Economics Graduates

Economics has a poor reputation - 'the dismal science' it is sometimes called - and that makes those of us who practise it, dismal scientists - probably in both senses of the phrase.

But is that really true? Let's just look at some of the exciting people who have qualified with an Economics degree:

Firstly, there's Mick Jagger of the Rolling Stones, who grabbed his degree from the LSE. Then there's (gulp) Arnold Schwarzeneggar, action movie hero who went on to become Governor of California - the Governator.

Then there's BBC presenter and everyone's Blue Peter favourite Konnie Huq, who's a Cambridge graduate like our very own chief-exec, James Pitman.

Then there's Tiger Woods, possibly the world's greatest ever golfer, who graduated from Stanford. Scott Adams, the creator of Dilbert - the cartoon series is an economics graduate. Australian actress Cate Blanchett graduated from Melbourne University - and also actors Gene Kelly, Paul Newman and George Wendt ('Norm' in 'Cheers').

That's not a bad crew to be a member of!!

Cleaner Profits from Cleantech

Cleantech is a word you will start to hear more and more about. Although there may be some disagreements as to the causes, most people now accept that global warming is real and is going to get worse over the next ten years.

So what should you be investing in if you want to profit from this? Cleantech companies will provide the answer. There are four different categories emerging:

The first area is low-grid technology - the technology that helps households and businesses to reduce their energy usage. Every business in the country is now scrambling to appoint Carbon Reduction Officers or some such - and so contracts can be easily gained for things like environment-control systems software; demand-management lighting and so on. This may be considered the microeconomics of greenhouse gas reduction

The second area is in the macroeconomic sphere with governments arbitrarily plucking figures from the air and setting targets like a 25% reduction in greenhouse gases by 2020 (USA). This has led to a boom in big technologies like carbon sequestration (collecting CO2 emissions from factory chimneys and feeding them underground) and clean-coal technologies (the Chinese are big in this area.)

The third area is alternative energy sources - solar of course, fuel cells and perhaps biofuels (although that brings its own problems). Geo-thermal technologies are another and with EarthEnergy investing heavily in this in Cornwall, it could lead to a revival of that country's fortunes.

Finally, the fourth area is CO2 conversion therapies - filtering CO2 from the air and converting it into chemicals such as methanol that can be stored more easily and may have alternative uses, including fuel cells.

We used to say 'Where there's dirt there's money' in this country - but perhaps now we should change it to 'Clean technology provides clean money."

Children's Economics University

The Warsaw School of Economics, much more progressive than the LSE in the UK and rapidly developing a world-class reputation, has recently launched a Children's Economics University. It is aimed at gifted children in the 11-13 age range. They attend six lectures a term on a Saturday morning each term. The lectures are fun-filled with role-playing, economics games, quizzes and so on. The best student at the end of the course wins a laptop.

What a great idea for the United Nations group at Bellerbys to adopt. With so many gifted economists in the group, the students could run the lectures themselves and the 'Bellerbys School of Economics' could be open to local state school children who show potential in this area.

Let me know what you think!

Bio-Economists

There has long been a school of economists who describe themselves as Physical Economists and who seek to relate the principles of Physics to Economics. A simple example of this is their concept of kinetic money (money that is in circulation) and potential money (money stored in a bank).

But now, we seem to be developing a new branch of economists who might describe themselves as Bio-Economists. A research team from Imperial College interested in population control recently proposed that in competitive environments, evolution slowed down. They looked at rates of evolution amongst populations of birds to support this hypothesis. Sure enough, in environments where many different species of birds existed, each species found its own niche and was very reluctant to then evolve beyond that.

How similar this is to the concept of perfect competition in Economics. In theory, businesses are so busy competing, that they don't have time to innovate. A quick survey of any high street will demonstrate that once businesses have found their niche (kebab shops, estate agents, clothes shops, bookshops, coffee bars), virtually every high street begins to look the same and businesses do not innovate away from that. Is it the case then that we could expect more innovation from oligopolistic structures where there is non-price competition? A situation where businesses are able to bear risk as an economy of scale and seek to develop new product markets? It's an interesting thought.

I look forward to exploring more Bio-Economics with you in the future - is the Market a living organism? Discuss.

China's New Economic Head

China's new economic head is Wang Qishan. Zhou Xiaochuan will be keeping his job as Head of the Bank of China but will now presumably report to Mr Wang as China's central bank does not have independence from the Government.

Wang Qishan's key task will be the fight against inflation (now 8.3%) which he hopes to achieve without reducing economic growth by smoothing out 'bumps' in the supply-side of the economy.

Wang's reputation is impressive. He was number 2 to Zhu Rongji in the 1990s. Mr Zhu is still revered as the mastermind of China's economic miracle, rescuing an economy that was collapsing in 1994 with inflation at 27% following a period of rapid demand-side growth in the wake of the Tiananmen incident. Wang Qishan is also a popular former mayor of Beijing and a former governor of the Chinese Construction Bank, one of China's big four banks that specialises in large infrastructure projects. He also happens to be chairman of the organising committee for the Beijing Olympics - a very busy man!

Impotent Central Banks

The Central Banks of the OECD countries have clubbed together to inject trillions of dollars into the banking system once again because they are worried about the crisis of confidence the banks are showing in lending money to each other - an essential part of the 'liquidity' of the system - getting money to where it's needed most quickly - a form of allocative efficiency.

However, with so many banks and financial institutions carrying high-risk debt in a way that can hardly be described as transparent, everyone is being ultra-cautious.

But the central banks' action is very limited. They can't print new money (risk of inflation already too high), they can't buy back treasury bills or government stock in bulk (they'd have to pay way over the market value) so loans to banks are their only option.

It's unlikely the banks will jump with glee at taking on more debt.

The only real solution will be if the rich Arab nations or the sovereign wealth funds of China and Russia start investing in the west - which brings us back to yesterdays' posting!!

Islamic Finance May Save the World

All economics students will know by now that the credit crunch in the US last summer has created a great meltdown in the world's financial markets - a meltdown caused by too much easy credit being issued at high interest rates and then that debt being packaged and repackaged by various financial instruments and sold from bank-to-bank at increasing profit margins around the western world - a house of international finance built on spreading quicksand.

It's the USA that has suffered the most, although other countries have also suffered such as the UK with the Northern Rock disaster. Observing the economic wreckage of the US, many countries have taken steps to protect themselves from a crashing dollar - not the least of which are the Arabic oil nations who met in Bahrain in February, reaching the decision to sell more of their oil for more stable Euros.

The Arab oil nations have come out of the situation in the best possible light. Firstly, oil prices continue to rise as demand increases and supply remains fixed (now $107 a barrel) so their coffers are full. In fact, they have about one trillion dollars to play with (that's twelve zeros). Also, Islamic law has prevented the sovereign wealth funds of the Arabian peninsula from investing in the kinds of financial chicanery that the western world indulges in. The concept of sukuk says that investment must be transparent (roads, railways, products etc) and therefore hedge funds, equity houses and so on find it very difficult to attract money from the gulf. In addition, by the way, the concept of haram prevents Islamic firms from investing in alcohol, tobacco, arms trading, pornography and gambling - which can also be applied to hedge funds. Islamic funds can only invest in things that provide social benefit.

The concepts of mudaraba and musharaka promote the idea of investment leading to mutual ownership and cooperation. So, an Islamic bank will invest in a business in order to gain a share of that business rather than taking interest on a loan. Also, Islamic investment is more concerned with functionality than strict profit-and-loss in a financial sense. So, an Islamic company would see nothing strange in building a college in order for a British educational company to come and use it to educate the citizens in their country. Money is seen only as a tool to an end, not an end in itself.

And now, the big investment funds such as DIC in Dubai are looking for such investments in the west - such an influx of money may provide the stability that the world economy needs in order to see it through the current crisis.