The new US political environment

The Democratic party won the House of Representatives and they now have the power to start impeach federal officers as well as the president. Donald Trump is not unhappy about a Democratic-controlled House, especially when it comes to his tax return and the possible impeachment. Trump twittered "If the Democrats think they are going to waste Taxpayer Money investigating us at the House level, then we will likewise be forced to consider investigating them for all of the leaks of Classified Information, and much else, at the Senate level. Two can play that game!" However, can Trump really play this game?

Both the US president and the House can choose to cooperate with the other or fight against the other. If both choose to cooperate with each other, the outcome for the country will be maximised, and it will be the most efficient outcome. However, it does not mean either the president or the House maximise his or the Democratic party's individual benefit, especially for the Democratic party. When everything goes very well, it will make Trump more likely to win his re-election in 2020; however, the Democratic party wants to win the 2020 presidential campaign. For Trump, it is going to be a hard time for him to be a president, as he cannot do whatever he wants. For the Democratic party, its best strategy is to fight against Trump. Firstly, the president is often considered to take the majority of responsibility. This means that people tend to blame the president more for any problem caused by the conflict between the president and the House. Secondly, the House stays relatively low profile, comparing with the President, especially this one. People are more likely to notice the mistake made by the president than that made by the House. Thirdly, fighting against Trump can win more public support, especially when the president is unpopular.

Although some people think that the Democratic party is good for the US, it is still a political party which tends to serve its party's interest, it will fight against the president and create a less efficient outcome.

Who is playing with you

I would like to start a question that if there are 25 people in a room, what the probability of two people sharing their birthday. What is your answer? The correct answer is above 0.5. Generally the people who ask this question expect that the answer they will get is lower than the correct answer. However, since this is a very famous question, if people ask the others who are familiar with the question, the answer they will get is going to be correct or very close to the correct answer; under such circumstance, people do not get the answers they expect. Therefore, to get what you want is dependent of who you are dealing with.

Sometimes people ask some questions to economists, they might feel economists act selfishly to some extend. However, this does not mean some economists are selfish, it is just about the way of how economists think questions, economists tend to think questions from the economics prospectives.

In the real world, sometimes people are thinking about who they are dealing with are the ordinary people or always the same group of people who share similar characteristics, especially when they are dealing with people who they are not familiar with; however, this is not true.

Overall, when people are dealing with the others who share some specific characteristics, they should expect that the outcome will drift away from the outcome they expect when dealing with randomly selected people whose characteristics are not special and match the mean of the entire population.

The market is up again

The US stock market rose sharply after the US midterm election, which was the largest surge since 1982. Both the Dow Jones Industrial Average and S&P 500 surged 4.3 percent and 3.9 percent. How is the US stock market related to the midterm election?

The Democratic party controls the House now, but still has not managed to take the control of the Senate. The US stock market seems to favour both political parties. Do people still remember what happened to the US stock market after Donald Trump won the 2016 presidential election? The US stock market dropped during the pre-market period but rose sharply once the market opened. The reason given to the market response after the US presidential election is that the market loved Trump's proposed tax policy. However, this time the Democratic party controls the House, it could mean that the Democratic party can block Trump's proposed aggressive stimulus fiscal policy. Based on the reason given to the market rise after the presidential election, today's market surge does not make much sense. The Democratic party is a left-wing party, comparing with the Republican party. The Democratic party prefers the ideology of social equality, and taxing wealthier people and companies; the ideology of the Democratic party should not be preferred by the US stock market.

Therefore, the stock market does not really love any particular political ideology, unless the ideology creates actual impacts on the financial market. The investors merely love news that could create some excitement in the financial market, and the news does not need to have any actual impact on the market, the market just loves the excitement.

Is Midterm that important?

The US midterm election has been under the spotlight for several weeks, the news media around the world has all been discussing about how important the US midterm election is. The US midterm election is definitely a great opportunity for both of the US political parties, especially for the Democratic Party. The importance of the midterm election is undoubted for the US domestic politics; however, is the midterm election similarly important for the global politics and the global economy?

If the prediction of the polls is correct, the Democratic party is likely to control the House and the Republican party is likely to defend its control over the Senate, and this is the most likely scenario. If the Democratic party controls the House, the investigation of Donald Trump's finances and Russian interference in the 2016 US presidential election; however, since the Democratic party does not control the Senate, the Democratic party cannot successfully impeach the current US president. However, this is not important for the global economy; what is really important for the global economy is how the US midterm determines the US future foreign policy. As long as Donald Trump is the US president and the Republican party controls the Senate, the US president will still have his influence over the US foreign policy and the US future foreign policy can hardly change, especially the US foreign policy against China. When the Democratic party can start to influence the US foreign policy, the US foreign policy regarding its policy in Europe, North America could return to its initial route before Trump became the US president. However, since Trump and the Republican party have convinced some of the US population about how Chinese take the US jobs, it would be unpopular for the US government to become friendly. Moreover, the political systems of the US and China are different, which can lead to further conflicts between the two countries; China has become the second most powerful country in the world, so China easily becomes the potential target of the US.

Overall, the midterm election is not very likely to have significant impacts on the US future foreign policy, so the importance of the midterm election may not be as important as many people expect in terms of its impact on the global economy and politics.

How should a person lie?

I think that all people lie to others to some degree, and some lies are considered to be 'good lies', which tend to benefit others instead of the lie tellers. However, I want to focus on the lies that solely serve the lie tellers' own interests, and discuss how people tell lies to benefit themselves the most from a game theory prospective.

A person cannot always lie to others under all circumstances, especially he or she cannot let others know he or she will definitely lie regardless whatever the circumstance is; because if he or she does so, the other participants or players can design their strategies accordingly and telling lies would not be very efficient of serving the lie teller's interest.

A lie teller is possible to create an unfair game and benefit himself or herself only if he or she has an advantage of information; otherwise, he or she will not be able to make his or her lies effective. Moreover, the lie maker needs to have some chances to offer the lie tellee to gain some benefits. Then if the lie tellee knows he or she may be told a lie, since the probability of being told a lie is not 100 per cent, he or she may randomly choose whether he or she choose to trust the liar or not.

Because the liar has information advantage, even if he or she does not always lie (always lying is the best strategy), once he or she forces others to play the game with him or her, the expected outcome will be positive, and the lie tellee's expected outcome will be negative. Therefore, this is not a fair game and the liar can benefit from randomly telling a lie.

Explanation of increasing wealth gap from microeconomics prospective

This explanation of increasing wealth gap from microeconomics prospective comes from the work of Marina Halac, Ilan Kremer and Eyal Winter, 'Raising Capital from Heterogeneous Investors'. Suppose a company requires a certain amount of money to start its project (assume as long as the money is sufficient, the project will succeed) and there are two investors available, one is a wealthier investor and the other is a less wealthy investor, but either can pay the project alone. Under such circumstance, the company has to get the money from both investors. To convince the two investors, a company has to ensure one investor's dominant strategy is to invest his or her money, then when having one investor secured, the other investor will follow as he or she knows the project will succeed. Here comes a question which investor the company should pay more in order to guarantee his or her investment. The answer is the wealthier investor, because once the wealthier investor invests, the probability of succeed increases more significantly, so the risk premium paid to the wealthier is actually proportionally lower and the less wealthy investor only gets an ordinary interest rate, since his or her investment is risk-free; overall, the company will pay less comparing with proposing to the less wealthy investor first

This answer is also true when it comes to a larger number of investors problem. The company always proposes to the wealthy investors first, so the wealthy investors get better deals than the less wealthy investors. Under such circumstance, the wealthy investors become wealthier after investment, and the less wealthy investors do not change as they are offered the risk-free interest rate. After several periods of investment, the wealth gap between the wealthier investors and the less wealthy investors will increase over time. This can at least partially explain the increasing wealth gap in the real world.

I find the result is rather brutal that their work could potentially imply investment, this kind of economic activities, naturally make the richer rich, if companies behave rationally.

Starting with information

People like communicating with each other to exchange information, sometimes they exchange information for their own serious purposes, or they exchange information (or gossip) merely for entertainment purposes. Both kinds of purposes are completely fine. Information is almost starts of everything. Technology is developed in labs or offices, the information has to be passed from labs or offices to factories in order to produce hi-tech products. The information has to be passed from traders to brokers in order to make stock exchange happen.

Information is a very important concept in the game theory. A game's outcome can be very different between a setup with communication and a setup without communication. Although people may not tell truth, as they may strategically lie to other players in order to get more profits, people can predict others' strategies, especially when we expect all people work for the best of their interests. Moreover, when people communicate with each other, they are exchanging very complex information including people's emotion and some unexplainable expression as well, these kinds of information are difficult to be modelled, and also important when people are making their decisions. People do express their emotional feelings; therefore, it is reasonable for people to receive emotional expression as part of information they receive, though it is not sensible in the eyes of economists.

Overall, people are exchanging information all the time in all different forms. Some form of information is very complex and almost impossible to be modelled, such as emotion, but plays important roles in our decision making.