Some hypothesis of voting system

When there is an election, we usually vote ourselves that whether we should buy some politicians’ ideas or not. The word we use ‘buy’ does not mean we use our money to en charge for this politician idea; however, can we really use our money to buy politicians’ ideas? My answer for this question is YES.

I believe when people have immediate costs, they will act more rationally and sensitively; therefore, if people choose different amounts of credits that they are willing to pay for one political party, they will carefully judge how much more they can get from this party compared with other parties, and they will pay the amount which is equal to this different to support their political party. We also need to set a maximum and a minimum for the contribution people can pay for their supporting parties in order to achieve equity as we might know in the near future, the top 1% will be richer than the rest 99% of the population.

Different groups of people are treated differently in the election:

1, the group below the minimum income will gain free credits which equals the difference between the minimum income and their actual incomes. As I believe that the government is responsible to help them achieve the minimum income level. If any party can achieve this goal, this party should gain the credits. Even if they choose not to vote, their credits will still be counted in the election.

2, the group whose income is below the taxable level, but above the minimum income level is free to choose if they want to participate.

3, the group whose income is above the taxable level is compulsory to involve in the election by pay at least the minimum contribution, even if they choose not to vote.

If a party wins the election, it can hold a dominated numbers of seats in the parliament for a period of 5 years; however, it can be challenged by the opposite party after 3 years in a “challenging election”. The dominated party will be in an advantageous position, meaning if people choose not to vote (people are indifferent), all the credits will go to the dominated party, as a political stability is assumed to be socially benificial. If the dominated party wins, it will have 3 more years (the seat number will be changed) instead of 2 more. If the opposite party wins, the opposite party will start its 5 year period, and can also be challenged in a 3-years time. If one party finishes its 5 year period without being challenged, then a fair election will hold, the credits coming from people who are indifferent will be equally split between the parties.

The cost of propaganda should be subtracted from the total credits earn, as propaganda might make policies be overestimated. Each party will gain a proportion of the credits earned as income, the ratio of their income will be the ration of their seats won in the election. Party with the most credits will gain a bigger proportion of the credits earned compared to the other parties. This can ensure the winning party gets a dominated numbers of seats, so policies can be passed smoothly.

The maximum contribution should not be higher than the median income. If someone gets benefit which is above the median income from the government should be concerned as annual benefit which does not benefit the equity.

The income of the political parties can increase the independence of the parties from the sponsor from the minor super-wealthy groups.

Digital products have difficult issues of copyrights because of their "public good" properties

Digital products, like music, video games, are "non-rivalrous" and "non-excludable". These are the two properties that we use to refer to public goods. Digital products are "non-rivalrous, because due to the modern technology, we can almost have infinite copies of any digital product. Therefore, the marginal cost of production is infinitely close to zero. Digital products are "non-excludable", because once one consumes the product, one can always share with his friends or even everyone else by uploading to the Internet. Of course, such action is illegal, but it is too difficult to check every uploading. So it is reasonable to say that legal forces are hardly to protect the copyright of a single digital product without any services afterwards because of its public good properties. In conclusion, I think that it is never profitable for firms to earn money purely based on digital products but the services combined with the products.

Will couples be willing to have their second child?

China has abandoned the one child policy, which had lasted more than three decades. The policy targets human right issues and aging population and its relative economic issues. However, are couples willing to have their second child? Couples make their decision based on various reasons, including economics reasons. Having another child means the wife has to leave her job for about one year. In the labor market, many people argue that gender discrimination exists because employers believe female employees will leave their jobs during their pregnancy periods and spend more time on caring their children. The policy of allowing a second child may widen the gender discrimination. Moreover, couples have to choose between earning more incomes or having another child. Having another child will require parents to spend more on their family, more time with family means less time at work, then lower incomes. In addition, daily spending will increase; therefore, less money could be spent on luxury goods and services, leading to a lower living standard. In conclusion, we can see that couples, especially the middle classes, who have relatively comfortable lives but are still not wealthy enough to leave the labour market, have very high opportunity costs; therefore, they may not like to have a second child.

war is negative sum game

Fed dropped its previous warnings about the global financial and economic crisis, this act calms the markets, but also raises the question of whether the Fed decides to raise rates in December or not. Previously I predict that the Fed will raise rates in December, now I will hold onto my prediction. As my last blog mentions, the challenge will come after the major countries annouce their 2015 GDP growth rate. My prediction is based on the current economic affairs, excluding the political conflicts between countries, especially wars. I here want to discuss wars in an economics way. War is a zero-sum game, or even negative-sum game. Wars push countries to produce at their maximum capability, even produce a quantity that is out of their production possibility frontier by issuing huge amount of government bonds. If one country loses its war, the resources it used for the war are wasted, the damage caused by wars shrinks the country's production possibility frontier, and the defeated country will be forced to pay the losses of the winner, sometimes overpay the losses. The resources used in the war usually do not add onto the post war economy. And when the scale of war is very big, the winners will find that the defeated countries just have no ability to pay back their losses in the war. The two World Wars are very clear examples that winners and losers are eventually losers and the spectating countries are the true winners.

the financial market will turn gradually warming till the end of this year, the problems about the Fed's rates and other issues will add shocks on the markets after the major countries, like the US, German, China, report their growth of 2015

Many firms' earning reports have been released. The financial industry had a poor performance last quarter. However, many other industries have relatively good performances, especially the technology and internet industries. For example, Google, Microsoft and Amazon have had very strong reports, the share prices all have reached their highest in recent ten years. Even suffering from the Chinese economy slowdown, Apple still beats the predicted revenue. This shows that, just like what I predicted before, the financial market did suffer from the loss, but ordinary people's life would not be affected by the loss from the financial markets. The unemployment rate is stable, the inflation rate is low. Moreover, the possibility for the Fed to raise the rates becomes less likely, due to the low inflation rate and the increasing issue of the US debts. Based on these facts and predictions, I think that the financial market will turn gradually warming till the end of this year, the problems about the Fed's rates and other issues will add shocks on the markets after the major countries, like the US, German, China, report their growth of 2015.

What would happen if the US reached its debt ceiling?

The US reaching its debt ceiling becomes more likely these days, and the discussion has already begun. It will add shocks to its politics and economy as well as the financial market and the global economy. I will focus on the economic affects. If the government successfully passes the legislation of raising the debt ceiling, this act could be regarded as another way to default, because the government will then borrow more than it had promised to pay back its debt. The bond yield may then increase and the US dollar may depreciate as well. In addition, this will prevent the Fed from raising the base rate, as the US government wants its loan to be as cheap as possible. It could affect the financial markets in both ways. I believe that the negative force will be stronger at the start, but later the financial market will move back to its original level when it benefits from low interest rates and cheap dollars. If the government fails to pass the legislation, it is highly likely to lead another government shutdown. Government shutdown will significantly damage the economy. It will increase the unemployment rate rapidly, as it directly sends all federal employees home. Although they are very likely to be reemployed, the short term impact on the market will be unexpected. The value of US asset market will continually decrease until the government decides to reopen again.

A third party earns transaction cost created by time, it can earn more if it tries some more risky moves.

When trading on the Internet, because of trust issues, we rely on a third party. Besides the internet trading, we need a third party for many other purposes, such as when we sign a renting contract. In these cases, we give our money to the third party and only when we receive our goods or services that the seller guarantees, the third party will then transfer the money to the seller.  When the money is held by the third party, it is the third party's asset. If the third party does not want any risk, it can receive a profit of the money it holds times the interest rate at the time. However, if the third party is aggressive, it can use the money for investment which will give it a higher return but more risks. Now the third party is like a bank, buyers save their money in the third party, but the sellers will take out the money at a particular time. It is good that the third party does not need to pay interests, but it has to manage its fund more carefully because there are no long term savings.

Some concerns about the Chinese rate cutting

I think within the Chinese economy, many investors have money in their hands, but because of lack of opportunities, the money held by these investors does not have a place to spend. Cutting interest rates make borrowing cheaper, in order to put more money in the economy circulation. I want to describe the Chinese economy as a water tube. There is water inside the tube, but a plug blocks the tube. If we pump more water into the tube, we might have a strong water flow to push out the plug, or the water might make the tube burst. Cutting interest rates will affect people’s consumption, especially consumptions in housing and cars. Increase in consumption could lead to an increase in investment opportunities. However, there is one case that might lead to a hyperinflation. In this case, at the start, all investors see the increase in consumption and decide to wait a bit longer. At one point, all investors see their opportunities' coming and decide to put all their money into the game. Then the sudden increase in the amount of money in the economy could lead to an unexpectedly high inflation. I think the institutions are willing to make investments, but lack opportunities. The best solution is to create opportunities.Cutting rates is usually used to increase investors’ incentives to invest.

I do not understand where Bitcoin's value comes from so I will not accept it as money. This rule will apply to any kind of money.

I just have some vague ideas about Bitcoin; therefore, if any one exchange his one bitcoin with my 100 pounds, even I know that the exchange rate is currently 1 to 178, I will still say no. Because I only have a vague understanding of Bitcoin, which means I do not agree with the value of Bitcoin. I know Bitcoin comes from solving mathematical problems, but I do not see the direct value added by solving these mathematical problems in my life. In addition, its value is also not accepted by the market fully, as we can see this from the dramatic fluctuation of its price changing. From the example of Bitcoin, any money issued should have some real values. The money issued by the government has values that commonly accepted, partly because the central government has the ability to add value directly on people’s life. Therefore, I believe that institutions, issuing money, have to have the ability to affect normal people’s life directly.

EU: stimulator or burden? I believe the EU should treat different countries differently

EU: stimulator or burden?

British people have a split view about its membership of EU. My point of view is the decision of whether the UK should leave the EU depends on the reform of the EU. From the Subprime Crisis, we have already seen the problems existing in the system. Germany, France and Britain are the three dominated power and carry the most responsibility to help the countries, like Greece, Italy and etc. Any member exit could lead to the collapse of the whole union. In the EU, Britain has enjoyed the free trading within the union, as the EU is Britain’s largest trade partner. However, exiting the EU could remove the burden of financial support to countries like Greece and have stronger border control and reduce the competition in the labour market. I am always supporting competitions. The EU will not be a perfect model unless there is a union of politics. In the long term, the EU could benefit the UK economy if all members could perform well. The reform of the EU needs to make members have more common interests, but could allow different countries to have because countries have different economy structures. Using the same standard could only cause more conflicts between members.

What do China’s capital outflows tell?

What do China’s capital outflows tell?

China’s capital outflows have reached $500bn in the first eight months of this year. Developed countries are more likely to have huge capital outflows, compared with developing countries. From GDP per capita, China is not a developed country yet. However, excluding Hong Kong and Macao, there are three metropolises and six provinces, with GDP over 10000 dollars per capita. We can say that some areas of China have already achieved the developed country standard. It is sensible to say that the $500bn outflows mainly come from the more developed area in China. The capital is attracted to the overseas, because people see the returns abroad are more secure or higher than investment in China, especially in those less developed area in China. In the future, the more developed area could enjoy the returns from abroad, but the less developed area will have limited development and the gap between the rich area and the poor area will become wider. I am not saying that the Chinese government should limit the capital outflows, but I think the government needs to make the inland areas, usually the less developed areas, more attractive to investment. Maybe the government is already making such policies, just I do not know yet.

Renewable energy is good for the future, but the decision of cuts to renewable energy subsidy makes sense as well

The UK cuts to renewable energy subsidies is criticised by a top UN environmental scientist. Renewable energy is good for our future, this is agreed by all of us. However, it does not mean that the subsidy for renewable energy needs to continuously rise forever. Subsidy exists because there is a external benefit. An external benefit is a benefit that the market does not realise and take account into its price. The value of renewable energy is now better understood by the public and most people are more willing to use renewable energy if the prices are similar. Keeping the same level of subsidy might cause a negative externality. This means the external benefits of renewable energy have reduced. In addition, solar energy firms had been hot spots of many investors recent years.Technology of renewable energy develops at an incredibly fast rate, the cost has been reduced to a great extend. Cutting in renewable energy subsidy is sensible and good for the market and the government budget, as this encourages competition between the renewable energy industry and the traditional energy industry. Renewable energy is good for our future, but this does not mean that it needs unlimited support. This is how an economist and a scientist think differently.

GDP is too simple to tell the performance of one economy

Consumption is everything, it is the most important part in the GDP function: GDP=I+C+G+(X-M). Without consumption, there will be no markets, because markets are there for consumption. Moreover, investment and government spending is used to boost the consumption. People need money for consumption. I believe, consumption should always be encouraged. In terms of evaluating one economy, I think consumption should weight more when we are calculating the performance of the economy. Government spending should weight a bit less, because some of the spending will not be added directly to the market. Exports and imports should be put into more categories. Raw materials and final goods will have different effects on the economy. When evaluating one economy, simple addition and subtraction cannot give us an overall picture about how the economy is on the right track, we need to evaluate the impacts of all different parts.

Bad news stops the Fed raising rates, so it is Good News! Is there anything wrong with this logic?

Bad situations have made the market so happy that the common believe that the situation will force the Fed to withdraw its plan of raising rates by the end of this year. Even after Goldman Sachs announcing its quarter profits down 39 percent from 2014, the share price of Goldman Sachs has stayed relatively stable. The drop of the profits could be foreseen by the poor performance of the financial market this quarter; meanwhile, such report could put pressure on the Fed's decision on the rate changing. The current situation is like: "bad things happen to stop more bad things happening". We have foreseen most of the bad news, maybe some of them is actually worse. However, we have stopped being panic about the bad news we have already predicted. We start to think the bad news could stop the others from taking more unwelcome actions, especially the US Fed. This is a very worrying thing. I think we need to take positive actions to restore the market confidence, instead of sitting and waiting for the news coming. Because the market may be recovering itself, but if there is any piece of information that is out of our expectation, it will create a huge shock in the market.

How can we test if the money system works?

Previously I discussed about the possibility of the private issuing money system and I think three rules should be set: a complete separation between ownership and management, private firms only issue money to pay their workers’ wages and the government taxation on firms’ revenue. After setting the three rules, I think the next step is how we test if the model works. The first phase is to build up a model by computer programs. Computer programs can give us some ideas how the system will work in our real world. The second phase is to start from a small community, if it passes the computer test. Containing it in a small community can also contain the possible damage within a small scale. The money generated by the new system could be seen as a kind of foreign currency, with a floating exchange rate. The floating exchange rate can use the market force to value the new currency. In addition, it helps to prepare the next phase. The final phase is to transfer the old money system to the new. The exchange rate can help this stage and replace the old money with the new money.

foreign aid: why not supply goods which have the biggest price increases?

Angus Deaton from Princeton University won the 2015 economics Nobel Prize, everyone thinks he is well deserved. I want to discuss his opinion on foreign aid. Mr Deaton says, "I am in favour of giving money not just in Africa, but for Africa". There is a difference between "in Africa" and "for Africa". "For Africa" has purposes, but "in Africa" does not need one. I always think foreign aid does not help a lot, here Mr Deaton tells me the answer of it. Inspired by Mr Deaton, I feel that it is extremely important to do market researches before giving out aids. Amount does not matter, if money is spent in correct purposes. Moreover, I think we can also rely on the market in the developing world itself. The market can distribute scant resources in the most needed field. Therefore, why not supply goods which have the biggest price increases? The goods have the biggest price increases, usually the goods most needed in the market.

Three basic rules that might make the private issuing money system work

The first rule is a complete separation between ownership and management. The second rule is that private firms only issue money to pay their workers’ wages, instead of owners’ profits, the revenue received will be used to reinvestment or paid back to the owners as profits. The third rule is the government taxes a firm on its revenue at a higher rate, if the ratio of the total wages to revenue is higher. These three rules can decrease the likelihood of dangerous levels of deflation or inflation. Because the system increases the amount of money at the level of the nominal GDP. And the government has the control of the supply of money, that by increasing the whole tax levels the government can reduce the amount of money issued by the private firms, as the cost of paying wages increases. Moreover, such system will increase the level of competitions. Firstly, it lowers the entry barriers, especially in the service sector where labour cost is the main cost of production. Secondly, workers want to work in a firm that generates more revenues, which means they are likely to get higher wages. Thirdly, the labour productivity might improve as workers’ wages have a direct link with their production. Fourthly, firms will always be careful to control their sizes within an efficient scale.

Some self-righteous beliefs about the quality that private-issued money should have

From my earlier article, I was talking about the possibility of the private-issued money. I want to continue this topic today as well. The most important is under what rules the private issue their money. Without putting any rules on it, the society will not all agree on the value of the money that the private issue. I think there are three fundamental rules that we should set when allowing the private to issue their money.The first rule is who has the right to issue the money. The second rule is what quantity of money one private institution should issue. The third rule is how the private-issued money circulate in our financial system. Then we need to test if these rules work. Firstly, these rules should allow money to flow and exchange freely. Secondly, the rules need to avoid hyperinflation or deep deflation, or at least have the tools to solve such problems. Thirdly, these rules give the third party a way to intervene in the financial system just in case that something goes wrong. The last, the rules will encourage competitions instead of monopoly. For the next few days, I want to focus on this question how we can possibly establish a system of private-issued money.

Maybe the money printed by the central banks is not needed

Money is the medium of exchange, this is the concept of money. Moreover, money itself can circulate in the society independently. The main character money should have is everyone agrees on the value of money. Therefore, if we can have one thing that has these three characters, it can be used as money, even if it is not produced by the government. We can find this type of things: for example, gift cards. Gift cards are not made by any government institutions or banks, they are made by companies and have all these three characters. If one day all companies have their gift cards and different companies’ gift cards are exchanged without any limited, then why do we need the money printed by the central bank? When such exchange happens more frequently, the society itself will start to allow the companies to issue money in terms of the values of their production. The only role of the government in the field of monetary would be the watchdog of the markets.

Better welfare and insurance systems can encourage entrepreneurship

To encourage entrepreneurship, it is important to have a complete system of insurance and welfare. This will help to reduce the risk premium of starting a new business. The welfare system is extremely important. People who start new business have risks to become bankrupted. People who start new business are usually either very poor or very rich. On the one hand, the poor people find that their living standards cannot be any lower even if they fail in their business. On the other hand, the rich people do not feel their loss from new business failure will be significant to their wealth. With a good welfare system and a complete insurance system, the expected loss from starting a new business will be smaller, giving more incentives to the middle class people to start their business. This will be super beneficial to the whole society, as the most of middle classes receive higher education, which means their business ideas may have higher probabilities to succeed and higher returns.

The US presidential election shows the Internet's power of increasing the level of competitions

Recently, we have learned some US presidential candidates, who were not as popular as those big names like Hillary Clinton and Jeb Bush. The campaigns start much earlier and everyone seems to have a chance to win the race. From this phenomena, we can see the power of the Internet. People become easier and harder to know each other. Easier, because there is so much information on the Internet, we can find out what we want to know in seconds. Harder, because there is too much information, it is impossible to find all information and it is hard to distinguish the reliability of the information we receive. Just like the US presidential candidates, during this Internet era, small companies can also become famous quickly. This also brings the small companies to compete with the larger firms directly, as they are in a relatively better position in terms of popularity. As the level of competition is continuously rising, the inflationary pressure will be reduced.

The TTP Pacific trade deal: the developed countries are the winners, and the developing countries are the losers.

The TTP Pacific trade deal: the developed countries are the winners, and the developing countries are the losers.

Trade barriers will be reduced. This act will seem beneficial to the developing countries; however, it will limit the potential of the developing countries. The developed countries have the dominating advantage of advanced technology; thus, the developing countries will rely on the developed countries’ technology output, and lose their technology development. Moreover, the enforcement of labour standards will also weaken the developing countries’ comparative advantage of low labour costs. The developed countries like US, Japan and Australia are the winners of this deal; and the developing countries are the losers.

No more free plastic bags? Well, only if shopping in retailers with MORE than 250 employees

No more free plastic bags? Well, only if shopping in retailers with MORE than 250 employees

Starting from the 5th October, retailers with more than 250 employees in the UK have to charge at least 5p for a bag, according to the new law. It is a clever move by the UK government. This is environmentally friendly. People start to carry their own recyclable bags and the retailers provide bags with better quality. More importantly, this is small business friendly. The law means the retailers with fewer than 250 employees can offer free bags. 5p is not a lot, but still something that people want to avoid on, especially when people experienced free bagging in the past. Within similar distance and with similar quality, people may start to prefer small retailers than the larger ones. Therefore, this act will help small retailers to generate more incomes.

Is it better to have a fall or a rise in energy prices rise? Market confidence says it does not matter.

Is it better to have a fall or a rise in energy prices rise? Market confidence says it does not matter.

Energy is a necessity for households and business. Fall in energy prices can lead to a decrease in household spendings on energy, thus households can consume more on other goods or services, and improve living standards. However, when the markets are unconfident, a fall in energy price signals a fall in demand for energy, which is considered as a portent of a decline in production in the future. However, a rise in energy prices is not a good thing, either. The oil crisis of the last century well explains how a rise in energy prices could affect our economy in a negative way. From my opinion, market confidence is key to everything. Nothing is absolutely correct. When people are confident, everything becomes positive; oppositely, when people are panic, all news becomes bad news, making people more anxious about their future. In addition, both confidence and panic need continuous news to convince people; otherwise, people will start to doubt their beliefs and the market may move in the opposite way.

The US Fed job report is not as weak as it seems, given the current condition

The US Fed job report is not as weak as it seems, given the current condition

The Fed report showed the US economy created 142000 jobs in September, August’s jobs tally was revised from 173000 to 136000 and wage growth flatlined. However, the unemployment rate remained steady at 5.1% in September. To me, it was not a bad report. 5.1% unemployment rate is actually quite low; when the unemployment rate is low, it is less urgent to create more jobs. Moreover, given the current poor performance of the financial markets and firms' lack of confidence, we should be pleased to see there isn't a rise in the unemployment rate. In addition, the low inflation rate has directly led to a zero income growth rate. Income usually arises when workers foresee an inflation in the future, which means when workers does not think there will be an inflation in the future, but have a danger to lose their jobs due to the unconfident markets, they will not ask for a rise in their incomes. In general, I think the report is not as weak as it seems, given the current condition of the economy.

We urgently need strong financial reports in October; otherwise the world economy may enter into a recession.

What are we still worrying about?

Trade volumes and stock prices stay low, showing the markets are still panicking. But what are the investors worrying about? Many people would say they worry about Chinese economy slowdown, the Fed's plan to raise rates, the Greece problem and so on. These answers are incorrect in my opinion. They are not news. Chinese economy slowdown could be foreseen last year. The Fed's plan to raise rates has been known since early this year. The Greece problem has been there since the Financial Crisis. Moreover, the oil price has returned to the previous level in early August. I think most investors are panic without knowing what is going wrong. However, because of the investors' panic, the firms are harder to raise money from the financial markets and this will affect the future income of the firms as well as the financial markets. Therefore, the financial reports due to be announced this month are important to the financial markets.  Strong reports can stimulate the financial markets and prevent a further fall in financial markets; otherwise, the financial markets will be dragged down and the whole world economy will have a danger to enter a recession.