Already labelled “the best funded terrorist organisation of all time”, ISIS has prospered so much financially that it can almost be thought of as an economy in its own right. Since its creation in 1999, the enrolment of 20,000 jihadists from Asia, Africa and Europe has been paramount in keeping the organisation alive, along with stockpiles of oil in Iraq, and various other dubious activities which have bolstered its financial success. Yet will ISIS be able to maintain this level of income in years to come?
For most sides in the Premier League there is excess demand, but perfectly inelastic supply. Whilst this is hardly ideal for these clubs, inequalities between supply and demand can be fatal for smaller clubs. Darlington Football Club are the classic example of this – only their demise came about due to excess supply. Up until 2003, the club played at Feethams, with a capacity of 8,500. The average crowd they pulled in this season was 3,312 – whilst significantly lower than capacity this is the norm for clubs of that level. However, it was an ill-fated move to the Reynolds Arena in the 2003-04 season that sparked the beginning of the end for the club. Bizarrely, the chairman had chosen to build a 25,000 all seater stadium despite the low crowds Darlington attracted. This was an economic disaster and the money spent on the stadium was simply never recouped from entrance fees. Add this to the fact that money was raised for construction from high interest loans and the club was always going to be in trouble. The maintenance and running costs for such a large stadium were huge, and it wasn’t long before the club was driven into administration – just 6 months after they moved in. Whilst money was raised to keep the club going in the short term it was simply not sustainable and the club went bust in 2011
Despite this however, China is still growing at an incredible rate which other countries would dream of. The release of this data coincides with the Chinese President Xi Jinping visiting the UK for a week. There is no doubt that talks of a new trade deal will be in discussion. With China growing at this rate, it would mean global economic growth of 1%, making China the biggest contributor to the world economy. So it is easy to see why Britain wants to increase trade with China and increase Chinese investment.
However, it is an inescapable fact that some countries, including the UK, have been affected by the slowdown. The country’s slowdown has led to an undermining of industries such as energy and metals, which ultimately led to many of the UK’s steel-making factories such as the SSI plant in Redcar cutting jobs and even shutting down completely. The blame was put on cheaper Chinese steel sales and falling steel prices, leaving many industrial centres in developed countries to further deteriorate and unable to compete with foreign competition.
The absolute poverty we see in developing countries, that is, individuals living off less than $2 per day, does not exist in the UK. Relative poverty however, does exist. It is currently defined as 60% of the median income, or around £260 pounds per week. This definition leaves us with a staggering 13 million people, half of which are in work. Perhaps more alarmingly one in six children, 2.3 million, live in poverty (definitions become more complex at this point due to equitizing family sizes and recent government revisions). Figures are similar among pensioners; one in six, or about 1.6 million, live in poverty.
It is worth noting that automation will have a negligible impact on the developing world in the short term, the greater cost of capital relative to workers acts as a disincentive for companies to invest in new technology. This bias towards labour intensive industry is shown by the dominance that the developed world still retains over sectors such as pharmaceuticals and automobiles.
Many of those camped in the migrant camp known as “The Jungle” are asylum seekers who have fled their own countries to escape violence. In a number of cases, men will pay to be smuggled out of the country and then risk their lives in the Mediterranean crossing that has been the subject of much press as of late. Following the crossing, a large amount converge on Calais, moving through Europe seemingly unnoticed. Many take such risks in the hope that the UK will offer them a better quality of life and the chance to bring their family with them once they have established themselves in society. Surely their bravery and willingness to search for a better life does not deserve the labels that have been thrown at them such as “cockroaches” by Katie Hopkins and “a swarm” by David Cameron? Such adjectives have highly negative connotations and imply that the motives of those seeking asylum in the UK are primarily negative twisting British public opinion of migrants on a broader scale. In order to fully understand the nature of the situation we must ask ourselves “Why Britain?” and consider the situation as a whole rather than the action of the migrants in Calais and the disruption caused to cross-Channel transport services.
Before examining it is worth looking at the current state of ‘cash’ in the UK and abroad. There are two primary uses for cash; a medium for exchange and a store of value, and it is used in three locations, domestically, abroad, and in the shadow economy. There is currently around 40% of UK GDP (£62bn) in printed notes, up from a low of 30% in the early 90s. But where is this cash?
The correlation is certainly negative – as capital accumulates its marginal productivity falls. The first acre of land will increase a farmers output greatly, however by the 100th acre he will struggle to cover all the land – any extra acres will provide less yield. This idea is transferable to most forms of capital, provided the quantity of labour is fixed.
Facebook currently has over 1 billion users worldwide, and a market capitalisation of around $130 billion. It might seem implausible to many that this giant company might collapse so rapidly. But this is exactly what happened to MySpace, the most visited website in the world from 2005 to early 2008. By 2011, it had all but disappeared. Even giant firms fail. This is the lesson of economic history, ever since companies operating on a truly global scale began to appear in the late 19th century. Of the world’s top 100 non-financial companies a century ago, in 1914, all with market capitalisations of many billions in today’s prices, most have either gone bankrupt or are mere shadows of their former selves. Some of them disappeared very quickly. But while other companies have failed, as a Facebook user it seems ridiculous that Facebook will face the same fate in just a few years. It seems so ridiculous that it’s hard to believe Princeton University are even associated with it. Admittedly Facebook has become increasingly frustrating as it becomes the new ‘YouTube’, as your newsfeed becomes flooded with vines and other videos, but the number of active users on Facebook is ever increasing.
So how can Facebook die? Economists may refer to the observable attributes of the alternatives, such as price and quality. As Facebook is fantastically popular, it must be because the product not only provides features which many people want, but because it does so much more effectively than its rivals. A dominant market leader can only be displaced, on this view of the world, if either a superior rival emerges, or if there is some unforeseen and sudden shift in consumer tastes. This was the cause of MySpace’s death, which was killed by facebook and twitter which were substitute goods. But what’s killing Facebook? Not snapchat. Not Google+. Therefore we can rule competition out as a suspect for the cause of Facebook’s proclaimed death, as it remains dominant.
However surprisingly, these were not the arguments which John Cannarella and Joshua Spechler outlined in their report. They did not take into account Facebook’s features; rather they look at user behaviour based on network contacts. The researches stated, “… every user that joins the network expects to stay indefinitely, but ultimately loses interest as their peers begin to lose interest. Thus, a user that joins early on is expected to stay on the network longer than a user that joins later. Eventually, users begin to leave and recovery spreads infectiously as users begin to lose interest in the social network. The notion of infectious abandonment is supported by work analyzing user churn in mobile networks, which show that users are more likely to leave the network if their contacts have left.” However the mathematical and economical modelling used to come to this conclusion is totally flawed. That’s because they used a tool called Google Trends to see how often people searched for “Facebook” on Google over the years. They saw Google searches for “Facebook” decline, noted that when MySpace and Bebo waned, so did Google searches for those terms, and came to their dire conclusions.
So why is this a big deal? Because when a big news outlet like NBC News run;s a story, people believe it. They don’t stop to read the original paper and if they did, the academic jargon would make it incomprehensible to most. But it has an effect. Facebook is a publicly traded company. A story like this could affect the stock price and change the valuation by millions. It could also be the sort of thing that creates the end it predicts by convincing people that Facebook is dying and they should go somewhere else. Therefore the natural reaction of an economist is to make the prediction that John Cannarella and Joshua Spechler were motivated by the possibility of buying cheap shares. The incentive of making a fortune outweighed their loss of reputation or credibility after producing such a flawed conclusion.
Facebook’s response to the Princeton study was quite amusing, mocking the outrageous modelling they used to come to their conclusion. They used Princeton’s Facebook “likes” and “peer reviewed articles” and evaluated them over time. They noted an alarming downward trend of Princeton’s Facebook “likes” and made a conclusion based on the similarities between student enrolment and Google Trends index. From this, Facebook concluded that Princeton would also suffer a decline in enrolment of 50% by 2018.
According to CNN, “Princeton received 24,498 applicants for its current freshman class and accepted only 7.4% of them, ensuring its status as one of the nation’s elite universities. And as of September 2013 Facebook had 1.2 billion monthly active users.” Neither institution is really in any danger of disappearing any time soon.
By Sam Timmins
Even with the political and cultural arguments ringing around the referendum, the most important argument is that of the economics of independence – almost fitting for the birthplace of Adam Smith! One poll found that only 21% of Scots would favor independence if it would leave them £500 a year worse off, and only 24% would vote to stay in the union even if they would be less well off sticking with Britain. Almost everyone else would vote for independence if it brought in roughly enough money to buy a new iPad, and against it if not.
Opinions on the economics of independence are starkly divided. Nationalists argue that, mostly thanks to North Sea oil and gas, Scotland would be better off alone to reap the benefits of its natural resources. However this view has a sell by date. The richest reserves have already been exploited, leaving inaccessible oil that becomes uneconomic when prices fall. North Sea production has been falling by about 6% a year for the past decade leaving an eventuality that the oil will run out. Many fields will stop producing in the 2020s; by the 2040s oil is likely to be dribbling rather than gushing forth. Tax revenues from oil and gas are highly volatile; prices are high now but due to its unreliable nature, Scotland would depend on oil for some 18% of its GDP, making it subject to shifts in global commodity prices and the heavy reliance on natural resources could lead to dire economic conditions in time to come.
What will remain Scotland’s biggest problem as an independent state is its currency. Due to the UK being the largest trade partner for Scotland, it would be beneficial for them to keep the pound as their currency to allow easier cross border trading and therefore more economically integrated with the UK. Given that 60% of all Scottish exports are to the rest of the UK, a separation could hit it hard. However, in keeping the pound, gives away any right to its governing. Interest rates would be kept under the Bank of England’s control, leaving many to argue whether a nation with no control over their currency, can truly be called independent. Furthermore there is no guarantee that England and Wales would accept a currency union which would lead to Scotland being forced to join the euro and then be inevitably sucked into the struggling eurozone. In an era when most of the discussion is about leaving the euro rather than anyone new joining up. With problems in eurozone countries reverberating through the entire single currency area, Scots would be wary to vote yes when this is a strikingly clear possibility.
The Scottish vote would also have knock on effects for the rest of the UK. It is hard to compute exactly how much the Scots cost the English. But according to figures published today by the Institute of Fiscal Studies, total public spending was around 11 per cent higher per person in Scotland than in the UK as a whole in 2011-12. Scotland’s welfare bill alone is huge and utterly unsustainable without some form of external funding. Its pension’s bill is £13.3?billion a year, health care costs £11?billion and social security £8?billion. To many Englishmen, an independent Scotland may be in their best interest. As English tax payers are propping up many a Scotsman, the reduction in public spending in Scotland would encourage the increase in spending in the rest of the UK which would introduce more government subsidies and fund the rejuvenation of UK businesses; thus raising GDP and raising employment.
On the other hand in the eventuality that Scotland remains in an economic union with the rest of the UK would avoid disruption to UK firms selling north of the border, there may be a cost to exporters in the remaining UK since Scottish oil exports probably cause the pound to trade at a higher level than otherwise. However, due to independence from the rest of the UK, Wales and England would not benefit from a share of the tax revenues from exports such as gas and manufacturing. This would leave a considerable hole within the British economy that would be difficult to replace as Scotland is both rich in natural resources and production capabilities.
For many, it appears that the independence of Scotland represents a large and daunting risk to the Scottish economy. The Scottish sentiment surrounding the vote will inevitably sway many Scots to the independent vote, but the overwhelming risk associated with the “Yes” vote will be difficult for Alex Salmond to ignore much longer. The aim of SNP is for Scotland to gain independence and carve a place for Scotland within the European and Global market place. For the degree of economic independence a small European country can enjoy in a global marketplace is inescapably limited. It is unlikely that Scotland from now up until the vote will have resolved the flaws of their over reliance on finite resources for revenue or their uncertain stance on currency. It is likely that the vote will end in failure for Mr. Salmond as in a global climate already full of economic uncertainty it would be doubtful that the people of Scotland would want to take a risk that for many, seems senseless.
Contributed By Jack Albert Editor-in-Chief