The conflict of local governments surround the housing market in China

For local governments, they have multiple goals when ruling their districts, including helping generate economic growth, providing social stability and many others. One goal for many Chinese local governments is to stabilize their local housing market prices, which conflicts other goals.

To understand the conflict, it is important to understand what factors will add upward pressure on housing market prices. An increase in demand or a decrease in supply will add upward pressure on housing market prices. Since the land is a fixed supply, it is only possible to see an increase in demand to add upward pressure on housing market prices. An increase in demand is often caused by an increase in the population size. Usually people move to a city because of economic reasons or lifestyle reasons. Economic reasons include more job opportunities, higher wages and others; lifestyle reasons include cleaner environment, beautiful landscape and others. These economic and lifestyle environments do not only attract more people, but are also things that the local governments want to achieve. If the local governments successful increase economic opportunities and (or) improve environmental conditions such as lowering air pollution and water pollution, the housing market prices in such areas will increase dramatically due to the increased attractiveness to people.

Therefore, there is some sort of conflict between the local governments' goal to stabilize housing market prices and  their other goals.

What if entry cost is variable?

Usually cost of entry is considered as a fixed cost; however, if we assume a lathe could be split into several smaller parts, and each involves different levels of entry costs. The firms do not only consider whether they enter the market or not, they also need to decide which sector or sectors of the ,Arlen they want to enter. Low entry cost means higher competition, as more companies are likely to be qualified to enter these sectors. However, entering the sectors with higher entry costs does not mean they can gain monopolistic power or oligopolistic power, since they are likely to face some degree of competitions from other sectors. Moreover, if the bar is high enough to stop all but one firm from entering the sector, then there is some degree of competition within the sector as well.
Under such circumstance, firms have to consider the cost and benefit from entering each sector by considering the factors within the sectors and factors across sectors. Once we consider all good and service markets as a whole market, and each individual good or service market is a small sector of the entire market, this means businesses have to consider the entry cost for its target sector but also its target relation with all other sectors.

Some read and thought about financial market

Jensen (1978) says:

A weaker and economically more sensible version of the efficiency hypothesis says that prices reflect information to the point where the marginal benefits of acting on information (the profits to be made) do not exceed marginal costs.

From Jansen's statement, we can find that investors have an information constraint, that collecting and analyzing information involve cost and investors have to balance between the cost of information and their risk preferences. Investors who are more risk averse tend to be willing to spend more on acting on information.

However, there are noise traders in the financial market. Studies have found profitable opportunities including arbitrary opportunities are created by noise traders' activities rather than changes in fundamental factors (De Long, Shleifer, Summers and Waldmann, 1990). 

Combining the two statements, when the information in the market is more complicated, more investors are likely to be noise traders, this will increase the financial market risk as well as opportunities. It is very easy to see an increase in the complexity of the financial market, since when new financial products with complicated structures are created, the complexity will automatically increase in the financial market. This may imply innovation in the financial market is likely to increase the risk and opportunities.

America First or America alone?

When the US president Trump was speaking at the World Economic Forum at Davos, he made such statement that: “America First does not mean America alone. When the United States grows so does the world.”

In the globalised world today, in most cases, countries’ economic grow rates are positively correlated with each other; this may prove Trump’s point that when the US grows so does the world. However, last century when the concept of globalisation was not commonly accepted, the economic grow rates across countries were not correlated with each other, even it is possible for us to see there were some negative correlations between certain countries. Therefore, the statement of “when the United States grows so does the world” is only correct when there is a tight corporation relationship across countries. Then this leads to the core question that when America is putting itself ahead of everything, whether the rest of the world would still like to corporate with the US or not.

To be honest, I do not think “America First” provides a very clear policy guidance. A nation’s interest is an extremely complicated issue. Firstly, it is impossible to satisfy every citizens as different citizens have different wants, no government is possible to make everyone fully satisfied. Secondly, different national interests could conflict with each other. For example, the relationship between Korea and the US is a mixture of agreements and disagreements. In terms of national security, especially when North Korean seems to have the ability to attach American territory and has nuclear power, it is mutually beneficial for both countries to have military alliance to defend the threat from North Korea. However, when the US decides to increase its tariffs on solar and washing machine, the US faces very strong opposition from South Korea. The relationships between the US and all other countries are all complicated and mixed with agreements and disagreements, it is important for the US government to find out a balance between so many different interests depending on how the government weights different interests, and different governments could weight them differently. Thirdly, there is a conflict between short term interests and long term interests. There is a fundamental problem in the West democratic system that the politicians have personal interests to make policies that have short term effects in order to win their elections, especially when the population is anxious and impatient. The population is usually anxious and impatient when there is a serious division within them, the US is currently facing such issue.

Overall, the slogan of “America First” does not provide any clear policy guidance, but definitely gives a very strong sense of selfishness. Such impression does not only damage the image of the US but also spark (extreme) nationalism and misguide policy making.

Is the Chinese housing market bubbling?

Some economists believe that the tightening financial regulation and the tightening housing market regulations would cool down the  Chinese housing market and lower the overall housing price, this would lead to lowering consumption. Therefore, there are many methods to measure bubbles; however, eventually, a bubble is based on people's opinions and expectations. In addition, the market information (supply and demand relationship) is a very important factor to determine people's opinions and expectations.

When more and more people are moving to the urban area, there should be an increase in the housing price in the urban area. The housing prices in Beijing, Shanghai, Shenzhen and other large cities have been skyrocketing for decades since the population sizes in these cities have been expanding rapidly due to the economic attraction and opportunities these cities have. Housing prices are positively correlated with economic attraction; therefore, the rapid increase in the housing prices in these cities with tremendous economic attraction makes sense. However, a general increase across the country does not make that much sense. Houses in different areas are substitutes, which means when the demand for one good increases, the price for the other good should fall. When the demand for houses in the large cities increases, the house price in other areas should fall.

Therefore, it is reasonable to see housing prices skyrocketing in large cities, like Beijing, Shanghai, as they are economically attractive and more and more people want to move to these areas; however, since people are rushing to large cities, this adds downward pressure on the housing prices in other areas that counters the upward pressure created by the increase in the overall income level.

The possible weakness in a democratic political system

What we can see from the result is that the public goods for the states controlled by Party 1 are over-provided, the public goods for the states controlled by Party 2 are under-provided. If the public goods wanted by the states controlled by different parties are also different, the issues of over-provision and under-provision will become even worse. This will make people in the states controlled by Party 1 keep voting for Party 1 and people in the states controlled by Party 2 hate Party 1 and keep voting for Party 2, especially when the two parties hold very different beliefs. This could potentially make the nation split; of course, the social optimum will never be achieved under such political system.

Although there are many assumptions in the model, this proves to some degree why it is important for the entire population to be united on the critical social issues.

How much should we care about uncertainty?

 In the field of investment, there are several types of uncertainties. Firstly, black swan is a type of uncertainty, and I think it is the most influential uncertainty, as it is unpredictable and it is not included in our strategy design at all. However, since it is unobservable, we cannot add it to our consideration anyway; therefore, we do not care about risk, it is not because we do not want to care, it is because we are unable to care. Secondly, the observable risk is another source of uncertainty. For this type of uncertainty, we also can have two types of such risk. One type is that the risk is uncorrelated with individual fundamental, beta and variance are often used to measure such risk. I do not think such risk is the risk that we need to care about. We often consider too much about the entire market environment. However, comparing with the entire market, individual fundamental is much more determining. After a financial crisis, some companies disappear and some companies keep being strong, the classic example is Goldman Sachs and Lehman Brothers. Moreover, due to the Law of Large Numbers, the average of the results should be close to the expected value when the number of trials increases, this means when a stock is traded many times, the variance will diminish and can be ignored.  The other type is that the risk is correlated with individual fundamental. Such risk can determine the trend direction rather than the variance. This is the risk that we really have to pay attention to. When facing such risk, we have several strategies. We can either accept the risk and have higher expected returns when bearing higher risk, or have some degree of deviation in our portfolio that we lower the risk but also lower the expected returns.

To conclude, among all types of uncertainty, we should only focus on the observable risk that can potentially change the fundamental. 

The important of being median

 In the Western politics, we often see that although different parties have different political preferences, their policy proposals have more similarities than differences, this is because when they want to win the support from the majority, they have to set their proposals that match the preference of the median of the entire population. In addition, the wisdom of crowds suggests that when we ask a very random question, one individual is highly unlikely to deliver the correct answer, but if we ask a large number of people this question, the mean of their answers is very close to the correct answer. There is a story that when the US Navy lost a submarine, the Defence Department asked all its employees their opinions about the location of this submarine, then the navy used the mean of all the answers as the starting point to start their search. In the market, when there are only two companies to compete, it is their best strategies to set their products' preferences to match the preference of the median of the customers and split the market evenly.

However, matching the median is not necessarily always the best strategy. Although the preference tends to match a normal distribution, the wealth distribution does not match the normal distribution. This is why many companies specifically target wealthy customers rather than ordinary customers that they want to use quality to beat quantity. There is one problem about there is a cap about how much the wealthy customers are willing to purchase. The wealthy customers are not stupid that they are not going to spend their entire wealth on consumption. Nowadays, the companies that have the highest market values are those have larger market shares in the markets that are highly active (not seasonal).

To conclude, being median is not the only strategy available; however, being median is the strategy that leads to the potential overall best. 

The falling China births

 The annual number of births in China has fallen for the first time since the central government relaxed its one-child policy. Some economists have warned that falling birth rates in China potentially threaten the development in China due to a rapid ageing of the population, which is likely to cause a shortage of workers. How true is this claim?

To be honest, the first impression when I see this claim is that these economists are still thinking that China is the world manufacturer for producing some basic products that do not require many intelligent and skilful workers. Moreover, they sort of ignore the development of advanced technology and the service sector in China. The Chinese company, DJI, leads the industry of civilian drones; recent years, the financial sector has been experiencing very rapid growth and expansion.

However, this is only my first expression. The development of technology does not only improve the productivity but also increases the number of opportunities. To take as many opportunities as possible, we need to more intelligent labours. In addition, many Chinese companies rely on the Chinese market, if the Chinese population size shrinks, these companies' businesses will also shrink.

The fall or very slow growth in the birth rate is likely to continue for the next several decades, as the modern urban lifestyle generally delays people getting married and having their children; therefore, it is important to find a way to generate growth with a shrinking population size, this might be more effective than finding a way to generate the population rate.

The constraints of expansion

 We usually consider that when a company is making a decision about whether it should expand or not, the company faces a constraint to limit its expansion action, then the company faces a similar issue as the production problem that it maximizes its preference (a combination of expected returns and risk), given its constraint. We usually believe that the company faces such constraints, time constraint, finance constraint, labour constraint and information constraint.

However, to many companies, if they can represent a credible plan of expansion, they are very likely to receive funding from their investors, which means when the companies are making necessary or profitable expansion, it does not face finance constraint, as it can seek external help. In addition, when a company is large enough, it also can find some people in the company to handle some urgent events. Moreover, time constraint and labour constraint in many cases are the same constraint, when a company has more labours, it can spend less time on one project when it has fewer labours. Therefore, the only constraint for a company to expand is the information constraint. The limitation of information does not only affect the risk, but also affects the overall judgement. If there is a very serious asymmetry of information, the company will ignore the opportunity of expansion, even this opportunity will deliver a great return.

Overall, the only limitation for a large company to expand is the information constraint, when the companies improve their data and information collection, their expansions will take place more smoothly without much limitation. 

The attraction of "big names"

 In China, there are three big names, "BAT" (Baidu, Alibaba, and Tencent); in the West, there are several big names, such as Google, Apple, and Amazon. These big names do not only play their important roles in our ordinary life (we are buying their products and services, some of us are also hired by these companies), they also attract lots of attention in the global financial market. When their roles played become more and more important as they are growing bigger and bigger, they will attract more and more resources that will help them to grow even larger. Under such circumstance, investors should only buy those big names in their fields, as they will be the least likely to lose out and bankrupt in their fields.

If this rule becomes a rule for everyone, what we will see in the financial market is that the big names will seek all attention of investors and their share prices will skyrocket, and the share prices for small companies will drop to their book prices or even lower. Then the fate of small companies is to wait for the big ones to come to acquire them. Then the large companies will grow larger and faster. There is no room for small companies in the stock market. Although large companies do not gain revenues from share price rises, given their investors are potentially their consumers and lenders, their businesses would gain lots of support from their shareholders and it is also their shareholders' interests to keep the companies succeeding over and over again.

This does not happen in the real world; however, if people find that big companies are able to deliver higher returns in the financial market than other companies with lower risk, then they would like to invest in big companies comparing with small companies. Recent years, we have seen that big and popular companies have set records for their companies' capital values; if this heat goes on and on, it is not surprising to see more investors investing more in the big names, and the reality could potentially be very close to the hypothesis suggested above.

Do founders of a company really want to make their company grow large?

 Founders here are those who founded their companies and have complete control over their companies. If founders are only interested in their personal benefits, their strategies could potentially hurt the companies’ benefits. Some founders are not interested in making their companies become giant companies. For example, the founder of Tesla, Elon Musk, founded several companies, including PayPal, but currently, he focuses on Tesla and SpaceX, these two companies. Therefore, it is possible for founders to sell out their companies before their companies grow large enough.

For founders, they want to receive as high returns as possible. Of course, making their companies grow large could deliver the highest returns; however, it involves lots of risks. When a company is competing in its market, it faces uncertainties and is possible to lose the competition at any stage. Under such circumstance, if the founders believe they are facing too much risk, they prefer a one-time certain payment and pass the risk to someone who is more willing to take the risk. Moreover, there are other opportunities. If the founders like other opportunities, they will find the current work they are doing have high opportunities costs and they would like to sell out their companies and move to new sectors what they are more interested at.

Therefore, there is a possibility of conflict interest between the founders and their companies. 

When would giant companies ignore the small companies that are growing fast?

I have made a claim that large companies will grow larger and larger and the only opportunity that small businesses may have to grow to become giant companies is that they grow fast enough in order to become large enough before being noticed by the giant companies. However, I would like to add more details about how possible small businesses could be ignored by the giant companies when growing in their markets.

There are several situations that giant companies might ignore the small businesses that are growing fast. Firstly, when giant companies do not understand the potential of a market, they will not be interested at investing in the new market, of course, they will not try to acquire the businesses in the market. This gives the small businesses in the market more time to grow bigger. When a market is completely new because of innovative technologies, no one knows what to do with the new technologies. Secondly, when giant companies believe it is too risky to invest in the new market, they will not be interested at investing in the new market. The risk comes from the uncertainties of the future and the initial investment. When the expected return is smaller than the initial investment, the giant companies will not be interested at investing in such market. Thirdly, when there are too many opportunities at the same time that all giant companies together do not have sufficient finance to invest in all sectors which have opportunities. Such circumstance only happens when the speed of innovation is much faster than the previous level. If we assume that previously the markets were dominated by the existing giant companies, it means that the giant companies had sufficient resources to invest in all sectors where have innovations; however, once the speed of innovation suddenly increases dramatically, the initial resources held by the giant companies are suddenly insufficient to support them to invest in all sectors where innovations take place. Under such circumstance, the businesses in some sectors are possible to grow independently from the giant companies and potentially able to become giant companies themselves.

To conclude, it is not entirely impossible for small businesses to become giant companies themselves, especially when there is a technology boom that giant resources are not possible to invest in all sectors where technology innovation takes place.  

Do all companies want to force their workers to work overtime if possible?

Last century, the communist governments blamed the capitalists exploited their workers and forced them to work overtime without paying fair wages. Nowadays, such claim gains its market in many developed countries with enormous welfare systems that their governments make complicated regulations and laws to restrict employers from using their employees “improperly”. However, in today’s China, where has a communist government, there are some cases of death from overwork, but the public opinion seems a bit brutal as some people believe it is the risk that has to be taken in order to stand out of the crowd.

Standing from companies’ point, is it their best stategries to force their workers to work as much as possible? In some ways, yes. As long as the gains are greater than the losses, the companies would be always willing to expand their productions, in other ways, asking their workers to work more. However, in the market, the demand is not infinite, there is a boundary due to certain boundaries (such as information, transport and etc); therefore, companies will not want to expand productions without limits. In addition, when more companies gain more market power and are able to set market prices, based to some basic economics, we know that they are not interested at setting supply at the market equilibrium and they tend to create an excess of demand in the market. Such market strategy will limit the use of labour.

Moreover, the use of labour does not only depend on the production side (the demand of labour), it also depends on the supply of labour. People need to be willing to be hired. To compensate people’s losses from work and reward qualities that companies require, the companies have to pay extra incomes. Therefore, if they want more from their workers, they have to give more to their workers either immediately or in the future.

Therefore, combining the demand and supply, there is a limit for the use of labour, this implies that companies will never use labours above a certain level.

How long do you want to work?

 In some countries, some workers complain about long working hours and there have been some cases of death from overwork that we hear from news. To prevent death from overwork from happening, some governments make laws to limit the maximum working hours for a worker and require employees to pay overtime work allowances.

In economics, there is a very simple model of working decisions that is frequently used in many micro-foundation macroeconomics models. This model suggests that the decision of working is made based on two parts, one part is the utility gained from leisure time and consumption, the other part is the incomes from working. However, in the reality, people do not work overtime just because of these simple reasons; there are many other even more important reasons. Firstly, the working hours potentially influence workers' future incomes, at least their expected future incomes. Usually, people believe if they work long enough when they are young, they are more likely to get higher incomes in the future. Secondly, the working hours depend on outside environment. When an industry is in a boom or an economy is in a boom, then the workers in this industry or economy are more likely to work overtime because there are more opportunities available that they do not want to throw away. In addition, when the economy is growing rapidly, it is often true for the wealth gap to become wider, then people know additional working hours at the moment can potentially provide much more marginal benefits than previously than previous or later when the economic growth slows down. Thirdly, people can influence each other and learn from each other. When one person succeeded because of overtime work, then many other people would like to learn from his or her example and also work overtime.

Therefore, in general, we do not just make our working decision based on the current wage level and our consumption, but we also build a relationship between current work and future achievement as well.

Would companies be willing to pay for your privacy?

Nowadays there are many companies that are collecting our personal information when we are using their products or services. Law makers, of course, have realized the issue of privacy, and made very complicated regulations and laws to limit the collection and usage of companies' clients' personal data. However, some of the products and services of these companies have almost become the necessities in our life that we cannot avoid using them; therefore, we have to sign the legal contract with the companies and give up some of our privacy in order to get the products and services that we want. In addition, when we enter the Internet, we would like to enjoy speedy information transferring experience (watching videos is a type of information transferring, reading news is a type of information), so we do not want to spend time on reading the long and tedious legal agreements provided by the companies regarding our privacy at all. Because we cannot see the losses from giving up our privacy right clearly, we care more about the experience we get from the products and services than about our own privacy, this makes protecting customers' privacy is not an effective salespoint for companies; therefore, companies have more incentives to collect their customers' personal data in order to improve their products and services, thus attracting more customers and generating greater profits.

In the future, such personal data collection will become more ordinary and more personalized. Even nowadays, many smartphones have built-in AI to train and improve themselves from collecting our use habits and the information surrounding us; if all the information is uploaded online, it is not surprising to see that smartphone companies us better than ourselves. When companies know their customers better than their customers themselves, the customers would become more addicted to the products and services and be willing to pay for the products and services. Then there is no way for companies to be willing to pay for collecting their users' personal data, unless the companies do not generate profits from the information collection targets. For example, Google's search engineer does not charge its users to pay for faster search speed, this is because its profits do not come from its users but come from the advertisers.

Therefore, companies would only be willing to pay for data collection when the market is very competitive and the companies do not generate profits from their data collection targets.

How important is real price?

The price we talk about in our daily life is the nominal price, that the money value given to a good or a service; in economics, there is a concept called real price. Real price for one good should always be the same, the change to the nominal price is only caused by inflation or deflation, and the nominal price is the sum of real price and inflation (deflation). Many economists care more about the real terms, such as real GDP, real wage level and etc. To find the real price of a good, we need to trace back to the initial time (t=0). This is why when we want to watch the real GDP change, we need to set a base year.

However, it is impossible to find out the real real price as we do not have the full record of the price change over the history. In addition, such real real price does not have any real meaning. This is because price provides the information about the scarcity in the market, but the scarcity in the market changes over time and the utility people gain from one particular product also changes over time. Many years ago, meat was scarcer than vegetable and people loved eating meat; nowadays, especially in the West, many people like to eat more vegetable to stay healthy and meat is not long as scarce as before. In addition, a basic cell phone that is only able to make calls would deliver greater utility in the past than nowadays as people used to make calls with each other but nowadays we tend to use more social networking applications, such as WhatsApp and Facebook’s Messenger.

To conclude, I think that real price or real GDP only make short term sense as the market scarcity does not change dramatically, but in the long term, the real terms do not make much sense any more.

Should China move the manufacturing overseas or inland?

The Chinese economy's magic was begun by the Western companies moving their manufacturing to China, China has been described as the world manufacturer. The low cost of labour and the enormous population size gave China the absolute advantage in becoming the manufacturer of the world; however, recent years, some manufactories have moved to other Asian countries, such as Vietnam, Malaysia, it seems the price advantage is shifted from China to other emerging economies.

It is not possible to move all manufactories from China to other countries, since the manufacturing system in China has been solidly built and the supporting accessibilities have been built, these advantages that other countries do not have. Therefore, it is clear that in the near future, other countries will not be anywhere near threatening China's world manufactory position.

Then here comes a question that China should stop manufactories from moving to other countries or use manufactories to support the inland China's economy. It is not possible to stop manufactories from moving to other countries completely and it might be good for China because some manufactories produce heavy pollution. Inland China may not be effective to deal with manufacturing exports, as the transport cost is very high. If Inland China cannot use international trading to boost its economy, it has to develop a smaller economic cycle to develop its economy.

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How would short terms shock impact the long term trend?

There is a generally acknowledged macroeconomic concept, economic cycle. Many people think it is not a big problem for an economy to experience several short term shocks as long as the long run trend is increasing. However, there have been several short term shocks that have changed the long term trend, for example, the slow down of the economic growth in Japanese and South America might be caused by such reason.

Short term shocks could deviated people’s expectations about the future from their original expectations. The changed expectations do not only include the expectations about the short term, but also include the expectations about the long term as well. People’s expectations about their near future would be accumulated to form long term expectations. When each individual makes a change according to his or her short term expectation change, a systematic change will be created in the economy. Such change could have a multiplier effect, this would lead to an immediate change in the market. However, under the surface of the systematic shock (change), there could be some unexpected changes undergoing, because individuals are not identical and they could taken different actions. These unexpected changes would change the fundament of the economy that deviate the economy from its previous track. Then the entire economic growth trend is shifted.

To conclude, short term shocks are potentially able to change people’s long term expectations, thus deviating the long term development track. Moreover, negative shocks could be more capable to create such long term deviation because people are more likely to be risk adverse and loss averse.

Fiscal policy, government expenditures and budget balance

In the field of macroeconomics, the models with micro foundation have become very popular. There is one important concept in microeconomics, which is feasibility. Feasibility means that the expenditure will not exceed the income. This concept is also applied to the macroeconomic theories with micro foundation. The government often plays an important role in many of these macroeconomic theories and the concept of feasibility asks the government to balance its budget, which means the total government expenditure over time will not exceed the total government income over time. However, in the sovereignty bond market, investors do not always make their decisions in this way. The UK and US government bonds are often assumed to be risk-free equities, their 10 year yields are often used to refer the market risk-free return rate. Under such circumstance, the bond is definitely not something that investors look for higher returns from taking risk. Instead often investors tend to buy in more of such bonds to counter the exogenous risk. Then from this point of view, as long as a government is able to maintain its economic position in the world economy, investors will keep buying its bonds to counter their risk, as they assume government bonds to be safer. Often when there is an economic crisis, investors tend to buy in more safer equities, this means a government is able to gather more funding from the bond market as long as it can maintain its economic position in the world economy. However, from the feasibility point of view,  the additional incomes from the bond market have to be paid back in the future; therefore, the tax rate after a crisis will significantly increase.
Tax rate increase after a crisis is not always the case. The government can have another theory to pay back its loan. We generally expect as long as our economy is growing in long run, there will be an inflation trend. When there is an inflation in the economy, it will devalue the bonds, which means the government will be easier to pay back loans in the longer period. If a government is able to issue its bonds with infinite maturity period, then due to the inflation for an infinite time period, the value of the bonds will collapse to zero. Therefore, the government does not have to pay back its loan.
Therefore, as long as a government is able to maintain the confidence in its economy, investors will allow the government to rollover its bonds so the government can borrow loans forever without worrying too much about paying back.

Charity and fiscal policy

Is fiscal policy some sort of charity done by government? Many people would say that fiscal policy is definitely not charity; however, these two things have many similarities. Firstly, charity and fiscal policy are not always something that has to be done. It is easy to understand why charity is not something that always has to be done, so I am going to explain it. Fiscal policy is also something that a government could have its choice about. On one hand, of course, there are some circumstances when the government has to make certain changes about its fiscal policy, for example, when a country enters a war, the government has to expand its expenditures on national defense. On the other hand, a government is free to make its fiscal policy. For example, a government can choose whether it pays for funding the sustainable energy sector or not. Secondly, charity and fiscal policy could be an action that benefits other parties without considering the cost and benefit of the payers. When a government tends to expand its fiscal expenditures, it only considers the aggregate outputs of the expenditures in the economy and the society rather than the tax incomes. In addition, a government can use expansionary fiscal policies to give more profitable opportunities to many interest parties in the economy without requiring anything back. Therefore, an expansionary fiscal policy is similar to charity.

However, there is a difference between charity and fiscal policy. An expansionary fiscal policy is able to create long term impacts and charity creates immediate and short term impacts. Sometimes the benefits created by fiscal policies would last longer and generate multiplier effects. But this is not always true. For example, charity does not always mean giving away goods, charity also can provide training and education that benefit the people in need for long term. Therefore, fiscal policy and charity still seem very similar in this way.

What attracts economic activities?

Economic activities take place everywhere in our life, some we can observe and some we cannot observe. Usually when there are more economic activities in one economy, the economy is very likely to be in its fast growth trend. Also the size of the economy can have more economic activities. Therefore, we can almost conclude to attract more economic activities, we need to have larger economies and more profitable opportunities. However, these two factors sometimes are naturally determined and cannot be changed within a short time period. Therefore we need to find some indirect ways to improve these two conditions of the economy.

Building infrastructure is an effective way. Improving infrastructure can create more jobs for people and create more projects for businesses, and building infrastructure itself is an economic activity led by the government actively. More importantly it can have a long term positive effect on the economy and attracting more economic activities, since the costs of transport and having access to more resources would be lowered. In addition, lowering tax rates is a way to create more profitable opportunities, as firms and individuals are easier to make profits and earn more incomes. From these two examples of indirect ways to improve the economic environment for economic activities, we can see that to create immediate impacts always needs the support of a big government. Without the support of the government, the process of improving the economic condition is a passive process. This is because apart from the government, no individual party have the power to make a systematic change on the entire economy.

Therefore, for any developing or underdeveloped countries, a smaller government is not a good way to help to generate strong economic growth.

Is invisible clothes something that is attractive?

Invisible clothes are very popular in the fiction world; from the famous novel, "The Invisible Man" to the invisibility cloak in Harry Porter, being invisible seems something attractive; therefore, it seems if anyone can invent invisible clothes, they could seek investment and expand the production and earn incredible revenues. However, in reality, do people really need such invisible clothes?

I think that in the real world, people do not need such invisible clothes. There are several reasons that we may need invisible clothes. Firstly, people may not like to make contact with other people. However, in the modern world, people can get access to all kinds of goods and services with the help of the Internet, which means they do not have to go out and make contact with other people and still are able to survive. Of course, they may still have to go out to work in order to earn incomes; but in workplaces, no employers would allow their employees to wear invisible clothes, as the employers want to collect as much information about their employees as possible and invisible clothes would limit the information collection. Second, people may like to use invisible to protect their privacy. However, in the modern days, instead of protecting privacy, people become more interested in sharing their feeling and experience, which is the reason that why social networking websites, such as Facebook, Instagram, are so popular nowadays. Thirdly, people may like to use invisible clothes to show off. Of course, invisible clothes are very cool things; however, because they make people invisible, people cannot use them to show off as they cannot be seen. Even if invisible clothes are very popular in the first place, the popularity would be in a quick decline, as they have no utility in our ordinary life.

Therefore, invisible clothes are just something that sounds fancy but does not have any particular use in the modern lifestyle.