Why Are Financial Crashes Occurring More and More Frequently?

by Neil Chhabda



Panicking traders
(Daily Telegraph)



In 1999, in The Return of Depression Economics, Paul Krugman surveyed the economic crises that had swept across Asia and Latin America, and pointed out that those crises were a warning for all of us: like diseases that have become resistant to antibiotics, the economic diseases that caused the Great Depression were making a comeback. In this new, greatly updated edition of The Return of Depression Economics, Krugman describes how the failure of regulation to keep pace with an increasingly out-of-control financial system set the United States, and the world as a whole, up for the greatest financial crisis since the 1930s. He also lays out the steps that must be taken to contain the crisis, and turn around a world economy sliding into a deep recession.

Through Krugman’s writing of various financial crises one frightening conclusion can be made. For some inexplicable reason, financial crashes are occurring more frequently as time goes on. Even more worrying is the fact that each crash is more vicious than the previous one. In the Great Depression of the 1930s, John Maynard Keynes is famously quoted as saying, “We have involved ourselves in a colossal muddle, having blundered in the control of a delicate machine, the working of which we do not understand." In our modern era, it seems that the machine is much larger, substantially more delicate, and we still don’t understand how it works.



Paul Krugman: predicting a financial deluge



Another one of the alarming conclusions that Krugman arrives at is that recessions can occur at any time, even when an economy appears to be well structured and performing well. To exemplify this point, he illustrates a babysitting group in Washington DC. In this example, many couples agreed to babysit for each other and, to make this process slick and smooth, they issued coupons: a form of baby-sitting currency. If a couple baby-sat, they'd get a coupon; if they employed a babysitter for a night, they'd pay a coupon. Sounds simple right? Far from it.

What actually happened was that couples, reluctant to miss social arrangements, were more willing to babysit on a regular night rather than go out on a regular night. The capability to attend social functions was perceived as more valuable than having a night off, and as a result everybody wanted to hoard their coupons. Essentially, there was no shortage in the supply of baby-sitters, but there was no one to baby-sit for. Consequently, the group of babysitters suffered a recession. In order to solve this problem, Krugman suggests that the value of the coupons be altered, like a central bank tinkering with a currency to stimulate an economy.

This brings me on to another disturbing deduction. When economists are presented with a problem (such as a recession), they attempt to solve it by fiddling with various factors, and end up making them more complicated. They use this method because it repeatedly works, until, abruptly, it doesn’t. One of Krugman’s specialities is recession, and in this book, he illustrates their history and their causes. He suggests they occur because people formulate “ingenious” methods to make “free” money, and nobody truly understands the magnitude of the consequences until it is far too late. As it turns out, there is no such thing as a ‘free lunch’.

In New York in 1907, people invested their money in one of two financial institutions: regulated banks, and unregulated “trusts”. This meant that trusts, such as the Knickerbocker Trust, could make risky investments, and indeed in the early years of the 20th century, these trusts paid out huge sums of money. Soon, the money in banks was more or less equal to the money in trusts. This is essentially what was, is, happening in hedge funds 100 years later, and, as Krugman writes, "eerily prefigured our current crisis". When one trust failed, lots of investors tried to pull their money out of the system at the same time. The stock market, and confidence in the economy, crumbled.

This is another frightening point. The whole edifice of capitalism is essentially based on confidence. Wealth is created because people who possess confidence expose it to risk. If others believe your confidence to be reliable and accurate, you are likely to take a small risk. However as soon as people think you are bluffing, they begin to panic, and panic will always destroy wealth faster than confidence can create it.

In this book, Krugman examines various crashes, from the "Tequila Crash" in South America in the mid-90s to the crash in Asia that happened only three of four years later. He infers that they all happen for the same reason: the banking sector exposes itself to far too much risk.  As a result, people lose confidence and, again, the panic (which sometimes isn’t even based on anything real) starts. Krugman likens this panic to a feedback loop; noise from a speaker is magnified by a microphone, which relays this noise, now much louder, back through the speaker, and so on, until it's an ear-splitting screech.

And this shriek is the sound emanating from the global economy of today. Previously, if a crash occurred, someone or something big would step in to repair the damage. In 1907, that was JP Morgan and his confederation of tremendously rich friends. After the Great Depression in the 1930s, it was World War II and its aftermath which provided employment for decades. When the economies of Argentina and Mexico collapsed, it was the USA which intervened.

So what about now? Who or what will step in to save us? Well, when this book was first published in 1999, Krugman seemed optimistic: “The quintessential economic sentence is supposed to be 'There is no free lunch '. Depression economics, however, is the study of situations where there is a free lunch, if we could only figure out how to get our hands on it." Well if one of the most revered economists in the world believes in free lunches, perhaps there is hope.

Read Paul Krugman's blog here

Read More

Margaret Thatcher's Policies Still Affect Us Today

by William Bates

Thatcher and Europe: Margaret Thatcher (left) with
German chancellor Helmut Koh (centre) and
French president Francois Mitterand (right).
(source: Der Spiegel)

Margaret Hilda Thatcher was the only woman Prime Minister in the history of the United Kingdom and the longest-serving Premier since Lord Liverpool in 1827.

She was born on 13 October 1925 in Grantham, Lincolnshire, the daughter of  a grocer, Alfred Roberts and his wife, Beatrice. She was first selected as a candidate in the constituency of Dartford in Kent for the 1950 and 1951 elections. Her failure to win the relatively safe Labour seat did not discourage her and, after marrying her husband Denis Thatcher in 1951, became a barrister, qualifying in 1953. In 1959, she won the seat of Finchley for the Conservative party. Within two years, she was a government minister and by 1964 a member of the shadow Cabinet. When Edward Heath's Conservative government took office, Margaret Thatcher went on to become Education Secretary, managing unprecedented cuts, some of which she disagreed with, for example cutting free school milk, which she saw as of little financial benefit but involving huge political costs. This led to the cry of  'Margaret Thatcher, Milk Snatcher'. She later wrote: "I learned a valuable lesson. I had incurred the maximum of political odium for the minimum of political benefit."

However, upon becoming Prime Minister in 1979 (having replaced Heath as Conservative leader in 1975), she often introduced policies which have caused problems to this day. One of her biggest mistakes was joining the European Exchange Rate Mechanism in 1990, which led to interest rates in excess of twenty percent under her successor John Major. The handover of Hong Kong was authorised by Thatcher in 1984 and took place, as agreed, in 1997. To this day, Hong Kong is used to ship thousands of tonnes of Chinese goods to Britain avoiding import taxes and customs checks. 

This aside, however Margaret Thatcher had huge political triumphs. She crushed the militant NUM (under its socialist leader Arthur Scargill), which had brought the Heath government to its knees in the early 1970s. Another of her greatest achievements was defeating the Argentine junta during the Falkland War, in a situation in which many lesser leaders would have backed down. The Right-to-Buy scheme, which enabled tenants of council houses to purchase their own homes, was revolutionary and allowed people to get free of the oppressive welfare state; however, it was unfortunate that the money was not reinvested into new housing stock.

Margaret Thatcher was a strong and decisive, if slightly controversial leader, who led the Tories to their greatest victories of modern times and helped dismantle the Soviet bloc. If the likes of David Cameron were more like her, it is safe to say that Britain would still have a triple-A credit rating and not be part of a jumped-up trading bloc. In her own words : “What we should grasp, however, from the lessons of European history is that, first, there is nothing necessarily benevolent about programmes of European integration; second, the desire to achieve grand utopian plans often poses a grave threat to freedom; and third, European unity has been tried before, and the outcome was far from happy."

 

Read also: Why a Ceremonial Funeral is a Dangerous Idea, Political Dinosaur or Political Legend?,  In Memoriam: Margaret Thatcher and Margaret Thatcher: Debating Her Legacy.

Read More

The Budget 2013: Another Nail in the Tory Coffin

by Will Wallace

I am not an economist - nor do I fully understand most aspects of economics. I do, however, know that this year’s Budget is nothing more than a red box full of piffle. It might surprise some people that, unlike most Conservatives, I think that Osborne’s Plan A is completely the wrong approach, and that cutting spending will only cause further stagnation and increased unemployment.

Thankfully however, my know-how is politics, not the economy, so I’ll talk about that. In just over a month, the country will be going to the polls to vote in local elections. After last year’s spanking, Cameron really cannot afford another decrease in the share of the vote - which is why all eyes have been on the Budget. Certainly, the price of beer has dropped by a penny, Britain has the lowest corporation tax in the G20, fuel duty has been frozen for another year, personal income has risen - taking more people out of tax - and there has been increased investment in infrastructure projects. This is all good news, in fact, brilliant news.

Sadly though, these morsels of good decisions will be overshadowed by the fact that our growth forecast has been halved, our credit rating has been downgraded and we are heading for a triple-dip recession. If Osborne wanted to rectify the situation, then he should have risen to the dispatch box to admit that Plan A (austerity) has not and will not work, and that we should look toward a Plan B of increased investment and borrowing. Although this appears illogical, it isn’t, as Henry Cunnison explains.

To win the next election, we Conservatives need to attract the centre ground of opinion. Despite all the positive measures that Osborne has announced, the Budget fails to connect with those voters. The Chancellor is maintaining a dogmatic style of policy making, in which he prioritises his ideological commitment to cutting spending over the crystal clear need to go in the other direction.

  When voters go to the polls in May, at the 2014 European elections and at the 2015 general election, they won’t determine how they vote by personal allowance or the price of beer, but by the general state of the economy. Osborne has got it horribly wrong. Today has marked the beginning of the end for the Conservatives in government: today is yet another nail in the coffin. 

Read More

The Budget 2013: Will It Increase Growth?

by Fergus Houghton-Connell

After announcing the UK Budget on Wednesday, George Osborne made it clear that he wanted to continue with his main objective of reducing borrowing. This usually means more cuts, which there are, however Osborne has included a few measures to try to make it easier to buy homes, to increase the disposable income of the poor, as well as increasing spending on infrastructure. So, will it work or do we face many years ahead of a ‘flat-line’ economy, or even a triple-dip recession?

Most government departments face a 1% cut in their budget for the next two years, with the NHS and schools being exempt from the cuts. Essentially, the chancellor is trying to squeeze every penny out of the government as possible, without having to borrow any more money, which I believe is the right move. Almost all government departments have underspent in their budgets in the last few years, so instead of letting the departments spend more than is necessary, why not use the extra cash on infrastructure projects and other areas that will increase Gross Domestic Product (GDP). Overall, £11.5 billion of cuts are expected in the 2015-2016 Spending Review, a significant amount that can be reinvested in trying to increase Growth in the economy.

On the whole, I see three areas that are likely to increase Growth. Firstly is the Government’s plan to kick-start the housing market. Buyers of homes will only have to pay a 5% deposit, much lower than what some banks demand, and the ‘shared equity’ scheme, which offers people a 20%, of the value of the house, interest free loan on newly built homes. The idea is to try to get more people buying homes, thus increasing Consumption and therefore GDP. It does come at a cost, but this will be mostly covered by the spending cuts in other areas, and there are still questions as to whether it will really increasing the demand in the housing market.

Secondly is the refund of the first £2000 of the National Insurance that businesses have to pay for employing people. For large companies, this will have almost no effect, but for small businesses, who employ around 50% of the workforce, this is quite substantial. It means that small businesses can employ more people, as it is now cheaper, and this makes up part of the prediction that there will be 600,000 more jobs available this time next year, as well as the claimant count, the number of people who claim benefits, will fall by 60,000.

Thirdly is the new spending on infrastructure. £15 billion more will now be spent on infrastructure by 2020, with £3 billion to be spent by 2015-2016. The idea behind this one is to pay companies to work, who will then employ more people to complete the job and then tax revenues from income tax and corporation tax will increase, with the added bonus that the government are going to have to borrow only £2.5 billion more, it seems that this is a win-win situation. However recent studies by the Office for Budget Responsibility (OBS) have shown that spending on infrastructure could contribute as little as 0.06% towards GDP.

There are other policies that I don’t believe will have a big effect on Growth, at least in the near future, which include the reduction of Corporation tax by 1%, the reduction of the highest tax percentage to 45% from 50%, the 20% tax relief on childcare up to £6000 per child and the earlier than planned increase in the personal allowance, the amount you earn that you don’t have to pay tax on, to £10,000. I feel that these are all positive policies to try to increase the disposable income of families, as well as encouraging businesses and rich people to live in the UK, but the effects of these policies will be felt in a few years time I feel, because consumer confidence is still very low. Nevertheless, they are good policies.

If I’m honest, I find this Budget quite boring, at least in economic terms, and, as perfectly summed up by BBC’s Nick Robinson, a ‘political budget’. George Osborne is trying to show that he can run the country whilst borrowing a lot less than Labour would, if they were in charge, which some would argue is the only thing he will be left to stand on come the election next year. However I believe that the policies the chancellor has actually proposed can be effective. I believe that the chancellor’s main objective from the Budget is to increase employment; one of the few successes last year, whilst still keeping the amount the country borrows relatively low, which he has achieved last year and looks set to continue to achieve this goal next year too.

As shown in the diagram, the Growth forecasts are on an upward trend, clearly a sign that the economic policies of the Tories are working; with the added bonus that borrowing is expected to decrease every year for the same time period. If Labour were in power, Growth would probably be a lot higher, however debt levels would be much higher than they currently are too. Overall we will just have to wait until the quarterly growth figures are released to see if any of the policies will work. In the mean time, we just have to remember that Growth looks as if it can only go up.

  

Read More

The Budget 2013: No Plan B, No Recovery.

by Henry Cunnison

The effects of austerity on debt:GDP ratio
(source: nytimes)

Since the Emergency Budget of June 2010, the Coalition government has pursued a policy of austerity, believing that it is the only way to help the economy recover from the financial crisis and reduce the budget deficit. Despite the disappointing economic performance since then, David Cameron’s speech on March 7th suggests that the he and George Osborne remain committed to a reduction in government spending; this Budget is no radical change in policy. This is bad news for Britain’s economy.

The Coalition’s policy has not even been effective in reducing the deficit. In the budget he is likely to announce that he further delaying his prediction for the government to be running a surplus, initially 2015-16, to 2017-18. The IMF has recently produced a paper on austerity and its effect on government debt.  Paul Krugman, the Nobel Prize winning economist, used the results to create the graph below¹. What it shows us is that if a country cuts spending by 1% of potential GDP per year; its debt as a percentage of GDP will rise, and only return to the pre austerity levels after 5 and half years, all other things being equal. Although the increase in debt is short term, the IMF concludes that this could cause problems if:

 “country authorities engage in repeated rounds of tightening in an effort to get the debt ratio to converge to the official target.”

George Osborne and Cameron, seeing the failure of austerity to reduce the deficit in the short term, seem to believe more austerity is the only cure.

Nor is the continued austerity even necessary. Before the recession the United Kingdom had the second lowest debt to GDP Ratio of the group of seven economies, at only 38%. The Cyclical adjusted predicted deficit for 2007-8 was a mere 0.7% of GDP and 0.5% of GDP 2008-9. This Budget deficit is not the result of years of overspending by Labour, although Fiscal policy should arguable of been tighter. Instead it was the result of the recession. With a huge increase in unemployment, and reduction in spending, the government naturally operates with a large deficit. So the way to reduce that deficit is not cutting, further increasing unemployment, but spending and introducing temporary cuts in taxes, reducing unemployment, and also, if spent on infrastructure, providing long run growth as well as a short run recovery. In fact in an economics lesson only last week that the standard response to a recession is to increase the budget deficit in the short term. This is not complicated economics, but the coalition is getting it wrong.

Britain's debt: 1922-2011

Why does Osborne think this time is different? Because he believes that Britain’s debt is dangerously high. Yet the country that is embarking on the biggest Keynesian fiscal policy of all, Japan has a debt to GDP ratio double the size of Britain’s. Furthermore Britain’s debt is by no means exceptionally high compared to historical levels. If anything this is the best opportunity for Britain to borrow in living memory, as it is facing a record low interest rates on lending.

 

Britain's economic performance following a recession
(BBC)

Britain now has a unemployment rate of 7.8%, which would far higher if we had not experienced a massive slump in labour productivity. Moody’s has cut Britain’s triple A rating, not because of a high level of debt to GDP, but because of the poor medium term growth forecasts, which could have been avoided. Britain’s economic performance has arguably been worse than during the great depression, as shown in figure 3. Yet despite this George Osborne is determined to cut. He believes that monetary policy and the private sector can take up the slack. Neither could, as Interest rates are up against the zero lower bound (they cannot go below zero without potentially damaging the basic economic operations in the state) and firms are completely lacking in confidence.

Nor or is austerity the Budget’s only flaw. The decrease on duty on beer seems to be a token measure. While alcohol duty is rising at 2% above inflation, Beer is let of the hook. Thus it seems that the government is trying to hide this rise and avoid the anger of drinkers everywhere. Furthermore beer is still over-consumed, and thus the government should be increase the rate of duty on it.

Public sector workers continue to be hit hard. They pay rise will be capped at 1% until 2015/16, and at that time there pay will have been capped for five years. Not only is it wrong that these workers should be expected to pay such a toll because of government austerity, but it will also negatively affect the economy, as the public sector workers will have less disposable income and will also be losing confidence over the continued attack on their wages.

Despite the budget’s continuation of the doomed economic policies of the coalition there are a few positives.

The government’s decision to raise personal allowance on income tax to £ 10,000 will provide householders with more disposable income and thus hopefully lead to increased spending, as well as easing the pressure on the poorest. However this is only a small increase from the current rate of £8105, and many would argue that the level should be higher still.

I also agree with the government’s planned increase in large scale infrastructure projects, which in the long term will expand the economy. However the money is coming from further cuts from most Whitehall departments, which on average will be expected to cut a further 2%, having already had their budgets slashed. What this policy equates to is sacrificing the short to medium term growth of the economy, for marginal gains in the long term, which could easily be achieved with further borrowing. It seems that many Conservatives are using the budget deficit as an excuse to achieve their dreams of a smaller state.

But despite the few positives to take from this budget, it remains unsatisfactory on the whole. Cameron and Osborne seem determined to maintain austerity. I would suggest that they now feel they cannot change their economic policy, for the sake of the political career. Instead of giving us the expansionary fiscal policy we needed, they have continued to give us austerity.  This Budget is not the plan B that was required.

Read More

Why Britain Should Stay In the EU

by Ross Watkins

(source: The Guardian)

There is an important debate in Britain at the moment: whether to stay in the EU or not. In a recent poll by YouGov, 40% of voters said they would vote to remain in the EU if a referendum were held while only 34% would leave. This is down from the poll taken last November in which 34% voted to leave while 30% would stay. This obviously highlights the public's interest in the importance of staying in the EU. David Cameron is seen not to want Britain to leave the EU, but merely to wish to reduce the powers Brussels have over Britain, effectively introducing a looser relationship. I myself would prefer if Britain stays in the EU. I will present my argument and also show the counter argument put forward by parties such as UKIP (see William Bates' article, Why Britain Should Leave the EU). 

Many Euro sceptics argue that the EU has not done much for the UK and the UK has received an unfair output proportionate to its input. But I argue that the EU has brought the nations of Europe closer together and we have seen over half a century of peace in western Europe; this was pointed out by Germany's foreign minister when he visited London on the 18th of December 2011. Nearly seventy years of peace on a continent that for the previous thousand years had seen constant wars and conflicts is an extraordinary achievement and a major argument in favour of the continuance of the European Union and our continued membership.

Furthermore, I and many others fear that, if Britain were to leave the EU, we would lose our place as an influential power to the world. This fear was complemented by those of Americans political leaders, as they see the UK as the USA's main ally inside the EU, one senior US diplomat stating that it would be the worst- case scenario if the UK decided to leave the EU. Britain as part of the EU can have a significant impact on world affairs; Britain by itself is a relatively small and decreasingly powerful country that will struggle to be listened to by China, the USA or rising powers such as Brazil and India.  

Another main reason which I put forward for staying in the EU is the ease of travel throughout the EU. One does not need a visa to travel to France and the same is true the other way around. This I believe has helped boost tourism from local countries as it is possible to visit Paris or London (if one lived in France) in a day trip, reinforcing the sense of cultural interaction that can only help reduce the chance of war and conflict (see above). 

Also the ease of travel had led in rise for business options for companies wishing to relocate factories and staff to countries where labour and housing are cheaper and of better quality. In addition, there is a reduced amount of paperwork when trading in the EU which increases our trade and therefore our overseas markets. I myself have experience the ease of travel as I went on a school trip to Poland and we were in the centre of Krakow in 6 hours. This happens the opposite way as we have seen a large increase in the amount of people of eastern European living in the UK. This I believe has proved positive as we receive high-quality labour in areas such as construction which benefits British consumers and businesses.

So I believe that the EU is worth staying in and the future benefits will be greater than the current turbulence the EU has produced. I agree with David Cameron to the extent that I believe that Britain should renegotiate a new deal with Brussels and either reduce our financial input as a leading member or increase our receipts from the EU budget. However, leaving the EU would spell disaster for the already struggling British economy. And now, facing that realisation, the public (as the poll I cited above shows) is rethinking whether it is such a good idea to leave (it isn’t).

Read More

Why Britain Should Leave the EU

As the Prime Minister announces his support for a referendum on Britain's membership of the European Union, William Bates argues that the UK should leave the EU and Ross Watkins argues that it should stay in the EU.

The European Union is without doubt one of the least democratic systems of modern times.  It directly costs us over 10 billion pounds a year. However, when you account for the cost of its tariffs and regulations to UK businesses, as of 2008, the European Union cost the UK £65 billion gross every year*. That's around £1,000 per year for every person in the UK (and this includes those who are too poor/young to pay most taxes). It increases every year, so now it will be much more. To show you how much this is, the benefits cuts proposed in the 2012 budget came to £10 billion.**

* Source: Office for National Statistics "Pink Book”.

**Source: The Guardian 

Nigel Farage: “It's a European Union of economic failure, of mass unemployment and of low growth."

(image source: 4.bp.blogspot.com) 

The government has never had a proper cost-benefit analysis as both Labour and the Tories have said that the "benefits" are “self-evident”. At every EU budget negotiation any suggestion of austerity is stopped by countries such as Poland who actually called for a 10% increase in the EU budget while we are in an economic crisis. This is because they benefit enormously from the EU’s subsidies and are a  net beneficiary from the EU (they get more back than what they pay in so they want us to pay more in so they can get more and more back). As the EU has an anti-democratic system, the impasse means that it will get an automatic ‘emergency’ budget increase of around 3% this year. For the last 17 years in a row the European Court of Auditors (the people responsible for checking the European Union’s funds are being spent properly, has refused to sign off the EU accounts and have said that in 2006 there were accounting errors in two-thirds of the EU’s budget. In 2010 3.7% of the budget ‘went missing’ or was spent ‘against EU rules’.

The EU is also a highly nationalist political organisation with a clear agenda to abolish the nation states of Europe and deny Britain of the ability to have an economy able to function outside of the EU. There is now a ‘European Foreign Policy’ and ‘embassies’ called the EU External Action Service. When the Ford Plant in Southampton closed with the loss of over 500 British jobs people were told this was due to a lack of demand. However, at the same time a brand new ford factory opened in Turkey – you guessed it, subsidised by the EU. We were effectively paying for our own jobs to be taken from us.

You may ask yourself why if the European Union is such a bad thing, then why does no other country moan about it? Why are we the only ones who wish for a renegotiation? The answer is simple. Every country except for Britain has something to gain from EU membership. The Germans gain from a weaker currency (which makes them more competitive). The French gain from the Common Agricultural Policy, on which 46.7% of the EU budget is spent. This gives huge amounts of subsidies to agricultural countries such as France, Romania and Bulgaria. When this deal was brokered we were given a ‘rebate’ to account for the fact we have a very small agricultural sector. Over the years these have been reduced and used to hold us to ransom during EU budget negotiations.

The EU runs a protectionist economy which in fact hinders global trade instead of helping it. It uses tariffs to ensure that inefficient German manufactures and French farmers are protected but is happy to cause chaos in the City Of London by threating to fund itself by introducing a financial transactions tax. This would lead to us paying even more in to the EU’s coffers. The Common Fisheries Policy means that our fisherman discard (throw back into the sea dead) 1 million tonnes of healthy fish. 'In 30 years at sea I have never caught a whale, destroyed a dolphin... or dumped nuclear waste, but I have been forced by the EU to dump hundreds of tonnes of edible fish in the name of "euro-conservation".' - George Stephen, Aberdeenshire fisherman, 2000. They have also caused huge cuts to the Post Office by banning monopolies on Parcel Delivery – the most profitable bit.

We are forced to take unlimited immigration from the entire EU. Under EU law as soon as somebody comes to Britain they are entitled to skip the council housing queue, NHS, benefits and a free (yes despite UK nationals having to pay) university education. Not bad when you consider that in Bulgaria and Romania over 44% of people live below the poverty line. There will be a huge influx of people coming into Britain in 2014, when these countries are given unlimited immigration. People who have paid into the system all their lives are being forced to take huge cuts because people can come to Britain and after only three months (not even working) they can take what they want an give nothing back. It is wrong that when we are short of jobs for our poorly - qualified young people (21% of young people are out of work or education) that we have no control over people coming here driving down salaries and taking many manual jobs. We should have proper work visas whereby we control how many people are working in this country and how long they are allowed to work for, so that in times of economic hardship we are able to ensure that able British citizens have a job before allowing people to come to the country, unless they have a skill that we are short of and are unable to train people to do or have lots of money to invest.  This policy is in fact more pro-equality than the current one because it will give those immigrating from EU countries the same rights as people immigrating from other regions in the world.    

The British government has refused to say what proportion of domestic laws come from Brussels, however, the  German Federal Justice Ministry has said that 84 per cent of the legislation in that country came from the EU.  According to estimates around 75% of all laws in the UK come from the EU. These are made by unelected bureaucrats and even if every British MEP voted against something we could not stop it and we could do nothing about it. We have no power to even suggest legislation, this lay in the hands of the ‘EU commission’ and President Jose Manual Barroso.

Who is this man? – EU Commission president Jose Manual Barroso, probably the most powerful man in Europe

(source: Daily Telegraph)

Baroness Ashton- A Labour Peer never elected to anything ever. Vice president of the EU High Representative of the Union for Foreign Affairs and Security Policy. She is paid over three times the salary of David Cameron and gets a private get and £328,000 plus expenses and a private jet.
(source: wordlpoliticsblog.com)

Herman Van Rompuy – President of the EU council . Known as ‘Rumpy Pumpy’ and most famous for having ‘the charisma of a damp rag and the appearance of a low grade bank clerk.’

(source: thesnowolf.com)

Outside of the EU we would be free to negotiate free trade deals with many countries, including the Commonwealth and the European Union (the claims they would refuse one are farcical – we buy from them than we sell to them so they would lose out more). This would effectively give us the single major benefit of the EU without having to pay or implement hindering laws we do not want or need. Also we would be able to join the world trade organisation. It is ridiculous that the sixth biggest economy on the planet is not allowed to join.

The very worst problem that the EU gives us is that it is hell bent on closer integration. It has its own flag, currency and anthem. The EU commission scrutinises national budgets and it forces out the elected leaders and puts in technocrats such as Mario Monti. There is no prospect of getting back any of our powers. The time to leave the European Union is now. As they drift into becoming a federalist state we will be forced to sign away our sovereignty until we are unable to get out. I hold out no hope for a referendum because in the last election all three of the main parties promised one and no action was taken.  There is only one mainstream political party who are 100% committed to a free and fair referendum – The United Kingdom Independence Party.

Read More

Interview: Ricky Martin – ‘Apprentice' Winner 2012

by Fergus Houghton- Connell

Ricky Martin, 27, first earned his fame through wining the BBC game show "Total Wipeout" and then with his successful run on the Apprentice in which he won £250,000 towards starting a new business. Now, Ricky is still running his recruitment firm, with the help of Lord Sugar, and has even relocated to Lord Sugar’s Headquarters in Essex. After an interesting talk to the PGS pupils, Danny Rollins, Jonathan Blackwell and I caught up with Ricky to see if we too could ‘witness the fitness of Ricky Martin’.

Ricky infamously stated in his application that he ‘could be liked to Thor’ and that he was able ‘to teach an old dog new tricks’.

Q: “With your application, do you think the BBC chose you because you would be funny on TV or because you actually had business potential?”
A: “It’s probably an element of both really. Lord Sugar was on the panel selecting (the candidates) so he wouldn’t have just selected someone who was good for TV and had no credibility to back it up. If they just thought I was a joke and there for TV value, I don’t think I would have got on the program.”


Q: “You've won both Total Wipeout and The Apprentice, do you fancy going on any more BBC TV programs?”
A: “Absolutely not! No, definitely not! I’m all TV’d out. That’s me done. The only thing I’ve got left to do is the National TV Awards on Wednesday, but apart from that, that’s me done for TV. If I had the time to go on loads of TV programs, I shouldn’t be starting a business. I’d be a fool.”

Q: “You say Science is what gets you up in the morning, but what exactly do you like about Science?”
A: “It’s the end application of Science that really interests me. With a Drugs company, even if it takes 30 years to complete the drug, it’s the fact that it saves lives is what interests me. Also, Science can manipulate different molecules in a compound, for example a detergent can be used to make teeth whiteners. It may take 30 years to complete, but if you remember how important the product will be at the end of it, then it’ll all be worth it.”

PGS Chemistry teacher, Dr O’Neill taught Ricky Chemistry as a child at Crofton School.
Q: “Did Dr O’Neill inspire you?”
A: “He did actually! I didn’t know he worked here until today. What I liked about Dr O’Neill was that he is a very charismatic science teacher. He was different to my other science teachers. He made what I’d like to do, he made science fun! He made it interesting and engaging. It was great to see him today, because he’s exactly the same as he was, and he looks the same too!”

Q: “What would you say is the most important tool for a business, other than money?
A: “Passion. To be passionate and interested in what you’re doing makes a difference. I could’ve taken the money and put it into something that would have made money faster, but that’s not what I’m passionate about. Also, a business plan is needed, you need to figure out how your business is going to work around life.”

Q: “You’re from the area, so have you every thought about relocating to the Portsmouth area.”
A: “Right now, probably no. It depends where the company goes really. When I think about science, I think about key locations in the country. There’s Cambridge and Oxford and where I’m located now (in Essex) is within an hour’s drive of each of those, so at the moment no, I won’t be moving.

Q: “ When can we be expecting the book, ‘Ricky Martin – The Life Story’, to be coming out?
A: “Forty odd years probably. No, unlikely that there’ll probably be a book. I’d be flattered if someone wanted to write a book about me, but nothing soon, no.”

Q: “Are you still the reflection of perfection?”
A: “No, I’m now a much more toned down person.”

So, if there was anything we could take from Ricky Martin is that you should ‘follow your passion’, you should ‘think positive, be positive’ and whatever you do, don’t call a prospective business partner an ‘old dog’.

Read More

Getting Rich Quick for Dummies

by George Chapman

Each year, Christmas is a time for us to be reflective, loving and generous. Naturally then, this evening during the festive period, I found my narcissistic self come out to play with thoughts of how best to make a million before retiring in my mid-30s on a beach somewhere in the Med. At first, my daydreaming entertained ideas of writing and recording a Christmas number one or perhaps a smash-hit festive Hymn. However, I soon realised the need to refine my plans to consider those entrepreneurial pursuits which were more within my grasp. Then it hit me; Curry’s current January Sale advertisement on the TV, shamelessly promoting cut-price Apple goods, inspired the dormant Steve Jobs mark-two within me. The answer is simple – to make a mint in next to no time, invent and market a range of technological products with the success of the iPod or iPhone. How hard can it be?

Incredibly, since its introduction in 2007, sales of the iPhone have grown to account for a greater proportion of Apple Inc.’s annual revenue than any other good produced by the firm. What’s more, the data presented in the graph below demonstrate the seemingly unstoppable force of Apple branding; the exponential growth of the company’s revenues seems unaffected by either the global recession or Steve Jobs’ untimely death. However, without exception, Apple’s total revenues during the year rise sharply to a peak during December (or during the one of the months just before), as shoppers no doubt invest in the latest product range for Christmas. Herein is the first ingredient in my recipe for the perfect product – the ability for sales of the good to remain largely unaffected by negative externalities but to respond favourably to positive externalities (i.e. by boosted sales in time for Christmas).

(source: businessinsider.com)

The second ingredient in this tried-and-tested business success would be the creation of a product which may be improved ad nauseam. Sure, that sounds simple enough; however, it’s crucial to bear in mind that no-one will pay upwards of £500 for a phone which just isn’t worth that sum of money by anybody’s estimations. The trick is to develop an innovative and exciting product which is better than all of the competitors’, yet which is by no means a perfect one. As a result (exemplified by this year’s edition of the fifth iPhone), there is plenty of scope for product reinvention and remarketing – as frequently as annually for the iPhone and iPad ranges. Consequently, there is very little change in the size of the overall product range offered by Apple, whose market domination can be attributed to just a few different goods – the iMacs, iPods, iPhones and iPads.

This narrow product selection would usually come with a few significant disadvantages; reduced choice for consumers and little spread of risk in case of a change in consumer taste against one or more Apple gadget. However, this is where Apple comes in to its own. Thanks to Mr Jobs and his associate inventors, more often than not, Apple products are technologically market-leading and therefore the first choice for consumers anyway. Because of this popularity, product diversification is not so important for Apple by way of a security mechanism. Thus, Apple can reap the rewards of specialisation – they may optimise financial and entrepreneurial efficiency to simply tweak their four major technological products, thereby ever-increasing the opportunity for profit maximisation.     

Efficiency, increased popularity and resultant levels of growth may lead to the final ingredient in this prosperous Apple pie – a range of Veblen goods (due to strengthening of the Apple brand’s reputation). The law of demand for normal goods states that as price for a good increases, the willingness and ability of consumers to purchase that good will decrease. On the contrary, as the price for a Veblen good increases, so does the quantity of the good purchased. This is thought to be linked to the status of the good concerned; that is, those with the good either have greater social standing or supposedly more money than those who don’t. Unsurprisingly, the iPhone 5 has been suggested to be Veblen good, in addition to other Apple products such as the iMacs. Think about it – without the Apple branding, or the popularity of these products amongst the wealthier members of our society, would these gadgets be quite so sought after? The iPhone has been socially endorsed if you will, and consequently its practically unlimited success guaranteed where (theoretically) continual price increases can only increase the demand for the phone.

So there it is – it really is that simple. All that’s left is to do now is to think of a product with each of these features, which doesn’t yet exist. Oh, wait…

Read More

Join the Debt Debate

by Peter Jordan

Chancellor's choices: Raise taxes?
Cut benefits? Borrow more money?
(source: Belfast Telegraph)

This week, there will be a lot of coverage of the Chancellor of the Exchequeur's Autumn Budget Statement. This will focus on how much Government spending has exceeded what they have received via the tax system and what the Chancellor plans to do about it.

To understand this you will need to have at least a basic understanding of mathematics. Sadly, this means that most people won't have a clue what the Chancellor is talking about; according to a recent study for the Government, just 1 in 5 adults have sufficient mathematical skills to achieve a Grade C or better in GCSE Maths. This study also showed that if you are good at Maths (everyone at PGS falls into this category) you will have the opportunity to earn more money and become wealthier than most of the population during your adult life.

To give you an idea of how important this will be for your future happiness it is sobering to look at the results of another study by the Institute of Fiscal studies. This study showed that 50% of the adult population (16 to 64) earned less than £418 per week. After tax and national insurance this means they take home no more than £333 per week. To give some context the average weekly cost of a place at PGS (including uniform costs and things like trips) is circa £280 per week.

Although the distribution of income is uneven, the share of wealth (savings, shares, pensions and the value of things you have bought like property and cars) is even more uneven. The top 10% of households own 42% of the nation’s wealth. This means that if total wealth was £100 and there were 100 people, then the richest 10 of these own £42 of the wealth (£4.20 each) while the other 90 people would own £58 between them (on average £0.64 each).

This suggests that you need to set your sights high and focus on being in the top 10% or even 1% of earners to enjoy a life free from financial stress even if this means taking Maths a little bit more seriously! It also explains why there is so much noise when it comes to working out who should pay for the spending that currently exceeds taxes. 

Even after 2 years of cuts, the situation is far from under control. In September the Government collected £42bn pounds but spent £55bn.  This would be equivalent to you spending £13.10 when you only received pocket money of £10 per week! Unless your parents agreed to give you more money, you would obviously have to find a job to earn £3.10 to allow you to carry on spending at this level.

Although everyone working more would be the best solution for our country, the big problem we face is that very few people work. Most people are oblivious to this as the statistics are quite complicated. However, the bottom line is that only 1 in 3 people in the UK (20 million out of a total population of 62 million) have a full time job. Is it any wonder that the taxes aren’t high enough to cover all the money the Government is spending on our behalf? 

The main problem the Chancellor faces is that nobody wants to have their pensions or benefits cut, nobody wants to pay higher taxes, university students don’t want to pay for their education, people want 5-star health care and rich companies and individuals will pay a small fortune to accountants to make sure they pay virtually no tax at all. This is why Government’s just keep borrowing more money.

However, borrowing more and more money is not a sustainable strategy and carries the risk that we end up in as much trouble as Greece and Spain. So, since the youth of the day will have to sort this mess out in the years ahead, what do the finest minds of PGS think we should do?

In this context it would be interesting to hear your opinions and discover your opinion on these questions:

Should the Government:

1.      Cut benefits?

2.      Increase taxes?

3.      Borrow more money?

Read More

How Do You Solve a Problem Like the Euro?

by Andrew Jones

(source: gramilano.com)

Teetering on the precipice seems to present a pretty accurate picture of the Eurozone's current position. The mid-summer fears surrounding the possibility of a double dip recession became slightly more of a reality when growth figures fell 0.2% in the second quarter. The efforts of France and Germany to drag the Eurozone out of its predicament failed as the economies of Spain, Italy, Finland and Portugal contracted to continue economic tales of woe. At such an economically dangerous point it might be prudent to consider where the solutions may lie and the lessons which the Eurozone could learn to prevent a repeat affair.



Angela Merkel: hostile to bail-outs
(source: eleconomista.net)

 So where might the solutions lie? Perhaps the ECB's current favourite option has been through bail outs to try to shore up weaker economies. These are however attached to difficult conditions which few are able to meet. Recently this approach has been criticised for being too harsh on struggling economies. Christine Legarde recently urged the Eurozone communities to give these economies “ a bit more time.” Might this therefore become the way forward for a Eurozone solution? Such a measure is sure to induce friction between those being bailed out and those paying for them. Germany in particular has remained hostile to the prospect of bail-outs with “softened conditions” as Foreign minister Guido Westerwelle iterated at a meeting of Eurozone leaders. This sentiment is due to the Government being “under pressure not to soften by one single millimetre” according to Stephen Evans. Such a solution is therefore unlikely to become a reality as though it may offer countries such as Greece and Spain a more achievable settlement, crucially it fails to gain the support of key contributors such as Germany. For policy makers in the ECB, the current bail-out plans with strict conditions are unlikely to be a viable method for much longer as they serve to increasingly undermine government support in weaker countries. Therefore whichever strategy is taken, relying on bail-outs, although economically practical to help shore up Government finances, simply leads to unpopular Governments at a time when they really need the support of their people.

The prospect of either a Greek default or, worse, exit from the Euro has been suggested as a possible solution. Though long talked about, this scenario seems unlikely to become reality as individuals on all sides of the table have ruled out the possibility. The Greek Prime Minister Antonio Samaras addressed supporters of such a notion with a stark rebuttal:  “We must make sure that we abide by what we have signed because we believe that what they call a 'Grexit' is not an option for us. It would be a catastrophe.” Whilst those within Europe seem unwilling to consider the act, the warnings of catastrophic consequences have been weakened as Jean-Claude Juncker argued that a Greek exit would be “managable.” Despite this, a Greek exit from the Eurozone remains the most risky and dangerous solution which should really be viewed as a desperate last resort. Fears that a Greek exit could spark a contagion of other exits certainly rings true when one considers the state of Spanish, Irish, Italian and Portuguese economies which fared little better.

Anti-austerity protestors in Greece
(source: cpjournalist.com)

Clearly a Greek exit appears off the cards, but what about a Greek default? Could this be a viable solution? The straight answer is no but it is likely to happen. Using the Argentine major default of 2001 as a comparison highlights certain consequences which could prove crippling for Greece. Subsequent to the default, Argentina was stripped of its position in the Global credit markets, reducing its borrowing capabilities. Jaime Abut, a business consultant in Rosario, observed “You have to pay the consequences, and for a long time. Argentina is no longer considered a serious country.” There was a silver lining to the cloud following the default for Argentina. The economy bounced back remarkably quickly, growing by about 8.5% annually for six years since 2003. Unemployment also was quickly halved, demonstrating real benefits, which could be replicated following a Greek default. Therefore, whilst the long-term credibility of Greece will inexorably be undermined, the economy may be allowed to flourish. Adam Lerrick, who at the time of the Argentine default, negotiated for European and Japanese, has concluded that Greece will eventually have to default or be “enslaved for decades.”

Currently the sentiment within Europe has focused on riding the storm until 2014, when the European Stability Mechanism is due to be brought into force. A newly formed agency, it will possess up to 500bn euros in order to support these struggling economies. There is a serious weakness in this policy in that a Spanish bail-out is estimated to require around 300bn euros, leaving a mere 200bn to deal with future crises, which, judging by the past record, seems the likely case. Exploring how to deal with the Greek economy has been just the icing on the cake with other economies set to decline, taking Europe further down the rabbit hole. Where do they go? The answer, I believe, lies through an international response to shore up the European economies. Observing the ESM's meagre funding helps illustrate that  Europe just does not have the money to solve their problems.

Read More

Have the Olympics Inspired A Generation?

by Peter Jordan

London 2012 Volunteers, with Mayor Boris Johnson
(source: Daily Mail)

During the Summer I was a spectator at three Olympic events. The cycle time trials (road), men’s triathlon and the final night of the athletics (yes, I saw the Mobot win his second gold medal). However, one thing that struck me was how different the spectators were to the ones I normally rub shoulders with at major sporting events.  No drunkenness or swearing and many more well-behaved spectators.

In the afterglow of a truly fantastic two weeks, the BBC has been focusing on how well the Olympics reflected our country and how it will inspire a generation. While I agree that the London Olympics was a showcase of great behaviour, I would also suggest that this is not a true reflection of the Britain I live in. I am also not convinced that it will inspire a generation.

The inflexibility and uncertainty of the ticket lottery and the need for volunteers to sign up for two weeks and to fund their own travel and/or accommodation expenses guaranteed that the London Olympics would be dominated by affluent and well-behaved volunteers and spectators.  In general, the people I know who got “lucky” in the lottery or volunteered, were typically individuals who could afford to take the financial risk of applying for multiple tickets or take two weeks off work.

So, if it was a middle class Olympics, what legacy benefits can we expect to obtain?

As the middle classes and their children are already inspired and tend to participate in sports, maybe we should have more limited expectations. The sections of society where participation in sport is low may well have been inspired by watching the Olympics on TV but will lack the financial resources to take part.

For most people, the first step to participating in sport is to start exercising to lose a bit of weight and acquire some fitness. However, all exercise outside of schools requires financing.  Unless you have the motivation and confidence to simply buy some trainers and go running on the road, any regular supervised exercise can carry prohibitive costs for large sections of society.

As a result, even those people who are inspired may not ever experience any more than this if they are not able or prepared to foot the bill of fitness.  Unless this issue is solved, any inspiration will be short lived and unrealised, with the vast majority of the country continuing to eat poorly, drink too much and avoid exercise.

As a result, I fear the Olympics will have a muted impact on the sedentary and overweight Britain that was largely hidden away for the duration of the Olympics.

Read More