large extent. It is said that the financial benefits of economic growth are not trickling down to low income households, so keeping the minimum wage is particularly important in preserving welfare of low-income households.

Another macroeconomic benefit of having a minimum wage is the possible reduction in poverty. Specifically in developing economies with a high percentage of the work force in low income labour, the introduction (or increase) of the minimum wage will boost the income of these low paid jobs. If the workers earning minimum wage are heads of low income households, this policy is likely to reduce the amount of people living in absolute poverty. For example, a 2014 Congressional Budget Office report estimated that increasing the federal minimum wage to $9 would lift 300,000 people out of poverty, and an increase to $10.10 would lift 900,000 people out of poverty in the USA . This is a massive benefit and would be able to greatly increase the standards of living for millions around the world. However, in developed countries that have a lower percentage of the labour force in low income jobs, a minimum wage may not reduce poverty significantly as only a small proportion of the population are benefitting.

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If the minimum wage was to be abolished, income inequality may worsen. This is because if low skilled, low paid workers’ wages fall, the gap between the highest earners and the lowest earners would widen even further.

Relative to other developed countries, the problem of economic inequality is severe in the UK, (Gini coefficient of 36.3 in 2020). Reducing income inequality is an objective of many governments, evidently removal of the minimum wage is not conducive with this goal.

One function of the minimum wage that is not widely recognised is the fact that it acts as a barrier to modern day slavery. Labour presents a massive cost for firms and can amount to up to 70% of large business’ total costs, ‘making up the largest part of most companies’ operating expenses.' Owing to firms’ goal of profit maximisation, companies are often going to seek to minimise these costs. In a lot of cases, this means employing the cheapest labour possible. The minimum wage ensures that employers are not able to exploit workers by paying them unacceptably low wages.

However, one must recognise that even with the enforcement of a minimum wage, there are many parts of the world in which workers are severely underpaid and therefore massively exploited. This can be seen in the United States, a country which has one of the world’s highest average minimum wage rates ($11.80/hour in 2019). Despite this, millions of workers are being paid significantly lower wages than this as companies find underhand strategies to minimise labour costs. Additionally, as reported by the International Labour Organisation (ILO), at any given time in 2016, an estimated 40.3 million people were in modern slavery, including 24.9 million in forced labour, demonstrating that this is a global issue. Although the presence of a living wage may not be fully effective in protecting workers’ pay, removal of this policy would remove all legal barriers and deterrents to what can only be described as modern day slavery, and the abolition of the minimum wage would undoubtedly cause these already horrific numbers seen above to skyrocket.

Abolition of the minimum wage would possibly result in decreasing labour productivity. The ‘efficiency wage’ theory suggests that productivity increases as wages increase. One cause of this is because the higher the salaries that workers are paid, the higher their motivation levels to keep their job, and in order to retain their place, they will likely work harder (thus, productivity increases). Furthermore, workers may feel that they are more valued and that the tasks they are completing are worthwhile, due to the increased pay. A recent study showed that ‘a modest increase [of the minimum wage] would improve worker productivity, and reduce employee turnover and absenteeism.' For these reasons alone, governments should not abolish the minimum wage, as it is clearly a factor driving up labour productivity.

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On the other contrary, the extent to which this policy reduces increases output per worker is highly dependent on the value of the minimum wage. If the wage is set too low, then it may not be enough to boost employee happiness and labour productivity. As well as this, there is the possibility of workers becoming complacent due to the fact they know their wages cannot be reduced below the minimum, which may, in fact, lead to falling worker output.

Consumer spending is a large component of GDP, accounting for up to 60% of aggregate demand. If the minimum wage were to be removed, average income would fall. As a result, consumer spending will decrease as people who were previously earning minimum wage will potentially see a fall in their wages and will subsequently have less disposable income to spend on durables. Throughout the COVID-19 pandemic, incomes and employment have taken a significant global hit, consumption levels following suit. In the United Kingdom, final consumption expenditure (FCE) fell 21.6% in the second quarter of 2020, due to the job losses, public health restrictions and absences from work, demonstrating that lower income and employment that may occur through the abolition of the minimum wage could cause a fall in consumption and therefore GDP. As mentioned previously, the elimination of the minimum wage could result in a rise in unemployment in the economy. If this were to happen, government spending on welfare would have to increase. This is because more people will need to claim unemployment benefits and be forced to seek financial aid from the government. As well as this, government revenue may fall as unemployment increases, as it will be gaining less revenue from taxation on income. All of this culminates in a worsening of the government’s budget deficit, a problem that is already prevalent around the world today. Chancellor of the Exchequer Rishi Sunak stated that the budget deficit will be GBP355bn this year. Abolishing the minimum wage would only add to this problem.

In conclusion, it is evident that the minimum wage should most certainly not be abolished. Despite the fact that the presence of a living wage may disincentivise firms from hiring low skilled labour, the profit maximising nature of private companies compels to believe that they will hire the least expensive labour regardless of whether the minimum wage is high or low.

Although the presence of a living wage may not be fully effective in protecting workers’ pay, removal of this policy would remove all legal barriers and deterrents to what can only be described as modern-day slavery. On top of that, the presence of a living wage could be beneficial in the areas of poverty, employment and labour productivity.

Moreover, if the minimum wage would be removed we could see a worsening in governments’ budget deficits, income inequality, GDP (due to a fall in consumer spending) and a government revenue.

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HOW RELEVANT IS ECONOMICS DURING A PANDEMIC, AND IN WHAT WAY MIGHT ECONOMISTS MAKE THINGS BETTER?

Introduction

NCH London Essay Shortlist

Kian Kazranian

It is common knowledge that the COVID-19 pandemic, in addition to its debilitating health impacts, has had and continues to have significant macroeconomic and microeconomic effects, shrinking the global economy by 4.3% the sharpest contraction in global output since the 1929 Great Depression - as well as disrupting individual lifestyles through rising redundancy rates, greater poverty, and shortages in food supply. As such, the predominant economic indicators (Real Gross Domestic Product, Consumer Price Index, Labour Force Survey, Gini Coefficient, et cetera) as well as analyses from famous economists have clearly highlighted massive socioeconomic losses as a result of COVID – but isn’t this premise obvious? Can’t we look around and observe that our world economy is sinking into pandemonium, even without scrutinising these indicators or economists? That raises the question of whether the knowledge of economics can assist in abating COVID’s severe impacts, and if so, what these experts can do to improve the status quo. This essay will focus upon this important topic, critiquing the application of economics to an issue as widespread as the current pandemic.

Why do we need economics right now more than ever?

A fundamental concept widely taught in economics is opportunity cost, defined as the next best alternative that one forgoes as a result of a decision. This stems from the fact that everything is scarce; there are a finite amount of resources to satisfy our endless wants. Take this essay competition as an example: each candidate commits a given number of hours to completing their essay, therefore, although they desire to do multiple things, they cannot spend this time executing other tasks or exploring other things. As a result of this concept of scarcity, one cannot commit all their time, money and effort to absolutely everything, consequently, when they act upon a certain decision, they incur an opportunity cost.

One major implication of this notion is that economics centralises the need to optimise how one allocates their resources. For instance, in production, the knowledge of opportunity cost helps determine whether to enter a market, whether to produce or not, and what specifically to produce to maximise profit.

This methodology can be applied to the current pandemic by acknowledging structural changes in the economy to maximise social benefit and minimise material and non-material costs, including associated opportunity costs.

Businesses, knowing that physical spaces are becoming more redundant, can gravitate away from office areas and more towards virtual collaboration to save money that would have otherwise been allocated to rental costs.

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Governments must decide carefully about where to allocate their money to alleviate societal suffering because the money they generate in tax revenue is scarce and secondly, henceforth spending money in one area, for example funding employees’ salaries through the Furlough Scheme, imposes a large opportunity cost since this money could have been allocated elsewhere to incite social benefit.

How has the pandemic exploited the uselessness of economics?

On the other hand, it can be argued that quintessential economic theories sanctify the notion that everyone is a rational and efficient economic agent, therefore they seek to maximise benefit, or in other words: get the most ‘bang for your buck’. This has subsequently embedded superficial values in society which immensely hinders radical socioeconomic progress, and as such, when ‘rationally’ tackling pressing problems such as climate change or the 2008 Financial Crisis or the pandemic at hand, we use quantitative models and measures to forecast what the future holds for us. Prior to the Financial Crisis, bankers glorified their predictive models, however when this unprecedented event arrived, these models became absolutely futile – as stated by Jonathon Aldred1, an economist at Cambridge University, in response to the global financial turmoil, the Goldman Sachs chief financial officer admitted that the huge price moves had been predicted by their models to be less likely than ‘winning the UK national lottery jackpot 21 times in a row’.

Therefore, Aldred posits that the poisonous cost-benefit and trade-off analyses that mainstream economics centralises is extremely problematic, since many of the impacts of crises such as global warming and the COVID-19 pandemic simply cannot be expressed in monetary terms. As a result, economies should be restructured to become more resilient and protected under the worst-case scenario, rather than constantly striving for optimal efficiency.

Therefore, what can economists do to help?

The theory of comparative advantage refers to one’s ability to execute a certain task at a lower opportunity cost than their counterpart. Comparative advantage can be observed everywhere in our economy, from specialisation in trading to professional specialists such as doctors or lawyers. This same logic can be applied to economists, who possess a comparative advantage in solving economic problems, and what better an economic problem than this pandemic?

Handle uncertainty A large reason for the severe contraction is the high level of uncertainty and fear of contagion in the economy. This incites lower household confidence and therefore lower incentive to spend money, and because labour is derived from the level of demand, there is greater unemployment and exasperated income inequality.

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Not only are consumers uncertain, but governments are constantly changing their policies to achieve the balance between preserving the economy and preventing spikes in cases. Currently, high fiscal borrowing levels have created severe uncertainty over the ability of governments to repay their ballooning debts (especially given the fact that there will be interest) due to the fear of defaulting, significantly increasing future tax rates, or printing money and fuelling inflation. This uncertainty has showcased throw a loss in investor confidence and higher bond rates in many countries including Greece, Ireland, and Portugal. Economic advisors should therefore, although it seems counter-intuitive, encourage government dissaving to consequently bolster investor certainty and confidence. As an alternative to the quintessential macro-economic policies of increased fiscal spending, governments can use nonmonetary policies, as described below.

Nudge the public Humans possess an inherent irrationality, which is something that classical economics fails to acknowledge.

They can however be incentivised to make more ‘rational’ decisions in the form of nudging. To nudge is to alter one’s behaviour in a predictable manner without significantly changing the context, therefore it is a relatively easy and inexpensive policy tool for economists, but its impacts on human behaviour can be tremendous, because of the Bandwagon Effect.

Humans have the propensity to act as a herd, consequently the more people that adopt a certain habit, more people will follow suit. Therefore, with the meticulously contrived nudges, the whole of society can conform to healthy habits such as social distancing, wearing masks, and regularly applying hand sanitiser.

To achieve the bandwagon effect, economists can advise governments to further adjust the social norm to adopting COVID-friendly habits by spotlighting those who comply to regulations, as opposed to those who don’t. After all, one of the reasons why there are severe shortages in food stocks and other necessities is because people saw images of empty shelves and crowded supermarkets. This reinforces how magnifying positive situations can lead to positive knock-on effects. Another behavioural strategy could be by making good decisions easier to execute. Economists can encourage public areas to make hand sanitiser dispensers more visible through bright colours or distribute large stickers on the floor pointing in one direction which are two meters apart to advocate distancing and avoid crowding, consequently narrowing one’s action-intention gap.

A large reason why cases are spiking is the optimism bias, where certain demographics (especially young people who over-estimate their healthiness) possess a false sense of security, therefore they tend towards more reckless actions, making them more vulnerable to the disease.

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Therefore, to find the balance between complacency and over-worrying, economists can publish statistics about the likeliness of each age group to contract the infection, for example: ‘young people aged 16-24 are 15% more likely to get COVID because they exercise more frequently in public gyms’.

These behavioural policies have external benefits by protecting other individuals as well as oneself, whether they’re workers, fervent consumers, or at-risk people, which accordingly allows for the closest alternative to ‘business as usual’, hence maximising output and economic growth. Furthermore, more economic growth as well as rising incomes and profits results in greater tax revenue, allowing for stability in the debt-to-GDP level, therefore this approach is beneficial from a fiscal standpoint.

Increase transparency in the supply chain Many operating businesses are unsure about the current state of their suppliers, resulting in a hectic domino effect of closure and resource shortages. This is what is known in economics as an information failure, hence economists need to create greater transparency in supply chains to allow businesses to adapt to the constantly changing environment. To reduce the information failure, economists can encourage all businesses and suppliers to use technology such as blockchain, a modern system of recording information and transactions. As a result, businesses will be fully knowledgeable of all the available suppliers, their ability to provide, and where products are sourced from. Because businesses won’t be reliant on only one vendor, there will be greater flexibility in the market, therefore sustaining business activity, which can assist economics in recovering from their recession.

Conclusion Orthodox economics internalises the notion that we live in a self-correcting, efficient, rational system – however this is simply not the case. Nevertheless, behavioural economists can accomplish a great amount by utilising choice architecture tailored in terms of age, race, sex, et cetera. Therefore, the application of economics in the pandemic should focus more on human behaviour and psychology and less on predictive mathematical models and quantitative measures.

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BASICS OF THE STOCK MARKET

Jasim Yousaf The stock market broadly refers to the collection of exchanges and other venues where the buying, selling, and issuance of stocks of publicly held companies take place. A stock represents partial ownership in a company.

By owning a share, you own a small fraction of the company's assets and have a claim on future earnings. An investor can make money through stock appreciation which is an increase in the price or value in a stock or through dividends which is a distribution of profits by a corporation to its shareholders.

When a company wants to raise capital, it can normally do this by selling shares through its IPO on a stock exchange. This changes the status of the company from a privately traded firm to a publicly traded firm. A stock exchange is a place where shares of publicly listed companies are traded. The Biggest Stock exchange in the world is the New York Stock Exchange which was founded in 1792. The NASDAQ is a more recent stock exchange and all the trading happens electronically. This is where you can find tech companies, such as Apple and Facebook. If you want to know how the stock market is doing you want to know how these two exchanges are doing which is where indexes come in. Indexes take lots of stocks and transform them into one big number. Some common indexes are the S&P500 which tracks the 500 biggest companies on both the NASDAQ and NYSE. The DOWJones is a lot more exclusive and only follows the 30 biggest companies that it considers the most important.

If you are a novice investor, there are a few things to bear in mind when trading. You should consistently diversify your portfolio as much as possible while investing. Diversification is a risk management strategy that mixes a wide variety of investments within a portfolio. A diversified portfolio contains a mix of stocks in an attempt to limit exposure to any single asset or risk. When it comes to investing, you should always spread out your investments rather than making them all at once. You can be lucky and invest all of your money at a major drop in the stock market, or you might be unlucky and invest all of your money at the stock market's peak. Buying stocks in tiny increments over time is a more cautious strategy when investing. When you first begin investing, you should stay away from penny stocks.

Penny stocks, as the name indicates, are corporations with a cheap share price, frequently less than $1. It is easy to see how novices get captivated with the prospect of investing a few cents in a firm and then selling for a large profit when the price rises to multi-dollar levels.

With penny stocks, liquidity may be a huge issue; it is not uncommon for an investor to be locked in a position for days or weeks while waiting for enough supply or demand to enter or leave a position.

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A HISTORY OF ECONOMIC INEQUALITY

Aishwarya Srinath and Vidhi Bhansali So, why is there so much inequality? In income, in economic growth and even social factors? It is a question whose answer dates back centuries. By simply using the concept of the basic economic problem, we can explain years of essentially unexplainable factors, which have affected modern, global inequality. The, arguably, most prominent way to look into the history and creation of inequality comes down to something that affected most countries in the world; colonisation. The question is raised of why it was country X that colonised country Y, and not the other way around. For example, why was it England that colonised Australia in the late 1700s, and not the other way around? It shouldn’t be assumed that one country was weak, or one was more morally inclined to not do this. There are many factors that contribute to this, and actually in turn affect inequality.

The actual approaches can be explained by two things; speech and surplus. After humans were able to successfully speak, and cultivate land for their benefit, they were able to create the base for and give rise to what we now call the economy.

However, it is important to realise that these revolutions were not willing. These methods were taken wherever food was needed, meaning that where humans could avoid it, such as in Australia where the environment provided more than enough food, they did so. In countries with cultivation of land, the basic element of an economy was able to be created: surplus. Because of surplus, producers could ensure that every year, they would have crops and grain to rely on, meaning that they were able to have sustained improvement.

Nonetheless, countries without this ability were unable to experience this improvement: as they were unable to store and preserve fresh things from the environment; unlike grains. As certain countries developed with this revolution, many more marvels were able to develop.

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Another of these marvels was the role of money. The first forms of currency were shells and then metal coins later on.

Both these forms of currency were a form of debt owed to workers by the ruler/ government of a region. This meant that people had to put a lot of faith in the government. A few centuries later metal coins came to play. These coins were used in a similar manner to the shells however instead of farmers being paid in metal coins, an IOU was written in an accounting book. This was essentially an imagined form of money which we know today as virtual currency. Now, the thing about virtual currency and IOU’s is that they require a great deal of faith. For such faith to prevail, people needed to be guaranteed by something very powerful such as a ruler or government. This led to the formation of bureaucracy. When we talk about the economy, we are talking about the complex relations that emerge in a society with scarcity.

Going back to the question we asked at the beginning: why did colonisation occur the way that it did? With agricultural surplus, came technological development, leading to the emergence of leaders of states in command of armies, equipped with technologies such as guns. Due to the climate in the Eurasia area, the British had been forced to generate surplus, contrasting to how the aborigines lived. Without technological development, they would have had little to no means to defend and protect themselves. With the aim to generate as much surplus as they could, the British arrived on Australia's shores in the late 1700s. It is important to realise that this very phenomenon led to colonisation all over the globe; and in certain regions such as Africa, was unable to occur mostly because of the extremely uncertain climate all over the continent. And I think it should be clear by now; it all began with the basic economic problem; how to allocate scarce resources to infinite wants. Inequality is then established when some can solve this issue better, compared to others.

Therefore we can see that geographical conditions predetermined that Africa, Australia and the Americas would be colonised by the Europeans. However there is an inequality that geography can’t explain: inequality within a country or community. This form of inequality happened due to the over-concentration of power to a few people when governments were formed. The privileged have access to an agricultural surplus and are rewarded with economic and political power which they can use to acquire an even larger surplus. This meant that the rich got richer; but the people who didn’t have access to a surplus, got poorer

We looked at the idea of faith when talking about the government, where the unequal distribution of resources needs to be legitimised in everyone’s eyes for people to respect the state. For example, even now, 1000s of years after the first civilisation was formed we still justify the unequal distribution of resources. We have been caught up in a vicious logical contradiction that we don’t notice. On one hand we are appalled by the fact that a child is wearing tattered rags, but if we were asked to give up our clothes to the child and distribute the resource more fairly, most would refuse. This is because we think that we deserve our clothes because we were able to buy them. We don’t allow ourselves to think that their deprivation could be a product of the same process that led to our affluence. However it is incredibly easy to convince ourselves that the order of things is logical, natural and just - especially if it favours us.

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THE EFFECTS OF MIGRATION ON THE ECONOMY Contrary to popular belief migration reaps massive economic benefits because if everyone who wanted to migrate was able to do so, global GDP would double, estimates Michael Clemens of the Centre of Global development. Some of the biggest upheavals of the past ten years (including the election of Donald Trump, the rise of populism in Europe and Britain voting to leave the European Union) are partially driven by fears of mass migration. And the arguments? Well, they’re the same almost everywhere: migrants are disruptive, take advantage of public services, take jobs from locals and are often criminal. However, why is that so? Why is it that politicians everywhere are exploiting and inflaming the fear of immigrants? Need some more examples? Hungary’s prime minister, Viktor Orban warns of a fictitious plot to swamp his Christian country with Muslims. Mr Trump reportedly wanted an alligator moat to keep out Mexicans.

Denmark has passed a law doubling the penalties for crimes in migrant “ghettos”. Immigrants are “electoral fuel”, says Andrea Costa, who runs a charity in Rome that helps them and this isn’t just for the wealthy countries. The antiimmigrant bug has infected non-rich countries, too. In South Africa in September 2019, at least 12 people were killed in riots aimed at migrants from the rest of Africa. India is building camps to intern some of the 2 million people it stripped of citizenship in the Northeastern state of Assam.

Now, why exactly why am I telling you all this information?

There is a reason, do not fear, and that reason is that behind all the numbers and statistics there are some very real people who get affected and affect others and that, I feel, is something we often forget.

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Mayher Tyagi Migrants who move from lower to higherincome countries typically earn three to six times more than they did at home, according to the World Bank. The simple act of moving makes them more productive because rich countries have better institutions, the rule of law, efficient capital markets and modern companies.

Construction workers in rich countries put up better buildings because they have better tools, reliable electricity and their employer does not have to pay off corrupt local officials. Scientists in rich countries make more breakthroughs because they have better laboratories and a wider selection of other scientists to work with. Furthermore, migrants are far less numerous than news footage of overpacked boats suggests.

The UN estimates that 270m people live outside the country where they were born (of whom 90% are economic migrants and the rest are mostly refugees). That is 3.5% of humanity, a share barely higher than in 1960, though some countries have been more welcoming than others. It has become easier to move in a physical sense, but bureaucratically it has become much harder. Only 2% of those who arrived at Ellis Island a century ago were turned away. Now it is extremely difficult to migrate legally from a poor country to a rich one unless you are highly skilled or a close relative of a legal resident. America’s green-card lottery last year attracted 294 applicants for each of its 50,000 slots. Globally, more people would like to move than are able to. A Gallup poll suggests that 750m people—15% of the world’s adults—want to settle permanently abroad. That includes 33% of sub-Saharan Africans and 27% of those in Latin America and the Caribbean.

The costs and benefits of low-skilled migration are complex. The migrants themselves benefit—otherwise they would not leave. Those who employ them benefit. Those who compete with migrants for jobs may not be so lucky. Some studies have found that unskilled migration drags down the wages of unskilled locals. But this effect is small, if it exists at all. George Borjas of Harvard, an immigration sceptic, finds that immigration reduces the incomes of native-born American high-school dropouts by 1.7%. Giovanni Peri, a proimmigration economist, finds that it actually raises the wages of this same group by 0.6%. Both agree that for native workers as a whole, the effect on wages is mildly positive.

That is partly because native-born workers can do things that newcomers cannot, such as speak the language fluently and navigate local institutions. When lots of low-skilled immigrants arrive and start doing manual jobs such as cooking, cleaning and building, the native-born often respond by moving into higher-status jobs, such as managing the migrant workers.

Migrants often do jobs that natives shun, such as picking fruit, dishing out parking tickets or caring for the elderly. This reduces what locals pay for fresh strawberries, orderly streets and nursing homes. Admitting an unskilled migrant can even increase the supply of skilled labour. Abundant foreign nannies and cleaners make it more likely that college-educated native-born women will go out to work full-time—as Listi’s employers both do.

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NUDGE: BOOK REVIEW SUMMARY Nudge explores human decision-making and the fallacies and biases that render our thinking irrational. Encompassing the fields of behavioural economics and psychology, Nudge presents ways in which choices can be structured to mitigate human limitations and maximise outcomes for society. The book starts by introducing the concept of choice architecture, which states that the way a choice is presented, whether intentionally or not, will impact the decision that is made. Sunstein and Thaler also introduce one of the main themes of the book – ‘Libertarian Paternalism’. The authors define the concept as a strategy to maintain or increase freedom of choice, while subtly influencing people’s behaviour to positively impact their lives (by helping to overcome the cognitive limitations and biases of humans).

Nudges are the tools used to execute Libertarian Paternalism.

Nudges present and structure choices in such ways that they influence an individual’s behaviour without limiting their choices. Nudge outlines many tools, as well as the biases they target, with frequent examples and case studies, and proposes ways to use nudges to solve large issues spanning healthcare and the environment.

REASON FOR THE RATING I enjoyed how the book explained specific biases (anchoring, availability etc.) and illustrated these well with accessible examples and real-life cases. I also enjoyed how the book lays out situations where a nudge may be needed (for example, complex and unfamiliar decisions) and how it gives the reader the tools to think about where nudges can solve problems, both in everyday life and for larger-scale problems.

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Amal Dhanesh WHAT DID YOU PARTICULARLY ENJOY? I enjoyed how the book explained specific biases (anchoring, availability etc.) and illustrated these well with accessible examples and real-life cases. I also enjoyed how the book lays out situations where a nudge may be needed (for example, complex and unfamiliar decisions) and how it gives the reader the tools to think about where nudges can solve problems, both in everyday life and for larger-scale problems.

THE UNDERCOVER ECONOMIST: BOOK REVIEW SUMMARY The first chapter looks at the strengths of scarcity, Ricardo’s theory of bargaining strength, sustainable competitive advantages, and decisions at the margin. This is followed by the chapter talking about the three pricing targeting strategies: ‘firstdegree price discrimination,’ the ‘group target strategy,’ and the ‘self-incrimination’ strategy. Then, the third chapter examines the importance of free markets in distributing goods and services effectively, specifically looking at the price mechanism. The fourth chapter looks at market failure and negative externalities, debating the idea of externality charges to solve issues such as congestion and pollution. Then it examines the effects of imperfect information, with a specific focus on the American healthcare system as well as focusing on the ‘random walk’ theory of the stock market, including share prices and price/earnings ratios, and the link between profits and scarcity. Chapter 7 briefly outlines the foundations of game theory, and looked at the UK’s use of auction to distribute 3G licenses and solve the problem of scarcity and value while chapter 8 talks about corruption, economic wealth, and the impact of failing governments on countries such as Cameroon and Nepal. The book also examines the increasing interdependence between world nations, the idea of comparative advantage, and the effects of trade barriers on global supply chains. Finally, it ends with a reflection upon the transformation of China, examining the legacy of Mao’s reign and the impact of foreign investment on the world’s fastest-growing economy.

Tess Ruddell

My main critism of the book was its oversimplification of some concepts. Specifically, ideas around marginal pricing, I felt as though the book did not provide a comprehensive, academic explanation around certain concepts; some ideas were not developed enough, and although the over-simplification when introducing ideas was useful, the book did not always feel as though it was providing an academic outlook on certain topics. In addition, the book was written in the early 2000s, therefore, through no fault of itself, some examples were outdated. In the chapter on China this was especially prevalent and did make some of the author’s analysis seem irrelevant.

WHAT DID YOU PARTICULARLY ENJOY? Personally, I felt as though the book was extremely accessible and was successful in linking economic concepts to real-world examples; the majority of these examples were relatable, and the perspective that the book examined certain common situations which was interesting and thought-provoking. Many complex ideas were simplified extremely well, and then developed later on in the chapter to resemble a more academic approach on the topic. Moreover, the variety of content in the book made it an enjoyable read; I often find that non-fiction books that focus on one specific topic can become dry and boring, therefore the multitude of economic ideas discussed in the book prevented it from becoming a dull read. Personally, my favourite chapter was the last one; I have also found my economic interests lie more in the realm of political economics and macroeconomics; therefore, I found the discussion around the growth of China particularly interesting.

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REASON FOR THE RATING

TEST YOUR KNOWLEDGE!

1. Which country has predicted that the UK will no longer be in its top 10 trading partners by the end of the year (having been so since 1950)?

2. The UK has been experiencing a shortage of HGV drivers. What occupation is facing the next largest shortage of workers?

3. Which city in the United States has announced a vaccine mandate for all private-sector employees from the 27th of December?

4. What major retail store is set for a £4bn sale to the Thai giant, Central Group?

5. The UK's Financial Conduct Authority (FCA) criticised which US celebrity for endorsing the untested Ethereum Max cryptocurrency?

6. What prominent entertainment and film conglomerate has announced its first female chair?

7. The Bank of England's monetary policy chief has predicted UK inflation to rise comfortably above what value by next spring?

8. How many countries agreed to the Glasgow Climate Pact, outlined in the recent COP26 event?

9. How much money has Donald Trump's social media app, Truth Social, raised so far?

10. A former engineer was sentenced to prison with an accomplice for insider trading. Which major entertainment company did the engineer work for?

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Answers: 1) Germany

2) Nurses

3) New York

4) Selfridges

5) Kim Kardashian-West

6) Walt Disney

7) 5%

8) 197

9) $1bn

10) Netflix

DECEMBER 2021 ISSUE