The US federal government deficit

According to US Treasury data released on Thursday, the US federal government budget deficit reached $1tn. This number is very likely to keep climbing up in my opinion. In his previous election campaign, the current US president, Donald Trump, said that the US budget deficit could go down under his tax cut policy, because although the tax cut will reduce the tax income from individual parties, the economic growth boosted by the policy will not only compensate the losses but also increase the overall tax income. So far, his claim seems to be false that although the economic growth during the Trump presidency is comparatively strong, the economic growth boosted by the expansionary fiscal policy fails to reduce the budget deficit.

Now, some economists predict an economic slowdown ahead of the US economy as well as the global economy. With the 2020 presidential election ahead, Donald Trump is under pressure to keep the economy growing. This means that the expansionary fiscal policy. Furthermore, the ongoing trade war between the US and China has also added some downward pressure on the US economy, this makes the economic stimulus more needed. The US president has pressured the Federal Reserve chairman to lower the base rate and choose expansionary monetary policy.

Under such circumstance, there is not much hope that the US federal government budget deficit will fall anytime soon.

Why do people get addicted to gambling?

Gambling is not a good habit and many people get themselves bankrupt because of gambling. Why do some people get so addicted to gambling? To answer this question, I would like to exclude one factor from this issue, the joy gained from gambling, the activity itself. I think in the key to this problem is prospect theory. People tend to overestimate small probabilities, this means people can overestimate their chances of winning in gambling. This could increase people’s incentives to participate in gambling.But this is not the whole story, since this only explains why people start their first gambling but does not explain the addiction to gambling.
When people suffer a loss, why do some of them still keep gambling? People are generally loss aversive, so if there is a way to overturn their losses, they will consider it. Of course, there is a way to overturn their losses, which is to keep gambling. So people will consider this choice. They  may still overestimate the probability of winning. More importantly, some people do not see each bet they place as an independent event, but rather see the entire gambling as one event. In this case, they believe although the chance of winning one bet is low, the chance of losing the entire gamble is low if they place a significantly large number of bets. Because of such belief, they increase their money put into gambling after each round, then at most time, their losing rate is increasing over time.
Overall, there are two main reasons for some people getting addicted to gambling, one is these people tend to overestimate their winning probability, the other is they fail to see each bet they place as an independent bet from other bets they place.

What is humiliation? Why do we get angry?

According to Collins Dictionary, the definition of humiliation is the embarrassment and shame you feel when someone makes you appear stupid, or when you make a mistake in public. When we are humiliated by others, especially in public, we are very likely to get angry and want to get a revenge. Why do we get angry, especially when we are humiliation in public? If we assume that we always behave rationally and even our emotions behave rationally, then we rationally get angry for a reason when we are humiliated.

If we are humiliated but do not get angry or try to revenge, then we are afraid that we are likely to be exploited more in the future. In order to avoid such circumstance, people find getting angry and trying to revenge a more effective way to protect them from being humiliated and/or exploited in the future. Therefore, it is rational for us to get angry and try to revenge when we are humiliated. Moreover, when we are publicly humiliated, it means if we do not fight back, more people will see the chance of exploiting us and a higher risk lies in front of us, then we should fight back even harder especially when we are publicly humiliated to protect ourselves.

(Inspired by the work by Eyal Winter)

The global problem: tax

How to collect taxes from multinational cooperation has been a big problem for many countries around the world, since multinational companies have so many ways to dodge taxes. According to the study by the IMF and the University of Copenhagen, nearly 40% of worldwide foreign direct investment is for minimising companies’ tax liabilities. There are several institutions and governments studying how to effectively tax these multinational companies.
 For governments, they do not only need to consider how much money they are able to collect from companies, they also need to consider how many jobs these companies create. Any move to increase their abilities to collect money from companies is likely to reduce these companies’ business activities in their countries, so the jobs created by these companies tend to decrease. Therefore, multinational companies have enough bargaining power when negotiating with governments.
Because multinational companies can create significant numbers of jobs for some districts in one country, it can have influence over district representatives in the political system thus influencing law-making especially the tax law. This makes the process of law making to strengthen central governments’ abilities to collect taxes from multinational countries weaker when central governments do not enormous power in the law-making process.

Why does history repeat itself?

Some people see that history always repeats itself and I do agree with this point to some degree. When we only focus on history from the politics aspect, it seems that the power struggles throughout our history have many similarities. I think that this is because political struggles are always about winning the majority support. During different time periods, the politicians including kings fight for majority support from different sources. In the earlier period, the politicians particularly fought to win the support from noblemen; later, the politicians are fighting for a wider range of citizens in their communities. Overall, their goal never changes.

Since they always have the same, then their actions become much likely to be predictable. It is fair to assume all these politicians want to win and they are clever (I think they have to be clever to play such significant roles in our history), then they should always play the best strategies. To achieve the same goal, the game theory tells us that there are some dominating strategies. If dominating strategies are pure strategies, then we will see exact outcomes every time. If dominating strategies are mixed strategies, then we will see several outcomes repeatedly happen.

Overall, the reason for us to see history repeating itself is because the people playing significant roles in our history do have the same goal which is to win the majority support, to achieve this goal, they have to follow similar dominating strategies.

US investment in China

Despite the ongoing trade war, the US investment in China is rising. According to the Rhodium Group (from FT), US companies invested $6.8 billion in China in the first half of the year, this is a 1.5 per cent increase from the average over the last two years’ same periods. These companies include some famous names, such as Tesla, Bain Capital. What does this mean?
First, these companies still want to enter the enormous Chinese market. Tesla may be a great example of this. Tesla sees itself as a very competitive EV company and it sees a great potential in the Chinese market. By investing in China, it hopes to expand its market share in China to significantly increase its revenue and profit. Although there is a risk in the Chinese economy, some companies see more opportunities in the Chinese market and the downside risk actually makes it a great time to enter the market. Moreover, some US investors believe the Chinese capital market is overreacting to the risk caused by the trade tension. This is very likely because not all sectors are affected by the trade tension equally; when the market is panic, overreaction is a very likely phenomenon in the market.
Overall, we can see that although the risk is obvious due to the ongoing trade war between the US and China, the Chinese market still has its potentials that no one can omit.