Following the political shift to protectionism and nationalism, globalization has taken a toll on its seemingly unstoppable growth. In the past two years, parliamentary changes in developed economies (most notably the United States and the United Kingdom) have created a sense of withdrawal from certain affairs. These strategic movements are not only based on political motives, but also relying upon economic rationales. Deglobalization, as our editor Omar Osman termed it, no longer seems like a myth, but now an astounding reality. To regain the status of being an economic (and political) powerhouse, China is making its inroads to revitalize its position as the most wealthy kingdom of the world, the status that the Chinese people have achieved in the past. This time, Beijing hopes to recreate what carried them there: the Silk Road. The past success of the Silk Road, on multiple occasions, have made them aware of the economic benefits of building a common platform for commercial trading. Now, the Chinese Government attempts to strengthen their capabilities by creating a similar platform, albeit this time by railways. As written in history…. The Silk Road, as you might have inferred, traced back to the days that the most popular trading items were silk-made products. Although it was initially used for military scouting, its main purposes proved to be largely unsuccessful. However, its related records and writings about the route, especially on potential commerciality, encouraged many Chinese entrepreneurs at the time to depart from their hometown and looked for new potential customers and markets. Their skilled handcrafting techniques on silk products were so impressive that at one time, their customers were willing to barter an equivalence in weight for gold and silk products. As suggested by historical records, their reputation for well-developed expertise on silk products echoed as far as the Persian and the Roman Empire to the West. Different monarchies had been largely impactful to the development of the Silk Road. After the collapse of Han Dynasty in 220, the Silk Road became inactive. It was later resurged again thanks to the emergence of the Tang Dynasty in the 7th century, where the monarchy conquered the western region of modern-day China and reopened its doors to the outside world for trading. Not only economic benefits were shared amongst traders, but cultural elements and religions were also exchanged. This period also witnessed the first adoption of maritime Silk Road, where maritime presences of China could be seen all over Eurasia territories. It remained operating for 300 years before the fall of the Tang Dynasty. During this time, Persian businessmen slowly mastered the Chinese handcrafting techniques, thereby creating their own silk exports to the (Eastern) Roman Empire without having to transact via China. The rise of Mongol Empire in the 13th century encouraged another revival of the Silk Road, but its fragmentation of the kingdom only decades later concluded the trading flows between European and Asian continent until the colonial times. The Iron Silk Road In order to promote transnational corporations following the Second World War, the United Nations decided to initiate an intercontinental project that was expected to boost international cooperation between Eurasian countries. The Trans-Asian Highway was firstly studied to create a railway connection between Singapore and Turkey, but further proposals also suggested the potential extension of the railways to continental Europe and Africa. However, the project was permanently postponed due to conflicting political interests between countries during the entire Cold War period. The discussion for the continuation of the project resumed in late 20th century but only minimal progress was made. The breakthrough came in as formal agreements were agreed between 24 Asian countries in 2006, with China at the forefront. The reluctance from investing in railways of other Asian countries (either in terms of railway expansion or quality upgrade) has allowed China to be the pioneering agent of this agreement. Reports showed that China successfully built 5,000 miles of high-speed railways in 2012 in the mainland and is en route to expand it by 6 times by the end of this decade. To put this in perspective, the coverage of Chinese domestic high-speed railways in 2020 will be more than the rest of the world, combined. However, their external and outreach influence to other regions is probably what the Chinese authorities is currently wishing for. In the promise of their commitment to the international agreement, they are also actively involved in the financial investment of multiple Eurasian railway projects. In recent years, China has been far more prominent in bidding for the right of ownership to build these intercontinental routes, with some assistance offered by Turkey as well. Of course, by establishing their existence on these projects, China is going to gain more control over the region. However, little do we know what the implications are of this strategy. For a start, it is important to know that China is currently sharing borders (if Tibet is also taken into account) with other 17 countries, most globally. By effectively exposing themselves to these countries, China will have at least a say (and currently is) on trading and other political issues. Building railways connecting them with other new markets, such as landlocked countries in South/Southeastern Asia gets them to surmounted market control. Yet the benefits do not stop there, and the Chinese authorities understand that. If you managed to look into some Asian history, you would see that the fight for natural resources has been occasionally highlighted. Building extended railways would basically be equivalent to more access for natural oil and gas along the Central Asian countries, of course, for freighting purpose. As European consumers are the end-consumers of gas and oil (and obviously the demand is insane), it should come to no surprise that the Chinese businesses would be the direct beneficiaries of its central policies. The new Iron Silk Road, however, featured a significant difference with the commercial trading route that was used centuries ago. This time, China wanted to build railways that traverse through territories of Russia, which includes routes passing through Moscow and St. Petersburg. The incremental steps to the northern direction have sent a clear signal to Russia that China is willing to shake hands with Russia for mutual interests. While China currently holds the upper hand in terms of economic strength, Russia has always kept its Western foes stay alerted. This strategic alignment between Russia and China, with its potential in terms of natural resources ownership, will change the landscape of future global affairs – mounting even more pressure on a disintegrating European Union and a crumbling United States. Since the breakout of the global financial crisis, China has gradually become the most important geopolitical partner as its consequences have been remarkably less compared to developed economies. As such, the domestic government has been actively looking for alternatives to continue improving the standards of living of the people. It might portray themselves as a self-functioning domestic market, but the sole production of domestic goods will not satisfy the unrelenting ambitions of China. Therefore, their establishment in other territories is detrimental to its long-term strategy of economic sustainability. To maintain political instability, Beijing must continue its “harmonious society” strategy within mainland Chinese communities, which is possible by means of economic prosperity. There’s no doubt that the development of the Iron Silk Road will serve wonderfully in their favour to be both politically stable and economically powerful in the long run.

Most people do like watching reality shows, contests and singing competitions. Watching Eurovision is another way to enjoy your evening. Eurovision is a singing competition, where each participating country sends one performer to represent themselves. The songs are brand new, meaning that they have been written just for the contest. Although it seems very simple, recently, Eurovision has caused a new political scandal. This year, Eurovision will be held in Kiev, Ukraine, as the singer representing Ukraine, Jamala, has won last year’s completion. She won with the song called 1944, about the Joseph Stalin’s mass deportation of Crimean Tatars during World War Two. Her winning has caused a lot of controversial opinions among Russian viewers and the media. Some stated that the win was a political move from the organizers of the competition. Some even claimed that Ukraine has paid to win the contest. Although only a month later this situation was forgotten, the Russian-Ukrainian scandal surrounding Eurovision recently became quite a hot topic in world news. The issue that caused the scandal was Ukraine banning Russian contestant Julia Samoylova from entering the territory of Ukraine for three years, meaning, she will not be able to participate in the contest. Not going deep into why and how this happened, one might think that Ukraine made a bad move, has no right to do so, and is just scared that Julia will win Eurovision this year, as it is said in some media. However, the whole issue between the countries and the Russian contestant herself is far more interesting than that. First of all, let’s look at the reasons why Julia Samoylova is not allowed to enter Ukraine. As you may know, three years ago the territory of Crimea was annexed by Russia. Most countries still do not accept that, and one of the Ukrainian laws states that a person can enter Crimea only through the territory of Ukraine, otherwise, they are banned from entering the country. Julia Samoylova indeed “illegally” entered Crimea from Russian territory, when she had a singing tour. So, she broke that law, which is the reason for the ban. Next, the discussion between the countries and reaction of Russia as well is an interesting thing to have a look at. Obviously, Ukraine’s decision was not liked by Russia. The foreign minister called this ban inhumane and outrageous, especially when the topic of this year’s contests is “Celebrate Diversity,” and Julia Samoylova uses a wheelchair. Moreover, one of the members of Russian parliament is demanding that the contest is moved to another country, while another one claimed that Russia will boycott the contest. The European Broadcasting Union, who are the organizers of the Eurovision contest, are doing their best in resolving this situation. Unfortunately, as they stated themselves, the local laws of the host country should be respected and followed, so nothing can be done as Julia indeed broke them. However, they are continuing the dialogue with Ukraine in order to make sure that all participants, including Julia, can participate. One of the suggestions they made was that Julia would perform live in Russia and that would be broadcasted by the satellite. This decision was not supported by the Russian side. Now, the EBU is trying to persuade Ukraine on letting Julia enter the country and perform. They also stated that if a solution is not found, the future of Ukraine participating in the contest will be under question. Another interesting detail of the decision of the participant from Russia is that Julia was chosen through an “internal process” whereas all the years before it was decided upon by national votes. In addition to this, her candidature never occurred when the Eurovision 2017 was discussed. I personally saw several contestants, and Julia was not among them, on the internet who were said to be competing for the right to represent Russia this year. Moreover, she was announced as a representative for the country just one day before the deadline, meaning that there is no option of changing the contestant. Some of the media sources also found the choice of the contestant weird for Russia, as usually, huge stars represent the country; whereas Julia is not a famous figure in the Russian show-business. Some people support the fact that Julia has been chosen expressively in order to heat up the tension between the countries, as it was known to Russia that she would be mostly likely banned from entering the territory of Ukraine. Even if this seems a bit crazy, the Russian media definitely is one of the proofs of this theory. In Russian media, nothing is said about Julia breaking Ukrainian law, and the situation is presented as Ukraine not letting her to the country just because. Others think that it’s Ukraine’s fault and there are no reasons not to let Julia Samoylova perform in Kiev. The media and the people themselves are divided into two opposite opinions: Ones who support Julia and Russia, and ones who think that it was a correct decision to ban the singer. If you ask my opinion, I do think that Julia just became a figure in the hands of politicians, which is not, in any case, a decent behavior. Another thing I do not understand is why EBU wants to ban Ukraine from participating in future contests when the country is simply following the laws; which was again supported by the EBU itself. The Eurovision contest has always been a fun thing to watch in the evening, open some new artists and some easy fun songs. Moreover, it was the show with no drama involved, which is so rare for modern television. Unfortunately, nowadays, a lot of simple things get involved in politics and Eurovision is not an exception. Of course, you could see some politics before with the way the votes from the countries were given to each other, but it was a tiny little thing that did not cause any controversy when now it is clearly a new field for politicians. The saddest and the most striking thing for me is that only in certain countries, like Russia and Ukraine, this contest is taken with such seriousness. Still, for most people, it is just an enjoyable show with no political background involved, and I hope that it will become that way again.

Leila de Lima is a senator from the Philippines, the former Secretary of the Department of Justice, and a human rights activist. In late February, she was arrested by the Filipino police for alleged involvement in drug trafficking. Coincidentally, she is also one of the fiercest opponents of the president of the Philippines, Rodrigo Duterte, and his infamous war on drugs. De Lima has denied the allegations repeatedly and continues her vocal criticism while being detained. But the story of her arrest is part of a broader tale of legislative upheavals and vigilantes, whose main character is the populist president of the Philippines, Duterte. Long before assuming office in June 2016, he already had his fair share of controversies. During his 22 years as the mayor of Davao City, a populous Filipino metropolis with a history of political unrest, Duterte was known as “the Punisher” for advocating the extrajudicial killing of drug users and criminals. Davao City is home to the notorious “Davao Death Squad”, allegedly responsible for the killing of more than a thousand people between 1998 and 2008. Duterte had made some attempts to disassociate himself with the group, although he himself admitted on several occasions to be involved in the killing of at least three individuals. A substantial part of his ticket to the presidency was his vigilante-murderous attitude towards crime and punishment, “Duterte Harry” if you will. Before he won the election, Duterte had promised to end crime in the country in six months. As the new president, he embarked on a campaign to eliminate the drug trade in the Philippines. “Embarked on a campaign” are somewhat subtle words when Duterte used a more crude description, saying that he wanted to do to Filipino drug addicts what Hitler had done to the Jews. Beside his colourful remarks, he also promised an ambitious infrastructure renewal plan and further economic growth for the country. In fact, the Philippines is doing quite well economically. In the past years, unemployment has been falling steadily, and foreign direct investment has been growing, although Duterte’s actions and remarks scare off some investors. Generally speaking, the country is known to benefit from globalization. Duterte’s drug policy is more pragmatic in that sense: targeting the drug trade is easier to comprehend than addressing vague macroeconomic issues. As promised, Duterte gave the police a free hand to kill suspected drug dealers and users. According to The Economist, as of early March 2017, Duterte’s campaign has killed about 7,000 people allegedly involved in the drug trade and arrested many more. They were killed by the police, vigilantes and business rivals; obviously, drug cartels are happy to exploit the easy hand on the trigger in their mission to eliminate potential informants and competition. Many citizens support the crackdown, others are terrified, and rightly so. The crackdown on the Filipino drug trade has deeper consequences, some of which are expected to linger. The drug trade is a black market, and like any other market, it thrives on demand and supply. Since the 1970’s, economists have had a growing interest in the analysis of crime using an economic framework. Nobel Prize-winning economist Gary Becker was the herald of such analysis: in his seminal paper Crime and Punishment: An Economic Approach (1968) he discussed the “optimal amount of enforcement” for combating crime. The optimal amount is the one which minimizes social losses, that is the costs of damages, conviction and punishment. In the realm of crime, the drug trade is a fascinating case, economically speaking: the main policy objectives are to reduce the number of drug users and the crime that follows drug use. Drug dealers are not necessarily the main target of enforcement, as opposed to robbers or murderers, and like other forms of crime, it is considered impossible to eliminate the phenomenon completely. Becker and other economists have strongly opposed the famous American “War on Drugs”, a set of anti-drug enforcement policies originating in the office of President Richard Nixon. In this war, there were evidently no real victories; and for Becker and his peers, the reason for that was simple: heavy punishment is not effective when attempting to reduce drug usage and distribution. Repression might create vacuums in supply or change the practices of trading, but only temporarily. Addicts find it harder to fight their addiction by seeking help because they fear arrests and convictions. Decriminalization or legalization combined with a tax on the consumption of drugs, economists claim, is better than punishing, and the revenues from such taxes could be used in more educational anti-drugs programs. Drug policy experts have noted that drug trade indicates pressing social problems such as unemployment and lack of access to healthcare. In many cases, the drug trade is a symptom of poverty, not its cause. But back to Duterte and his own war on drugs: the president estimated the number of vaguely-defined “drug addicts” in the country to be around 3.7 million, while other estimates claim the number to be much smaller, around 1.6 million regular users (the Philippines’ population is more than 100 million). The country itself is not considered to be a major player in the global drug trade, however; it has a strategic location in the course of global trafficking. A war on drugs could seem acceptable in the eyes of the Filipino public but, as mentioned, repression and zero-tolerance are doomed to fail on a societal scale. Aggressive policies may temporarily affect the margins of Filipino suppliers and users, but not in the long run. Remember, this is not the first aggressively executed anti-drug war: it has been tried in the US, in Latin America, and in other Asian countries. Everywhere, the market only partly diminished or not at all, and when extrajudicial violence was extreme, the situation got even worse. Such violence shakes the very core of the democratic institutions in the country, its stability and its ability the fight corruption. Duterte’s actions have underlying political motives such as the ability to pin down possible political rivals on account of alleged involvement in the drug trade. Just ask senator de Lima. And yet, there is something tempting about a vigilante policy against criminals. Popular culture teaches us to adore these brutal enforcers of the law who fear no one. In the long run, and beyond fantasy-land, such policies have devastating economic and social implications. They form a distraction from the actual causes of poverty, they deter development assistance, and quite importantly (though not as outspoken as other reasons): such policies are incredibly immoral. The Philippines has a growing economy with a potentially bright future. In order to attract subsequent foreign investors, the Filipino government could attend to the red tape problem it is suffering from, that is the massive web of regulations deterring citizens from buying a piece of land or starting a business. Further violence is not only impractical in eradicating drug trade, it also has devastating consequences for the rule of law and for Filipino democracy.

2016 was in many respects a happy year for me. Two of my favorite economists, Bengt Holmström and Oliver Hart, won the Nobel Prize “for their contributions to contract theory.” Perhaps even better: My girlfriend, who is a civil servant, earned a bonus the size of a monthly salary. While we were celebrating all this over a dinner at a Michelin star restaurant, my thoughts drifted away and I could not help wondering: why exactly did my girlfriend get a bonus? So, I asked her: “What did you do to earn the bonus?” Guess what she said: “Nothing special.” I paused. Perhaps she was just being modest. “What do you mean, nothing special?” “I mean I did my best and all, but there was not a particular achievement that resulted in the bonus. This is all at the discretion of my boss.” I almost choked on the 40-day-old fillet of ruby-red beef cooked over coals. Why would her boss (1) have the discretion to award bonuses, and (2) why award one at all if the main criterion appears to be as vague as ‘doing one’s best’? Another question popped up: “Is there any limit to the bonus?” “Yes. It is at most a monthly salary.” The smoked bone marrow started to taste funny. Was she teasing me? Everything my girlfriend was saying was completely in conflict with standard contract theory. How to make sense of this? I took a sip of my red wine, a 2010 Brunello di Montalcino Podere Santa Maria. Standard contract theory relies on a model with a principal and an agent. The principal cannot observe how much effort the agent puts into her job, but he can observe the agent’s output. The principal’s payoffs depend on the agent’s output. This principal-agent model seems a good analogy of the relation between a farmer and a fruit picker. The farmer sends the fruit picker into his apple orchard. The farmer has other obligations, so he cannot stand behind the fruit picker to observe whether she actually picks fruit. However, at the end of the day, he can observe how many apples the fruit picker has harvested. He benefits from this because he can sell the apples on the market. The key question in contract theory is: How can the principal write a contract with the agent to ensure that the agent’s interests are aligned with his? A fixed salary won’t do the job. The agent wouldn’t exert as much effort as the principal would like because effort is costly for the agent. A fruit picker would spend most of the day at the apple farm lying in the sun chatting with the other fruit pickers. It turns out that the optimal contract pays the agent an amount for each unit of output equal to the marginal benefit for the principal. That is, for every apple that the fruit picker harvests, she should get the price at which the principal sells the apple in the market. In other words, it is optimal for the principal ‘to sell the firm to the agent.’ But how could this be optimal for the principal? The contract forces him to pay every cent that he earns to the agent! Well, the principal earns money because the agent has to pay the principal to work for him. The contract is optimal because the agent obtains the exact amount of incentive to optimally trade off the benefits of the principal (output sold in the market) and her own effort costs. In other words, the contract maximizes the size of the pie. The principal then gets a share of the pie because the agent pays him a nice amount for the right to work for him. Such contracts are not only of theoretical interest: Think about taxi drivers that pay a lump sum to a taxi company while keeping the money earned from transporting passengers. The Mugwort panna cotta with blowtorched berries, whipped cream, roasted peach ice cream, and honeycomb was served. I asked my girlfriend a couple of other questions. “How would you define your ‘output’?” “That is hard to tell. In the end, some of my policy proposals become part of government legislation.” “Any idea what your past year’s output was worth?” “I helped draft a policy proposal that is estimated to save society hundreds of millions of euros.” “So, why was your bonus not in the order of hundreds of millions of euros?” “Ha! You’re hinting at the ‘selling-the-firm-to-the-agent’ result from standard contract theory.” My girlfriend is an economist, too. “Yes.” “Well, first of all, I’m risk averse. Standard contract theory would require me to pay the government quite a lot of money. If I can get a bonus of hundreds of millions of euros, I would have to pay an amount in the same order of magnitude. I find that a bit risky: What if my policy proposal was not implemented in the end? The government would have to compensate me with a substantial risk premium for me to be willing to accept such a contract.” Wait a minute, this line of reasoning is exactly one of the main contributions to contract theory by the 2016 Nobel Prize laureates. In fact, my girlfriend appears to know their work quite well. “What’s more, in my job it is not so clear what my individual contribution is to government policy, at least for an outsider.” “So, your boss can tell?” “To some extent, yes.” “Fine. But why would he award you a bonus then?” “Both my boss and I know that I performed well. If he does not pay me the bonus, I won’t do my best next year. So, we both have a reason to stick to the implicit contract, even though it cannot be enforced by the courts.” “But why is the bonus limited to a monthly salary?” “If it was any higher, my boss would have too great an incentive not to pay it. Remember that, according to my actual contract, he does not have to pay me a bonus. He would rather save the money for the bonus than see me work hard in the future. So, the implicit contract would no longer be credible.” We drank a cup of jasmine pearl tea and went home with the satisfactory feeling that the Nobel Prize had been quite deservedly awarded to Bengt Holmström and Oliver Hart for their contributions to contract theory.

On the 20th January of 2017, it was the inauguration day of the 45th president of the United States: Donald John Trump. Many economists argued that the election of the American businessman would lead to geopolitical time bombs between the U.S. and other large open economies. One of the main objectives of the Trump administration is the implementation of a protectionistic U.S. economy. A large wall along the border of Mexico, open threats of trashing German car companies with import tariffs of 35 percent, and the accusation of China that they are manipulating the dollar exchange rate of their domestic currency: the Renminbi. ‘We Will Make America Great Again’, right? The main question that will be answered in this article is: where does the latter accusation come from? First, everyone who is reading this article should reach for a piece of clothing in their closet and look at the clothing label. Does the label say: ‘Made in China’? There is a high chance that this will be the case. According to the World Bank, China has the largest export economy in the world with an export level of over $2.2 trillion. If we normalize the export levels of China as a percentage of GDP and compare it with the United States (22,1 vs 12,6), we can come to the conclusion that China is more of a ‘trading nation’ than the U.S. This is mainly driven by the sale of goods and services in industries that are related to electronics (think about that Huawei phone or Lenovo laptop you just bought this year). Additionally, the United States has a trade deficit with China which means the U.S. imports of goods and services from China are higher than the level of exports to China. Consequently, China sells a lot of goods and services to U.S. firms and consumers. Chinese exporters in return receive dollars but can’t do anything with this foreign currency. Managers of Chinese firms have to pay their employees’ wages, buy raw goods to manufacture and remain a profit to pay out as a dividend to shareholders all in their local currency the Renminbi. Demand for Renminbi and the Supply of Dollars increases when Chinese exporters sell goods to the U.S. This will lead to a depreciation of the Dollar and an appreciation of the Renminbi. Indeed,  one of the main concerns for a trade-dependent country like China is battling exchange-rate risk. This kind of risk occurs when the value of an investment will increase or decrease due to a change in the exchange rate of 2 currencies. In our case, the value of Chinese goods will be more expensive for the U.S. when the value of the USD depreciates against the CNY (Chinese Yuan Renminbi). If for example the exchange rate USD/CNY is 2/1 this means that for every CNY American importers have to ‘give up’ 2 USD. If this ratio changes to 3/1, because for example an increase in both the supply of dollars and demand for Renminbi, this will be disadvantageous for both China and the U.S. For the American consumers because they have to exchange more USD for CNY, and thus effectively Chinese products become more expensive for them. Appreciation of the Renminbi against the Dollar will, in this case, lead to costlier Chinese exports and higher unemployment in China due to losing export business. China will subsequently risk its position as a trading nation if it doesn’t find a way to actively intervene in the Foreign Exchange Market. As a result, China has an incentive to ‘manipulate’ the USD/CNY exchange rate. In order for China to maintain their export-led growth, they have to reverse the effect of the appreciation of the Renminbi against the dollar. The Central Bank of China (People’s Bank of China) has various policy instruments to achieve the goals of their chosen monetary policy.  An example of active intervention that is used by the PBOC is a non-sterilized intervention. The Central Bank of China has the power that it can print Renminbi without any limitations. The PBOC buys excess U.S. dollars from Chinese exporters and give them the newly printed Renminbi. This will lead to scarcity of U.S dollars, increases the supply of Renminbi which eventually will lead to a depreciation of the Renminbi and decreases the USD/CNY exchange rate. This is done until it will return to a (fixed) exchange rate of 2/1 before the non-sterilized intervention of the PBOC. The PBOC now has pilling amounts of U.S. Dollars in its foreign exchange reserves, seeking to make a return on these reserves the PBOC looks for a dollar denominated low risk security to invest in: U.S. Government Bonds. Like loyalty, the purchase of US treasury bills by China is a two-way street. PBOC buys billions of dollars’ worth of US debt as a riskless investment with the excess dollars bought from Chinese exporters. With the purchase of U.S. debt China essentially lends money to the U.S. so they can keep buying Chinese products. On the other hand, by accumulating U.S. debt, China drives the price of Treasury Bills up, and is consequently keeping U.S. interest rates low, which is part of the expansive fiscal policy of Trump. With this in mind, we can use a subset of Industrial Organization to analyse the strategic interaction between 2 or more economic agents: Game Theory. In Game theory, the goal of every economic agent is to choose its best response given the response of the other party. In our case, we have a two stage dynamic game where the two economic agents are Donald Trump and the PBOC. We assume all economic actors are rational by choosing the strategy which maximizes their profits. The agents interact in the following way: Trump firstly picks its foreign policy by choosing between a protectionistic or a free trade approach. A free trade approach consists of keeping everything the way it is: the U.S. still keeps issuing government bonds to finance its federal deficit and takes for granted the fact that a lot of American firms outsource jobs to China because of low wages (profit of U.S and China are 70 vs 100). In a protectionistic approach, Trump will send a lot of negative tweets which says the U.S. wants to decrease its trade deficit and puts pressure on China to stop buying excess dollars from Chinese exporters. Subsequently, the PBOC observes the foreign policy of Trump and decides which action it will take. After the protectionistic approach, The PBOC can either choose for the offensive strategy ‘fire sale’ where it will sell all of its accumulated U.S. debt which will decrease the price of treasury bills and increase the U.S. interest rate. This will also affect China because it will lose one of its main trading partners by throwing it into a deep recession (profits for both countries are 0). On the other hand, it could choose to follow a defensive strategy. China will keep accumulating U.S. debt and chooses to keep the same exchange rate regime initiated by the PBOC. This will cool off the relationship between the 2 countries, lead to more uncertainty and has a negative effect on trade (profits for both China and America will decrease to 50). We can solve this dynamic game by the means of backward induction to find the subgame perfect Nash equilibrium. We first look at the final stage where China will choose a strategy, knowing Trump chose a protectionistic approach. It can choose between an offensive strategy or a defensive strategy. In this subgame, China will choose a defensive strategy because its profits are higher than if they would choose an offensive strategy (50 vs 0). After solving the first subgame we turn to the second subgame. The choice of Trump between a protectionistic and a free trade economy, knowing China will choose a defensive strategy if Trump chooses a protectionistic strategy. Trump should be a rational economic agent and choose to follow a free trade strategy (70 vs 50 profit). So in the subgame perfect Nash equilibrium, the U.S. chooses a free trade policy, and China chooses a defensive strategy (profits for China and U.S. respectively are 100 vs 70). However, there is a downside of using Game Theory in analysing strategic interaction in the U.S. government bond market. One of the main disadvantages goes back to a basic assumption used in economic theory: the assumption that economic agents are rational and choose the strategy that maximizes their utility. Is Trump really an individual who can be seen as rational, or will he choose a strategy that will throw both China and the U.S. in a deep recession just to keep his credibility towards his loyal voters?

As a real morning person, getting up early is usually not a problem at all. When my alarm clock rings, I need about half an hour to take a shower, get dressed, and have breakfast. I love to cycle to work or university when Amsterdam is awaking, and the sun has just risen. The easy feeling of the morning provides me with some good energy for the rest of the day. It was only this week that I found myself in trouble during my favourite moment of the day. I could not get out of bed as easily as usual, and my days actually started pretty late and a bit more stressfully. At first I thought this was due to the exams, and that my resistance to get up was a sort of manner to avoid the fact that I really had to study hard. Although that might be part of the reason, it was not the main cause of my behaviour. While cycling to work this morning, I realized that it was still dark outside when I had to leave the house, and that it was exactly this slight difference that changed my mood completely. There are many people with me that face similar difficulties when the Daylight Saving Time (DST), or – as we call it in Dutch – summertime is set. The 26th of March the clock was forwarded an hour, something that happens every spring. This practice of adjusting time was introduced in 1916 by the German Empire and Austria-Hungary, and has been implemented in many countries ever since. The motivation behind the DST was to reduce electricity and heating costs that were made during the dark hours in the evening, and to stimulate economic activity in the late afternoon. However, opponents of summertime argue that this ‘moving of time’ leads to physical and mental problems and is not saving us any money at all. What exactly is this DST, and why was it implemented? Should we keep adjusting time, or does it not make sense anymore? Although Daylight Saving Time was only countrywide introduced on April 30, 1916, one of America’s founding fathers, Benjamin Franklin, already wrote an essay on the matter in 1784. In this paper, ‘An Economical Project for Diminishing the Cost of Light’, Franklin proposed to introduce the shift of an hour, so that the people in Paris could make an optimal use of the natural light instead of getting out of bed earlier. Franklin jokingly said that it would save the Parisians a lot of candles and therefore costs. Franklin’s proposal was not very serious, but his idea was heard, and he inspired many people to actually implement DST. Hence, around 70 countries adjust their time schedule every March/April, and set back the time in November. After the oil crisis in 1973, a lot of European countries had to save money and energy, and the extra hour of light during the summer was a proper way to do so. Daylight Saving Time is thus the adjusting of time in order to create a better fit between our daily schedule and the daylight. Since our daily schedules are based on particular time slots – school starts at 8.30AM, working is from 9AM to 5PM, etc. – this is a logical way to ensure this better fit. So what we actually do while using DST is adjusting our time schedule instead of our actual daily schedule. That’s pretty strange, right? Summertime effects The motivation behind the time policy is of course the already named saving of costs and stimulation of economic activity. One of the first questions that comes to mind is whether we are really saving energy and light costs, since people now wake up in the dark and put on their lights in the morning instead of during the evening. However, the stimulation of economic activity does seem to make sense. Especially in the hospitality industry, the long summer nights increase revenues, although for agriculture nothing changes in terms of revenues, because nature does obviously not respond to our artificial time schedule. Most people simply enjoy the length of summer nights, when the sun sets after 10PM, and love to go out for dinner or to have a drink, but the actual increase in economic activity turns out to be lower than expected. Research by the JPMorgan Chase Institute shows that there is indeed a slight increase in spending after the beginning of DST in spring, but that the drop in spending at the end of DST in November is significantly larger. So the DST does not stimulate economic activity as much as it discourages people to spend when the time is set back in November. Furthermore, David T. Wagner  and Christopher M. Barnes argue that DST has some other drawbacks, and that it even hurts the economy. Wagner and Barnes state that our body clock does not adjust to the rescheduling of time and that this leads to inefficiency at office. They found that “workers tend to “cyberloaf” – that is, they use their computers and internet access to engage in activities that are not related to work – at a substantially higher rate on the Monday following the shift to daylight saving time than on other Mondays.”  They estimate that this inefficiency has a cost of $434 million a year (!). So while we are maybe saving costs on energy and lighting, we are making unnecessary costs due to the inability of our body clock to rearrange that easily. Apart from the economic effects of the time shift, our mental health is influenced by the time shift as well. The DST is a shift of an hour, so how big can effects on our mental health be? Well, at the end of DST, the Winter Blues is a widespread phenomenon that is caused by the sudden change in light hours every day. And during the DST, as the study “Transition to daylight saving time reduces sleep duration plus sleep efficiency of the deprived sleep” shows, people tend to miss an hour of sleep every night, which in turn leads to inefficiency, exhaustion, and even a spike in heart attacks. Taken all of this into consideration, I really wonder why we are still playing with time every year. It has been shown that ‘summertime’ has some great disadvantages that overshadow the advantages. It costs us more than it saves us, so maybe we should stick to either ‘summer’-  or ‘wintertime’. Maybe we’ll have to try it out for one year, to see if people are indeed more productive without the sudden time shift. But for the time being, I think I just have to get used to the extra dark hour in the morning, or have to find a job where I do not have to begin that early: that will solve the problem either way.

Hi, I am Atma Jyoti, the newest addition to the wonderful team of Rostra. This article is in trying to connect the dots between Sherlock, con artists and economists. Before we jump in, a few words on Sherlock and Patrick Jane. We all know Sherlock. But Patrick Jane, for those who don’t know, is a con artist who observes people and makes “psychic readings” about them. The show is called “The Mentalist”, I highly recommend it. Ranging from body language to subconscious mind control, it’s all very exciting. I am personally amazed by body language. Our bodies “leak” our emotions. A very popular non-verbal gesture is the arms cross. It usually means that the person doing it is defensive; he’s creating a barrier. Only 7% of a conversation is words and the rest is body language. Let that sink in. Now uncross your arms, please. Wouldn’t it be amazing if economics had these aspects to it as well? Instead of just solving equations and deriving solutions, maybe we should toy around with the aspect of some non-verbal, non-analytical and non-number-crunching-mind-numbing economics. Oh wait, I just realized, all these things is what economics is about. It’s about us. How we think,and how we are raised. It can range from how often you listened to bedtime stories, to the number of savings accounts you have in different banks. Interested in motivational speakers? That’s economics. Society’s stigmas affecting your decision? That’s economics. Confused between spicy wings and crispy strips at KFC? That’s me. I am going to argue that what we are studying isn’t economics, it’s just maths. Might as well study physics, pretty much the same thing. Now uncross your mental arms, I have very good reasons for all that I said. Firstly, I ask you to consider this. Beginning with Adam Smith’s phenomenal book, economics was viewed as a theoretical subject. There was a lot of speculation and debate; one might find it philosophical to have so many arguments. Politics was a major part of this new discipline, “political economy” was the original term that was used. Yet, a lot of economics assumed many things about us humans, the very subjects of the subject. “They are rational”, “They maximize profits”, “They have a defined set of preferences”, so on and so forth. But, how much of neo-classical economics focuses on humans? There is little not to mention of psychology in our discourses. Maybe we should think about how people think. Secondly, where do we get all these numbers and functions from? “The utility function is U = x + y”. Have you ever wondered why one unit of x and one unit of y provides that much utility? What factors influence the person to buy one x and one y, and how can we be so numerically sure of an abstract concept such as utility? This begs for another look at human psychology, and the way it impacts our decisions. Now, there’s a certain difference between going all Sigmund Freud and understanding the impact of psychology in economics, which can be termed as behavioral economics.  Self-esteem issues and distressed romance are not our forte, fortunately, though I could do with some counselling about that. We’re looking at why do people think the way they do, and the decisions thereof. Whereas behavioral economics relates to more of economic decisions, we’re also considering socio-economic implications of psychology. The World Bank Report, Mind, Society and Behavior (2015) says there are three ways in which people think: automatically, deliberatively and socially. Let us look at this through something we do every day: eating. Thinking automatically is when you are hungry, you will eat. Deliberative thinking is choosing between buying food or cooking it yourself. Finally, you might be a vegan, so you won’t buy any meat products for lunch, that’s social thinking in action. Each of these steps results in a economic residue. Eating has an opportunity cost in terms of time, and not buying meat means less revenue for meat suppliers. These principles have been applied in welfare economics as well. Investments in healthcare shot up to 70% from 15% after households in Kenya were provided with a box and a padlock labelled “Healthcare”. They automatically created a mental account that they should store some money in that tangible location. Households in South Africa watched a popular soap opera which had financial messages embedded in the episodes, leading them to deliberate about their decisions. The impact of society’s values led to an increase in better decision making. Lastly, elderly individuals were shown motivational messages, and their productivity went up resulting in improvements at the self-help group they were working. Again, the roots of economic results are deep-seated in a variety of factors. In economics, these factors, and much more, such as co-operation, altruism and cognitive taxes aren’t taken into account. And being uneducated in these may lead us to biased views centering around numerical efficiency. This in itself, the very fact that incomplete knowledge leads to biased views, is also mentioned in the report. There is a principle in social psychology, called the exposure effect. You like things better when you’re familiar with them. Con artists are very adept at this. The three card monte, which is a standard trick, is a practical application of this principle. First, you are shown the card that you’ll follow, out of the three cards, and after a bit of shuffling, you have to show where it is. They will let you intentionally win for the first two times, doubling the bet each time. This raises your confidence, and you develop familiarity with the game. On your third and final bet, et voila, you lose, thus burning a hole in your pocket. Economists used the same principle at a microfinance bank in India, a country which is strapped for cash currently. Rural societies rely heavily on micro-finance, even on a day-to-day basis. Simply assigning members to meet weekly instead of monthly resulted in lesser debts and greater risk pooling. Ironically a few years back, people were asked to deposit money in banks, instead of keeping them in their house. All this new cash injected in the economy caused a round of inflation! These psychological manipulations are what make us human. This is why con artists can con us, and this is also why the world’s largest democracy experienced unexpected inflation. We live in a world where a few lines of code can launch nukes and wipe humanity from this planet. Of course, data is a must for us to make sense of the world. As was the result of a famous experiment, over 70 statisticians were given a data set and were tasked to make a statistical model fitting this. Not surprisingly, there were almost 70 models! I believe this is just the tip of the iceberg, in terms of interdisciplinary impacts on economics. The great thing is, economics can also have an impact on other subjects like physics! Budget constraints are a part of any lab, (anything, really). That kid comes an affluent family with enough money to fund her studies, and she might make the next breakthrough in criminology! The world is a wide web, and everything is interconnected. It is up to us to choose how we perceive reality. I want to leave you with this: “Humans are the essential variables in economics”. Atma Jyoti Mahapatra, circa 642 BC ( I should trademark this ASAP )

I really enjoy eating sugary breakfast cereals every now and then, but I’m more of a fan of muesli if I’m having something filling in the morning. However, one cereal that I do like quite a bit is  the Honey Pops Loops. In the Netherlands, it’s Kellogg’s that’s producing that type of ‘O’-shaped cereal; whereas in the the United States, it’s a company called General Mills. Their brand is the Cheerios, and their Honey Nut variant features a bee mascot just like the Loops we have here. What they did recently, however, was something Kellogg’s didn’t. As you probably know, bees are extremely important for pollinating plants. Although certain sorts of crops such as carrots, onions, and wheat do not need pollination by bees (because they are pollinated by other methods, such as wind and non-bee insects), roughly 75% of all fruits, nuts, and vegetables require them to be produced effectively. Even though bees are not the most effective pollinators, their importance results from their relationship with flowers. You can move beehives around to pollinate certain regions on-demand and the bees will happily comply, whereas other pollinators won’t even interact with the flowers when deployed artificially. General Mills, a week or so ago, launched a campaign titled ‘Bring Back the Bees.’ The campaign’s goal was to restore a strong population of wildflowers that are appealing to bees because of their nectar and pollen production. The company started sending out seeds to people who wanted them, with an initial ‘goal’ of having 100,000,000 seeds planted across the United States. Fortunately, they had no problem getting to their goal and ended up surpassing it by 1,400,000,000 seeds. That’s right, it’s a lot of seeds. They also removed their bee mascot from their packaging and replaced it with a silhouette to spotlight the issue further. But why start such campaign with such a title; you still see bees around when you’re outside in spring and summer, right? It may be true that you still see stray bees going around, but the real problem is not exactly about the bees you see, but more about the ones you don’t. The bee that comes to mind when you think of bees is the European honey bee, which is the most important pollinator on the planet, and their numbers have been declining at a rate of about 20 percent a year for several years. In 2016, the USDA reported a 44% decline in U.S. honey bee colonies, whereas the normal annual growth since 1961 had been about 1.5% worldwide. This peculiar and sudden decrease in the number of bees is called the colony collapse disorder (CCD), where bees simply leave behind a fully functioning hive. Although the CCD is nothing new, the scale at which it is occurring is definitely new. Most staple foods are outside the endangered group I mentioned above, as they consist mostly of grains, underground root vegetables, and tubers. This doesn’t mean, however, that there is not so much to worry about. First of all, it’s not just the European honey bee that’s disappearing. Other honey bee species from the United States are also heavily affected by the CCD, and the rusty-patched bumble bee was recently classified as Critically Endangered. This trend may ultimately lead to many different species being endangered too. Secondly, even though staple foods are not going anywhere, a very large chunk of our regular diets consist of the crops that are pollinated by bees. This will have both economic consequences in terms of prices, where farmers will require higher subsidies by the governments to avoid having affected foods from becoming too expensive; and in employment, where farmers may start losing their jobs because it becomes unviable to keep producing foods that aren’t pollinated naturally. In addition to the foodstuffs, cotton is also an oilseed that must be pollinated by bees, which could wither in large sums and have a strong effect on the manufacturing clothing and household products. With all these plants dying out, and the bees disappearing, honey is also the primary bee product that is directly affected. General Mills notes that thirty percent of their ingredients rely on pollination, which explains that it is not a mere corporate social responsibility act either. It ended up becoming a very successful marketing campaign for the company, that will hopefully make a noticeable change on the bee habitats. So, that answers the question of why the campaign started — but what about the question ‘why is the CCD even happening?’ It’s a bit harder to explain that one. Unfortunately, although we have certain ideas so as to why this could happen at a smaller scale, the cause of the sheer size of the CCD crisis cannot be pinpointed to one specific thing. Pesticides are being attacked specifically right now. With the increasing use of newly-developed pesticides, it is highly likely that the pesticides mess up with the bees’ health. The pesticides don’t have to directly kill off bees either; reducing bees’ fitness and olfactory discrimination performances can simply result in weaker bees that are unable to perform properly. Other causes such as viruses and pathogens have also been identified. Several of them directly affect honey bees, such as the Varroa mite which carries a lot of dangerous viruses that can lead to deformed wings or paralysis. Fungicides, in addition to pesticides, are also found to lead to bees being three times more likely to be infected by parasites; even though they were previously thought to be harmless. Climate change, malnutrition due to monoculture diets, and electromagnetic radiation are also likely causes with significant effects. Well, let’s ask one final question… what can we do? There are certain ideas buzzing around. One of them is using drones to start pollinating; a Japanese group of scientists has discovered a gel that can be applied to small drones in order to pollinate plants at scale. Their experiments have been successful to some extent, but the biggest problem they are facing right now are related to piloting the drones, and their battery life. Even if the cost of the drones go down significantly, and artificial intelligence reaches a level where drones can be piloted automatically, you would still need an incredible amount of bee-drones. These bee-drones replacing the 3.2 trillion bees on the planet would also end up with a lot of robot litter. Cutting down on dangerous pesticides is also another front in which there has been quite a lot of action. The European Commission recently urged a ban on all pesticides suspected of killing of bees. Although EU countries are yet to vote on the proposal by the Commission, the decision will have a great impact on the European farming industry. It is important to realise that banning pesticides comes at the cost of significant crop losses, but it is even more important to think about the long-term. All in all, the solution may also be lying in your garden. Just as per the goal of the Cheerios campaign, covering gardens flowering plants that provide nectar and pollen can create a huge impact when done at scale. Creating hospitable environments for bees will help them both continue healthy lives and be more resilient against both natural and artificial hazards. If there is a trend towards blooming gardens for bees, then that can be the thing that gets the bee populations up to the pre-crisis levels.

Business Recap – Nando Slijkerman Yes, we did it! The AEX finally exceeded the 500 index points, finishing a 511 index points at the moment of writing. Election uncertainty is decreasing due to a loss of the populists. This can be the end of the march of the populists and can strengthen the bond between EU-countries, which is good for capital channeling. Akzo Nobel NV spurned a sweetened, 22.4 billion-euro ($24.2 billion) takeover offer from PPG Industries Inc., marking the second time that Europe’s largest coatings company has rebuffed an overture from its U.S. competitor and sparking criticism from a shareholder Citigroup Inc. plans to close three of its four London branches as the company seeks to cut costs and focus on digital services. The U.S. bank has written to clients about plans to shutter outlets in the City of London, Mayfair and Canary Wharf districts in the next two months. The lender will continue to operate the Citigold and Citigold Private Client Center at its European headquarters in Canary Wharf (London). Also, other banks are planning to move out of London; Goldman Sachs Group Inc.’s Suneil Mahindru, head of international stock investing, is relocating to the U.S. from London after the firm decided to close a European-equities investment fund, according to a person with knowledge of the matter. Upcoming elections in France might give some volatility to the markets. Hedging your portfolio against populism might be a good idea in that case. How? One of the possibilities is to go short on EUR/USD. Let’s have a look at the numbers. Growth continues for Europe in March; AEX rose with 3.37% this month, and our German neighbors (DAX) increased 1.87%. S&P fell 0.90% % and the Dow Jones also decreased by 0.79 %. After February was a better month for America’s markets, Europe is back in business. Let’s monitor the developments with respect to the elections closely, and see you on the markets next month! Underperforming Uber  – Hải Đăng Vũ Despite its unrelenting business expansion in the global market, Uber began to suffer from its long-building flashy reputation by recent scandalous events during the past half a year. These events sparked widespread unfavorable public opinion on the company. The company’s reputation has already started to erode since last year. Following the US presidential election last year, Uber repetitively showed its support for the Trump campaign. Its founder, Travis Kalanick, also expressed his willingness to work under Trump’s administration. Although Travis himself later withdrew from any involvement the damage has already been done. The social media movement dubbed #DeleteUber that followed these events received substantial support with more than 200,000 individuals removing the application from their mobile devices. It has not been a great start to 2017 either for Uber. The development has travelled from application error that involved a busted French user having an affair to more serious allegations into sexual assaults that happened within the organization, one of which included the executive of the company. Later this month, one of its presidents, Jeff Jones, also decided to resign from his current position of the board. However, Rachel Holt, a representative from Uber, believed that these events had not been far too consequential to the performance of the company, while suggesting that the statistics showed otherwise. Growth continues to expand at 10 percent year-on-year for US domestic market, as she claimed. The company, however, is determined to repair the damages and is looking forward to recover its status as one of the most influential businesses in the world. Economics – Raffaele Di Carlo The 21st century seems to be taking its toll on the Western man: as the US public debt skyrocketed to the unprecedented record of $20 trillion this March, the West seems to be losing its economic and political dominance over the rest of the world. An essay published by Mathijs Koenradt on the 21st of March summarizes this change: Europe and the US have shifted from controlling around 75% of the world’s GDP together in the 1960s to less than 50% over the current decade. This is partly due to decolonisation and the Cold War, but mostly to the rise of emerging economies which have seized more and more of the world’s production. Combined with the technological revolutions of the last few years, the Western low-skilled labor force has suddenly found itself on the losing side: a study published on 23rd of March by Princeton University seems to confirm that midlife mortality, as in suicides and drug- or alcohol-related deaths, among white low-skilled males has been on the rise since the start of the century, while this effect does not seem so sharp on females or on other ethnic groups. While this terrible phenomenon has touched mostly all developed and emerging economies, the United States lead  the chart with 81 deaths per 100,000 people aged 50-54. Brazilian Exports – Evrim Öztamur The Weak Flesh probe, launched March 17 by the Brazilian police, quickly resulted in evidence that 21 meat companies bribed government inspectors to approve sales and exports of contaminated or spoiled meat and poultry. Thirty-three federal inspectors are being investigated over the case. Although there are no reports of poisoning from the meat that has been already imported, it has been shown that ingredients including pig heads and cardboard had been added into cold cuts and sausages, and the smell of spoiled meat has been masked through the use of acids. As a result, sixteen countries and the EU together have announced restrictions on the import of Brazilian meat products, which led to a 99.9% drop in exports revenue, down from 63 million USD per day on average to a mere 73 thousand USD. Although this number is not going to stay that way for long, the trust in Brazilian meat exports has decreased significantly. This will likely end up being very damaging to the Brazilian economy. In case you are eating poultry and poultry-based products, there is a high chance that you are consuming Brazilian exports. The EU is one of the top importers of Brazilian chicken meat at 403,000 metric tons, and Italy specifically imports nearly 26,000 metrics tons of beef. UvA Inside (Sefa) – Daphne Sweers As the year is progressing, it is time to start reaching for new opportunities and challenges. What will your next challenge be? I can recommend you to apply for a board year at Sefa. Do you want to develop yourself in a rapid pace and gain a head start in the labour market? Would you like to get in touch with top companies? Do you want to know what it is like to lead one of the largest study associations in the Netherlands with more than 6500 students? It is all possible at Sefa! During a board year, you will be working full time within a team of highly motivated board members. You get the opportunity to develop your social, organisational and professional skills. You learn how to coordinate meetings, create a long-term strategy, communicate efficiently and cooperate with your team, all capabilities of tremendous value. Together you are responsible for coordinating Sefa’s committees and supervising Sefa’s events. Last but not least, you can coordinate great committees like Rostra Economica. Do not miss out on this great experience! More information? Please send an email to board@sefa.nl. Please note that fluency in Dutch is required but that Sefa (active) membership is not required. Application deadline is 9th of April, 23:59. Politics Besides the tensions between Turkey and The Netherlands that were discussed in this article, a lot has happened in worldwide politics this month. Some important topics are discussed below. Dutch Elections – Leonie Ernst The 15th of March the Dutch elections took place. As we mentioned before, it was pretty exciting what exactly was going to happen. After all 10,563,456 votes were counted, incumbent PM Mark Rutte’s party again turned out to be the largest. According to the international media ‘populism was defeated’, because right-wing populist Geert Wilders did not win the elections, but ended after Rutte’s People’s Party for Freedom and Democracy (VVD). However, Wilders’ Party of Freedom (PVV) did enlarge its number of seats in the House of Representatives from 15 to 20 (out of 150), while the VVD shrank from 41 to 33. Thirteen parties (!) managed to gather enough votes to get seats in the House of Representatives. Due to this large number of parties, forming a coalition is going to be rather difficult as well. Right now, Rutte is negotiating with the third-, fourth-, and fifth-largest parties to hopefully come to an agreement this week. He indicated not to be willing to cooperate with the PVV again, because he wants to form a stable coalition, and argues the PVV has lost that opportunity after the failed minority construction in 2010. There are actually two likely scenarios, of which the first is a coalition between the VVD, the Christian Democratic Appeal (CDA, 19 seats), Democrats 66 (D66, 19 seats), and GreenLeft (14 seats). The other option concerns the first three parties as well, whereas GreenLeft would be replaced by the Christian Union (6 seats). Both constructions will form a majority in the House of Representatives, so the Dutch await for the final decision… Schnaps und Frauen – Mostafa Al Shikh The Dutch minister of Finance Jeroen Dijsselbloem got himself into serious trouble this week after already facing a difficult month. Major losses for the Dutch Labour Party (PVDA) during the Dutch elections caused him to lose his seat in the House of Representatives. During the negotiations of the new government, Dijsselbloem is allowed to keep continuing his job as the minister of Finance. Simultaneously, Dijsselbloem is active as the president of the Eurogroup. This government agency consists of the 19 ministers of Finance from the countries who adopted the Euro as their currency. In an interview in the German newspaper Frankfurter Allgemeine Zeitung Mr. Dijsselbloem made a remark which caught the attention of several political figures in the southern countries of Europe. According to Het Financieele Dagblad Dijsselbloem said: ‘you can’t just spend all your money on liquor and women (‘Schnaps und Frauen’) and afterwards ask for help.’. He possibly referred to southern countries like Spain, Italy, and Greece that have difficulties keeping their fiscal policy in check. After being appointed as the successor of the Luxembourger Jean-Claude Juncker in 2013, Dijsselbloem received several compliments from colleagues for adequately handling the Sovereign Debt Crisis in Europe. However, making remarks like the one earlier this week could antagonize the ministers of Finance in the southern countries. This eventually could lead to an abrupt halt to his term as president of the Eurogroup. International women’s day and marches – Yana Chernysh This month two women-related events took place. One of them being the International women’s day, that is celebrated on the 8th of March. Although it is not a huge thing in Western Europe, in some countries, it is a national holiday. The main aim is to once more give appreciation and emphasize the importance and the hard work of mothers, grandmothers and all females that have an impact on you. Moreover, it is a nice opportunity to have an extra day off and have a nice celebration with family and friends. As well as this, the Women’s March in Amsterdam took place on the 11th. Starting from Dam square towards Museumplein, several thousands of people marched in a protest of discrimination and with the support of equal rights and diversity. The main aim of this march was to attract attention to the Dutch elections, that took place shortly after the Women’s march. The hashtag used was VoteAgainstHate, which was connected to the right-wing parties that seem very controversial and are compared to Trump’s party. According to the police, the march happened without any accidents. Moreover, as stated by the organizers, it did attract the desired attention. London terror attack – Tsz-Tian Lu “This is a day we planned for which we hoped would never come”, said Mark Rowley, Britain’s most senior counter-terror police officer. The heinous terror attack took place on 22nd of March, outside the U.K. Parliament and the Westminster Bridge where the attacker crashed into the pedestrian district and went straight into the fences surrounding the parliament. The attack resulted in total casualties of five death and more than 40 injuries. One of the deceased, Pc Keith Palmer, was stabbed to death as he guarded the Palace of Westminster when the terrorist conducted the terror attack. He is praised as the ‘hero cop’ and people are making donations online, which raised over £670k in just a few hours. The attacker, Khalid Masood, was born in the U.K. and he was associated with several extremely brutal criminalities before he conducted the Westminster terror attack. However, he was not deemed to be who would potentially commit a terror attack nor linked to terrorism according to the source MI5 (the U.K.’s domestic counterintelligence and security agency) obtained. As for whether the Islamic State is behind this attack, they claimed that the attacker was ‘inspired’ by them, but IS was not directly behind this whole crime. This is very worrisome, as it indicates that it is getting easier for the extremist to conduct a terror attack without any financial support, and it is very easy to imitate as well. As we can see, the pattern is similar among some terrific attacks recently—from the Nice terror attack in July 2016, the Berlin terror attack last Christmas to this one, in which all the terrorists need is only a truck or a small vehicle. Martin McGuinness – Alma Rottem On Friday, a coffin wrapped in the Irish tricolour flag was paraded through the streets of Derry (Londonderry, Northern Ireland) followed by thousands of people paying their last respects to Martin McGuiness. In the history of the conflict in Northern Ireland, McGuiness had a vital role. He was an IRA leader turned peacemaker, an architect of the Good Friday Agreement and a Sinn Féin politician. McGuiness died of illness last Tuesday at the age of 66. He was still serving as the deputy First Minister of Northern Ireland until January this year. McGuiness’ life embodies the history of the Irish nationalist-religious conflict, through the decades of terrible violence to the historic peace agreement in 1998. He was a devoted republican who was not afraid of negotiations. As a politician, he cooperated with those who were formerly his worst enemies; once arrested next to a car full of explosives, he ended up shaking Queen Elizabeth’s hand. Present at the funeral were many Sinn Féin politicians, as well as members of the Democratic Unionist Party. Former US president Bill Clinton, an important figure in the formulation of the Good Friday Agreement, also attended. Although the question whether a man should be remembered for his youth or for his late achievements still remains open, the story of Martin McGuiness contains ample hope for those believing that dreadful violence can be replaced by something better. Peacemaking does not end, it is an “endless process” as Clinton said, and this man was the beginning in Northern Ireland. Earth Hour – Atma Jyoti Mahapatra With an increasing number of people discrediting the very notion of climate change, a.k.a. Trump supporters, Earth Hour on the 25th of March was a very welcome reminder of the ticking time bomb in our hands. In a decade long tradition of switching off lights and electrical appliances for one hour, this event was started by the World Wildlife Fund to promote sustainability in 2007. Originally starting in Sydney, citizens of France, Netherlands (to name a few) and almost 100 more countries make it a point to observe this. Protests in Belarus – Atma Jyoti Mahapatra Europe’s last dictator, the President of Belarus, displayed a strong hand over protesters marching against his autocratic rule. March 25, which is also celebrated as “Freedom Day”, saw hundreds of people taking to the streets in Minsk and elsewhere to protest many things, including the “Social Parasite Law”. This law, formally known as “Presidential Decree on Prevention of Social Dependency” requires the unemployed to pay $250 tax annually. This has caused a lot of dissent amongst the national population, especially since the country has slipped into a recession since 2015. Trumpcare collapses – Michael van Rhee Donald Trump has failed to get his new healthcare reform proposals, better known as Trumpcare, through the House of Representatives. The plans were withdrawn before the actual vote took place, since a majority was out of reach. Trump aimed to get rid of the compulsory nature of Obamacare, making healthcare optional again. Aditionally, he wanted to introduce a financial compensation based on age instead of income. Critics feared that the less wealthy Americans would ultimately suffer the consequences of this, arguing that they wouldn’t be able to pay their insurance anymore after losing the income-dependent tax benefits under Obamacare. Republicans, on the other hand, still adopt a free market doctrine, arguing that the government shouldn’t interfere with healthcare; instead, they believe that the greater amount of choice caused by the increase in competition (guided by the invisible hand of yours truly) would boost the overall quality while reducing costs. Indeed, it’s textbook economics all over again. Ironically, Trump was stopped in his tracks by those very same Republicans, as he failed to convert their majority in the House of Representatives. Trump then went on to blame the Democrats for it. Sigh, some things will never change. Egypt’s Mubarak Free – Omar Osman In a sequential symbolism of the victory of the counter revolution in Egypt, former president Husni Mubarak was freed on March 24th for the first time since he has been detained since February 2011. Mubarak is not the first figure of the-revolted-against-regime that was freed. His acquittal is a continuation or may be the climax of the chain of victories made by the counter revolution, currently led by the current Egyptian president, Abd el Fattah El Sisi, who has ruled Egypt since he led a successful military coup on July 3rd, 2013. Mubarak, who ruled Egypt for more than three decades, was forced to relinquish executive power to the Egyptian Supreme Council of Armed Forces in February 2011 after 18 days of countrywide protests. Two months later, he was put on trial to face multiple charges, including corruption, abuse of power and involvement in the murder of hundreds of anti-regime demonstrators by Egyptian security forces. After several trials, appeals and retrials, however, he was ultimately cleared of the charges against him.

An old Italian adage goes like this: “money makes war, war makes poverty, poverty makes the black market, the black market makes money, money makes war once again”. The saying has its roots in the aftermath of WWII, when Italy faced the dramatic economic crisis that followed the death and destruction brought by the war. At the time, most goods and supplies were widely unavailable to the general public as a consequence of martial law, and people had to somehow find a way to bring food and all sorts of commodities to their families. In this kind of environment, smugglers and mobsters started thriving, as they had connections in other countries, where they could buy the goods at a lower price and then bring them into Italy, where people would be desperate enough to buy them at an unreasonably high price. Those who were ruthless enough to engage in this type of business got incredibly rich during that period, at the expenses of people who were already in miserable conditions, but they did indeed contribute to the revival of the Italian economy and the following boom. After the Reconstruction, when the Italian government regained full control over the country and the economy started booming again, the iconic Black Market of many Italian films was mostly eradicated. When we talk about a shadow economy, however, we are not referring to a single phenomenon, such as the post-war black market, but rather a complex system that continuously operates outside of the official, regulated economy: a real “State in the State” that functions according to its own laws, the extent of which is extremely hard to calculate because none of the economic operations and transactions that happen within the shadow economy is recorded. We can define the shadow economy as “market-based production of goods and services, whether legal or illegal, that escapes detection in the official estimates of GDP” (Smith, Philip. 1994. “Assessing the Size of the Underground Economy: The Canadian Statistical Perspectives,” Canadian Econ. Observer, Cat. No. 11–010, 3.16–33, at 3.18). Examples include the trade of illegal goods (e. g. drugs, prostitutes, weapons, organs), informal labor and tax evasion. Unlike the post-war black market, this form of shadow economy is unfortunately still alive and well in most contries of the world. As of 2007, the World Bank estimates the average size of shadow economies in 162 countries to be around 38.4% of GDP in Sub-Saharan Africa, 36.5% in the Europe-Central Asia macro-region, and around 13.5% in the top OECD countries. This implies that a substantial fraction of these countries’ economic production takes place outside of the official sector. The result is a significant unrealized tax revenue for the government, which in countries with a very high shadow economy size can severely limit the ability of the State to function properly. It is then in every government’s best interest to contain the size of the informal economy as much as possible. Schneider and Enste (2000), who conducted the most extensive study on the topic, cite among other drivers of underground economic activity increased taxes and social security contributions, economic regulations and unemployment. The reason is very simple: when it becomes too much of a burden to find regular employment and pay income taxes and contributions, people just choose to find “alternative” solutions, either by performing their activities without recording them, often in secrecy and with very low regard for quality standards, or by working without a contract for someone with the same inclination. Apart from the negative externality caused to society by the unrealized tax revenues of the government, a growing shadow economy also raises health and safety concerns for the workforce, since their working conditions cannot be monitored, and it helps all sorts of illicit activities to proliferate. Using three different empirical models based on physical input and currency demand, Schneider and Enste came to the conclusion that it is indeed true that underground economic activity increases with lower welfare and higher regulations. What can be done by governments to contrast this phenomenon? To begin with, one idea might be to get rid of cash, and make all payments electronic. By doing so, it would be much harder for professionals and general labor to receive unrecorded revenues, and all large transfers of money abroad would need to be authorized by the banks, therefore making it much harder to evade taxes by just transferring all money in some tax haven. Such a strategy is already being implemented in India and Sweden, with very different results: in the Indian case, for example, it turned out cash was a very flexible means for transactions especially in rural areas with limited access to electronic banking, and when the government suddenly declared all cash worthless, the entire country plunged into a deep crisis, which it has only lately started recovering from. Therefore, it is clear the strategic approaches to this problem should vary between developed and developing countries. But how? A working paper by the International Monetary Fund (IMF) addresses this exact question. In particular, the paper highlights that countries with a significant share of output taken by the shadow economy usually tend to have much more strict tax laws and business regulations: for example, in Latin America it can take up to 62 days to register a business! In OECD countries, instead, the average is of 13 days. The paper then provides advice as to how to tackle the problem in such countries and, unsurprisingly, this is very much in line with Schneider and Enste’s study: governments should simplify regulations and invest in welfare. The reason is that by allowing businesses to proliferate more easily, competition will increase, thereby improving wages and contract conditions for workers, which will then find it more appealing to stay in the formal sector. In addition, ad hoc welfare programs of assistance can help workers in the transition from the informal sector to the formal sector. The paper concludes that there needs to be also a cultural shift in those countries, which currently accept the shadow economy as an inevitable fact of life. Businesses and private citizens should be educated on the procedures and benefits of correct tax filing, exemplary behavior should be rewarded with efficient services and unlawful practices should be punished with a credible enforcement. Once again, the famous carrot and the stick. Bewaren Bewaren

As a second-year economics bachelor student, I have only managed to absorb some of the most fundamental principles of classical economics, and barely grasped the bigger picture of the subject matter. At our university (and I do believe other universities do it as well), students are introduced to be accustomed to the thesis of neoclassical theories. The core assumption in neoclassical economics, as everyone having studied economics will know, implies the rationality and individual utility-maximization of each economic agent. This framework, depending on the scope of the investigated market, may or may not represent the realistic outlook of the real world. As such, modern economists nowadays tend to be skeptical and more critical about the application of rationality theory in the predictions of future consumption patterns or production behavior, and in researching into the relationships of different markets. Although many people would claim that the relation of behavioral sciences to economics is far-fetched, this article will attempt to show you otherwise. Behavioral economics is much closer to real life than you think. How is it illustrated theoretically? Behavioral economics is highly connected to other behavioral science fields, and indeed its approach to the scientific methodology is rooted from concepts of behavioral science. Heuristics Heuristics are the by far most investigated aspect of behavioral economics. That makes a lot of sense, since it is probably the reason to answer the question of how individuals tend to act irrationally. Similar to what we understand about heuristics in real life, or in business studies, behavioral scientists define it as the “shortcuts” to the decision-making process. This is a process whereby individuals are less inclined to depict an overall picture when they make a thorough comparison between every possible circumstance before delivering a judgment. Instead, they often rely on their own simplified rationale to come up with the final decision. In the annual Behavioral Economics Guide that is available online, Alain Samson, the editor of the publication, categorizes heuristics into three typical groups, namely affect, availability and representativeness. These three characteristics uniquely identify distinct aspects of heuristics in real-life scenarios. Affect heuristics occur when we rely on our perceived experiences of a certain set of actions that causes an individual to make a biased judgment on the given issue. A person with an availability heuristic mindset will tend to make their decisions based on what is more easily to be triggered in their memory. To illustrate these two definitions, let’s take an example. Consider a manager who is investing in two projects, one with less financial returns but a positive environmental impact, and one is neutral to the environment but with more significant financial returns. The manager will be more likely to choose the former when he/she has previously suffered from the consequences of a damaging environment (reflecting affect heuristics), and/or has been recently informed about the growing appetite for investment in green projects (reflecting availability heuristics). Representativeness heuristics are quite different from affect or availability heuristics, when an individual jumps to a hasty conclusion of a problem based on little information that is available. Stereotyping is one outstanding example of this kind of behavior. For example, for Westerners, they usually presume Asians who are wearing glasses and dressing monotonously to school every day (like me for example), to be extremely hard working but extremely unsociable. Although that I cannot completely confirm that this is untrue for every individual, I do believe that we actually fit in very well with the Dutch society. Loss aversion/Endowment effect – Prospect Theory Loss aversion is the concept that most of us have (more or less) acknowledged during the first year in the bachelor’s program. It represents the fact that people tend to incur more intensive feelings with losses in comparison to the equivalent amount of gains. In some recent research, findings would suggest that people value losses twice as much as gains. The endowment effect is the direct inference of loss aversion. The sense of ownership when an individual owns an object makes it more valuable to the owners, hence usually they would overvalue their products. You will see that especially in the second-hand market, sellers usually value their possession much more compared to buyers. The tendency of humans towards loss aversion might even explain why people would try to do anything to avoid loss. The prospect theory illuminates on the thesis that people are actually loss-averse and actually risk-seeking depending on the probability of predicted loss. Individuals are therefore acting based on their utility level rather than expected outcome. This concept is somewhat incorporated into the economic theory that was introduced (albeit less detailed) in the second-year course. Reciprocity Reciprocity is one of the various social norms that connects the distinct elements of behavioral economics. Theoretically, as humans, we are rationally bounded by the surrounding environment, especially in our childhood. These implied ideas categorize the set of behaviors that a community would deem as appropriate when we enter later stages of our life. One of the common values that is shared worldwide, is the value of reciprocity. Formally understood, reciprocity requires that a person is to return the favor to another individual who had offered help to this person. In economics, reciprocity can be actually observed in game theory, in the game of repeated actions. Using the trigger strategy, an individual is anticipated to act accordingly with another player in order to maximize their mutual utility. Otherwise, the second player will impose a punishment on the first player because of the non-cooperative behavior. Nudging Although there is no extensive hardcore literature related to this theory, the application of nudging is much more common (example below). It is, as a matter of fact, widely applied in business management. A research by Thaler and Sunstein defined this concept as “any aspect of the choice architecture that alters people’s behavior in a predictable way without forbidding any options or significantly changing their economic incentives.” As such, nudging will work best on individuals who are uncertain when they make a decision since it is usually much easier to alter their ideas. However, the problem here also lies within the definition: “without,” ”forbidding,” or “significantly changing” human behavior. And as much as perfect as it may sound, critics have questioned the ability of users to correctly understand on how to use nudging appropriately that captures the complete meaning of this definition. More than just theories Nudging: Organ donation The prominent example of nudging has been involved in the use of organ donation. The application for nudging in this case, is to involve more people being active with their registration for organ donations, therefore expanding the number of organs that are collected and facilitating a more efficient market mechanism. In the organ donation market, it is critical that a donated organ must be complied to stringent requirements to fit the medical conditions of the potential recipient. By enlarging the number of organs being exchanged, there will be more options to choose and hence more demand will be met. There are multiple ways to persuade more people to partake in the program, but every successful story of it carries some shared fundamental principles that have been researched extensively into the topic. Sunstein identifies that some of the types of nudges, for example, social norms or precommitments, are detrimental to the success of the program. In the National Health Service (NHS) campaign that encourages people to do donations, more than 100,000 people registered on the donor list. By using nudges of social norm that encourage people to do the good deed, the campaign wanted to transfer its messages by highlighting that “If you needed an organ transplant, would you have one? If so, please help others.” Obviously, it was extremely successful in engaging more potential donors by the use of precommitments, which successfully attaches a person’s (potential) future state to the present. Although the donor might not need a transplant in the future, he/she actually “precommits” to make a donation anyway. Reciprocity: Giving out samples By giving out samples, a company has implicitly attached to the customers the feeling of reciprocity to whom that offers the product. As such, the customer will feel more indebted and more likely to be obligated to make a real purchase on the product afterward. Statistics show that free samples increased sales as much as 20 times. Behavioral economics at UvA Behavioral economics is considered to be one of the most important research areas at the University of Amsterdam; and with an influential contribution to economics, the department was granted the status of “Research Priority Area.” Maybe as a student in our faculty, you might have visited CREED Lab inside the E-building of our campus as well. And yes, as you might have guessed by now, this small facility was established as one of the four sub-organizations that have been so detrimental in providing invaluable research data and analysis to the entire department through the public-held experiments that occur every now and then. Although the research area requires a comprehensive understanding of interdisciplinary fields, stretching from economics to other social fields such as psychology, the university also wants to inspire our generation of future economists an opportunity to capture the essence of this field of growing interest. Indeed, for students, the university also offers the selection of behavioral economics as an elective course for the final year, which focuses on the fundamental construction of (behavioral modes of) game theory models and its relevant experimental methods. In Master’s level studies, the course of behavioral economics takes a different approach, in which it attempts to critically evaluate the conventional proposition (i.e. thesis of neoclassical theories) in evaluating more complex economic problems. Academic institutes are diving into this subject as well. Behavioral economics has established their presence not only around Europe, but also the United States and multiple Asian countries. The prospect does indeed look as promising as ever, and there should be no doubt that the subject matter would be in the same cohort with mainstream economics. Myriads of social scientists and economists have worked together for decades on studying the decision-making process of individuals, and significant progress has been greatly recognized by the scientific community. Unfortunately, it seems that the world of behavioral economics is either too uncommon or too sophisticated to the society (even to economists themselves!). Therefore, as a suggestion to other academic communities as well, such important scientific contributions to real life should not be alienated, but rather to be communicated more effectively to the broader audience.

On Sunday, March 12th, a number of demonstrations took place in Turkey and the Netherlands which led to some new tension between the countries. But how did this all start? Turkey is going to have a referendum about some new constitutional additions on 16th of April. The government of Turkey encourages Turkish people living in European countries to vote «yes» on expanding the presidential power. If the new policy comes in, the power of three legislative bodies will become one executive branch under the control of the Turkish president. Some critics find this move anti-democratic. One of the ways to promote the referendum was to hold several rallies. However, officials from a number of countries, the Netherlands among them, thought that this might cause conflicts and disagreed with this proposition. Along with that, the Netherlands forbade two Turkish ministers, who were going to give a speech about the referendum, to enter the country. This led to massive protests taking place in both countries. The situation itself, with protests making it even more integrant, met with some controversial opinions. For the two countries, it is the case that their relationship became a lot tenser. The Turkish president Erdogan called for sanctions for the Netherlands and accused the behavior of the Dutch government as Nazis. Another thing mentioned by the Turkish side was that the Netherlands is sacrificing Turkish-Dutch relations by such decisions. The event that brought even more attention to this whole situation was that the diplomatic mission in Turkey had been closed for the Netherlands, and that the Dutch ambassador does not have to return to Turkey from his holiday for a while. Such statements may mean that Turkey is taking the situation very seriously and it can indeed ruin any traces of relationship between the countries. To make another remark, the Netherlands is not the first country to be accused of Nazism by Turkey. This recently happened to Germany as well for the similar reason. The European side demanded Turkey to bring an apology for such accusations, and stated that they are unacceptable. The Dutch side called the sanctions from the Turkish side “bizarre” as the Netherlands is one of the biggest investors in Turkey, so the country could not possibly make the sanctions affect the trade. The only sanctions implemented in the end are freezing all diplomatic communication. The Dutch PM Mark Rutte also stated that, although the Netherlands has many reasons to be angry on Turkey for what happened that weekend, it is Turkey, which is calling for sanctions. One of the other threats that the Turkish government made to the European governments was to re-evaluate the deal concerning the flow of migrants to Europe, which can lead to unwanted consequences. One of the reasons for this situation that is suggested, is that Erdogan wanted to boost more “yes” votes during the referendum, by making people more aggressive towards the European countries. This whole event is dimming Turkey joining the EU even more, and this question has been up for around 50 years now. And, most importantly, this case does not help Turkey in any case, as it may lose some of the connections and support from the EU. However, the tension between Turkey and the EU (with Germany in particular) began to heat up even before the situation in the Netherlands. Firstly, European governments have been critical of the latest Erdogan’s policy in terms of its relation to basic freedoms. For example, around 140 media companies have been shut down and more than 41 thousand people were arrested. As well as this, Germany gave a negative opinion about the camps made for refugees. It was said that the camps lack the minimum necessities. Looking at more reports about the camps in Turkey, it may be found that the German side holds the truth. Also, among the reasons is also the closure of Turkey with Russia. As it may seem, nowadays, a country is either with Europe or with Russia, it is not possible to do both. Although Russia-Turkey relationships have their downsides and are not perfect, the countries do have a long history together. Moreover, not joining the EU is opening another option for Turkey – joining SCO (Shanghai Cooperation Organization). Among the members of SCO are Russia, China, Uzbekistan, Kazakhstan, and others. It is not clear yet which direction the country is heading and what will be next. One thing clear – Turkey and its relationship with other countries will be appearing on the news quite often.