Too big to fail, why not split?

Should we allow those big companies to fail? The answer in most cases is no. This answer is made based on subjective and objective reasons. When a company grows large enough, it naturally gains some sort of market power. They are much easier to finance themselves. Moreover, when they fail to pay back their debts, banks usually will give them some money to keep them alive. Why? Because once these big companies fail, it will destroy bankers' careers and damage banks. In addition, some companies are so large that their bankruptcies could leave thousands of people unemployed on the street, which any government never wants to see. Because of the damage to individual and public interests, when a big company is at the edge to fall, the financial companies and the government will use their resources to keep it alive and hope for a miracle. This is a highly inefficient use of resources. Moreover, such environment encourages firms to grow big and abuse their power. The worst thing is interconnection is built stronger when financial companies use their resources to save a company from bankruptcy, once this company fails to avoid bankruptcy then the financial companies which bail it out will suffer as badly as the bankrupted company. Because the financial industry its own interdependence and its connection to other parts of the economy, a domino effect will hurt the entire economy. Many markets should not have natural monopolies due to their characters; however, due to the current environment, many firms blindly expand their business fields and cause massive inefficiency. Therefore, it is important to build an environment to encourage the owners and investors to split their companies into a few of smaller but more efficient companies.

What decides market fluctuation?

Once receiving information, the market fluctuates very intensely at the start. Then the market move will turn to be moderate and move around the true market expected value. When information is just received, people concentrate at the two ends; however, as time progresses, people are moving towards the average, which is the market expected value. There is a recent example, which shows such effect. The London major, Boris, announced his support of letting Britain leave the EU. After his announcement, the UK bond market and foreign currency market experienced huge fluctuations. However, now the markets tend to move much less intense. However, I have some questions: what factors decide how intensely the market fluctuates and how long the intense fluctuation lasts. I can think of several factors but have not done any precise data analysis: macroeconomics information tend to make intense fluctuation longer, more surprising information will make fluctuation more intense. The problems here are what decides whether a piece of information is macroeconomics information or microeconomics information, and what makes information more surprising and is measurable (or at least able to be ranked objectively).

The world economy may diversify further into different growth rates

In January, the world market fell sharply in pessimistic atmosphere. Soros's prediction of a coming financial crisis in 2017 did not come from nowhere, as there are many factors that show the world economic growth is falling sharply and some remaining problems since the last crisis have not been solved. However, we can still see that some countries have relatively positive economic performances. We cannot deny the effect of globalisation could spread one country's failure to the rest of the world. However, recently we can see that many multinational companies start to restructure their businesses and reallocate their resources in the countries which have relatively better performed. This mitigates the negative impact of the globalisation on those better performing countries when a financial crisis occurs; however, those economies which have already been in trouble would be hit even harder.

Which business model is better? A moderate but stable one or an aggressive but risky expansion?

I want to share some interesting stories. Nowadays, most of us have adapted to 3G or even 4G and enjoyed superior internet speed on our smartphones. However, Japan adopted to 3G before many other countries. Moreover, long before Apple Pay, in Japan people already could use their mobiles to pay on self-service machines. The Japanese should have earned huge profits for their advanced and thoughtful technology and services, but they did not and Apple Pay is still widely seen as a big step of modern innovation. Why? Because people are not aware of what happens in Japan, as most of their products are self sufficient. Some Japanese companies have wonderful products, but they only focus on their domestic markets and have no incentive to enter overseas markets. Such behavior limits the profitability and scales of these Japanese companies which have incredible potentials. Comparatively, the American companies may start from their locals, but they always have the will to enter the global market. Therefore, they grow faster and the successful ones end up being multinational companies. These two different types of entrepreneurship have their own advantages and disadvantages. The Japanese model is moderate, the ownership of a company is stable and the loyalty of their consumers is relatively guaranteed; while the American model is more aggressive and better at expanding companies' influence. However, I prefer the American model, as it is very profitable to those successful and innovative companies, it also increases the competitiveness in a global scale so it will encourage self-motivated innovations and help the global economic growth.

Measurement of the effectiveness of resource allocation

We study economics in order to find the most effective way to allocate our constrained resources. There are two extremes of this argument. One end is Adam Smith's "invisible hand" of the free market. The other end is led by Karl Marx, a social planner who is like the god with  omnipotence, omniscience and omnipresence and allocate resources to satisfy everyone's preference. These are from a macroeconomics aspect. There are some microeconomics points of view. People talk about economies of scale and specialization, which improves productivity so less waste will be made. Compared with the macroeconomic view, the microeconomic theories are generally more practical and easier to measure, as we usually measure the cost of production. From the macroeconomics aspect, we usually talk more about the inequality; however, economic growth is also important. Then is it possible to combine GDP growth rate with inequality measurement to form a new index, which to show how effectively a country allocates its resources? I think a country is better at allocating its resources when it could maintain a relatively high economic growth with widening the wealth gap.

The benefit and damage of rising property prices

Rising property prices could make people feel wealthier, especially to those who own their properties. Therefore, we could probably see an increase in consumption. Moreover, it could increase investment, as rising property price could improve people's ability to borrow, especially to borrow mortgages. However, rising property price has its negative effects on the economy. Rising property price is one of the easiest ways to widen the wealth gap and increase inequality. Moreover, as we can still remember from the 2007-08 financial crisis. The crisis followed the burst of the property market bubble. There is another trade-off if we focus on the property market boom. When there is a property market boom, we are more likely to put more resources into the property market than usual, which means other parts of our economy will receive fewer resources and have slower growth. More than just the property market, if we have any rapid growth in one particular market, it could lead to the similar situation.

Improve education could narrow the differences in financial decision making quality

People always make decisions of different qualities, because of their unique characteristics. People with different educational backgrounds and experience make different judgments when facing a same problem. This is a very normal and everyone could understand this. However, such situation makes information always be asymmetric, as people have different processes of information filtering and analysis, which means people will come out with different relevant information and expected futures. Therefore, is it possible to narrow the differences in decision making qualities by providing similar standards of education? Narrowing the differences in decision making qualities could also mitigate information asymmetry. This may mitigate the volatility in the market. To conclude, improving education could reduce the wealth gap caused by the different financial or investment decision making qualities.