What do China’s capital outflows tell?

What do China’s capital outflows tell?

China’s capital outflows have reached $500bn in the first eight months of this year. Developed countries are more likely to have huge capital outflows, compared with developing countries. From GDP per capita, China is not a developed country yet. However, excluding Hong Kong and Macao, there are three metropolises and six provinces, with GDP over 10000 dollars per capita. We can say that some areas of China have already achieved the developed country standard. It is sensible to say that the $500bn outflows mainly come from the more developed area in China. The capital is attracted to the overseas, because people see the returns abroad are more secure or higher than investment in China, especially in those less developed area in China. In the future, the more developed area could enjoy the returns from abroad, but the less developed area will have limited development and the gap between the rich area and the poor area will become wider. I am not saying that the Chinese government should limit the capital outflows, but I think the government needs to make the inland areas, usually the less developed areas, more attractive to investment. Maybe the government is already making such policies, just I do not know yet.

Renewable energy is good for the future, but the decision of cuts to renewable energy subsidy makes sense as well

The UK cuts to renewable energy subsidies is criticised by a top UN environmental scientist. Renewable energy is good for our future, this is agreed by all of us. However, it does not mean that the subsidy for renewable energy needs to continuously rise forever. Subsidy exists because there is a external benefit. An external benefit is a benefit that the market does not realise and take account into its price. The value of renewable energy is now better understood by the public and most people are more willing to use renewable energy if the prices are similar. Keeping the same level of subsidy might cause a negative externality. This means the external benefits of renewable energy have reduced. In addition, solar energy firms had been hot spots of many investors recent years.Technology of renewable energy develops at an incredibly fast rate, the cost has been reduced to a great extend. Cutting in renewable energy subsidy is sensible and good for the market and the government budget, as this encourages competition between the renewable energy industry and the traditional energy industry. Renewable energy is good for our future, but this does not mean that it needs unlimited support. This is how an economist and a scientist think differently.

GDP is too simple to tell the performance of one economy

Consumption is everything, it is the most important part in the GDP function: GDP=I+C+G+(X-M). Without consumption, there will be no markets, because markets are there for consumption. Moreover, investment and government spending is used to boost the consumption. People need money for consumption. I believe, consumption should always be encouraged. In terms of evaluating one economy, I think consumption should weight more when we are calculating the performance of the economy. Government spending should weight a bit less, because some of the spending will not be added directly to the market. Exports and imports should be put into more categories. Raw materials and final goods will have different effects on the economy. When evaluating one economy, simple addition and subtraction cannot give us an overall picture about how the economy is on the right track, we need to evaluate the impacts of all different parts.

Bad news stops the Fed raising rates, so it is Good News! Is there anything wrong with this logic?

Bad situations have made the market so happy that the common believe that the situation will force the Fed to withdraw its plan of raising rates by the end of this year. Even after Goldman Sachs announcing its quarter profits down 39 percent from 2014, the share price of Goldman Sachs has stayed relatively stable. The drop of the profits could be foreseen by the poor performance of the financial market this quarter; meanwhile, such report could put pressure on the Fed's decision on the rate changing. The current situation is like: "bad things happen to stop more bad things happening". We have foreseen most of the bad news, maybe some of them is actually worse. However, we have stopped being panic about the bad news we have already predicted. We start to think the bad news could stop the others from taking more unwelcome actions, especially the US Fed. This is a very worrying thing. I think we need to take positive actions to restore the market confidence, instead of sitting and waiting for the news coming. Because the market may be recovering itself, but if there is any piece of information that is out of our expectation, it will create a huge shock in the market.

How can we test if the money system works?

Previously I discussed about the possibility of the private issuing money system and I think three rules should be set: a complete separation between ownership and management, private firms only issue money to pay their workers’ wages and the government taxation on firms’ revenue. After setting the three rules, I think the next step is how we test if the model works. The first phase is to build up a model by computer programs. Computer programs can give us some ideas how the system will work in our real world. The second phase is to start from a small community, if it passes the computer test. Containing it in a small community can also contain the possible damage within a small scale. The money generated by the new system could be seen as a kind of foreign currency, with a floating exchange rate. The floating exchange rate can use the market force to value the new currency. In addition, it helps to prepare the next phase. The final phase is to transfer the old money system to the new. The exchange rate can help this stage and replace the old money with the new money.

foreign aid: why not supply goods which have the biggest price increases?

Angus Deaton from Princeton University won the 2015 economics Nobel Prize, everyone thinks he is well deserved. I want to discuss his opinion on foreign aid. Mr Deaton says, "I am in favour of giving money not just in Africa, but for Africa". There is a difference between "in Africa" and "for Africa". "For Africa" has purposes, but "in Africa" does not need one. I always think foreign aid does not help a lot, here Mr Deaton tells me the answer of it. Inspired by Mr Deaton, I feel that it is extremely important to do market researches before giving out aids. Amount does not matter, if money is spent in correct purposes. Moreover, I think we can also rely on the market in the developing world itself. The market can distribute scant resources in the most needed field. Therefore, why not supply goods which have the biggest price increases? The goods have the biggest price increases, usually the goods most needed in the market.

Three basic rules that might make the private issuing money system work

The first rule is a complete separation between ownership and management. The second rule is that private firms only issue money to pay their workers’ wages, instead of owners’ profits, the revenue received will be used to reinvestment or paid back to the owners as profits. The third rule is the government taxes a firm on its revenue at a higher rate, if the ratio of the total wages to revenue is higher. These three rules can decrease the likelihood of dangerous levels of deflation or inflation. Because the system increases the amount of money at the level of the nominal GDP. And the government has the control of the supply of money, that by increasing the whole tax levels the government can reduce the amount of money issued by the private firms, as the cost of paying wages increases. Moreover, such system will increase the level of competitions. Firstly, it lowers the entry barriers, especially in the service sector where labour cost is the main cost of production. Secondly, workers want to work in a firm that generates more revenues, which means they are likely to get higher wages. Thirdly, the labour productivity might improve as workers’ wages have a direct link with their production. Fourthly, firms will always be careful to control their sizes within an efficient scale.