Has my prediction been wrong?

Yesterday I made my prediction that the price fall in oil will continue for at least one decade and the world economic growth could remain low until a new economic stimulus tool is developed. Today these predictions seem to be wrong. That the OPEC agrees to cut oil supply and push oil price above 50 dollars and the US 10 year bond yield rises sharply today, showing the market confidence about the future growth.

However, my predictions are about long term trends rather than short term performances. The markets are always changing and adapting latest incoming news and information, and the prices can fluctuate all the time. I am actually surprised about the agreement made by the OPEC that I thought they could no longer be able to come to an agreement as they previously increased supply to compete each other. However, the low oil price will still continue, because of several reasons.

Firstly, the demand for oil is determined by the world economic growth. If the world economic growth slows down, the demand for oil could become weaker, thus the oil price will remain low. Secondly, there are now more alternatives to oil. The previously fall of the oil price also pushed down the prices in these alternative energy industries. Moreover, the technology development also drag down the costs of production in the alternative energy industries as well as the market prices. The alternative market is far more competitive than the oil market; therefore, even when the oil price retreats, the alternative energy prices will stay low, as the levels of competitions remove the possibility of cooperation and any increasing price will lead to a loss in the company’s market share. As long as the alternative energy price stays low, the price of its substitute, oil, cannot rise to a very high level. Thirdly, many countries and companies have stored large amounts of oil when the oil price hit its low. Now they have more than enough oil reserve for their future use; therefore, they can have greater bargaining power when consuming more oil, as the OPEC countries largely rely their oil incomes. When the consumers have greater bargaining power, the market price will decrease accordingly.

Therefore, the trend of falling oil price remains.

How long will falling oil price last?

The global oil price dives today as Iran refuses to cut its oil production and Saudi Arabia according to the previous report will accept any production cut without the cooperation of Iran and Iraq, so Saudi Arabia is not likely to cut its oil production as well. I always believe the oil price is experiencing a long period of falling trend that the OPEC countries will have more and more difficulties to cooperate with each other, as once the competition starts, it will then increase automatically.

The falling oil price could put more pressure on the world economy, especially it can force down the inflation rate. As oil has been used widely in current industries, the falling oil price makes production cheaper, which can lead to a decrease in the prices, when the companies face greater competitions or weak demand. Currently there is a weak demand around the world, the demand for goods and services. Although the market seems confident about the future world economy, compared with the previous performance, the market has become much more risk averse, as we can see that low risk assets have become far more popular, the fixed income funds attract more money than other funds with higher risks, more hedge funds close than those open. The extreme risk averse environment could actually enlarge the risk in the economy, as they force down the returns of investment and create an unfriendly environment for new businesses and smaller firms. The deflation and the low return of investment including individual investment and the risk averse behaviour of the financial institutions will come together and contribute to a low economic growth, a continuous weak demand.

The fall of oil price and the low economic growth will interact with each other and force each other further downwards. Therefore, the falling oil price could last for at least one decade and the low economic growth must have some kind of new solutions.

When does infrastructure plan work when doesn't it work?

The OECD has a great confidence about Trump-led America that it suggests the US economy under Donald Trump's proposed economic plan will grow faster than the previous expectation mainly because of his infrastructure plan. Last century, Roosevelt built massive infrastructure during the Great Recession, from the result, the American economy did recover from the Great Recession; however, the main factor that cured the US economy is questionable and the economists have argued varies reasons for the recovery. In addition, Japan has started its massive infrastructure plan after its economy collapsing; however, the Japanese economy has not fully recovered and the inflation rate stays very low for years and the government seems to have no effective tool to boost the economy and create an inflation in its economy. Therefore, we can see infrastructure does not necessarily make the economy grow faster.

The idea of infrastructure plan is to boost government expenditure, this will directly lead to an increase the aggregate demand according to the basic aggregate demand calculation formula. In addition, the plan can create thousands of jobs immediately and these people can use their incomes to consume goods and services in the economy and creates a multiplier effect that boosts the economy further. Therefore, the immediate positive impact of the infrastructure does exist. However, the cost of such plan may be greater than the benefit. Firstly, infrastructure is only one part of the economy, there are many other fields that require government funding and some of them may be more important and urgent. Secondly, the long term effect of infrastructure could be doubted. I am not saying that infrastructure cannot contribute to future economic growth, instead I am saying the impact of building new infrastructure in some areas could be less effective. It is more effective to build infrastructure in an area with higher population density than in an area with lower population density; however, the area with low population density is usually poorer and made to be the priority of infrastructure plan, the cost could be much higher relative to its benefit.

Therefore, infrastructure plan may have positive impact on the economy, but it is not necessarily to be the best solution.

We may change to have a much smoother consumption habit

We are starting to change our consumption habit by something called subscription. Subscription is not new at all, everyone should be familiar about subscription, as we have already been subscribing news and magazine for a very long period time. However, now we can subscribe more and more kinds of goods and services.

For example, the most recent and well-known programme is Apple's iPhone Upgrade Programme. It can be seen as an iPhone subscription programme that the customers can receive the latest iPhone once it is released and the release of a new generation is scheduled. In addition, many computer programme companies start to sell subscriptions of their products that allow their customers can always receive the latest programme. Such marketing strategy could even be extended to other more traditional markets. For example, if there is a supermarket can offer their customers subscriptions to daily food and drink, the customers can receive fresh food and drink without going into a supermarket. This may not be desired by every customers, but certainly some customers who do not have time to do shopping very often may like this idea.

Subscription is mutually beneficial to both customers and sellers. For customers, they can also receive the latest goods and services and they are able to manage their spending more easily as once all everyday used goods and services are subscribed, they can easily calculate their monthly living costs. In addition, they can have a smoother consumption that reduces some of their risk. Moreover, the data analysis technology is relatively advanced that it allows sellers to know their customers' individual preferences, so the subscriptions could be personalised and more matched with customer's preferences, and the customers can receive the satisfied goods and services without spending too much time on researching and comparison. For companies, once their customers prefer subscription, their finances can be better managed as they can have clearer knowledge about their future earnings and cash flows. The subscription numbers can send better signals to investors, banks and other participants in the financial market about the companies' current and future performances, I think based on better signals, they can make better decisions thus the financial system could also lower its risk.

Therefore, I think subscription will become far more popular in the future.

What can we see from the total consumption on special shopping events?

Today is the Western Black Friday, when many retailers tend to provide discounts and boost their revenues on the day. Earlier this month, the China's Singles Day finished with a total consumption of 17.8 billion dollars, set another history.

When we compare the total consumption year from year, if we can see an increase in consumption, we may come to a conclusion that there is an increase in the entire population's consumption power; if we see a decrease in consumption, we may consider the population's consumption has decreased or we may think that some proportion of the middle class become more wealthier and busier that it is not worth buying goods and services on a specific day, especially on a working day.

There is always some news covering how these retailers cheat on their customers without actually reducing the prices; however, we have never seen that the consumption is ever significantly affected by this kind of negative news. This shows either customers are not sensible about the prices they consume or the majority of the prices actually decreases.

Why do people love to consumer far more than usual on these special shopping events? Of course, the discounts are very attractive and many people buy more based on their excitement about the sharp discounts. On the China's Single Day, the rate of the increase in people's consumption was greater than the average discount rate, which means the preferences of many Chinese people treat the price differences after the discounts greater than the actual price differences, then they have a convex preference curve towards discounts.

It is an era of new opportunities and orders

China right now has a very good opportunity to strength its world power and economy because of several factors.

China is the third largest economy in the world, after the European Union economy and the American economy. These two economies are facing very serious internal divisions. Firstly, the European Union and the Eurozone is at the edge of collapse. The Brexit this June means Britain is highly likely to leave the European Union in the near future, thus at the time the British economy will be affected in a negative way as well the European Union will lose a strong support from one of the largest economies in Europe, the British economy, especially when the negotiation is forced into an ugly revenge action. Secondly, America now has a very divisive nation and the result of the recent presidential election actually widens the nation's division. In addition, the next American president with his party dominating both houses seems he will focus more on the domestic issues rather than the global issues. This means other countries may face less opposing force from America.

Besides the European and American factors, the low interest rate environment around the world means the Chinese companies with good performances can have lower costs of financing around the world, and their expansions could be a lot easier. The large Chinese population and land and resources build up a large production possibility frontier and I believe the current Chinese output is still not any near the edge of the frontier, as some of the Chinese population are not acting productively in the economy, especially those in the inner China.

However, China has to be aware several factors that may cause a sharp drop of the growth. Firstly, China has to maintain and stabilise its currency in the Forex market. China should avoid the Japanese economy collapse from the last century. Secondly, China has some national divisions as well, the rapid economic growth raise the issue of the widening wealth gap, especially the gaps not just between the classes but also between the regions. When we can narrow the wealth gap, we can expect an increase in the consumption, and consumption should replace exports and investment to become the drive of the Chinese economy. In addition, the opportunity gap is more serious than the wealth gap that some regions have far fewer opportunities than others, especially those on the eastern coast. This may lead some people trapped in poverty.

What if two economists play the prisoner's dilemma?

I was asked an interesting question that 'what if two economists play the prisoner's dilemma together'. To be honest, in principle, it does not matter who is playing the game, the outcome of the prisoner's dilemma does not change, as it is the Nash equilibrium.

However, we can still imagine there are two economists playing the same game. We call them economists because we assume they understand the outcome of the prisoner's dilemma is not the best mutually beneficial outcome and they try to be 'smart' to outperform the others and they know each other well as they work in the field.

With these assumptions, we actually add one more assumption that they have the incentive to cooperate together. However, they do not know each other's possibility of choosing to cooperate, the only thing they know about if the willingness to cooperate is higher than the willingness to 'betary' his/her profession. This leads to a change in their preferences, as the payoff of cooperation increases and the payoff of defection decreases due to their professional 'pride'. Then we need to introduce risk preference into our model and the less risk averse the economists are, the more likely they are to cooperate.

Therefore, in fact, they may have a much greater chance to choose to cooperate. However, the model is no longer a prisoner's dilemma model, as the change in the payoffs of cooperation and defection due their professional 'pride' may change the basic structure of the model and they have a rough knowledge about each other and they can respond to each other's expected strategy.

What if the financial industry is fully competitive?

Of course, the current financial industry is not perfectly competitive due to various reasons. However, is it truly desirable to have a perfectly competitive financial industry.

In order to ensure it is a perfectly competitive industry, there are two key assumptions that we have to make. Firstly, the number of financial institutions is large enough to avoid an oligopoly market. Secondly, the entire market is fully aware all possible public information. Based on these two assumptions, we then can evaluate the possible outcomes of a perfectly competitive financial industry.

In the financial industry, price and utility are not the only two factors that demanders or consumers consider, each individual has own unique risk preference. Therefore, if we do not assume all consumers are homogenous, the market will inevitably be divided and differentiated according to different risk groups. Therefore, there will not be a single homogenous product sold by all financial institutions. However, within each different market targeting a specific risk group consumers, the institutions tend to provide the same product that balances its risk and return well and best suit the specific risk group. Moreover, even between the different small markets, the different products provided to different risk groups may have similar patterns that the products may contain the same items with different proportions in order to fit their consumers' risk preferences.

This will make all financial institutions have the same investment strategies, then make the economy fast abandon the industries in decline.

Is universal tax truly unrealistic?

Currently, our tax systems around the world always have many different types of taxations and some politicians have tried to simplify their taxation systems but all of their experiments ended in failure. I think that a universal tax could exist, but it requires a very complicated function to calculate the socially optimal taxation level for each individual in the society. This is one disadvantage of having a universal taxation system that it is almost impossible to come out one function that can consider all kinds of situations and factors and calculate the socially optimal tax for each individual. In addition, there are three time points that the government could tax one individual. The first time point is when one receives his/her incomes, the second is when one is owning his/her wealth and the final time point is when one spends his/her incomes on his/her consumption. Previously the politicians tried to impose a universal tax via the VAT channel. This channel is not effective that people's consuming habits are always changing over time. For example, in some western countries, people tend to consume more vegetables and fruits as they think this can make their diets healthier, meanwhile, in some countries, the price of meat is much higher than vegetables as in these countries meat is considered to be luxury goods. Taxing on people's wealth over time may not be a good idea, as this action could force people's wealth abroad. Therefore, I think that the only possibility of imposing a universal tax is to impose the universal tax on people's incomes. Then there are many factors that should be considered when we are forming the taxation function.

Overall, I think that imposing a universal tax is theoretically possible; however, in practice as there are too many factors that have to be considered and new issues can appear over time.

What does Brexit mean to the Eurozone?

Italy's referendum adds more uncertainties to the fortune of the euro. All three opposition parties in Italy want Italy to exit the Eurozone. When Italy wants to exit the Eurozone, other countries like Greece, will also take action to exit the Eurozone, this could lead to the collapse of the Eurozone due to the domino effect. Germany at the time will not have the power to stop this from happening.

If these relatively smaller economies exit the Eurozone, I think that the value of the euro could even appreciate as the remaining in the Eurozone are larger and stronger economies, like the German economy and the French economy. However, the increased value of the euro can harm the German and the French exports, especially when we expect the US is likely to launch a global trade war.

Britain could see an opportunity of an increase in its bargaining power when negotiating about the trade deal after Brexit. If Britain is able to stay in the EU, it is actually still a mutual benefit for both sides as Brexit will not break down the economic union in Europe. Free trade to many European countries has more benefits than costs; however, staying in the Eurozone makes some weak economies more and more difficult as they do not have the freedom of controlling its own monetary policies and their exports are not as competitive as those of stronger economies.

The possible of Italy's exiting the Eurozone could make Britain's Brexit negotiation easier, meanwhile the negotiation will also set up an example for Italy and other Eurozone countries who want to exit the Eurozone. Therefore, for the EU countries who want to exit the Eurozone, they want the Brexit negotiation to be easier, but for the countries like Germany, they want Brexit to be as hard as possible to set an example for the countries who are considering leaving the EU as well as the Eurozone.

The future global inflation and interest rate

Currently, across the world, many countries are experiencing low inflation rates and low interest rates and in some countries, some banks are forced to lower their interest rates below zero as the low interest rate makes their lending businesses less profitable. However, the globalization and free trade process are slowing down and even reversed; therefore, exports and imports are very likely to become more expensive, then the inflation rate around the world will increase due to the rise in import prices.

When the inflation rate increases, will the public consumption increase? The answer is not necessary. Because, based on very simple demand and supply model, when the price increases, the demand will fall, so the consumption will drop. Of course, when people are expecting the price will continue to increase in the future, people will be willing to spend their incomes as soon as possible. However, there is another theory called diminishing marginal utility that especially in the developed countries, people's living standards have reached certain levels that additional consumption has diminishing marginal utility; therefore, when they may focus on the short-term impact - the price increases on something they do not necessarily need, but ignore the fact of there may be a continuous inflation over time. This will affect companies' revenues and they will decide to lower their costs but the profit will decrease. Therefore, a sharp increase in inflation could be temporary in many developed countries, but later the price level will be stable again while the profits earned by the businesses will decrease.

In this case, it makes running businesses more difficult, so many countries will like to continue their low interest rate monetary policy in order to lower business borrowing costs. This will continue to be ineffective.

Overall, the future global inflation will increase to a certain level that covers some increase in the costs due to imposed import taxes then stay at that level without much fluctuation. However, the possible increase in the base rate by the US Federal Reserve may make a difference that it may bring down some big businesses and cause violent fluctuations in the financial markets, especially the bond market and the stock market.

Differences between running an economy and running a company

The US president-elect Donald Trump is widely accepted as a successful businessman and many American people believe he could direct the American economy as well as he directs his own business, especially given a big probability of another economic crisis during his presidency. However, I think that there are differences between running an economy and running a company, so a successful business career may not help one become better at running a country's economy.

Running a company is to maximize the company's profits and running a country's economy is to maximize the social welfare, these two goals look very similar but actually fundamentally different. The ownership of a company belongs to its shareholders who do not work inside the company, but the ownership of a country belongs to all citizens who actually work in the economy.

When running a company, the management team can change the company's employment structure in order to make it more profitable and more productive, sometimes it is better to lay off some unproductive workers and replace them with better ones. However, this is not possible and right when running an economy. When running an economy, people could be transferred from one position to another in the labour, but forcing them to be unemployed because of their abilities or productivities is not something socially desirable. Therefore, when running an economy, a primary goal is to maximize the employment without considering too much on profitability and productivity which are less important than lowering the unemployment rate. Additionally, the motivation of running a company successfully and the motivation of running a country is different.

Therefore, I think running a business successfully does not mean he or she can run a country's economy successfully.

Conflicts between the economic gains and the social opinions

Sometimes the interests between the economic growth and the social will contradict each other and the government may not have any strategy to satisfy one without hurting the other. When a country has to sacrifice one for having the other, how should the government make its decision in order to maximize the total social welfare at the moment as well as in the future?

We see many examples of how the economic interest conflicts with the social will. The most typical example is Brexit. The British population, especially the English and the Welsh population, is afraid of the border security and the job opportunities taken by foreigners. However, without having the access to the European single market system, Britain as a strong economy loses its opportunity to take advantage of the single market system, especially as it has the most advanced financial system in Europe, having the access to the single market can make Britain become the heart of the European market when most of the financial activities in Europe take place in London in Britain. This generates thousands of jobs in Britain and an enormous amount of incomes in the City.

Moreover, the economic growth usually distributes its incomes unfairly that the wealthier group becomes wealthier and the poorer group becomes relatively poorer though their incomes increase as well. Under such circumstance, the poorer group may maintain their previous situation without having increases in their incomes and widening their differences from the wealthy group.

Therefore, the conflict between the interests of the economic growth and the social will is often caused by the widening wealth gap, that forces the government to use more aggressive wealth redistribution policies domestically. But the government can have policies to encourage more economic activities and encourage firms to give out higher salaries by reducing corporate taxes. Therefore, it will be companies' interests to open business in the country and it can generate more incomes for the entire population while the incomes will be redistributed more equally among the population.

When America starts its protectionist policy, what could happen to the forex market?

Once Trump was elected, it created huge volatility in the forex market that we saw a sharp appreciation in the Japanese currency as well as a sharp depreciation in many Latin American countries' currencies. As the value of a currency is largely determined by the country's trading position, economic performance, and the market expectations about these factors' future changes.

When Trump comes to power and starts his protectionist policy, it will affect all countries' trade positions around the world, in some countries, their economies could be affected more than others' as their economies have greater dependency on the American economy. There is another factor about America that following the protectionist policy, the American inflation rate could increase.

The countries, which are expected to have relatively lower inflations than America and/or improvement in trade positions or relatively smaller decrease in exports, are highly likely to have their currencies appreciating. These countries could include the Eurozone, Japan and even Canada, whose economy, though, has a large dependence on the American economy, since America has a long history of a good relationship with Canada, may not be affected as badly as others'. Vice versa, the countries, which are expected to have relatively higher inflation than American and/or a huge decrease in imports, are likely to have their currencies depreciating. This has been shown clearly by the forex market behavior once Trump was elected.

In terms of the US dollar, I think US dollar may appreciate in the future. Though the American inflation rate may increase after the protectionist policy is put into action, the possibility of a trade war in a global scale may damage many countries' economies and affect their governments' credit ratings, then the US dollar may become the most secure currency to hold, thus the value of the US dollar will increase against many other currencies which are considered to be risky.

Is there any protectionist policy without starting a trade war?

The US president-elected Trump is famous of his nationalism and protectionism. The world economy is afraid of a global scale of trade war, which will definitely damage the global economy.

I think that it is impossible to start any protectionist policy without a possibility of starting a trade war, actually trade wars always exist in some form of war even without other countries' moves towards protectionism. Once a country is in a weak position in terms of trading, this country is very likely to start some form of protectionist policies which can lead to a trade war.

Therefore, it may worthily ask if anyone could be less harmed or even gain some benefits during a trade war. From our past experience, the countries which initially start a trade war could benefit from the trade war in the beginning; however, in terms of long benefit, the countries which have the fastest innovation and development speed will benefit from the trade eventually. As it is impossible to have a trade war that lasts forever, once the trade war ends, the country with the most advanced domestic economy and industries will benefit from the reopening of the global market.

Overall, I think that a trade war will harm all countries in a general term; however, if any country could have a faster development speed than the others in the most profitable sectors under protection, once the global market reopens, it could be the biggest winner of the global economy.

Are we heading to deglobalization?

Ten years ago, we never thought of a process of deglobalization that almost everyone was thinking about how wonderful globalization was and how we could speed up the process of globalization. However, nowadays, we can see a backlash of globalization, that it seems we are heading to deglobalization.

There are two major events that could be marked as deglobalization processes. One is the Brexit referendum and the other is the US presidential election. Moreover, in Europe, some radical populist groups are gaining more support from the public, even some are considered to be Neo Nazists.

What causes the process of deglobalization? As we can see from the past years, the global economy has been benefiting from the process of globalization; however, it creates more inequality in the society that some groups in the society feel they have been left out by globalization. Moreover, globalization has brought more players into the market, so the scale and the degree of competition increases, some workers or individuals are not used to such scale and degree of competition and feel threatened; therefore, they have the incentive to reverse the current process of globalization. In addition, globalization allows the "better" groups to gain much more from the "worse" group and the individuals and organizations who belong to the "worse" group will be angry about such situation and anti-globalization.

With the current wealth gap, we are inevitably heading towards deglobalization, in my words, we are heading towards an era of domestic wealth redistribution. Once the domestic conflict is mitigated or even solved, countries will restart their globalization process as people are now ready for and willing to get a larger market.

Therefore, maybe we should view globalization and deglobalization just like boom and recession, they are in a circle and hopefully our trend is towards globalization but there is some time that we are experiencing deglobalization.

Separation of individual ownership and management could improve social equality

Nowadays, in many companies, especially the publicly listed companies, have a system of separated ownership and management. It could deal issues like conflicted interests, inside trading and many others; moreover, such system encourages more competition in the market. However, when it turns to competitions between individuals, individuals have their ownership and management combined, it creates some issues about fair competitions.

People can have their own advantages that are independent of their skills or effects, they are merely lucky to have all those resources available to them. When it comes to competitions between individuals, their "ownership" affects their "management" as well as their competitiveness. Many people argue that individuals cannot separate their own ownership and management; however, I think that there is a way to do so.

In order to separate individuals' ownership and management, we can separate their personal life and professional life more clearly. For example, when they enter the labour market, of course they can take their owned resources with them in order to take advantage of these resources, but they need to agree once they are employed and enter their professional life, the resources they have taken with them are also fully available to their employers. This means while the people with wealthy background do not only sell their skills and knowledge, they also sell their wealth. Moreover, the resources they do not take with them into the market are strictly used for their personal purposes and they are not allowed to violate this rule.

Some people may argue that people with wealthy can use their wealth to buy top professions; however, in most time, they will get into those places anyway and now they have to buy much higher prices. In addition, especially for large firms, unless an enormous amount of money is offered, they focus more on their employees' potentials rather than an immediate one time transfer. This means wealthier people have higher costs when they are competing with people who do not have such wealthy background. And the money contributed by the wealthy group can be redistributed through companies to their less wealthy employees.

Therefore, a separation of individual ownership and management can improve social equaliy.

The US economy is heading to more expansionary fiscal policies

After being elected, Donald Trump in his victory speech promised to rebuild the infrastructures in the US, which would require a huge amount of government expenditure. Moreover, Trump's "put America first" political strategy could lead to protectionism. In addition, the defense company stock prices rise sharply due to his aggressive populist and anti-Muslim comments.

Up to now, Trump's policies require a sharp increase in the government expenditure while he does not have effective budget saving policies yet; therefore, we can see that the government deficit could increase to an even higher level. This is why we are seeing a surge in bond yields. Some experts suggest the American inflation rate will also increase sharply, as the current unemployment rate is close to zero, while the government expenditure is expanding, more money is pumped into the American economy, so the inflation rate should rise sharply when Trump starts to exercise his policies.

In addition, Trump promised previously in his campaign speeches that he would issue a big tax cut. The inequality in America can increases, but the firms can benefit from the tax cut. Protectionism could impose heavy import taxes and effect firms' profitabilities. I think that according to the current situation, the rate of these import taxes could be extremely high in order to compensate the losses from his tax cut to the government budget.

Overall, as Trump does not have a clear budget saving policy, the increase in import taxes is currently the only budget saving policy at the moment, I expect the American government deficit may further increase and firms which focus on the American domestic market will make much more profits under Trump's presidency while the multinational companies may perform better domestically but lose profits due the other countries' revenging increase in their import taxes.

Why were the polls wrong about the result?

I recommend this article on the Financial Times today: https://www.ft.com/content/8de13154-a677-11e6-8898-79a99e2a4de6 (Trump victory: corporate winners and losers). Their argument may not be perfectly precise, but definitely provides us with some details about what Trump's possible future policies could be according to the content of his previous election campaign speeches. As I have expressed my expectation about how Trump will lead the US, I am not going to talk about this issue today.

Many people feel that the victory of Donald Trump is like Déjà vu as Brexit had a similar situation before. The media find that their previous polls were quite wrong about the final results. Last time they were wrong about the Brexit, this time they were wrong about the US election. Why did these polls fail to predict the election outcomes?

The first major problem is that these polls failed to cover a fair sample, the samples they select are generally biased due to the ways they used to reach their interviewees. Moreover, some voters are only active on the election, and the media is not able to reach them any other time. The second problem is some people are not willing to speak about their true preferences as their preferences are considered to be different from the social mainstream opinion. This could cause the results the media gets are biased towards their favor. The third problem is that when the voters feel they are the minority, they have stronger incentives to vote than those who feel they are the majority.

Therefore, when it comes to a situation when the mainstream media has a very strong bias, the polls can be conducted to be biased towards their views despite their willingness to conduct a fair poll. This means when the mainstream media has a strong bias towards a particular result, the polls they conduct are very likely to be biased towards that result; therefore, the probability of get a wrong prediction increases.

What could happen if the Opec's worry comes true

OPEC warns that the demand for oil could peak within 15 years as the market is switching towards alternative fuel cars and more aggressive climate change plans. These factors are real and very crucial right now. Green energy has always been considered as the future energy; however, when the global economy is slowing down, the governments around the world are always willing to use expansionary fiscal policies to stimulate their economies if possible. When they are thinking about where to expand government expenditure, the green energy industry is very likely to be on the top of their lists. This may be partially the reason why the current policy targeting the climate change is becoming more and more aggressive.

Once the OPEC's worry comes true, the cartal will become more likely to fall apart that their market becomes smaller and the level of competition increases. The price of oil could fall more rapidly and then the producing countries have to find their ways to boost sales quantities.

Free market, social mobility and inequality (part 2)

Yesterday I talked about how a free market system may help to improve the social mobility and social equality, and today I would like to talk how a free market system can worsen the social inequality and reduce the social mobility.

Firstly, education makes a big impact on people's career and incomes; however, all studies have found that the background can have more influence on children's academic performance than other factors. In addition, children with wealthier background are more likely to receive a better education than the children with poorer background. A free market system may not help children with their education, as the system can improve the impact of their background on their academic achievements which significantly influence their employability and their future incomes. Secondly, sometimes workers who own significant amounts of resources are far more attractive to their employers than those who do not own much wealth. This nature of the labour market can widen the inequality. Thirdly, in some sectors, people who have greater amounts of resources naturally receive greater returns than those who own less and the wealthier people are more able to get better deals than the less wealthy people. This can widen the wealth gap.

As we can see the person's background and personal wealth are taken into account when involving in most of the economic activities, more wealth can make individuals stand at a more advantageous position. Just like larger firms are more likely to gain more resources, wealthier people are more likely to receive further more resources, as owning more resources is a signal that values something in the market. Under the free market system, the markets will recognise the values of these signals, which could lead to a further social inequality.

I believe a limited government intervention is definitely necessary to deal with the issues of social mobility and social equality. The intervention should encourage the markets recognise more about the values of individual efforts than the values of some factors that are not controlled by individuals.

Free market, social mobility and inequality

Governments now have been given the mission to encourage the process of social mobility and reduce the social inequality, so when it comes to social mobility or inequality issues, people cry for more government intervention and social welfare policies. However, does that mean a free market can do nothing to improve social mobility and equality but worsen the issues?

A free market can do several things to improve social mobility and equality. Firstly, sometimes government intervention can increase the inequality. For example, many people criticize that since the 2008 financial crisis, many government market saving policies have benefited the big financial institutions, companies and rich shareholders much greater than the ordinary people and increased the social inequality and made the big companies even bigger. Without government intervention, these policies would not exist in the first place. Secondly, a free market encourages more competitions among all types of markets, including financial markets and labour markets. Everything depends on quality, price and demanders' preferences, when governments stay out of economic activities. Companies and individuals only need to obey laws and regulations, they do not need to collect more information from governments. If governments intervene in the markets, big companies and rich people are easier to collect information from governments than others, and the information could make significant differences in terms of making decisions on economic activities. Thirdly, increased competition can speed up skillful workers' promotion speed disregarding their background and other irrelevant characteristics. This is helpful to improve social mobility.

These are how a free market system could improve social mobility and equality; however, a free market system can worsen social immobility and inequality, which I will talk about tomorrow.

A mixed report on the US employment

The report on the US employment in October has been released and there is some positive news and some negative news.

The positive news is that the US wage growth accelerated in October at the fastest rate since 2009 and the unemployment rate stayed as low as 4.9%, which could be considered as a "zero unemployment rate", because it is the companies' interest to leave some people unemployed in the labour market in order to maintain their employees' incentives and it is also the current employees' interest to keep their wages higher than when it is at the market equilibrium.

The negative news is that the number of people who first time register for unemployment benefit increased in October. It could imply an increase in the youth unemployment and furthermore it may imply a structural change in the US economy that often a structural change can lead to an increase in the structural unemployment.

When we combine the good news and the bad news together, I come to this conclusion that there is a structural shifting taking place in the US economy. The labour market is able to supply labours with the required skills for the new industries or sectors of the economy; however, the workers from the being replaced sector do not have the matched skills to look for new jobs in the new sectors, this can cause a difficult problem in the US economy.

How is the UK's future now?

Today (November 3rd) adds some uncertainties in the UK's future that the British High Court has ruled that the parliament must vote on whether the UK can start the process of leaving the EU. Some people may view this a positive element to the markets, as the current British financial markets and the sterling price have been deeply influenced the possibility of a hard Brexit suggested by the current UK Prime Minister, May. Although the UK government is appealing and another hearing is expected to take place next month, I do not think the possibility of the High Court's changing its decision is high.

There are other options for May to pull Britain out of the EU, for example, she can convince the MPs to vote in favor of Brexit, or call for an early general election. Therefore, May can still find a way to get around the problem of the High Court ruling, eventually the probability of Brexit is still very high and I think that it will happen, though we may consider the probability is lowered by the High Court ruling.

However, although I still believe Brexit will eventually happen, as the parliament now has been given the right to vote on this issue and the politicians are more likely to be influenced by the lobbyists as they require funding for their election campaigns; therefore, the government's focus on this issue may become more favorable towards the large businesses and banks that the trade deal with the EU will definitely become the top priority and the time schedule could become less important.

Therefore, I think that May's timetable for leaving the EU will be delayed by this High Court decision.

Can the market force still work when there is no homogenous product existing in the market

When you walk into any shop, do you have a feeling that there are merely too many options that make you make shopping decisions more difficult. Moreover, even when many products belong to the same category, they have many differences in terms of their appearances, qualities, prices, functions that these differences almost make them seem like very different products; therefore, they are no longer comparable to each other and they are not homogenous products. In one market, we usually assume all products supplied in the market are homogenous products, now this assumption is no longer realistic in our real life in many sectors. When this assumption misses, we need to consider the market has now been split into many small markets, which have their own customers who have some loyalty but are still likely to leave to another market.

Now the good market becomes like a political election. Different firms are like representing different parties. They start with some supporters and have their particular reputations. Their supporters are more likely to continue their support for their firms; however, once their companies start to change their reputations, they may reconsider their support and some of them may choose to leave to supporting a different firm. However, when the time progresses, these companies tend to become more similar to each other, as they notice that some characteristics of the product can bring in more customers, they start to add these more popular characteristics to their products, then their products are becoming more homogenous over time.

Therefore, if these companies do not try to compete with each other and just put effort to maintain their current customers, then the market will become an oligopolistic market with a lack of competition and every company can have a relatively good earning. However, shareholders love growth, this forces companies to compete with each other, during the competition, their products are becoming more homogenous, then the level of competition becomes close to the level in a perfectly competitive market.

Exchange rate and global trading

Exchange rates and global trading have a very close correlation that when a country's currency is depreciating, the country's trade account can be improved, as the country's exports become cheaper and foreign imports become more expensive. Without other force intervention, there could be an equilibrium where a country's trade account and currency price are stable.

However, there are always many other forces that are trying to intervene and influence the forex market. The government may want to influence its currency price in order to improve its trade account; moreover, the government may sometimes want to increase its currency price under some situations, for example, the current Chinese government wants to maintain its currency value, though some institutions think the RMB has already been overestimated.

Under such circumstance, it actually creates a lot more uncertainties and transaction costs for many businesses that are doing international business.