Weasley’s Wizarding Wheezes Trumps The Pack – social stratification and innovation in Harry Potter

The wizarding world is a divided society. Rowling is clear about this from the start of her seven book narrative, when Hermione is bullied by Slytherin students for being a muggle (someone who has no wizard blood). The existence in the Potterverse of social stratification and its ugly offshoots, discrimination and prejudice, give the books a darker element than simple ‘goodies and baddies’. Certainly, one of Rowling’s aims was to make us question the existence of a status quo that permits arbitrary discrimination, suppresses meritocracy and distorts justice. After all, although Voldemort imposes a new rule of law, it is undeniably founded on preexisting prejudices that were already latent in the wizarding world.

Why do wizards, an educated breed, allow this system to be maintained? Why do they seem ignorant of the economic consequences of social stratification; wealth inequality, suboptimal investment, rent-seeking and cronyism? What impact do these issues have on the wizarding world if left unaddressed, Voldemort or no Voldemort?

The Potterstrata

Wizarding society is a semi-market driven, semi-liberal society. ‘Sort of but not quite there’ would probably be the assessment of its liberal democratic peers if it were a real country today. Indeed, given recent events in Europe, consequences of the Potterverse’s divisions seem particularly pertinent to us. So let us begin.

There are three main classes of economic participant; wizards, goblins and elves. Wizards are primus inter pares, Goblins are essentially second-class finance managers with no real political power, and Elves exist as a type of servant underclass with no autonomy. Added to this, there are squibs and muggles; wizard-born persons who have no magical ability, and human-born persons who do respectively.

There is active discrimination against elves through indentured labour laws, and against Goblins through regulatory oversight from the Ministry of Magic. The status quo in regards to these social groups is so embedded such that any agitation for change is resisted even by supposedly liberal wizards, a prominent example being Mr. Weasley’s advice to Hermione to abandon her Elf Rights campaign.

It’s difficult to levitate your position

Unfortunately we can’t learn much from looking at cases where social discrimination is codified in law, aside from a general observation that of course Goblins and Elves have skills of benefit to the wizarding society that would be fully realized under a more liberal regime. Both are talented magical beings in their own rights, with unique skills such a financial acumen and home management skills that wizards have chosen not to develop.

Instead, we can look at the economic impact of discrimination against those unofficially marginalized; lower-class wizards, muggles and squibs.

The salient point of labour economics in the Potterverse is that upward mobility seems very hard. There are few examples of people ‘moving up the ladder’. Notable examples are the successes of Voldemort and the Weasley twins, albeit via very different strategies (a naked power-grab and a joke shop enterprise respectively). The difficulty of upward mobility in the wizarding world is strange, given that there is universal provision of standardized education through Hogwarts.

Education is generally considered a ‘human capital enabler’; in other words it allows those who put the effort in to develop life-long skills of innovative thinking and analytical rigour, to generate ideas and to challenge them. The logic then follows that any wizard, muggle or squib who attends Hogwarts (and they are all permitted to enroll) is capable of developing themselves and achieving their long-term aims, regardless of their socio-economic background. In turn such personal development, known in the jargon as ‘human capital accretion’, should stimulate the overall economy by encouraging investment through the application of creative thinking; witness Fred and George’s joke shop.

The wizarding education system fails in this regard, given that the above examples are exceptions rather than the rule. Hogwarts seems calcified, the syllabus unchanged for centuries and, aside from some maverick analytical training imparted by Dumbledore to Harry, focused on rote-learning for academic achievement. Harry’s poor results in certain academic subjects, for example, significantly impede his chances of pursuing a career as an auror, a type of wizarding detective.

This does not benefit those who fall outside of the system; squibs and more practically-minded students. If you can’t do the spells, then the system rejects you. No spells means no job in the ministry, viewed as the pinnacle of professional achievement, and it’s not as if start-ups are commonplace as a fallback option; Mr. Weasley considers Fred and George’s endeavour highly risky.

Wingardium Leviosa – raise that economy?

Between the Philosopher’s Stone and the Goblet of Fire (4 years), the price of a Daily Prophet newspaper remains 1 Knut. This tells us something interesting about the wizarding economy; it is stagnant. Textbook economic consensus generally states that an economy should grow at roughly 2% per year, evidenced by a 2% growth in the money supply (i.e. inflation). This is why most Central Banks target an inflation rate of 2%.**

You don’t need to be an economist to conclude that if, all things being equal, the Daily Prophet has earned the same total revenue for 4 years on the trot; they can’t possibly have improved anything at all. Where would the extra money come from? And if they haven’t improved anything, how would they entice more customers, and thus raise revenues.

A dose of innovation would help the Prophet, and the economy, recover from its torpor. Innovation boosts productivity by raising the number of outputs per unit of input, which in turn reduces the price of goods. This makes everyone better off and simultaneously frees up more cash for future productive investments. But innovation comes through encouraging creative and analytical thinking… sounds like a job for Hogwarts! 

**I know, I know, current economic growth theories are open to a great deal of debate! I’m just using the consensus here as a yardstick.

Labour On The Brink

According to some, Labour has never been more divided in the history of its existence. James Dancey looks into the symptoms of this crisis, and whether there is light at the end of the tunnel for the current leadership.

On Friday the 24^th of June, the British people awoke to a political shock of multiple proportions. They voted to leave the EU, it was a shock, but it shouldn’t have been. The political disconnect being amplified by a chance to have their say and deliver a damning verdict on out of touch politicians.

Over the last few years, nothing has more ironically demonstrated the out of touch nature than the Westminster Labour party. Originally, set up to channel the working class beliefs all around the country, they have appeared to grow distant from the grassroots communities up and down the nation. A growing number of disenfranchised voters had turned to the Green party or UKIP as they channelled their frustration at an elitist political system that appeared to act more in self-interest rather than in the nation’s interest.

Then came Jeremy Corbyn, a man well-weathered by the political system with his beliefs firmly left-field. He galvanised and inspired thousands of Labour voters, many of whom rejoined the Labour party after the decades of political alienation. With his election on a great mandate with public support polling reasonably well for a newly elected leader, everything was going right for Corbyn.

Then, he slowly, seamlessly floated into the crosshairs of the media, and the heads began to roll. The Sun and The Daily Mail picking up on his left wing nature,  with the most popular buzzword used being ‘unelectable’.  As the Labour party began to grow more and more restless, it was clear there was a deep rift between Corbyn voters and more neo-liberal Labour members.

This rift has only magnified throughout the last few months, with the vote on Syria Airstrikes and the EU referendum being the most impacting contributors. In the last couple days, these tensions created have finally boiled over, and now Jeremy Corbyn is under threat, from unsurprisingly, many of his own former cabinet members. The knives are moving closer to his throat, but he is just as tenacious as he was on Day 1.

The Labour Party is on the brink of disaster. With divides being more and more evident day by day, is there any option? Should Corbyn stay? Should he go? Over half of Labour voters are still in favour of him but will he have the scope to reach out to undecided voters at the next election? Will the Labour party lose the Corbyn supporters if they form a coup? Never has a party seem so broken. Whereas the Conservative’s qualms are petty opinions, Labour’s issues are very deep ideological  disparities.

A lot of the blame for Corbyn has been his inaction in the recent EU referendum, one of which Labour were supposed to be fervently in the remain campaign. Many Labour MPs criticised Corbyn for his lack of his enthusiasm leading to the surprise defeat for the remain side. However, from my perspective, it appeared that Osborne and Cameron’s tactics were the ones that caused more backlash. I honestly don’t think that there’s a single thing Jeremy Corbyn could’ve done to convince the people to vote otherwise, it was clear that many people felt betrayed by the establishment.

That betrayal from the working class heartlands will become even more conspicuous if the Labour MPs eject him. The main issue that the Corbyn opposition face is the fact that Jeremy has performed reasonably well in elections so far.

So if I take the 36 metropolitan boroughs as a talking point, who have their elections once every four years, (so I can only compare these results to 4 year intervals.) Now I’m only going to compare these to when Labour was in opposition as Governments do tend to do badly in local elections.

The high point was Blair in 1996 who won 28 councils, and the low point was Neil Kinnock in 1992 who won 20. Note that Kinnock still gained seats in that general election. Corbyn won 25, which puts him bang in the middle of each council performance. Nothing is indicative of an imminent failure, however, the two divisions of the Labour party are lining up their artillery when the focus should be on the Tories.  Is there any way Labour can avoid disaster?

No. From my perspective, this is all going to end in flames for Labour, and they may not recover for years. This angers me, because, there always needs to be an opposition to a Conservative Government, if that opposition is weakened or broken. Then they risk giving the Tories free reign over the country. The Labour party has been essential for so many Conservative backtracks in the last year, and if we lose that, I dare to say I worry about the future of this country.

Labour should've survived the EU Referendum with ease, regardless of the result. They were mostly united in their message and didn't resort to the far fetched tactics of many campaigners, but unfortunately many of those in the parliamentary party saw it as an opportunity to take their own vision of the Labour party back. A vision that is more polarising then they expected it to be.

The Labour party is on the brink, and I wonder if anyone can save it.  

Today is the EU Referendum!

Today is the day! Throughout the UK, millions will be putting their votes in between 7am and 10pm to put forward their view on whether Britain should stay in the European Union, or leave.



If you are eligible to vote, it is incredibly important to do so- the right to a vote is something we should not take for granted and we should exercise as much as we can. Whether you think Britain should stay or go, get out there, brave whatever weather you're confronted with, and VOTE!

And if you're still undecided? Well, we've got you covered.

If you'd like to hear why perhaps Britain would be BETTER IN THE EU, check out our article by Chris Hawes:
Want To Save Britain's Economy? Vote To Stay In Europe.

If you'd like to hear why perhaps Britain would be BETTER OUT OF THE EU, check out Matt Walton's article:
Mythbusters: Brexit Edition

And if you'd like to hear why perhaps this vote shouldn't have happened in the first place, check out Tom Goldsworthy's recent post:
Forget 'Leave Or Remain' - The Brexit Referendum Should Have Never Been Called In The First Place

Of Galleons and Goblins – Gringotts as a Financial Institution

In our imaginations, Gringotts is the quintessential bank. It is well constructed, has vaulted hallways and is full of gold. When you want to explain to a young reader with little experience of financial affairs roughly what a bank is (as Rowling did), you would say it is a safe place to put your money, accessible when required. As Hagrid quipped, ‘yeh'd be mad ter try an' rob it’.

But does Gringotts fulfil the roles of a financial institution as we would understand it today? That is to say; does it serve the wizarding community by efficiently allocating their capital, earning income (i.e. via interest) in the process? Do wizards even need a conventional financial institution, or are they happy with a very large vault to hold their gold coins?

Financial Institutions - a recap (I'll keep it brief!)

Financial institutions allocate capital by transferring money from lenders (i.e. the bank’s depositors), who have less immediate need for it, to borrowers, who have more immediate need for it. The ‘techy’ term for this is credit creation and it is most commonly achieved via the loan system, residential mortgages being the best-known example here. Borrowers pay a higher rate of interest, lenders receive a lower rate, and the bank takes a cut.

Credit creation should boost economic growth by allowing value-enhancing projects to occur more quickly than they otherwise would have done (imagine how long it would take you to save for a house before you could buy it outright!), and it is a signal of confidence in the economy. Along with such things as an independent legal system and an exchangeable currency, credit creation is considered a cornerstone of modern economics.

Do the Weasleys need a mortgage?

If wizards could use magic to make anything, then presumably they would not need money. They could ‘magic’ all their required items and so scarcity would not exist. The absence of scarcity would also render unnecessary the study of economics (err…yay?)** as the study of choice optimization in a world of limited resources.

In the Potterverse, scarcity still exists. Rowling tells us it is so via Gamp’s law, which essentially says that you can’t make something out of nothing. So we can assume that magic, like technology, acts as an enhancer to underlying economic fundamentals. It can accelerate and polish, but it cannot add or remove.

Wizards, therefore, must work for a living (cue niche jobs such as quidditch players and curse breakers). It also follows that their wants and needs are not satisfied by their current incomes because if they were, the Weasley children would not need to buy second-hand school books. So there is demand for credit in the Potterverse, which probably means that the Burrow (the Weasleys’ house) has a 95% Loan-to-Value mortgage. Such high ‘leverage’ would be problematic for the Weasleys if they couldn’t cover their interest and capital installments, the consequences of which we are all familiar with given recent economic history.

Yes they do...and that's where Gringotts steps in 

Clearly Gringotts makes an income, how else can is Goblin owners pay their staff and feed those massive dragons?

They would probably earn some income from vault fees, and from the actual process of minting coins (called Seigniorage, basically 'taking a cut off the top'). However, in an economy where Gringotts is a state-sanctioned monopoly over a critical industry, it seems likely that the Goblins would engage in credit creation if there were demand for it. The rewards would be too lucrative to miss!

Indeed Rowling gives us one example of money-lending in the Potterverse, where Ludo Bagman (the Tri-Wizard cup organiser) borrows money from the Goblins at an usurious rate for gambling activities, in what looks to be the first wizarding payday loan. Nonetheless wizards don’t seem to be overly fond of banking; otherwise they would presumably manage Gringotts themselves.

What's with all the gold coins?

But how can the Goblins lend money when the stock of money seems fixed? A key requirement for credit creation is flexibility in the money supply. That is to say, if Gringotts has 100 Galleons deposited by savers, they cannot loan out all 100 (thereby maximizing their income from interest) whilst keeping 10 galleons in reserve for savers' instant access.***

In the real world, the money supply problem was historically solved by banks issuing their own notes, backed by the gold or other assets they had in their vaults. The process was eventually transferred to central banks to prevent over-issuance of notes (thus leading to inflation). Scottish banknotes are a hangover of this old practice, although today they are bound by the Bank of England’s monetary policies.

It seems likely then that Gringotts follows a similar process. They must either make coins when they need them to lend, or they must issue notes backed by the Galleons in their vaults. But as we said, Rowling tells us that you can't make something from nothing, and mining gold must be time-consuming even for magical beings like Goblins.

Credit creation, on the other hand, needs to be immediately responsive to consumer demand. So when the Weasley children need new school books, they don’t have time for the Goblins to mint some new coins. A better banking solution would be for the Goblins to loan them some pre-existing Galleons from say, Harry's vault, and replace those with a note that says 'Gringotts owes the bearer of this note (currently Harry) X amount of Galleons'.

And if Harry were willing to take that note instead of Galleons buy a new Firebolt broomstick, and it was then used by the Quidditch shop to pay their suppliers and so on, then the note has been accepted as a medium of exchange. In other words, it is money too!

Exchanging confidence for notes...now what’s the spell for that? Creditum facere?

PS - I am aware that there are a lot of technical arguments around credit creation, its inflationary effects and whose responsibility it ultimately is etc (Central Bank vs commercial banks), which I didn't have a chance to address here so please excuse any omissions.

** Response of Economics undergraduates when polled on this issue.

***Contact me if you would like an explanation of how this process, called Fractional Reserve Banking, works using zero technical terms!

This is part two of a poponomics series on 'Potternomics'- the economics of Harry Potter. Check out the first part here. 

Forget 'Leave Or Remain' - The Brexit Referendum Should Have Never Been Called In The First Place

With just under a week to go before the vote on the question of Britain’s membership of the European Union, the country is reaching peak referendum fever. 

However, amongst all the hype and excitement, it appears that nobody has stopped to pause and ask a far more fundamental question: whether we should be having this referendum at all. Politicians and political commentators from all sides have hailed the referendum as a fantastic symbol of the strength and vibrancy of our political system. In fact, this referendum is a cynical political ploy which will serve to undermine our system of representative democracy. The referendum was tactically motivated and its merits ill thought through. We should never have called this vote in the first place.

Firstly, let’s immediately demolish this idea that the referendum is some noble expression of our democracy. It’s not. The referendum was included in the Conservative Party’s 2015 election manifesto as an attempt to diffuse the populist threat posed by UKIP. It was a cold political calculation, a cynical attempt to shore up support amongst the party's traditional base. Although some claim that the referendum was called because of the importance of the issue being debated, this is clearly false. None of the most important questions in our democracy’s history were put to referendums. Whether to go to battle in the first world war, or the second world war, or whether to invade Iraq. Nor were referendums held over which economic policies to adopt during the great depression, or the more recent financial crisis of 2008.

There is a very good reason why these huge, seismic political issues were not put to referendums. It is because we, as a nation, have chosen to abide by the principle of representative democracy. The basic idea is simple: every few years we vote in a general election where we choose representatives who vote in parliament on our behalf. These representatives have the time, resources and expertise to discuss, debate and understand the complex issues and public policy questions of the day. As such, they’re much better placed to vote on these questions than we are. And, of course, MPs must have their constituents’ interests at heart because they know that they may well be voted out of office at the next election. Well, that’s the idea at least.

This argument for representative democracy seems particularly applicable to the question of our membership of the EU. It seems bonkers to leave what is undoubtedly an incredibly complex and multi-faceted question to the direct votes of the general public. Who really has the time or expertise to pour through and weigh all the evidence on both sides of the debate? Are we, the people, really better placed to decide this monumentally tricky issue than our elected parliament?

Moreover, the complexity of the issue at hand renders a referendum completely inappropriate in this instance. It is simply not possible to reduce such a challenging and complex issue to a simple yes or no question. With so many competing visions of our post-Brexit future, what does a vote to leave the EU even signify? Does it entail us joining the EFTA, or the EEA, or leaving the single market altogether? This is far from clear. In the event of a leave vote, should we hold another referendum, or should we leave it up to MPs to decide? But what if MPs (approximately two thirds of whom support Bremain) decide to follow the model of Norway, who are outside of the EU but remain inside the single market through membership of the EFTA? Norway must accept the free movement of people and make contributions to the EU budget, but regaining control of our borders and the infamous “£350 million a week” we supposedly send to the EU (we don’t really, but that’s been discussed enough already) have been two of the key arguments propounded by the leave campaign. The inevitable public backlash that would ensue if MPs took us into the EFTA following a leave vote would raise serious constitutional issues. Are the people or parliament ultimately sovereign; who should reign supreme?

Another issue with the referendum campaign is that it has, at times, felt as if we were debating another question entirely. Namely, who should be the prime minister, rather than the question of our membership of the EU. The campaign has seen a huge focus on personalities and individual ambitions, rather than the substantive issues we should instead be discussing. But this is a consistent theme throughout referendums in the UK. During the Lisbon Treaty referendums in Ireland, abortion and conscription became major issues. During the "yes" campaign for the 1997 Welsh devolution referendum, an aeroplane flew across Wales with a banner which read, “Vote Yes, Vote Blair”. Referendums often become about something entirely different to the real question at hand.

I hope it is now clear that there is a very strong case to be made against the idea that we should be having this referendum at all. But you would think that, with such a multiplicity of issues and problems with the very idea of holding this referendum, some sort of parliamentary committee might have thought to investigate the use of referendums in the UK before we called this vote. Well, you’d be right! In fact, the House of Lords Constitution Committee looked at the merits of the use of referendums back in 2010, weighing the evidence on both sides before concluding that:

“The balance of the evidence that we have heard leads us to the conclusion that there are significant drawbacks to the use of referendums. In particular, we regret the ad hoc manner in which referendums have been used, often as a tactical device, by the government of the day.”

The committee identified all the never-ending problems with the use of referendums outlined in this article, and more, before reaching the same conclusion that I have. It is abundantly clear that the EU referendum was inappropriate and misguided - a bad idea from the outset. It has undermined the axiomatic premise of the sovereignty of parliament and corroded our representative democracy.