THE SCHUMPETER

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The Economics Society Magazine

Issue 4
T HE S CHUMPETER CONTENTS

Economics
Society
Brave New World News
Folarin Araromi

Government : Problem or Solution?

 If you are interested in joining
Adrian Booth
the Economics Society, please
sign up using the Student’s Un-
En Route to Golden Glory ion Website
Fahad Memon
 In the First week of the New
term, there will be a social for
Defending Defence the Economics Society. Further
details of this will be available
Balraj Singh Sura
at the Re-Fresher’s fayre on the
26th of January.
The Sky Wars
David Osborne

How Hoarding Helps

Timothy Robinson

From the Department

News & Extra

The Economics Society Magazine is

funded by member contributions, and
relies on the contribution of students
and lecturers for articles. If you would
like to get involved writing for us
please email:
fahadmemon_73@hotmail.com
david.osborne.1@city.ac.uk
Brave New World
Folarin Araromi
W ritten in 1931, Aldous Huxley’s Brave
New World gives a bleak vision of a fu-
ture where technology has altered the face of
humanity, and people have become nothing
more than cold, empty automatons, existing
only to fulfil a predetermined function. Usu-
ally pronounced as a chilling prophecy of the
tide of things to come, many tend to overlook
its value as a disturbingly poignant commen-
tary on the contemporary issues of 20th cen-
tury western social climate. Issues that have
amassed even greater weight today in a soci-
ety that strives to exist at the cutting-edge.
However, with modern science breaking new
and hazardous ground on an almost daily ba-
sis, there is a fear the rapid advance of technol-
ogy in recent years may very well soon bring
us to the brink of Huxley’s nightmare.
One may ask how the byzantine technol-
ogy and unbending social Darwinism of Brave
New World relates to economics, much less
the bright-eyed, happy-go-lucky liberal econ-
omy of the modern west? It is in that econom-
ics provides the medium to discuss the grow-
ing concerns surrounding the increasing
prevalence of technology in society, and its
implications not only on the economy but our
individual rights and liberties. The digital
revolution of the 1980s saw the birth of the
personal computer, symbolising humanity’s
evolution from the archaic mechanical ana-
logue system to radical new methods of digital
processing. Correspondingly, Moore's Law de-
scribes a common trend in computing, in
which the number of transistors on an inte-
grated circuit doubles approximately every
two years. Beyond the desktop, Moore's Law is
effectively a business practice based upon an
exponential growth in technology; a growth
society bore witness to throughout the late
20th century. While technology may have ad-
vanced humanity beyond its wildest dreams,
how many of us actually know where it’s go-
ing? We are still a long way away from the war
-stricken streets customary to many works of
dystopian science fiction, but the precipitous
advent of technology has produced gadgets
and gizmos that present the possibility of a
world where technology may infringe upon
our identity and freedom.
Modern society is built upon a founda-
tion of technology that has a long and trying
history. A history that stretches beyond the
20th century, back to the 18th century and the
Industrial Revolution, marking the transition
from manual labour to machine-based manu-
facturing. Thus the demand for technological
innovation arose from the need to achieve
greater operational efficiency, as to thereby
better satisfy consumer demand. But technol-
ogy has had just as much to do with economic
reform as social reform. Computers were once
predicted to be able to facilitate complete cen-
tral planning of the economy, but as we’ve ex-
perienced for ourselves technology has played
a far more eminent role in globalisation and
the expansion of the free market. The digital
revolution radically changed the way individu-
als and businesses interact. Small companies
were suddenly given access to much larger
T HE S CHUMPETER
markets, and consumers now had the power to
trade with businesses on the other side of the
world at the touch of a button.
The study of economics itself is becom-
ing increasingly technologically inclined,
adopting elements from relatively new fields
such as engineering and computer science. So
whilst we may live in a society that assigns the
highest value to order, if engineering methods
are taken out of the laboratory and imposed
on the people, it could potentially undermine
the economic and political foundations of soci-
ety. Economic theory dictates greater degrees
and sophistication of technology results not
only in productive efficiency, but in greater
economies of scale. However, large firms have
a distinct advantage because the research &
development required for technological inno-
vation now requires access to vast economic
resources. From substantial amounts of money
needed to finance the research, to owning the
resources and facilities available to attract the
highly specialised labour characteristic of the
technological industries. The result of this is
that only the biggest firms possess a competi-
tive advantage, and it is from this that we start
to see monopolies emerge. Additionally, we
may find that emerging technologies, such as
the computerised prosthetics produced by
Touch Bionics of Edinburgh, would be dispro-
portionately available to those with greater
financial resources, thereby exacerbating eco-
nomic inequality. The underlying problem is
that with reduced contestability, existing firms
actually have less incentive to develop new
technologies, limiting productive efficiency
and thereby impeding the progress of technol-
ogy. Interestingly, this highlights the impor-
tance underlying the debate over intellectual
property, in conjunction with decentralised
distribution systems, such as the internet. As
the cost of information tends towards zero,
with ever more efficient tools being designed
every day to distribute information to an in-
creasingly large consumer base, the rate of dis-
intermediation in markets is escalating. This
presents the possibility of a future where tech-
B RAVE N EW W ORLD
nology grows at such a rate that the positive
externalities arising from the elimination of
asymmetry in the markets are outweighed by
subsequent nullification of variations neces-
sary for competition.
Huxley envisaged a world where the role
of technology is to create the conditions in
which a select few combine control over all
social, political and economic aspects of life, to
in effect manufacture society. While one can
certainly applaud the rise of technology for
helping to further bring all aspects of life and
the universe under the reign of rational sci-
ence, the rules and ideals that have defined the
social systems in place today are becoming
increasingly permeable. Nonetheless, technol-
ogy is a tool of not only economic but philoso-
phical vision. However, despite the social pro-
gress it has instigated, and despite all our so-
phistications we exist in what is still very
much a Darwinian world. Technology may be
the greatest force for social and economic evo-
lution, but humanity as we know it has no
master plan in store, and we have yet to un-
cover a grand architect hiding behind the cur-
tain. Therefore the burden lies upon us to en-
sure the successful convergence of social and
technological progression, and enforce the de-
mocratic measures needed to ensure the risks;
cost and benefits are shared equally amongst
all stakeholders in the future.
Government: Problem or Solution?
Adrian Booth

T he eight most dangerous words in the

English language, according to Ronald
Reagan, are “I’m from the Government, and I’m
here to help”. The debate among economists
and policymakers today is not whether the
markets need more regulation, but how much
regulation they require. The argument put for-
ward by pro-regulation economists is that the
crisis would not have occurred had regulation
been much tougher and government not been
as passive. The argument put forward by those
against regulation is that government involve-
ment causes the problem it intends to solve.
In 2004, the Bush Administration asked
the Federal Housing Administration to lift the
down-payment requirement altogether for
150,000 new homeowners. Bush declared, “To
build an ownership society, we’ll help even
more Americans to buy homes. Some families
are more than able to pay a mortgage but just
don’t have the savings to put money down”.1
The President of the United States had a goal
to abolish traditional lending standards, which
were enforced to minimise the risk of mort-
gage defaults. Even today, we see policymak-
ers acting indecisively; trying to curb risky be-
haviour in the banking sector and simultane-
ously trying to force them to lend money out.2
The debate over having a ‘systemic risk’
regulator is also rarely challenged and is ac-
cepted for granted by economists as some-
thing necessary to ensure stability. In a paper
delivered to the Eurobank EFG’s conference on
real estate in 2006, two economists at the Fed-
eral Reserve presented a paper declaring that
there was no bubble in the housing market.
Richard Peach and Jonathon McCartney wrote,
“House prices have been rising strongly
prompting concerns that a bubble exists and
that home prices are vulnerable to a collapse.
A close analysis of the US housing market finds
little basis for such concerns...the upturn in
home prices is attributable to strong market
fundamentals”.3 Even during 2006, at the
height of the largest credit bubble in world
history, Ben Bernanke said in a speech in Las
Vegas, “Our examiners tell us that lending
standards are generally sound and are not
comparable to the standards that contributed
to broad problems in the banking industry two
decades ago. In particular, real estate appraisal
practices have improved”.4 The main qualifica-
tion to be a systemic risk regulator is to spot
systemic risks. If an institution cannot meet
this criterion, it’s hard to justify giving them
the position.
Some argue it was the position of the
government to encourage risky lending and
‘expand homeownership’ that contributed to
the bubble. In 1999, the New York Times re-
ported on Fannie Mae’s recent easing of credit
requirements to low income families. Fannie
Mae is what’s known as a ‘Government Spon-
sored Enterprise” or (GSE). This means that
although Fannie Mae (along with sister com-
pany Freddie Mac) is privately owned, they
have an ‘implicit guarantee” from the govern-
ment which means the government would not
allow them to default on their debt or go bank-
rupt. It’s a typical example of privatising prof-
its and socialising risks as all risks would be
placed on the taxpayer.
T HE S CHUMPETER
The problem with Fannie and Freddie is
because they have special privileges granted
by the Federal government, they distorted the
housing market by attracting capital that could
not have been raised under pure market con-
ditions. This directs capital to the GSEs and
raises the cost of capital for everyone else. The
Treasury department ironically admitted this
in its Treasury Report in 1996: "While the
benefits of GSE status provide an important
subsidy that promotes homeownership, such a
subsidy has economic costs... The economic
effect of the subsidy to mortgage credit--
absent increases in the savings pool or attract-
ing capital from abroad--is to raise the price or
reduce the amount of credit for other uses,
such as small businesses, exporters, rural com-
munities, and other business and consumer
borrowers.”
If exposed to the ‘ruff-and tumble’ rigour
of the free market, these companies would
have never existed. As a result of the distortion
and subsidy by the government, capital was
diverted from its most productive use and
placed into housing. The initiative, the Times
wrote, would encourage banks “to extend
home mortgages to individuals whose credit is
generally not good enough to qualify for con-
ventional loans”. Fannie Mae had been “under
increasing pressure from the Clinton Admini-
stration to expand mortgage loans among low
and moderate income people”.5 One of the pro-
gram’s goals was to “increase the number of
minority and low-income home owners who
[tended] to have worse credit ratings than non
-Hispanic whites.”6 It is a weak argument to
blame risky behaviour on the free market and
call for more government regulation when
policymakers are most responsible for encour-
aging and subsidising these risky practices.
Fannie Mae recently posted a net loss of
$18.9bn in the third quarter 2009. They also
submitted a request to the US Treasury for
$15bn to cover their deepening losses. Non-
performing loans are also digging Fannie
deeper into the red. “Total nonperforming
loans in our guaranty book of business
G OVERNMENT : P ROBLEM OR S OLUTION
were $198.3 billion, compared with $171.0
billion on June 30, 2009, and $119.2 billion on
December 31, 2008”7. By bailing out the GSEs,
this merely directs resources (capital) to un-
profitable and inefficient enterprises. No econ-
omy can remain viable as long as capital is be-
ing forcefully diverted into wasteful and un-
economical ventures.
References:
1 Chris Reidy, “Zero-down Mortgage Initiative by Bush
is Hit: Budget Office Says Plan Likely to Spur More
Loan Defaults,” Boston Globe, October 5, 2004
http://www.boston.com/business/
articles/2004/10/05/
zero_down_mortgage_initiative_by_bush_is_hit/
2 Suzy Jagger, “Government will compel Lloyds and RBS
to lend £27bn to SMEs”, The Times, October 10th,
2009
3 Jonathon McCarthy and Richard W. Peach, “Are Home
Prices the Next ‘Bubble’? Economic Policy Review
10, December 2004
4 Ben Bernanke Speech to Independent Community
Bankers of American National Convention, Las
Vegas, Nevada, March 8, 2006; http://
www.federalreserve.gov/BoardDocs/
Speeches/2006/20060308/default.htm
5 U.S. Department of the Treasury, "Government Spon-
sorship of the Federal National Mortgage Associa-
tion and the Federal Home Loan Mortgage Corpora-
tion," July 11, 1996, pg 78
6 Steven A. Holmes, “Fannie Mae Eases Credit to Aid
Mortgage Lending”, New York Times, September 30,
1999 http://www.nytimes.com/1999/09/30/
business/fannie-mae-eases-credit-to-aid-mortgage
-lending.html
7 Ibid
8 Fannie Mae Third Quarter Earnings News Release
http://www.fanniemae.com/media/pdf/
newsreleases/q32009_release.pdf
En Route to Golden Glory
Fahad Memon
T he pride and glory of a sports event deci-
phers the truth behind the symbol that is:
raising a championship. As an event, it serves
the purpose for fans to indulge in an ecstasy of
emotion while giving business ventures the
opportunity to profit. While London has re-
cently found fame as the ‘financial capital of
the world,’ its modern success in the arena of
sport has given it even greater depth.
With about 200,000 tickets sold for the
week, London’s O2 Arena took in live capacity
crowds while television audiences worldwide
witnessed the sensational 2009 ATP World
Tour Finals take place. The event, which pits
the sport of tennis’ top eight singles players
and doubles teams in respective athletic com-
petitions, currently resides in the city of Lon-
don until the year 2012. Baring in mind that
tennis’ most prestigious crown, Wimbledon,
serves as an annual extravaganza for the city
in its period of summer; London proves to be a
centrepiece for one of the world’s most popu-
lar sports. In 2009, the city showcased this in
grand fashion per a historic Wimbledon final
as Andy Roddick and Roger Federer fought to
16-14 in the final set to determine a champion.
Despite this excellence achieved, Lon-
don, England and the United Kingdom’s 2009
in sports went beyond just tennis. In hosting
cricket’s 2009 World Twenty20 (at two
grounds in London and one in Nottingham),
the English and Wales Cricket Board (ECB)
garnered immense financial success with total
ticket receipts of £15 million, selling an ap-
proximate 96% of all available tickets for the
tournament. This included 23,000 tickets sold
for a London warm-up game between competi-
tive rivals India and Pakistan. With a game not
worth much, in terms of progression, the pride
of both nations was well translated into a busi-
ness opportunity by the ECB; ensuring that the
dearest of tickets (£60 per head) were also
sold out.
Cricketing successes came in both finan-
cial terms and via sporting achievement as the
coveted Ashes were regained by the English
cricket team against Australia. The resultant 2-
1 series saw England win an Ashes test match
at London’s Lord’s cricket ground for the first
time since 1934 and eventually sealing the se-
ries victory at London’s Kennington Oval.
Beyond cricket, British boxing also pro-
vided some strong highlights, impressing over
the latter half of the year in particular. In July,
Amir Khan earned the WBA World Light-
Welterweight Champion, en route to becoming
the third-youngest British world champion. In
November, London’s own David Haye became
the first British boxer since 2003 (a la Lennox
Lewis) to hold the WBA World Heavyweight
Championship.
Notwithstanding the recent flurry of ac-
complishments, the UK’s promising road to the
future dates back to one particular day. July
6th, 2005; when London was bestowed the
honour of holding one of the world’s most
reputable events: the Summer Olympic Games.
Scheduled for 2012, the sporting tradition re-
turns to the UK capital for a third time (having
previously been held in 1908 and 1948), mak-
ing it the first individual city to accomplish this
feat.
Hosting a major sports event entails a
number of great opportunities. Investments
through construction, manufacturing and tour-
ism promote and provide economic growth
and stability. As evident in Beijing’s hosting of
the 2008 Summer Olympics, the overall econ-
omy of China’s capital grew 2.5% on an annual
basis since 2002 (according to the Beijing Sta-
tistical Bureau). Moreover, the People’s Re-
public injected $40 billion worth into infra-
structural projects from 2002 to 2006. $1.1
billion spent on transportation developments
including works on rail, subway and road sys-
tems prepared the Games in accordance to the
requirements listed by the International Olym-
T HE S CHUMPETER
pic Committee (IOC). Beyond the period of the
event, the Beijing Olympic Economic Research
Association estimates that foreign tourist
population will grow between 8 to 9% annu-
ally in ten years from 2008.
London’s Organising Committee for the
Olympic Games (LOCOG) has similar acts in
place, in preparation for 2012. Innovations to
East London via the construction of Olympic
Park and Village in Stratford and IOC-required
amendments to public transport, such as the
‘Olympic Javelin’ rail service, serve as direct
examples to the designated plans for the
Games. The London Underground is scheduled
for numerous other improvements to rail line
services until 2012, in order to construct faster
and more effective facilities for the public and
visiting tourists in time for the Games.
Business opportunities related to the
Olympic Games of 2012 have given rise to a £5
billion worth in contracts. More specifically,
the construction of the highly-regarded Strat-
ford-based projects will reportedly create an
approximate 30,000 jobs for the industry dur-
ing its production period.
Londoners are expected to reap addi-
tional benefits through funding arrangements
made by the likes of the Greater London Au-
thority, whom have contributed £925 million
to the Olympic Delivery Authority for purposes
of regeneration and building of facilities that
will assist the city’s population for generations
to come. The London Development Agency is
providing £250 million towards infrastruc-
tural costs for Olympic venues and £220 mil-
lion for cleansing services for the Park.
Rising budgetary costs, however, have
led to criticisms with regard to the added
benefits not being worth their costs. Promises
made by the London 2012 Olympic bid and
LOCOG chairman, Lord Sebastian Coe, suggest 2012 Olympic Stadium (Photo by David Osborne)
otherwise: that a “Legacy 2012” plan is being
considered, to take account of the uses for the
facilities after the summer of 2012.
The UK sporting calendar, yet, occupies
E N R OUTE TO G OLDEN G LORY
numerous other events of significance
(preciously five) before the Olympics even
come into play. 2010 sees golf’s Ryder Cup to
be held at Newport, Wales; the Women’s
Rugby World Cup to be held in locations in
Surrey and London, and the World Lacrosse
Championships scheduled in Manchester. The
2011 International Children's Games, an IOC-
sanctioned event, are scheduled in Lanark-
shire, Scotland while Wembley Stadium hosts
the 2011 UEFA Champions League Final.
In the aftermath of the 2012 Summer
Olympics in London, the UK has been selected
to host the 2013 Rugby League World Cup.
Thereafter in 2014, Glasgow hosts the Com-
monwealth Games while the Ryder Cup ap-
pears for the second time in the UK during the
2010s at the Gleneagles Hotel in Scotland. Eng-
land’s hosting rights, at present, conclude with
the Rugby World Cup and Cricket World Cup
to be held in 2015 and 2019 respectively. De-
spite the impressive list, however, the UK does
not appear satisfied just yet: for bids are cur-
rently in place for the 2018 FIFA World Cup as
well as to host the American football phe-
nomenon that is: the Super Bowl. Moving for-
ward from the first ten years of the second
millennium, the United Kingdom, with London
at the forefront; is heading into a well-worded
‘golden decade’ for British sport.
Defending Defence: Why is the US Military Budget so Big?
T hroughout his career, Obama has always
been an outspoken critic of the “dumb
war” in Iraq. It comes as no surprise therefore
that now as President of USA, the man of
“change” has announced the imminent with-
drawal of troops from Iraq stating that
“[America’s] combat mission in Iraq” will end
by “August 31st, 2010”. Despite this with-
drawal and winding down of operations in
Iraq, the 2009 Budget sees the Department of
Defence’s Military Budget rise 5.7% from 2008
to an astonishing $515.4 Billion; and that does-
n’t include the cost of operations in Iraq and
Afghanistan which is forecast to cost another
$170 Billion in 2009 alone! Obama would tell
you the US military budget is set to decline in
the coming years, but I believe the US budget is
too important a GDP injection for it to be al-
lowed to significantly decline. So I pose the
question: What does the US military budget
contribute to the US economy?
The pie chart below shows Global mili-
tary spending in 2008 and the US accounts for
~47% of the total, which means the US spends
more on defence than the next 45 highest
spending nations combined; clearly the US
military budget is the largest in the World but
what is it comprised of, and how does it affect
the economy?
Central/South Asia -
Latin America - $39
(3%)
$30 (2%)
Russia - $70 (5%)
Middle East/North
Africa - $82 (6%)
East Asia/Australasia
- $120 (8%)
China - $122 (8%)
Europe - $289 (20%)
Balraj Sura
The first major component of the US
budget is wages. The US military as of 31st
January 2009 employs 1,452,337 with addi-
tional plans to grow the Army and Marine
Corps by 2012. Due in part to its large popula-
tion base (~305 Million in 2009), the US has
the 2nd largest military force in the World and
of course, the Total Wages come to a high sum;
$110.4 Billion in 2007 is forecast to grow to
$125.2 Billion in 2009. This is a significant
amount of Taxpayer money being spent on
wages but even if just a proportion of this in-
come returns to the US economy, it would cre-
ate a wave of spending and this boost to con-
sumption in the US economy would of course
make a large addition to the US GDP once the
Money Multiplier has been applied.
The US Military is not just a large per-
sonnel based force but also boasts the largest
Navy and Air Force, with 284 currently opera-
tional ships (including 11 aircraft carriers) and
around 5,778 active aircraft as of 2007. It also
has a large amount of armoured personnel car-
riers and vehicles (M1 Abrams tanks, Humvees
etc) and the vast majority of this equipment
can be sourced to a US company. Lockheed
Martin, Northrop Grumman, Boeing, General
Dynamics, Bell and Sikorsky Aircraft; all estab-
lished US companies specialising in Defence
Sub-Saharan Afirca -
and Aerospace which have/
$10 (1%) had major contracts with
2008 Global Military Spending the Government.
in Billions of US $
(including % of total) Lockheed is a case in point;
Source:International Institute for
Strategic Studies, The Military the US has currently ac-
Balance 2008, U.S. Department of
quired 97 F-22A Raptor
Fighter Jets from them at an
eye-watering $142.6 Million
(as of 2009), each! In 2007,
an astounding 91% of Lock-
heed’s revenue came di-
rectly from the Government,
United States - $711
(47%) while the Government con-
Total = $1.473 Trillion
tributed 78% of the total
T HE S CHUMPETER
revenues of Northrop Grumman and General
Dynamics. The vast majority of the estimated
$104.2 Billion procurement budget proposed
for 2009 will go towards US companies, there-
fore being injected back into the economy.
Unlike in Europe where the Eurofighter Ty-
phoon was a joint venture between many na-
tions in a bid to share costs, the US is able to
bankroll these militaristic investments single-
handedly and most of the time, it chooses to do
so in domestic firms, meaning the revenue
stays within the country. The Government
alone virtually props up these Aerospace and
Defence firms and this of course creates em-
ployment throughout the nation. This money
not only leads to wages and spending in the US
but of course reinvestment, which brings me
on to my next point.
The US military is not only responsible
for procurement within the Billions every year,
but it actively invests Billions of Dollars in
Military and Defence Projects. It’s safe to say
America is at the forefront of weapons and
arms development and a look at the “Research,
Development, Test and Evaluation” section of
the 2009 budget shows why, with $79.6 Billion
being penned solely as investment. Lockheed’s
2,480 registered patents and Northrop’s 1,843
patents are testament to the extent of R&D re-
quired to survive in this highly competitive
industry. This section of the budget helps new
and established firms cover the large costs of
development, resulting in such projects as the
Buffalo-H vehicle and the iconic F-117 Night-
hawk Stealth Attacker and helping these US
firms grow and flourish.
The US Government creates an injec-
tion of spending in the economy through mili-
tary personnel wages and by bringing business
to US weapons and vehicles contractors. Not
only do they procure the majority of their
equipment from US companies, but are also
heavily involved in capital formation and back-
ing R&D within these companies. It would ap-
pear that the military budget plays a major
role in the US economy but is this Government
spending the best use of resources to boost the
D EFENDING D EFENCE
economy?
In May 2007, Dean Barker released the
paper “The Economic Impact of the Iraq War
and Higher Military Spending”. Barker’s model
predicts that high military spending leads to a
short run boost to demand but inflation and
unemployment in the long run. He compares
high military spending to “spending on the en-
vironment” because “resources would be
pulled away from their market directed uses”,
resulting in “slower growth and fewer jobs”.
The view that the market would make better
use of the resources with better long term eco-
nomic benefits is one shared by Joseph Stiglitz,
winner of the 2001 Nobel-Prize for Economics.
Stiglitz sees War as an “unambiguously bad”
use of resources and cites the 1991 Gulf War
as an example where “War can actually be bad
for an economy,” in contrast to the long held
view that War is beneficial to the Economy.
War is usually associated as being beneficial to
the economy due to the booming period after
World War 2 which some say helped the US
economy recover after the deep problems of
the 1929 Depression, still being felt more than
a decade after it began.
Although defence cannot be left to the
private sector and must be provided by the
Government, it is perhaps fair to question the
wisdom of directing so much public money
towards such a large military. Is it really neces-
sary to have a Military that accounts for 47%
of total Global military spending each year?
Perhaps the answer is a little more complex
than just saying the US Military Budget can be
justified by the boost to GDP. The US Military is
the largest because the US remains the World
superpower and it is integral to its status as
being the biggest and best. We could see this in
the sheer number of Sherman Tanks deployed
by the US during World War 2 in mainland
Europe; we can see it during the arms-race
days of the Cold War period; even the techno-
logical innovation in the Space Age under Dr.
Wernher von Braun - it is a constant fight to
maintain dominance and superiority.
The Sky Wars : Boeing versus Airbus
David Osborne
O n December 18th 1970, a new Economic
Interest Group, Airbus Industrie came into
existence. This group was a result of a govern-
ment initiative between France, Germany and
the United Kingdom three years earlier.
Up until the 90’s, Boeing had no seri-
ous competition in terms of commercial airlin-
ers. There were many smaller firms competing
with Boeing, however no large ones. Airbus
broke this trend. In the late 90’s, Airbus nar-
rowed the gap in market considerably and
since then competition between them has
been fierce. The majority market share has
changed hands between both companies many
times in the past two decades.
The Superjumbo
In 2005, after over a decade of research
and development (mostly in secret), Airbus
unveiled its new superjumbo the A380. This
aircraft was a response to Boeing’s proposal to
build fully double-decker “superjumbo”, which
never materialised. Boeing scrapped the plan
in order to focus on the tried-and-tested 747.
To date, Airbus has had 200 orders of the
A380. In the first four years of the Boeing 747,
there were 126 orders for the aircraft made.
These figures however only tell a small
part of the story and do not provide an accu-
rate comparison. In the 1970’s the demand for
long-haul air travel was much less as both a
consequence and a result of the price being
much higher in relative terms than today. This
meant that Airlines would not have been re-
ceiving as much revenue as they are today, and
were not achieving the economies of scale as
they are nowadays. It is also interesting to
note that the first four years’ orders of the 747
for passenger use were from airlines based in
countries all over the world, compared with
the A380, which have only been ordered by
airlines in Europe and Asia. All the major
American operators such as American Airlines,
Delta and United Airlines have stated that they
have no intent in placing orders for the A380.
This leads to a question; is it that the US airline
companies are boycotting the A380 in prefer-
ence to their home-grown Boeing 747?
Boeing’s Response to the Competition
Inevitably, Boeing deems the A380 a
threat to the dominance of its 747 in the large
aircraft market. However, they have no inten-
tions of resurrecting the plan of their super-
jumbo to compete with it. Instead, the com-
pany has designed a larger and more efficient
T HE S CHUMPETER T HE S KY W ARS

variant of the 747, called the 747-8. The extent

to which this will cushion the effects of the 747 Useful statistics:
is subject for debate. The Airbus A380 has a maximum capacity of
Boeing also dominates the mid-range 853 passengers, a range of 15,200 km and a
aircraft market. For both Boeing and Airbus, maximum cruising speed of 900 km/h. Boeing’s
many of the aircraft on in that market are due 747-400 (the largest and most common variant
to become obsolete in the next few years. Con- of the 747) has a capacity of 524 passengers, a
sequently, both Boeing and Airbus are set to range of 13,450 km and a maximum cruising
release new mid-range aircraft to replace speed of 913 km/h.
them. Airbus is in the early production phase The Airbus A350 has a maximum capacity of
of the A350 and Boeing is in the same phase 412 passengers, a range of 15,400 km and a
for the 787 “dreamliner” for Boeing. In this maximum cruise speed of 945 km/h. Boeing’s
segment of the market, it is much easier to
787 has a maximum capacity of 330 passengers,
compare the results because the aircraft are in
the same class, and in the same time-period. a range of 15,750 km and a maximum cruising
Looking at the orders, Boeing is definitely leading speed of 945 km/h
this competition with 840 orders for the 787
to date, compared with just 500 for the A350.
The future
The competition between Airbus and
Boeing represent a rivalry between the Euro-
pean Union and the United States, which are
the most powerful economies in the world.
Both companies take up a combined market
share of 88% of the passenger aircraft market.
However, commercial aerospace programmes
in Brazil, Canada, China, Japan and Russia
threaten to break the Euro-American duopoly
in the commercial aircraft market. Projects
from competitors in all of these countries are
The Airbus A380 (Photo from Wikipedia Commons)
well underway and although they may not be
successful internationally, their success in
their respective domestic markets is sufficient
to erode the global dominance of Airbus and
Boeing. According to a report: The Coming
Squeeze: Commercial Aerospace Programs in
Brazil, Canada, China, Japan & Russia by Airin-
sight, the emerging aerospace programmes
could reduce the market share of Boeing and
Airbus to just 40%.
This challenge presents an opportunity
for Boeing and Airbus. With growing environ-
mental concerns related to flight, the new
competitors give “the big two” an opportunity
to keep their marker dominance by jumping The Boeing 787. (Photo by Yasuhiko Obara Yasobara)
ahead of the new competition though develop-
ing greener, more efficient engine technology
and aircraft design.
How Hoarding Helps
“Pecunia non olet (Money doesn’t smell)” –
Titus Flavius Vespasianus (Emperor
Vespasian) ancient past the coins have a use, political;
I n 2000 a barley field in Somerset yielded a
collection of Roman denarii with a range of
issuers from Mark Antony (an issue of coins to
his legions just prior to the battle of Actium –
31BC), to Severus Alexander (the last of the
Severan Emperors, assassinated in 235AD).
This silver coin hoard was valued at about
£265,000.
While this may have been one of the lar-
ger such finds are not uncommon, especially
around former Roman military sites; soldiers
being one of the professions which com-
manded a regular salary in coin. This was es-
pecially the case with earlier bronze coins,
since it took time for monetization to develop
in the rest of the British colony. Notably also
it’s composition is not terribly unusual; the
hoards of Roman Coins follow the infamous
normal distribution, a larger cluster of coins
around a mean date surrounded by tails of de-
creasingly smaller amounts of coins as we
move further from the date of the most com-
monly circulated coin. The abandonment of a
hoard is then the date that hoard seems to
have been stopped being added to, which must
at least be after the final date of coinage in the
hoard.
Some coins get together in a normal distribution

Timothy Robinson
Aside from gathering a momento of the
they illustrate the political climate at the time.
Coinage was a simple, effective method of dis-
tributing the image and the names of the Em-
peror and usurpers. Secondly there is the eco-
nomic reason, the debasement of the coinage
in the third century gives both an indication of
the poor state of imperial finances, to necessi-
tate such a move (a good enough quality hoard
will give a broad sample of the weight stan-
dards used for coinage), and the degree of in-
flation occurring in the empire (Diocletian im-
posed price freezes, and attempted to restabi-
lise the currency to combat this.)
Silver, Gold and Bronze
The types of coins available in the Em-
pire varied across time, the early silver de-
nomination was the Denarius; the Sesterius, As
and Dupondius were copper alloys and the
Aureus was gold. The Radiate was introduced
in around 215 AD (and was worth around 2
Denarii), eventually the silver content fell and
the coin was diluted with bronze (barbarous
radiates). Part of Diocletian's reforms was to
replace the radiate with a copper-alloy coin,
the Nummi, in 295 AD. Constantine the Great
introduced two coins, the Solidus and the Sili-
qua, gold and silver respectively. (These how-
ever are not common in Britain). The
golden Aureus was also uncommon in
Britain during the crisis of the 3rd Cen-
tury.
In the third century Britain be-
came a user of large amounts of coin-
age produced by rebel emperors, like
Carausius and Allectus (who assassi-
nated the former).
The Cunetio hoard, of 54,951
coins, finishes with coins from around
270-4 AD (Tetricus the First and Sec-
ond, rulers of the breakaway Gallic
Empire); the area controlled by the
T HE S CHUMPETER
usurpers had not been infiltrated with as much
of the debased radiates compared to the cen-
tral Empire controlled by Gallienus (Gallienus
lost control of Germania, Britain, Spain and
large parts of Gaul to Postumus; this began the
Gallic Empire). Initially a hoard closed early in
the reign of Postumus (he died in 268), found
near the M1, has a large proportion of the less
debased Postumus; the Cunetio hoard contains
a large portion of the Gallienus (from a ratio of
1:12, Gallienus to Postumus, to 4:1) – the
hoards had closing dates just 4 years apart.
This rapid change could largely be because the
Postumus coins were reclaimed for their ex-
cess silver.
The reformed radiates (introduced in
around 275 AD) of the emperor Aurelian were
larger than the barbarous radiates, but are less
common in the UK. This lack of regular ap-
pearance in coins hoards is interesting, espe-
cially considering the speed with which the
debased coins entered circulation in Britain.
The pre-reform radiates could have effectively
circulated as a separate, lower valued cur- A final note
rency, alongside the reformed ones, and even-
tually the nummus; indeed this would fit with
the tendency to segregate hoards of different hoards of Roman Coins in Britain; coins sur-
valuations of coinage.
Diocletian
H OW H OARDING H ELPS
Forgery!
A hoard found in Kempsford, Gloucester-
shire contained forged coins, however they
were not forgeries made with motivations of
trickery (although this undoubtedly occurred,
people would have produced severely adulter-
ated coins. The nature of coin flows to Britain,
a supply shortage during the late Claudian and
early Neronian period, meant that coins were
often recycled (restamped). The hoard found
at Coleshill, Warwickshire (in 1939) contained
about 7% imitation coins (around 234 coins),
such imitations tended to vary from the origi-
nals, the officially minted coins having slightly
large diameter (but the difference is usually
not significant). The Coleshill hoard also pro-
vides another note, the last coin in the hoard is
from c.388 AD, however the prediction is that
the coin hoard was buried around 354-355 AD
and that the aberrations are 'intruders'. This
would date the hoard to just after the fall of
Magnentius.
This has been a short overview of the
rounding the introduction of the Empire to
Britain would contain pre-Roman coins and in
the latter days coins of the barbarian Empires.
Hoards have shown the gradual debasement
and reform, the rise and fall, of currencies and
coins. They have shown the usurpers who
controlled portions of the Empire, and the
propaganda of the Emperors, the change in
religion (a number of later coins had the chi-
rho symbol of Christ on) and the change in the
economic fortunes of the Empire. In short the
simple act of hoarding savings has given an
overview of the whole of British-Roman his-
tory.
T HE S CHUMPETER
The Department of Economics would like to con-
gratulate Chuanzi Yang who is now in the second
year of Economics and Accountancy , and Magda-
lena Tzekova, who is now in the third year of her
Economics Programme for winning academic
prizes for the year 2008-2009. Magdalena scored
in the 90’s for seven out of her eight modules in the
academic year. Both students have made state-
ments.
As an international student, I came to London with
the resolve to take every possible chance to improve
myself in this new environment. I have enjoyed ex-
ploring the subjects of my joint degree, which ideally
combines a solid understanding of economics theory
and pragmatic approaches to accountancy and fi-
nancial studies. And I find that the resource and sup-
port provided by the Department of Economics quite
beneficial.
Chuanzi Yang
Second Year BSc Economics and Accountancy
__________________________
I think it is a very good idea to make students aware
that successful results bring benefit not only to the
students themselves but also enhance the status of
our university. Hard work pays back and everyone of
us would feel much more confident and prepared for
the challenges which will come up in both career
and private life in future. I would like to ask our col-
leagues to be more motivated and willing to achieve
high results, because taste of success is really sweet.
And last, but not least, I regard academic achieve-
ment as a way to thank all the lecturers for their
professionalism and devotion to us, the students.
Magdalena Tzekova
Third Year BSc Economics
Along with the Department of Economics, The
Schumpeter and the Economics Society would like
to with both Chuanzi and Magdalena the best of
luck in the remainder of their studies and in their
career aspirations.
FROM THE DEPARTMENT
Dr. Andy Denis, Director of Undergraduate
Studies in the Department of Economics has
recently published a paper about Joseph
Schumpeter, the great economist who Tim
Robinson decided to name this magazine af-
ter. In his paper; A Century of Methodological
Individualism Part 1: Schumpeter and Menger,
Dr. Denis speaks about the contributions to
Methodological Individualism (MI) from its
founding fathers, Joseph Schumpeter and Carl
Menger.
In the paper, Dr. Denis highlights the
misinterpretation of the phrase, MI, and at-
tempts to refine its true essence. By examin-
ing the primary literature; Schumpeter (1909)
and Menger (1985), as well as works that suc-
ceed these ideas; Schumpeter (1980) and
Heath (2009)—among others—the paper pro-
vides value judgments to the discussion and
asserts the underlying principal knowledge.
With further reference to his 2004 pa-
per, Dr Denis explores the ontological issues
at play: reductionism and holism and applies
these theories to the works of Schumpeter,
Menger as well as other economists.
We would like to encourage everyone to complete
the “ Your Voice student experience survey” as soon
as possible.
• A chance to give your feedback on your ex-
perience at City so far
• It’s important as it will help us to make im-
provements for you and for future City stu-
dents
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• The survey has been emailed to either your
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gave us when you enrolled
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you have the chance of winning £100 of
Amazon vouchers
News Summary
City University London enters the top 500 in
Times Higher Education QS World University
Rankings (City’s exact position cannot be revealed
due to QS’s agreements with media partners.)
Saints or sinners: the role of the media in the
financial crisis (forum held December 2, 2009).
Speakers: Gillian Tett (FT), Hugh Pym (BBC),
Larry Elliott (The Guardian), Prof. Charles Good-
hart (LSE), Alistair Milne (Cass) and Damian
Tambini (LSE).
Chaired by City Graduate School of Journalism’s
Prof. Steve Schifferes.
Words from the Editors
“With 2009 drawing to a close, I’d like to simply state
that I am immensely proud to be a part of the second
issue of the magazine’s second year of publication.
David and I are keen to make The Schumpeter a more
frequent staple within the walls of City University and
thus far, our plan has been flawless. We cannot give
enough praise to our contributing students for their
exceptional work and enthusiasm. Reading such thor-
oughly researched work makes me especially proud
to be a part of such a grand legion of students. Lastly,
I would like to give a very special ‘thank you’ to our
predecessor, Timothy Robinson, who has, along with
guiding us in our new roles as editors, found time in
his life after City to write for The Schumpeter. We
cannot thank you enough, Tim. All the best to you and
your future!”
Fahad Memon, co-Editor of The Schumpeter
“As the first semester draws to a close, I would like to
thank everyone who’s contributed to this edition and
made it what it is. It has been a stressful time of year ,
with all students having to meet coursework dead-
lines and revise for class tests. I hope everyone read-
ing this edition finds The Schumpeter truly informa-
tive and enlightening.
I would also like to ask more people to come forward
and submit articles and suitable art work, as Fahad
and I aim to make The Schumpeter Bigger and Better
next year.
In closing, I would like to wish you all a Merry Christ-
mas and a Blesséd New year!”
David Osborne, co-Editor of The Schumpeter
Any Comments/Contributions, contact: david.osborne.1@city.ac.uk or fahadmemon_73@hotmail.com
Cover by: Cora Schwendtke
Quotes
“God isn't compatible with machinery and sci-
entific medicine and universal happiness. You
must make your choice. Our civilization has
chosen machinery and medicine and happi-
ness.”
—Mustapha Mond, from Aldous Huxley’s
Brave New World.
"Government does not solve problems; it subsi-
dizes them."
—Ronald Wilson Reagan.
“Winning the World Cup would be the hat-trick
in a golden era for the UK following the Olym-
pics in 2012 and the Commonwealth Games in
2014.”
—Lord Sebastian Coe, chairman of the Lon-
don Organizing Committee for the Olympic
Games and committee member for Eng-
land’s 2018 World Cup bid.
“A nation that continues year after year to
spend more money on military defense than on
programs of social uplift is approaching spiri-
tual doom.”
—Martin Luther King, Jr., in his 1967 book,
The Trumpet of Conscience.
"In 2010, you should see a continued increase
in traffic levels. In 2011 you should see airlines
returning to profitability and in 2012 we expect
to see a demand for new airplanes."
—Randy Tinseth, Vice President of Market-
ing for Boeing, at the Dubai Airshow 2009,
to the Zawya Dow Jones News Service.
“There seems to be a minimum of 10,000
coins... they are known as nummi and were
common during the 4th century AD... it is likely
that the hoard represents a person or commu-
nities wealth, possibly as a payment for a har-
vest. Why it was not collected by the owner is a
mystery, but one that we can share and enjoy
1,700 years after the fact."
—Peter Reavill, of the Portable Antiquities
Scheme, upon Nick Davies’ find of one of the
largest stocks of Roman coins in Shropshire.