The biggest news this week: Brexit

The biggest news this week is the UK Prime Minister, Theresa May, eventually triggered Article 50 to start Britain's leaving the European Union procedure officially. I did not cover this topic because I think I have covered a lot about his topic. So far, I still have not seen any significant change or surprise in this event. However, I find one interesting thing that the existing EU legislation is being transferred into the UK's law book.

It could show that many of these EU regulations and laws have been adopted by the majority of the UK population. Therefore, it is not suitable for the UK government to completely dump the EU legislation. Moreover, the UK government has a very tight time constraint to plan its Brexit and it is impossible for the UK government to consider all impacts the EU brings to the UK and make amendments to them. What will the EU leave to the UK after Brexit then?

Besides the most obvious one, legislation, the UK citizens will still enjoy free access to many of other countries in Europe and their holidays and lifestyles will not change too much after Britain's leaving the EU. In addition, the network between the UK and the European continental countries will also remain. Because of these connections, some businesses between the UK and the European continent will continue. The businesses and the government will be affected by Brexit than the British individuals will.

As long as the legislation and the connections remain in the UK, and the UK is willing to negotiate another free trade deal with the EU, Brexit seems to be less significant. After Brexit, it may not have too many changes in the UK and Brexit may just give Britain more political freedom, but the current UK is not as tightly bounded with the EU like other countries like France and Germany. Therefore, Brexit may not be a significant change to Britain, especially given Brexit's earliest schedule is still after 2019. Many radical opinions will ease when either side faces some crucial challenges.

When we cannot catch up with the speed of innovation

Innovation takes place every day; some may change our lives a lot and some may have less significant effects. However, it is almost definite that our society hardly catches up with the speed of innovation.Innovation sometimes can be simulated and accelerated by other innovation; however, regulations do not interact so well and sometimes even they can be conflicted with each other. In addition, it takes longer to make regulations than it takes to make the use of new innovation. Often once a new innovation appears, the authority hardly knows the actual impacts of this innovation until it sees how people are using it. Moreover, there are many red tapes when designing and acting regulations, this could even make the process much longer. In addition, in our society, not everyone knows how to use the new innovation, it can make some people in more advantageous places. Regulations tend to protect the benefits and interests of the majority of the population. Once regulations cannot catch up with innovation, the benefits and interests of the majority of the population will be affected or even damaged, and the wealth gap between the elite group and the rest of our society will widen further and further.

However, innovation gives more opportunities to individuals and small businesses, as they are more flexible and easier to adopt new innovations than the large institutions and companies are. In this way, the elite group under the era of innovation is very likely to be different from the traditional elite group or the wealthy group. It does not mean the traditional wealth group is not going to benefit any more, it merely means the returns they receive will be lower, and they are more likely to be overtaken by the new elite group than previous.

Environmental problem and government policies

The Trump administration is almost definitely environmentally unfriendly, as the budget plan issues massive cuts in environmentally friendly sectors and the Trump administration also issues environmental deregulations and encourages traditional energy industries. China has been passionate about environmentally friendly development. The Chinese solar industry has received significant amounts of funding from the central government and the local governments, and because of the support received from the Chinese government, the Chinese solar industry has been enjoying a period of fast development. Some solar companies in other countries other than China have been downgraded by many financial institutions as these financial institutions are afraid of oversupply due to the development of the Chinese solar sector and they are also unconfident about the American solar sector development due to the current US administration.

Environmentally friendly policies usually have several main goals. Firstly, China especially is passionate about solving its current air pollution problem. Therefore, such policy often targets improving environment. It has other positive side effects, for example, it could improve the population health and the happiness of the population as well. Secondly, it can boost investment and manage the domestic investment. China sees the alternative energy as the future energy, investment in this sector could generate an outcome with more social benefits and greater returns. Therefore, China uses these policies to make investment and government spending more effective and efficient. Of course, other governments could issue other kinds of policies to make their domestic investment more effective in other ways they want to be. Thirdly, policies sometimes could correct market failures without directly taxing or subsidising. This could save government spendings to some extent. Fourthly, it also sends the market and the society a signal of what the government want. It could provide some guidance to the economy and this could make the process smoother and once there is some problem, it could be solved without causing too much damage.

What if all information is avaliable and made public?

In the financial market, some information is identified as private information, some information is identified as public information. Often illegal internal transactions are caused by private information leaks. However, what happens if we can make all information is available to all people?

Of course, such hypothesis is very unrealistic, let's just imagine a world where we could access to all information. Firstly, prices would be different, as we would have more information available, our expectations would adjust accordingly and the prices based on expectations will definitely change. This might be one positive point of making all information available to everyone. Secondly, arbitrary opportunities would largely disappear, as all information is available, all states and their prices would be known, this would avoid arbitrary opportunities.

However, once all information is made available, there could be negative effects. Firstly, it could be an increase in the systematic information. Once all information is available, all people would be more likely to take similar actions. Although all information is available, it still does not mean the future is 100% certain. Once everyone in the system makes similar moves, then the system could go terribly wrong when an event with a lower probability occurs. Secondly, financial activities may slow down. Some of the financial and investment events are largely based on the risk taking and the returns from taking the risks. When all information is available, the risk would become more obvious, then people would make their actions based on their risk preferences, and they would no longer to make the judgement on the risk they would face. The financial sector often has some form of rallies; therefore, once they become more conservative, the financial market would enter a frozen period where any risky actions will be abandoned. Because they have the same judgement on risk as all information is available, they would make almost the same actions. Conservative strategies are more welcome by the general public, as we are afraid aggressive moves made by the financial institutions. Therefore, the innovations in the financial institutions would slow down very much.

Is limiting the roles of international organisations reasonable?

Conservative economist Allan Meltzer calls for a rally to limit the roles of international organisations, especially the World Bank, and the International Monetary Fund. These international organisations were founded based on good wills and they are taking actions to achieve some mutual benefits of the global society.

Allan Meltzer has some relationship with the current Trump's administration and such criticism seems to match the anti-globalization ideology of the Trump's administration. However, as he is a respectful economics professor, we should not take account of his political ideology; but instead, we should consider the economics concept behind such claim.

Firstly the international organisations are not necessarily charities. For example, although the International Monetary Fund provides aids for the countries like Greece, the help is not unconditional and Greece still has to pay back the loans offered by the IMF. Secondly, the relationship between the international organisations and their associated countries is not equal. Sometimes their associated countries could dominate the organisations, for example, America has a very strong position in front of the World Bank, and the World Bank openly admits it is important to build a strong, constructive relationship with every US administration. It could cause a bias when it is dealing with some international issues. Sometimes, the international organisations are in stronger positions. For example, the IMF is in a stronger position in front of Greece. Such unequal relationship could cause ineffectiveness, unwanted opposition, and unfair judgement. Thirdly, many people love the idea of globalisation and free trade, but these international organisations are not the symbols of free trade. Free trade should not involve any third party, the existence of any type of third parties will increase the cost of trading. When these international organisations set up many rules and regulations, they indirectly damage the free trade.

The narrowing internation inflation gap

The international inflation gap has fallen to a decades-long low, as the inflation rates in developed countries increase and the inflation rates in emerging markets decrease. This may indicate that the developed countries are growing stronger and the emerging markets are growing weaker, as the economy that has a higher inflation rate tends to have a higher economic growth rate as well. However, this could be acceptable for both groups. The developed countries currently have been enjoying low unemployment rates, stable economic growth. Meanwhile, this is good for the future trade for the emerging markets. The inflation rates in the developed countries increase means their domestic goods and services are becoming more expensive, they are likely to consume more imports which are likely to be cheaper. While the inflation rates in the emerging markets decrease mean their domestic goods and services are relatively cheaper. Their exports could become more attractive in the developed countries and they are more likely to import fewer goods and exports as their domestic goods and services are already very cheap. Therefore, their current accounts could improve a lot.

However, under protectionism, it will become a totally different story. It could give the developed countries more benefits in a short term period. Emerging markets have their economies based on the international trading. Under protectionism, their exports will reduce, meanwhile because of their technological disadvantages, certain types of goods and services are largely dependent on importing from the developed world. Therefore, in a short period of time, the developed countries are at advantageous positions. However, in the long run, the developed countries could lose more. Firstly, the increasing inflation rate lifts their domestic living costs of ordinary people. Secondly, the emerging markets' dependence on their advantageous technologies weakens over time. Thirdly, their economies are losing specialisation's advantages. Because many goods are produced by the emerging markets, once they reduce imports from the emerging markets, they now need to produce these goods by themselves, The costs of production are much more expensive and the economy has to produce most types of goods and services themselves. Under such situation, they can no longer specialise themselves in some particular sectors.

The healthcare sector

Currently, the American society has focused on the upcoming new healthcare policy to replace the Obamacare. The healthcare sector is very complicated that it is believed to have enormous positive externalities; therefore, the society requests enormous government intervention in this sector. Once the government intervenes in the healthcare sector, the government has to decide the correct level of subsidies and taxation. The market information is too complicated for the government to make a decision that pleases everyone. In addition, the government is never able to make everyone pleased, as everyone has his/her individual unique preferences. Furthermore, the negative comments on the government intervention will draw much more attention than the positive sectors will; therefore, it seems there are more people against the government policies than those supporting the policies. Under such circumstance, the government also faces lots of opposition when the society's attention is drawn towards the opposition force.

Despite the government has difficulties to make everyone satisfied, the healthcare sector has its own complexity as well. It involves cooperation between many different sectors, including the insurance sector, the pharmacy industry, the medical sector (including hospitals and doctors), the medical equipment industry and etc. Some of these sectors do not meet the conditions of a perfectly competitive market. Actually, most of these sectors have monopoly or oligopoly markets. Therefore, the prices in the healthcare sector tend to be higher than the normal levels under a perfectly competitive market condition. In addition, in the modern world, wealthier people tend to live much healthier lifestyles, as they have time and money to go to gyms and eat healthily, so they are likely to need health care less than poorer people who are more likely to have unhealthy lifestyles. However, almost everyone would like to have the best available health care they can get, so the demand for health care could be infinite. Therefore, it is possible to see some people are overconsuming health care, some people are underconsuming health care due to their poorer financial conditions.

Overall, as people's demands for health care could be close to infinite, and the supply and the demand can hardly find an equilibrium point with or without government intervening, there is no way to make everyone satisfied.