The cyber security companies do not have the incentive to eliminate all existing and potential hacker attacks

Cyber security is crucially important in today's world, because all businesses are using IT technology to increase their efficiency and productive capacities. However, I think the nature of the market requires the cyber security firms and hackers. They are against each other, but the cyber security firms need the existence of hackers. When the cyber security companies are doing well that their products block all hacker attacks and viruses, people stop their investment in the cyber security industry as they believe there is no need for this sector to grow further. However, when hackers attacks cause major losses, people think these companies are not doing well, and they will lose some of their contracts, thus their market values will decrease. Therefore, the goal of the cyber security firms is not about to eliminating all hackers, instead they want to limit the damages caused by hacker attacks.

The chicken or the egg causality dilemma in economics

The chicken or the egg causality dilemma in economics is about demand or supply. Do we have demand first or supply? It is a complex question. However, we can have answers for some particular goods and markets. For example, weapons are developed and produced because the national defense ministry demands more advanced weapons to defend the country. Meanwhile, some products are supplied first, then people find their uses and demand for them. Penicillin is a good example. Penicillin was invented by accident; however, because of its antibiotics function, it is widely demanded by people. Overall, we can see that in most cases, demand comes before supply, but there are still some cases that supply comes before demand.

Saudi is no longer to afford the cause of the current oil price

Saudi unveiled spending cuts in its 2016 budget, subsidy reforms and a call for privatization to mitigate the deficit caused by the low oil prices. Saudi has raised its oil production and lowered the prices in order to win the market share from higher-cost producers.However, the action taken by Saudi suggests that its own is not a low cost oil producer. Maybe the cost of oil production is low; however, the country requires a higher income from oil exports to support its government spending. Therefore, Saudi may no longer maintain its current production level and may reduce its production in the near future, thus the oil price will rise above the current level. However, due to the weak demand side, the oil price will hardly rise back the level two years ago.

How government and firms do things differently?

Government likes to enter the market with full details, known strategies and very clear plans. Once an act is passed and put into action, the act is not flexible and it usually requires more paperwork to amend the act than creating the act. However, firms usually enter the market with relatively limited information (especially when they enter a new market) and some new ideas. They are very flexible as they have to adopt themselves to the market changes. Therefore, government is easier to intervene the traditional industries effectively, as the changes in such markets are more predictable. When the market is changing rapidly, the government intervention could be much less effective.

Could the oil market fit into the Cournot model?

The Cournot model needs to have several characters. Firstly, firms need to have market power. Secondly, the products have to be homogeneous. Thirdly, the number of firms is fixed. Fourthly, firms are economically rational. Fifthly, firms do not cooperate. Sixthly, firms compete in quantities. In the oil market, firms are the countries that export oil. And I can see that the oil market has the first three characters and the last one. As these countries have some market power to affect the overall supply of the market and influence the oil price. Moreover, the number of these countries is fixed and they all export the same product, oil. These countries compete in quantities, as they choose their quantities to produce each year. However, the countries sometimes make their decisions based on some political reasons, so they are not always economically rational. They often cooperate, as some of these countries found the Opec. Therefore, the oil market does not completely fit into the Cournot model

Some key points drawn from some professional 2016 outlook reports

China:
the equity market: more volatile and could see a potential correction
financial reforms will become particularly important to determine the Chinese economy's future performance

Oil and commodity prices:
little optimism
unless the OPEC decides to cut supply, hedge funds will continue to short

The EU (especially the eurozone):
disappointment from the ECB
there will be limited recovery or even no recovery
the political conflicts in Europe

The UK:
the economy is recovering; however, the government budget remains as a big issue

The US:
the economy is recovering
the US Fed may choose to raise rates next year
the US government debt is a big issue

Japan:
the economy is very domestically focused
trade partner is China. The slowdown of the Chinese economy will affect the Japanese economy

The emerging markets:
the emerging markets' development is slowing down

I expect the UK Boxing Day sales could be higher than the previous years since the crisis.

Boxing Day is in two days. It is the biggest sale day in a year. From the sales data of Boxing Day, it could be used to estimate the purchasing power of the British population.  Moreover, UK bank lending to business growth for the first time since the crisis. This could show that banks believe the UK economy is in growth and the UK companies could do well in the future. Also, it shows that the UK companies are looking for more investment and opportunities as they see their markets are expanding. Additionally, this year people feel more secure about their futures and their incomes are increasing, thus the UK people would like to spend more this Christmas. Therefore, I expect that the Boxing Day sales could be higher than the sales in the previous years since the crisis.

Oil prices tend to be stabilized and might rise next year

The OPEC has lowered its long-term estimates for oil demands, but says 10 trillion dollars of investment will be needed to prevent a spike in oil prices. This sends a signal to the market that the era of oil oversupply will end shortly. However, the OPEC also leaves some room to maintain the oil prices at the current low level for a period of time. In my opinion, the oil prices could rise gradually next year. The social unrest in the Middle East could add more force to increase the oil prices. However, we also need to consider the other sided force that could drag the oil prices further down. The slowdown of the emerging market economies could weaken the oil demands. Moreover, the 10 trillion dollar investments also prevent the possibility of a sharp increase in oil prices. In my conclusion, I believe that the oil prices could rise back to around $70 per barrel at most by the summer of 2016 due to the slowdown of the EM and other factors. The area of over $100 per barrel will never happen next year.

The EU is in decline

2015 is so far a tough year for the EU. The political uncertainty, the endless Greek crisis, the scandal of the German car industry all contribute to the decline of the EU. The political uncertainty of the Southern Europe may not cause significant damages to the economy; however, the potential risk of the political uncertainty could become worsened when the economic difficulties in these countries remain unsolved. The decline might speed up if Britain decides to leave the EU in 2016. The scandal of the German car industry has had negative effects in the German economy as well as the EU economy, as the German economy is the largest economy within the EU. Many problems in the EU seem endless, because there is no single central government in the EU that could relocate resources and balance the differences between member countries. Without having a single, powerful central government in the EU, the decline or even collapse of the EU is inevitable.

The wealth inequality widened by the increases in housing prices is positively proportional to the trade volume in the housing market.

The history explains how the class of landlords fell and was replaced by the entrepreneurs and capitalists, when many landlords sold their lands as the profits generated by farming became much lower than opening factories. Previously, land was the most important factor of production. Nowadays, the importance of land becomes weaker and weaker, and capital and labour become more important. Houses are not liquid assets, especially more expensive houses have fewer demands. If people rush to sell out their expensive houses, the housing price could drop sharply and people could only make losses. Therefore, in the house markets, high demand is the key to push up the house prices. When people are generally becoming wealthy constantly, the housing price increases, according to higher demands for houses and houses become more liquid assets, thus wealth inequality widens, as rich people can sell off their houses at higher prices and make profits. However, the first thing should be done is to distinguish between the wealth inequality led by housing price increases and the housing price increases led by the wealth inequality.

What we should be aware of in 2016?

In 2016, we need to be aware of five key elements. The first thing is the US Fed's decision of further increases in its rates next year, which could add more pressure on the global markets. The second is the commodity prices. The commodity prices could signal the performance of the global economy. The third thing is the scale of the war in the Middle East. There are many OPECs in the Middle East area. The scale of the war could have a decisive impact on the world oil price. The fourth thing is the Chinese economic reform, which can could affect many countries' current accounts. The fifth thing is Britain's decision on whether it will stay in the EU or not. This election will affect the EU and Britain. If Britain decides to leave the EU, more countries could leave the EU in the future. I think these five key facts could have decisive effects on the world economy as a whole in 2016.

Brexit is not likely to happen

Britain will hold a public election to decide whether Britain will leave or stay in the EU. The rest of the EU is the largest trade partner of Britain. Leaving the EU could increase the costs of imports and exports. The decrease in imports and exports could affect the domestic economy and may lead to an increase in unemployment. Moreover, many EU workers in the UK have to rethink their job stability. They may need to require work visas in order to be eligible to work in the UK. However, some of them do not meet the minimum requirement for work visas. The jobs that become available because of their leaving could help more British people get jobs; but it may raise the costs of employing local people, as some workers from the poorer part of the EU are willing to work with relatively low wages. In general, Brexit could have negative effects on the economy and the labour market, though Britain could release some pressure from its government finance as it no longer needs to support other EU countries which have very difficult economic problems.

If middle-skilled workers are replaced, what could happen?

Research from the McKinsey Global Institute find that digitisation could add $2.2tn to the US GDP by 2025 as companies lift productivity by exploiting advanced technologies. Meanwhile 10 to 15 percent of the middle skilled workers will be replaced by the advanced technologies. These people are considered to the Middle Classes, who have relatively stable incomes. Once firms choose productivity rather than "social responsibility", many of these Middle Classes would become unemployed. The labour market would become more and more competitive and the wage will decrease further as the labours have to make themselves cheaper in order to compete with machines. This could widen the gap between the rich and the poor. The population could decrease, as parents are harder to provide sufficient incomes to support a larger family. Therefore, with technology development, there could be a decrease in the population, as only people with skills that cannot be replaced by machines can become richer.

The Fed's move is based on the three reasons

Just as I expected, the US Fed decided to increase the target range for the federal funds rates to 0.25-0.5 percent today. The US Fed implied that in the future there would no more big changes in the Fed rates. The Fed made such move based on three reasons. Firstly, the Fed kept its words. Over the last several months, the Fed made several implications of increasing its rates. To maintain the central bank's credibility, the Fed needed to raise its rates at some point. Secondly, the labour market is performing well and the economy is growing relatively compared with many other developed countries around the world. This has left room for the Fed to raise its rates without shrinking the US economy. Thirdly, the inflation rate is still very low. The Fed needed to be aware of such fact. Raising rates could create further pressure to drag down the inflation rate. Therefore, the Fed had to imply that there would only be some 'gradual'" increases in the rates in the future. In general, I think the Fed has chosen the best move that keeps it credible and avoid freaking out the market.

Forward guidance is a good tool only if the central bank can forecast the economy accurately

Forward guidance must be solidly supported by the central bank. The credibility of the central bank is the most important part of making the policy of forward guidance effective. The Bank of England steps into the mud of forward guidance. The Bank of England's forecast of the labour market was inaccurate. The Bank of England has to decide whether it will follow its initial forward guidance or amend the forward guidance in order to deal with the current economic problems. If the central bank decides to follow its initial forward guidance, the current economic problems would not be dealt effectively. However, if the central bank decides to amend its mandate, the central bank would become less credible and the future policy would become less effective. Overall, forward guidance is a good tool, but the central bank has to make a very accurate forecast.

The same mistake in the financial crisis is hardly made twice

I read an interesting article from Financial Times called "Too much 'medicine' could make the finance system sicker". It was about the Japanese economy, but I think such phenomenon could happen to any economy. The article suggests two reasons that cause this phenomenon. Firstly, after several crises, individual players play safe. It is a rational move for individuals, but the financial sector will grow slowly as a whole. Secondly, after the global crisis, regulators have tried hard to make the financial system safer and enhance financial stability. The new rules limit the growth of the financial sector when the world has been aware of the importance of sustainable growth and development.

I think such kind of mistakes could only happen once, as the whole financial sector suffers from the mistake and will avoid to let it happen again, with or without the intervention of regulators. Latent mistakes are more deadly.

The property of commodities

Commodity prices have large impacts on the global market. Commodities are used widely as raw materials across many manufacture industries. Higher commodity prices led by an increase in demand for commodities send a signal to the market that the economy is expanding and people are consuming more. Moreover, some countries' economies heavily rely on commodity exports. Then the prices of commodities will have a multiplier effect on their economies. Some large economies will then impact the global economy. Therefore, the commodity prices will add multiplier effects on the global economy. The commodity market is no longer just about the relationship between supply and demand, it is rather about people's predictions about the future global economy performance.

Today is the best time to study macroeconomics

Studying macroeconomics sometimes is like studying history that we use past examples to study and analyze our models. However, nowadays we have so many economic events going on at the moment. Especially when the central banks across the world face the same global economy, but choose to take different actions. The ECB chooses to push its rates to negative, the BoE and the Swiss National Bank chooses to maintain their current rates, while the US Fed is likely to raise rates later this month. Although these central banks have different domestic economic problems, the exogenous effects could be large enough to impact their domestic economies in the same way. Therefore, we can study which central bank policy is the best way to deal with the current global economic problem.

The more developed country should have a less restricted immigration policy on skilled labours

From my personal aspect, I of course want all governments to loosen their immigration restriction so I could move around the world more easily and have more opportunities. However, there are always some people that want their governments to make immigration impossible. Donald Trump had inappropriate comments on Muslim immigrants.  His comments were made based on his naive belief of if Muslim immigration was banned, there would be no Isis attacks on American soil. Such action could increase the difficulty for Isis to arrange an attack on America; however, I don't believe it will reduce the possibility to absolute zero. Moreover, such action could only worsen the problem and push moderate people towards radical groups. 

However, loosening immigration restriction is also not very popular. Allowing more immigrants into a country increases the level of competition in the society across its labour market, good markets and so on. It is very sensible that the government protects its unskilled labour force from the competition from outside. However, when one country's labours are well trained, the government should withdraw its protection. By encouraging competitions, the labour force could remain competitive and productive. With overprotection, the labour force could become less productive as they have very limited incentives to work harder. Therefore, I think the more developed country should have a less restricted immigration policy on skilled labours as it has well trained labour force that is capable to face the competition from outside.

Government vs Market

The US boosts funds for poor countries fighting climate change; in other words, poor countries will receive more funds to develop green energy. However, meanwhile, US pension funds also raise the bar in green energy investment; as the oil price is falling sharply, the green energy becomes less competitive. This shows that political pressure cannot win against market force.

Management of scattered resources becomes easier and more profitable

There are many innovative firms which use scattered resources to generate profits. Uber is a typical example of this type of companies. Uber builds a platform to allow private drivers to use their cars and spare time to create wealth. Airbnb also uses a similar idea to run their business. Everyone has occasional excess resources that can be useful to others. Actually, this is not a new idea. The foundation of banks is based on this idea that banks borrow people's spare money to lend to people in need. However, nowadays, advanced technology and mathematical skills allow people to manage more scattered excess resources. Any company, which can find one type of people's excess resources and use its finding wisely, could become the next Uber and attract many investors.

The Chinese capital outflows create new opportunities for the global financial market

The Chinese financial market is relatively isolated from the rest of the world, many Chinese IT companies issue their IPOs in foreign financial markets. The Chinese capital outflows reduce China's forex reserves and weaken the capability of hedging against capital flight or bailing out domestic financial institutions. However, such outflows can have positive impacts on the global financial markets.  The prices of real estates and equities are more likely to rise, compared with the prices of commodities and bonds, as they have relatively higher returns. I think the first country which has its financial market fully covered will benefit the most from the Chinese capital outflows. From the current situation, I believe the US financial market is the most likely to benefit from the Chinese capital outflows.

How far can the ECB take its actions?

Mario Draghi has stated that the ECB will take any necessary action to hit its target without limits. However, we need to know "no limit" does not mean no limit, as the ECB needs to ensure that the Eurozone economy is recovered without causing the collapse of the currency union. Moreover, it is a central bank by definition. It cannot use any stimulus tools beyond the function of any other central banks. Moreover, all member countries have their governments who are making all different fiscal decisions, and these decisions may limit the effects of the ECB's policies. The move of setting negative base rates is already very radical; I think more radical moves might damage the currency union.

OPEC cannot achieve an agreement to push up oil prices in the short term

Many oil exporting countries are suffering from the low oil price, as the price is only half of the price a year ago. Saudi Arabia extended its outputs in November 2014, won the competition with the oil exporters who have higher production costs. Such move has helped Saudi Arabia win a larger market share, but damaged the possibility of cooperating with other oil exporters. In repeated games, when one player cheats once, in all future games, all players will not choose to cooperate with each other. Therefore, the unity within OPEC is much weaker now. In order to regain trust from other members, countries like Saudi Arabia have to give away some of their market shares to other member countries. If they do so, then the move of extending productions would become pointless, so I do not expect they can achieve any agreement to cooperate together to push up oil prices in the short term.

I don't think the ECB's decision will be effective.

The response to the ECB's decision of extending its QE is very negative. The stock market fell and many European countries' bond prices fell sharply today. People are tired about the ECB's continuous QE program with no end in sight. The result of the QE program is disappointing so far. Moreover, the ECB further cut its rate to minus 0.3 percent. This is a very radical move that a negative base rate can make the economy go either way. There could be a capital outflow from the Eurozone as people may feel insecure about the cash they are holding. The worst situation is "bank run" when people are extremely panic. In addition, cutting rates leads to a depreciation in the euro. This can increase the Eurozone coutnries' exports in order to help their domestic economic growth. Moreover, as people may feel insecure about the cash, people may want to spend as quickly as possible. This can boost consumptions but imports as well, as some of the countries rely on imports in certain sectors. Therefore, the improvement of some countries' current account is limited. Overall, I think the ECB's move could increase the inflation rate in a short term but will not make a significant improvement in the countries' economic performances.

Luck is measurable

Sometimes when we want to be successful, we need luck; however, we do not know when we have luck and how much luck we have. It is possible to look back and measure how much luck you had in the past. The first thing to do is to list all elements that you feel you can have a control with, e.g. education, time and efforts. Then you need to make a judgement on all things you did in the past, whether it is successful or not. If it is successful, then the outcome is 1; otherwise, the outcome is 0. Then by running a regression you can know how each element affects your achievements. Then you substitute data into each sample and calculate the unobservable heterogeneity term, and the unobservable heterogeneity term is a measurement of the luck if you assume that the God is fair that you have equal amounts of good luck and bad luck.

Two-party politics is not very different from one-party politics under certain assumptions

Imagine people's political opinions all lie on a single line from left to right and each political party chooses a point on this line. The people will choose the political party which has a point that is the closest to their political views on the line. We assume that people's political views uniformly distribute on this line. If there are only two parties in the game, the Nash equilibrium exists when both of the parties choose the central point. In this way, only the policies which match the central political view will be carried out no matter which political party is the dominant party. Therefore, even there are two political parties, however, both parties will choose the same policies. In this way, we cannot see that the difference between two-party politics and one-party politics. People may think that if there is only one party, one party can choose any policy it wants. It could be true. However, if the single party wants to maximise the country's total utility or satisfaction, it has to choose the middle point, if we assume that distance away from the point the party selects is negatively linearly corelated to that person's utility. Therefore, with assumption of when there are two parties, parties' priority is to maximise the number of their supporters and when there is only one party, the party wants to maximise the country's total satisifaction, both political structures will carry out the same result. If we have more than two political parties, there will be no pure strategy nash equilibrium, which means the political environment could be very unstable.