Griffenomics - Issue 4 by Abingdon Print Online

ABINGDON SCHOOL'S

GRIFFENOMICS SUMMER 2017

ISSUE 4

CASTRO’S IMPACT ON CUBA We assess the legacy of the Communist leader

The Swiss Cheese Cartel | Castro’s impact on and legacy to Cuba |The Contribution of the Premier League to the UK Economy | The role of the IMF in Globalisation | How has Brompton Bikes established itself in such a competitive global market? | What are the benefits of sweatshops to those in developing countries? |QE or not QE? | Recommended Reading

GRIFFENOMICS NEWSPAPER

CONTENTS: The Swiss Cheese Cartel

Toby Collins Harry Wallis-Smith

Castro’s impact on and legacy to Cuba

Design Director

How the Premier League effects the UK economy

The role of the IMF in Globalisation

How has Brompton Bikes grown in a global market?

What are the benefits of sweatshops to those in developing countries?

QE or not QE?

Chief Editors

Blake Jones Writers

James Knight Max Humphries Jonny Hurrell Vil Kirakou Rory Finch Alex Jørgensen Will Pearson Toby Collins Managing Director

Ben Ponniah

By James Knight

By Max Humphries

By Jonny Hurrell

By Vil Kiraikou

By Rory Finch

By Alex Jorgensen

By Will Pearson Want to join the Griffenomics team? Contact us at griffenomics@abingdon.org.uk

Recommended Reading

By Toby Collins

A Letter from the Editors Griffenomics, now in its fourth year, has allowed sixth form economics students to explore economics in a historical and contemporary context and expand their economic understanding beyond the current A-Level syllabus. There are a wide range of topics explored in this edition, whether it be the impact of famous communist leaders, the Swiss cheese industry or the success of Brompton Bikes, this year’s writers have enjoyed finding niche topics which interest them. Economics is notoriously difficult to predict due to its reliance on human decision-making and various assumptions, so future articles will be particularly interesting due to the current changing political climate. Another current issue is increasing globalisation and economic interdependence which is discussed in this edition looking at it from the perspective of both multinationals and the IMF. We hope you enjoy this edition of Griffenomics and it allows you to look more closely at events from an economic point of view. The Chief Editors of Griffenomics

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Swiss Cheese Cartel W

hen people think of cartels, they think of Pablo Escobar smuggling more than 15 tonnes a day of cocaine to the USA, or they think of OPEC controlling 73% of the the world's proven oil resources. But people never think of the Schweizerische Käseunion ( Sh-Wei-Tzer K-Ae-ser Union), or the Swiss Cheese Cartel who changed cheese as we know it today. To put you in the shoes of the Swiss you need to know a little about the importance of cheese

in Switzerland, and its long and distinguished history, that dates back before the birth of Christ. Celtic descendants of the Swiss made cheese in large pots using fir branches to stir the curds and as time went on this was developed into a fine art that was sought after in the Roman empire leading to a huge market in exports. In fact cheese had such importance throughout Swiss history, that in some villages it was used as a substitute to money, with one scholar writing, “a community that used cheese as

currency, paying priests, artisans, and workers partly in cash and partly in fine cheese.” The people of Switzerland had been making more than a thousand different types of cheeses in the past, but then like most European countries everything changed with the assassination of Archduke Franz Ferdinand and the start of World War 1. In 1914, the Swiss had a very unique problem as they remained neutral in the conflict, they could still produce goods in the country at almost normal Griffenomics | 5

rates if they had the raw materials, but with a lack of hay and fodder for cows, milk was becoming more and more expensive. However, even if they have the raw materials they would not be able to sell cheese to anyone. For the cheese market this was disastrous as luxury cheeses during the war were seen as a real waste of money to most who were barely surviving on the breadline. This problem did not improve at the after WW1, around the start of the 1930’s the Fordney-McCumber tariff was put into action in the U.S that raised prices of overseas goods by inducing a massive 60% tarif on any imports. This lead to U.S. imports from Europe declining from a 1929 high of $1,334 million to just $390 million in 1932. While this can be argued, it was also due to the effects of the great depression, neither of these helped to increase the demand globally for Swiss cheese. Things then got even worse, during the 2nd World War Europeans strived to massively increase the agricultural sector of their own country. The United Kingdom alone planning to increase it’s output in the agricultural sector by 60% of pre-war output. All of these factors combined lead to a massive problem for the Swiss. The answer, A government run “Cheese Club of Corruption”. This club was the Schweizer 6 | Summer Edition | Issue 4

The government ran a Cheese Club of Corruption Käseunion or the Swiss Cheese Union, and when journalist Robert Smith was looking into the organisation he met a lot of problems along the way stating “it was like when you are in Italy and you ask people about the Mafia” he could never get a straight answer from anyone in the industry. The way the Schweizer Käseunion was organised was complete top to bottom control on the production of the cheese market. For this to work everyone in Switzerland creating cheese needed to be on board and unfortunately they had no choice whatsoever or they would face bankruptcy. The union decided who could buy milk from the dairy farmers, they decided what the prices of that milk would be and they even decided what you could do with that milk. In fact they took the Swiss heritage of over one thousand different types of cheeses and narrowed it down to seven. You would not be allowed to sell any cheese that was not one of these seven types and you could not deviate from the official price

when you were selling it and of these seven only three would be subsidised making the other four have no way of competing in price. They even went as far to send out individual notices to cheese houses who they thought were not producing cheese to a high enough level blaming bad quality cheese on bad habits from the war. By the 1960’s each individual cheese was rated and if it did not reach a score of 18 out of 20 it would not be permitted to be exported. The Union had a stake in everything to do with cheese in the country to the point where they could control every factor of production. This kept prices artificially high and competition worryingly low and thus a cartel had been born in the Alpine Hills. However at the time it seemed the one thing they could not control would be the overall world demand for cheese, and even that did not last for long. In the 1960’s when the international trade markets began to open up again and the Swiss were overproducing cheese as manufac-

turing methods improved in the country it was the time for innovation. Invented in the Alps, fondue - a bowl of molten cheese - vastly unknown by most until the 1930’s when the Swiss Cheese Union made it the national dish of Switzerland. It was sold as a healthy food that had hundreds of years of

tradition behind it and the global market was lapping it up. The glory days for Swiss Cheese had arrived and while the cheese union had made a massive change in the global market for cheese, it was not all going to stay like that forever. In 1996 the members of the union were found to be accepting

bribes of near to three-hundred thousand pounds. This turned heads at the World Trade Organisation when an official report was filed saying that the union displayed “cartel like” practices. This, amongst other complaints by the WTO, stated that Switzerland has never declared the Swiss Cheese union is a state trading enterprise, thus breaking EU laws. In 1999 the Schweizer Käseunion was disbanded, and cheese was free to be tinkered with and experimented on as it was always meant to be. Although in time it became clear how much the Schweizer Käseunion really had to do with the upholding of the Swiss Cheese Economy. They were costing the Swiss government more than all of the military costs combined in subsidies. Thus when the subsidies disappeared, the market for cheese was left in turmoil forcing hundreds of Swiss cheesemakers to go out of business, and the ones that remained needed to start competing against each other, something they had not needed to do since the early 30’s. This has lead to an “explosion” of new cheeses coming out of switzerland, with around 450 different types being exported. It is safe to say after this explosion there is more the just DeBRIE leftover. Griffenomics | 7

n November the 25th 2016 Fidel Castro, perhaps the last surviving giant of the Cold War, died of unspecified illnesses he had been suffering for at least a decade. He still stands amongst certain left-wingers as a symbol against US capitalist imperialism: surviving over 600 assassination attempts and (arguably) maintaining socialism in Cuba even after the collapse of the USSR. My visit to Cuba in August – a mere 3 months before his death – has intrigued me as to what exactly his effect on Cuba has been, and what his death will mean to Cubans. Firstly, let’s consider the situation of Cuba directly before Castro came to power: it was a notably wealthy nation by Latin American standards. From its roots as a Spanish colony, under the regime of Batista – the ruler of Cuba before Castro - it stood as the highest per capita consumer of telephones, television sets, cars and radios, as well as meat, vegetables and cereals in Latin America. It had the 5th highest income per capita in its hemisphere as well as the 3rd highest life expectancy

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Castro’s Impact On and Legacy To Cuba and an impressively high adult literacy rate of 76%. Whist this might appear to be a thriving and prosperous economy, there were some crucial underlying issues. It was governed by Batista – a dictator in thrall to the USA, with its major cities, especially the capital Havana, dominated by the US mob, acting as hubs of gambling and prostitution. There was also rampant inequality, with the peasants who lived in rural communities (making up one third of the population) in dire poverty and with almost no access to basic healthcare or education, as well as divisions along ethnic grounds, as seen in many countries of that time. Castro therefore gained huge popularity as a guerrilla fighter proposing strongly left wing ideologies and, as he put it in one of his videos released whilst hiding in the mountains, a ‘well planned economy’. It is worth mentioning the he was not actually a communist at this point, but instead a left wing politician promoting equality and public ownership of capital. After his campaign finally proved successful, and he took public office on New Year’s Day 1959, he imme-

diately introduced radical reforms to Cuba – with the state taking ownership of all private property and businesses, with private enterprise being outlawed. Instead, under his command, the state directed all factors of production and the allocation of resources. Foreign direct investment from the USA was also outlawed and all foreign business owners were stripped of their assets. The remnants of this sweeping clear out are easily seen today: in Havana the iconic Bacardi headquarters of old is still standing without hosting any industry – a testament, perhaps, to the loss of economic activity caused by the introduction of Fidel’s command economy. A significant consequence of this economic model newly introduced to Cuba was the lack of efficiency in resource allocation. The Cuban government, now the sole director of all the land, labour and capital in Cuba, was faced with imperfect information on the wants of its people, and stripped of the force of the invisible hand , Cuba’s output was arbitrary and supply led and did not maxi-

mise the welfare of Cubans. This remains the case today in Havana: as we walked into shops there were surprisingly large quantities of seemingly miscellaneous items that the Cuban Government decide to produce at any one time, such as a ‘general’ shop that barely had an item in stock but umbrellas. Under this command economy the Cuban labour force also became less productive, as each worker no longer had the incentive of profit, as initially all wages were fixed. On top of this, the confiscation of private business caused an exodus of middle class Cubans, including firm owners and merchants, from Cuba. From 1959 to the Cuban Missile Crisis of October 1962, 248,070 Cubans emigrated to the USA alone. Since these were largely educated skilful and affluent workers, this can be described as a brain drain effect on Cuba, which lost out on much of its most useful human capital. This fall in economic output and the fall in government revenue that has resulted has meant that water and electricity services around Cuba are also now intermittent at best and there are

too many people per structure in the buildings of Havana that now largely lie in disrepair. However, Castro did accomplish some of what he promised. Under his direction Cuba has healthcare and education envied even by many western countries – particularly the rest of Latin America. Education in Cuba is compulsory in Cuba from 6 to 16 years old, and there are many high-status educational and research facilities, such as the University of Havana, founded in 1727. Cuba devotes the highest proportion of its budget to education out of any nation in the world – 13 per cent. Adult literacy rates in Cuba have skyrocketed from 76% under Batista to 99.8% today, showing how the education gap between urban areas and rural areas has been closed. Cuba’s healthcare system is also the best in Latin America, with the second highest number of physicians per capita of any country in the world – in fact Hugo Chavez, the former president of Venezuela and ally of Castro, went to Cuba for cancer care as he was dying. Due to standardised wages across Cuba, inequality was largely

rendered non-existent… apart, of course, from the ruling elite – in 2006 Forbes made the conservative estimate of Castro’s personal income at $900,000,000 – a figure that would take the average Cuban 3.75 million years to earn. The reasonable prosperity that remained in Cuba’s economy, however, was largely reliant on help from its most significant ally: the Soviet Union under Khrushchev. After the reality check of the, albeit disastrous, Bay of Pigs invasion of April 1961 – clearly backed by the CIA – Castro firmly declared himself to be a ‘Marxist-Leninist’. This move helped his appeal to the USSR for financial assistance, which came thick and fast: a deal was reached whereby the Soviets would import 425,000 tons of Cuban sugar in the remainder of 1961, and then 1 million tons for the next four years, as well as credit worth 100 million dollars that could be paid back over 12 years. This huge loan was used not only to bolster Cuba’s military capacity in defence against the USA, but crucially to invest in capital such as mining equipment for Cuba’s nickel mining industry. This Griffenomics | 9

led to a huge increase in long term output, as well as the deal allowing Cuba to import cheap fuel - previously scarce due to the USA’s trade embargo - from the USSR. Trade with the USSR rose to be worth over 8.5 billion dollars to Cuba’s GDP in 1989. However, as the Soviet Union’s finances faltered, this figure fell to 4.5 billion by 1990. When, by the end of 1991, the USSR finally fell, this lifeline was utterly cut off, plunging Cuba into a crisis of a lack of demand for its exports and access to fuel: its agricultural sector, for instance, was left paralysed as this fuel could not reach the island. Widespread famine ensued, with even the Havana Zoo being raided by hungry Cubans for buffalo, peacock and rhea meat, as well as stray cats being hunted down. This period – referred to as ‘The Special Period’ led to riots in Havana – the closest Castro ever came to being overthrown by internal opposition. In response to this unprecedented economic catastrophe, Fidel Castro had two main strategies: an economic alliance with Venezuela, and, surprisingly, the introduction of limited private enterprise and tourism. His dealings with Venezuela included most significantly a daily quota of 17 million litres of crude oil to in return for 44,000 Cubans working in Venezuela – mostly specialist healthcare workers. This proved crucial in keeping Cuba’s capital running and therefore its economy working: this Venezuelan aid is estimated to constitute over 20% of Cuba’s GDP: similar to the proportion that Russian aid contributed to. The most radical policy, however, was the introduction of private enterprise and tourism to the country. This started with ‘enclave tourism’: certain sections of coastline were cut off from the general public with the exception of security personnel and staff where foreign visitors could take beach holidays. The advantage of this was that the impact of capitalist business from westerners on Cuban land on Castro’s reputation was minimised as the interaction 10 | Summer Edition | Issue 4

with and knowledge of the tourists was reduced to only those needed to keep the resorts functional, but this limited access also limited the revenue that could be generated from the tourists. Eventually, he allowed Cuban citizens to apply to open a ‘Casa’ – essentially a BnB – for tourists to stay in as they made their way round the island. This strategy succeeded, with GDP increasing from $1.8 billion in 1994, when the new Ministry of Tourism was introduced to $4.2 billion in 2010. Tourism has since become the 3rd largest source of foreign currency. In order for tourists to spend in Cuba, they would have to exchange their currency into Cuban currency. However, the average price level in Cuba is considerably lower than in the developed countries the tourists come from. Therefore, to maximise revenue from the tourists, the Cuban government introduced a dual currency system – Cubans kept the unconvertible peso (CUP) whilst tourists must now convert their currency into convertible pesos (CUC). Shops would charge different prices for each currency to avoid inflation that would reduce the real purchasing power of regular Cubans but also increase

producer surplus to benefit the Cuban producers. This system presents a profound problem to a nation that prides itself on socialist values: tourists tip their waiter, tour guide or BnB host etc, and in doing so the (26.5 times) more valuable currency leaks into the local’s economy. This means that jobs in the tourism industry are hugely desired as they provide an incredibly greater income: our tour guide – a very well educated man – earns 466 inconvertible pesos a month in his job as a lecturer at a university, but was tipped $100 during his one week as our guide, thereby earning 5.7 times in a week what he would have earned in a month as a lecturer. This creates significant income inequality between those who work in the tourism industry and those who work in all others, which is seen by many to be a contradiction of the most important aim Fidel Castro set out to achieve in 1952: to end the inequality endemic in his country. A positive effect of the private enterprise however is the increase in productivity. Because workers in the tourism industry can influence the size of their income (through their tip), they put in more effort and are more pro-

ductive: increasing their output, unlike their counterparts without the previously mentioned profit incentive. For example, the driver who took us around the island has a brother who owns a casa, which he also profits from by doing some jobs for his brother and having a share in the tips. One day he drove around to buy some drinks for his brother’s guests and went to 5 or 6 shops – none of which had beer in stock, as they would have to drive to the depot to stock up, which was not worth the time since they were on fixed salaries from the state. It was clear then that the worker who worked for a private business was willing to go the extra mile in his job (by driving around to many stores), whilst the fixed-wage state employee was not. The perceived benefit of productivity from the introduction of private enterprise actually undermined the very foundations that Castro’s economic system was built on. This begs the question: how did Fidel Castro square off an increasingly open economy with a closed autocracy? For many, the distinction between the virtue of the individuals in power and their policies when in power are entirely different issues. There is a palpable sense of nationalistic pride in Cuba, even if they accept the benefits of the free market system, and this pride is largely rooted in the passion Cubans hold for their revolutionary heroes for defying US dominion of their island, and holding power despite all the efforts America made to remove Castro: they are proud of his resilience and eventual success fighting for their country in the face of an immensely wealthier and more powerful country. One of these attempts was the trade embargo imposed by America, which Castro could use as a scapegoat for his economy’s woes and deflect blame from his policies. So – what’s next for the Cuban economy? Raul Castro – Fidel’s younger brother and partner in revolution – has already proven himself to be more economically liberal than Fidel, and may therefore con-

tinue to creep ideologically to the right. Considering the success of opening up the Cuban economy so far, and Obama’s recent decision during his visit in March 2016 to normalise relations with Cuba, this seems to be an encouraging trajectory for the Cuban economy and society, although it will doubtless ire some hardcore communists. From my experience staying at Cuban casas and a particular tourists’ enclave called ‘Varadero’ it is clear that the tourism sector in Cuba has a lot of room for improvement and the capacity to attract many more clients, with Cuban tourism taking up only 3% of global tourism but being the subject of a staggering 80% of all complaints – mainly over faulty toilet facilities and food laden with illnesses. However, the newly elected and unpredictable Donald Trump might rain on this parade yet. He has threatened to cancel Obama’s historic relaxing of trade restrictions with Cuba, tweeting ‘If Cuba is unwilling to make a better deal for the Cuban people, the Cuban American people and the U.S. as a whole, I will terminate deal’; as well as ‘While Cuba remains a totalitarian island, it is my hope that today marks a move away from the horrors endured for too long, and toward a future in which the Cuban people finally live in the freedom they so richly deserve’ – perhaps a slightly ironic tweet as America holds a prison camp renowned for violations of human rights. In any case, in a move started by Fidel Castro, the man who overthrew the unequal capitalist system of old, towards increased private enterprise, seems to be a step in the right direction: already many of the beautiful colonial buildings in Havana are being restored from a state of near ruin, and some ambitious Cubans are returning to their native country after a long period of elopement to another. My thoughts, however, are that almost all Cubans would be wealthier under the capitalist system previously in place than in the more equal but much poorer Cuba Castro has created. Griffenomics | 11

How has the

Premier League Contributed to the

UK Economy?

ootball is the biggest sport in the world, with 3.5 billion people either playing or following it. The economic result of this is a vast web of complex dealings that provide international trade and prosperity. In the United Kingdom it is the most popular sport with 8.2 million participating. The Premier League is the wealthiest league in the world, generating billions of pounds for the UK economy and attracting global investment. Its contribution to the UK is very hard to measure due to the multiplier effect alongside considering

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the constituents of its impact, be it direct employment of a member of staff or the satisfaction of a victory leading to increased disposable income spending on unrelated services. The Premier League is the third largest sports league in terms of revenue behind the MLB (Major League Baseball) and the NFL (National Football League), which both comprise of at least 50% more teams and are based in America, where the domestic fan base is far greater due to their larger population. The Premier League’s supposed direct contribu-

tion to the UK economy in 2013/4 season was £3.4 billion, 0.2% of total GDP. As aforementioned, this value is arguably lower than the true value, given the multiplier effect. It is broadcast in 180 countries reaching 730 million homes. This reach provides a platform for brands to push their products. Via social media businesses can pay players to endorse their products and should the business be UK based, this revenue generated would contribute to the UK GDP but not count as part of the £3.4 billion from the Premier League. These are just a few examples of

cases where there are flaws and difficulties in allocating the contributions made to the economy. It is estimated that the indirect impact is worth £1.49 billion and induced worth £0.98 billion, bringing the total to £6.24 billion (after rounding). The wider economic benefits of the Premier League include tourism. According to an article ‘Football joins tourism's premier league as overseas fans flock to games’ in The Guardian, in 2012, 900 000 people visited the UK for football matches in the top division. On average, they spent £785 per fan, which was £200 more than the average tourist to the UK. In addition to this, the majority of inbound tourism for football matches came during the period of January to March. This adds to the importance of this sector of tourism as this period typically experiences a lull of tourism in the UK. Perhaps surprisingly, one of the most common nationalities of tourist to watch football is Norwegian; approximately one in thirteen visitors are Norwegian. The most popular is Ireland, with 174 000 visitors over 2012. Other notable contributors are the United States of America (61 000), Spain (54 000) and Germany (48

000). The attraction of Premier League football draws attention to areas of the UK that are far less popular as a tourist destination. The North-West is home to some of the most famous and historical clubs in the world. Internationally renowned clubs such as Manchester United, Manchester City and Liverpool; these three clubs are within a thirty mile radius. It provides tourism, both outbound and inbound, for example when foreign fans go on stadium tours or a club goes on preseason tour to Asia. An example of this is Chelsea Football Club who have visited four continents in the weeks leading up to the 2015/6 season. In 2012 they played twice against domestic rivals Manchester City (in St Louis, Missouri and in New York). The matches attracted a total stadium crowd of nearly 90 000 and both matches were high scoring encounters acting as great advertisement of the Premier League. More discreet tourism may occur if a foreign fan wishes to tour to the UK to visit footballing places and in general the global exposure the Premier League provides as a form of advertisement for the UK. Another input into benefiting the country economically is the tax revenue from the Premier League; a total of £2.3 billion in the 2013/4 season. The main compositor of this is the employment of clubs in terms of player, coaches, backroom staff, stadium managers and financial managers to name a few. The total tax paid by these employees totals £891 million. The Premier League employs 103 000 so that would equate to approximately £8 650 per person, compared to the UK average of £4 985. The total input of £2.3 billion would be suffice to pay the salary of over 90% of the UK’s police constabulary. The entertainment aspect of the Premier League has given rise to ludicrous rights bidding between major UK television provid-

Every year 900,000 people visit the UK for football matches ers. Sky and British Telecommunications (BT) both offer Premier League matches on their channels exclusive to their customers. In February 2015 the rights to show Premier League matches from 2016 to 2019 were sold for £5.14 billion; a 71% increase on the previous auction. Out of the seven packages available, Sky paid £4.2 billion for five out of seven for the other two, BT paid £960 million. The emergence of BT into the market has been attributed as one of the reasons Sky paid an extra 83% compared to the previous auction. An average of £10.19 million will be paid per game. Subsequently the new, higher deals mean that the average cost of broadband and other services provided by Sky and BT have also risen, even for customers who do not desire sport channels. Overall, the Premier League’s rise in revenue over the past 20 years (since origin) have provided economic prosperity to the UK economy. Its worldwide reputation means that sport in the UK is internationally recognised. The money involved has surpassed inflation figures comfortably showing that there is real growth to show for the past 20 years. Attendance at Premier League matches is surpassed only by the German Bundesliga whose attendance average is higher as a result of the stadium redevelopment for the 2008 FIFA World Cup. However, there have been some issues, as mentioned with the increase in telecoms pricing. Griffenomics | 13

The Role of the IMF in Globalisation T

he International Monetary Fund does not recieve a huge amount of publicity in the developed economies of the world, partly that is due to the nature of its operations that are conducted predominantly in the developing world. However, it is very infamous in the countries that it does actually operate in. It is most infamous for its “shock therapy” - the process of rapid capital market and trade liberalisation. In this article I will provide an overview of IMF’s operations and further, I will analyse the outcomes of their interventions in their ‘client’ countries. I will argue that the IMF, as the driving force of globalisation, is also the reason for a large amount of discontent associated with it. “The IMF's primary purpose is to ensure the stability of the international monetary system— the system of exchange rates and international payments that enables countries (and their citizens) to transact with each other.” - runs the official statement of its purpose on the IMF’s site. However, in the past years it has greatly diverged from its original purpose. In fact, their daily business now is the development of low-income countries and also, it acts as advisory body to any socialist state taking steps towards capitalism. The IMF does not have any international legislative authority to enforce any of the policies mentioned above. Their only real practice is to lend to its clients, and that is where they, as a body of consisting entirely out of trade ministers, are able to impose certain ‘conditions’ on the borrow-

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ing country. These conditions are outlined in the ‘Letter of Intent’ provided by the IMF. It is true that countries consult the IMF on different issues, but in fact they can all be classified into two categories: assistance with an economic downturn or the development aid for the poorer regions of the world. One may think that the IMF, as an institution with global reputation, would seek the most optimum solution. However, the following analysis will show that the IMF is either blinded by their ideological belief into free markets or they are being manipulated by the most powerful members. The latter seems to be the most likely, considering that the fact that the only country that has veto in the IMF is the USA and the power to influence decision is determined by the biggest contributors to the IMF’s budget, which are the richest countries in the world. One of the best examples of the IMF’s incompetence in handling crises are its fallible policies in the East Asian Crisis in 1997. At that time Asia was growing at incredible rates. Since the 1970s the relatively backward countries had developed to rival Germany and other advanced states. However, when the crisis had struck the IMF had immediately poured endless criticism on the East Asian nations - they were always sceptical about Asian ‘miracle’ growth and now that their prophecies were vindicated they had immense authority to interfere in the respective countries. They argued that their institutions were innately flawed and hence it is of

The IMF does not have any real international legislative authority no surprise that the meltdown happened. Korea grew 8-fold per capita after the Korean war in 30 years. Furthermore, it managed to achieve universal literacy. It joined the OECD in 1996 (the so called club of the richest countries in the world). Japan had managed to do so almost 30 years earlier, which

perhaps suggests that there was nothing wrong with the East Asian financial institutions. Given the reputation of the IMF the East Asian nations did consider IMF’s criticism before the crisis itself. The IMF advised all of the East Asian economies to embark on one economic policy - rapid capital market liberalisation. It was an interesting policy to suggest at the time, given that there was absolutely no theoretical or empirical evidence for the efficiency of the approach. However, the IMF persisted. In reality, the only party that would have certainly benefited was the financial industry in the developed world, particularly in the US. This industry would gain just from another market where they could export their services. The argument for the capital market liberalisation was that it

would ensure country’s economic stability. It argued that by diversifying the source of funding the country would reduce the risk. However, the actual evidence points out to the contrary. The capital flows are pro-cyclical. What that means is that when there is a recession, the moment when the country needs foreign capital the most, the investors seek to withdraw their savings in fear their investments would be lost. On the other hand, when the economy is booming the investors will flock to that country for the guaranteed returns. J.M. Keynes called this behaviour ‘animal spirits’. The IMF subjected the East Asian economies to the rational and irrational whims of the investor community, to their irrational exuberance and pessimism. This is best summarised by the interest rates on

the Thai bonds. Shortly before the crisis they were at 0.85 %, which was regarded as one of the safest financial assets in the world. In 2001 they were at more than 6% In fact, at this point Professor J.Stiglitz argues that the IMF was the single biggest factor that invoked a turmoil on East Asian economies. In 1997 East Asia experienced the first round of currency devaluations prompted by the speculation of the capital market. The IMF identified the problem as a minor one and promptly responded to that by issuing $55 bn to Korea, $33 bn to indonesia and $17 bn to Thailand to support the currency the falling currency. The IMF believed that if they could convince investors that the government had immense FOREX reserves to sustain the currency, the investors would discontinue withdrawing as they would believe Griffenomics | 15

that the currency would only rise in value. Despite these efforts there was virtually no change and the IMF had started to claim that the institutions were inherently flawed and the Asian financial system had to be overhauled completely before any change could take place. This provoked even greater capital flight from these countries as the panic increased. The consequences were terrible: unemployment was up fourfold in South Korea, threefold in Thailand and tenfold in Indonesia. In 1998 GDP in Indonesia fell by 13.1%, in Korea by 6.7% and in Thailand by 10.8%. The rapid growth of the East Asian economies meant that they could not anticipate the negative growth. They had no time to develop unemployment insurance and therefore the crisis hit the countries particularly hard. It was in 1998 that the countries had no choice but to, again, turn to the IMF for help. The consequences were dire. The IMF had also played a major role in the transition of Russia from socialism to the capitalist system. There is a reason Russia had never asked the IMF for help since the 1990s: after the collapse of the Soviet Union, Russia had a very complex and difficult transition to go through. Straight away the IMF came up with its infamous ‘shock therapy’. They advised Boris Yeltsin, the president of the newly-born Russia, to rapidly privatise all of the SOEs (State-owned enterprises). Furthermore, they asked for capital market liberalisation. It would be these two policies that would ruin the successful transition of Russian economy. Privatisation The policy itself has been proved to be of huge use. The SOEs are quite often very inefficient and wasteful enterprises. Furthermore, they put a huge strain on government budget. However, the problem that the IMF did not take into consideration is 16 | Summer Edition | Issue 4

that Russia had never before entrusted non-government individuals with running large oil-producing or other major organisations, with such an important job. By pushing for rapid privatisation the IMF induced incredible rates of corruption in Russia. Boris Yeltsin ‘gave out’ these firms to his friends, which were either government officials or KGB officers. The government also created various schemes to create an illusion of ‘fair’ distributions of these enterprises. All of this, provoked the creation of the new class in Russia - the oligarchs. Furthermore, privatisation meant that large numbers of people lost their jobs. Private companies, in pursuit of profit maximisation fired large num-

bers of people. This fueled an extensive social discontent in the country. In fact, the consequences were so dire that by the 2000s almost a third of the Russian population was in relative poverty. Capital market liberalisation This policy was the final blow for the Russian economy. During the time of privatisation, all of the prices were liberalised (advice of the IMF), which prompted incredible rates of inflation in the country. However, there was one commodity where the Russian government disobeyed the IMF - oil. They fixed the price on the grounds that the emerging firms would be able to benefit from low oil prices. However, what actually

happened was that the new class of oligarchs realised that they could purchase large stocks of oil at meagre prices in Russia and sell it at a huge premium in the West. This was feasible because the government, following the advice of the IMF, had relaxed capital controls. At that point Russia had entered a new era in its history, an era where there were the incredibly rich oligarchs and the miserable majority of the population. This created incentives for the owners of the former SOE’s to simply strip assets. There was no stability in the country - it was in absolute turmoil. The new ‘businessmen’ layer engaged in asset stripping and then, because of inflation, they had sent their fresh profits to

the banks in the USA or other stable parts of the world. This situation, known as the ‘capital flight’, prompted a significant Ruble (Russian currency) devaluation. The IMF intervened to stop the devaluation in 1999. They decided to provide Russia with a sufficient amount of foreign reserves to support the currency, just like in the case of the East Asian crisis. However, as it turned out none of the money was used to support the currency and in fact, it was said that when the IMF sent the first installment the very next day exactly the same sum was detected in one of the accounts of the offshore banks in Cyprus. The IMF was once more confronted of a large corruption problem in Russia. In the end, a large country with a huge potential, was robbed by its own oligarchs. In 2000 the GDP of the Russian economy was only 60% of what it was in 1990. Of course, it is Russian officials that were supposed to be in control of the situation and not the IMF. They are certainly responsible for the spread of corruption in the government sector. However, the IMF only supported and kept pushing its policies, that

did not work anywhere else in the world. Undoubtedly, the IMF is full of some very talented people. Therefore I do not believe that they are a victim of ignorance in their actions. I have shown that the IMF is frequently preoccupied or blinded with its belief in the free market. Even now, it is still preaching it's 'shock therapy' in Belarus, Ukraine and other developing parts of the world. The capital market and trade liberalisation are generally agreed to be good policies, but in economics it is the timing that matters. The IMF’s insistence on rapid changes is their main mistake. That, I believe, is the consequence of the presence of self-interest in the IMF. Given that IMF policies are drafted behind closed doors, they are not subject to controversy from the majority of its poorer members. That provides great incentives for the financial industry in particular, to manipulate the IMF's decisions. That is the reason a lot of the IMF’s decisions can be surprising, but the worst part of it is that ultimately it is the people of its ‘client’ countries that suffer for something that they have not voluntarily taken part in.

Boris Yeltsin sold out several firms to his allies

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How have Brompton Bikes Achieved their Status as the Largest UK Manufacturer of Bikes?

rompton Bikes was founded in 1976 by Andrew Ritchie, who has guided the company to become the largest bicycle manufacturer in the UK. However, it was only in 2002 when Brompton really got its feet off the ground. They began to re-organise their production line and started to take on more skilled staff, in addition to this, their initial growth occurred against the backdrop of the almost complete collapse of the British bicycle industry. This was due to Raleigh, the most famous volume bike-maker, who began to move to the lower-cost of production Asia, this has meant that the majority of the 3.25 million bikes sold in Britain annually are now made abroad. So, the question is, how have Brompton managed to achieve their growth in market since? Well, Brompton produce a ‘premium product at a premium

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price.’ They make high-end, hand made folding bikes with a steel frame, which is fitted together using brazing, which is an old technique and takes 18 months for each of the 44 brazers to learn how to do. This means they have a highly specialised workforce; therefore the quality of their product is significantly better. This, and the fact that the bikes have the appeal of the ‘Made in London’ tag, where they have to pay the London property premiums (which they’re willing to do, so that they retain the skilled workforce of brazers, which produce the global appeal for their bikes) means that they can start their range of bikes at the expensive price of £785. Last year, Brompton produced 45,000 bikes; by 2021 they are hoping to manufacture 100,000 folding bikes per annum. This is because currently they are expe-

riencing excess demand for their products (the market demand is greater than the market supply of their products) and this demand is looking to increase dramatically over the coming years due to accelerating demand from city dwellers overseas. For example, since 2010, Brompton have grown to sell in 43 export markets. Currently, the company uses the distributor model of selling direct to bike shops which has a lower risk, hence lower profit margin tactic. Previously, the company have also used a long term market expansion strategy, underpinned by their aforementioned constant and obsessive commitment to high quality production standards. However, to keep up with the boom in demand, they also plan on moving to Greenford, West London, doubling the size of their previous plant, as well as setting up

another production plant in New York, one of their largest markets, to achieve more growth. As previously stated, the turn around point for Brompton Bikes, into becoming the largest UK manufacturer of bikes, was in 2002 due to Raleigh. But, in 2008, Brompton started to employ new staff, most notably among them was one William Butler Adams, now the MD of Brompton Bikes. Since the appearance of Adams in the business, their revenue exploded from £1.7 million to £30 million, in 2015, and the company now employs over 230 staff. However, despite the company soaring high, there have been some limits to their growth. Brompton choose not to export to China. This will of course seem foolish at first as China has seen an economic boom over the last 40 years which has meant that it now has the title of the second largest economy in the world, in terms of nominal GDP. Of course Brompton would like to take full advantage of the situation with 55.6% of the population of China living in urban areas, and with an annual increase of urbanisation of 3.05%, meaning that Brompton’s folding bike designed for the use of city folk would thrive in their market. However, considering the price of the cheapest bike in their range is £785, it means that the working class in China aren’t able to afford this premi-

um product, and the middle class will refrain from buying them as cycling to work on a bike is seen as having a lower social status and beneath them. This all means that there isn’t a market in China at the moment. Seeing as Brompton is a largely export focused firm with 20% of their bikes bought in the UK and 80% being shipped abroad, they are currently losing out on what could potentially be in years to come, a country providing the main source of their revenue. What are its plans for expansion of its product in the future? They are planning to introduce electric bikes into their range of bikes, launching it into some European cities in the Summer of 2017. The benefits of this are

430 million people own bicycles in China

They make high-end, hand made folding bikes of course a reduction in carbon dioxide emissions; it is more economical than fuel powered cars and motorcycles. Also, some countries are now offering state financing for electrical vehicles, including the e-bike. This would be very beneficial in cities like Beijing and Hanoi, where there is a lot of congestion as well as harmful emissions. In Hanoi, a typical day will see a swarm of motorbikes throughout the city. In Vietnam, there are approximately 39 million motorbikes throughout the country, excluding the very young and old, this means that there is nearly a motorbike for every single resident! However, as previously stated, there is a large problem of social positioning within these countries, the rich like to show their wealth through extravagant and expensive assets, and a piece of transport such as an e-bike will be too large a purchase for a worker; hence why Brompton are only releasing their new product in some European countries. Griffenomics | 19

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What are the Benefits of Sweatshops to those in Developing Countries? S weatshops are factories characterised by keeping their workers on low wages, working long hours and under poor conditions. Sweatshops violate labour laws, and due to statistics such as the fact an estimated 250 million 5-14 year olds work in sweatshops in developing countries, the international backlash against their existence is understandable. Sweatshops are one of the darker realities of our global economy that although we might all hope come to an end, are a necessary part of many countries development. According to the Lewis model, economic development is explained by the sectoral shift from the self employment in subsistence farming, towards secondary manufacturing jobs. This is supposed to raise the GDP of a country, as the value added of manufactured goods is higher than primary goods. Lewis estimated that a 30% premium over agricultural wages was required to tempt people into secondary labour. However, in some countries, such as Ethiopia, which was studied by Christopher Blattman of the University of Chicago and Stefan Dercon of Oxford University, wages in low quality industrial jobs are little higher than informal agricultural jobs. It may not seem obvious that this should be good for Ethiopian people, and for some it

Many Cambodian woman sew in factories for 50 cent an hour

will not have been. Yet, there is a bigger picture that has brought benefits. Firstly, sweatshops can offer stable incomes that need not be long term. This is valuable in countries lacking welfare states and reliant on informal primary sectors, susceptible to market shocks. As a result, these jobs can provide a safety net in case of both natural and economic disaster that Ethiopia, and other developing countries, cannot yet afford to provide. It was found this is especially important for women, according to a study carried out by the University of Washington and Yale. Girls living near sweatshops are less likely to marry at young ages, more likely to enroll in primary education, and to delay child birth. This allows them to be more economically valuable, and encourage investment in their children due to a wealth effect. Since 1991, manufacturing and trade have risen along with population, and agriculture has fallen from 70% of GDP to 45%. The value added of the Ethiopian economy has risen 5 times in this same time. This rising GDP contributes to rapidly growing savings, both nationally and personally. In Honduras, where almost half the working population lives on less than $2 per day, the average sweatshop pays $13.10 per day. For many Hondurans this is their first opportunity to

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establish personal savings that can be spent on improving their standards of living. China, a country that has experienced economic growth in a manner never seen before would not have been able to reach its status as the the second largest economy in the world (expected to overtake the US to reach #1 by 2018). China has brought more than 500 million people out of extreme poverty, opening two million factories, many of which are deemed sweatshops. Developed nations, including ours, underwent a similar process. However, it could be argued that today, with much greater wealth and knowledge globally it should be possible for there to be a better way that developing countries reach developed status. Why is it then, that some economic thinkers still find sweatshops to be the solution? Another common alternative suggestion to the problem of global poverty is aid. Aid, even given in large quantities, is linked to the stagnation, or even contraction of small economies. Aid can mask the underlying issues of an economy inadequate for growth, discouraging the development of stable institutions and encouraging corrupt leaders to fight to stay at the receiving end 22 | Summer Edition | Issue 4

of huge payments. Foreign direct investment on the scale given by transnational corporations is less likely to be lost to corruption that flows straight out of the country. The amounts invested by sweatshop using transnationals such as Nike are significant in low income countries, and create multiplier effects incomparable to those of aid. This is called an “agglomeration economy”, not only creating more jobs in surrounding businesses, but encouraging further FDI in an area. Loans, another option to help a country developed, can leave a burden of responsibility on people who both do not know how to use the loan effectively, and not have the financial means to deal with it going badly. Large corporations, on the other hand, are able to deal with losses much more effectively. The final advantage of sweatshops over aid and loans is the fact that with the FDI they bring, they are also likely to bring technological leapfrog. This investment can often be widespread, affecting not only factory workers but whole countries that gain access to capital they could not develop or create themselves, such as the import of renewable energy technology to power growing secondary industry. This investment would not

Girls living near sweatshops are less likely to marry at young ages, more likely to enroll in primary education, and to delay child birth take place if it were not for the low cost of sweatshop labour, that acts as an initial advantage compared to other nations. If we were to stop investment in sweatshops, it is likely the pace of development across the globe would slow significantly. The levels of investment by transnationals are enough to change millions of lives both directly and indirectly, although their motivation might be solely to take advantage of cheap labour. Over time, sweatshops will improve and development will bring better quality jobs. Alternatives are often ineffective, and given to those without the knowhow or motivation to encourage sustainable development. Jeffrey Sachs of Columbia University stated, in relation to progress on the millennium development goals, “My concern is not that there are too many sweatshops but that there are too few”. Our spending in sweatshops is not without concern, however, it can be considered as helping fast-track countries through a necessary stage in their development.

QE Or Not QE?

efore the financial crisis of 2007-2008, conventional monetary policy appeared a secure way of controlling inflation and the wider economy. Its impact was both reliable and predictable, central banks set overnight short term interest rates which would change the willingness of banks to lend, firms to invest or individuals to consume. Thus these short term interest rates influenced the level of output, employment and therefore inflation. The financial crisis and the following worst global recession since the 1930’s however posed a number of challenges to conventional monetary policy and central banks. Its effectiveness to stimulate the economy into a sustained recovery was limited by the fact that short term nominal interest rates could not in practice go below zero, also known as the “Zero Lower Bound,” and therefore the usually reliable relationship between official interest rates and inflation broke down. The challenge of aiding the economy into recovery turned central banks towards unconventional monetary policy. Quantitative Easing, first implemented in Japan in the early 2000’s, involves the central bank purchasing government securities from commercial banks and therefore boosting the levels of cash reserves that banks hold. The hope was that these cash reserves would spill over into lending in the broader economy, driving asset prices upwards and stimulating the economy. This essay will explain how Quantitative

Easing differs from conventional monetary policy and how its efficacy changes once short term interest rates are close to or at zero The central bank in the United States of America (The Federal Reserve) defines monetary policy as “the actions it undertakes to influence the availability and cost of money and credit to promote the goals mandated by Congress, a stable price level and maximum sustainable employment.” The exact aims of monetary policy differ between countries. For example China sets a growth target that monetary policy aims to achieve, currently at 6.5-7% whereas the UK sets an inflationary target of 2%, however every country broadly aims to use monetary policy to manage aggregate demand. Using so called Taylor rules, whereby an increase in inflation by 1% should prompt central banks to raise their interest rates by more than 1% to “cool the economy,” the central bank can provide funds to commercial banks at a short term interest rate called the base rate. This short term rate influences other rates in the economy. The relationship however is far from being one to one due to the fact that market interest rates are not only affected by the current short term rates, but also by what the central bank is anticipated to do in the future. Anthony M. Santome-

ro, a former president of the Federal Reserve, therefore stressed in his speech “Great Expectations: The Role of Beliefs in Economics and Monetary Policy” the importance of central banks being transparent in explaining what its policy will be in order to keep market interest rates fairly stable. A lower market interest rate would increase interest-sensitive spending. Interest sensitive spending includes physical investment, residential investment and consumer durables spending by households. The reason for this is that as interest rates fall, the repayment on a loan also falls and thus taking out loans is more affordable leading to more people borrowing from banks. Conventional monetary policy was effective, and until financial turmoil began in 2007, most economists agreed that a stable business cycle could be maintained though subtle changes to interest rates via transparent open market operations. However monetary policy faced two key challenges. First, it could not prevent asset market bubbles form occurring- most notably the price bubble in the housing market which was a significant factor in causing the financial crisis. Second, its inability to “mop up” in the aftermath of the financial crisis and stimulate the economy into recovery. Between September 18, Griffenomics | 23

Quantitative Easing, first implemented in Japan in the early 2000â&#x20AC;&#x2122;s, involves the central bank purchasing government securities from commercial banks and therefore boosting the levels of cash reserves that banks hold 2007 and December 16, 2008 the federal funds target was reduced from 5.25% to between 0% and 0.25% and indeed the central banks in many other developed countries slashed their interest rates as well. Even so, growth remained elusive. Pushing rates below zero, although technically possible, would not have helped either because it would have merely encouraged savers to take their money out of banks and hold it as cash on which the rate of return, at zero, would have been higher. Therefore the effectiveness of conventional monetary policy was limited by the zero lower bound. Central banks faced frightening collapse in output and soaring unemployment pushing them to take increasingly unconventional and unprecedented steps to restore financial stability. Quantitative Easing was first implemented by Japan as it dealt with the bursting of the real estate bubble and deflationary pressures

Supply Price P2

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that followed in the 1990â&#x20AC;&#x2122;s. The Bank of Japan began a series of experiments involving unconventional monetary tools and although its performance was considered disappointing (it failed to stimulate aggregate demand sufficiently to bring Japan out of deflation), it did mean that other central banks were not entirely unprepared for the challenge. In order to undertake Quantitative Easing, central banks first electronically create money for themselves. They then use this money to purchase previously issued government bonds from financial institutions. As shown in the diagram to the left the demand for these previously issued government bonds shift outwards from D1 to D2. Supply of these bonds is completely inelastic as the price of the bond will have no effect on the quantity issued by the government. The outward shift in demand results in price rising from P1 to P2. From the equation yield=coupon/ price where coupon is the amount you receive each year from your bonds, we know that yield and price are inversely proportional. As such, the price rising from P1 to P2 produces a reduction in the yield of the bond. The fall in yield of these long term previously issued government bonds means the return on these assets falls. This encourages the sellers of assets to use the money they receive from the Bank to switch into other financial assets like company shares and bonds. As the quantity demanded of these other assets starts to increase, their prices rise, which pushes down yields generally. The effect of lower yields is to decrease long term interest rates or

to reduce the cost of borrowing for businesses and households which in turn results in higher consumer spending and more investment. Furthermore those providing the previously issued government bonds to the central bank (usually commercial banks) have higher levels of cash reserves. As a result they have more funds which they can use to finance lending to households and businesses which again results in a higher level of spending and investment. The rule of thumb is that $600 billion in purchases brings down long-run rates by 0.150.2%. The lower rates are estimated to have raised real output in Britain and America by 2-3% higher than they would have been without Quantitative Easing. Both conventional monetary policy and Quantitative Easing aim to control interest rates in order to manage aggregate demand in the economy. They differ, however, by which interest rates they aim to control. Conventional monetary policy involves purchasing shortterm securities to tweak short-term interest rates whereas Quantitative Easing requires the central bank purchasing long-term maturity bonds to affect long-term interest

rates. The difference is subtle, but the reduction in longer-term interest rates is likely to have more of an effect when stimulating the economy as it gives businesses and consumers more confidence that the rate of return on a loan will stay low for its whole duration – thus investment and consumption will increase. Moreover, Quantitative Easing, unlike conventional monetary policy, requires the electronic creation of money in order to increase the money supply. This is important, as not only does it mean that the central banks can purchase a much higher quantity of long term maturity bonds and therefore have a greater impact on bond yields and interest rates, but also it has another effect of increasing the reserves of the provider of the bonds to the central bank. These providers are often commercial banks and with higher cash reserves they can finance more lending, again stimulating the economy. The risk of this is that the central bank may “over shoot” the amount of money it injects into the economy resulting in a greater money supply for the same quantity of goods leading to inflation or even hyperinflation. Perhaps the biggest difference how-

ever is the situation in which either policy is used. Since the 1970’s when conventional monetary policy was formed separately from fiscal policy, it has been used effectively in times of relative financial stability. It was based on substantial evidence on how short-term interest rates affect the economy. The setting of interest rates could be done with the knowledge and awareness of what interest rate changes were necessary to deliver an appropriate response. Quantitative Easing on the other hand was only created as a practical response to the extreme financial circumstances. Due to its novelty economists still lack clear knowledge about how it affects the economy in the long run and it has been rarely used, so historical evidence of its impact is very limited. This lack of knowledge carries a risk, and central banks have had to be cautious when undergoing Quantitative Easing in case of “over shooting” and causing inflation. There is a lot of debate as to whether Quantitative Easing actually works. Studies have generally found that it does indeed decrease long term interest rates however the developed countries’ economies still don’t seem to have fully recovered. GDP growth in the UK is still below its pre-crisis peaks and 10 million fewer Americans are working than the 2007 statistics expected. One reason for this is that QE’s efficacy diminishes once short term interest rates are at the zero lower bound. Richard Murphey, an economist who runs Tax Research UK, argues that commercial banks do have higher levels of cash reserves however the low interest rates mean that they are less willing to lend that money out. As a result there is a lack of available credit to small businesses and they are struggling to grow. The extra cash reserves have not, as hoped, spilled out into the general economy and QE is therefore having less of a stimulating effect as the central bank thought it would. Most economists agree that it is the unwillingness of banks to lend which is preventing small business-

The extra cash reserves have not, as hoped, spilled out into the general economy and QE is therefore having less of a stimulating effect as the central bank thought it would es to grow and GDP growth to rise substantially, but it is possible that the unwillingness is not caused by low interest rates but rather strict requirements and regulations. For example, commercial banks have to meet ICB requirements, Basal III requirements and liquidity requirements. They are trying to rebuild balance sheets without restricting equity and the easiest way to do this is to restrict lending. It is possible that low short-term interest rates do decrease the efficacy of Quantitative Easing however it is very difficult to isolate the impact that it has due to other factors also playing a part. QE's effects on the broader economy are down to debate because it is not possible to know with any certainty how economic conditions would have evolved without the policy in place. The fact that banks are less willing to lend out money once short-term interest fall close to zero does mean that QE’s efficacy is limited by the zero lower bound however we do need to consider other factors that may be affecting banks’ willingness to lend. Time will be the judge of how successful Quantitative Easing schemes are, but central bankers need to work on improving their frameworks so that the capabilities of unconventional monetary policy do not need to be relied upon so heavily in the future. Griffenomics | 25