anna schwartz

8/14/2019 Anna Schwartz

1/16

THE SCHUMPETERThe Economics Society Magazine

Route 66: The Death of American Infrastructure

Tim Robinson

Thomas Aquinas: An Economist for our Time?

David Osborne

The Monetarists

Tim Robinson

Ashes to Ashes: Hedge Funds' Fluctuating Tendancies

Fahad Memon

Financial Reform

Joao Marinho

The Economics Society Magazine is funded by

member contributions, and relies on the contributionof students and lecturers for articles. If you would

like to get involved writing for us please email:

[email protected]

Issue 2

News and Extra

Does Monetary Policy Need an Upgrade?

Aime Sindayigaya

Web 2.0 is the Future of the Corporate World

Sammy Sung

Why Has the UK Not Adopted the Metric System?

David Osborne


2/16

Much like any team sport, areas of investmentfactor in many key elements that help skew thegame in one sides favour. Among these are fieldconditions, weather conditions, teamcohesiveness and a matter of luck (though forinvestments, these aptly apply both literally aswell as metaphorically).

The field conditions favoured an array ofhedge funds: lack of industrial regulation anddisclosure requirements coupled with anenormous sum of financial-backing, spells primeprospects for any profit-centric organization.

Moreover, with a growing financial sector and anever-present effort to reduce potential losses inmarket operations, the sun shone ripe withopportunity.

Though provided with a great businessenvironment, hedge funds have been plaguedwith poor form and horrible fortunes, which forthe most part of their 60-year history have deniedthem consistent top honours. Though ascendingto great heights is no easy task, ensuring that thepressure does not deter you from achieving and

maintaining presidential status is equally vital.The hedge fund industrys history is

highlighted by inclinations to reach high, butcursed with near-death experiences; achievingprominence in the early 1960s by outclassingmutual funds by double-digit figures yetincurring huge losses going into the 1970s.Emerging yet again during the 1980s-90s withpromising hedge funds, the likes of JohnMeriwethers Long-Term Capital Management(two years of 40% absolute returns), Julian

Robertsons Tiger Fund (31.7% absolute returns,as reported in August 1998), RenaissanceTechnologies Medallion Fund (averaging 35%annual returns after fees since 1989) and GeorgeSoros Quantum Group of Funds (41% annualreturns after fees for the better part of the 1990s).Nevertheless, while QGF stirred controversywithin the confines of the Bank of England in1992 by devaluing the strong pound; theaforementioned former two (LTCM and Tiger)collapsed horrendously in 1998 and 2000respectively.

Today, with the likes of RenaissanceTechnologies, Man Group PLC and Soros FundManagement LLC, hedge funds have acquired afair degree of stability with regard to its business

climate. With performances accumulating assets tothe value of $2.68 trillion by the end of 2007, asreported by the 2008 Hedge Fund Asset Flows andTrends Report, the industry appeared set to eclipseits inauspicious past.

Unfortunately, with the world, and morespecifically the financial sector, at the mercy of aglobal crisis: hedge funds were no doubt likely tomeet their share of problems. As banks entrappedthemselves in a sub-prime lending fiasco, hedgefunds became sitting targets; namely by Porscheand Bernard Madoff.

In late October 2008; to the horror of anabundance of hedge funds, whom assumed shortpositions on Volkswagen shares (expecting futureprices to go down; they in effect opted to sell theirshares at higher prices and reacquire them atcheaper values), Porsche revealed a 74% stake inthe German motor company. With another 20%held by the German state of Lower Saxony, hedgefunds anticipated a short squeeze scenario givenonly 6% of shares were unassigned. Volkswagenshare prices skyrocketed as numerous hedge funds

sought after covering their short positions andminimizing their losses. The car manufacturersubsequently became the worlds most valuablebusiness (through market capitalization),regardless of peoples demand for Volkswagenvehicles as the share price exceeded 1,000. Hedgefunds bawled as they hopelessly watched theirindustrial infrastructure break down before them.

Ashes to Ashes: Hedge Funds' Fluctuating Tendencies

- By Fahad Memon

Bernie Madoff, mugshot (US Department of Justice)


3/16

Nonetheless, with the manslaughter ofPorsche-Volkswagen still in effect, anothercalamity arrived in the form of arguably thegreatest con in the history of finance. Theannouncement, in December 2008, revealing Mr.Madoffs business affair, which captivatedcountless hedge funds with its low volatility

appeal, was fundamentally a Ponzi scheme. Alsoknown as a pyramid scheme; it rewards investorswith guaranteed high returns from their owninvestment capital. There is essentially no formalbusiness activity attached to the generation ofthese proceedings as promised gains fuelsuccessive reinvestments, allowing for antics tobe carried on for a prolonged period. The list ofMadoffs investors, representing a whos who ofhedge funds, as well as other members of theeconomy; who adamantly flocked into the trap,

sought little reason to suspect the falsifiedverisimilitude. Considering that a formerNASDAQ chairperson was running the ship,who would question the undertakings? Certainlynot the U.S. Securities and ExchangeCommission (SEC), whom felt no sense ofunconventionality as pertained to BernardMadoffs money-making procedures despitecountless red flags.

Among the hedging victims was AIA(Access International Advisors), which suffered

an incredible $1.5 billion, including moneypersonally invested by fund manager RenThierry Magon de la Villehuchet. Denotingfeelings of grief and responsibility for losingsuch sizeable sums from his highly-esteemedEuropean clients, de la Villehuchet committedsuicide and was found dead in his office onDecember 23rd, 2008.

Counting all other individuals andentities; ranging from celebrity figures likeSteven Spielberg to financial intermediaries,

such as HSBC, and foundations, like New YorkLaw School (via Ascot Partners), Madoffs assetmanagement operations have caused $50 billionworth of damages. At present Bernard Madofffaces a lengthy 150-year prison term and $170billion forfeiture of wealth.

A conspicuous scar has been left on thereputation of many high-profile hedge funds thelike of Man Group and Tremont CapitalManagement whom charge whooping fees

largely on the basis of their ability to pick outclever people to manage their clients money.1With recent overwhelming debacles, theirunregulated freedom may also be under threatwith the SEC seeking to continue to its aim forimplementing further laws for disclosure in order

to protect investors.The hedge fund industry has crumbled yet

again, and despite the fact that history illustratesinevitable resurgence, the question to ask: is thisround of trials and tribulations over yet? Or willthe mess left behind by Porsche, Madoff and thefinancial sector as a whole result in, as The

Economistpredicts: perhaps half of all hedgefunds [going out] out of business?

Fahad Memon is a Financial Economics

Student at The City University London.

1. The Economist, issue 51 of 2008, p.20,The Madoff affair; Dumb money and dulldiligence, paragraph 5, lines 4-6


4/16

Route 66: The Problem of American Infrastructure

"Sixty-Six is the path of a people in flight"

- 'The Grapes of Wrath', Steinbeck

"The Mojave Desert is almost frightening...There is

something infinitely wearying about seeing one summit

after another prove to be an illusion, range replacing

range with ruthless monotony."

- 'The Ballad of Route 66', Christopher Hitchens

"You'll see Amarillo

Gallup, New Mexico

Flagstaff, Arizona

Don't forget Winona"

- '(Get Your Kicks On) Route 66', Bobby Troup

"Once I built a railroad; now it's done. Brother, can you

spare a dime? "

- 'Brother, can you spare a dime?', E.Y. "Yip"

Harburg

Tod Stiles and Buz Murdock drove down it in aCorvette in the CBS show 'Route 66'; ChristopherHitchens followed in their footsteps writing 'The

Ballad of Route 66'; and Bobby Troup and Nat

King Cole got their kicks on it. Route 66 is the

iconic American highway which once stretched

from its upper-Eastern point in Chicago, Illinois

down to its lower-Western end in Los Angeles,

California.

It was in 1926 that Cyrus Avery persuaded the

Joint Board of the American Association of StateHighway Officials to route a road through his

hometown of Tulsa, Oklahoma. Avery called this

road, directed across the desolate plains, the 'Main

Street of America', and in its heyday it became the

'path of a people in flight'; the artery of income for

the small stores that dotted its length. Millions

travelled along the road, and thousands made their

living off the travelling mass.

Route 66

Route 66 was built linking up a number of ruralcommunities, allowing farmers to transport grain,

and allowing trucking firms to operate across those

areas. 66 became a highway in 1927, and was

gradually paved over the next decade. Prior to the

road there had been only a series of tracks and

pathways; the only feasible travel between the two

cities was by rail.

The Economic Slump

The road was built against the backdrop of America

enduring the plight of the Great Depression. It was

these dire circumstance that allowed the transition of

the road from its origin to a superhighway. The road

surface changed from mostly gravelled to paved

thanks to the labour available during the Depression

Era exodus of mid America.

This never more so than the movement of people

escaping the Dust Bowl (centred around theOklahoma and Texas panhandles). When the winds,

and farming errors, began to destroy the plains

agriculture (lack of grass roots to hold topsoil down

helped the loss) it caused a mass migration of

people, taking all they had, to start anew in the West.

These people migrated to California and to work

along Route 66.

The builders of Route 66 were these local farmers,

miners and villagers who flocked there, and by 1938

they had completed paving the road, the first US

Highway to be so.

The Rise of the Roadside

Post War: the highway led to a boom in the

economies of the towns along it, and a dearth of

imagery, poetry and illusions to the American

Dream. Along with Route 66 and the other

highways came the inception of 'Service Stations', of

roadside cafes and restaurants and the necessary

maps and guides. The increase in road travel and

vacation led to an increase in ranches and motels.Even as early as the 1930s the road saw a rise in

food stalls, these expanded up until the wartime

period. (The war saw a large drop in traffic, aside

from the occasional military convoys) Most

famously perhaps was the expansion of a small hot

dog stand from and airport in Monrovia, California

onto Route 66: In 1940 brothers Richard and

Maurice McDonald built their stand in San

Bernardino, California on Route 66. In 1948 they

adapted it to focus sales on burgers and walk-up

sales windows; McDonald's in its modern form wasborn.

The second obvious implication of the rise of the

highways, was the inception of the roadside petrol

stations. By the beginning of the 30s the standard,

- By Timothy Robinson


5/16

The Newest New Deal

President Barack Obama had spoken of a NationalInfrastructure Reinvestment Bank ($60 Billionover 10 years to finance transportation projects)Now, with the news of recession, the talk has

shifted from just the need to replace some of theUnited States' weakened infrastructure to the useof the investment as a stimulus. By placing $25billion for immediate use into a 'Jobs and GrowthFund' for infrastructure they had planned to createa million jobs (by way of comparison: the USunemployment rose around 2.75 million betweenJanuary and November of last year). Even this aimhas expanded to stimulus bill ('The AmericanRecovery and Reinvestment Act, 2009'), whichpassed through the American legislator and was

signed into law recently. Of this bill around $80bngoes towards infrastructure, which LawrenceSummers described as the biggest investment sinceDwight Eisenhower's.

Regardless of the new investment placed into theUS infrastructure to solve its myriad problems(from bridge collapses to inefficient roads in poorcondition, to insufficient rail capacity) the era ofRoute 66 came to an end with its slow redundancy.In 2009 the funding for the preservation of Route

66 Corridor may end, the 1999 act authorising $10million to preserve the properties along Route 66only created funding for a ten year period.

As a travel guide this piece wont be useful, since66 wanders across the Texas panhandle andthrough a large portion of the Mojave, there are farmore appealing roads. However as a microcosmof the American experience and the impact andinfluence of the open road on American cultureand economy it is without parallel.

For more on the preservation program see:

http://www.nps.gov/history/rt66/prgrm/index.htm

Tim Robinson is an Economics Student at The

City University, London and the Editor of The

Schumpeter.

prefabricated designs started to be introduced tothe road system by the Pure Oil Company, thePhillips Petroleum Company, and later by Texaco.Nick Freeth and Paul Taylor write in 'TravellingRoute 66' of the road 'providing easy access to gas,water and other essentials.' Some of these remain,turned into makeshift taverns.

The other major business was that of motels; mostof those which were built along 66 were familyowned operations, made popular first by theaffordability and mass movement in theDepression and secondly by the post-World War 2popularity of the automobile.

The Symbol

Tucumcari, New Mexico plays home to one ofmany monuments to Route 66: a sculpture of thenumerals. (The number of the road was an

interesting choice in itself; originally to bedesignated Route 60, Avery decided 66 had a morememorable ring to it.) Tucumcari itself is amonument to US construction projects. The citygrew out of a 'tent city' built by the PacificRailroad Company for the construction workers,notorious for gun fights it was originally called'Six Shooter Siding'. One could also argue thatpart of the enduring legacy of Route 66 is not onlyone of hardship but, by virtue of it providing easieraccess to the West, it became a clarion call forthose seeking the climate and palm trees ofCalifornia.

The End of the Road

Route 66 began to die in 1956; President DwightEisenhower signed the Highway Act, and thefamous road was bypassed by a series of strings oflimited access highways which left the small townsalong Route 66 ignored. It took about threedecades for the slow decline as the interstate

highway system was completed.

The bypass destroyed the viability of the storesalong the highway, and of the service stations, andthe once popular motels. Large portions of theroad simply ceased and gave way to the dirt tracks;many of those towns along its length vanished.

In 1984 Williams, Arizona was the last town alongRoute 66 bypassed. In 1986 Route 66 wasdecommissioned. The road had left behind it a

changed scenery, and the West coast had changed:from the frontier to the metropolis (the, now, mostpopulous state in the Union) with one of the mostdramatic movements of people in the US history,facilitated, enabled even, by Route 66.

Scul ture in Tucumcari, New Mexico


6/16

In July 2007 the collapse of two hedge fundsowned by Bear Stearns, specialised in trading

collateralized debt obligations (CDOs), was a

signal of the turmoil to come in the financial

services industry. The market for CDOs had

become illiquid and it turned out these assets

were overvalued based on mark-to-market

accounting. This resulted in other banks

around the world having to write-down the

value of similar toxic assets. As the

exposures to these assets were slowly

unravelled, they were found to be of very

large proportions. This was possible due tothe leverage undertaken by banks and the

resulting swelling of their balance sheets. In

2007 RBS had a balance sheet of 1.9

trillion, larger than UK GDP.

Through the subsequent months we have

seen record losses by banks in the US and

Europe. What has followed is the failure of

many renowned institutions. Some were

acquired (the most notable ones through

government support), some were liquidatedand others were partly or fully nationalised.

Of the five largest US investment banks,

three no longer exist independently and the

remaining two have become deposit-taking

institutions in order to call on the Federal

Reserve as a lender of last resort. Both in the

UK and US major banks (Citi and RBS) have

become partly nationalised. Furthermore, the

governments on both sides of the Atlantic

have set up insurance schemes for these

banks toxic assets. The need to restorefunctionality and confidence in the banking

sector is undisputed; however there is much

debate over the method used. There are

strong arguments for alternative measures

such as full nationalisation or the purchase of

the toxic assets, as opposed to the insurance

of these.

Looking towards the future, leaders from

around the world have expressed the need for

reform of practises and regulation of the

industry. Take for example Gordon Browns

recent address to the US congress over the

matter. This highlights the importance of a

coordinated effort and the inclusion of so

many countries in the discussion is a clear

sign of a shifting global balance. Both on an

individual and collective level, certain key

areas regarding the financial system need to

be addressed:

Risk management practises by banks and

other institutions must be scrutinised. Current

models used are clearly flawed and this islargely attributable to the time-scale they are

based on. Most models only factor in the past

10 years which has been a period of relative

stability. More stringent stress tests must be

carried out, using a larger time-scale, and it is

the responsibility of regulatory bodies, such

as the FSA, to oversee these. Furthermore,

once completed, the results from these stress

tests should be made publicly available.

Financial institutions should now focus onwhat was once considered their core services.

We can expect to see a large reduction in

more risky activities, such as proprietary

trading, and a focus on advisory and

traditional products by the investment banks.

The exacerbated risk taking culture was

strongly illustrated by AIGs financial-

products division. One of the worlds

relatively stable and largest insurance

companies was brought to its knees by

hedge-fund like activity from one divisionable to exploit a gap in the regulatory system.

US Federal Reserve Chairman Ben Bernanke

has recently expressed his anger at this.

Financial Reform

- By oao Marinho


7/16

One of the most concerning areas uncovered by the crisis is that of institutions that are too large to

fail. Indeed, under current conditions, failures of companies such as RBS, AIG and Citigroup

would create immeasurable shocks through both the financial services industry and the wider

economy. Bank bonds represent a quarter of US investment grade corporate bonds and the potential

collapse in confidence in the bond market alone would be disastrous. However, given most banks

recent poor administration, the continued government bail-outs may create moral hazard where the

upside of risk taking is large but there is a limited downside. Therefore governments and

regulatory bodies must work together to establish a system where large institutions can go bankrupt

without the large systemic risks.

Stability in the financial services industry is of paramount importance and essential to the recovery

of the real economy. We are currently going through a painful process and although the flaws andlimitations of our system were exposed, the systems ability to adapt and change is in itself its

greatest strength. Changes in the coming months are expected. The financial services landscape is

very different from 2 years ago and new reform will re-shape it further.

Joao Marinho is a student at Queen Mary, University of London


8/16

According to Moores Law (1958), thenumbers of transistors on a computer chip

would double every year. What Moore

probably did not have in mind was that the

concept would evolve into something more

than just technological. This year at university

has proven that in more than one occasion.

Lecturers are increasingly trying to emphasize

the importance of knowledge management.

Trying to teach students that technology has

come to that point where it is not just about

inventing new technology anymore, but that

there are millions of ways to utilize thistechnology and the transformation of Web 1.0

to Web 2.0 is the full proof of this.

A recent article in the Financial Times

described how businesses have started

applying Web 2.0 to their businesses, but

managers tend to misunderstand what Web 2.0

really is. With more than 10 million hits on

Google, there is still a huge argument going on

about the meaning of Web 2.0. Some people

use it as a marketing model, while others

believe it to be an entirely new theory. Theexact idea of Web 2.0 started at the Web 2.0

conference hosted by OReilly Media in 2004.

According to Tim OReilly (2005), founder

and CEO of OReilly Media, Web 2.0 does not

have any hard boundaries, but rather contains a

core with a set of principles and practices that

demonstrate some or all of them.. Though there

are already many websites that qualify as being

part of Web 2.0, analysts believe it can be

exploited more thoroughly. This does not have

to mean that Web 2.0 is constrained with ideasthat have to do with the internet alone. The

possibilities of Web 2.0 are phenomenal.

The rise of Web 2.0 has given

innovative opportunities to potential

entrepreneurs and perhaps too many brilliant

ideas. The Economist wrote that venture

capitalists may have wasted money by

investing in too many new businesses that are

focused on e-commerce this year. It is not

surprising that with the success of numerous

Web 2.0 applications, there will be people who

also want a piece of the pie and even though

many will fail exploiting this concept, it should

be very much stimulated.

One of the concepts that was born

together with Web 2.0 is the Intelligent

Exploiter framework that was completed

only recently by two professors of CASS

Business School, Clive Holtham and Nigel

Courtney. This framework tries to describe

the complex skills and roles involved ineffectively handling information,

communication and technology. What is

perhaps more important is that it shows

how technology can be more than just new

hardware or software. It can be difficult to

convince managers that knowledge

management and intelligence exploiting is

a long-term investment that can

significantly improve the companys

position on the market. The biggest

obstacle to knowledge management is to

convince business leaders that the free-flow

of information is not always a bad thing.

Postcodes today, for example, describe

more than just the location of your house.

When employees at the supermarket type in

your postcode, they can tell what you like

to eat, how often you do your shopping,

how much money you spend, etc. These

are important details, it will tell the

supermarket what they should focus on andhow much priority they should give a

particular product. It also explains to

employers that perhaps they should

purchase a more diverse range of products.

Web 2.0 is the Future of the Corporate World

- By Sammy Sung

GTEC 2008, Image by Mike Gifford

via Wikimedia Commons


9/16

The whole idea of using information should of course not be limited to just

postcodes. Knowledge Management is defined as the technologies that are involved in

creating disseminating and utilizing knowledge data. Constantly recording information

could help organisations understand customer behaviour and segment them into

appropriate target groups. As businesses expand to bigger organisations, it is often the

micro management that they lack. Occasionally it lies in the tiny details like knowing and

sharing information about customers that can improve the company considerably and as

the papers have been collectively suggesting, managers have understood this and are

slowly changing.

The Web 2.0 has caused business to quietly revolutionize organisations from

within, but it has started to catch the attention of business leaders. According to David

Bailey, of PA Consulting, Web 2.0 has already evolved into a tool that is has proven to be

powerful in product development areas (2008). The concept has received positive

feedback from customers as waiting time has been reduced with the use of wikis. Many

organisations use social-networking sites as a tool for marketing to reach a wider

audience. Record labels use YouTube to evaluate how successful a song is and how

attractive an artist is to a new market. For many artists coming from East Asia, it is

considered a massive challenge to enter the US market. Therefore having a powerful and

attractive marketing strategy could make a difference. Utilizing websites like Youtubecould then prove to be a worthy instrument on testing popularity.

Executives may find that Web 2.0 is already being implemented into their

organisations without them knowing it. It has proven itself to be potential, effective and

powerful to the corporate world. Soon it will be necessary for businesses to implement

web 2.0 as it will become impossible to work without. At the current rate, technology will

begin their next step towards Web 3.0 which Jonathan Richards of The Times describes as

giving the internet itself a brain. Intelligent exploiting will soon become crucial for

organisations to keep up with customer demand and it is up to the executives utilize that

and maintain their position on the market.

Sammy Sung is a Business Studies Student of Cass Business School, and the current

President of the Economics Society.


10/16

The United Kingdom, just like every developedcountry, excluding the United States, is officially

metric, so why do road signs show miles, yards and

feet, although designed and manufactured in

millimetres? The metric system was developed to

allow for an international standard in weights and

measures. This article aims to ascertain why the UK

continues to be an anomalous example of a metric

country by keeping its road signs imperial. It will

assess the estimated costs of converting the road signs,

the economic benefits of using a single system of

measurement versus the economic costs of using

imperial signage whilst being officially metric. It willalso compare Irelands metric switchover in 2005 to

the lack thereof of the UK. This article will also ignore

the failed target to convert road signs by 1975.

There are varying estimates of how much a switchover

to metric signage would cost. According to the White

Paper on Metrication The most expensive operation

within the field of public administration will be the

conversion of all road signs showing miles (or mph) to

kilometres (or kph). The cost of conversion of all road

speed signs is likely to be about 2m and of all road

signs indicating distance appreciably more.(Department of Trade and Industry, 1972 paragraph

107). In todays prices (Using the Retail Price Index)

that estimate is around 21 million. Since then, the

Department for Transport (DfT) and the UK Metric

Association have both made estimates about the cost

of converting road signs. The DfT estimated that the

cost would be between 565 million and 644 million.

(Department for Transport 2006) The UK Metric

Association however estimated the cost of the

switchover to be significantly less, approximating

costs between 31 million and 160 million (Paice2006). In the period 2006-2007, expenditure on roads

was approximately 7.01 billion for England alone

(Department for Transport 2008). The UKMA

estimates amount to 0.49% and 2.3% of the DfTs

total expenditure on roads, whilst the estimates from

the DfT amount to 8.06% and 9.19% of total

expenditure. The graphs included illustrate the

previous figures.

There are facts about these estimates that need to be

taken into consideration:

The estimates made by the DfT were madebased on previous estimates in 1989.

The Estimates made by the UKMA are basedon the 2005 Irish switchover.

The figure for total expenditure on roads is

only for England, however the estimates

are for the entire Kingdom. Therefore,

adding the Scottish and Welsh road

expenditure would lower the percentage of

expenditure for both estimates.

The Republic of Ireland was in a similar situation

as the UK until January 2005, when they converted

their road signs to metric. Irelands Department of

Transport (DoT) estimated that the switchoverwould cost 11.5 million. In reality, the switch

had a price tag of 10.5 million (1 million less

than the estimate). (Paice 2006). In addition to the

switchover costing less than expected, the

conversion day went with no hiccoughs. The

Republic of Ireland is much smaller than the UK in

terms of population and land area, so converting

road signs there is inevitably going to be cheaper

than in the UK. However, the cost-effective

approach taken by Ireland towards metrication of

signage could be emulated by the UK.

The UKs reluctance to switch over to metric units

on road signs has many implicit as well as explicit

costs.

Why, Unlike the Rest of the Civilised World, has the UnitedKingdom not Adopted Metric Road Signs?

- By David Osborne

Source: UKMA (2006), DfT(2006)This graph compares the estimates of the conversion costs withthe total expenditure on roads in the year 2006-2007. Notice that

the UKMAs lower estimate is almost negligible compared to

total expenditure.


11/16

An implicit cost of not going metric is the waste of the metric education, which has

been taught in British schools since 1974 (Paice 2004). According to the British

Weights & Measures Association, By the time most young people reach their 20s,

metric education has been replaced by the practical experience of British units.

(British Weights and Measures Association 2001). This statement is reality. Education

is a benefit in kind and therefore is a burden of the taxpayer. The fact that a metric

education is all but useless on British roads means that the taxpayers money is being

wasted. A less subtle cost of using imperial signage is the fact that they have the

potential to result in, especially among the European drivers. There have beencountless news reports of Heavy Goods Vehicles from the Continent striking low

bridges where signs are exclusively imperial, because lorry drivers from the continent

do not understand imperial measures. This costs millions in repairs to bridges, railway

lines, roads and Lorries each year and in extreme cases has resulted in injuries. (UK

Metric Association 2008).

There is no good reason why Britain has not adopted metric road signage. There is

poor excuse that the British population incorrectly view the metric system as a

European Union imposition on British culture. The cost of conversion is also

perceived to be a deterrent to adopting metric signage, but the longer it is left, the

more expensive it will become. The fact that the metric system is the official system ofmeasurements in the every country in the world (excluding Burma, Liberia and the

United States,) means that it is inevitable that Britain will have to convert road signs to

metric at some point in time (As will Burma, Liberia and the US). Furthermore, the

fact that the Republic of Ireland, Australia, New Zealand and Canada have recently

converted their road signs to metric must infer that there are economic benefits from

the switchover. By clinging on to imperial signage, the UK is doing nothing but

hindering the benefits of being a metric nation. In conclusion, the UK still uses

imperial road signs because there has been no thorough up-to-date research into the

matter, in addition to general political ignorance.

David Osborne is an Economics Student at The City University, London

Source:UKMA (2006) & DfT (2006)This graph compares the difference in estimates, between the UK Metric Association and the

Department for Transport.


12/16

The Monetarists: The Rise of Monetarism

Inflation is always and everywhere a monetaryphenomenon. To control inflation, you need to control

the money supply- Milton Friedman

At last, I have discovered the cause of Christmas!- Nicholas Kaldor (Noting that money supply increases in December and

declines in January)

To cover the entire history of the development ofMonetarism would be too grand a scope for this article,so it the really should be titled Friedman's Monetarism,

or a short history of Modern Monetarism from 1956.Why 1956? That year Chicago Economist MiltonFriedman published a series of essays, one of which hewrote titled "The Quantity Theory of Money: ARestatement." Friedman set out a version of the QTM,which in essence meant that an increase in moneysupply would increase spending, people would not holdthe additional money in idle balances. Friedman sawthe relation between money and prices as a uniformityon the order of that found in the physical sciences. Heaimed to save the QTM from the "atrophied and rigid

caricature" of it; to restore the version that had beenmaintained in Chicago.

Money Matters

Two reasons for the growth of Monetarism: one statedby Friedman in his 1967 Presidential Inaugural Addressto the American Economic Association (AEA): the "re-evaluation of the role money played from 1929 to 1933".What Brad Delong called the emergence " from the oldoral Chicago monetarist tradition of the Great

Depression era". Not stated in the AEA address is therole Friedman himself played in this. His work withAnna SchwartzA Monetary History of the United States

from 1867 - 1960 was an ambitious project to detail therole of money in the US over that period. This piece, sowrote the journalist David Smith, had the sense ofreading a 'whodunnit'.

The second was the content of the address itself: whatmonetary policy can and cannot do. Friedman examinedthe negative relation between unemployment and

inflation, famously known as the Phillips Curve. Thisrelation, which held in the research of Phillips,Samuelson and Solow, began to disappear in the 1970s.Friedman outlined the theory of a long-run Phillipscurve where the trade-off no longer existed; where thereexisted a natural rate for unemployment, as suchmonetary policy had only a short term impact on the

- By Timothy Robinson

unemployment rate. Worse, to maintain a rate ofunemployment below that the of natural rate wouldrequire ever accelerating rates of inflation. This theoryhad pre-empted the occurrence of data supporting it.

Both this narrative of the power of monetary policy fromFriedman and Schwatz and the existence of a naturalrate of unemployment allowed a reassessment of the useof fiscal and monetary policy. However, this alloccurred against a backdrop of high fiscal expenditure,and the rejection in practice of the monetarist precept tohave stable, predictable monetary policy (the k percent

rule: money supply should be increased by a constantpercent, irrespective of business cycles).

The US had a series of arguably Keynesian Presidents,JFK, Johnson and the "Great Society" programmes(Medicare, Medicaid, the War on Poverty), even toNixon's famous, oft misquoted, statement: "I am aKeynesian now in economics". (Less memorableperhaps than Friedman's "In one sense, we are allKeynesians now; in another, nobody is any longer aKeynesian".) The US Government operating an

expansionist policy, in 1968 Federal spending reached athen record high of about $180 billion. (With a $25 Bndeficit). Meanwhile the UK saw the publication in 1959of the Radcliffe Report, rejecting the prescription of asteady growth in money supply it set the tone formonetary policy in the UK through the 1960s.

Political Monetarism

I will end on a short description of the political influenceof Monetarism throughout the 70s and 80s. Delong hasargued this branch of monetarism differed from its

Classical Monetarist cousin: The political form ofMonetarism, Delong argued, believed velocity of moneywas stable; that the Central Bank could and shouldcontrol money stock, and that fiscal stimulus would notboost demand, unless financed by printing money.

Finally, in 1976 Jim Callaghan told the Labour Partyconference that Keynesian demand management wasfinished, and then the late 70s and early 80s saw theelections of Thatcher and Reagan and the concept ofKeynesian fiscal policy lost its lustre amongst thepolitical class. Thatcher, who said at the Conference in1968 that the essential role of government wasmanaging money supply, was able to put this intopractice.

See Also:

'The Rise and Fall of Monetarism', David Smith.'The Monetarist Counterrevolution' Brad Delon


13/16

The current economic crisis is being discussedover various types of media. However, most of

the time it is difficult to understand what

solutions have been applied to solve what and

why. In particular, it is hard to understand why

the governments decided to bail out only the

banking industry and no other. Why has the

interest been cut to 1.5%? The current

economics crisis is complicated until you listen

to what experts say about it and read the

textbooks to get detailed explanations of

economic elements playing a key role in

determining our fate during this uncertain time.I attended a conference that discussed the

subprime turmoil and the speaker pointed out

that the current economic crisis will never be

resolved wholly by fiscal policy but by monetary

policy. The conference was held at the time the

UK government had just promised to reduce the

VAT to 15%. I did not want to believe that the

speaker was just against the governments

decision but I left puzzled. The reason I was

confused was that the monetary policy already

applied to solving the current economic crisis,had not yet given any positive result. The first

banking bail out had already been granted and

the UK base interest rate reduced from 3% to

1.5% and nothing had changed. More often, we

are told it will take time for the effect of the bail

out to show but as I write this, a second cash bail

out is to be issued to the banks!

I find out that the monetary policys functions

are to control money supply, set the interest rate

and ration the amount of credit. Rationing the

amount of credit involves a central bankrestricting banks' total lending to a certain

amount, or reduce lending to riskier customers or

for non essential purchase and control the level

of hire purchase credit. This function was

abandoned by the UK government since it

prevented free competition in financial markets.

Consequently, it can be concluded that the only

elements of the monetary policy to determine our

fate in this crisis are the money supply and the

interest rate.

An increase in the money supply reduces the

base interest rate in the money market and as a

result investments are increased. Furthermore,

the increase in money supply increases real

balances, providing surplus cash to consumers

who can start spending, as a result businesses

activities increase and the demand for labour and

capital rises. One problem with the increase in

money supply is that when it is not well controlled

it may lead to inflation. It would be fine if and

only if our government could apply the same

strategy and increase the money supply such that

spending increases, without rising the rate of

inflation. What does it take to increase the money

supply then?

The Bank of England in Threadneedle Street, London

One of the techniques to increase the supply of

money suggested in the economics book, is the

central bank to inject the money in the banks. By

October 2008 the UK government had injected

approximately 37 billion into the banking

industry in the form of a bailout. Part of the reason

such a large amount of money is only granted to

the banking sector and not to any other sector, is

because the banks have the capacity to expand the

money supply. In fact, when banks receive extracash from the Central Bank, they use the fund as a

basis of credit creation. While this sounds simple,

what are the implications of the second element of

the monetary policy: interest rates?

Textbooks suggest that banks willingness to take

the extra money offered by the central bank

depends on the interest rate the central bank

charges. The lower the base interest rate, the more

banks are willing to accept the fund. Each time

money is injected into an economy, the supply ofmoney is increased whilst the demand for money

is reduced; and a new equilibrium in the money

market is formed.

Does Monetary Policy Need an Upgrade?

- By Aime Sindayigaya


14/16

So you can understand the reason for reducing

the base interest rate when the bail out was

granted in October 2008. The reduction of the

base interest rate by the central bank is not profit

oriented; it is a matter of economic mechanism.

Sometimes the base interest can be reduced by

the monetary policy committee with the

objective of increasing borrowing within aneconomy. In this situation the interest rate is cut

and then the central bank carries out the

necessary operations to adjust the money supply

so that the equilibrium on the money market

reflects the newly set base interest rate. This

situation happened in the UK, in November,

December 2008 and January 2009, the interest

rate was cut to 3%, 2% and 1.5%. The reduction

in the base interest rate also means that the

London Interbank Offered Rate (LIBOR) used

for banks when lending to each other, ispresumably reduced. In normal economic times

the LIBOR is set 0.1 or 0.2 above the base

interest; meaning that at the moment the LIBOR

should be 1.6% or 1.7%, but instead it is 2.17%.

(At the time of writing)

The action taken by the government to bailout

the banks is justified as a way to stimulate

spending in the economy through injecting

money into the banking industry, with a hope

that banks will pass on the fund to consumers as

credit. There has not been any hesitation in thebanks taking the money offered and the Bank of

England cutting the base interest rate to stimulate

borrowing and investment, but yet the banks are

not lending. The question we may ask ourselves

is why the banks are not willing to lend?

One reason might be that banks want to operate

on higher liquidity ratio particularly if they

believe people will want to withdraw cash. This

could be the situation we are in at the moment as

banks fear that what happened to Northern Rock

may happen to them. As a result banks have

probably chosen to hold a bigger portion of

liquid assets in the event of a bank run. Another

possible reason is that banks do not want to be

declared insolvent and end up like Lehman

Brothers; as a result banks must ensure an

adequate and guaranteed level of assets is

maintained against their liabilities by increasing

their deposits and not lending. Many British

banks have written off credit generated from the

subprime lending, hence their balance sheetshave been heavily affected. Therefore, the extrafund received from the Bank of England may not

be used for credit creation but to fill in the gap in

the banks balance sheet created by the losses

generated from the subprime business. In my

view, banks are concerned with the health of their

balance sheet; that is why banks are very cautious

of who they lend to. Even lending between banks

themselves is difficult as the LIBOR is above the

normal estimated market level. In fact one of the

solutions being studied at the moment by

governments worldwide is to buying all toxic

assets from banks. There is a hope that this actionwill adjust the banks balance sheet and prompt

them to resume lending.

In conclusion, it is hard to convince people that

normal monetary policy will sort out the current

economic crisis. There is a need for the banks,

governments and economists to cooperate on a

global basis and design a strong monetary policy

framework which can handle extreme situations,

and is still suitable for our modern, innovative

financial sector.

Aime Sindayigaya is a Postgraduate Student at

The City University, London.


15/16

Usury, which is condemned in the Bible, Torah

and Koran, may be as far as many minds go

when it comes to connecting religion and

economic principles. However religious figures

have had much more influence on the economic

principles of our day than we may wish to

believe. A notable figure in this respect is St.

Thomas Aquinas, who was an Italian Dominican

priest.

Were familiar with Adam Smiths works on the

division of labour, but did the principle of

division of labour really begin with Smith? In

Summa Theologica II, (published five hundred

years before Smiths) The Wealth of Nations,

Aquinas states:

One man does not suffice to perform all those

acts demanded by society, and therefore it isnecessary that different persons be occupied in

different pursuits.

This view is one built upon Smith, in order to

form his view on the subject. It highlights the

similarities between economic thinkers

throughout time.

However, Aquinas economic perspectives

were not all in tandem with those of famous

economists such as Smith. For example;Government Intervention, where Smith argued

that each person acting in selfish greed benefits

the economy on a whole, therefore government

intervention was absolutely unnecessary.

Aquinass view differed considerably. He

believed that government had a duty to regulate

the economy, but only within reason.

In the wake of the Credit Crunch, we can see the

effects of both types of economy. The selfish

Economy as according to Smith, has taken asevere beating, and governments are beginning

to use the theory of regulation brought forward

by St. Thomas Aquinas.1

David Osborne is an Economics Student at The

City University, London.

Notes:

1Thomas Aquinas: A Pioneer in the Field of Law

& Economics, Robert W. McGee, Barry

University

Published in Western State University Law

Review, Volume 18, No. 1 (Fall, 1990), 471-483.

2 St. Thomas Aquinas, Quaestiones quodlibetalesvii. 17; cf. Summa Contra Gentiles iii 132; Contra

Impugnantes Dei Cultum et Religionem v. 27, as

quoted in Dino Bigongiari, The Political Ideas of

St. Thomas Aquinas ix (1953).

Carlo Crivelli's depiction of St. Thomas Aquinas

from the Demidoff Altarpiece c. 1476

St. Thomas Aquinas: was he an economist of our time?

- By David Osborne


16/16

" If the issue was to stabilize the financial

system and prevent a collapse, and get by the

point where the market is rattled wondering

which big institution will go down next, I think

on a scale of one to 10 we are very close to 10."

- Henry Paulson, Former US TreasurySecretary.(In a comment to the WSJ CEO Council onthe 17th of November 2008. On the 23rd ofNovember Citigroup was given a $20 billiondirect investment and the government backed$306 billion in loans and securities.)

"[T]he objective ought to be increased protection

against systemic risk, and increased protection

for consumers...So it seems to me that you have

to find the optimum balance between increasing

protections against risk and maintaining the

benefits of market-based systems, as opposed to

the objective of minimizing or even eliminating

risk"

- Robert Rubin, Former US TreasurySecretary, at the same event.

"Beneath the surface of overall stability in the

UK economy lies a remarkable imbalancebetween a buoyant consumer and housing sector,

on the one hand, and weak external demand, on

the other... a large negative demand shock might

result in an undershoot of the inflation target for

some considerable time."

- Mervyn King, Governor of the Bank ofEngland, in a speech given to the LondonSchool of Economics in November 2002.

"The SEC continues to roar like a mouse, andbite like a flea...I gift wrapped and delivered

the largest Ponzi scheme in history to [the SEC],

and somehow they couldn't be bothered to

conduct a thorough and proper

investigation...[The SEC is] both a captive

regulator and a failed regulator"

- Harry Marcopolis, a Private FraudInvestigator who wrote a report to the SECtitled: "The World's Largest Hedge Fund is a

Fraud", in his testimony to Congress in theMadoff Hearing.

Patrick Minford speaks at the UniversityThe former adviser to the Treasury Sir Patrick

Minford, Professor of Economics at Cardiff

University, spoke on the Causes or and the

Response to the Credit Crisis in a talk titled

"Looking up while going down: The Causes and

Consequences of the Current Economic Crisis"

The Schumpeter Online

The Schumpeter is now online at

theschumpeter.blogspot.com

The Economics Society has also launched a

Facebook group to provide immediate updates on

events to members. Join us at:www.facebook.com/group.php?gid=31445513286

Thinking Inside the BoxThe Bentham Project launches a blog.

The famous 18th Century economist Jeremy

Bentham has been reborn courtesy of a new blog

from the Bentham Project. Jeremy Bentham will

offer his thoughts through the website hosted bythe Nature Network London. Look for an

introduction to the new fortnightly blog at:www.ucl.ac.uk/Bentham-Project/info/blog.htm

"Pay what you want"London Restaurant runs Freakonomics scheme

The Little Bay restaurant in London ran a scheme

offering patrons the chance to decide how much

the meal is worth. The owner, Peter Ilic, providedcustomers with no cheque giving them the

opportunity to decide whether to pay between a

"penny and 50 pounds".

Pictures of the Recession

Slate Magazine looks for the iconic images of this

recession to go alongside the breadlines and wagons of

the Great Depression.

www.slate.com/id/2211959/

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