The Economist's Society at UCL is the proud host of many of the world's most admired, respected and intelligent minds, who never fail to live up to expectations and deliver motivating and entertaining lectures.
Here you can find details of our previous speakers, as well as any relevant materials these guests have kindly donated for you to browse at your leisure:
All details are correct at time of writing.
Here you can find details of our previous speakers, as well as any relevant materials these guests have kindly donated for you to browse at your leisure:
All details are correct at time of writing.
Drowning in Debt:
Cutting the state back down to size
Director General of the Institute of Economic Affairs, frequently appearing on BBC Question Time, Any Questions, Newsnight, Channel 4, Sky News, Today Programme and LBC.
He was head of media for the Liberal Democrats from December 2004 to May 2007 and studied PPE at Oxford.
Lord Richard Layard
The Economics of Happiness and its Implications on Public Policy
The Economist's Society welcomed Lord Richard Layard yesterday, who talked about how economics plays a role in happiness and what it means for policy makers.
Click here for the review!
Sir Jon Gieve
Stagnation - what can Osborne or Carney do about it?
Thanks to everyone who joined us today for the intriguing talk by Sir John Gieve. It was a brilliant way of rounding off our academic events for the term! Click here for the slides!
Professor Douglas McWilliams
Is there a shortage of spending power?The economic impact of China's savings glut - Review by Yan Ting Toh
On Monday, The Economist’s Society welcomed Professor Douglas McWilliams, Chief Executive and founder of Centre of Economic and Business research, to UCL to give an interesting talk on the impact of China’s saving glut. In the beginning of the year, he made a list of his top 10 predictions for 2013, which can be accessed at http://www.cebr.com/wp-content/uploads/Top-ten-for-2013.pdf
To begin with, Professor McWilliams explained that the reason behind the high savings rate of China (50% of GDP) is that saving behavior is partly conditioned. He explained that if an individual have had past experience of not having sufficient to consume, it is likely that they would save more when they can afford to. In addition to that, their experience would also affect the behaviour of their descendent and thus maintaining the high savings rate in the country. As this is more of a cultural issue, he reckons that it is unlikely for the Chinese savings rate to fall by a significant amount in the near future. To support his prediction, he highlighted Singapore, whom is a developed country but still maintains a very high savings rate of about 44%. He reckons that the developments in China are similar to that of Singapore but everything is just happening at a much larger scale.
Personally, I do agree that the high savings rate in Asia is conditioned by their culture. Being a Singaporean, I do observe a strong saving culture amongst my Singaporean peers. Perhaps this might be because we are on a student’s budget or simply because since young we were taught by our parents to save part of our pocket money for future use. However, even those who are working, especially those in their late 40s and early 50s, do save quite a lot. Perhaps this is due to the high cost of living in Singapore and thus there is a need for them to save more so as to ensure that they have sufficient funds for a comfortable retirement. Thus, I believe that the high savings rate in Singapore is due to cultural and economic reasons.
Moving on, Professor McWilliams went on to highlight the importance of balance of payments today. He explains that the emerging nations make up half of the world GDP today and the scale and speed of the development of their economies have been amazingly fast. This has led to the need of large-scale adjustments required by the developed West to resolve problems in their balance of payment. His argument being that the East is becoming super competitive. Perhaps instead we should be questioning ourselves: “Does competitiveness between countries really pose such a huge impact on the balance of payment?”
When Chinese modernisation started, the saving ratio increased and is expected to stay around the current rate of 50% (similar to the path of Singapore’s savings rate). Currently the Chinese government is in the process of dissaving. However, China’s corporation savings is much larger than many would have thought that it to be, resulting in the maintenance of the high savings rate in China. According to Professor McWilliams, most Chinese’s have several saving books and most of their savings are in the “black” books, which are invested in the property market. Recently, the Chinese government imposed a tax on the second property in an attempt to deflate the property bubble. However, due to the reason above, this policy might not be very effective.
Professor McWilliams also highlighted that Chinese GDP started picking up from late 90s and he predicts that China will save about 7% of world GDP by 2015 (currently saving 6% of world GDP). In cash term, China’s savings is forecasted to go well above $6trn and they are likely to account for more than a quarter of world’s savings by 2015. He went on to explain the implications of the Chinese saving glut. By basic theory, excessive savings results in the fall of interest rates. This has been observed where bond yields have been falling way below expectations with US 10-year bond having a yield of 1.87% when according to FSA guidelines; individuals should be expecting returns of about 4.5%. Professor McWilliams also predicts that interest rates are expected to be low for most of our life and thus we should save more. However, he also highlights that this method would not work if everyone were to save, as interest rates would only plunge further. He believes that the only way to beat the low interest rates is to work longer to earn more. For that, he predicts that our generation would have to work till the age of 75.
To me, that seems incredibly unbelievable as I cannot imagine myself still working when I reach 65 years old much less 75. But, I guess only time will tell if his prediction is true and I look forward to testifying it.
With regards to the sub-prime mortgages, Professor McWilliams went on analyse why the financial crisis happened and how everyone should have saw it coming. Basically, he explains that slicing and dicing those sub-prime mortgages and repackaging them in an attempt to reduce the risk does not work as risk cannot just disappear. As seen, 20% of these bonds defaulted in first year. Thus, why was it possible for this to happen in the US but not the UK? In the UK, there is an immensely strict planning control enforced and thus, supply of housing is very inelastic. In US, it is controlled at a local level and thus tends to be very lax. When the property price appreciates, people would build more and hence it is very cyclical. Thus, Professor McWilliams describe the sub-prime mortgage crisis as more of a game of pass the parcel.
On the topic of the UK public finances, he predicts that UK borrowing would end up to be nearly £40 bn above target by 2017/18. In addition, debt to GDP ratio will hit 80% by 2015.
Last but not least, Professor McWilliams went on to talk about the impact of China’s saving glut on assets. China share of world asset will likely to be equivalent to their share of world GDP. Currently China has invested quite heavily in Africa, South America and US. He predicts that base on this trend, many UK businesses will become Chinese owned. Unless UK raises their share of exports in the emerging economy, UK citizens can expect increasingly expensive raw materials and food.
All in all, I believe that those who were present would agree that this was a very insightful talk. For those who have missed it, I would encourage you to attend Professors McWilliams next public lecture which will be held on the 21st of March at the London Museum and that talk will focus on the upcoming Spring Budget.
Dr William Janeway
The Economist's Society, in partnership with the EFS, was delighted to welcome Dr William Janeway to UCL to give an engaging talk about 'doing capitalism in the innovation economy'. He discussed in great detail and with extensive expertise the value and evolution of venture capital, as well as the changing of the world economy and the similarities and differences in how innovation will play out in the future.
Insights into research: Macroeconomics in the light of the crisis - Review by Zhi Ting Leow
On the 25th of February, the Economist’s Society welcomed Professor Wendy Carlin, Research Fellow of the Centre for Economic Policy Research (CEPR), London, and Fellow of the European Economic Association, to give the second talk as part of the “Insights into Research” series. As a Economics Professor at UCL, Professor Carlin is a global visionary in teaching contemporary macroeconomics and is involved in writing ‘the book’ on the three-equation model and the financial system. Her research focuses on macroeconomics, institutions and economic performance, and the economics of transition. She has also acted as a consultant for international organizations such as the European Bank for Reconstruction and Development (EBRD), London, and the World Bank.
Professor Carlin began her talk with a picture of her and Robert Solow at a conference in 2010 at the Cournot Centre Paris on the future of macroeconomics. She said that after the Solow’s model was devised, there have been modifications to the model after economic crises occur and there have been much discussion over the future changes and direction of macroeconomics.
The core macro modeling and policy-making have swung around two ideas of business cycle and long run growth. However, Professor Carlin points out that economists have ignored financial crises (greater definition needed) and long run shifts in income distribution (macro significance of this aspect). She points out that researchers were ill prepared for the macro financial crisis. One reason was that global economic crises are rare events e.g. Great Depression (1930s), Great Stagflation (1970s) and Global Financial Crisis (2009).
She then goes on to point out that there has been a pattern that followed each economic crisis, leading to the next economic event: After each economic crisis, policy-makers are prompted to rethink new policy regimes that produce change and satisfactory performance in the economy later on. However, inattention given to certain aspect of macroeconomics leads to another economic crisis.
For example, after Great Depression, Keynes’ economics emerged with demand management strategies that were related to the the subsequent two decades of Golden Age. However, there was insufficient attention given to supply shocks and expectations, causing inflation to build up. Too much attention to the demand side neglecting the supply side led to the Great Stagflation. Similarly, this situation created the conditions that promoted research on rational expectations. It became clearer to economists that they needed to study the supply side, producing the 3-equation macroeconomics on inflation targeting, later on causing the Great Moderation. However, insufficient attention was given to financial markets and imbalances, leading to the Global Financial Crisis.
She says that the primary question now is whether the improved macroeconomic performance on the back of each new policy regime contain the seeds of a new source of instability that had the potential to incubate the next global crisis. The prevailing macro paradigm and policy regime is focused on the business cycle frequency performance indicators i.e the output gap. However, it has ignored 3 inter-related lower frequency structural changes that are namely inequality, financial sector, and relationship between major countries in the global economy.
Following this, Professor Carlin presents a series of data that showed the significance of inequality, financial sector and relationship between major global players in macroeconomics.
She goes on to explain how she would introduce financial sector into the core 3-equation model. She presents a graph that detailed the trend of financial and business cycles in the United States. It was only from mid 1980s that there were large deviations in the financial cycles. Credit (used to finance property purchase), credit to GDP and measure of property prices indicators of financial cycles. Equity price fluctuations are not closely related to the financial cycle. Through this modeling, she concluded that financial crises appeared to be related to the Financial cycle, which is related to build-up of financial debt and of house price bubbles. Also, they have much lower frequency than business cycles
To integrate the financial sector into the core equation model, one firstly needs to understand how to model the financial asset loop and analyse its Interactions with IS-PC-MR model. In existing model, there are the private sector and central bank. In the new model, the private sector needs to be divided into borrowers and savers, the money market and retail banks also needs to be brought into the picture. Two rates also need to be considered, namely policy rate by the central bank and lending rate by the retail banks. Following that, macroeconomics cannot be studied only in terms of flows, but also through balance sheets and understanding leverage of the financial sector.
Next, she explains how one can model the housing feedback loop. The retail-banking sector and investment banking system needs to be brought into the discussion. Retail banks offer loans to consumers for consumption with housing collateral and for investment in the housing stock. Both consumption and investment feeds into the aggregate demand. Also, the investment banking system is involved through securitization and leverage cycles.
Using this, one can analyse the financial crisis in 2009. Securitization of assets pre-financial crisis, availability of loans for consumption and investment in housing, as well as low unemployment rate led to the perception of low risk in the housing market. Thus the demand for and supply of securitized assets rise. In the investment bank sector, there is an upward sloping demand curve, leading to instability in the financial sector. This contrasts to retail banking system with downward sloping demand curve, as it is risk averse. The risk neutral investment bank sector is a key driver of high leverage ratios. Higher leverage means that buyers are will lose much more in the event of a fall in price of financial assets and houses. In the financial crisis, when house prices started falling, buyers started selling houses and due to high leverage ratios, lost much of their equities. The crash in the financial market led to a fall in aggregate demand and thus rapid decline in output levels.
In response to this, the central bank tried to cut policy rate but it was soon at zero lower bound. Thus, it turns to quantitative easing instead. As private savings soared, government allowed public savings to fall to attempt to stabilize aggregate demand. As a result, debt goes up and a balance sheet recession occurs.
Professor Carlin concluded her talk with an explanation of reasons why economists did not predict these factors. As mentioned earlier, these crises are rare occurrences. She then points out that gradual changes in the economy are often overlooked and illustrated this with a simple analogy using the Air France Flight 447 event. The plane stall occurred as the pilots could not understand the situation that their plane was in. The autopilot created false assumptions about what might be wrong. When the stall happened, the alarm sounded many times but the pilots did not believe in the signal. There were too much that was ongoing that led to total confusion. This case illustrated that human behavior of intuitive thinking tends to take over deep thought in moments of confusion and humans tend to be passive when things are going well.
Linking this back to why economists did not predict the crisis, Professor Carlin believed that our sensors for gradual change were disabled by the incomplete models that focused on performance success at business cycle frequency. Secondly, there was the paradox in credibility prior to the economic crisis that led to large speculation in securitized assets. Also, economists relied on rules “autopilot”, which are our confidence in inflation targeting central banks.
Thinking in a broader framework, Professor Carlin says that there are gaps in understanding of governance and political authority that have to be filled in. These problems appeared to be solved with each post-crisis new policy regime. In the future, the economic crises will be more complex with global interdependence. She believes that the lesson learnt is that we should be more apprehensive now and vigilant when a semblance of stability is restored.
The Eurozone Crisis: The Beginning of the End, or the End of the Beginning - Review by Samuel Marsden
The Allied victory at the Second Battle of El Alamein in November 1942 marked a major turning point in the campaign against the Axis forces in WWII. When informed of the victory, in true Churchillian style, the British Prime Minister commented, "Now this is not the end. It is not even the beginning of the end, but it is, perhaps, the end of the beginning". Our speaker for this week, Mr Pierre Cailleteau of Lazard International, began his talk last Tuesday evening by suggesting that the same could be said of the current situation in the eurozone. However, according to Cailleteau, it’s more a question of political capital, than economic know-how that, up until now, has prevented that end from being reached sooner rather than later.
In September of last year, the President of the European Central Bank, Mario Draghi, announced the organisation’s plans to engage in outright monetary transactions, or OMTs. OMTs involve the outright purchasing (by the ECB) of sovereign bonds with a maturity of between one and three years. The benefits of such purchases are twofold. Firstly, the ease at which nations can borrow money is instantly increased and secondly, as the demand for bonds rises their yields fall and countries can therefore also borrow more cheaply. The Bank only undertakes such purchases if the country has previously applied to the European Financial Stability Facility or the European Stability Mechanism for assistance and are subject to the country agreeing to stringent financial monitoring by the European Financial Authorities and the IMF. Immediately after Mario Draghi’s announcement, the borrowing costs for all major European sovereigns fell significantly.
Cailleteau believes this to be exactly what the doctor ordered and argues that the risk of imminent dislocation within the eurozone has now receded. The benefits of the policy itself aside, it also suggests that the political will to take whatever measures are necessary to stem the crisis may be increasing, and that the days of teetering back and forth by Europe’s leaders may be coming to an end.
As part of the wider plan announced alongside the OMT, the ECB and other financial authorities will be putting in place the measures that will allow for the disintegration of floundering financial institutions. According to Cailleteau, this is long overdue and the example of the US, in which a number of banks are dissolved on a weekly basis, should have been followed long ago. This necessarily involves guarantees for depositors he argues, but he does not share the same sympathy for private investors – his message for them simply being: ‘too bad, you didn’t do your homework’.
So when will we know that the worst’s behind us, and that we’re back to something like ‘normal’? That, argues Cailleteau, is entirely dependant on how we choose to define what normal is; if we opt to view normality as the economic environment at the beginning of the 21st century, then it’s a while away yet. The period of economic prosperity that ensued after the millennium was built upon the unsustainable foundations of leverage and the overextension or economic agents argues Cailleteau. He believes that normality into the future is going to involve all stakeholder groups within the economy, whether they be consumers, firms or the government, shrinking their balance sheets and entrenching their finances.
Cailleteau argues a number of changes are necessary before we can claim to have returned the economy to something like a sustainable growth path. Firstly, we must have a baking sector that acts in the interests of society, whilst generating an acceptable margin of intermediation: ‘we need to make banking boring again’ he remarked. Secondly, the necessary deleveraging of the financial sector must be undertaken in such a way that the economy is not suffocated as a result – Cailleteau views this synchronised deleveraging of economic agents as being the most important policy change of recent times.
There must also be a convergence in terms of the value of the euro across members of the common currency area. Citing the divergence in interest rates between towns that border each other in Austria and Italy, Cailleteau argues that such practices cannot continue if confidence and stability are ever to return. Of relation to this is the need for sovereigns to be able to borrow at interest rates that are lower than the rate of nominal GDP growth.
Cailleteau believes that, in terms of how the eurozone will be viewed in years to come, there are two possible outcomes. The first is that member states undergo substantial structural reform (something that would never have been necessary without the common currency) and, as a result, prevent the decline of old Europe and see in a new period of, albeit more restrained, prosperity. Or secondly, that the problems currently facing the common currency area will not be overcome and that the European experiment will be viewed as the endpoint of a technocratic project that hit the wall of political legitimacy.
Personally, I believe that the announcement of OMT suggests that the former is the more likely of the two outcomes. Europe’s political leaders, having backed the euro in the first place, have their reputations on the line and understand that their own fates are, to a certain extent, tied to that of the monetary union. Whilst the thought of bank rolling Greece and other ailing European states may leave a sour taste in the mouth of Angela Merkel and co., the political and economic implications that would ensue were the EU to be disbanded would be of much greater cause for concern. The same can be said about the destabilisation that would occur were members to begin to exit the currency area.
The American Film Director Woody Allen once wrote: ‘More than at any other time in history, mankind faces a crossroads. One path leads to despair and utter hopelessness. The other, to total extinction. Let us pray we have the wisdom to choose correctly’. The decision of Mario Draghi and the ECB was a step in right direction. For the sake of the eurozone and the global economy as a whole, we can only hope that Europe’s policy makers continue to take such steps into the future and give Mr Cailleteau and his former colleagues at the ratings agencies continued reason to be increasingly optimistic.
China and Globalisation - Review by Zhi Ting Leow
This week, it is with pleasure that the Economist’s Society invites Mr Jasper Becker, who not only boasts a career as a foreign correspondent for nearly two decades in China, but also have had experience writing on Asia for 25 years. Mr Becker is an author of seven books including the most recent “City of Heavenly Tranquility”, enthralled the audience with his talk on “China and Globalisation”. Using the framework of seven key myths, he revealed to his audience the truth about Chinese history and its true role in the world economy.
While many of us believe that the role of China in today’s global economy is an unprecedented phenomenon, this is in fact a false idea. The topic of China and globaliation is often commonly talked about, however, Mr Becker believes that many people have misconceptions about this issue. He feels that this disillusion has a large impact on how businessmen operate in trade and industry, as well as our understanding of the Chinese government’s policies.
Mr Becker’s talk revolved around breaking down seven misconceptions that many people have, and they are as follow:
1. China’s role in global economy is a new phenomenon.
Many of us seated in the audience were surprised to know that China did play an important role in global trade in the past. In fact, it was the source of key items exported around the world such as silk, tea, porcelain, lacquer and rice. These items were unique to China and there was a mystery attached to how these items were produced, which generated significant interest from the Western world. Through Chinese history, these manufactured products were controlled by the state monopolies. This was a key source of state revenue that funded the expansion of dynasties.
2. Feudal China was not commercial
China had always been a large trading nation but many local Chinese were unaware. This was because most dynasties were non-Chinese. For example, Mr Becker learnt from the American historians that Tang dynasty was actually a Turkish dynasty. Even dynasties such as Mongol and Manchu dynasties were non-Chinese empires. Mr Becker believes that nomadic tribes living in inner Asia desired to control trade in China as there was a symbiotic relationship between Mainland China and the tribes. For example, the Mongols traded a large amount of silk.
Another reason why trade was unpopular in China was because it was viewed as a form of exploitation. For example, in Jingdezhen’s state porcelain factory, people were working in slavery conditions. Luxury goods were exported and the revenues went straight into the government’s pocket.
Mr Becker went on to explain that the people in Inner Asia decided to invade China and establish their own dynasty not only due to the trade benefits, but also due to high chance of success brought about by their ability to breed horses for warfare. In Mainland China, minerals and soil necessary for breeding was lacking, leading to dependency of the Chinese on horses from inner Asia. Furthermore, the people in inner Asia were able to ride horses and fire arrows while in midair. Such marksmanship was only possessed by these people and as such, they were heavily recruited by the Chinese government.
Another interesting issue brought up by Mr Becker was the purpose of the Great Wall China. Many people believed that it was build for defense purposes, but upon closer inspection, we find that these walls are ineffective as they are usually in the middle of deserts. Mr Becker suspects that they may act as a barrier to channel trade to certain entry and exit points so that the government can levy taxes on tradable goods effectively. For example, Yongle emperor made a radical decision to shift the capital to Beijing and built a wall surrounding Mongolia. By doing this he forced the Mongols to ship exports all the way up north to Beijing before moving to Central Asia. Again, this illustrated the importance of trade control to the government, unlike popular belief that Feudal China was uncommercial. In fact, China controlled trade with the Roman empire as well as signed treaties with nomadic leaders on silk trade.
Chinese government has always desire a monopoly on manufacturing items such as tea and silk. As such, there is an incentive for locals to discover the production secrets and replicate them. Eventually, they succeeded and brought Chinese manufactured products overseas. Interestingly enough, Mr Becker raised the example of English tea – how England does not produce tea yet tea is named after it – it is because the English who discovered techniques of growing tea started replicating it in Africa. Relating it to the current dispute over rare earth and how China is banning exports from China, Mr Becker believes that such state monopoly will eventually be broken again.
As to why the true extent of trade was never known, Mr Becker believes that the majority of trade did not take place at the silk road. He believes that the Silk Road comprising of deserts and narrow roads in towns could not compare to the grasslands where travellers could travel comfortably and at greater speeds. This meant that the true extent of trade was undermined.
3. China failed to develop because it was isolated.
China was never isolated. Venetian traders such as Marco Polo created links with the Chinese government and Turkish empire invaded China but only to close off some trade routes. Geopolitical shifts gave the opportunity for North Europeans to develop international trade and send delegations to China. This meant that many new crops were brought to China at that time including peanuts, chilli etc., falsely believed to be Chinese food products. What really changed the economy was the import of maize as it was able to grow on hillsides. This meant that Chinese population started to expand.
Despite this, trade was never viewed as a good phenomenon in China. The Chinese government was susceptible to whether opening trading posts will build peace across countries. Also, the discovery of silver mines in Latin America led to a large demand of exports from China. As the basic currency of China was silver based, a large inflow of silver into the economy created inflation problems. This led to destabilization of the economy and some historians believed this caused the collapse of Ming dynasty.
During the Qing Dynasty, the Manchus wanted to control international trade and believed that it should be land based. This method of trading contrasted to the local Chinese who saw huge potential of international free trade in transforming the economy.
4. China’s trade surpluses are something new.
5. China was never an expansionist Empire.
Mr Becker points out that China’s role in the economy was never entirely new; It was just that the Manchus focused on military power and conquest of foreign territories as opposed to gaining economic power in international trade. For example, during Qianlong’s empire, the size of the empire doubled. This desire for conquest have had a huge impact to how Chinese policies are shaped today. When the Qing dynasty collapsed, Mr Becker believes that the nationalists were driven not so much by the desire to create a country at the centre of international trade, but the drive to regain the lost territories under the Manchu empire.
6. The KMT was pro-capitalist
Long before KMT’s control, the Treaty of Shimonoseki was signed to allow foreigners to develop factories in China. Cotton spinning mills were built in 1985 that fuelled Chinese capitalism. The main commercial struggle faced was that of cotton manufacturing between the Chinese and Japanese. Mr Becker highlights that the reason why Chinese could not do well against Japan was due to its state run monopolies contrasting to the privately owned industries in Japan. In fact, after 1945, KMT wanted to nationalize these industries and were very anti-capitalist.
However, China did have its own experience of the wonders of the free market for a short period of time. After the collapse of Qing dynasty, there was freedom for Western ideas about free market economy, independent judiciaries and universities to flourish. Then, the Chinese economy expanded by 10 per cent and became a major player in global economy. This was driven also by a collapse in the European industry after First World War that caused a huge demand for cotton goods around the world. This was the first time that Chinese who engaged in trade experience the wealth brought about by it. The people regarded globalization as beneficial and wanted more ports to be opened. In fact, Shanghai was able to compete very successfully against Japanese textile industry and it was the greatest city in Asia after Japan. Mr Becker believes that had China chosen to pursue international trade then, China’s economy would be very different today and could have had a significant impact on the world.
7. China has learned the right lessons from the past
China did not open up international trade primarily due to lack of silver currency, making it difficult to create a domestic trading system. The nationalist government had to create state monopolies to finance its expansion and created bonds which fuelled inflation. Mercantilism was a common phenomenon. The Americans even intervened and advised the government to confiscate all silver assets and then redistribute.
After demystifying the seven misconceptions have about Chinese history, Mr Becker ended his talk with his insight on the implications of this knowledge. He reinforces the idea that the communist party has the objective of avenging hundred years of humiliation such as that suffered during the opium war. The Chinese government hopes to restore China’s former glory and recapture lost territories. It believes that economic foreign policies can be used to gain political objectives. For example, China’s trade position has always been to monopolize industries and create subsidies for local industries. This has yet to change. Furthermore, he believes that the Chinese government is using its favorable trade position to finance military means. Mr Becker enlightened the audience by saying that many of the international trade and political issues surrounding China currently can be understood better when viewed in this light.
Before, it was the Maoist influence and the talk about evil capitalism – today, these ideas are still present, but introduced in a form of neo-mercantilism. Mr Becker believes that such manipulation by the Chinese government has created a lot of tension in the economic system and will eventually destabilize the economy. The talk ended with an interesting discussion of KMT foreign policies, China’s future leadership and its political stance as well as the changing demography of China.
For many of us seated in the audience who have always thought of China’s role in the globalized world to be a new phenomenon, this talk challenged many of our preconceived notions. Personally, this has reshaped how I view international political and economic issues related to China and Chinese foreign policies. Mr Becker’s years of interaction with the locals in China has rewarded him with a clear outlook of the political situation in China. As I leave the lecture theatre and reflect upon the newfound knowledge that I have gained, I cannot help but feel privileged to have been enlightened by him on the truths about Chinese history.
Economics of the Future - Review by Samuel Marsden
The Nobel-prize winning and highly revered Economist Robert Solow was a
great advocate of the idea that we should "run the economy to meet the needs
of the present, without compromising the ability of future generations to meet
their own needs”, and it was on this note that Diane Coyle began her talk in the
Ramsay Lecture Theatre last Thursday.
The term sustainability conjures images of melting polar ice caps and smog-
enveloped Beijing streets in the eyes of many people, but, argued Coyle, in reality
it encompasses a lot more than the environment. Take the sustainability of
recent business practices, for example. Over the course of countless interviews
she has conducted with business leaders, the figure that emerged for the
required turnaround on investment (with the exception of those in the extractive
industries) was two years; for those in the financial sector their considerations
In a recent interview, automated trading researcher John Cartlidge said
“Economic theory has always lagged behind economic reality, but now the speed
of technological change is widening that gap at an exponential rate. The scary
result of this is that we now live in a world dominated by a global financial
market of which we have virtually no sound theoretical understanding”. The
dominance of algorithmic and high frequency trading is such that a transatlantic
cable is currently being laid (at a cost of $300m) that will save traders six
milliseconds. American financiers drilled through the Allegheny Mountains
between Chicago and New York in 2012 to lay a similar cable, which again, at
a cost of millions and a saving of milliseconds, would allow them to gain an
advantage over their rivals.
Such practices, argued Coyle, demonstrate how the emphasis in the financial
sector has shifted from providing a service and creating social value to that of
The risk and reward culture so heavily associated with the City of London and
elsewhere is, however, only part of the wider problem of social unsustainability
and widening inequality. Again, Coyle believes this is partly the result of our
increasing reliance upon technology. In a world where businesses of all kinds are
becoming increasingly automated, the demand for individuals with university
level qualifications is rising whilst the demand for workers with more vocational
skills is rapidly waning. Such divergence in income also results in part from
the quashing of employee power that took place during the Thatcher/ Reagan
era and the ‘winner takes all’ practices of, for example, the film and fashion
industries where individuals are rewarded for renown as opposed to worth.
The final form of unsustainability discussed during the talk was that of the
government’s fiscal position. However long-term a view you choose to take
of when (and to what extent) the deficit should be repaid, argued Coyle, the
current position is untenable and cannot be maintained indefinitely. The UK
government’s fiscal deficit is currently the highest it has been since the Second
World War. This is set against a backdrop of an ageing population and a welfare
system that was designed as part of a growing economy – something that we can
no longer rely upon. The UK’s position, however, is favourable to that of other
western nations thanks to our higher birth rate and steady influx of migrant
workers. Between 1986 and 2006, population levels in Western Europe grew by
12.4% on average; Italy, however, only grew by 3.9% - raising serious doubts as
to the country’s ability to deal with its worsening demographic position.
So how should we go about dealing with such a multitude of issues that are, to a
certain extent, intrinsically intertwined? There’s no easy fix according to Coyle.
Take education policy for example. Even if the government were now to put in
place the measures that would equip school children with the skills required in
today’s highly technically demanding workplace, the effects wouldn’t be seen for
One solution suggested by some, notably Tim Jackson in his book Prosperity
Without Growth: Economics for a Finite Planet, is that we should cease to be
concerned with rates of growth altogether. Advocates of this maxim argue
that we should seek to consume less, rather focusing on human relationships,
community and the deeper meaning of our lives. Coyle, however, has little
time for such mantras, arguing that to ignore a correlation between growth and
welfare is equivalent to dismissing the relationship between growth and, for
example, health, height and life expectancy: all of which have been empirically
proven beyond the point of doubt.
Without growth, there’d be a lack of innovation and new products. Buying a new
iPhone, for example would involve the sacrifice of something else. Citing Channel
4’s The 1900 House, (a television programme which aired in the late 1990s in
which a family had to live in the manner of the Victorians) Coyle pointed out
that it wasn’t the giving up of work, or lack of technological possessions that
brought the mother of the house to tears, but rather the fact that, (as it hadn’t
been invented by the Victorian era), shampoo was strictly prohibited. The point
being that growth has permitted the invention of many of the trivial things that
we now take for granted.
Coyle is a firm believer in the importance of measurement for the formulation
of policy to improve well-being into the future. She dismisses the idea of using
a happiness index, stating that monitoring happiness on a scale of one to ten
against the continuous variable of time is a futile exercise and is unlikely to
reveal little change. Rather, Coyle argues, dashboard measures of prosperity,
such as those being trialled by the Australian government, may be the answer.
These take into account factors such as environmental conditions and tangible
assets (therefore placing less weight on the invisible sources of output generated
in the financial sector). The ONS currently publishes an annual welfare report
that includes some of these factors, however it’s 45 pages long and so readership
is, to say the least, minimal. In order that politicians can be held to account on
improvements in overall welfare, such measures must become accessible to all.
It is no coincidence argues Coyle that the substantial widening of inequality
the occurred during the Victorian era coincided with the conception of many of
the institutions that are of vital importance to society today – trade unions, for
example. If we’re to solve the aforementioned problems in today’s society, then
we must invest in new institutions. One potential example being organisations
that gather data on wages within given professions using smartphone apps.
This information could then be used to highlight the vast divergence in earnings
between industries and even within organisations.
Coyle then went on to discuss the role that economists have to play in the
reshaping of society. Citing an early article by NY Times columnist Paul Krugman
in which he commented on the difference in mentality of CEOs of a bygone era
(to whom a salary of many hundred times that of another individual within
their organisation would have been viewed as reason to be ashamed), and
their modern day counterparts. Economists, Coyle argued, should be aware
of such changing norms and social conditions and, where possible, attempt to
incorporate them into their work.
One prime example of how this can be achieved is in the teaching of the subject
itself. Coyle - along with UCL Professor, Wendy Carlin - is part of an organisation
that is currently looking into how the teaching of economics in Universities
might better equip students for the world of work. Upon speaking to senior
figures within the business and financial worlds, many believed that a greater
emphasis on institutions and economic history may have stood graduates in
better stead to deal with the changing conditions presented by the financial
crisis. Coyle believes that there is the scope to remove much of the technical
aspect from undergraduate courses, as for those (relatively few in number) who
wish to become economists, it is something that can be acquired at a later date
by undertaking postgraduate study.
Irrespective of your political/economic stance, it is very difficult to disagree
with much of what Coyle has to say. For example, there is unequivocal cross-
party consensus on the need to take other measures of welfare, GDP aside, into
Mervyn King, the outgoing governor of the Bank of England, has spoken at length
of the need to ring-fence the retailing arms of banks from their risk-taking
investment branches; therefore reducing the effect of attempted profiteering on
the depositing public and allowing the banks to create more of the ‘social value’
that Coyle emphasizes the need for.
On education, I personally couldn’t agree more. In the US, for example,
undergraduate degrees are four years (at the very least) in length and students
are encouraged to study a broad range of subjects during their first two years,
before going on to specialize for the remainder of their course. It is taken almost
as a given at many institutions that students will go onto graduate school upon
competing their first degree, and in my opinion the system, whilst equipping
people for the working world, treats education as more of an end in itself, as
opposed to a means to an end. However, with the recent public outcry over the
increasing cost of higher education, I think it highly unlikely that there’ll be any
kind of movement towards a system that would, inevitably, increase the financial
burden placed on students.
A changing of social attitudes and practices that have been in place for decades is
never going to be something that’s easily achieved, but the longer governments
delay the warnings of the self-proclaimed ‘enlightened economist’ and others,
the more our legacy to future generations will be piled high with environmental,
social and economic debt – David Cameron and co., take heed.
Guy de Jonquières
Government spending in a global crisis: Public finances and the economy - Review by Yan Ting Toh
On Monday, The Economist’s Society welcomed Robert Chote to UCL, for what is
to be one of the many great talks organised for this term.
Robert Chote is the chairman of the Office for Budget Responsibility (OBR),
created in 2010 as an independent and authoritative analyst of the public
finances. He was previously the economics editor of the Financial Times (1995-
1999), advisor to the senior management at the IMF (1999-2002) and director of
the Institute of Fiscal Studies (2002-2010).
The talk began with a brief introduction of the role of OBR, which are namely:
1) Produce 5-year forecast for the economy and public finances
2) Assess if the government in on course to hit their medium term fiscal
3) Review the Treasury’s costing of budget measures and comment publicly
if they are in agreement or not.
4) Assess long term sustainability of public finances
Thereafter he went on making it clear that this talk is not an analysis of why
the financial crisis occurred but rather aimed at understanding the public’s and
government’s response to it focusing on the medium term view.
How the public explains austerity…
He started off by analysing the public’s response to the austerity implemented by
the coalition government when they came into power. From the survey that was
conducted, he summarised the results as follows
64% of Britons felt that it was the result of paying for the banks’ mistakes
41% of Britons thought that it was because the Labour Government had
40% of Britons thought that it was due to overspending by individuals during the
28% of Britons felt that it was the Conservative party trying to shrink the role of
the state (i.e. Party’s ideology)
From these results, he concluded that the public has a rather varied view of the
cause(s) of austerity, which in some cases were rather surprising.
Public finance through crisis and consolidation
He went on to highlight that after 2002, spending exceeded tax receipts, which
was then not viewed as a problem as the gap was predicted to eventually
narrow. However, as a result of the crisis, the newly forecasted gap was to
increase tremendously due to a huge increase in spending. Robert went on to
explain that had the government not implemented fiscal consolidation measures,
the spending would continue to soar and the deficit would be explosive making it
He also gave a through analysis of the reasons for the big fall in nominal GDP
relative to pre-crisis are summarised below.
1) Weaker labour market (although it fared better than expected)
2) Revenue rich financial sector hit disproportionately hard
3) Weaker housing and equity market
4) CPI was high relative to money GDP
He then concluded that nominal GDP was more critical than real GDP in making
predictions as the tax receipts tracks the nominal GDP better than real GDP as
shown by the line graph plotted.
How policy response evolved…
Policy measures post 2008 Budget, He summarised the information as follows:
Ø Labour: Aimed to level out fiscal consolidation by 2016/17 at around
5.5% of GDP
Ø Coalition June 2010: Aimed to level out fiscal consolidation by 2015/16 at
around 6.5% of GDP. (Decided to do more and more quickly)
Ø Coalition post June 2010: Aim to level out fiscal consolidation by 2017/18
at around 9% of GDP
Predicting the potential GDP (the “known unknown”)
He clarified that forecast made “incorporates large sustained fall in potential
GDP”. However, given the project’s weakness, the actual GDP is expected to
remain below the potential GDP. The methodology used is “Long on data and
short on elegant theoretical property”.
Personally, I am rather skeptical of forecast made as I feel that it is really vague
and there does not seem to be a real basis which strongly supports the figures.
Also, often, there is a huge amount of value judgment involve which differs
from one individual to another. However, as there seem to be a lack of better
alternative than these forecasted figures to help to give a rough view of the
future, I guess we shall all just have view it with a pinch of salt.
Another thing that I am especially skeptical of is the aim of the Coalition
government (Post June 2010). Based on the theory of political cycles,
governments tend to increase spending right before the general elections (in this
case May 2015) to win some extra votes. If this is the case, it might take longer
than by 2017/18 for fiscal consolidation to level out.
Nevertheless, whether the forecasts made are good or poor estimates or if fiscal
consolidation does indeed level out by 2017/18, I believe that all the attendees
would agree that this was indeed an interesting and insightful talk and that we
have all benefited from it.
21st Century Economics - Review by Samuel Marsden
Last Thursday saw The Economist’s Society welcome Dr. Paul Ormerod to UCL for what was our first academic event of the New Year.
Dr. Ormerod – educated at Oxford and Cambridge Universities and currently a visiting professor at the University of Durham – has spent much of his career researching networks, or (to quote from his website) “how people, firms and things are connected to each other, and how different ways in which they are connected have different implications”.
The talk began with the question of what it means to be rational. The idea of rationality is arguably the cornerstone of all modern economic theory or, as Dr. Ormerod himself put it, “the intellectual foundation of all social/ economic policy in the world today”. However the more relevant question for economists, social scientists and policy makers alike, he went on to suggest, is how relevant these widely accepted models of rationality are to the world which we live in today.
Citing examples from football hooliganism to the behavior of firms in the corporate sector in the aftermath of the financial crisis, Dr. Ormerod argued that it is very often the case that human beings’ decisions are not governed by what we would perceive to be rationality. Rather, we are influenced by the presence of networks and the actions of others.
For example, a study was conducted into the successfulness of supermodels (measured by the frequency of catwalk appearances at fashion shows) in a given year and the attributes of all those included in the sample were recorded. Now, intuition would suggest that the models who had been more successful, or who had made the most catwalk appearances, would be in possession of certain attributes that would make them more desirable in the eyes of modeling agencies. However, the study showed that, on paper, there was nothing to decide between the models that had made the most appearances (the highest number was 35) and the many thousands that had made no appearances but remained on the books of modeling agencies. Therefore, the modeling agencies had not included certain models in their shows on the basis of rationality, or their desirability, but rather on the basis of those that had partaken in the greatest number of shows previously.
Another very telling example was that of the “vast proliferation of goods” that we now face upon walking into any supermarket. A recent study suggested that consumers in New York City choose between some 10 billion alternatives on a daily basis. The success of such products, Dr. Ormerod argued, has limited correlation with quality, and is rather the result of the popularity of the product itself.
Furthermore, Dr. Ormerod then went on to suggest that the herding mentality of human beings has played a significant role in the field of scientific research itself, and that the perceived current or future popularity of a given field has often led academics to direct there research toward that topic.
Another example of this is the impact on decision making of the emergence of the Internet and social media. Contrary to what was previously assumed, the widespread use of sites such as Facebook and Twitter has only increased the extent to which our decisions are based around those made by others. Whilst the constant stream of information now available to us allows us to have up-to-date information about, for example, the products that we buy (allowing us to be more informed and rational in our consumerism), we also have access to a constant account of the actions taken by others and so are further inclined to act with a lack of autonomy.
The talk was concluded with Dr. Ormerod stating his belief that within a given time frame of, say, 50-60 years the influence of networks will replace the idea of rationality as the foundation of mainstream thought in economics and elsewhere.
Personally, I believe that an irrefutable case was made for the increasing presence and significance of networks in today’s world. However, rationality is by no means an obsolete concept. In the case of the arts, for example, even if the effect of networks on the consumer market is unequivocal, tastes and rationality at least have some role to play in the selection of products by critics that go on to become lapped up by the masses.
Considering the fact that acceptance of such theories would necessitate the re-training of an entire profession, the devaluation of so many qualifications and a radical rethink in economic policy by the world’s governments (to name but a few consequences), I highly doubt that widespread adoption will take place in the near future.
Nevertheless, whether or not this prophecy does materialize, and the mass re-writing of university textbooks and other economic literature takes place, I think all in attendance were in agreement that they had benefited from having spent an hour listening to the insights of a very forward-thinking and enlightened individual.
Vince Cable MP
It was a real privilege and honour to welcome Vince Cable MP - a truly outstanding man with an unrivaled grasp of politics at work combined with the skill and insight of an economist's training - to UCL on 04/12/2012.
He discussed first the state of the world economy at present, before moving on to the more polemical and deeper question of what exactly the role of economics is in our lives - can it answer the right questions? Is it relevant? How can the theory be refined to better reflect the actual movings of economic variables?
On 21/11/2012, The Economist's Society UCL was delighted to welcomes former Washington correspondent for the Times, Giles Whittell, to UCL for an engaging lunchtime talk entitled US Elections: The Economic Aftermath.
He covered in particular the political aspects of the campaigns of the right and left, and what it says about the American man (or woman) on the street's economic outlook, and the direction of American economic and political leanings.
On 22/10/2012, we welcomed Mariana Mazzucato, to present on a controversial yet fascinating subject: The Entrepreneurial State: Getting Over the 'Market Failure' View of State Intervention.
The talk touched on issues such as how government funding of innovations and developments has failed to do justice to taxpayers, and how some of the worl's most well-known firms have exploited the current system.
We were thrilled to welcome the BBC's Chief Economics Correspondent Stephanie Flanders to UCL on 17/10/2012 to give the talk A Lesson of the Global Financial Crisis.
The event touched on some of the most exciting and polemical topics of the day, including the future of the Eurozone, asset bubbles, and how hundreds of years of economic history simply didn't hit the mark.
We were delighted to welcome the one and only stand-up economist to UCL on 15/10/2012 as part of his 'Return to the gold standard' tour. The event was a light-hearted treat for both new and returning students, and something we would love to repeat in the future.
“An economist who teaches at the University of Washington
and performs stand-up comedy” (New York Times)
We were delighted to welcome John Kay on 21/3/2012 to give an engaging talk about his recent book, which has won international praise and critical acclaim, The Truth About Markets, as well as further discussion about the different types of market system, from capitalism to socialism.
Most of us know John Kay through is writings for the Financial Times, but the man has had a truly impressive career as economist, founder of Oxford's Said Business School, and holder of various prestigious titles.
On the 8/3/2012, The Economist's Society had the pleasure of welcoming Philip Coggan to UCL, to speak about his new book: Paper Promises - Money, Debt and the New World Order. Coggan is Buttonwood columnist and capital markets editor at
The talk discussed the nature of the abstract concepts that money and debt are, with always a relevance to current affairs and the omnipresent financial crisis.
On the 5/3/2012, we were deeply honoured to welcome Martin Wolf CBE, associate editor and chief economics editor at the Financial Times. He gave a lively and engaging discussion entitled The Shift and the Shock: Prospects for the World Economy.
The talk details the astonishing rise of China and then the unprecedented collapse of the global financial system in the wake of levels of debt and borrowing unseen ever before in history
On the 31/1/2012, Professor Danny Quah, former head of department at LSE, and now consultant to the Bank of England, World Bank and Monetary Authority of Singapore, gave an engaging and fascinating talk entitled Where the World Trades: The rise of the East.
The lecture exhibited some of Prof Quah's own research, which interestingly provides evidence that the centre of global economic activity is physically, as well as figuratively, moving eastwards!
For those interested in the maths towards the end of the slides, please see this page.
On the 19/1/2012, The Economist's Society UCL was honoured to welcome it's first major guest, Dr Linda Yueh, who talked about Enterprising China and the outlook for the Chinese economy in 2012.
Dr Yueh is a fellow at Oxford university, Professor of economics at the London Business School and economics correspondent for Bloomberg television, to name but a few of her credentials.