DKS Newsletter Issue #3 July 2023

Dubai Keynes Society

"The difficulty lies not so much in developing new ideas as in escaping from old ones."

- John Maynard Keynes

Editorial Note

Reflecting on this past year, we are filled with immense pride and gratitude looking back on the incredible achievements of the Dubai Keynes Society. It has been a true reward, to witness the passion and dedication of our members, teachers, and external participants alike, who have come together every Wednesday to engage in deeper discussions and explorations surrounding the subject and field of Economics.

We would like to take a moment to thank all those who have contributed to the success of this society, as well as pupils and teachers who have consistently attended and actively engaged in the sessions. Finally, Jasim, Eun Soo, and I would like to present a massive thank you to Mr. Christopher, for guiding and advising us through our journey as DKS Heads; from start to finish your expertise has been indispensable.

As we look ahead, we are sure this momentum will be carried forwards into next year and are excited to see even more thought-provoking discussions and conversations carried out.

"DKS has been a wonderful way for me to learn more about the financial markets and gain a better understanding of the roles stakeholders play within them. The topic of financial markets is not covered in detail within the A-level syllabus, so this has been a great way for me to supplement my knowledge! "

- Aiden

The Impact of Artificial Intelligence on the job market

By Jasim Yousaf - Y12

Artificial Intelligence (AI) has been rapidly evolving over the past few years, bringing a plethora of changes to various industries. One of the most significant areas impacted by this technological revolution is the job market. AI has revolutionized the way we work, automating various tasks and increasing efficiency. However, this progress has also raised concerns about the potential displacement of human labor. In this article, we will explore the impact of AI on the job market and discuss how it can be both a blessing and a curse.

It is undeniable that AI has the potential to displace a significant number of jobs, particularly those involving repetitive tasks or predictable patterns. With AI algorithms capable of learning and adapting to new inputs, many roles across industries, such as manufacturing, customer service, and data entry, are becoming increasingly automated. The World Economic Forum estimates that by 2025, automation will displace around 85 million jobs globally. However, it is essential to recognize that AI creates new job opportunities as well. The same report by the World Economic Forum also suggests that 97 million new roles may emerge due to AI and automation, including positions in AI and machine learning, data analytics, robotics, and software development. Furthermore, AI can also enhance human productivity by automating mundane tasks, allowing workers to focus on more complex and creative aspects of their jobs.

As AI continues to evolve, the demand for critical thinking, creativity, and problem-solving skills will increase. These capabilities are not easily replicated by AI, making them increasingly valuable in a technology-driven job market. Consequently, workers must adapt to this changing landscape and invest in continuous learning and skill development. Education and training systems must also evolve to meet these new demands. Traditional educational institutions and online learning platforms need to focus on fostering the development of skills that can complement AI. By doing so, they can prepare individuals to work alongside AI and harness its potential effectively.

AI has also transformed the recruitment process, streamlining the way companies identify, screen, and evaluate potential candidates. AI-powered tools can analyze large volumes of data, such as resumes and job applications, to identify patterns and predict candidate performance, making the recruitment process more efficient and unbiased. Moreover, AI can be used to assess employee performance, identify skill gaps, and provide personalized learning and development programs. This can lead to more effective talent management, ensuring that employees are equipped with the right skills to thrive in an AI-driven job market.

The rapid adoption of AI in the job market raises crucial ethical questions. How can we ensure that AI is used responsibly and does not exacerbate existing inequalities, such as gender and racial disparities? How can we protect the privacy of individuals when AI is used in recruitment and talent management? To address these concerns, it is crucial for governments, businesses, and educational institutions to collaborate on developing ethical guidelines and regulations that govern the use of AI in the job market. By doing so, they can ensure that AI is harnessed in a way that benefits all members of society.

How Loss Aversion Shapes our Decision-Making

By Nishk Moorjani – Y12

A discipline to some that may seem useless when in actuality sheds light and fills in the gaps of classical theories, determining the straightforward yet complex and intricate methods that cause humans to act irrationally. Behavioural Economics uses external factors such as cognitive biases that influence human behavior in order to highlight the many instances in which individuals' actions deviate from traditional economic theories and subsequently cannot be explained using them.

Loss aversion is a cognitive bias in which individuals would prefer avoiding losses rather than acquiring equivalent gains. Humans perform irrational behaviours in their everyday life, and exhibit a strong aversion to losses, going to great lengths in order to avoid them. This may be why the emotion you feel losing $10 on a bet is a lot stronger than winning $10 playing a game. But the phenomenon does not just exist in our daily lives, they can have impacts on a larger scale in terms of financial decision-making. For instance, you may see Investors holding onto a poorly performing stock, hoping to avoid the incurred loss, when all the signs point to the most rational decision being to sell the stock in order to protect themselves from an anticipated further loss.

Why would you take a buy two get one for free offer when you went into the store only intending to buy one in the first place? Our brains are innate to avoiding as many losses as possible, which subsequently influences how we make decisions related to our assets. Consider these expensive extended warranties on most electronics that you purchase, the premise of it only exists based on loss aversion. You buy the insurance in order to avoid the losses of expensive replacement costs, even if the cost outweighs any expected benefits that you may incur.

Understanding concepts such as loss aversion can allow Policymakers to use them in order to maximise the benefit they incur by increasing the chances of desired behaviour occurring. The most prominent industry where this is present is marketing; why do you think when there is a sale you’re always told that you’re going to save 25% of your money rather than gain the 25%? Offering discounts and limited sales creates this fear of missing out among consumers, causing them to feel zealous about their potential purchase due to the highlighted scarcity of the product.

Financial decision-making can be strengthened by accepting loss aversion rather than ignoring its implications. Investors can adopt techniques that promote an equal relationship between risk and return by becoming conscious of the bias. Diversification of investments and precise goal-setting can lessen the psychological effect of losses and stimulate more rational decision-making. Therefore, individuals can be nudged towards making better judgments by designing effective initiatives and improving their well-being overall.

The area of behavioral economics is always developing, revealing unique biases and psychological truths. This can cause us to go closer to establishing a more precise and thorough model of decisionmaking, one that takes into account the intricacies of human psychology, rather than ignoring it.

Are we addicted to our devices?

By: Agata Savelyeva – Y10

With the first personal computer having been developed in 1974 and touchscreen phone in 1994, their influence on society has become almost inevitable. They have made our lives much more convenient, speeding up the transit of information, opening platforms and search engines with abundant wisdom, and connecting the world, not to mention the release of developing artificial intelligence. But have they disengaged us from reality?

The average American spends 7 hours and 4 minutes looking at a screen each day. Daily screen time has increased by nearly 50 minutes per day since 2013. So, considering there are 331.4 million American adults, in the past decade alone, the American population has spent 31,504.3 more years on their devices. Now, while this statistic may shock you, it is important to note that not all that time has been wasted. From commercially available 3d printers to AI, lis1braries of easily accessible information for anyone to prototypes of self-driving cars, a lot of societal progress has stemmed from the invention of computers. However, the convenience they present does bring about a different issue, addiction.

Addiction is a chronic dysfunction of the brain system that involves reward, motivation, and memory, and these were the principal concepts that were used while developing social media. While applications such as Meta and Twitter are focused on connecting people and sharing ideas, networks including TikTok and Instagram are designed to entertain, and these are the largest perpetrators when it comes to management of time.

An average TikTok user spends one and a half hours on the application daily, and beyond entertainment, there is no greater personal or public benefit. In addition to this, such apps are extremely detrimental to our attention spans. The algorithm is finetuned to each user, showing content that has been specifically tailored to your interests, constantly updating to keep you engrossed. This means that if you do not enjoy the 10 second video you are immersed in, you can simply skip it.

This is the issue.

The ability to skip something you don’t enjoy not only informs the algorithm of your choices, but also does not translate to reality. If you are stuck in traffic, or on a long plane ride, you cannot simply “skip” that experience, and the societal collapse of duration of concentration brings about many concerns. Not only does it make daily tasks more difficult, but it favors pleasurable activities over useful ones, increasing global lethargy and dictates out tendency to be overtly pedantic.

An example of this can be seen through global marital patterns. For example, since peaking at 65% in 1960, the percentage of women who were currently married has decreased to 31.3% as of 2020. Although there are a multitude of factors affecting marriage rates, such as an increase in education rates, a shortened attention span has been attributed to increases in divorce. If people struggle to assign moments of concentration to an activity, how are they to dedicate the rest of their days to their spouse?

To conclude, a rise in technology has solved many issues, but brough upon us a wave of new ones. It is now up to us to decide on how to manage our time and resist the tantalizing temptations of social networks.

Laffer Curve: Does it actually work?

By: Aiden Black - Y12

The Laffer curve is a highly debated and notorious concept in economics, being an influential idea for decades since its conceptualization in “1979” (Gayatri Nayak, 2016). In this article, I will discuss the premise of the Laffer curve and the theoretical economics behind it, along with evidence for and against this concept and then I will come to a final judgement on the credibility of the idea.

The Laffer curve attempts to visually show the relationship between tax rates and government tax revenue. This curve suggests that at both 0% and 100% tax rate, government revenue is 0. With T* being the “optimum point” (Adam Hayes, 2023) where tax revenue is maximised. Where if a point is right of T* and tax rates increase, revenue is bound to decrease. This is attributed to a variety of factors: households may work less as incentive to work decreases, or those on higher income may leave to another economy where tax rates are lower and there is a higher incentive to evade tax.

An example of the Laffer curve’s effectiveness can be seen in a proposal by President Kennedy in 1963 to “cut income taxes from a range of 20-91% to 14-65% and to cut the corporate tax rate from 52% to 47%” (JFK Library, 2003). This tax cut was stimulative and as a result led to higher consumption in the economy, and as a result GDP rose by 1.4% in 1964 (World Bank, 2023), which led to a fall in unemployment to facilitate this increased aggregate demand, leading to higher income tax and therefore a tax revenue rise. Showing that a decrease in tax rates can lead to an increase in revenue, aligning with the ideology behind the Laffer curve.

However, the US economy had a GDP growth of 6.1%, 4.4% and 5.8% in 1962, 1963 and 1964 respectively (World Bank, 2023), therefore, it could be said that this increase in tax revenue can only be partly attributed to the decrease in tax rates as the US economy was already experiencing an economic boom at the time and with unemployment decreasing by 0.5% from 1963 to 1964 (ibid) the increase in tax revenue could be attributed to lower unemployment rather than the reduced tax rates.

The Laffer curve has “many serious flaws” (ITEP, 2013), one flaw includes the assumption that higher taxes results in lower revenues due to worker demotivation and firms leaving to other economies with lower tax. This may be false as businesses look to factors other than just tax rates when looking to maintain a market presence and may still benefit from the skilled workforce and high-quality infrastructure in the economy and may maintain their position in the economy even with increased taxes.

An example of the misleading nature of the Laffer curve can be seen in the US states: in 2012, lawmakers argued that the 9 US states without income tax, and therefore with lower overall tax rates, were

Figure 1: Laffer Curve (Investopedia)

“outperforming the rest of the country” (ITEP, 2013), this aligns with the ideology of the Laffer curve as it assumes that decreased tax rates may lead to higher economic performance and higher tax revenue (when the tax rate is right of T*). This argument was false, as residents in the US states with the highest tax rates were experiencing “economic conditions at least as good, if not better” (ibid) than those living in states without an income tax. With real GDP growth at 5.2% in states without income tax, while GDP growth was at 8.2% in ‘high rate’ income tax states (ibid). This presents the Laffer curve as “extremely flawed” (ibid) and misleading due to its oversimplification of business decision-making and tax bands.

On balance, while the Laffer curve brings up some valuable points on tax evasion and motivation to work in the labour force, the oversimplification of the tax rates and lack of consideration for the process of decision making in businesses makes it a partly invalid model. With the continued influence of this concept only being spurred on by politicians, with it originally “exploding into the mainstream” (Elizabeth P. Berman, 2019) in 1978 when there was a large decrease in property taxes. Therefore, the Laffer curve is an outdated and ineffective model that is lackluster in considering all factors affecting tax revenue and tax rates.

Reference List

Gayatri Nayak. (2016) Here is everything you want to know about Laffer Curve and tax Available at: https://economictimes.indiatimes.com/wealth/tax/here-is-everything-you-want-to-know-about-laffer-curveand-tax/tomorrowmakersshow/51098997.cms

Adam Hayes. (2023) Laffer Curve: History and Critique. Available at: https://www.investopedia.com/terms/l/laffercurve.asp#:~:text=The%20Laffer%20Curve%20is%20based,in %20increased%20total%20tax%20revenue

Liam P. Ebrill. (2023) 7 Evidence on the Laffer Curve The Cases of Jamaica and India. Available at: https://www.elibrary.imf.org/display/book/9780939934911/ch007.xml

JFK Library. (2003) John F. Kennedy on the Economy and Taxes. Available at: https://www.jfklibrary.org/learn/about-jfk/jfk-in-history/john-f-kennedy-on-the-economy-and-taxes

World Bank. (2023) GDP growth (annual %) – United States. Available at: https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?locations=US

World Bank. (2023) Unemployment, total (% of total labor force) – United States. Available at: https://data.worldbank.org/indicator/SL.UEM.TOTL.NE.ZS?locations=US

Institute on Taxation and Economic Policy. (2013) Five Critiques of Arthur Laffer’s Supply-Side Model Show Tax Cuts as Junk Economics. Available at: https://itep.org/DebunkingLaffer/

Institute on Taxation and Economic Policy. (2013) States with “High Rate” Income Taxes are Still Outperforming No-Tax States Available at: https://itep.org/states-with-high-rate-income-taxes-are-stilloutperforming-no-tax-states/

Elizabeth P. Berman. (2019) Trump is giving Arthur Laffer the Presidential Medal of Freedom. Economists aren’t smiling. Available at: https://www.washingtonpost.com/politics/2019/06/01/trump-is-giving-arthurlaffer-presidential-medal-freedom-economists-arent-laughing/

Striking a Balance: Sustainability vs Economic Growth

By: Zuhair Shawl – Y12

The debate surrounding sustainability and economic growth has gained prominence in recent years with experts claiming that the environment is being pushed closer and closer to its ‘tipping point’. As economies strive for growth and progress, concerns over the environmental and social impacts of economic development have intensified. I believe that at this point in time, if a choice must be made, protection of the environment should take priority over economic growth.

The pursuit of increased growth often leads to a negative impact on the environment through the release of greenhouse gases during production. We have seen an exponential increase in CO2 emissions since the 1950s due to the burning of coal to produce electricity and steel, as well as oil for vehicles and manufacturing. According to the World Bank, global greenhouse gas emissions increased by 50% from 1990 to 2016. This meteoric rise in emissions has come about due unsustainable resource consumption patterns and unchecked industrialisation which has led to significant environmental degradation, posing risks to ecosystems and human wellbeing. This not only results in direct costs, such as increased expenditure on healthcare and infrastructure damage from hazardous weather events, but also undermines the opportunity for growth.

Economist Kate Raworth, in her book “Doughnut Economics,” argues that economic progress should operate within the “safe and just operating space for humanity.” I believe this is the appropriate mindset to adopt when discussing limiting the tradeoff between economic growth and protection of the environment. By respecting environmental limits, we can minimise the negative impacts of economic growth and promote sustainability, a concept which aligns with the idea of the “circular economy”, as proposed by Ellen MacArthur in her book “The Circular Economy: A Wealth of Flows.” The circular economy emphasised reducing waste, reusing materials and recycling, which not only mitigates environmental damage but also fosters the possibility for innovation, R&D by firms and economic resilience.

Critics argue that sustainability measures impede economic growth by imposing additional costs and regulations. This occurs through policies such as taxation on non-renewable goods and schemes such as pollution permits. It could be argued that if governments are overtly focused on sustainability the benefits of a zero-carbon economy will be significantly outweighed by the drop in standards of living that it is accompanied by. This would theoretically occur as many firms would face higher costs and decreased profits, forcing them to make workers redundant.

However, evidence suggests that sustainability can be a catalyst for innovation and economic prosperity. The Global Commission on the Economy and Climate estimates that ambitious climate action could generate $26 trillion in economic benefits by 2030 and create over 65 million new jobs. Furthermore, while renewable energy may be the unappealingly more expensive option right now, shifting to a zero-carbon economy will lead to long-term cost savings for businesses and households. This will occur due to fossil fuels being a finite resource and as they become increasingly scarce their price will rise putting increased burden on firms’ production costs and consequently on consumers.

Another reason sustainability should be prioritised is because economic growth alone does not guarantee equitable outcomes for all members of society. The United Nations Development Programme (UNDP) reports that the richest 1% of the global population owns more than twice the wealth of the remaining 99%. An

increase in growth and average incomes will likely be disproportionately distributed to the wealthy and will widen the gap between the rich and the poor. This is an idea that is explored by French economist Thomas Piketty in his book "Capital in the Twenty-First Century," where he argues that unchecked capitalism tends to exacerbate wealth disparities, causing more harm than good and undermining economic stability. Therefore, sustainable development, with its focus on social equity, aligns with Piketty’s calls for policy interventions such as progressive taxation and wealth redistribution.

In conclusion, while advocates for each side of the debate argue that one must be prioritised over the other, in today’s interconnected world it is vital to recognise that the long-term viability of economic growth is dependent on embracing sustainable principles. By considering the environmental challenges, social equity, and economic potential, societies can strive for sustainable development.

In our visit to the Dubai Refreshments Company, producing Pepsi-Cola products, we witnessed a real-life example that supported many of the Economic theories we learnt about in the classroom (such as Economies of Scale). The factory floor consisted of 5 main production lines, each that produced a specific brand. The tour guide suggested to us that Dubai Refreshments Company (DRC) used to run in Al Quoz, which was more crowded, so meant they had very little space for production. Instead, they moved to the Jebel Ali region with aspirations to create more production lines (the aim to expand into 10 in the near future).

Unfortunately, when we visited the plant, 2 of the production lines were not working (1 had an issue with it, and 1 was under maintenance). Despite this, the lines were very specialised, and each worked rapidly (able to produce anywhere from 8,000 –24,000 bottles within an hour, depending on the size of the bottles). Also, on the factory floor, there were vast stocks of sugar crates present, as well as the plastic origins of all the plastic bottles (that get hot pressurised air blown into them, which allows the plastic to take the shape of the bottle required). The production lines were highly automated and advanced, and the process was definitely capital-intensive, with labour only being present as a safety, back-up measure to ensure that the line is working as is expected. Human workers and labour were also present to work on some of the vehicles that moved around the plant to transport the production parts to the respective sections that they were required in. Safety was of the utmost importance, with several signs present around the plant (to prevent accidents), as well as the fact that safety was one of the few things we were briefed on before entering the plant.

We learnt that DRC (Dubai Refreshments Company) was only a producer of PepsiCo products and did not actually create the ‘secret formula’ that characterises these soft drinks. Instead, all the plant does is add a specific proportion of sugar to the ‘secret formula’ to produce the end-product. It is clear that this remains secret to Pepsi-co, such that they do not even spread the information regarding this highly coveted formula to their producers at DRC.

All in all, the trip was an enlightening one, in which we learnt about the economics behind a large firm such as PepsiCo, and how they manage to produce at the fastest rate possible, whilst still ensuring that high profits are maintained, even in crises such as COVID (in which they were not struck as heavily as some competitors, such as Coca-Cola, which suffered a decline in profits from 2019-2020, whereas PepsiCo managed to maintain their profits).

- Raghav Jasuja

A BIG THANK YOU to all our speakers this year!

Mr Javaid is a seasoned telecommunications professional with over a decade of experience, and currently serves as the CEO of UAE Trade Connect. This venture focuses on the power of blockchain and artificial intelligence to enhance the banking and supply chain sectors in the UAE

18/1/23 Robert Carver External Human or Computer Traders, who wins?

Robert Carver is an independent systematic futures trader and investor, writer, and research consultant. Mr. Carver is the author of several books, including “Systematic Trading", "Smart Portfolios", "Leveraged Trading" and "Advanced Futures Trading Strategies". He formerly held a position as a portfolio manager and researcher at AHL, a quantitative hedge fund, where he was responsible for the creation of AHL's fundamental strategies group and managed the fund's $5bn fixed income portfolio.

01/2/23 Sleem Hasan External “My Entrepreneurial Journey: What I learnt from my successes and failures”

Sleem Hasan is an experienced owner with a demonstrated history of working in venture capital and the Japanese capital markets. Mr Hasan is skilled in investor relations, securities, asset management, investment advisory, and working with technology entrepreneurs. His strong entrepreneur professionalism is with a Part III Mathematical Tripos from Cambridge and a Mathematical degree from Oxford. He’s also the CEO and Founder of Privity, which is an independent Dubai-based advisory firm founded back in 2004.

08/02/23 Philip Manipadam Year 11 “Banking: An Evolving Landscape”

Will be discussing the general trends and challenges experienced by banks throughout the years, as well as weighing in on the future of banking, with online banking services on the rise.

Marta Roman External Goumbook’s Environmental Protection and Circular Economy Campaign

Marta will speak on how being backed by two important players in the field of ocean health and conservation globally and locally: The US-based organization Ocean Conservancy and Dubai’s beach resort Atlantis the Palm, has enabled Goumbook to demonstrate the potential waste has to return enormous value, both to the environment and economies on larger scales.

01/3/23 Arun Prabhu External Insights on the current state of risk management in the banking sector and the challenges faced by risk professionals in today's fast-paced business environment.

Arun Prabhu is the Chief Risk Officer, and Regional Head of Risk Strategy at HSBC for the MENAT region. Mr. Prabhu has over 20 years of experience working with HSBC and has played a pivotal role in shaping the bank's risk strategy. He will be sharing his insights on the current state of risk management in the banking sector and the challenges faced by risk professionals in today's fast-paced business environment. He will also be discussing his journey at HSBC and the key lessons he has learned over the years.

08/3/23

Haya Faisal External Q&A session –Insights on life at university in Canada vs. the UK

Haya is a recent graduate from the Rotman Commerce program at the University of Toronto, where she completed a Management specialist and Economics major. Currently, she is completing a master's in human resources and organisation at the London School of Economics, through which she is assigned on an 8months consulting project with HSBC UK. She has also completed internships at EY and PwC in Assurance and Executive Talent Management, respectively.

15/3/23 Sherville De Souza External ‘An Overview of the Energy Industry’

Sherville is a seasoned veteran in the field, having worked 23 years with Shell. He has also undertaken numerous commercial and financial roles in businesses

(Upstream/Downstream/Solar/Biofuels) Across Europe, Africa, the Middle East, and Asia.

22/3/23 Christian Ruiz Year 11 How recurrent "free money" could impact our society.

Will be delivering a session on Universal Basic Income, where he will be exploring how recurrent "free money" could impact our society. In recent years, this topic has grown increasingly relevant, with some advocating for its implementation as a means of addressing economic inequality and promoting social welfare. Christian has kindly agreed to explore how a recurrent "free money" system could impact our society, including its potential effects on poverty, employment, and social welfare, as well as its feasibility to implement.

26/4/23 Soraya Beheshti External ‘Breaking down two accepted student profilesHarvard/Stanford and Oxford Economics & Management’.

Soraya has kindly agreed to provide attendees with insights into the key qualities that top UK/US universities seek in applicants, as well as guidance on crafting a compelling personal statement and strategies for enhancing their application profiles

Ed is a Private Equity Analyst with McKinsey & Company based in Waltham, Massachusetts. He graduated from DC in 2018 and completed his Bachelor of Science in EconomicsFinance and Liberal Studies Major in Quantitative Perspectives from Bentley University in 2022. As a PE analyst, most of Ed's work consists of advising clients through all stages of the deal cycle: from top of house diagnostics, fundraising strategy, commercial due diligence and portfolio company strategy, all the way to vendor due diligence.

Mr. Omer Iqtidar is a Managing Director at Citigroup UK. Mr. Iqtidar currently holds the esteemed position of Head of Central and Eastern Europe, Middle East & Africa (CEEMEA) for Mergers and Acquisitions. With an impressive tenure spanning 22 years in the investment banking sector, Mr. Iqtidar has advised big clients on a diverse range of large-scale M&A transactions across various sectors.

Mo studied Economics at Cambridge University, receiving a B.A and M.A. He currently helps teach on the Executive MBA and MBA at the Judge Business School at Cambridge University. He has taught in both day and boarding schools and taught at Eton College as Head of Economics & Politics, before being appointed Deputy Head Academic as well has being elected a senior examiner for Edexcel and Pre-U. Alongside this, Mo has spent many years preparing candidates for Oxbridge applications, focusing on Economics, E&M, PPE, and Land Economy.

THANK YOU! Enjoy your summer ☺

HEADS OF DKS (EUN SOO, JASIM, DANYAAL)