Trinity School Economic Review 2020 by trinityschoolcroydon

Issue 2

Contents Letter From the Editors

Seb Crabtree - High-frequency trading: Where milliseconds mean millions

Joe D'Mello - Gambling: A benefit or detriment to the economy?

Anand Clarke - How large a role does information play in reducing the market failure caused by smoking in the UK?

Nicholas Challier - Car Tech. Hydrogen fuel vs Electric power: An uncertain future

Amar Pattani - Car Tech. How will the ban of fossil fuel cars by 2030 impact the UK economy?

Lara Huddart - Why the vegan diet isn’t always good and green

Alex Bailey - Joe Biden and the US Domestic Economy

Luca Bodereau - Joe Biden and Trade

Bilal Ismail - Joe Biden and the economic impact of the legalisation of Cannabis in the USA

Introduction to our guests

Guest, Dr Eamonn Butler – Markets – Free and Fair?

Guest, Mr Miles Celic Financial Services Outlook, 2021

Lev Titov - Does the UK need a National Investment Bank?

Tyler Yanagida - Is it time for a UK Sovereign Wealth Fund?

Thabo Witter - Understanding the UK Economy...of the 18th century

Jaihan Khurll - Is India on track to become the next China?

John Brandi - How many gelatos will you be able to afford next year?

Jay Evemy - Can a fake currency save Venezuela from hyperinflation?

Caitlin Murray - The economic viability of Crossrail and the consequences of the Coronavirus pandemic on the project.

Anirudha Vikram • Vikram Sengupta - What is the true financial impact of COVID-19 on English football and could it be helped by players taking wage cuts?

The Trinity Economic Review team, and Trinity School, assert no claim over the photographs, diagrams or data, used in this publication.

Trinity Economic Review 2020

When I say that I do Economics, generally the response is, ”Why do you do a social science rather than a conventional one?” I invite and challenge those who have expressed such an opinion to read this years issue of the “Trinity Economic Review,” and see for themselves that Economics is a diverse, unique and interesting subject. The selection of articles, all written by Lower Sixth Students and two special guests, in this magazine certainly prove so. Many topics are covered, from Veganism to Football and I hope you shall find something of interest. We have included all the articles that were entered and I warmly thank all the students that have written. I want to extend my gratifications to all the Economics teachers and, especially Mr Doepel, who has helped greatly with organising this magazine. Without a doubt, our two guests, Dr Eamonn Butler and Mr Miles Celic, deserve a mention. I am much obliged that you have taken time to write to this student magazine. Going forward, I wish the best of luck to all our readers and particularly to those that are pursuing their economic endeavours. Enjoy the magazine. Co-Editor, Lev Titov

High-frequency trading: Where milliseconds mean millions Seb Crabtree We are currently in a computer arms race whether it be bitcoin mining or data analysis, everyone wants the fastest and most efficient computers and this is no different when it comes to high frequency trading and their goal to dominate financial markets. High-frequency trading is the use of extremely powerful computers combined with complex algorithms being used to analyse, predict, and therefore execute orders on stock exchanges and other markets, with the intent of making a few pennies profit per trade. In this industry, time is everything, where a mere few milliseconds can mean the difference between one firm making millions while the other being barely profitable. All trading occurs on large sets of servers hosted in a single building, called exchanges, and as a result it is in the high-frequency trading firms interest to be as close as possible, so their buy and sell orders have to travel the least distance possible, thus saving time and making more money. This is the primary focus of the book â&#x20AC;&#x153;Flash Boysâ&#x20AC;? in which a group of Wall Street traders commission a $300 million project to construct an 827-mile cable all the way from New Jersey to the Chicago Mercantile exchange (one of the largest HFT exchanges in the world), whether it be through lakes or mountains, all in order to eliminate 3 milliseconds worth of latency. However, with billions worth of profit to be made each year, many can see why these firms go to such great lengths just to decrease the distance light must travel within a fibre optic cable.

reductions in bid-ask spreads, it is considered to be highly controversial with regards to its impact on market quality, with many arguing that HFT negatively impacts financial markets, whether it be through the eviction of retail traders, ghost liquidity or flash crashes. Flash crashes occur as a result of multiple trading algorithms reacting to a change in market conditions, causing a repetitive cycle of selling a large quantity of an asset to reduce losses. This was observed during May 6th 2010, where the Dow Jones Industrial average crashed more than 10% in under twenty minutes, resulting in trillions of dollars worth of equity being wiped out. This specific crash was attributed to the spoofing (the act of placing an order to buy or sell an asset to artificially manipulate market behaviour) of S&P Future contracts by Navinder Sarao, who pled guilty to manipulating the stock market in 2015. This leads to another main criticism of HFT and the fact that it is widely open to manipulation such as the case above, however it is often very hard to prove due to the sheer amount of data processing and orders filled every second. this means that gaining any proof is extremely hard, thus resulting in an extremely low number of prosecutions of market manipulation within the sector. Overall, the world of high-frequency trading is largely hidden from the public eye and its affects on market quality are relatively debated, however one thing we all know is that firms are willing to spend millions to save milliseconds.

However, while this sector can bring lots of profit to firms, alongside its benefits to financial markets such as improved market liquidity or reductions in bid-ask spreads, it is considered to be highly controversial with regards to its impact on market quality, with many arguing

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Gambling: A benefit or detriment to the economy? Joe D'Mello Historically, gambling has been a controversial topic, but remains a prominent feature of our modern day society. The gambling market was estimated to be worth around US$59 billion in 2019. To put this into perspective, Africa import a total of US$50 billion worth of food each year.

individuals can have in casinos. However, this may be challenging to implement as the level of loss an individual can withstand is relative to their wealth. It may not be possible to obtain such information to set the cap, while a universal cap will result in significant income losses for the casinos.

While gambling can become an addictive and harmful hobby, land-based casinos are extremely advantageous for the local economy. A few notable venues across the globe are Las Vegas, Monte Carlo, and Atlantic City. Each of these locations generate income via tourism, thus enhancing the local economy. The people that visit these locations to gamble spend in the casino, eat in local restaurants and stay in local hotels, to name a few activities. This increases the local GDP, as the mass tourism ensures high consumption in the area. In turn, this encourages local businesses and firms to increase supply by investment in order to maximise their profits. In addition, the size of the industry creates multiple employment opportunities in the local economy, reducing local unemployment.

According to research, the average British person spends ÂŁ2.60 on gambling per week and over ÂŁ135.20 per year (Boyle, 2020). For the small proportion of people with severe gambling addictions, the consequences of their actions may have an impact on the rest of society. If these people become bankrupt, it may result in others paying higher taxes to provide benefits for those who have lost their money though gambling. Furthermore, if these casinos develop their own bars and restaurants inside the venue, this may discourage consumers from using other hospitality services in the area, causing them to lose revenue. Although all of this money ends up circulating in the economy, this could result in unemployment and possibly forcing businesses to shut down.

The gambling market has expanded across the internet with thousands of online gambling sites, accessible to all over the age of 21. The benefit of these sites is that they are easily accessible from your home, therefore generating greater revenues. However, gambling is associated with mental health issues stemming from its addictiveness. This is enhanced by online gambling websites, especially considering the recent Covid-19 lockdown when many people had been furloughed and had few opportunities to leave the house. Surprisingly, governments appears to be easing the restrictions on these websites. This is likely due to the significant tax revenues that they could receive from these sites, but this benefit must be balanced against the cost to the welfare of society. One potential way to address these issues could be to impose a cap on the losses

Covid-19, has caused many casinos to close, resulting in many job losses and hence a higher rate of unemployment. Consequently, more and more people are using online gambling sites, suggesting that these job losses are likely to be long-term. It is uncertain whether people will transition back to physical casinos, but if they do not, key areas that rely heavily on the industry such as Atlantic City may see a decline in the local economy.

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How large a role does information play in reducing the market failure caused by smoking in the UK? Anand Clarke Although the percentage of people smoking in the UK has fallen in the past few decades, there is still quite a large market failure when it comes to the usage of tobacco products, and it is up to economic agents such as the government to intervene. However, should more awareness surrounding smoking be raised or are there other ways in which the problem can be solved more efficiently? What is Market Failure? Before attempting to answer the question, it is important to know what actually needs to be solved. A market failure occurs when resources are inefficiently allocated. In this case, market prices are misleading as they do not reflect the negative externalities of consumption of cigarettes. For example, smoking has a greater benefit for firms than it does for society, resulting in allocative inefficiency. Why is there a market failure around tobacco? There are indeed many reasons for the misallocation of resources when it comes to tobacco products. One reason for this can be attributed to their harmful carcinogens, which cause long-term illnesses such as heart disease, emphysema and cancer. This, in turn, means that more time and money is spent in treatment for these people, which is a poor use of resources. Another impact that is less recognised but significant is the environmental damage caused through tobacco production. For example, deforestation to clear land for growing tobacco can have severe consequences, such as a loss in biodiversity and an increase in atmospheric carbon dioxide, which are negative externalities of production

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and so a cause of market failure. Nevertheless, many people still choose to smoke today, jeopardising both themselves and society as a whole. One reason for this could be due to the large information failure surrounding tobacco (where buyers and sellers don’t have enough information to make a rational decision). Many smokers or people who start smoking may be unaware of the effect it can have on themselves and other people. On the other hand, suppliers know exactly what negative impacts their products can have on society, yet choose to not disclose it in pursuit of profit. As a result, there is asymmetric information due to sellers being in possession of more information than buyers. An example of this can be seen in the German ‘Be Marlboro’ cigarette campaign of 2011, which was founded to violate advertising law by encouraging young children to smoke. Marlboro knew the effects of smoking, which is especially damaging at an early age, and yet they chose to advertise in this manner in order to attract new, younger consumers. As such, they attempted to increase information failure on the buyer’s part, which would have led to a higher number of young smokers.

How large a role does information play in reducing the market failure caused by smoking in the UK? What can be done about it? One solution may be to continue increasing information about the impact of smoking, in order to further emphasise the adverse effects it can have on people. This may be the most effective way since it addresses the information failure for the consumers. However, for the UK this proposal may not be as significant, because while in previous years there may have been a very significant information failure, in recent times there have been large quantities of information surrounding cigarettes. This is due to schools educating children on smoking, charities such as the British Lung Foundation spreading awareness to people or even the government making it clear that smoking is harmful, displayed by the fact that they have intervened many times to help reduce the number of smokers. In addition, data from the ONS shows that the proportion of smokers in the UK has fallen over the years, from 20.2% to 14.1% of the population. As a result, information is more symmetric than it has ever been in the past, and information about tobacco is becoming increasingly accessible through the internet, meaning that information no longer

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plays the role that it once did in curbing the consumption of tobacco in the UK. Therefore, concentration on other policies may be more effective, such as further increasing the taxes on all tobacco products, as this would raise prices and so reduce demand. However, it is important to realise that smoking is more common in lower income households, meaning that a regressive tax would impact these people the most. In the long term, the benefits to health would be greater as less people would smoke, and the government could even subsidise treatment for tobacco addicts. As well as this, the minimum age to buy cigarettes could be increased, reducing the long-lasting effects of smoking from an early age. These solutions would hopefully more accurately reflect the negative impact smoking has on society, leading to a reduction in the market failure due to tobacco consumption.

Car Tech. Hydrogen fuel vs Electric power: An uncertain future Nicholas Challier One of the most significant challenges the world currently faces, which isn’t related to medicine or politics, is that of the future of transportation. The past 200 years of human activity have scarred the globe, as firstly industrial revolutions and then pollution from cars and planes have caused the Earth’s temperature to increase to a point of (almost) no return; politicians and economists alike have all realised that environmental sustainability is an important macroeconomic objective. Therefore, the key to future advancements in the production and use of vehicles is that of zero emissions, with the main alternatives being powered by either electricity or hydrogen. As we continue to move away from Internal Combustion Engines (ICEs), the electric vehicle market has become increasingly popular, with serious governmental backing and immense private sector funding propelling the production of such vehicles to the forefront of manufacturing and research. The emergence of companies such as Tesla, controlled by Elon Musk (arguably the single most influential man in this market), has prompted the market for electric cars to multiply threefold – and Tesla’s stock price increasing by a factor of ten - in the last year alone. Furthermore, Tesla has built around 19,437 charging points across the globe, laying a foundation for future long-distance auto travel (Tesla Q3 2020 Update, 2020). Currently, the supply (and demand) for electric cars is ever increasing, as traditional ICE car manufacturers have entered the electric vehicle market, due to both the profit incentive and the subsidies governments have started to place on electric cars. However, a potential downside of the introduction of electric cars is the loss of fuel tax, a significant source of government revenue, which currently accounts for around £28 billion per annum in the UK alone (Adam and Stroud, 2020).

backing, it is also due to the higher price of hydrogen-fuelled cars, which immediately decreases their demand. Nevertheless, the hydrogen fuel cell has gained a few big-name allies in Toyota and Hyundai; these Japanese and South Korean companies having respectively released the Toyota Mirai and the Hyundai Nexo. In fact, the Hyundai Nexo recently proved its worth against the Tesla Model S. Both cars were tested in freezing temperatures (-11˚C) on a one-way 356km track, which revealed that the 450km range of the tesla shrunk to 275km uphill and 328km downhill, whereas the Hyundai Nexo (while already having a larger range at 666km) managed a 580km journey along this track with a couple of detours and minimal setbacks (FuelCellsWorks, 2019). So, what is the best fuel for the future? Arguably, hydrogen-fuel cells are the more viable sources of long-distance travel, and for planes and aviation it could easily be the way of the future. In terms of the commercial market of transportation, electric vehicles (EVs) will dominate in the near and possibly far future if the price of hydrogen fuel cell cars doesn’t decrease, and the number of refuelling points for hydrogen fuel cell cars doesn’t increase (ceteris paribus). While this all sounds perfectly logical, with zero emissions being a huge step forward, the production processes related to either electric or hydrogen fuel cell cars aren’t without their own issues; the ecological (and ethical) impact of large-scale mining of cobalt and other materials for the batteries which power EVs and the multiple processes involved in producing hydrogen as a fuel both pose sustainability concerns. However, if these issues can be overcome, the future of travel is not only one of innovation and excitement, but also of environmental and economic sustainability.

Unlike electric vehicles, hydrogen-fuelled cars have

generally flown under the radar, lacking the publicity that electric vehicles have received. While this is partially due to lack of governmental

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Car Tech. How will the ban of fossil fuel cars by 2030 impact the UK economy? Amar Pattani The UK government has formally announced its much anticipated plan to ban the sale of combustion engine cars by the year 2030, as part of a broader ‘ten point plan’ for a ‘green industrial revolution’, in efforts to tackle climate change. Although this is a very significant step in trying to tackle the challenging task of combating climate change, this drastic change will also have a significant impact on the UK economy. The previous ban was to take place from 2040 but has since been reduced to 2035 and then 2030 in order for the UK government to meet climate change targets. A report carried out by Cambridge Econometrics, supported by Element Energy on behalf of Greenpeace UK, claimed that moving the ban forward to 2030 could create 32,000 new jobs and increase GDP by 0.2% or £4.2 billion pounds within the same year. The findings of the report should ease any fears that an earlier phase out of the fossil fuel cars would have an overall negative impact on jobs or the economy. The UK government will also invest large sums of money in order to end the sale of new petrol and diesel cars and vans in 2030. Johnson wrote that the government will "invest more than £2.8 billion in electric vehicles, lacing the land with charging points and creating long-lasting batteries in UK giga factories. The £2.8bn investment includes £1.3bn investment to accelerate the roll-out of EV charging points “in homes, streets and on motorways across England”.

1,384,601. That represents a 168.7% year-onyear increase, however this figure will increase nearer to 2030. There will also be a likely soar in used car sales despite the petrol and diesel car ban as motorists are likely to separately avoid switching to electric cars. Some individuals will either be unable to afford a new car or simply prefer a petrol or diesel car to an electric vehicle and those on lower incomes will be impacted the most. However, the government have announced a £582 million-pound fund which would give buyers a plug-in grant of up to £3000. Most car manufacturers and companies, if not already, will start to switch to developing and manufacturing more electric cars, year-todate, new diesel car sales have fallen by 56.3% and petrol car sales have fallen by 40.2%, according to the UK’s car registration reporting body SMMT. Furthermore, to reach 100% EV sales by 2030 (which. will also include plug-in hybrids until 2035) will mean 2 million electric cars will need to be supplied to the UK a year from the beginning of the next decade. This would mean that there would be a surge in the number of cars imported from foreign countries as countries such as the USA have leading electric car manufacturers such as TESLA. Although the ban is a decade away it is clear to see that although people are sceptical about the transition, the phasing out of fossil fuel cars is a positive step into the future of sustainable driving poverty

The ban has already had positive impacts on the electric car market with a total of 75,946 new electric cars having been sold in the UK so far in 2020, accounting for around 5.5% of the total of

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Why the vegan diet isnâ&#x20AC;&#x2122;t always good and green Lara Huddart In the past few years there has been a significant increase in those opting into a vegan or vegetarian diet, and those who choose this plant diet have tunnel vision into just seeing the positives for the environment and this new way of eating, as an answer to all climate change problems. However, when it comes down to it, the impact it has on farming cannot be described as positive, and you can even go as far as saying that the farming industry is no doubt suffering. There is a clear feeling among British livestock farmers that their way of life and their business are being challenged as veganism groups continually obtain growing support. Even though vegans only account for 1% of the population, their rank has quadrupled in the last five years and their influence on others has likewise increased. The farmers are concerned as there is a clear growing trend in people's worries about global warming and that they believe having this plant-based diet solves all the problems. Many now view Britainâ&#x20AC;&#x2122;s sheep and cows as just a harmful source of emissions, passing over previous thoughts that they were an important part of nature and the economy. British people can definitely be seen to be eating less meat, eggs and dairy per week, compared to diets in the 1970s, according to government statistics. This is adding fuel to the fire of why farmers are now struggling more economically. The demand for their produce is therefore decreasing, and consequently their income is too. This leaves many livestock farmers unable to cover their costs of production and now rely heavily on government subsides.

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As well as this, further stress is provided due to the uncertainty of Brexit and the government's consequent willingness to hand out subsidies. Many farmers in turn will be made redundant, adding to the trend of increasing unemployment rates. The decrease in demand that can be seen has further impact on the price of products. Beef prices declining further leave farmers without a stable source of income, and the same can be said about red meat, milk and eggs. A view that is now trying to be put across by farmers is that there is another way to save the world and solely cutting off meat is not always the answer. It is true that intensively farmed meat and dairy are not the best for the environment, however the same can be said about transportation of greens and the overworked fields. Cutting out meat is not the single biggest thing an individual can do to try and reduce their personal greenhouse gas emissions. Despite both extreme views of farmers and vegans, the solution lies in between both. It is unreasonable to boycott farmers completely as this would not do the economy any favours, however it can be recognised that farming does directly contribute to climate change. Farmers now are trying to contribute towards the fight of climate change and have the voluntary goal for their farms to reach net zero carbon emissions by 2040. These are steps that must be taken in order for farms to still be competitive and maintain their source of income, otherwise a fight between farmers and vegans would break out which wouldnâ&#x20AC;&#x2122;t benefit either side.

Joe Biden and the US Domestic Economy Alex Bailey At this stage in the US election, Joe Biden has succeeded the number of electoral votes to win the presidency. However, the races for the US Senate and the House are still undecided. With Trump recently agreeing to cooperate in the transition of power, Biden can now claim the presidency with limited resistance. The obvious difference in their political ideologies will be the major factor affecting the difference in fiscal and spending policies. The first thing to realise, is what Joe Biden plans to impose once he becomes president in January – his manifesto includes such things as: increasing clean energy spending, a rise in corporate taxes and income tax specifically targeting the richer households, and more spending on public services and welfare. This is relatively commendable to middle class America – the class in which the democratic party appeal to the most – and many economic analysts agree that his policies will provoke a higher rate of economic growth. The COVID-19 pandemic has caused economic downfall for not only America, but the entire world, putting many countries in a deep recession. The US especially, has been hit hard due to Trump’s lackadaisical attitude surrounding the virus, super-spreading it around the US. This has caused extended lockdowns in many places, edging businesses over the line of bankruptcy, which has ultimately led to substantial increase in unemployment. A Biden presidency would mean government intervention during the pandemic; particularly, stimulus spending to reduce the economic impact of businesses having to close down. Joe Biden has pledged to spend an additional $4 trillion during his term, $2.5 trillion of which per year would be

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borrowed. The proportion of debt to GDP, would be 119% under Biden, as opposed to the 115% it would have been under Trump. Although this additional government spending would lead to an increase in borrowing and hence debt, it would also increase the recovery speed from the COVID recession, returning the economy to pre-pandemic levels sooner. Oxford Economics have projected that, by the end of 2021, economic growth would be at 5%, rather than the 2% it would have been under Trump; as well as unemployment decreasing as a result of this. Whilst Joe Biden’s intervention and stimulus policies would result in the US recovering from the recession sooner, Joe Biden’s plans to regulate businesses more (with raising the minimum wage, increasing corporate tax and placing more restrictions around environmental damage) have the potential to increase longtern economic growth, however it could also incite businesses to relocate outside the US for a higher profit margin. Biden’s policies may prove to have a long-term negative impact, alternatively they could help long-term economic growth, and provide more welfare to those who need it most during these tough times.

Joe Biden and Trade Luca Bodereau Joe Biden’s election has come as a relief for many across the world, signaling the end of the divisiveness and destructiveness of the reign of Donald Trump. A Joe Biden White House will strive to undo the damage done by the previous administration and attempt to strengthen the US’ trade position. The change of tone from Trump’s to Biden’s trade policy is clear; Biden will be putting the US back on the world stage, looking to build back fractured relationships as well as create new ones, which he expressed distinctly, saying “I'm not looking for punitive trade. The idea that we are poking our finger in the eyes of our friends and embracing autocrats makes no sense to me.” The list of fractured relationships is a long one, with the very first being with the member nations of the Trans Pacific Partnership (TPP). This was a trade agreement between 12 Pacific Rim countries that took seven years to negotiate and was signed by then-President, Barack Obama in his second term. Its goals were to boost exports, remove tariffs and non-tariff barriers and open access to more markets, but it only took President Trump three days in office to sign an executive order, pulling the US out of the partnership. Since then, a new trade deal was formed between South-East Asian and Pacific nations, known as the Regional Comprehensive Economic Partnership (RCEP), which is the largest trade deal in the world as it covers nearly a third of the world’s economy and population. Both the TPP and the RCEP are large and impactful free trade agreements, however Biden’s approach will be shaped by how he can deal with China, which is a part of the RCEP, but not the TPP. Biden has made it clear that he will be tough on China, as he will not turn a blind eye to the human rights abuses of the Uighur Muslims, the way the Trump White House has. He will also be determined to make sure the

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US will be in the lead in the technological race to 5G, which is likely to define the near technological future. The push back of Biden’s US against China will likely be felt in the form of tariffs and further trade regulations, but he will make sure to tread carefully to avoid starting another trade war, which would likely only result in damage to the US economy and be ineffective in establishing authority over China. Another important sector in which Biden will seek to put the US ahead of China in is Climate Change and renewable energy. The USA’s June 2017 withdrawal from the Paris agreement cast serious doubt over America’s commitment to combating climate change but Joe Biden will look to rectify this situation by firstly, immediately rejoining the Paris accord but more significantly, by rolling out a domestic $2trillion plan. This domestic plan will put the U.S. on a path to zero carbon pollution from the electricity sector by 2035 and net-zero emissions by 2050, which is a globally unprecedented investment for tackling climate change. This plan being successfully rolled out would put the US on the frontier of era-defining technological change, if they fully committed to transitioning from fossil fuels to clean energy. This would put the US in a very advantageous trade position in the future, but the question is if the country will have the patience to support such a long-term spending plan, the benefits of which may not necessarily be demonstrated by economic growth.

Joe Biden and the economic impact of the legalisation of Cannabis in the USA Bilal Ismail Cannabis, also known as marijuana, is a psychoactive drug, greenish-grey in colour and a mixture of dried flowers mostly comprised from ‘Cannabis sativa’. When it comes to illegal drugs, cannabis is far and clear as the most commonly used drug – followed by cocaine and ecstasy. But why is this important? Amongst the other important and interesting news in the 2020 US Presidential election, there were several important decisions made at the polls as well. Most notably, four states – Arizona, New Jersey, South Dakota and Montana followed the decision of Colorado and Washington’s decision to make marijuana consumption for recreational purposes legal! This has the ability to contribute strongly to a growing economy and will unveil the economic advantages in the legalisation of Cannabis! One of the more obvious economic impact would be the sharp rise in tax revenue. It was recorded that the colossal sales of marijuana in Colorado and Washington over the past several years have actually led to revealingly high tax revenues. In 2019, Colorado collected almost $340million of revenue from the taxes and fees from medical and recreational use of marijuana. The staggering value of sales of marijuana in the USA, at $12.2billion in 2019 gives an insight into the enormous possibility and impact that marijuana is able to have on the economy. This value is only expected to rise to $31.1billion in the next several years according to compelling reports by BDS analytics. The legalisation of marijuana showcases mouth-watering possibilities with federally legal marijuana offering the prospect of a $106billion boost in aggregate federal tax revenue by 2025! As we can understand, the influx in tax revenue due to increased legal consumption of marijuana has several possible economic benefits. The money

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raised through taxes can be used for infrastructure benefits or to redistribute wealth to the sectors that need it the most. Moreover, through the understanding of the price elasticity of demand of marijuana when it is legal nationally will allow the government to best access how to gain the best possible sum of tax revenue – while also somewhat prevent over-consumption that can lead to medical problems! Especially in the tough economic times we are living in – an influx in tax revenue could provide extremely important in supporting and keeping services afloat. Furthermore, the prospect of the legalisation of marijuana also has ability to significantly improve the employment rates in the USA. The legal changes that result in the medical and recreational use of marijuana to become allowed nationally – will cause an intensification in the number of nurseries and dispensaries willing and opening up to sell marijuana. As a by-product of the increased demand for marijuana after nationwide legal changes, the demand for workers will also increase as it is a derived demand for the increased demand for the good! It will result in an increased availability of jobs in the sector as firms aim to capitalise on the growth of the marijuana market. It is estimated that almost 41,000 jobs in Nevada alone will be supported through the legalisation of marijuana by 2024 and this is expected to generate almost $660million in labour income! The circular flow of money explains that an increase in those earning an income will result in an increase in money being circulated throughout the entire economy –

Joe Biden – The economic impact of the legalisation of Cannabis in the USA. causing sufficient economic benefit. Moreover, according to numerous research – according to ‘New Frontier’ an estimated additional 1 million jobs will be provided by 2025 accentuating the extent of the impact of marijuana legal changes. These jobs are likely to spread across a multitude of forms such as farmers, sellers and even opportunities for secondary industries that want a piece of the new growing industries pie! The legalisation of marijuana has further prospects for increased and incentivised investment into its growing market! Investors can understand the potential of the growing industry and the possibility of marijuana becoming legal on a national level acts as a catalyst to the prospect of investment with investors looking to capitalise – awaiting the influx of consumption of marijuana. The number of marijuana-related companies on the public stock exchanges will increase, enhancing the liquidity state and improving the access to investors and chances of investment to improve drastically. Should the growth of the marijuana industry progress as it has done in the US states where it is legal – there will be no issue in attracting investment! Nationally, the US may see a huge drop in the costs requires for enforcement of the control of marijuana use. In the past, strict laws has caused lots of US spending on containment of marijuana with estimated costs of £3.6billion spent last year alone! The legalisation of marijuana will deplete the costs of enforcement and allow the allocation of resources to another area such as Education or Defence. Legalising marijuana actually reduces the level of crime in the sense that there will be less crime relating to marijuana use and distribution. For example, there will be less smuggling and violence at

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borders when the illegal marijuana sellers are unable to compete with the marijuana dispensary prices. The legal changes have the ability to benefit adolescents as they are more likely to be protected from unfair convictions among their community should the restrictions on the marijuana consumption be less forceful! Moreover, despite concerns about making marijuana consumption and selling legal – it will actually mean that more young adults are likely to consult help by professionals when they are in a predicament since they understand they cannot be punished if it is legal! All in all, it is clear to understand the economic benefit that the legalisation of marijuana can bring to the USA. Looking at Washington and Colorado as exemplars of where the economy could be heading should marijuana become legal on a national level. However, although the impact of marijuana on the economy provides a compelling argument for its legalisation – the problems associated with substance abuse can override the gain in economic growth. So, a further question needs to be asked – does the economic benefit of marijuana legalisation outweigh the repercussions of national use of marijuana and the negative externalities associated with it?

Our Guest Writers - Biography Dr Eamonn Butler

Dr Eamonn Butler is Director of the Adam Smith Institute, rated one of the world’s leading policy think-tanks. He has degrees in economics, philosophy and psychology, gaining a PhD from the University of St Andrews in 1978. During the 1970s he worked on pensions and welfare issues for the US House of Representatives, and taught philosophy in Hillsdale College, Michigan, before returning to the UK to help found the Adam Smith Institute. Dr Eamonn is the author of books on the pioneering economists Milton Friedman, F A Hayek, Ludwig von Mises and Adam Smith, and coauthor of Forty Centuries of Wage and Price Controls and books on intelligence testing. He contributes to the leading UK print and broadcast media on current issues, and his recent popular publications “The Best Book on the Market”, “The Rotten State of Britain” and “The Alternative Manifesto” have attracted considerable attention.

Mr Miles Celic

Mr Miles Celic is Chief Executive Officer of TheCityUK and has held this position since September 2016. He is also a member of the Department for International Trade Advisory Groups on Financial Services and Professional Advisory Services, a board member of UK Finance and a board member of the Financial Services Skills Commission. Miles began his career in broadcasting, making and presenting radio and television programmes for the BBC and others. He moved on to work in the UK Parliament, where he focused on foreign affairs and defence issues. Miles subsequently worked in numerous leading reputation management and public policy consultancies, including a period at a branch of Omnicom – one of the world’s largest communications agency groups – where he advised clients including the BBC, the International Committee of the Red Cross and a number of international financial firms.

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Markets - Free and Fair? Q&A with Dr Eamonn Butler, director and co-founder of the Adam Smith Institute, a free market think tank. Markets are impartial and efficient. They provide choice and help increase political freedom. However, markets promote inequality and can easily fail. Specialising on market economics and liberal social policy, Dr Butler was well placed to answer some of Lev Titov’s questions about free markets. What, in your opinion, is the single greatest advantage of free markets? The fact that they are based on voluntary cooperation, not coercion. The socialist ideal is that we all agree on what we want to achieve, plan how to achieve it, and then play out part in doing so. But in fact, we will never all agree on that. Each of us has different values, hopes, aspirations and visions for the economy and society. Even if most people go along with the plan, there will be others who do not agree with it — perhaps very strongly. So, for the plan to work, the doubters and dissidents have to be forced into compliance. Markets work precisely because we do all have different values. People value the same good or service differently. So, by exchanging with others, we can all make ourselves better off. (Think of a child swapping a toy they’re bored with for another that some other child is bored with. Nothing new is created, but they both reckon themselves better off.) Markets are based on voluntary exchange, where both sides are free to walk away from the deal. People accept a voluntary exchange precisely because they each get something out of it, not because they are forced to. But if you want people to follow some pre-conceived economic plan, you have to force them. Of course, free markets have other benefits too — they work, they lift people out of poverty far more effectively than socialist experiments ever did, they embrace diversity, they spread trust and toleration, they adapt quickly to changing circumstances, they encourage innovation and progress. But I think that

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freedom, and sparing us all from coercive force, is the main one. In your opinion, what role should governments play in market economies? I’d like to see a separation of economy and state. You still need the state in a market economy, because you need some justice system to make sure that people at home or abroad do not try to use force to coerce us into what they want to do. So, you need defence, police and courts. And yes, you need some coercive apparatus to make sure that people respect others’ rights and freedoms. Some libertarians think that even these things can be done without the state, but liberals like myself generally believe that if you’re going to have judicial authority it is best wielded by an independent agency that we all sign up to. But in terms of the economy, the state’s role should be only to ensure that it keeps working. That, as I say, means taking action against people who want to interfere in free exchange in order to profit by using force or fraud against others. The only legitimate way to profit in a free-market economy is by producing goods and services that other people willingly buy because they improve those people’s lives. Most state interventions in the economy actually have the opposite effect of that intended. Minimum wages, for example, might be motivated by the aim of taking people, particularly vulnerable groups, out of poverty. Unfortunately, these are the very groups who are most likely to be damaged by it. If an employer cannot make a job pay when minimum wages apply, that job will simply disappear. Likewise, with government-mandated price caps. If producers cannot make a profit because the state has set a low price for their product, they will simply stop producing it. That is why rent controls shrink the supply of rented accommodation and leave young people scrambling for substandard housing.

Markets - Free and Fair? Is global warming a market failure, or a government one? Is there a free market solution? It’s a pricing failure. It’s the tragedy of the commons. Quite often, if you go into an apartment block to visit people, particularly older blocks, you find that the stairs and other common areas are cold, damp, drab and depressing. But as soon as you get into the apartment, it’s bright, warm, and inviting. That’s because people have an incentive to look after their own property. They benefit from doing so. But why should they look after common property — why should they go to effort and expense when it is other people who will reap the benefit?

Capitalism is praised for its innovative nature. Technological advancements have happened as a result of competition and creative destruction. However, patents have seemed to play an integral role in providing stimulus for inventors. Patents are a form of government intervention. Therefore, do governments have a role to play in encouraging more innovation? There has been a lot of discussion on this point recently, not just on patents but on copyright too. It’s a bit like limited company status: that is a form of government intervention, but allows people to set up businesses without the threat of being bankrupted if they fail. And as such, it encourages a lot more innovation and entrepreneurship.

And that is the environment problem. People look after their own property, but they are less willing to care for other property, such as the oceans, rainforests or atmosphere, which nobody owns. There is no downside, no price to be paid, for polluting them — even though, over time, that pollution causes damage that in fact affects us all. Insofar as climate change is caused by emissions, such as carbon dioxide, the best way to protect the unowned environment is to make sure there is a price for polluters to pay. My preference is to use market principles — set the limits that are acceptable and then auction the right to pollute up to them. Then, there will be a pressure on producers and consumers to limit their emissions, because it will cost them money. But it also means that people who are producing essential things but cannot reduce their emissions can buy emissions permits from others who can.

That is the idea of patents too. Nobody wants to spend years researching and developing some new product, only to find that someone else immediately copies it and gets all the reward. Without patents, people might be less likely to make this effort, from which we all ultimately benefit. Likewise, if someone writes a best-selling book, they want to reap the rewards rather than see others instantly copying and selling their work. Otherwise, they might not bother to write at all. And with copyright, the benefit goes on after the author’s death: after all, you might write your bestseller and then drop dead — but at least if you know that your family will benefit, you will be more inclined to make the effort, even if you expect to drop dead soon!

However, where these markets have been tried, they have not worked well, largely because there has been too much horse-trading between the various governments that have tried to create them. So, on balance, I favour pollution taxes. You simply put a price on carbon and then people will work out ways to produce less of it. You will never quite know if you are overdoing it or underdoing it, but it’s better than nothing.

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On the other hand, as you say, one of the huge benefits of markets and competition is that they promote innovation. They encourage people to use ideas and make something of value out of them — and then to improve those ideas and products and increase value even further. And that is how progress occurs. So, there is an argument against patents — people can copy and improve things quickly, which accelerates progress but people won’t bother coming up with ideas and inventions at all if they think their work will be stolen by others. However then there is a third argument, that we need limited patents because

Markets - Free and Fair? filing a patent requires you to disclose all the information that makes your product work, which in turn means that others can, before too long, improve on it. I really don’t know. I used to believe in the importance of protecting intellectual property, as it is called, and there is some evidence that progress is faster where it is protected. But you can over-do the protection to the extent that it actually slows down further improvement. These days, I am more convinced about the huge importance of innovation for human progress that I wonder where we should have a completely free market in ideas. I don’t know if there’s a right and wrong answer. Self-interest guides markets, individualism has been praised by modern societies. Is there a risk that this selfishness that is required for markets to function is slowly polarising and dividing society? On the contrary, markets promote peace and cooperation. It is governments and central planning that polarize things. In the market, everyone can pursue their own vision; you can have millions of different utopias all being achieved at once. But if everyone is supposed to follow some pre-ordained utopian vision, you are bound to have bitter arguments about what that vision should be and about how to achieve it. In theory the early Russian communists all believed in the same vision; but in fact, there were bitter disputes over exactly what that meant and even more bitter disputes over how to achieve it. Free markets allow everyone to pursue their different visions without conflict.

the market, you can decide for yourself which of these you think is more important and spend accordingly. People are confused about selfishness. We often hear that markets are based on selfishness and greed. They are not. People will simply not trade with others who they think are trying to cheat them or give them poor value in order to profit themselves. Or they may do it once, but when they discover they have been given poor value, they won’t go back, and they will tell all their friends not to make the same mistake. Yes, you can sometimes make a quick buck; but you won’t make a lot of bucks because customers won’t trust you and deal with you. Sure, markets are about pursuing self-interests. But that is not selfishness. If we did not regard our own self-interest, we would all be dead. In the market, we pursue our self-interest, but we can only succeed in that by helping others, providing them with something that they want to buy. I have known many people in business, and what is still remarkable to me is just how unselfish they are. Yes, they want to profit from what they do, but they know that the only way to do that is to satisfy — and ideally, delight — their customers. To give people products that improve their lives, improvements for which they willingly pay. And the most successful ones love their product and want to be proud of it. That doesn’t sound like selfishness or polarization to me. It sounds like positive and productive voluntary cooperation between free individuals. That is what free markets are about.

To take a silly example, you can have a red car or a blue car or a yellow car — you don’t have to have the colour that some government agency decides you should have. More seriously, in the socialist commonwealth, the state ultimately decides on how much will be spent on welfare, on education, on healthcare, on transport and everything else. In

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Financial Services Outlook, 2021 A 500 word guest piece by Mr Miles Celic, Chief Executive Officer at TheCityUK - an industry-led body representing UK-based financial and related professional services. This year presented economic policymakers with unprecedented challenges. The uncertainty triggered by Covid-19 led to staggering declines in most of the main pillars of the economy in the UK and, indeed, in most countries around the world. In economic terms, the pandemic has led to a simultaneous shock to both demand and supply. Parts of the economy that are key contributors to output and employment in the UK, such as retail and hospitality, were among the hardest hit. In the broadest terms, the effects in the UK have been felt through the substantial reduction of household income and expenditure. The hit to business profits and cashflow, and the mediumterm uncertainty in the business environment, have led to reduced investment. These factors were evident in the most recent official data, which showed that GDP declined very sharply in the first half of 2020 before recovering some of the losses in the third quarter. Given that consumer spending is the main driver of the UK economy, representing two-thirds of GDP, the ongoing impact of the pandemic on household income as well as spending opportunities will have significant consequences. The consensus forecast is that the UK economy will experience a deep recession in 2020 and rebound sharply in 2021. This assumes that no significant economic disruption arises following the end of the Brexit transition period. If there is no Brexit deal, there will certainly be an additional impact.

industry can also make an indirect contribution through, for instance, investment and business and personal loans. In other words, the relatively strong position of the industry means it is well-placed to continue to supply finance to the economy to facilitate growth and boost recovery. However, this contribution is not guaranteed. Wider economic weakness may have an impact on the industry. In addition, the UK has been a key destination for overseas investment. If the rules-based trading system which underpins globalisation stays strong, the industry will be able to better continue supporting UK growth. But if the increasing trend towards protectionism that weâ&#x20AC;&#x2122;ve seen accelerated through the Covid-19 pandemic continues to grow, both will be at risk. Promoting the benefits of globalisation, keeping markets open and working collaboratively with economic partners must remain at the heart of the UKâ&#x20AC;&#x2122;s agenda. This will play a vital role in a return to growth across the country and internationally. Moreover, we must seize opportunities, such as green finance and FinTech, and avoid data flows being shackled by digital nationalism. The challenges we have faced have been unprecedented. They are not over. But we must all now ensure that our recovery and reshaping of our economy are equally unprecedented.

The financial and related professional services (FRPS) industry is a major contributor to the UK economy. A strong FRPS industry is a motor for overall economic growth, and the industry can be a contributor to recovery post Covid-19. This contribution can take various forms: it can make both a direct economic contribution, through employment and exports, for example. The

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Does the UK need a National Investment Bank? Lev Titov A National Investment Bank (NIB), is an institution that focuses on funnelling capital to investment projects that are ignored by private lenders, with the goal of increasing both local and national economic growth. They either buy equity of small and medium sized enterprises (SMEs), in order to scale businesses without loading them with debt, or invest directly in infrastructure projects which are too risky for the private sector. These banks do not replace budgeted public spending, but complement it. The goal for a NIB is to become self-sufficient — after an initial investment backed by the government through bond sales, it should not rely heavily on the treasury, instead reinvesting its returns. In the UK, the creation of a British National Investment Bank (BNIB) was proposed by Labour in 2017, to “put dynamism into our industrial strategy”. It would focus on developing regions outside of London and the South-East, as these territories receive an outsized proportion of UK investment (Gov.UK, 2020), and would replace the British Business Bank, whose small balance sheet limits its role in seeking out market failures for the private sector to correct. The BNIB would have much more capital to invest and was planned to be a vehicle for “People’s Quantitative Easing” which would see money created by the Bank of England spent on infrastructure and housing (Wren-Lewis, 2020). Following Labour’s defeat, the plan for a BNIB was forgotten, although the pandemic-induced recession, Boris Johnson’s plans to “level up the North,” (Davenport and Zaranko, 2020) and a Brexit with relaxed rules on state aid, could once again provide grounds for a formation of a BNIB. In general, now is a good time to increase fiscal stimulus. Why? There are three main reasons why fiscal stimulus, a countercyclical policy, is particularly pertinent now. Firstly, low interest rates result in cheap loans. Secondly, high gross private national savings provide ample capital to draw from (ONS, 2020). Thirdly, increased risk in the economy (as a consequence of the pandemic) suggests that public investment will balance out the decrease in private investment, thus boosting economic growth and setting off a crowding in effect - especially powerful in times of high uncertainty (IMF Blog, 2020). Moreover, huge investment is required to prepare the UK economy for a changing climate. Fiscal stimulus spent on the green sector will reduce carbon emissions

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and increase resilience. The usual advantages of fiscal stimulus, large multiplier effects with the possibility of investments making their own “fiscal space” (when investments pay for themselves), can be applied to the BNIB. The additional benefit of forming a BNIB is that the volume of public spending will increase - fiscal stimulus will not rely on Downing Street, but it will still be backed by the government. Government backing is important because a risk-averse BNIB will be able to support emerging industries, such as the green sector, which yields high returns but is often too risky for private banks. Thus, investment by the BNIB would decrease risk and promote crowding in, just as budgeted fiscal stimulus would, but on the whole it would be cheaper and less reliant on the government, hence promoting a tendency for more investment rather than less. What has held previous UK governments from creating a BNIB? Firstly, the BNIB would violate Article 123 of the EU’s Lisbon Treaty on state aid (Article 123 Lisbon Treaty, 2007), in particular the prohibition of the central bank buying debt of public authorities (which is how the BNIB would initially be funded). Following the UK’s departure from the EU, depending on the agreement, this will no longer be an issue. Secondly, if the BNIB is too heavily influenced by government, in whose interest it is to spend exuberantly before elections, investors could be spooked that British financial institutions finance popular political projects, rather than preserving the value of the currency. So extreme inflation and rising interest rates could return to the UK economy. But if the BNIB is sufficiently independent, a small boost to inflation due to increased public spending will not cause significant harm. Therefore, the case for a British National Investment Bank is strong. In Germany, the KFW, a state owned development bank, has been hugely successful since its formation in 1948. Now that macroeconomic conditions point towards more fiscal spending, forming a BNIB is almost essential. Regional inequalities could be reduced, fulfilling plans to “level up the North”, and the UK economy could both recover from the current recession whilst preparing for the economic effects of climate change.

Is it time for a UK Sovereign Wealth Fund? Tyler Yanagida The Problem We Face For years, economists of all kinds, of left and right, have said rightly that Britain is worse at long-term planning than other countries. We save less, invest less and build less economically vital growth-promoting infrastructure, such as roads, railways and ports, than foreign countries. We live in an economy that depends too much on consumer demand, unlike more sober-sided countries such as Germany, which are much better at investing for tomorrow. The result is that we lag behind the United States, Germany, France and even Italy in productivity. It takes a German worker four days to produce what we Brits make in five, so in turn we must work longer hours for lower pay than other countries. As a result, we will not be able to raise our living standards sustainably or build an economy that works for everyone unless we fix that fundamental underlying issue. Even worse, we have huge national debt, partly as a hangover from the 2008 financial crisis, but mainly because the promises we have made in our pay-as-you-go pensions and benefits system create long-term liabilities that are, financially, effectively the same as debt. This is not fair to the children and grandchildren of the next generation, who will have to repay the money that has been borrowed. They are being handed bills that should have been paid earlier. They will have their own public services to pay for and we shouldn’t expect them to pay for ours as well. These are long-term structural problems that are deeply ingrained in our economy and in our politics. They have taken decades to build up and will take just as long to solve. A possible solution for this problem is a Sovereign Wealth Fund, which would utilise government generated money, to invest in stocks, bonds or real estate in order to benefit the economy and its citizens. Learn From Norway The small Scandinavian country of 5 million people do things differently. It has the lowest income inequality in the world, helped by a mix of policies that support education and innovation. In addition, it channels the world’s largest sovereign wealth fund, the government pension fund of Norway, which manages its oil and gas revenues into long-term economic planning. The Government Pension Fund of Norway comprises two entirely separate sovereign wealth funds owned by the government of Norway. The Government Pension Fund

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Global, also known as the Oil Fund, was established in 1990 to invest the surplus revenues of the Norwegian petroleum sector. It has over US$1 trillion in assets, including 1.3% of global stocks and shares. In May 2018 it was worth about $195,000 per Norwegian citizen. It also holds portfolios of real estate and fixed-income investments. Many companies are excluded by the fund on ethical grounds. The Government Pension Fund Norway is smaller and was established in 1967 as a type of national insurance fund. It is managed separately from the Oil Fund and is limited to domestic and Scandinavian investments and is therefore a key stockholder in many large Norwegian companies, predominantly via the Oslo Stock Exchange. By funding our national debt with a big pool of investments, the children and grandchildren of the next generation won’t have to break their banks to pay our IOUs; they’ll have assets to match. So, it would be generationally just. So, a Sovereign Wealth Fund wouldn’t just tame the deficit: it would cage the debt too. And it would make Britain a generationally fairer and more socially just place. And it would rebalance our economy, so it had stronger and safer foundations than ever before. The opportunities Increasing investment through a sovereign wealth fund can be used to tackle deficiencies in housing, infrastructure, as well as supporting innovation and small businesses. It will create productive assets from which future generations will benefit. The fund could invest in a variety of assets: infrastructure, homes, venture capital, private and public equity and direct lending are examples. The emphasis should be on domestic assets, for this would have the largest direct impact on the UK economy. Holding some international assets as well could provide an insurance policy against a negative postBrexit scenario. Moreover, over time, such a proposal would likely help reduce future levels of net public debt as the fund’s assets compound at a higher return. Of course, there is no guarantee of this, but it would seem the most likely outcome if sensible investments are made. At the very least, the required investment return hurdle would simply be the rate of inflation, since the government can borrow at interest rates below the rate of inflation. But we can surely find socially useful investments that will do better than this over a multi-year horizon.

Is it time for a UK Sovereign Wealth Fund?

Furthermore, the issue of Brexit has deterred investment in the UK. “Deal making in the UK by some of the largest sovereign wealth funds has plummeted because of the growing uncertainty around Brexit, a report from IE Business School in Madrid has revealed .State-backed funds — including Singapore’s GIC and the Canada Pension Plan Investment Board — invested a total of $21bn in the UK in 2017 compared with only $1.8bn last year, said the report, based on the total assets allocation of 91 funds with $8.1tn of assets under management.” The lack of investment in the UK will put the UK in a place of vulnerability as we lack the necessary funds to support the country without the help of other countries - the addition of our own sovereign wealth fund could allow future investments to put the UK in a stronger place economically

Dumitriu calls the idea ‘symbolic’, but not a ‘sensible policy’ that hides the fact that such ‘minimum universal inheritance’ pay-outs are still derived from tax money. Taking less money from the young through income tax and national insurance might be more beneficial and efficient in the long-term.

Challenges Some argue that to start a sovereign wealth fund now is an inefficient way to tackle the issues of inequality outlined by the IPPR (the institute for public policy).‘It’s a nice thing to have, but the government will probably be better off simply borrowing less at this point,’ Sam Dumitriu, head of research at the Adam Smith Institute tells Spears, ‘if we were running very large government surpluses and maybe putting some of that into a fund, or perhaps if you expect the costs of government to rise in the long run because of pensions or something similar, that would make sense but we don’t have that problem.’

The post-war governments created new institutions like the NHS and the welfare state, which had little relevance to rebuilding homes and cities damaged in the war, but everything to do with forging a new society and a new nation. This is our generation’s chance to do the same.

To Conclude But who knows? With future generations approaching the housing ladder with unease and the government clamouring for younger voters – giving every 25-year-old a £10,000 pay-out might turn out to be the untested, unproven policy miracle stroke of the century. With Shadow Chancellor John McDonnell calling on all parties to ‘heed the IPPR’s challenges’, the debate is just beginning.

To rival the post-war generations with our ambition. A new, stronger, more socially just and generationally fair Britain with the financial strength to use our post-EU independence effectively, as an international force for good in the world.

It is believed that if the government really wants to help fund business growth, it could simply cut taxes for people looking to start businesses. ‘If you believe that one of the problems in the UK is that we’re underinvesting, then surely you’d want to lower taxes on investment to create a greater incentive,’ adds Dumitriu. ‘What we should be doing is looking at corporation tax.’

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Understanding the UK Economy...of the 18th century Thabo Witter The UK economy in the height of the British empire was much different to what we see today. With such high exports to all colonies, there was a consistent current account surplus due to a huge credit in the trade in goods. However, why was this the case? What caused such a significant difference compared with most economies? The answer lies with the type of imports, the debit trade in goods and services to all UK colonies across the empire; people. The slave trade saw over 12 million people, over 400 years, moved across the Atlantic from Africa alone. With there being almost no cost of taking the slaves from Africa and any region of choice, transportation was the only real financial hindrance to the UK economy when importing. To further increase profit, slaves would be sold at an average of $136, which changed depending on consumer preference. Inflation saw this value rise by $74, to $210 between 1725-1770. This additional consumption of buying the slaves on colonial soil would cause a shift in the aggregate demand curve displaying the greater real value of output, also explaining the rise in prices of slaves over time. Plantation and slave owners were able to easily maximise the profit of their businesses due to the barbaric nature of slavery. With no wages due to be paid to the workers themselves, companies would not be losing any money from wages. With no food provisions required, firms would not have to invest in food, as well as worker accommodation being basic and very rarely requiring maintenance. As a result, the spending by firms was so little that their output levels would lie close to if not on their production possibility frontier with such an extensive labour force.

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With working for their respective owners being mandatory, the slaves of the 18th Century had no choice but to work, allowing firms not to compete for workers, minimising their investment into advertising. This ridiculously low ratio between exports and imports for individual businesses in terms of trade in goods saw international exports from colonies create rapid economic growth within the UK due to such high gross national income. Capitalising on the worldâ&#x20AC;&#x2122;s most highly demanded goods such as sugar cane and cotton enabled the empire to be a consistent supplier for centuries with net margins of 80% for some firms. Such rapid growth in the UK compared to the colonies was not a limiting factor in terms of economic output, with the utilisation of trade in goods. Once slaves were bought, their use was determined by their new owner, and with government spending into the slave industry, the use of slaves for services such as construction allowed the Commonwealth to move with the times as much as it needed to in order to maximise output, such as building more slave accommodation or transportation services for goods such as train lines, boosting efficiency. Taking this all into account, it becomes clear that the prominence of the Empireâ&#x20AC;&#x2122;s financial state that still has positive benefits to the UK economy to this day, was extremely reliant on the slave trade and its ridiculously low import costs compared to the exports in both trade in goods and services, producing a credit much higher than we will ever see again.

Is India on track to become the next China? Jaihan Khurll For many decades, China has been the go to for cheap production and labour as a result of its large population of around 1.3bn people. However, over the past year the coronavirus pandemic has led to China facing global backlash due to its poor initial handling of the spread of the virus, and its apparent cover up of the extent and severity of it. Further to this, relations between the US and China have continued to worsen over a number of factors, such as allegations of unfair trading rules as well as disputes over Hong Kong, Taiwan and contested territories in the South China Sea. On the other hand, India is often viewed as more attractive for western countries because of its democratic institutions as well as in itself, being a huge consumer marketplace. This in contrast to China which is a communist state with many restrictions on its citizens, which is seen as unacceptable to western nature and its principles of freedom. With the tension rising between China and the West, the door has been opened for India to take advantage of the opportunity that has presented itself to them. As investors start to consider whether or not they spend their money in China, India has started to set up economic task forces to attract firms to locations throughout the country. Large Silicon Valley companies such as Facebook have started to invest large sums of money into the digital business unit of Reliance Industries, taking a 9.9% stake for US$5.7bn. This initial investment has then led to a further 12 investors taking small shares of Reliance Industries digital business unit. In total around 78% of the money has come from the US. Google, Microsoft and Amazon have also all been linked to major telecommunication companies in India. In addition, Apple has been attempting to relocate manufacturing capabilities to India ahead of a planned expansion. Currently the large majority of Apple

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products are produced in China and so this will be a big move if it takes place. Although India may not currently be equipped with the required infrastructure to deal with the arrival of all of these major firms, it has a large enough labour force to deal with the high demands, and it also has the ability to train even more workers. However, it will take some time for India to reach the same level of manufacturing as China because they are both at very different points in terms of the level of investment they each receive and the infrastructure that they have available to them. India only began its economic reform a decade after China’s, but as China’s economy strengthened, India’s comparatively weakened. This was mainly due to the fact that China had some of the world’s highest investment rates and this contributed to the infrastructural revolution that saw the arrival of new cities, high speed rail lines, airports, ports and the major manufacturing capabilities. All of these factors combined allowed China to produce and distribute products with high efficiency and low costs, making it an attractive location for growing firms. China is currently still in a strong position, as they invest around 50% of their GDP compared to India’s 30%. This is still a big reason as to why China has arguably the best physical infrastructure outside of the West and why India is still far behind. This process, however, can be boosted if more firms move their operations over to India and help grow the infrastructure. Recently there have been tensions on the border between India and China, and whilst this has not been extensively covered it is perhaps the first shots of an even bigger battle for economic supremacy in the global markets.

How many gelatos will you be able to afford next year? John Brandi The recent news of a coronavirus vaccine has meant that many people are preparing to go on holiday in 2021. Although holidays abroad have been put on hold this year, economic news certainly has not. The combination of a weak UK economy and political uncertainty has been negative for the Sterling and this has affected the purchasing power of Britons. According to the Office of Budget Responsibility, UK GDP will contract 11.3% in 2020. This is the biggest fall since the Great Frost of 1709. The International Monetary Fund forecasts a slightly less pessimistic contraction of 9.8% in the economy, but this is still the 3rd worst in all of the G7 nations. To support the economy, the Bank of England has already cut interest rates to 0.1% this year, and has announced various other measures. It is also considering slashing interest rates into negative territory. This could have the effect of weakening the Pound. All of the other countries which have previously run negative interest rates, or currently are, have current account surpluses, unlike in the UK. This may expose the Sterling to more selling pressure, as investors look for higher returns elsewhere.

for the Coronavirus vaccine, could be a tough backdrop for Prime Minister Boris Johnson. Following a series of policy u-turns in the summer, which included the GCSE and A-Level grading disaster, the Prime Ministers popularity is already weak within the Conservative Party. Additionally, the Labour Party opposition has gained ground according to national opinion polls. Unhappy with this backdrop, Tory MP’s have already started to rebel against the government on various issues, and there is speculation as to whether Johnson can keep his job until the next general election in 4 years’ time. This means there is plenty of room for political uncertainty next year. All of this could prevent the Sterling from gaining strength. So, for all of you hoping to load up on cheap ice cream on your summer holidays next year, you better start saving soon.

Already, the Sterling is looking soft, Graph 1 shows that it has never recovered from the Brexit referendum in 2016, and Graph 2 shows that it is trading at historically weak levels compared to the Euro, having only reached a weaker point after the Global Financial Crisis in 2008. Political uncertainty can be a disincentive for investors, and therefore a negative factor for the currency. While a trade deal between the EU and UK is expected to be in place by January 2021, this will not cover all sections of the economy. This means that the Sterling may not experience much relief. Confusion is widely expected at the UK’s borders in January, with long queues of lorries expected to build. This factor, a weak economy, coupled with a complicated rollout programme

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Can a fake currency save Venezuela from hyperinflation? Jay Evemy The hyperinflation in Venezuela is off the charts, literally. An estimate for the current annual inflation rate by Forbes is 10,398%, which when compared to the approximate worldwide inflation rate of 3.56%, is staggering. Even worse, the total inflation since the issue began is estimated to be around 53,798,500% between 2016 and April 2019. The main cause of hyperinflation in Venezuela is widely placed upon the government and their policies. When oil prices dropped lower in 2013, the price of Venezuelan oil crashed, which meant that the currency value fell, causing imports to rise in price. As a statement of intent, the new president, Nicolas Maduro, decided to print money, however, this didn’t solve the issue as intended, and so further money had to be printed. This became the cycle of money printing in Venezuela. Inflation is a self-fulfilling prophecy, as people expecting inflation, and therefore spend very quickly, which then causes further inflation. But events of hyperinflation such as this have happened before, such as in Brazil, between 1990 and 1994. Inflation rates in Brazil had been rising since the 1960’s, due to the adopted method of indexation, which intends to adjust income payments by means of a price index, in order to maintain the purchasing power of the public after inflation. However, the breakdown of this system led to inflation, as the public was uncertain and had a mistrust of the government. After many failed attempts to end the hyperinflation, the new finance minister of Brazil, who had no economic experience, called on Edmar Bacha and 3 of his friends to solve the problem. They proposed that Brazil should create a fake currency, called the Unidade Real de Valor (URV), which held its value no matter what. Wages, products and taxes were all to be measured in URV’s. The Plano Real’s aim was to change the public perception of the economy, by making it seem like the hyperinflation wasn’t happening at all.

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The currency was fake because it didn’t exist, as everything was still payed for in Brazil’s normal currency, the cruzeiro. The cost of 1 URV may be 10 cruzeiro’s one month, and then 20 the next, but because everything was measured in URV’s, wages, products and taxes would seem to stay the same. Because of its success, the URV actually became the official currency of Brazil! So, can Venezuela make their own version of the URV and save themselves from the impending doom that is hyperinflation. Money in itself has no actual value, the only value it has is what it can get you. It is the middle man in a trade. This is true of all fiat money, making the idea of making a whole new fake currency not seem so radical. This kind of plan would be very high risk, and it would have to be kept secret from the general public, whose trust in the government is ever diminishing. But, at this point, the Venezuelan government don’t have much choice, as the tolls of hyperinflation can now be seen by eyes all around the world. A national health crisis is on the horizon, as food and medication shortages are becoming rife, and without serious intervention, irreversible damage will be done to both the country and its people. No-one knows whether a fake currency will save Venezuela from hyperinflation, but I think that it’s at least worth a try.

The economic viability of Crossrail and the consequences of the Coronavirus pandemic on the project. Caitlin Murray The

railway project, Crossrail, has certainly been a topical debate in the recent years. This is largely due to the considerable extension of its end date, which was originally predicted to be 2018, however is now expected to only be fully operational by mid-2022. In turn, the 2010 predicted budget of £14.8 billion has risen to £18.7 bn, and this can only be expected to rise as a result of the implications of the COVID-19 pandemic. The project consists of 47km of tube line that will operate under London and provide a reduction of stress on transport services in areas such as Tottenham Court Road and Bond Street. Not only this, but the project is credited with supporting 55,000 jobs nationwide and adding 10% to Central London’s rail capacity. Although the project can currently be viewed as a major loss of government funding which could be used far more effectively elsewhere, data proves that Crossrail is far more of an economically stable project than what is originally perceived. The expected turnover from rail fares was over £800,000 hourly in peak times, and the economic value of Crossrail for London was said to be £42bn due to its impact on further regeneration schemes and the predicted influx of foreign direct investment directly occurring due to project. However, these economic advantages that are promised with the arrival of Crossrail are now being questioned more than ever, resulting from the impacts of COVID-19. Coronavirus not only led to halting construction from March 24 to June 15, but it further led to an additional £140 million needed to complete surface lines, which was announced in July 2020. Although these impacts present threat, the value of the project for London would be expected to

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outweigh these burdens. However, Coronavirus will also detrimentally impact demand for the Elizabeth line, and current capacities of tube services are at 5% due to the substantial rise in those working from home. This would wholly counteract the economical sustainability of the project and hence why the question of “mothballing” the entire project is being raised. This refers to the maintenance of the capital infrastructure however the project being in a state of disuse. Although unpopular with numerous TFL officials, the likelihood of is implementation is increasing without sufficient government raises in funding in the forthcoming months. Furthermore, the project does not merely display economic concerns, for it can be seen in relation to the accentuation of the North-South divide. In 2016, public investment into transport was six times more per person in London than in the North, and Crossrail does little to close the gap, instead the increasing cost pressures of the project simply restrict transport development schemes in the North. The fate of Crossrail is to be determined on whether a government bailout in the form of £80million is to be provided, which would be prevent the “mothballing” of the project in what has been described to be a “Doomsday scenario” by Transport Commissioner Andy Byford. £80million added to the budget ultimately plays little significance in the longterm, due to the sheer volume of revenue that Crossrail has the capacity to create. Overall, Crossrail can only be an economically viable project if demand for the service recovers from the drastic consequences of the unprecedented Coronavirus pandemic.

What is the true financial impact of COVID-19 on English football and could it be helped by players taking wage cuts? Anirudha Vikram• Vikram Sengupta During the COVID-19 pandemic, Premier League clubs have lost around £150m in revenue due to the suspension of matchdays and the lack of ticket sales being a major factor of this loss in matchday revenue. Of this £150m, the ‘Big Six’ clubs in England contributed to around £100m, highlighting the importance of these clubs to the premier league. As ticket sales are the most consistent cashflow source during a season, it is a key method of paying their staffs wages and this loss in revenue has inevitably led to a huge increase in redundancies in the lowerlevel jobs of clubs, showing an impact of COVID-19 on football. Furthermore, Premier League have lost broadcasting revenue of around £300-350m due to the changes in match timing and a further £400m could have been lost had the entire season been called off. This is a large proportion of the £3bn made by broadcasters in the 2018/19 season, highlighting the true financial loss caused by COVID–19, as there has been a major decrease in broadcasting revenue compared to a normal season. Furthermore, a 10% fall in commercial revenue could result in a loss of approximately £140m to the premier league. On a weekly average last season, Premier league clubs paid out around £60m in staffs wages along with a further £22m in operating costs (around 65% of their revenue). Even with this revenue, Premier league clubs altogether last season experienced a loss of around £175m and this figure can be expected to be much higher this season due to an increased loss in revenue as a result of COVID-19, meaning that most wages and operating costs for most clubs this season will be a much larger proportion of their total revenue than 65%, thus leading to potential staff redundancies, to try control losses as a result of the pandemic. This highlights the financial impact on several clubs in the premier league. This impact of COVID-19 on football is further exacerbated by the English football league or the championship (EFL), which is the league below the Premier League. Matchday revenue in the EFL contributes to 30% of their total revenue, compared to the Premier League, where matchday revenue contributes to 13% of its total revenue. Therefore, the impact of no matchday revenue is much more

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prevalent on these lower league clubs, with championship clubs likely to lose £200k per home game in matchday revenues. Broadcasting revenues account to 35% of the EFL’s total revenue and with COVID-19, this will impact lower league clubs quite significantly with each club losing £2-3m through a reduction of receipts from broadcast deals. In addition to this, COVID – 19 has caused a 10% fall in commercial revenue, which equates to £17m . However, the biggest impact of COVID-19 on the championship is the problem arising with wages, as the ratio between revenue raised and overall wages is above 100%. This means the wage bill for the championship is greater than the revenue raised, and with the championship already facing a loss of £240m before the pandemic, this shows the severe financial issues that the EFL have with the pandemic as they are not able to generate enough money to meet their financial needs which include player wages. However, this impact of financial loss could have been made less severe by parachute payments and solidarity payments. Parachute payments are given to Championship clubs by the Premier League to soften the blow for relegated clubs and solidarity payments are given to all clubs to ensure there is no disparity between clubs that could arise from taking these parachute payments, as it could been seen as these relegated clubs gaining an unfair advantage in their new league. The impact of the pandemic can be made less severe by the fact that these clubs will get £5m from the solidarity payments, but due to the fact that Premier League clubs have also been negatively affected by the pandemic, this £5m will be less than what could have been originally expected, which could again adversely affect these championship clubs. In addition, the premier league already have a £175m EFL fund to reduce the impact of these reductions in revenue, however this is mostly made up of parachute and solidarity payment, therefore it isn’t directly replacing a loss of income, but just bringing forward future payments that the parachute and solidarity payments would be used for, therefore this doesn’t have a huge impact of reducing the burden left by

What is the true financial impact of COVID-19 on English football and could it be helped by players taking wage cuts? COVID- 19, as even though it could help in the short term it could still hamper certain clubs in the long run. This means many lower league clubs still have had to turn to furlough scheme and arranged wage cuts to sort this out. But could the league benefit from players taking wage cuts or would it have a negative effect? Although it may seem that a single very high-earning player taking wage cuts could benefit many lowerlevel workers, in reality, it could have a detrimental effect on the government tackling the COVID-19 pandemic. At the start of the pandemic, the league wanted all players to take a 30% pay cut in order to reduce the increasing redundancies in the footballing sector. However, according to the PFA, a cut this large for all players would equate to around £500m over the course of 12 months. This, in turn, would lead to a reduction of almost £200m in taxes to the UK government. Therefore, this would result in a decrease in government spending, most of which is currently being used for the NHS. Although pay cuts would benefit clubs due to lower expenses, it could clearly be detrimental to the national effort of stopping the spread of the virus. Although some clubs may be forced to take pay cuts due to their limited budget, most that can afford it should not force players to take wage cuts as it seems completely selfish. Furthermore, one of the main pillars of modern football is the contract between player and club. A pay cut will destroy the contractual stability that has been so long implemented in the game of football. Unlike most other types of employees who can be made redundant or to have a cut in their pay, the football players have a different type of contractual relationship with the club. That means they are to be given the same amount of pay for the given time agreed. By asking the players to take pay cuts, the league and clubs in the league are completely undermining a key principle of football in this day.

these clubs, which in turn, could help reduce unemployment and keep these clubs from going bankrupt. If the contractual stability were to be sacrificed by Premier League clubs for around 90 days, it would save around 13% in national employers' insurance contributions which would be around £20m. A pay cut for those footballers earning hundreds of thousands of pounds per week will not be a significant amount of money to them and could be crucial for the survival of a lower league club. In summary, football players at high levels taking wage cuts seem to benefit their own football clubs due to lower costs and an increase of funding given to the struggling lower league clubs which can positively impact the employment in the clubs and a reduction of their unemployment. However, it is highly damaging to the Government’s effort of helping to control the virus due to a large decrease in tax payments.

On the other hand, the pay cuts would free up the costs not paid by the clubs and would mean that Premier league clubs would give £125m to the lower leagues of football as well as a further £20m being given to the NHS. This could help those clubs that are struggling and would result in a higher revenue for

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References

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Trinity Economic Review 2020

Articles by: Alex Bailey, Luca Bodereau, John Brandi, Nicholas Challier, Anand Clarke, Seb Crabtree, Joe D'Mello, Jay Evemy, Lara Huddart, Bilal Ismail, Jaihan Khurll, Caitlin Murray, Amar Pattani, Vikram Sengupta, Lev Titov, Anirudha Vikram, Thabo Witter, Tyler Yanagida With special thanks to our guests: Dr Eamonn Butler Mr Miles Celic Edited by: Lev Titov Joe D'Mello Cover Design by: Alex Szczepaniak