Student Debt Relief Applications Now Available for US Citizens
To qualify for the debt relief, applicants must have an annual income less than $125,000. Borrowers who received a Pell Grant are additionally eligible for another $10,000, for a total possible relief amount of $20,000 (Pell Grants are a type of need-based aid reserved for low-income students in the US). The applications are available in English and Spanish, and are notably simple and easy to complete. The information required to apply for the forgiveness is mainly simple demographic information, and takes only a few minutes. Applicants will not have to dig up obscure documents, find original certificates, or even provide banking information. As such, we recommend that any readers from the United States with outstanding student loan debt complete the application. It can be found at the US Department of Education’s Federal Student Aid office’s website (StudentAid.gov), until applications close on December 31, 2023. Eligible borrowers living abroad have reported difficulty submitting the application, as the official government website appears to deny access to the application on devices outside the United States. If you are experiencing similar issues, using a VPN to submit the application appears to work. Alternatively, the application is simple enough to allow a friend or relative in the US to submit the application in your stead, though you must provide valid contact information. Student loan repayments were originally suspended during the COVID-19 pandemic, due to the economic uncertainty that the pandemic wrought. This suspension has been repeatedly extended by the federal government in the time since. It is unclear if the debt relief will be available for borrowers by the time payments are scheduled to resume. Arguments for and against the debt relief Sentiments about the student loan forgiveness are mixed. Proponents of the plan say that it is a step in the right direction to alleviate the massive amounts of federal student loan debt that plague US consumers. According to Forbes, there is roughly $1.75 trillion in outstanding US student loan debt, of which 92% is from federal loan sources. The average amount of debt stands at $28,950. Thus, Joe Biden’s student debt relief plan would alleviate much of the burden on individuals. Supporters of the plan argue that this relief will allow consumers to spend their money on items that can boost the economy. Meanwhile, critics of Biden’s plan argue that the relief will damage the economy by worsening the inflationary pressures that already exist. Many also argue that the debt relief is unfair to those who already paid off their loans, and people who did not take out loans to finance their education. Ultimately, the debt relief burden will be on the shoulders of taxpayers, and people may be unhappy with their tax dollars being used to reduce others’ debt instead of serving the public more broadly. Legal Status of the Student Loan Debt Forgiveness as of November 24th, 2022 After the announcement of Biden’s forgiveness plan, a lawsuit filed jointly by six state legislatures (those of Kansas, Nebraska, Missouri, Arkansas, Iowa and South Carolina) stymied the progress of the debt relief. On November 14th, 2022, a federal court extended the decision to block the US Department of Education from erasing the debt. However, this ruling came after the US Supreme Court declined to accept a separate legal challenge regarding the debt relief on November 4th, so it is unclear whether or not the plan will be blocked permanently. Other similar legal challenges have been filed, mostly by right-wing politicians who claim that the relief is unconstitutional or would harm the economy. Although these legal challenges have pushed back the initial release of the application and have left the fate of the debt relief uncertain, the Biden administration still recommends that borrowers submit the application. Header image credit: QuinceCreative on Pixabay (Free for use under the Pixabay content license).
In late August 2022, US President Joe Biden fulfilled a campaign promise by announcing that the government would be providing US citizens with student loan debt-relief. US citizens can apply for up to $10,000 in debt cancellation via this loan forgiveness program. On October 17th, 2022, the US Department of Education opened up applications on StudentAid.gov.
Public Economics & Economic Policy (JEL H)
2022 Nobel Prize in Economics - The Winners
This article gives an overview of the work that won these economists the Prize, and a brief bio for each economist. You can read more about the reasoning behind the awarding of the Prize from the Royal Swedish Academy of Sciences’ press release page. The Research that Won This Year’s Prize Diamond and Dybvig conducted research that illuminated the role of banks as intermediaries. Their groundbreaking paper published in the Journal of Political Economy in 1983 develops the Diamond-Dybvig model, which is widely cited and still in use today. Banks have a unique role in the economy; consumers save their money in banks for safekeeping, and to grow their wealth. At the same time, borrowers want to use this money to build, invest, and otherwise fuel their economic activity. Banks use consumers’ savings to become lenders to these borrowers. Diamond and Dybvig’s research showed that banks are the optimal way for the economy to carefully balance the needs of savers (or lenders) and borrowers. Diamond additionally argued that this position makes banks the best entity in the economy to assess creditworthiness of borrowers, and thus to make decisions about which investments are good enough to invest society’s money into. Problems for a bank can arise when savings are demanded back by the lenders who need their money for an unexpected circumstance; banks do not actually hold all of their reserves in liquid form. A bank run occurs when too many consumers demand their money back from the bank than it is currently holding. This can cause a bank to fail. Ben Bernanke, in his analysis of the Great Depression of the 1930s, showed that bank runs were an important reason that the Depression grew so severe. One key reason for this is that when banks fail, the information they contain about consumers’ creditworthiness can be lost. This information loss makes it more difficult for society to allocate savings to the best investment opportunities, limiting opportunities for economic growth. Although not a reason why he was selected for this award, Bernanke additionally served as the Chairman for the United States Federal Reserve during the financial crisis and Great Recession in 2006 - 2010. INOMICS has previously assessed how economists lost clout for failing to recognize the danger to the financial system, and how the discipline’s reputation has been recovering. Tore Ellingsen, Chair of the Committee for the Prize in Economic Sciences, notes that “The laureates’ insights have improved our ability to avoid both serious crises and expensive bailouts.” This is one of the key reasons for awarding this year’s Prize to these economists. Ben S. Bernanke: Bio Ben Bernanke was born in the state of Georgia in the United States. He received his bachelor’s degree in economics in 1975 from Harvard and his PhD in economics in 1979 from MIT. In 1985, Bernanke was made a professor of economics and public affairs at Princeton University. He later became the chair of the Economics Department at Princeton from 1996 to 2002. Bernanke became a member of the Board of Governors at the U.S. Federal Reserve in 2002, and later the Chairman in 2006. As chairman, Bernanke led the Federal Reserve’s response to the financial crisis and Great Recession of 2006 to 2010. During this time, Bernanke led the Federal Reserve to take unprecedented action, including the implementation of quantitative easing. This is a process where the central bank purchases securities and long-term treasuries on the open market to stimulate economic growth. Bernanke also began holding quarterly press conferences to explain the decisions of the Federal Reserve’s Federal Open Market Committee, which helped improve the organization’s transparency. Bernanke is the author of several books and textbooks, and has also published articles on monetary policy, macroeconomics, and other economic issues. His other accolades include holding a Guggenheim and Sloan Fellowship, being a fellow of the American Academy of Arts and Sciences and the Econometric Society, and serving as the director of the National Bureau of Economic Research’s Business Cycle Dating Committee. Douglas W. Diamond: Bio Douglas Diamond is an expert specializing in the study of financial intermediaries and financial crises who grew up in Chicago in the United States. He earned his economics bachelor's degree in 1975 from Brown University. He later earned his Master's degrees in 1976 and 1977, and went on to earn a PhD in economics from Yale University in 1980. He has won numerous awards, including the Morgan Stanley-American Finance Association Award for Excellence in Finance in 2012. In 2013 he received an honorary degree, Doctor Honoris Causa, from the University of Zurich. In 2016 he received the CME Group- Mathematical Sciences Research Institute Prize in Innovative Quantitative Applications. Diamond is the Merton H. Miller Distinguished Service Professor of Finance at the University of Chicago. He has additionally taught at Yale, and was a visiting professor at MIT, the University of Bonn in Germany, and the Hong Kong University of Science and Technology. He is a National Bureau of Economic Research research associate, a visiting scholar at the Federal Reserve Bank of Richmond, president of the American Finance Association and the Western Finance Association, and a member of the National Academy of Sciences. Diamond is also a fellow of the Econometric Society, the American Academy of Arts and Sciences, and the American Finance Association. Philip H. Dybvig: Bio Philip Dybvig grew up in Dayton, Ohio. He received a bachelor's degree in mathematics and physics from Indiana University, and his PhD in economics from Yale University in 1979. He taught at Princeton University and then later Yale in 1981. Dybvig left Yale in 1989 to join the faculty of Washington University, where he became the Boatmens Bancshares Professor of Banking and Finance. He served as President of the Western Finance Association in 2002-2003, on Washington University's Investments Committee, and on the National Endowment Survey Advisory Committee of the National Association of College and University Business Officers. Dybvig has earned several awards in China, including Changjiang Scholar, Thousand-person plan, Chengdu Jinsha Friendship Award, Sichuan Golden Pinnacle Award, and the Chinese Central Government Friendship Award. He runs a research program each summer in Chengdu, Sichuan, China, where he is the Director of the Institute of Financial Studies at the Southwest University of Finance and Economics. You can read the full Prize in Economic Sciences press release at the Royal Swedish Academy of Sciences’ webpage. Header image picture credit: Pixabay.com References 1: https://www.federalreservehistory.org/people/ben-s-bernanke 2: https://www.chicagobooth.edu/faculty/directory/d/douglas-w-diamond 3: https://dybfin.wustl.edu/misc/about.html 4: https://www.nobelprize.org/prizes/economic-sciences/2022/press-release/ 5: The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2022. NobelPrize.org. Nobel Prize Outreach AB 2022. Thu. 13 Oct 2022. <https: 2022="" economic-sciences="" prizes="" summary="" www.nobelprize.org=""></https:>
The prestigious 2022 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, better known as the Nobel Prize for Economics, has been awarded to three American economists: Ben S. Bernanke, Douglas W. Diamond, and Philip H. Dybvig. The prize, awarded by the Royal Swedish Academy of Sciences, was given to these economists for their contributions to “research on banks and financial crises”. The Prize notes that these three economists laid the groundwork for this research in the early 1980s.
Broadly speaking, there are two types of software: proprietary and open source. Some people and organizations choose to use proprietary packages, which are developed and copyrighted by a single company. Others rely on free, open source solutions, like the popular “R” Project. Within these two categories, there are dozens if not hundreds of alternatives, varying in price, complexity, capability, user-friendliness and popularity. This post by Bob Muenchen is a great resource if you are looking for a survey of the most popular packages. He uses a number of different measures to evaluate different software options and keeps it up to date. Note that this survey is for data science in general - not just economics. That said, all of the common software used in economics are represented - like Python, R, Stata, SAS, SPSS, MATLAB, and more. That’s quite the list of names, and it can sound intimidating. To help you understand the software tools landscape, in this article we will shed some light on the most popular software packages for economists, and offer some details about how you can learn more about them. 1) Which software should I use? Before buying a package or downloading an open-source option, it is a good idea to talk to colleagues, visit online forums or communities related to each product of interest, examine your course curricula if you’re a student, and take advantage of free trials. It is also important to consider your own abilities and/or the level of expertise available within your team (if applicable). If there are several software packages that meet your needs, options with better support may save you time and stress in the long term. That said, students of economics may tend to focus on the major open-source, non-proprietary tools in their studies; many courses use open-source tools to teach. Python and R are two examples. R is used very often by economists. Python, meanwhile, is used somewhat less often in economics, but is used frequently in data science, which increasingly overlaps with econometric analyses that economists might want to run. There are many statistics packages for Python that allow it to conduct the same analyses that other popular packages like R can do. So, familiarity with both packages pays dividends. There is a great deal of free educational material on both R and Python available online; knowing how to run regressions and manipulate data in these programs is a great advantage for a serious economics student. However, there are other advantages to proprietary software platforms with paid licenses such as Stata, SPSS, and MATLAB. Often, the support and training opportunities behind these platforms are likely to be more extensive than for open-source software. Moreover, these tools might be easier to use for economists with little coding experience, with well designed user interfaces enabling economists to manipulate graphs and variables where open-source tools might require lines of code to do so instead. 2) What kind of license should I buy? If you are a university student or an employee of a company that uses a proprietary software tool, you likely already have access to the software without needing to purchase it for your own personal use. Otherwise, if you desire to use these options, you’ll have to pay for a license to do so. The criteria for different types of licenses vary from one software manufacturer to the next. Typically, student licenses will be the cheapest, and are offered for shorter periods (weeks or months, rather than one or more years). Many software packages also have an academic and/or non-profit license available. Corporate licenses are normally the most expensive - but you won’t likely need to purchase a corporate license yourself. Check the criteria for each package, and consult with your local distributor to see which kind of license and corresponding level of training and support is right for you. 3) Should I purchase direct or from a distributor? If you’re going the purchasing route, it is nearly always possible to buy directly from the software manufacturer via their website. But, consider looking for a local distributor instead. The prices are normally more or less the same (with exceptions), but distributors are advantageous for the “extras” you receive as a customer, such as in-house support, newsletters and local user-group meetings. In addition, support and training local to you and in your language can be a major plus-point. Another advantage is that if you are purchasing different software packages, you can have one contact point for all of them. 4) How much mastery of coding or programming do I need? Regardless of your chosen software package, you might be wondering how much coding experience you’ll need to succeed as an economist. Do you need a deep knowledge of data science, programming, or coding as well as economic theory to succeed? Most likely, the answer for you will be “not really”. Most economists will not need to be master programmers too. Proficiency with defining your own functions, manipulating data, and understanding the algorithms behind common functions will make your economic analysis life easier. Deeper expertise is probably not required, since the software tools are built to help you do your job – but of course it will give you an advantage. For example, most software packages contain built-in commands that are short, easy to execute, and allow you to dive right into statistical analysis. As an example, to run a linear regression in R, you only need to type one command and tell the program which data to use. After, typing “summary” will spit out a linear regression analysis complete with t-statistics and p-values, the R2 value, F statistics, and many others besides, all computed in a fraction of a second. Many other, more complicated regressions can often be done in similarly easy fashion. Running these simple commands doesn’t require advanced coding experience, but basic proficiency with your chosen software will often come in handy. Say, for instance, you get an error message. Familiarity with your software of choice and the algorithm used to generate your model output will help you clear the error quickly so you can get back to the interesting stuff. Additionally, if you have some coding ability, you will often be able to write your own functions and understand what the existing functions are doing. This gives you extra flexibility when you need to implement a very specific probability distribution, re-parameterize something, adjust a graph to highlight your findings, etc. Overall, the key to being successful in such economic analysis lies in understanding the model output and interpreting it in the context of economic theory, which does not require advanced coding experience. However, if something goes awry, or you need a particularly complicated setup to conduct your analysis, some coding skills are a boon. Studying some of the software packages mentioned in this article will help you get started on your economic analysis journey. Best of luck! Photo Credit: Gilad Lotan on flikr (CC BY-NC 2.0)
Economists very often work with statistical software that is used to build economic models and conduct econometric analyses. Learning to work with and analyze data is thus an essential skill for young economists. To be competitive as an economist in the job market, demonstrable skills and experience using some of the popular analysis and forecasting software environments are a must.
Econometrics, Statistics and Quantitative Methods (JEL C)
The INOMICS Questionnaire: Fratzscher vs Tooze
The titular economic historian, Adam Tooze, was born in London, spending parts of his childhood in England and in Heidelberg, Germany. He earned his BA in Economics from King’s College Cambridge in 1989, and then began his postgraduate studies in Berlin. He received his PhD from the London School of Economics in 1996. From then until 2009, Adam taught at the University of Cambridge. He was then appointed to the Barton M. Biggs Professorship at Yale University. Adam joined his current position in Columbia University’s history department in the summer of 2015. He is well-known for his economic histories (including The Wages of Destruction) which have won him several awards, including the Wolfson History Prize and the Lionel Gelber Prize. Marcel Fratzscher: What is your favorite place on earth? Adam Tooze: I thrive on the intensity and hustle of New York City. I love the cultural density of Europe. But my favorite place right now is a lagoon - “The Cut” - between two of the outer islands of the Abacos in the Bahamas. It’s an extraordinary place. Ravishingly beautiful. Creole. Wild. A bit dangerous. The infrastructure is fragile. Sharks and barracudas in the water. Extreme weather. The historic hurricane Dorian which made landfall on the islands on 1-2 September 2019 wiped out the homes of practically everyone else on the island, including a cottage we called our own. We have rebuilt a house in its place. MF: Outside of economics, what occupation would you have if you could be absolutely anything? AT: I left economics to become a historian. So that is part of my answer. As a boy I wanted to be a mechanical engineer. If I had the talent I would wish to be a visual artist. MF: What is the virtue you appreciate the most? AT: Sincerity. MF: Your all-time favorite figure in economics? AT: John Maynard Keynes. MF: Your # 1 economics blog? AT: In the new substack universe it is Matt Klein’s Overshoot. Amongst the earlier generations of blogs Timothy Taylor’s Conversable Economist is indispensable. In Germany I like Makronom. MF: Your ideal student? AT: Someone who has a profound inner drive, but also has a sense of humor, is open and receptive intellectually to other people and other ideas. MF: What should be done to address a gender bias in research in economics? AT: This is an urgent question for economists. I say this as a man who left economics in large part because of the toxic masculinity to which I was subjected during my training. I found it intellectually unproductive and I didn’t like what it was doing to me. So I got out. I admire both women and men who decide to stay and fight. I worry about what it costs them. I hope they are right that it is possible to change economics from within. When I want encouragement I put my historian’s hat on and remind myself of the truly gigantic transformation that we are collectively undertaking with regard to the gendered division of labor. Two of the academic places which shaped me went co-ed only fifty years ago. In my current department at Columbia in history we are, I believe, at full parity even in the professorial ranks. And there is no reason that it should stop there. MF: What is the most misguided research agenda in economics? AT: I don’t like laying down the law in a negative sense. I avoid zero sum trench wars for intellectual space. I know this is to a degree naive, given the constraints of funding, jobs and who gets the mic matters. So let me give you a reluctant answer: I was profoundly at odds with the Real Business Cycle movement. And I also regret the narrowing effect that the preoccupation with causal identification has had across the social sciences. Like many people I feel that the search for truly water-tight causal demonstrations often leads to triviality. Of course no one would deny the significance of supply-side shocks and the problem of precise causal inference are of abiding interest, but to make either of them into the gold standard is narrowing. I’m afraid that my pluralism doesn’t make me the best warrior for “plural economics”. MF: What is the most promising current research field or issue in economics? AT: I am sure there are many, but the one I know best is macrofinance. Personally, it has been my point of re-entry into economics. Driven by the shock of 2008 and the Eurozone crisis, it is a field that is open to an unusually wide variety of interested folks. MF: Where does economic research have the most influence on policy-making? AT: I observe this as an outsider, but the area of interaction that I am most closely involved with is central banking where, for better and for worse, the boundary between research and policy practice seems very porous indeed. Even someone who is deeply interested in economic history, like Ben Bernanke, can become a top decision-maker. The risk is that the central banks dominate the field of monetary economics to such an extent that it becomes an echo-chamber. To that extent I appreciate the arrival on the central banking scene both of “heterodox” schools of thought and of pragmatic, lawyerly, political types like Jerome Powell and Christine Lagarde. MF: On what issues should policy listen more to economists? AT: Answering this questions depends on a judgment both about policy and economics. Given my policy preferences and my doctrinal preferences in economics, which group of economists would it be safe and beneficial for policy-makers to listen to? In the area of climate change, I tend to think that economists have been listened to too much. Policy makers have also listened to the “wrong” economists too often with regard to fiscal policy. The group of economists that I think it would be safe and beneficial for policy-makers to listen to more are economists in macrofinance. As I say, that is a subfield that was developed to address financial instability and crisis, to bridge the divide between finance and macroeconomics. MF: What is your career advice to a young economics researcher? AT: Take care of your mental health. The above article first appeared in the INOMICS Handbook 2022, which you can download on our site. Header Image Credit: Photos provided.
The following article first appeared in the INOMICS Handbook 2022. Download the INOMICS Handbook Professor Marcel Fratzscher, esteemed macroeconomist and president of the DIW Berlin, once again asks questions about economics and life in general to a peer in the 2022 edition of the INOMICS Handbook Questionnaire. This time, he has the pleasure of being joined by renowned economic historian Adam Tooze, who generously agreed to take the hot seat in this exchange. Thus, the back-and-forth has been dubbed Fratzscher vs. Tooze, as is tradition. What follows is a dive into the beauty of wild places, the gender bias still present in economics, the link between policy makers and central banks, the limits of the search for perfect causality in the social sciences, and even more. Tooze’s perspective is unique and fresh, and is sure to be an interesting read you won’t want to miss.
The game is an interesting one from an economics standpoint, since players must collect and trade resources, invest in the growth of their own miniature economy, barter with others, and make decisions about trade-offs and opportunity costs at every turn. In Catan, the person who builds the most efficient and fastest-growing economy almost always wins. In this article, I aim to shed some light on the economics of Settlers of Catan, and show how it reflects some economics principles and real-world concepts. Without further ado, let’s dive in. The Foundations of a Productive Economy In Catan, resources are gained by a roll of two six-sided dice each turn. This means that possible numbers rolled are between 2 and 12, with the number 7 being the most likely. On the board, each resource tile has a number from 2 to 12 on it (except 7 – more on that later), and when that number is rolled, every settlement touching that tile gets one resource from it. Cities get two. Clearly, it is better to get your settlements and cities on the more commonly rolled numbers. On average this will yield more resources, putting you at an advantage ceteris paribus. Those tiles with more likely numbers represent land that is more productive. In the real world, especially for developing economies, concentrating production on the most productive land is also the best way to build the foundation for a healthy economy. Often, this means early cities developed along waterways and in areas with productive soil for agriculture. But, sheer productivity isn’t everything in life or Catan. Some resources are more valuable than others, and the opportunity cost of each one changes depending on the game and your particular economy. In Catan, you need brick and wood to build roads, which let you expand and build more settlements in new places. Settlements cost a brick, wood, wheat, and sheep to build, and they allow you to collect more resources when a resource tile they touch has its number rolled. Expanding your territory and building on new spaces is quite important, then, especially because each settlement prevents anyone else from building in an adjacent space. Basic economic theory tells us that having more input will yield more output, and on an island where real estate providing those inputs is scarce, it pays to get there first! Realizing Economic Growth via Agglomeration Settlements help you expand, but to realize economies of scale by increasing your economic efficiency, you’ll need cities. Cities are built by upgrading an existing settlement using two wheat and three ore. As mentioned before, cities gain resources more quickly, and a city built early in the game can grant a big advantage due to this fact. This isn’t just true of Catan. Agglomeration economies in the post-industrialization world mean that cities are the centers of economic activity in modern economies, too. As more and more production concentrates in one area, the economy benefits due to economies of scale, knowledge spillovers between local industries, labor market pooling, increased opportunities for local residents, and many other factors. The last thing that can be built with your Catan resources are Development Cards. Rather than representing microloans from the IMF or World Bank for your burgeoning island economy, these cards grant different one-time-use powers that can tip the scales in your favor. They can be thought of as purchasable positive shocks to aggregate supply. An example is the monopoly card that lets one player take all resources of a certain type currently in play at that moment. Another grants two roads for free, a boon that many economies would love to experience. There are also ports in Catan which allow players to trade resources more efficiently. Normally, players can trade with the “bank” (i.e., the game box) by giving up four cards of one resource to get one card of a different resource. This is a brutally expensive exchange rate, but ports give players the opportunity to get more favorable rates for certain resources. In the real world, international trade allows countries to leverage the power of comparative advantage to consume more goods than they could have otherwise. Ports in Catan approximate this fact by improving your exchange rate for trading resources. One key difference, though, is that trade between players is always possible with zero transaction costs. This dilutes the importance of port cities compared to a real economy. If trading costs and distances were factored into the game, no doubt ports would see an increase in strategic value closer to their real-world counterparts. So, building settlements on ports and upgrading settlements to cities are the two main ways players can start to economically overpower their competition in Catan. Analyzing the Relative Value of Catan’s Resources That was a lot, so let’s briefly review what each built object can do and what they cost: Object Benefits Cost Settlement Collect 1 resource each time a number touching it is rolled, gain 1 victory point Brick (1), Wood (1), Sheep (1), Wheat (1) Road More opportunities to build settlements, 2 points if you have the longest continuous road (“Longest Road”) Brick (1), Wood (1) Development Card Random one-time-use economic benefits (or possibly a victory point) Sheep (1), Wheat (1), Ore (1) City Doubles the resource income of the settlement it upgrades, gain 1 extra victory point Wheat (2), Ore (3) Examining the last column in the table provides some interesting insights about the relative economic value of each resource. First, wheat appears in almost every single row. The only thing that doesn’t require wheat to build is a road, which is the cheapest item and only indirectly contributes to economic growth. So, having a source of wheat income is very important at all stages of the game! The next obvious thing that jumps out from the table is that cities are the only buildable object that takes more than one resource per type to build. Cities are also the most expensive thing you can build, requiring 5 resource cards. But, the player with the earliest city usually has a big advantage since cities increase economic output quite drastically. So, the best Catan economies must ensure they have access to (or can trade for) reliable sources of wheat and ore. One last thing to note about the relative value of resources is their relative scarcity. Each game of Catan will have four spaces each of wood, sheep, and wheat, but only three brick and three ore spaces. This means that, ceteris paribus, brick and ore are relatively more scarce, and therefore more valuable. The number placements on the island can also greatly change which resources are more or less valuable. Basic theory of supply and demand tells us that if a specific resource has only low-probability numbers on its spaces, it is very likely to be rare and therefore more valuable than normal. Picture credit: Pixabay.com The Temporal Value of Resources What may be less obvious from the table above is how time affects the value of each resource. Certain resources become more or less important as the game continues. The value of expanding an economy is highest at the beginning of the game, when the island is mostly unsettled and people’s incomes are lowest. This is akin to a market that is underdeveloped. Often, the first firm to begin production in a new market has the easiest time securing market share, and has an advantage over following firms – who must outdo them in some way to compete. We refer to this as a first-mover advantage in economics (for more on this, see Stackelberg Competition). Although Catan players are not “producing” - rather, they are receiving a random resource bounty - the “first mover” in this sense will have the best choices of new expansions available. They will gain an advantage, all else being equal, in terms of accessing new numbers and resources. So in the early turns, building roads and settlements as fast as possible to claim new territory is important. This means there will be a relatively high demand for brick and wood in the early stages of the game. Towards the end of the game, when land has been mostly claimed, players must focus on building upward instead of outward. Yet again, this reflects real economic phenomena; once the more limited factor of production (productive land) is mostly being used, economies must focus on increasing their efficiency and intensive use of capital to continue growing. Thus, later on in the game of Catan, wheat and ore become very important since they are the city-building resources. Meanwhile, brick and wood become nearly useless since expanding becomes more difficult and less valuable as the most productive land is claimed. Savvy Catan players will know this, and prepare their economies to eventually transform or trade off their brick and wood for ore and wheat (perhaps by using ports). This transition process mirrors how developing economies change over time, as well. Most developing economies tend to produce goods from raw materials, often shipping finished products over to more advanced economies for sale. As a country grows richer and more developed, it may begin offshoring production of primary goods, while service industries flourish. These economies do not stop producing end goods from raw materials, but most productive land is already being used, and much more of the economy is focused on increasing productivity. This is done through realizing economies of scale, increasing investment into human capital, and encouraging innovation. In Catan, this is represented by the growth of cities as the island becomes almost fully settled. Despite the methods available for increasing economic efficiency, it is unrealistic for a single economy to be entirely self-sufficient. Significant gains from trade can be had when countries focus on their comparative advantages and trade to increase overall welfare. Which finally brings us to the last aspect of your Catan economy… International Trade & Politics There are a few key ways that players can interact in Catan and hopefully gain an advantage. Those familiar with game theory should have a leg up in this aspect of the game. First, you are free to make trades with other players as you please on your turns. Often on your turn, you may lack one or two important cards. You can ask the other players if they have something you want and trade on a bartering basis. Remember that you can also trade with the bank, but this is quite expensive without a port. Trading with players is usually a better option. Players can also more directly interfere with one another. When someone rolls a 7, no resources are collected. Instead, the player who rolled gets to place the knight (also known as the robber, or bandit, or even “Gary the angry snowman” – if you play with my family!) on any space. The knight blocks resource collection on that space until it is removed - a significant negative supply shock that just might send your economy into a recession. There are massive economic and political implications for rolling a 7 and being in charge of the knight’s placement. Most players will be unhappy with you for blocking one of their spaces. If you block someone, you can severely cripple their production for a length of time. But, you may lose them as a future trading partner for your crimes against their economy! Often, players will try to convince others that a certain person is winning and thus they should be blocked. But, this can backfire; a particularly outspoken player can create political enemies, even if their reasoning is solid. Informal sanctions and blockades abound late in the game, especially as multiple players start to close in on 10 points and try to subvert one another. So, placing the knight is a delicate balancing act of slowing down the player with the best economy (or limiting the most dangerous opponent, if you’re in the lead) while also maintaining the best “international” political relationships you can to preserve your access to economically beneficial free trade. Get Ready, Get Set, Settle! Catan is a game that is easy to pick up, but has surprising depth. Many principles of macro- and microeconomics are at play, which along with randomness lend to Catan’s replayability. If there are any economists out there who have yet to play the game, I would encourage you to give it a try. With your knowledge of economic theory, you just might become the best settler that ever was! Header image picture credit: dograapps via Pixabay (free for use under the Pixabay content license)
Klaus Teuber’s Settlers of Catan is a popular board game that has become a mainstay of friendly gatherings across the globe. For the uninitiated, in Catan up to 4 players compete to be the first one with 10 victory points. Points are gained by building houses (“settlements”), cities, and roads on a heretofore unsettled island rife with natural resources. Catan has nearly limitless replay value - with 3,695,814,682,560,000 (over 3 quadrillion!) different unique board layouts using just the base rules. Chances are, you’ve heard of Catan even if you don’t particularly love board games.
In summary, your majesty, the failure to foresee the timing, extent and severity of the crisis and to head it off, while it had many causes, was principally a failure of the collective imagination of many bright people, both in this country and internationally, to understand the risks to the system as a whole. Throughout the subsequent decade, economists sought to repair the reputational damage to their profession. These experts in self-interest had recognized a need to restore public confidence in their work. Economists took it upon themselves to engage in public debate and entire economics curricula were redesigned. Many set out to broaden their horizons through interdisciplinary work with other scientists, something that had hitherto been less common in economics than other social sciences (see figure 1). However, despite these endeavors, general attitudes toward economists were little changed. In the United Kingdom, a majority of voters chose to leave the European Union, disregarding the broad consensus among economists that it was going to do them material harm. According to a YouGov poll taken in 2017, economists were among the least trusted of a selection of “experts”, with only politicians faring worse (see figure 2). In fact, a shortage of trust in economists is nothing particularly new. As far back as 1925, Frank Fetter wrote in the American Economic Review about the relationship between economists and the public, stating, Academic economists incur popular distrust because they are supposed to echo and reflect the opinions of the business world, while business distrusts them as dangerous radicals because they refuse to worship at the altar of Mammon. As with their lack of foresight prior to the financial crisis of 2008/09, few, if any, economists saw the coming of COVID-19. The economic impact of the pandemic is huge. Yet since its primary cause is biological, there has been less finger-pointing at economists this time round. On the contrary, the wide-ranging consequences of COVID-19 have presented a wealth of new opportunities for economists to demonstrate their value to the world. There has been a surge in demand for key skills in statistical analysis and forecasting as governments everywhere face stark choices, weighing the costs against the benefits of various policy alternatives. Economists have found their moment. The following table lists initiatives that have been taken in response to the pandemic by some of the major academic bodies and research repositories in economics. Along with papers about the general effects of the pandemic on economies, others focus more directly on the social and health effects of various lockdown policies. A key feature in many of these studies is the traditional and simple economic approach to problem-solving: the analysis of trade-offs and optimization within a world of ‘second-best’. The recent hive of activity among economists is not confined to academia. Indeed, there has been a more general realization across society that an understanding of statistics is critical to managing the crisis. The radical changes to daily life imposed by governments around the world have increased uncertainty and the demand to deal with it. Economists have been called upon to reassess markets under lockdown, advise governments on new monetary and fiscal measures to mitigate the economic fallout from COVID-19, and assist more directly in modelling and forecasting the epidemiology of the disease itself. One of my own areas of research, the voluntary sector and donor behavior, led to my being commissioned to perform analysis of the fundraising market on behalf of charities in the UK. My co-author Cathy Pharoah and I considered the impact of the pandemic both on the various income streams to charities as well as on the new demands for their services. We measured the interdependence between donor trends and economic growth over recent decades to project the future path of charitable donations based on current government forecasts of GDP, acknowledging very large differences between best and worst-case scenarios. In our research report we outline some key pointers for fundraisers to consider, to encourage them to think more as economists when planning their appeals and to focus on what is within their control while being prepared to adapt to new events as they occur. The US Bureau of Labor Statistics was already expecting higher job growth for economists than for other occupations over the coming decade (14% versus 4% growth, see here. Increased use of “big data” to aid pricing and advertising, in tandem with a more complex and competitive global economy, are cited as the main reasons for the predicted job growth. The coronavirus pandemic is only accelerating such developments. Economists are trained to analyze data and are equipped with tools that aid decision-making under uncertainty, be that at the individual, group or societal level. While economists may not have been classified among the ‘essential workers’ as the health crisis took hold, they are better positioned than most to show ways out of it and to think beyond. Economists also belong to the group of professionals who can do their job remotely. It may only be thanks to lockdown and social-distancing that the epidemiologists and public health scientists at the London School of Hygiene and Tropical Medicine have thus far escaped royal scrutiny on the lack of preventative measures for COVID-19. Having already suffered that fate when the previous crisis hit, economists now have a great chance to redeem themselves. Many of them are already capitalizing on it. The above article first appeared in the INOMICS Handbook 2021. Download the INOMICS Handbook References Fetter FA (1925) “The Economists and the Public”, The American Economic Review 15(1), 13-26. Fourcade M, E Ollion and Y Algan (2015) “The Superiority of Economists”, The Journal of Economic Perspectives 29(1), 89-113.
The following article first appeared in the INOMICS Handbook 2021. Download the INOMICS Handbook On a visit to the London School of Economics in November 2008, the Queen asked her hosts why no one had seen the financial crisis coming. It took the professors nine months to come up with an excuse, put forth in a letter in July 2009:
Based on aggregating the total interest in offers publicized on INOMICS during the previous year (see methodology) winners were chosen across 7 different categories. In each category, we identify the Top 3 institutions as well as those in the Top 20, listed in no particular order. The awards (past awards) hope to acknowledge the universities, research centers, economics schools, banks, think tanks, and government and private institutions which listed their career and study opportunities on INOMICS in 2021, and were the most popular among our users. The full list of award winners can be found in the INOMICS Handbook 2022, alongside expert career advice from economics professors and a fascinating interview with economic historian Adam Tooze, who offers his wisdom on the economics landscape. Download the INOMICS Handbook for free. Top 3 Employers University of Copenhagen (Denmark) University of Cape Town (South Africa) Queen Mary University of London (United Kingdom) Top 3 Training Course Organizer Vrije Universiteit Amsterdam (The Netherlands) University of St.Gallen (Switzerland) Barcelona School of Economics (Spain) Top 3 Places to Do a Master's University of Luxembourg (Luxembourg) CERGE-EI (Czechia) University of Alicante (Spain) Top 3 Places to Do a PhD Graduate School of Economic & Social Sciences (GESS), University of Mannheim (Germany) University of Surrey (United Kingdom) University of Konstanz (Germany) Top 3 Conference Organizers Review of Socio-Economic Perspectives (RSEP) Ruhr Graduate School in Economics (RGS Econ) (Germany) Masters International Research and Development Center Top 3 Summer School Organizers University of Oxford (United Kingdom) Paris School of Economics (France) The University of Surrey (United Kingdom) Top 3 Scholarship Providers CEMFI (Spain) The Institute for Employment Research (IAB) (Germany) UniCredit Foundation See all winners in Handbook
Now in their sixth year, the INOMICS Awards remain unique in their celebration of institutions committed to the career development of economists worldwide.
The Value of Nature’s Services to Modern Economies
These factors of production from nature hold the core of all economies’ potential output, which therefore makes our economy dependent on the life-support systems of our planet. Even businesses seemingly removed from raw materials - like software-as-a-service companies - depend on power generated from natural sources. Yet, over the past few decades, economic theory has managed to fabricate the illusion that somehow we can get by without natural resources, or that they are insignificant to our modern world. We know that resources are finite, but apparently as a species we lack the feeling of urgency to realize their significance for the maintenance of our world and for the future generations that will follow us. National governments continue to focus on growing their economies, paying little heed to the consequences they may have on nature. The services provided to us by nature take four main forms, as first identified by the UN Millennium Ecosystem Assessment’s 2003 “Ecosystems and Human Well-being: A Framework for Assessment” report. They are called provisioning services, regulating services, cultural services, and support services. The value estimates for ecosystem services in the rest of this article are typically estimated by: the market value method, avoided damage cost method, replacement cost method, opportunity cost method, or by hedonic property models. These are some of the most prominent ecosystem valuation methods, but there are others as well. Provisioning Services Provisioning services are the ecosystem services provided to humans as products obtained directly from nature, such as: Food from plant, animal and microbe sources. Fuel, wood, and other sources of energy. Fiber, cotton, wool, hemp and silk. Genetic resources such as the genetic information used for biotechnology and animal and plant breeding. Ornamental resources such as shells, animal skins and flowers. Biochemicals, natural medicines and food additives. Fresh water from sources such as rivers. The value of every single provisioning service is enormous. In fact, each of these services comprises the core of some multi-million dollar industry, and when combined together, all of these industries make up a huge portion of most nations’ GDPs. In other words, these services make up an essential and irreplaceable part of the entire world economy. Here are some examples of provisioning services that contribute significantly to economic growth: In Switzerland, the pollination services provided by specific species of bees support the production of about 231 million dollars worth of agricultural sales per year (TEEB, 2010). Thus, pollination in this case is a provisioning service - allowing our crops to grow as normal. It is possible for natural services to fill more than one role; see the next section for how pollination can also be a regulating service. Honey production worldwide generates a value of approximately 8 billion dollars annually (Statista, 2020). Globally, more than 30 million people in coastal and island communities are entirely dependent on resources extracted from coral reefs as their main source of income, food, and livelihood (Wilkinson, 2004). Accordingly, losing natural resources that compose or support these industries would entail serious economic losses. On the other hand, the optimal, sustainable utilization of such natural assets could boost economic growth, driving nations to prosperity. Regulating Services Regulating services are the benefits provided by nature that moderate natural phenomena in order to improve the physical environment for specific human purposes. Regulating services include the processes of erosion, pollination, water purification, decomposition and flood control, disease prevention, carbon storage, and climate regulation. However, the economic values of most regulating services are not calculated in terms of monetary valuation, despite their importance. This is because regulating services are not traded or sold. However, regulating ecosystem services are extremely beneficial because they could reduce the impact of climate change as well as aid in agricultural production, along with many other valuable benefits. In fact, the total global value of regulating ecosystem services is estimated to be worth approximately US$29.085 trillion (Balasubramanian, 2019). More specific examples include: The regulating ecosystem services of the Tampere region in Finland amount to approximately 1 billion Euros in total, contributed annually (Tammi et al. 2017). For Tampere city (in Finland) alone, ecosystem services such as carbon sequestration have an estimated value of 31 million Euros, pollination amounts to about 9.9 million Euros, and nutrient retention generates a value of roughly 54 million Euros (Tammi et al. 2017). In this case, pollination is a regulating service since it helps to stabilize the city’s ecosystem. In the Netherlands, the economic value of air quality regulation services has been found to be worth approximately 2 million Euros (Remme et al. 2015). The economic value of climate regulation (which includes natural services such as carbon sequestration and others) in the Czech Republic is worth approximately 267.32 million dollars (Balasubramanian, 2019). Cultural Services Over the years, the natural world has continued to guide our cultural and social advancement by being a constant force present in our lives. Cultural services that nature provides include recreation and aesthetic and spiritual values of nature, such as: Ecotourism, outdoor sports and all other types of recreation. Therapeutics such as eco-therapy and social forestry. Spiritual, historical, or religious value that people derive from nature. Other cultural services include books, film, folklore, national symbols, advertising, different forms of art, etc. that nature supports, makes possible, or features in. Despite the fact that cultural services provided by nature are usually immaterial, the annual revenue flow from ecotourism (as an example) could amount to an estimated US$29 billion. Egypt, Kenya, and Cambodia, among other countries, have recently started implementing ecotourism projects. Similarly, the spiritual, historical, or religious value attached to natural environments or natural phenomena also entails significant economic value. There are many other economic growth opportunities that could be obtained through the utilization of nature's cultural services. For example, for countries rich in greenery and natural scenery, why not implement ecotherapy programs? With evidence of booming anxiety and depression, especially among younger generations, the opportunity to spend a vacation in a tranquil natural landscape may be an attractive opportunity for many. In many countries, ecotherapy has started to gain a foothold as a legitimate mental health treatment. Some of these programs include: The Song House (Ireland), The Ecotherapy Retreat (UK), and Go Into Nature (US), among many others. Support Services The natural world provides us with countless services, and sometimes we overlook the most fundamental of them. Ecosystems themselves couldn't be sustained without the consistency of underlying natural processes. These processes are known as supporting services, and they form the necessary core of the production of all other natural services. The provisioning, regulating, and cultural services discussed in this article themselves depend on support services. These include processes such as photosynthesis, nutrient cycling, soil formation, and habitat provision. These processes allow the Earth to sustain the most basic forms of life, and thus to support whole ecosystems, humans, and economies. Without supporting services, the natural world would break down and so provisional, regulating, and cultural services would cease to exist. Natural services are essential to the global economy’s functioning… It is estimated that these natural services contribute a total global value of around $145 trillion per year to human society (Costanza et al. 2014). This figure was constructed as an estimate of “...the support of sustainable human well-being that ecosystems provide…The value of ecosystem services is therefore the relative contribution of ecosystems to that goal.”1 Putting that contribution to human well-being into perspective, this is more than seven times the GDP of the United States, and is much larger than total global GDP. In other words, nature’s contribution to our lives is much more than our total economic output. To be clear, this is value that we freely receive from nature and don’t have to pay for. It underpins our economic system, but since we don’t pay for it, we don’t account for it in our GDP metric. Thus, markets and governments “ignore” the value provided and fail to protect them properly. Yet these are services - like the water cycle, or oxygen production - that we can’t live without. …but are being degraded and ignored, to our future detriment Many government policies and corporations seem to behave as if there is a clash of interests between preserving the natural world and their bottom line. This seems extremely irrational, as they neglect the possibility that environmental degradation could shut down their markets entirely and put our economies at risk. Already, due to unsustainable and exploitative growth, global warming is increasingly causing economic damage. Additionally, the world has been experiencing a rapid decline in hundreds of plant and animal species that contribute to our ecosystems. The absence of clear environmental policy goals, poor enforcement of existing regulation, corruption, and lack of institutional capacity are some of the main reasons that lead to ecosystem degradation. This process of degradation could be considered a negative externality that is not properly accounted for by our economies’ markets, as again metrics like GDP don’t include them. Perhaps our limited capacity to deal with the potentially disastrous consequences of environmental degradation is aggravated by the absence of sufficient information. Governments and the public need more knowledge about ecosystem functions, the benefits they generate for economies, and the value they represent in and of themselves. We don’t necessarily have to choose between protecting the environment and continuing our economic growth. Rather, we must choose to protect the environment to ensure our economic future. References: Costanza, R. et al. Changes in the global value of ecosystem services. Global Environmental Change 26: 152-158, doi:10.1016/j.gloenvcha.2014.04.002 (2014). TEEB, RECOMMENDATIONS OF. "Mainstreaming the Economics of Nature." (2010). Wilkinson, Clive. "Status of coral reefs of the world: summary of threats and remedial action." Coral reef conservation 13 (2006): 3-39. Tammi, Ilpo, Kaisa Mustajärvi, and Jussi Rasinmäki. "Integrating spatial valuation of ecosystem services into regional planning and development." Ecosystem Services 26 (2017): 329-344. Remme, Roy P., Bram Edens, Matthias Schröter, and Lars Hein. "Monetary accounting of ecosystem services: A test case for Limburg province, the Netherlands." Ecological Economics 112 (2015): 116-128. Balasubramanian, M. "Economic value of regulating ecosystem services: a comprehensive at the global level review." Environmental monitoring and assessment 191, no. 10 (2019): 1-27.
For as long as we can remember, Mother Nature has been serving mankind as our major root source of livelihood. From the land that provides the nutrients for our crops, to the stone for our roads and buildings, to the oil for transport in our globalized world, we rely on these natural resources to maintain our modern way of life.
Agricultural and Environmental Economics (JEL Q)
However, despite pillaging the planet and endangering our existence, we still find time for solidarity and charity, betraying a nature seemingly as generous as it is destructive. Recent events draw attention to this paradox, coronavirus triggering swells of heart-warming community spirit as well as the hoarding of toilet paper. Which leads to the question: given such a paradox, what, if anything, does it mean to be human? Philosophers seem unable to muster a unified answer. In fact, little consensus has emerged anywhere - except, that is, among a cadre of economists, whose influence has gone on to define their discipline. The following is the story of how this clique defined their own answer to this question - the story of rational economic man. His evolution It begins when ‘The Father of Economics’, Adam Smith, wrote about the importance of man’s self interest in making markets work. It’s not, he famously explained in The Wealth of Nations, the benevolence of the butcher, brewer or baker that keeps us fed and refreshed; rather, it’s their selfishness, their pursuit of personal wealth. While acknowledging ‘generosity, justice, and public spirit’ as other, nobler drivers of human behavior, it’s his conception of selfishness that’s best remembered - becoming the first plank of economics’ conception of man. However, selfishness notwithstanding, man - according to Smith - was still to some degree unpredictable. Economists were, therefore, denied a discrete unit of analysis, and unable to model human behavior with much precision, reducing their work to rough prediction. What economists needed was a constant, their own version of the scientist’s gene, something both simple and predictable. It was thus, with an eye on their scientist colleagues, that they began to define human nature (and reality) to fit their theoretical needs. To gain access to the scientific method, they would first have to reverse it. <11an>limit:3;categories:Summer Schools;disciplines:Economics</11an> Key to this endeavor’s success was political economist John Stuart Mill, who, in the mid-19th century, developed ‘homo economicus’: a depiction of man that added laziness and a love of luxury to the Smith-endowed desire for wealth. Acknowledging that this formulation overlooked ‘the whole of man’s nature’, and therefore rendered the findings of political economy ‘only true… in the abstract’, Mill claimed it was only through such simplification - collapsing human behavior into a handful of uniform drives - that the emerging field’s true potential would be realized. It was, for this reason, a necessary compromise. Reliable predictability, however, was still missing - and for that their conception of human nature needed further refinement. In sketching his ‘calculating man’ in the late 1800s, economist William Jevons duly obliged, bestowing man a relentless and unfailing calculus of personal satisfaction. He saw the individual as an insatiable seeker of utility. Though satisfaction from a single activity could be exhausted - owing to the law of diminishing returns - Jevons claimed overall satiation could never be reached; for as man ‘progresses’ (gets richer), so too widens the spectrum of his desires. The individual in this interpretation was endlessly greedy, devoid of social affinity, and a slave to their own need to constantly consume. During the interwar period, Chicago School economist Frank Knight then added ‘perfect knowledge’ to this already improbable set of traits, and ever-calculating became ever-knowing. The rational economic man was now capable of comparing all goods and prices across all times. With this departure into make-believe, economics’ contemplation on human nature was complete, and the final touches to a unit of analysis now primed for mathematical theorizing were done. Rational economic man as appears in our economics textbooks was born. Since conception, his life has by and large been a charmed one, withstanding ethical criticism, and buttressed by the popular 20th century view that resources were essentially inexhaustible. And in any case, as Milton Friedman commented in the 1960s, it made little difference whether economics’ abstraction of man was accurate. The economy operated, and people behaved, as though it was - so what was the issue? His Fall That would soon become clear. Over the years, rational economic man increasingly came to frame both the ends of policy-making, and the means. Success was when he spent more money, gratifying his myriad cravings, and failure was when he spent less. By the same token responsible behavior could be coaxed by financial incentive, known as ‘market-based policy’, and bad behavior disincentivized by financial regulation. It was an encompassing mindset, seductive in its simplicity, and one that was reflected in the governing logic of parties both left and right as the 20th century rumbled on. But humans respond to more than just carrots and sticks. It’s simply not possible to create a tax bribe for every good thing that needs to happen, nor a regulatory whip to eradicate all that’s bad. Much of our modern world is built on these incentives, and look around: it’s a world defined by a climate emergency, excessive consumption, and global inequality. At a time when we need compassion, collaboration, and restraint, economics is too often based on a conception of man defined by selfishness, disregard and greed. He is no longer fit for purpose. And he never was. As writer Johnathon Rowe summarily concluded: ‘rational economic man is not the result of dispassionate inquiry into human nature… he’s the result of a drive for influence…[and was] designed in a by-gone time.’ Given the enormity of the challenges we face, it’s time for a reset. We need a new approach to funneling human energies toward human needs, one that recognizes the complexity of humankind - however undefinable - and appreciates our dependency on the natural world, reciprocity, and community. Moves towards behavioral economics are positive. But the rational economic man remains, especially in the US, a textbook staple and bedrock of policy, revealing the lingering esteem in which he’s still held. Looking into a post-COVID future, if economics is to achieve the credibility it so craves, that esteem must be snuffed out. The above article first appeared in the INOMICS Handbook 2021, which you can download on our site. Image Credit: jplenio via Pixabay (free for use under the Pixabay content license)
Humanity’s evolving nature has propelled it up the food chain, from prey to planetary predator. Just 60,000 years ago, homo sapiens roamed the earth, insignificant and insecure, their existence of little consequence. Life, as Thomas Hobbes put it, was ‘nasty, brutish, and short’. Fast forward to the present and man’s mark is unmistakable, the dawn of the ‘anthropocene’ testament to mesmerizing advances in technology - and a masochistic disregard for our ecosystems.
The 'Recipe With No Ingredients' in Macroeconomics Textbooks
Almost fifty years ago William Nordhaus and James Tobin, both professors at Yale University and later Nobel Prize laureates in economics, wrote an article with which they intervened in the debate aroused by the well known Report to the Club of Rome, The Limits to Growth (Meadows et al, 1972)1. Among other things, they wrote: "The prevailing standard model of growth […] is basically a two-factor model in which production depends only on labor and reproducible capital. Land and [natural] resources, the third member of the classical triad, have generally been dropped" (Nordhaus and Tobin, 1973, p. 522). Nordhaus and Tobin made reference to an analytical tool largely used by the standard theory, the aggregate production function. That function is normally presented in the form Y = f(L, K), in which the determinants of product (Y) are labor (L) and capital (K) - the “factors of production”. Sometimes, along with labor and capital, “technology” or “efficiency” are considered causes of economic growth. One may wonder why natural resources, traditionally represented by “land”, were dropped from the production function. There are several answers. Firstly, some neoclassical economists in the late 19th and early 20th century included “land” in capital assets (see Daly and Cobb, 1989, pp. 109-113; Czech, 2013, pp. 91-116); so in the following years many economists didn’t see “land” in the function and simply “forgot” it, consequently forgetting natural resources. Secondly, after World War II the general atmosphere of economic optimism meant that many economists considered natural resources not scarce (see Nordhaus, 1974, p. 22, Daly, 1999a, p. 79), and so irrelevant for economics; if and when a single resource would became scarce, it could be substituted with another resource on the basis of the idea that "Nature imposes particular scarcities, not an inescapable general scarcity" (Barnett and Morse, 1963, p. 11). Moreover, many economists avoided the problem of absolute scarcity by admitting the substitutability of raw materials drawn from nature with man-made capital. According to my knowledge, the first explicit statement for this substitutability was made by Nordhaus and Tobin in the above mentioned paper (1973, pp. 522-3) and, despite the fact that for years ecological economists have repeated detailed criticisms on this point (see for example Daly, 1996, pp. 76- 8), the belief that capital may replace natural resources in production still remains widespread among neoclassical economists2. Finally, a not negligible reason for failing to consider natural resources was simply a matter of mathematical convenience, as the “two-factor model” is more manageable for mathematical processing and for explanations to students (Daly, 1996, p. 77; Czech, 2013, p. 87). Having cleared natural resources from the production function, standard economists neglected them from almost all their models and in general from their remarks, to such an extent that Robert M. Solow (emeritus professor at the MIT and Nobel Prize laureate) – author of the "standard model of growth" mentioned by Nordhaus and Tobin – came out with the following astonishing statement: "the world can, in effect, get along without natural resources" (Solow, 1974, p. 11)3. In this regard the ecological economist Herman Daly (former senior economist at the World Bank and emeritus professor at the School of Public Policy of University of Maryland - College Park) wrote: "His [of Solow] well-known work in growth theory is based on an aggregate production function in which resources do not appear at all, and which takes production to be a function only of capital and labor. […] Since the production function is often explained as a technical recipe, we might say that Solow’s recipe calls for making a cake with only the cook and his kitchen. We do not need flour, eggs, sugar etc., nor electricity or natural gas, nor even firewood" (Daly, 1999a, p. 77). In short, the neoclassical production function is a "recipe with no ingredients" (Daly, 1999b, p. 91). On the contrary, we know that production needs “ingredients”, namely raw materials derived from the stock of natural resources, transformed by labor and capital into products. Without natural resources the factors of production cannot produce anything, as everyone knows: "the smithy had been quiet for a month because they had no iron to make tools and horseshoes", wrote Ken Follett in a novel (Follett, 1996, p. 373); a neoclassical economist that reads that passage would think, instead, that the smithy could continue to produce only with blacksmiths (L), anvils, mallets and other equipment (K). The offhand attitude of standard economists towards natural resources is reflected in macroeconomics textbooks. In 1991 Herman Daly searched through the indexes of three leading (at that time) textbooks in macroeconomics and found "no entries under any of the following subjects: environment, natural resources, pollution, depletion" (Daly, 1991, p. 255)4. So professor Daly asked rhetorically: "Is it really the case, as prominent textbook writers seem to think, that macroeconomics has nothing to do with the environment?" (ib.). One can ask if nowadays, thirty years after the above mentioned Daly’s detection, the leading textbooks in macroeconomics recognize the fundamental role of natural resources in the production process and then for GDP growth. In general the answer is “NO”, even though some textbooks take a few steps forward. For example, “Economics” written by the late Paul Samuelson (professor at the MIT and winner of the Nobel Prize), renewed and updated by William Nordhaus, shows a production function with natural resources along with labor and capital (Samuelson and Nordhaus, 2010, p. 503). However this is not a satisfactory solution to consider natural resources, as Nicholas Georgescu-Roegen − one of the "pioneers of Economics of Sustainable Development" (Daly, 1996, p. 169) − showed (Georgescu-Roegen, 1979, p. 17; Georgescu Roegen, 1984). In brief, the reason is that raw materials (i.e. natural resources) perform a different role in the production process compared to labor and capital, as well explained by the following quote of Herman Daly and Joshua Farley: "Labor and capital are transforming agents, funds that transform the flow of resources into a flow of product, but are not themselves embodied physically in the product. Labor and capital are agents of transformation (efficient causes, or fund-services), while resources are that which is being transformed (material causes, or stock flows). The neoclassical production function abstracts from the difference between material and efficient causes of production and considers both to be equivalent […]" (Daly and Farley, 2011, p. 157). For this reason, considering raw materials a factor of production on the same level of labor and capital is incorrect. In the production function the factors of production are substitutable: we could produce something only by means of labor or only by means of capital (moving on the isoquant line). But in reality we couldn’t produce anything without raw materials: the baker cannot produce bread without water, flour and energy for heating the oven, precisely because production requires a flow of natural resources. The three-factor production function reported in Samuelson and Nordhaus’ “Economics” raises the logical and economic criticisms I mentioned, but at least it considers the importance of natural resources in the production process. Instead, other textbooks significantly underestimate the role of natural resources. For example, in the handbook written by two very authoritative Princeton University economists, William Baumol and Alan Blinder, natural resources and raw materials are rightly considered inputs of the production process (Baumol and Blinder, 2016, pp. 22, 430), however, when they develop their analysis using the production function, they consider only labor and capital, natural resources disappear and it seems that they are no longer needed to generate GDP: "The production function tells us how much output the economy can produce from the available supplies of labor and capital, given the state of technology" (Baumol and Blinder, 2016, p. 121; see also pp. 104ss.). The same goes for the book Macroeconomics published by Olivier Blanchard (MIT, former chief economist of IMF) and David R. Johnson (W. Laurier University): the aggregate production function is introduced stating that firms use "also raw materials" (Blanchard and Johnson, 2012, p. 122), but then these economists forget this statement and raw materials vanish5; in this book there are "no entries under any of the following subjects: environment, natural resources, pollution, depletion", just like in the textbooks examined by Daly in the early nineties. Let us examine now the interesting case of the textbook written a few years ago by Harvard professor N. Gregory Mankiw. We can read: "An economy’s output of goods and services - its GDP - depends on: (1) its quantity of inputs, called the factors of production, and (2) its ability to turn inputs into output, as represented by the production function" (Mankiw, 2010, p. 47). Therefore, according to this statement, production does not depend on raw materials and available energy resources derived from nature, which are not considered a factor apart, nor are they included in capital6: they simply “do not exist”. The only "natural" thing this text deals with is the unemployment rate. It is important to note, in the above Mankiw’s statement, the message launched to students according to which the economy "turns inputs into output". The concept is reiterated with these words: "[...] many economists consider the Cobb-Douglas production function a good approximation of how the actual economy turns capital and labor into goods and services" (Mankiw, 2010, p. 527). The same was stated by the aforementioned Baumol and Blinder: "It is useful to think of an economic system as a machine that takes inputs, such as labor and other things we call factors of production and transforms them into outputs, or the things people want to consume" (Baumol, Blinder, 2016, p. 22). The students who are trained on these texts, therefore, learn that the blacksmith who produces horseshoes and metal railings does not need either raw iron and coal to melt it (contrarily to what Ken Follett wrote): these materials can remain in mines, since what the good craftsman would do is to transform himself, the anvil, the mallet and other equipment ("labor and other things we call factors of production") into metal objects. And in a canned tuna factory, the workers and the canning equipment would turn, according to Mankiw, Baumol and Blinder, into tasty tuna steaks. Mankiw, as we have seen, affirms that "many economists" think so, but it seems quite obvious that they are wrong, given that, as we have said, are not capital and labor to be transformed into products, but raw materials, i.e. natural resources (and to make this transformation is necessary an input of energy). It should be added that fortunately this is the way it goes, because workers would not be happy at all to be transformed into goods or services! However, I must admit that the claims of Mankiw, Baumol and Blinder are sometimes verified: for example, in the Chicago of the early twentieth century, the workers who fell into the boilers used by the canned meat industry were actually transformed into products, as the writer Upton Sinclair recounted in his investigative novel The Jungle (1906). To confirm his vision Mankiw gives the following example: "… consider production at a bakery: the kitchen and its equipment are the bakery’s capital; the workers hired to make bread are its labor and the loaves of bread are its output. The bakery’s production function shows that the number of loaves produced depends on the amount of equipment and the number of workers" (Mankiw, 2010, p. 48). And not also from the quantity of flour, yeast, water and fuel for heating the oven? Fortunately, professor Mankiw in a more recent textbook remembered natural resources (or “land”) and considered them a factor of production (Mankiw, 2017, pp. 22, 242), in line with Samuelson and Nordhaus’ textbook. As we have seen, it is not a satisfactory approach, but at least natural resources are not completely neglected. Instead, in the textbook published by Charles I. Jones (Stanford University) we can read an example similar to that of Mankiw’s bakery, without any reference to the input of natural resources transformed to obtain products. Jones’s example concerns the production of ice cream: the "message" is that ice cream makers (labor) produce ice cream only by means of equipment (capital), without water, milk, sugar and chocolate (or powders); and in Jones’ ice-cream factory the equipment is still, since energy to operate the machinery is not mentioned (Jones, 2014, p. 70). Faced with arguments of this kind Herman Daly wrote the following words: "The neoclassical production function is worse than alchemy [...] Neoclassical economists, without blushing, write equations in which material output flows require no material input flows" (Daly, 1999b, p. 91). This fast survey of macroeconomics textbooks is very insightful regarding the attitude of standard economists about natural resources. Daly and Farley noted that "Ignoring the necessary role of natural resources in production is part of a pattern in neoclassical economics that has the effect of denying that nature has any role in economic life" (Daly and Farley p. 160). This pattern can be explained with the Kuhnian paradigm of neoclassical economics (ib., pp. 23-4), a paradigm that denies the absolute scarcity problem for natural resources in order not to question the dogma of infinite growth. The traditional production function is particularly suited to that paradigm. If the production function envisages only labor and capital, natural resources are neglected, with bad consequences on sustainability: if, just to say, to model the production of canned tuna one uses an analytical tool which considers only workers (the labor factor) and canning equipment (the capital factor) and not caught tuna, the problem of overfishing does not arise by definition. Moreover, if natural resources are inserted in the production function as a factor of production like labor and capital, they are automatically considered substitutable with these other two factors, and this is absurd, as workers and canning equipment cannot substitute tuna. To conclude, a correct representation of the production process implies the abandonment of the “recipe with no ingredients”. Metaphor aside, economics must stop using the traditional approach based on the production function in which natural resources are almost or completely neglected, and take an approach in which natural resources are explicitly represented as a flow of material taken from natural capital. This approach, which is that of ecological economics, should inspire textbooks used in universities. In this way young students in economics will not absorb misleading knowledge anymore and, once they become economists, they will be able to collaborate with other scientists and with all citizens to use natural resources correctly in order to preserve the ecosystem on which our economy and the life of all creatures depend. * The author is grateful to professor Herman E. Daly for the kind and helpful suggestions. This article reproduces with adaptations a paragraph of a more extensive paper published in Italian on the blog apocalottimismo.it. Notes 1 For an exhaustive overview of the content of the Meadow’s Report, of the criticisms it received and of the developments it has had, see Victor (2019, pp. 168-174). 2 In a treatise written in 2003 important environmental economists wrote that "… many economists believe that evidence points to reasonably high substitution possibilities (although there is by no means a consensus on this) […] between resources and reproducible capital" (Perman et al, 2003, p. 478). More recently an economist expert in these issues wrote that "In the majority of papers on economic growth and natural resource usage the assumption of substitutability between natural resource usage (as an energy source) and physical capital is made" (Malaczewski, 2019, p. 2207). 3 Georgescu-Roegen commented with the following words: "One must have a very erroneous view of the economic process as a whole not to see that there are no material factors other than natural resources. To maintain further that 'the world can, in effect, get along without natural resources' is to ignore the difference between the actual world and the Garden of Eden" (Georgescu Roegen, 1975, p. 361). 4 The three textbooks were: Dornbusch R. and Fischer S. (1987), Macroeconomics, McGraw-Hill, 4th ed.; Hall R. E. and Taylor J.B. (1988), Macroeconomics, W. W. Norton, 2nd ed.; Barro R. J. (1987), Macroeconomics, Wiley and Sons, 2nd ed. 5 Blanchard and Johnson only deal with oil in a box that shows the different effects of the increase in the price of crude oil in the 1970s and 2000s (p. 153). 6 From the definition given by Mankiw, it is clear that he does not consider raw materials as a component of capital: "capital is the set of tools that workers use: the construction worker’s crane, the accountant’s calculator, and this author’s personal computer" (Mankiw, 2010, p. 47). References Barnett H. J. and Morse C. (1963), Scarcity and Growth: the Economics of Natural Resource Availability, Johns Hopkins Univ. Press. Baumol W. J. and Blinder A. S. (2016), Macroeconomics – Principles and Policies, 13th ed., South Western, Cengage Learning. Blanchard O. and Johnson D. R., (2012), Macroeconomics, Pearson. Czech B. (2013), Supply Shock. Economic Growth at the Crossroads and the Steady State Revolution, New Society Publishers. Daly H. E. (1991), Towards an Environmental Macroeconomics, Land Economics, Vol. 67, No. 2, pp. 255-9. Daly H. E. (1996), Beyond Growth: The Economics of Sustainable Development, Beacon Press. Daly H. E. (1999a), Georgescu-Roegen versus Solow/Stiglitz, in Ecological Economics and the Ecology of Economics – Essays in Criticism, E. Elgar (orig. in Ecological Economics, Vol. 22, No. 3). Daly H. E. (1999b) A Note on Neoclassical Theory and Alchemy, in Ecological Economics […], op. cit. Daly H. E. and Cobb, J.B. (1989), For the Common Good […], Beacon Press. Daly H. E. and Farley J. (2011), Ecological Economics. Principles and Applications, Island Press, 2nd ed. Follett K. (1996), A Place Called Freedom, Fawcett Crest. Georgescu-Roegen N. (1975), Energy and Economic Myths, The Southern Economic Journal, Vol. 41, N. 3, pp. 347-381. Georgescu-Roegen N. (1979), Energy Analysis and Economic Valuation, The Southern Economic Journal, Vol. 45, N. 4, pp. 1023-1058. Georgescu-Roegen N. (1984), Feasible recipes versus viable technologies, Atlantic Economic Journal, Vol. 12, N. 1, pp. 21-31 Jones C. I. (2014), Macroeconomics, Third Edition, W. W. Norton & Company. Malaczewski M. (2019), Substitutes or complements? Relationship between natural resources and physical capital – a few stylised facts, Economic Research - Ekonomska Istraživanja, 32:1, 2195-2211. (https://www.tandfonline.com/doi/full/10.1080/1331677X.2019.1637762) Mankiw N. G. (2010), Macroeconomics, 7th ed., Worth Publishers. Mankiw N. G. (2018), Principles of Macroeconomics, 8th ed., Cengage Learning. Meadows D. H., Meadows D. L., Randers J., Behrens III W. W. (1972), The Limits to Growth, Universe Books. Nordhaus W. D. (1974), Resources as a Constraint on Growth, The American Economic Review, Vol. 64, No. 2. Nordhaus W. D. and Tobin J., (1973), Is Growth Obsolete?, in Moss M. (ed.), The Measurement of Economic and Social Performance, NBER. Perman R. at al. (2003), Natural Resource and Environmental Economics, Pearson. Samuelson P. A. and Nordhaus W. D. (2010), Economics, McGraw-Hill, 19th ed. Solow R. (1974), The Economics of resources or the resources of economics, The American Economic Review., Vol. 64, No. 2, Papers and Proceedings of the Eighty-sixth Annual Meeting of the American Economic Association, May. Victor P. (2019), Managing without Growth – Slower by Design, not Disaster, Second Edition, E. Elgar.
Production is interaction of man and nature Karl Polanyi, The Great Transformation
Macroeconomics and Monetary Economics (JEL E)
Solidarity with Ukraine, ways to help and assisting international students fleeing war
How to help and donate It is difficult to know how best to concretely help those in need. Of course, donating money provides an immediate form of assistance. If you have the means, you can assist institutions like the Kyiv School of Economics, which is raising funds for humanitarian aid. You can support their campaign with a donation on their website. If your institution is offering assistance as well, please email ua-help@inomics.com and we will add your institution to the list below. We also wish to direct your attention to some of the major humanitarian aid organizations working in Ukraine right now: Red Cross special Ukraine fund UNHCR (The UN Refugee Agency) UNICEF (United Nations Children's Fund) The International Rescue Committee Doctors Without Borders Alternatively, there are multiple organizations and initiatives with a more specific focus for the support they are offering. Donate for Specific Types of Support Care.org has established a special Ukraine Crisis fund to provide food, water, hygiene kits, psychosocial support, and cash assistance — prioritizing women and girls, families, and the elderly. The Volkswagen Foundation is offering funding to Ukrainian academics and scientists who have fled their country and arrived in (or are in transit to) Germany. Doctoral students, postdocs, and established scientists have the opportunity to continue their work at a university or research institute in Germany for 6-12 months with the Foundation's help. Support Transport for People Fleeing Ukraine: Mission Lifeline are organizing transport convoys from the Ukraine Border. CARA, the Council for At-Risk Academics, provides help to academics in dangerous situations. They and their UK university partners are helping Ukrainians flee their country and find safe areas to continue their work. Support Journalism and Free speech: Ukraine Independent (English-language Ukrainian Newspaper) Fundraising Page Katapult Magazine (German/English language Ukrainian Online Magazine) Refugee Awareness Refugee Week is a UK-wide festival that encourages understanding of refugees and celebrates "the contributions, creativity and resilience of refugees and people seeking sanctuary". This year's Refugee Week is in late June. Helping students fleeing war We are additionally concerned about multiple reports - from PBS, CNN, The Guardian and others - of international students, especially those from Africa, the Middle East and Asia, facing discrimination and violence when attempting to flee the conflict. We implore for their safe passage and the chance to continue their education in safety. If you have information about resources for students fleeing the conflict, particularly international students, please email ua-help@inomics.com so we can advertise and circulate this assistance with our audience of economics students and practitioners. So far, we are aware of: HWR Berlin, Germany Charles Darwin University, Australia The University of Hamburg's UHHhilft program assists refugees who have been forced to interrupt or stop their education. Normally, German or English language skills are essential, but the program is working on a way to advise students in Ukrainian. This is a good option for refugees seeking to begin or continue their studies. Also, the Twitter account Science for Ukraine (@Sci_for_Ukraine) is collecting information about practical support provided by the global research community to Ukrainian researchers and students. This support covers all fields, not just economics. Other ways to engage Donations are not the only way to assist the humanitarian situation in Ukraine. Taking part in demonstrations or otherwise pressuring your lawmakers at home to take action will help change the dynamics of the conflict. Readers in Europe can even consider opening their homes via Airbnb, since the company has promised to host up to 100,000 refugees without charge. Finally, be alert of misinformation and do not mistake the actions of those in power as necessarily representing the will of the people. Misinformation is a common tactic used to drum up support or paint conflict in a good light, but there is nothing good about unnecessary armed conflict. Moreover, many Russian citizens have been protesting against the invasion in displays of solidarity, and many or most Russian people, both within Russia and internationally, are likely as concerned at recent events as you are. If you have additional information about helping people affected by the conflict in Ukraine, please email us at ua-help@inomics.com.
A historic tragedy like the war in Ukraine calls for historic measures of outreach and solidarity. There is an urgent demand for humanitarian aid and safe passage for the hundreds of thousands of refugees already created by the war. This includes thousands of students at Ukranian universities who have had to flee the conflict.
Economic Development, Innovation and Growth (JEL O)
Urban, Rural and Transportation Economics (JEL R)
Its defining feature lies in the assumption that production, rather than demand, is the primary factor in creating and sustaining economic growth. To that end, its proponents advocate the lowering of taxes and removal of regulation. Less taxation, they claim, means more profits for businesses. Then, freed of red-tape and compelled by self interest, those businesses can reinvest their increased earnings to generate a larger supply of goods and jobs. It’s thus that the economy grows - tax cuts pay for themselves. Redistributing wealth by this means, creating circumstances advantageous for businesses and allowing wealth to 'trickle down', is thought meritocratic, ensuring an equity and efficiency that state intervention simply cannot match. Such conviction places it in direct opposition to Keynesianism, which, anticipating fluctuations of aggregate demand and inefficiencies in the market economy, prescribes an active government that intervenes in economic activity using fiscal and monetary stimuli to help manage moments of instability. <11an>limit:2;categories:jobs|courses|conferences|Professor;disciplines:Economic Systems (JEL P)|Economic Development, Innovation and Growth (JEL O)</11an> Reaganomics and the emergence of supply-side Keynesianism served as the standard economic model from the Great Depression onwards. But, its appeal began to fade in the 1970s, as it struggled to arrest the declining growth and rising inflation - known as stagflation - that plagued many advanced economies. Sensing an opportunity, neoliberals stepped in, pushing supply-side principles as the antidote. Most famously, the new theory became the bedrock of ‘Reaganomics’ - the economic policy pursued by the United States' first celebrity president - and since then, it’s remained highly favored, despite being shrouded in controversy. As journalist Bill Flax has described, ‘the notion that tax cuts increase tax receipts circled the globe, and was ultimately tried in such previously unimaginable locales as Euroland, Russia, India and China’. Its theoretical underpinnings and apparent authority derive from the infamous ‘Laffer Curve’, a graph accredited to conservative economist Arthur Laffer. Laffer’s legend began in 1974, at a late-afternoon meeting at the Two Continents Restaurant in Washington. He had been summoned by senior government advisers Donald Rumsfeld and Dick Cheney, and was protesting President Ford’s proposed tax increase that aimed to check the spiraling deficit. It was there, under the expectant gaze of these two Republican stalwarts, that he (allegedly) first sketched his economic vision, quite literally, on a napkin. With just a few strokes of his pen on a crumpled, coffee-stained serviette his curve came to life and the complexities of the tax system were distilled into one small graph. Despite its inevitable imprecision – the setting did not lend itself to mathematical theorizing – his company was impressed, Cheney, especially, readily converted. And with their endorsement, Ford’s proposals were reversed and the theory was assimilated into the Republican Party policy-making machine. By the time of Reagan, it had become its economic orthodoxy. The curve professes to plot the relationship between levels of taxation and government revenue. At one end, where the tax rate is 0%, revenue is zero. No surprise there. At the other, where the tax rate is 100%, the revenue is also zero - for people are presumed not to work without take-home pay. The interesting bit is the inverted U in the middle. Somewhere on the continuum, Laffer argues the existence of a ‘tipping point’, where the incentive to work and invest quickly decreases once tax rates cross this threshold. Explaining his already rather simple model, Laffer declared, ‘tax something, and you get less of it. Tax something less, and you get more of it’. As an actual tool, the curve is more theoretical than practical. Its claim of where the tipping point lies is non-specific, a vagueness that’s been one of its greatest utilities. In the hands of a government intent on tax cutting, the tipping point can easily be adjusted to ‘justify’ cuts, and prove that any loss in reduced tax revenue will be offset by an increase in growth. Big business was immediately taken by the idea, sensing how much it stood to benefit from the curve’s ‘versatility’. Persistent Republican loyalty, on the other hand, is harder to explain, existing in the face of mounting evidence suggesting the curve’s ineffectiveness. Whether a genuine belief in its efficacy or a cynical intellectual cover for vested interests, its motivation is a hard one to discern. Repeated failure Indeed, the evidence of supply-side economics' failings is persuasive: US tax cuts in the last 40 years have not been self-financing as promised. Reagan’s cuts, deep as they were, resulted in ballooning national debt, and although the economy grew in the mid-80s as it recovered from recession, there was little to no sustained economic improvement for most Americans. Instead, wealth concentrated at the top and inequality grew. By the end of his government, and after almost a decade of his economic policy, middle-class incomes were the same as they had been 10 years before; poverty rates had actually risen; and there had been no marked productivity growth. George W. Bush began his presidency in similar fashion introducing big tax cuts for the rich, promising that all would benefit and that wealth would trickle down. Rather than trickling down, however, the dividends flowed upwards, and by 2005, the top 1% had seen their after-tax household income increase by 80% compared with 1979, an increase over 10 times quicker than that experienced by the bottom 25%. As Bush left office some 4 years later, wages were lagging far behind inflation, living standards were stagnating, and employment growth was quickly falling - a stark contrast to the booming Clinton years. The optimism of the 90s had well and truly died. Old dogs, old tricks Obama’s administration made some modest attempts to better balance the tax burden, and estimates suggest the richest 1% paid more in tax in 2013 than they did in 1980. But it didn’t last. Any progress that had been made was quickly reversed, when, in 2017, Trump rolled out sweeping nation-wide tax cuts predicted to cost $6.2 trillion in just 10 years. According to economist Paul Krugman, these included ‘a cut in top individual tax rates; a cut in corporate taxes; and an end to the estate tax’. All, he was convinced, would ‘overwhelmingly benefit the wealthy, mainly the top 1 percent.’ The cuts also added more to the national debt than any other single American tax bill in the past three decades, sparking fears of future cuts to social security and Medicare, on which so many rely. In spite of the majority of economists standing in staunch opposition, supply-side economics remain inexplicably influential, central to the running of the world’s largest economy. And we shouldn’t forget that Trump’s endorsement is no outlying opinion; it's the glue that’s holding the Republicans together. The party that historically has prided itself on its empiricism now seems blind to evidence. Remember, doing the same thing over and over and expecting a different result is said to be a sign of insanity. Which prompts the question: what do they think has changed? With the answer unclear, the charmed life of supply-side continues.
​Supply-side economics. Since its conception in the 1970s, debating its merits – or lack thereof – has been at the heart of political discourse, demarcating Republican from Democrat, Tory loyalist from Labour devotee, and informing not just an economic outlook, but a world view.
INOMICS is a member of the Amazon Associates affiliate program and the Apple affiliate program. This article contains affiliate links, which means we may earn money through any qualifying purchases made after you click through. However, this is not a sponsored post. 1. Moneyball The film that got the whole world interested in statistics, Moneyball is based on a true story about the manager of the Oakland A's baseball team who used statistics to analyze and understand players' strengths and weakness. With these insights, he rebuilt the team by recruiting undervalued players and focusing on strategy rather than fielding superstar players. Because of this, the A’s rose from the bottom of the league to become a top team. Economists will enjoy seeing statistics being put to real-world use and the fact that the numbers guys are the real heroes of the movie. For more on statistics in sport, check out our article dedicated to the topic! 2. The Wolf of Wall Street Another movie based on a true story, this one chronicles the rise and fall of Jordan Belfort, a stockbroker in the 80s who made millions through fraud and corruption in the stock market. Showing the wildest decadence of the Wall Street boom years, this movie was a hit with the public for its moral ambiguity and an all-star cast headed by Leonardo DiCaprio. 3. Wall Street An earlier economics film with a similar theme to The Wolf of Wall Street, this 80s drama stars Charlie Sheen as a stockbroker who gets involved with a corporate raider's nefarious plans. Showing life as an 80s trader at its most gauche and excessive, the film delves into issues of morality, wealth, and power in the monied world of top corporations. 4. Arbitrage Arbitrage is a thriller drama starring Richard Gere as a hedge fund manager who has been engaged in shady accounting practices in secret. He tries to hide his losses and avoid being arrested for fraud. After a car accident nearly exposes his secrets, he must decide how to evade the police in order to protect his secret. 5. The Informant! For a light-hearted comedy crime film with an economics theme, try the 2009 Matt Damon movie The Informant!. Based on a true story of a whistleblower who reports a price-fixing conspiracy at his workplace to the FBI, the movie follows the life of the whistleblower as he tries to help gather evidence against his company. With a fun, ironic tone, the film looks at the way corporate malpractice occurs and the challenges in stopping it. 6. Too Big To Fail Too Big To Fail is a documentary based on a book that covers the 2008 financial crisis and how it came about. The film is presented from the point of view of the key players (including 2022 Nobel Prize winner Ben Bernanke) in various financial institutions who work to try to prevent a global economic meltdown. 7. A Beautiful Mind A Beautiful Mind is a fictionalized version of John Nash's life, the mathematician who is the namesake of Nash Equilibrium. Exploring both Nash's mathematical work and the schizophrenia that he suffered from, this film was a popular success as well as being highly rated by historians and those in the field of mathematics. Another economics movie about the 2008 financial crisis, this fictionalized drama is set over 24 hours at a large Wall Street investment bank as the crisis begins to unfold. A high energy and dramatic movie with a cast of famous names, this one is not to be missed. 9. The Big Short Another biographical film about the 2008 crisis, this one is worth checking out for the distinctive style in which financial instruments are introduced. Using cameos of well-known celebrities and fourth-wall-breaking chats into the camera, the movie explains concepts such as subprime mortgages and collateralized debt obligations in an accessible way. 10. Inside Job A top movie in economics about the financial system, this movie focuses on the US in particular and the way that the financial services industry has grown in power and has fostered corruption over the last few decades. Split into five parts, it briefly tackles the history of the finance industry before moving on to the early 2000s bubble, the crisis, and the state of affairs as of 2010.
Economics isn't something that can only be learned from degree programs, books or journals. As an important part of modern life, there are also a number of great movies about economic themes. From the 2008 financial crisis to the formation of game theory, movies have documented a variety of subjects that will be of interest to economists. Next time you're sitting down for movie night, try one of these 10 films that economists will love.
On a more encouraging note, Alston observed an opening up of the conversation on mental health, a much overdue de-stigmatisation, which has facilitated the gradual emergence of initiatives aimed to mitigate the problem, found in places as far-flung as New York and Mangalore. Although a welcome sign, it’s clear much more needs to be done – too many young people are falling through the cracks. That universities are incubators for mental health problems is unsurprising. Adapting to life away from home for the first time can be especially stressful. Anyone who has studied will remember the unforgettable feeling of being adrift in a sea of new people and knowing no one. A thrill to some, it can be overwhelming for others. In either case, it comes with a set of unavoidable difficulties, which can, if unaddressed, trigger or exacerbate a whole range of mental conditions, from anxiety and depression to social phobia. Anxiety rising Of these conditions, it's cases of anxiety that are most on the rise: it's now the most common mental illness in the US, affecting over 40 million people, the majority young adults. Many, too, are suffering alone. The Anxiety and Depression Association of America (ADAA) estimates that just 36.9% are receiving treatment – and the consequences of this are huge. Left untreated, anxiety often operates as a ‘gateway’ disorder – the isolation it encourages leading to drug and alcohol abuse, and sometimes depression. Swift, comprehensive, and stigma-free treatment, therefore, is not just recommended, it’s imperative. But what exactly are the roots of this trend towards anxiety? There are, unfortunately, a multitude. Alston, for instance, placed a strong emphasis on diet – undoubtedly a key component. This article, however, looks at other behavioural habits the modern world fosters; specifically, the pernicious role social media plays, its infiltration of our homes, our pockets, and how, for many, it now frames the entirety of their lived experience. Where to begin? The use of social media is deeply embedded in the lives of Gen Zers, many of whom are students. And as they are now experiencing, such dependence comes at a price. Speak to any therapist who treats young people and they will tell you it’s Instagram, Facebook and Twitter that are now the bane of their work. However well-intentioned they may profess to be social media is known, through extensive empirical study, to breed a cocktail of unhealthy personality traits, including excessive comparison, envy, and status anxiety. Relentlessly quantifying our humanity, as underpins the social media experience, is now an ingrained aspect of our lives. Every action, experience, or thought can be measured and judged for its intelligence, interest, humour, or whatever its perceived purpose. Almost inevitably, this leads to the incessant judgement of oneself for either failing to achieve the ‘success’ of one’s previous posts, or maybe worse, failing to achieve the ‘success’ of one’s friends. A little social competitiveness is relatively benign, unavoidable and an inherent function of being human – as long as we value anything, hierarchies of a sort will always emerge. What social media has done, though, is distort our systems of value, increase the obsession with which we approach these systems, and encourage constant measurement of these values as a means of assessing our lives. It has, in effect, distilled life into a small number of metrics, most notably the number of friends and number of likes. Through these categories, one can ascertain how funny, intelligent, or popular one is, at all times, at the click of a button; for many, it is never enough. To put this into some kind of perspective, Generation Zers spend, on average, four hours a day on social media – and this is no chance happening. The ‘attention economy’, of which Facebook, for example, is a part, relies on the addictive quality of the platform. The longer attention can be kept on a page, the better that page functions as an advertising space, and the more advertisers can be charged to advertise on it. Whether it’s Facebook’s like button or Snapchat’s streak, these platforms are designed to trigger hits of dopamine – the same chemical secreted following sex and cocaine use – that keep users coming back for more. That one of the designers of Facebook’s ‘like’ button restricts his children’s Facebook access speaks volumes as to how insidious this business model can be. The effects of this widespread addiction are now visible everywhere, having transformed human behaviour. Increasingly, checking social media has replaced actual social interaction. On entering a room many will immediately check into social media to avoid potentially challenging small talk with the room’s occupants. Take a study break and instead of shooting the breeze with fellow students the same thing often occurs. This behaviour is not without consequence. As Psychology Today has reported, social connections – in the ‘real world’, that is – lay the foundations of self-confidence, and their deprivation can have damaging effects to self-esteem. Simply put, people get out of practice communicating verbally and when confronted with a situation in which it’s necessary they can become anxious. Perfectionism reigns The world people enter when ‘escaping’, although purporting to be real, or at least a reflection of the real, is far from it. Rather, it is a highly polished, idealised version of life; a world of heavily curated profiles, smiling faces, and endless attractive friends. Gone is the mess, the ugliness, and the imperfection of actual reality – the hallmarks of being human. Lift one’s head from phone to the real world and these elements rush back to fill one’s vision, the drudgery suddenly more potent in comparison with the phone world’s shimmering, unachievable wonderfulness. The discrepancy between these two realms has led to a damaging increase in perfectionism. Many have developed impossible expectations of life that operate in conjunction with an insatiable inner critic that constantly questions why things aren’t matching up with the doctored beauty of social media. From a scientific standpoint, excessive screen use - as social media demands - is proven to release stress hormones that arouse the central nervous system. This can prompt feelings of anxiety and agitation, which disrupt sleeping patterns, creating a dangerous cycle. In this instance, young people can get stuck in a rut, unable to escape a highly adrenalised existence, a pattern that causes inevitable psychological crashes – and physical crashes, when the adrenaline runs out – as well as moments of crushing self-doubt. Generation Zers, many of whom have recently become students, are experiencing the brunt of this. In addition to contending with the stresses, the ups and downs, of campus life, they're doing so while being the first demographic cohort raised with social media. Are we surprised? That this phenomenon has arisen in our culture is in many ways unsurprising. Since the 1960s consumerism has penetrated all aspects of our lives, both public and private. Problems, it's drummed into us, can be solved by means of simple acquisition. Clothes, appliances, food, lifestyle: these are our sources of happiness and fulfilment; this is where we can find satisfaction and pleasure. Alas, as many are figuring out, it's not that easy. Temporary fixes may be had, at a price, but a more permanent sense of contentment often remains elusive, tantalisingly out of reach. Instead, what develops is a deep craving, the unsatisfiable conviction that it's the next purchase that's all important. And there lies the addiction, the endless search. Social media relies on this same logic, making it applicable to our very being: if only the profile picture gained 10 more likes, personality, and as a corollary self-worth, would be validated. It‘s an unsustainable way to live if one wants to find inner peace. Clearly, the way we are using social media is not conducive to good mental health. The connections between its incessant use and anxiety are clear, medically supported, and need greater exposure. The present situation should serve as motivation to change; things look bleak; the statistics pertaining to mental conditions grim. A good starting point could be a wholesale reassessment of our collective relationship with social media: how is it serving us? What kind of behaviour is it encouraging? Would we benefit from moderating the amount of time we spent on it? The problem is not going to solve itself; the profit-hungry social media giants will make sure of that, and society has a responsibility to protect its younger generations; to make sure their futures are safe. It is, therefore, incumbent on us to reassert our own values, as we would like them to be, and stop dancing to the algorithm’s money-driven tune.
Even before COVID-19, students across the world face a mental health crisis of unprecedented proportions. Columnist James Matthew Alston investigated the phenomenon, looking particularly at university responses - his conclusions made for tough reading. Many institutions are overwhelmed, their mental health services ill-equipped to cope with the growing demand. Consequently, students are often left untreated in precarious states of mental health – an unsustainable situation that, as the statistics show, can end tragically.
Countries with the Highest Salaries for Economists
Economists are – unsurprisingly – methodical about their careers, it’s in their nature. With every choice, and at every stage, the costs and benefits of decisions are meticulously weighed, the potential utility assessed. Here at INOMICS we know this better than most, helping, as we do, economists of all stripes through the process. We know which questions they seek to answer before choosing one career path over another. And always close to the top of the list – which, true to stereotype, is a lengthy one – is where in the world do economists earn the most? With salary data from respondents based in 128 countries, INOMICS’ recently released Salary Report answers this query, along with many others pertaining to economists’ salaries within and across regions. Among its most shocking findings, the report exposes the regional inequality in salaries. While the hierarchy itself may not be entirely surprising, the gulf between regions is so stark, and the disparities so great, it’s simply not possible to talk of a single global job market for economists – the geographical divergences in wages are too substantial. As the graph shows, North America is far and away the most lucrative job market for economists, the average annual salary standing at an eye-watering $112,164. Economists based in North America earn, on average, almost twice as much as their colleagues in the next most lucrative markets in Western Europe & Scandinavia and East Asia & Australasia, where average salaries stand at 61,108 and 60,787 respectively, and nearly five-times those in Africa and South Asia. This superiority of wages exists across all sectors, and although the cost of living is often more expensive, in terms of pure dollars and cents, the region is unrivalled. Truly, if the size of your pay packet is your greatest concern, it’s the only place to work. Delving a little deeper into the region’s data, further details also become clear: US wages are dragging up the region’s average. Wages in the US vastly outstrip those in Canada, which are themselves among the highest in the world, a difference that is most pronounced in industry and the public sector, where those occupying senior management positions earn an enormous $190,000 on average, exactly double that of their Canadian colleagues. That the highest wages in North America are found outside academia is not unusual, INOMICS data from other regions – most notably Western Europe and Scandinavia – shows a similar distribution. The regional inequality these data expose have long existed, as previous Salary Reports can attest. And they seem unlikely to shift. Indeed, this year’s Report reveals the stark difference in how the coronavirus pandemic has been experienced across the world, entrenching and exacerbating these divisions. Both our data, and the personal testimonies the Report also includes, show the extent to which economists working in the Global South have suffered far higher levels of job loss, greater reductions in working hours and salary, and have had more promotions postponed. Future insights will investigate in more detail the data surrounding these disturbing developments. To view our methodology and how we calculated the figures used in this article, please see the full INOMICS Salary Report 2020/21.
The following article is an analysis of data taken from the INOMICS Salary Report 2020/21 - which is available to download in full here. Specifically, this article looks at the average salaries of economists around the world working in academia, the public sector and the private sector. It is the first instalment in a series of insights handling the Report’s findings.
Talk has begun of loosening the restrictions, and the route out of the wreckage is clearer by the day. With this in mind, and looking to our future, we must ask ourselves where our priorities lie? The post-COVID world is yet to be built – and we need to get planning. Placing community at the center When things are threatened, it’s natural to consider what we hold dear, what we would fight to protect. And like many previous crises, COVID-19 has reasserted the importance of community: the sense of collective belonging, shared purpose. In responding to the pandemic, it was local workers that kept society running, stacking shelves, delivering food, caring for the elderly; and it was from local spaces that mutual-aid networks emerged, filling the gaps left by inadequate government intervention. In the words of the National Organisation for Local Economies (CLES): ‘the emergency has underscored the centrality of community to our everyday lives’. At the same time, the crisis has also reminded us how much we undermine it. Decades of deindustrialisation, outsourcing, and austerity have helped erode community bonds, with local economies manufacturing little but inequality and precarious, often underpaid, work. And things are now worsening. As COVID-induced recession hits, thousands of businesses face bankruptcy, threatening countless jobs, and private equity firms hover like vultures, salivating at the prospect of picking up local firms on the cheap. UK highstreets, so often the focal point around which communities coalesce, are teetering on the brink of extinction, nothing but fast food chains and automated casinos to fill their empty fronts. For those prepared to fight to protect their communities, the time has come. Despite looking like an overwhelming task, the cause is not without hope. Polling shows that just 6% of Brits want a return of the pre-COVID economy, clearing the way for a new economic path - one that prioritises local livelihoods over big business, long-term prosperity over short term profits, and seeks the restoration of community. It’s time to make the case for community wealth building. Introducing... Community wealth building (CWB) is an approach to economic development. Described by the think tank, Collaborative Democracy (CD), as a ‘systemic, place-based alternative to the ‘no-placeness’ of extractive, corporate capitalism’, it reimagines local economies as owned by, and operating in the service of, the community - especially those most marginalized. By broadening ownership over capital and anchoring jobs locally, it seeks to ensure local economic stability and stem the flow of capital flight. For those sceptical, its potential has already been glimpsed, with CWB principles underpinning the so-called ‘Preston Model’, a program of development that’s helped revive the wider Lancashire area. Now, though, as lockdowns continue to expose the injustices of our economic model, it should be taken from the fringes to the fore - amid the current chaos its relevance has never been greater. Democratising the economy CWB is best understood by an exploration of the five principles, or ‘pillars’, upon which it rests. The first is the democratisation of the economy through the establishment of worker-owned initiatives. ‘Cooperative businesses stabilize communities’ explains economist, Jessica Gordon Nembhard, ‘because they… distribute, recycle, and multiply local expertise and capital within a community’. By centering members’ interests over the profit motive, cooperatives prioritise job security, the maintenance of affordable prices, and operate in the service of community wellbeing. Research from the International Labour Organisation (ILO) has also shown that cooperatives - and other democratically run enterprises - are also far more resilient in the face of economic crisis - and have been throughout history. From the German agricultural depression of the 1860s, to the Great Recession of 2008, they have consistently outperformed investor-owned businesses in protecting employee interests, and riding out the hard times - we now need more of them. It shouldn’t be too difficult either. Local authority business support can easily be re-channelled towards locally-owned, socially-minded ventures, while future bailouts, of which there will be many, can be made contingent on the diversification of ownership. Given the increase in poverty, unemployment, and inequality the government should put particular focus on supporting cooperatives in everyday economic sectors like food, care and utilities, to ensure their continued affordability. Financial power While championing worker-owned businesses is a worthy goal, without access to credit the expansion in this area will be stymied. Indeed, access to credit has long been an issue for small and medium-sized enterprises (SMEs), regardless of ownership. Between 2009-19 lending to SMEs dropped by over 40 percent, despite their number increasing by almost a third, and insolvency rates have rocketed. Now, in COVID-induced recession, financial flows to SMEs are constricting further, for the combined losses of revenue, capital expenditure and productive output have been enormous. In addition to better state support, regional investment banks - an essential plank of the CWB - must be considered. Through targeted lending, prioritising unionised cooperatives operating in the local area, these banks are well-placed to finance the growth of local economies, which commercial banks, put off by their small scale, have little interest in. Local authority pension funds should also chip in, redirecting investment away from global markets into local schemes. Together, these initiatives can recirculate wealth that already exists in the community - a multiplier effect in action. Anchor purchasing This can be further enhanced by what CLES describes as the ‘progressive procurement of goods and services’. With the commercial economy tanking, public sector spending is increasingly important as a means of stimulating supply and satisfying demand - especially that of ‘anchor’ institutions. As Professor Arthur Burris has observed, such institutions - namely schools, universities, hospitals, and others deemed ‘unmovable’ - ‘generate billions… in economic activity every year, and yet very few regional development strategies attempt to harness their untapped economic power – buying, hiring, investing, etc. – for the service of the local population.’ Their power is on the rise, too, for education and health are areas that, despite the tumults of the global economy, continue to grow at a rapid pace. CWB corrects this oversight, channeling anchor institutions’ purchasing toward local businesses that are more likely to employ low-income, lower-skilled workers - think a hospital catering contract only open to worker-owned enterprises based within 10 miles. And the effects can be huge. Anchors purchase such large quantities of goods and services, that if just a small portion of that procurement were concentrated locally, substantial numbers of local jobs could be created, preventing capital flight - just when it’s most needed. The labour market and its discontents But it’s not just jobs that are needed, it’s good jobs, with good conditions and good pay - an increasing rarity in modern-day Britain. In the UK, in-work poverty reached 12.7% in 2020, according to UN statistics, and the austerity-withered safety net is increasingly porous. The CWB approach recognises this cannot continue, and again uses anchor institutions to combat it. Anchors are aptly positioned to address the systemic dysfunction in local labour markets through their purchasing, which can be made contingent on firms guaranteeing terms and conditions, like the living wage and protection of workers rights, that ensure a dignified standard of living. With a wave of redundancies inevitable following the winding down of the Furlough Scheme, restoration of the welfare system must accompany these changes, and the case for a Universal Basic Income, temporary or otherwise, should also be taken seriously. Trade unions, too, must be re-empowered, and consulted throughout the recovery process - for the market has proven itself an inadequate arbiter. Land and property The last of CWB’s principles centers on land, property, and their respective uses. And like the above, COVID has heightened its relevance. Circuit breaker lockdowns have provided a stark reminder of the inequity with which society has allocated land and property. As inner-city families were ordered not to leave their cramped, overpriced flats, thousands of townhouses and pent-house apartments stood empty - by April 2020, at the height of nationwide lockdown, it was estimated that 250,000 people had left London to stay in second homes elsewhere. As a counterweight, CWB advocates the extension of the ‘commons’ (land held in perpetuity for the public good) wherever possible, leveraging the size and wealth of anchors to that end. As significant landowners, anchors have huge asset portfolios, the under-utilized parts of which can be transferred into community control through vehicles like Community Land Trusts, ensuring any financial or social gain may be distributed among the community. Exponents of CWB also seek to take advantage of falling property prices, proposing local authorities purchase land, while appropriating derelict or unused property - all to be kept under the commons. These assets can then be lent to cooperatives and social businesses in need of office space or infrastructure - creating a feedback loop of local wealth creation. One part of a larger project While comprehensive, community wealth building is no panacea - society’s problems are too numerous. Rather, it must be thought of as the local part of a broader overhaul, one part of a program of transformation that includes a green new deal, an industrial strategy fit for the digital age, a rehabilitated welfare system, and which also tackles the housing crisis. Although this may sound a tall order, let’s not forget we stand, like never before, at a crossroads - and all roads remain open. The economic chaos created by COVID may be our best chance to trade in our old economic system for a new one, one that’s local, generative, social and democratic - a genuinely inclusive economy. There's an appetite for it too. The solidarity that’s emerged in response to the pandemic has been widespread, a reassuring reminder of the humanism that prevails, even in the most testing of times. Such sentiment must now be seized, harnessed and snowballed, it must become the driving force towards lasting political-economic change that puts communities at the centre. If the future is to be bright, it must be local. Header Image Credit: Viacheslav Lopatin on Shutterstock (licensed image - copyright)
'The greatest science policy failure for a generation’ is how the editor of The Lancet, Richard Horton, described the UK’s COVID response last June. It was a widely shared sentiment – made credible by the UK having one of the highest death rates in the western world. Fast forward to the present, and the government has finally claimed a ‘much needed win’ – a big one, too. Its vaccination programme has been rolled out with remarkable swiftness, and the country’s vulnerable populations are well on their way to inoculation. Commentators of every stripe have taken note.
But we knew this. Consumers are aware of the tradeoff they make buying books on Amazon instead of at the bookshop they walk past on their commute. And shopkeepers, obviously, don’t need telling - they’ve been struggling against internet forces, and before that out-of-town superstores, for years. Now, though, in this COVID-defined moment, lingering hope for a reprieve may well have been dashed, as, in accordance with lockdown and social distancing, even the most committed high street consumers have been kept away - and it’s unclear in what numbers they’ll return. Soon, 40% of non-food sales are predicted to take place online, up from 20% in February, and last month John Lewis and Boots announced a slew of store closures, with retail expert Bill Grimsey warning it’s ‘just the start’. In the coming year, he expects many retailers to join the likes of Toys “R” Us, Claire’s, Debenhams, and Oasis in administration - taking countless jobs with them. And it’s not just retail. Over a third of UK bank branches have shut since 2015, with numbers now increasing, and lockdown has brought the hospitality sector to its knees. The stakes are high This sense of loss is seismic. The character of many towns emanates outwards from the high street, which operates as a bustling hub of exchange, not just economic, but social and cultural. Particularly in smaller towns, for those more rural and isolated, its demise is a devastating, unanchoring experience - jobs are lost never to be replaced, spots where friends used to meet disappear, and optimism fades. It’s a feeling captured visually by the bleak-looking thoroughfares of boarded up fronts that are now a familiar sight in many town centres, the only life coming from corporately owned gambling, payday-loan, or fast-food shops. On the outskirts of these towns it’s not uncommon to find distribution warehouses, often the new centre of regional employment, where workers endure insecure work, with bad conditions and low pay. The Preston Model and a little bit of hope But there is hope. What’s happening is the result of adherence to a neoliberal economic model, greatly exacerbated by COVID. Once the virus is contained, reconstruction will offer an opportunity to depart this orthodoxy. With the right strategy, using what Democracy Collaborative calls community wealth models, local economies could yet be revived, and highstreets resurrected. Work to that end, though, must begin now. Here the ‘Preston Model’ provides an illustrative case study of work underway, and an example of an innovative approach to community wealth building, which could be scaled up. The model itself is underpinned by an effort to embed capital in the local community, and relies on combining the economic weight of ‘anchor institutions’, those immovable institutions permanent in the community, like schools, universities, hospitals, etc.. Together, these institutions procure contracts with local businesses with certain conditions attached. (Contracts are only entered with unionised businesses, cooperatives, and companies that operate in the local area and pay a living wage.) This could take the form of a catering contract in a hospital open only to worker-owned enterprises based within 10 miles. It works to ensure that capital, previously extracted by big corporations and leaked outside of the local economy, instead stays within it, boosting local employment and future investment. In Preston, the results have been immediate. Research from The National Organisation for Local Economies (CLES) found that anchor institution spending in the Preston economy increased from £38m to £111m in just three years, improved almost all economic measures, including GDP and productivity, and resulted in Preston being named Britain’s most improved city in 2018. Incentivising worker-owned businesses, as the model does, is a worthy goal, but without access to credit the possibility of expansion is limited. This is why the establishment of regional investment banks are essential to the success of community wealth building. Through targeted lending - prioritising sustainably run cooperatives and unionised businesses - these banks finance the growth of a sector, which commercial banks, put off by its small scale, would have little interest in. Local authority pension funds can also be encouraged to redirect investment from global markets to local schemes for additional means of financial support. Outside of the Preston Model, reviving reforms also need to be made in public services, particularly transport. For a high street to flourish, or at the very least function, it needs to be accessible. Yet in huge swathes of the UK, where cuts have meant the withdrawal of local bus routes and the rising price of tickets, access has been increasingly denied. Reinstating and expanding public travel links, while extending initiatives like the freedom pass, which enables over-60s to travel for free, would be a big step forward. Establishing rent caps to reign in unscrupulous landlords, appropriating derelict or unused properties into community trusts, and reforming business rates should also be part of any broader project to reanimate the high street. Easily implemented, they’re all eminently commonsensical. And when some retail goes, as it will, communities should consider what they want in its place - cafes, hairdressers, centres for learning and care. Change should be guided by society’s needs, not the market’s. Taking control Looking ahead, we should recognise that it’s impossible to completely insulate local markets from globalisation, COVID remains at large, and Amazon, evidently, is not going anywhere. But instead of continuing with the market at the wheel, communities must take control. We need conditions in which local development is encouraged, where jobs are locally and sustainably made, not lost - the Preston Model has proven it’s feasible, even on a shoestring. Failing to act is to choose a high street of pawnbrokers and gambling shops, of insecure, low-wage work, that degrades the environment. Is it too much to ask for something more? Header Image Credit: SimonHS on Shutterstock (licensed image - copyright)
The internet has given us many things: unlimited information, ever-expanding interconnection, myriad means of procrastination - in some places it’s even helped birth democracy. But as one hand giveth, the other, as is often the case, taketh away. And in the UK, it looks like the gift of online shopping may come at the expense of our high streets - and the thousands of livelihoods they maintain.
In the words of Economist, Dambisa Moyo, the answer is zero: African people ‘are worse off; much worse off… aid has helped make the poor poorer, and growth slower’. A strong condemnation this may be, but Moyo's assessment is no outlier. Development expert, William Easterly, has drawn similar conclusions – his study ‘Can Foreign Aid Buy Growth’ revealing an inverse correlation between aid and per capita growth. Indeed, the aid establishment has endured four decades of trenchant critiques, many of the most vocal coming from within its own ranks. Throughout this time, the sector has shown itself impressively impervious, rarely changing its approach to development, offering only window dressing in way of reform. When criticism has built, the response from donors, whether the World Bank, the U.S, or even Bono, has invariably been the same: the demand for ‘one final push’. Poverty eradication, by this logic, has always been just one last injection of aid away. Given the huge cash flows of aid from the developed to developing world its persistence is hard to make sense of. Even harder to reconcile is the fact that between 1970 and 1998 poverty in Africa rose from 11% to 66%, this while aid flows were at their peak. <11an>limit:2;categories:jobs|courses|conferences;disciplines:Economic Development, Innovation and Growth (JEL O)|Urban, Rural and Transportation Economics (JEL R)</11an> The paradox Something, evidently, does not add up. How is it possible that an initiative so ‘well-intentioned’ can be so ineffectual, to the point of possibly being disruptive? And further, how can said initiative be allowed to continue unchanged for so long? To answer these questions, it’s necessary to consider the motivations behind its continued provision and the effects of its implementation - simple sounding steps that curiously the development community itself has, thus far, seemed so unwilling to take. Before continuing, one other thing should be said. In the following, ‘aid’ is meant to describe grants and low-interest loans given directly to governments, from other governments or institutions like the IMF, World Bank, etc. It does not cover humanitarian or emergency aid given, for instance, in the aftermath of a war or natural disaster. It should also be noted that what follows isn’t intended to discredit aid per se. Rather, it’s meant to expose the flaws in the form it currently takes – of which, there are many. Questionable motivations? Considering exactly which countries receive aid makes for an interesting starting point, and helps assess how benevolent the aims of donors really are. One would be forgiven for presuming that the five poorest countries in the world, as measured by GDP, would figure prominently among the top recipients of both UK and US aid – two of the world’s most generous ‘philanthropists’. And yet, on inspection, not one feature in either country’s top ten. Instead, the UK funnels the lion's share of its aid to countries that are either burgeoning markets, like, for instance, Nigeria, or countries like Syria and Pakistan, that are believed to be of high geopolitical value – these two, in particular, vital to the ‘war on terror’. The same principles hold true for the US, who gives most of its aid to Israel, Egypt and Jordan; the primary aim in each country not to alleviate poverty, but to buttress American geopolitical aims. Revealing, too, is that these aid packages often come with many strings attached: most often, the guarantee that aid be spent on goods produced by the donor country. More recently, in the case of the EU, aid has been made contingent on the recipient country curbing emigration – a process, which, in effect, has seen the EU outsource part of its borders controls, in one high profile case to a country with a questionable human rights record. When these stipulated conditions aren’t met aid, typically, is withdrawn, making it function as both the carrot and the stick. Using aid so strategically is really nothing new. During the Cold War both sides of the Iron Curtain used it to try to bribe developing countries round to their way of thinking. What it highlights, though, is the insincerity with which aid is so habitually presented. Masked in the language of altruism, its primary concern is often to boost donor’s commercial interests and further political aims. Fostering sustainable economic growth in the recipient country is merely an added (and unlikely) bonus, and sometimes even an irrelevance. How else, for example, could one explain America’s long-term financial aid programme for repressive Ethiopian Prime Minister Meles Zenawi? Occasionally, the self-interested aims of aid aren’t even hidden. While in Nigeria in 2018, then UK Prime Minister, Theresa May, declared that British aid would be exclusively used as a means of promoting British trade and political interests. As journalist Kenan Malik has noted, in many cases, this ‘aid for us’ focus leads to the exploitation of developing economics: Western governments utilise their ability to ‘borrow money at low rates, set up aid programmes, and then lend said money to poorer countries at much higher rates’. The rich make money; the poor accrue debt. To service the new debt, more aid is then offered and now the aid-dependent country has no option but to accept; thus completing the circle. African debt currently stands at around $350 billion. Disruptive influences Of course, not all aid programmes are so selfishly motivated, at least not so explicitly. Some genuinely seek poverty alleviation and economic growth. And yet, many such initiatives can be equally as destructive. According to development economist Angus Deaton, the problem begins with the way the introduction of foreign money in a country affects the relationship between a government and its people. Essential to the functioning of this relationship is the payment of taxes. To run a country a government must collect taxes from its people, and since the people must agree to relinquish their money for this to work, they hold some power over the government. This dynamic creates accountability. Deaton argues that aid damages this relationship. It reduces government reliance on the people’s taxes, and, therefore, reduces governmental accountability. For weak governments, as the recipients of aid tend to be, the effects of this can be very corrosive, acting as the breeding ground for both corruption and despotism. Research conducted by Transparency International has shown that corruption significantly reduces a country’s productivity, increases inflation and puts off foreign investors – ultimately it creates more poverty. And poverty, as we know, encourages aid. There are countless examples in the African continent of how the introduction and expansion of aid programmes have quickly been followed by increases in corruption. Nigeria, Congo, and Zambia, to name a few, all experienced terrible kleptocratic practices while their governments received enormous amounts of aid. Why continue? The obvious next question is: once this process has begun, why does it continue? Why continue to provide aid for corrupt and despotic regimes? Beyond the economic incentives and political advantages cited above, Moyo posits two further reasons why this cycle of aid is left uninterrupted. First, there now exists an overwhelming pressure on donors to give. A whole industry has grown around aid, one that Moyo estimates employs – through the World Bank, IMF, countless NGOs, charities, and governmental aid agencies – around 500,000 people, or as she puts it the population of Swaziland. The livelihoods of these people depend on the ongoing distribution of aid. Moreover, within many of these organisations, successful lending is measured by the size and quantity of the loans given, rather than what the loans are actually spent on. Non-disbursed aid often increases the chances of aid programmes being slashed, putting jobs at risk. This has internalised the incentive to continuously lend, often, as history has shown, irrespective of the levels of corruption in the recipient country. The decision to lend to less-than-reputable governments is also informed by the view that if aid was reduced, or even cancelled, the poor would suffer. Education and health budgets would not be met and the country in question would falter. This feeling, however worthy, ignores the reality that in the majority of African cases the poor aren’t receiving the money and the country is already faltering. In 2014, Deaton, along with many other economists, contended that of the $135 billion spent on official aid, only a small portion ended up helping the poor. Arguing along similar lines, Economist Peter Bauer described aid as a ‘form of taxing the poor in the West to enrich the new elites in the former colonies’. Once in their hands, rather than saving it, economic studies have shown that most often aid is then spent on consumer goods. This, in turn, has a number of negative consequences. First, as savings decline, banks have less money to lend, leading to a fall in domestic investment. Meanwhile, higher consumption, as a result of the aid influx, means that more money is chasing fewer goods and the country experiences inflation. The typical response to inflation is to raise interest rates, making investment even more unlikely, meaning fewer jobs, which leads to more poverty. And what happens next? The system is broken Clearly aid is not working. From the disingenuous motivation behind its provision, to the unintended and disruptive knock-on effects of its delivery, at every stage there exist problems. If the Western world is sincere in its desire to help end poverty, it needs to put self-interest to one side, return to the drawing board, and consider the possibility that its participation in development – as it’s currently conducted – might actually be unhelpful. Many of Africa’s biggest advances in recent years, like the widespread adoption of mobile phones, have come from within. And as Deaton has long questioned: ‘who put us in charge anyway?’
​Development aid: what is it good for? Well, according to much research the answer may well be absolutely nothing. In fact, it may well be worse than nothing. When judged against its aim of ‘instigating economic development and alleviating poverty’, its record is so dismal it looks as though aid actually hinders the achievement of its own stated goals. And the curious thing is this seems to be something of an open secret. Even to an untrained eye the big numbers pertaining to development aid don’t look right. Take Africa, for example. Over $1 trillion dollars has been pumped into the continent in the last 50 years, and how much has it benefited? How many African countries are actually in a better condition now than they were before receiving aid?
Although over a decade later neoliberalism is yet to be replaced, its grip on power has considerably loosened, the pandemic – and all its attendant injustice – forcing the most recent reckoning with its shortcomings. It’s a process we can see in real time, with new political formations emerging on both the right and left. Indeed, alternatives that in previous years would have been dismissed as too radical, utopian or even regressive, are now earnestly discussed as people seek an exit from the current political model. But what does this really mean? What exactly are these alternatives looking to depart? The word neoliberalism is used with such regularity – and at times carelessness – that its definition has become hazy, its precepts unclear. And therein lies much of its power. To escape its clutches people must first understand it: how it arose, to whom it accrues power, and by what means it has been sustained. To that end, the following attempts to dissect the term, studying its history, the policies born from its logic, and the effects it’s had on society. It's conception Although famously associated with the politics of Margaret Thatcher and Ronald Reagan, neoliberalism’s history predates both leaders – the term likely first used in the late 19th century. It found an institutional home, however, some fifty years later, when in 1947 a group of alarmed economists convened at Mont Pelerin, and ominously warned that ‘the essential conditions of human dignity and freedom had disappeared’. To those in attendance – who would coalesce and become the Mont Pelerin Society – the roots of the crisis were clear and found in the ‘declining belief in private property and the competitive market’. A staunch defense of an increasingly besieged free-market capitalism was needed, and the state must withdraw from interfering with economic activity – only then could liberty be preserved. This fear of state intervention was so potent it placed social democracy on the same spectrum as both Nazism and communism. By this logic, government planning – whether in the United State’s New Deal, or the UK’s nascent welfare state – was something to be fought and a mortal danger to individualism, another of the Society's key tenets. State intervention of any kind, it was believed, could, and likely would, lead to totalitarian rule. While hyperbolic to a modern ear, one should remember the period in which these schools of thought emerged. Friedrich Hayek’s polemic The Road to Serfdom – considered a founding text of the doctrine - was first published in 1944 as the Second World War still raged and people were seeing first hand the horrific potential of total state control. Hayek identified German and Soviet economic planning as the birthplace of these tyrannies and promulgated economic libertarianism, a serious reduction of governmental intervention into the economy, as the most effective bulwark against such abuses. As the century progressed, the fledgling ideology caught the attention of the rich who saw it as a means of escaping unwanted governmental restraints – in particular, public protections and high taxation. Through lavish funding from these elites, a network of think tanks straddling both sides of the Atlantic was quickly established, designed to spread the neoliberal word among academics and policy-makers. Despite this financial backing, the ideology remained on the margins. The post-war consensus was in full swing and Keynes’ economic recommendations were being readily applied across most of the Western world. Governments were unashamedly raising taxes – in the UK income tax reached 75% – broadening public services and expanding social security. Neoliberals, in contrast, were thought of as out of step with the real world, relics from the past, and were forced to bide their time. It wasn’t until the economic crises of the 1970s that neoliberalism finally got its chance. But when it did, its ecosystem of think tanks, pressure groups, and organizations were well prepared. As its influential proponent Milton Friedman commented of the time, when Keynesian economics began to fail, and people were scrambling for change, ‘there was an alternative ready there to be picked up’. The world has not looked back. <11an>limit:2;categories:jobs|courses|conferences|Professor;disciplines:Politics </11an> The policies Most famously, neoliberal prescriptions were ‘picked up’ by Thatcher and Reagan who assumed power in 1979 and 1980 respectively. Thatcher was a self-professed, dyed-in-the-wool neoliberal. And had it not been for the reluctance of her own cabinet she would have carried out Hayek’s doctrines to the letter - recently released letters show she had hopes of dismantling the entire welfare state. As it was, in her 11 years as Prime Minister she was still capable of transforming British society. Through a neoliberal policy program of massive tax cuts for the rich; a drawn out, but eventual crushing of trade unions; widespread privatization of housing, telecoms, steel, and gas; financial deregulation; and the introduction of competition in the provision of public services; she left Britain a markedly different place. Across the pond, Reagan had embarked on a similar journey, gutting union power and cutting government spending. Capturing the spirit of the age he declared that ‘the most important cause of our economic problems has been the government itself’. It wasn’t long before the ideology was also adopted by international institutions like the IMF, World Bank and World Trade Organisation, and imposed on an unprecedented scale across the world. Its spread was such that even nominally left-wing political parties, like the UK Labour Party and the Democrats in America, would eventually cave into its practices, assimilating its core principles. And with that, the ‘Overton window’, the range of ideas tolerated in public discourse, moved someway to the right. The reality The politics of the 1980s were, without doubt, neoliberalism at its most strident, and its record during the time is highly contested. In Britain, where its tenets were most closely followed, policy aims were often missed. Economic growth – the Holy Grail to neoliberals and a chief indicator of progress – was actually slower than in previous decades, and its dividends were increasingly unevenly distributed – inequality dramatically rising. Meanwhile, Thatcher’s smashing of the unions left workers vulnerable in the face of big business, and without the protection of collective action, wages were squeezed. This meant that even when the unemployment rate began to fall, in-work poverty rose. Similar trends were found in the US where Reagan's massive tax cuts, shrinking of social security (food stamps, for instance, were slashed), and increased subsidies for corporations increased both inequality and poverty, while lining the pockets of big business. Already unequal, the balance of power tipped further away from the everyman. It was also tipping away from the state. The wilful transfer of authority into the hands of unaccountable transnational corporations was perhaps an even greater consequence of the ideology’s supremacy. Important services were outsourced, the market left in charge, and, with the lobbying industry exploding, money began to rule the roost. This development has proved a dangerous one, reducing governments' ability to respond to the needs of their electorates. Disempowerment and the perceived disconnect between the rulers and the ruled has in turn fed both disenfranchisement and volatility among populations. Few, for instance, would doubt that it was this culture, this feeling of impotency, that contributed both to Brexit and the election of Donald Trump. More than just an economic theory As it’s evolved, entrenched, and become normalized in public discourse neoliberalism has, like many sets of economic and political ideas, morphed into a more general framework by which we are encouraged to understand the world, ourselves, and why we behave as we do. In its crowning achievement, it has managed to redefine what it means to be human. No longer the sentient, cooperative and empathetic beings scientific evidence suggests we are; humans have been reduced to competitors. Coldly rational – ruthless even – neoliberalism has set people against each other, valorising the notion of ‘getting ahead’ – the question of whom, and by what means, too infrequently asked. Our democratic choices, it has also taught us, are best expressed in transaction: a process of rewarding merit and punishing inefficiency that no government could match. It has, in essence, encouraged atomisation. It has loosened societal ties, sanctifying the interests of the individual over all else. As Thatcher would memorably pronounce: ‘there is no such thing as society’. Over time, too, these notions have been internalized, such that now the rich, ignoring their structural advantages of birthplace, inheritance and education, have come to believe that their success is merely a result of their own ability. The inverse is also true. The poor, instead of seeing the often insurmountable obstacles they face, have come to blame themselves for their debt, unemployment, or lack of health. Because of these structural barriers, now so deep-rooted, social mobility has slowed, and wealth is increasingly concentrated in the hands of a few. On a personal level, the development of this unforgiving, dog-eat-dog culture has coincided with a proliferation of mental health conditions that populations are now experiencing on unprecedented levels. Self-harm, depression, anxiety have all become hallmarks of our modern age. To fundamentalists this inequality, this inevitable by-product of neoliberalism, is considered virtuous, the talented and hardworking elevated above the idle and unskilled. The system, they contend, is the closest to fair that we can hope for. Taking a look around it’s difficult not to hope that they are wrong. What's next? Whether neoliberalism really is in its last throes hinges on a new system, based on new values, taking its place. And this is far from certain. Political imagination has, for some time, been in short supply. For decades, political parties have hovered around the center ground desperately triangulating in the hope of attracting weary, apathetic voters. However, in the wake of the Brexit and Trump earthquakes, and the devastation of COVID, we may have reached some kind of juncture. As we survey the mounting dissatisfaction, inequality, and alienation, it's hard to argue that things are as they should be. The question is: will something new emerge from the wreckage? Or will we return to a politics of tinkering around the edges, the politics that brought us here, and has, up until now, failed to address society's biggest problems. Only time will tell. Header Image Credit: mark reinstein on Shutterstock (licensed image - editorial use - copyright)
Few would contest it as the ideology of our political age. Ever since the 1980s, it has dominated western politics, underpinning governance, influencing culture, and leaving its indelible mark across society. During this time its core tenets were rarely challenged and only its peripheral aspects tweaked. The 2008 financial crash, however, changed this, shaking confidence in an ideology whose name, up until that point, was rarely ever spoken. With the loss of savings, skyrocketing inequality and falling living standards that followed, people wanted answers and began to question the political system that had facilitated such a disaster.
The carriers must pay attention to their passport validity An erection of a harder border between the UK and EU involves not only changes in customs work, fees and tax calculations, and other money-related issues, but a lot of small details, many of which were previously ignored by carriers, and which are now critically important. For example, the validity periods of ID documents and the amount of time UK drivers can spend in the EU, and vice versa, are of newfound significance. As stated on the official UK government website, UK drivers that enter the EU must have a passport that is valid for at least six months. Every UK citizen can stay in the EU without a visa on condition that he/she does not spend more than 90 days in the EU over a 180-day period. This means that carriers must calculate how many days their employees (drivers) have spent in the EU at any given time. The 90 day countdown begins as soon as you cross the UK/EU border. From the 1st of October citizens of EU, EEZ countries and Switzerland will need to present their passports to enter the UK. ID cards will no longer be considered a valid travel document. The number of documents required to cross the UK/EU border has also significantly increased. From the 1st of January the movement of goods across the UK/EU border in either direction are considered exports and imports simultaneously. This means that all documents related to transport and the movement of goods from one area to another must be filled and completed. Free movement of goods has ended. This will create a huge amount of bureaucracy for British ports and airports since all cargo from Europe goes through them. Goods from the UK, on the other hand, can go in various directions, distributing the workload of document inspection. <11an>limit:2;categories:jobs|courses|conferences;disciplines:Politics|International Economics (JEL F)</11an> Same old story During the first days of January, it quickly became clear that none of the parties involved with the ports were completely prepared for the new order – institutions, cargo operators, carriers, export/import companies. Nobody. Preparation for the 1st of January was also hindered by the chaos at the UK/EU border in December, which was caused by the EU closing its borders with the UK due to the fear of spreading the new COVID-19 type. Businesses felt the consequences of Brexit in the first week on January: food deliveries were delayed due to issues with customs documents, logistics companies stopped sending goods, while some retailers found out that their delivery chains were obsolete. After ten years in close cooperation, UK and EU carriers were suddenly forced to learn a lot in a very short time. In early January, The New York Times reported that the European delivery company, DPD, was going to stop sending packages from the UK to the EU for a period to give it time to figure out new cross-border systems. At the same time, the retailer Marks & Spencer announced that due to the border crossing issues, its stores in Paris would not receive deliveries of fresh salad and other food items from the UK, apologising to their customers for the limited availability of goods. First to crack were the seafood (crustacean) producers and suppliers. On 18th of January, they came to Westminster to protest the additional bureaucracy caused by BREXIT, which had caused delays of cargo deliveries to EU, and which had resulted in a lot of damaged goods and significant losses. Producers of crustaceans have calculated that delivery to clients now requires 48+ hours, while previously it took only 24 hours. According to Venture Seafood director, Garry Hodgson, representatives of his company were delayed for 30 hours in France because they were obliged to fill out 400 forms for one cargo of crustaceans on its way to Spain. Before Brexit, most deliveries required a document of supply, but now each shipment needs an export health certificate, fishing certificate, customs permit, and safety documents. In addition, any carrier of mixed or combined cargo can be held at the border due to a single box having improper documentation. Because of this the importers have started to pay additional fees for empty trucks to ensure that goods travelling through the Eurotunnel are delivered on time. This has resulted in partially empty trucks moving between countries. It’s also increased the number of trucks on the roads, because two or even three trucks now transport a cargo that could previously have been transported by a single truck. While waiting for the chaos on the borders to subside, many EU carriers reduced or even stopped their deliveries to the UK, a moratorium that resulted in many empty trucks returning from the UK to the EU. The companies were willing to pay for the trucks to return empty because it was cheaper than getting stuck for 4-5 days in another country. How will Brexit affect the shipping industry? Right now, no one can confidently answer this question. Experts are busy studying data and making estimates, and unfortunately none are optimistic. For example, a survey by the Chartered Institute of Procurement & Supply shows that in January drivers spent 3-5% more time at the UK border than before Brexit. The experts warn that the delays will likely only increase and that this will create real problems both for the carriers and manufacturers of fresh products. Survey results also showed that more than a half of UK companies that import or export goods to EU had delayed deliveries in January, mainly, due to additional paperwork. Transporeon, a German logistics software company, tracks cargo truck movement in Europe in real time. The Live Tracker summarizes GPS data and is able to show how much time trucks spend in lines at each point of crossing. The executive director of the company Stephan Sieberi stated that: “a truck has value only if it moves”. If every day 10,000 trucks spend an additional hour at the border, it means that 10,000 working hours have been lost. “Waiting time increase by 5-10% in the port of Dover is a significant indicator for the logistics services providers”, said Sieberi. In the middle of February the BBC stated that the British government thought the worst had passed and that the total cargo flow had reached the levels of the previous year. BBC data showed that outgoing train traffic in the beginning of February was at 98% compared to traffic in February last year, while incoming land vehicle traffic reached 99% compared to last year. Approximately 80-90% of trucks arrive at the border prepared for the new situation. In January and February, truck traffic from Kent to the EU, including ferries and through Eurotunnel, reached 67% and 82% compared to the 2020. Ferry companies, however, do not keep track of empty returning trucks, and some estimates suggested that approximately 50% of trucks returning to the EU were empty. French sources speculated that as much as 60% of the returning trucks could have been empty. Before Brexit, the number of empty trucks never exceeded 30%. It is obvious that the changes brought about by Brexit and the unusual effects of COVID-19 will continue to affect the shipping industry, making it imperative that all parties pay close attention to the current guidelines, and ensure that they are ready to make quick decisions should things change. Entrepreneur, Rolands Peterson, is an economic, transport and logistics expert. He pays particular attention to developments in the global economy.
2021 began not only with an understanding that COVID-19 restrictions would likely continue for some time, but that the effects of Brexit – Great Britain leaving European Union – would also start to be felt. That Brexit would bring about changes to the UK/EU border was known for months. And yet, when it happened, most of the carriers and state institutions were not ready, creating (or rather, extending) the chaos in ports and near the Eurotunnel.