How does your holiday plan change when your income changes?

I always believe that all individuals are rational that they make their decisions based on their best information. Many people in the West are spending their holidays at the moment. In China, people usually spend their holidays around the Chinese New Year. When people have different levels of incomes, they can have different ways to spend their holidays.

When people are very poor, they do not have sufficient resources to support their basic living, so under such circumstances, they have to work as hard as possible to get as many resources as possible, they cannot have any holiday plan. When people are a little bit wealthier, as they are still facing great risk in the future, and they can earn a bit more during the holiday period than during the normal period, so they are more interested in working during the holiday season in order to get extra incomes to counter their future risk. When people have stable jobs and are wealthier, they can afford holidays and holiday is another type of consumption; therefore, the way of how they spend their holidays depends on their wealth levels and the length of their holidays also depends on their wealth level that when people are wealthier, they can afford more expensive holiday plans and enjoy longer holidays. However, the marginal returns of holidays are also diminishing. After a certain level of holiday lengths and expenditures, the marginal returns become negative, work becomes more scarce compared with luxury, then people could potentially stop consuming more what we consider is luxury and turn to work.

To conclude, if we assume diminishing marginal return is always true, then even super wealthy people would still work, as consuming additional luxury does not provide additional happiness or utility.

What does the business of M&A booming indicate?

 It is reported that the global M&A (merger and acquisition) business is increasing for the fourth straight year and worldwide mergers and acquisitions have exceeded $3tn. This may indicate the worldwide market is potentially becoming more uncompetitive since companies are growing larger and the number of companies in one market becomes smaller.

It means the market power of the supply side becomes greater. It could mean that companies tend to get higher and higher revenues in general. This is good news for shareholders and employees that higher revenues mean greater stock returns and higher wages. Moreover, it can have the influence on the market price level. When the supply side has greater market power, they are likely to set higher prices. Additionally, when people receive higher incomes from greater stock returns and higher wages, they tend to consume more and have higher living standards. Both households' and companies' sides add more inflationary pressure on the economy. Therefore, the inflation rate will be higher when the companies' market power increase. Furthermore, the business of M&A booming indicates the financial market is more active in this sector, financial companies could generate profits from the business.

To conclude, the M&A business booming may indicate great inflationary pressure and increased market power of the supply side. Moreover, the prices could become stickier due to the lower level of market competition.

Short term costs are increasing over time

Due to the development of the market, the short term costs are increasing over time. For example, the recent US tax reform in the long term will benefit the companies as the corporate tax is cut from 35 per cent to 21 per cent; however, in the short term, firms need to spend more on restructuring their tax efficiency systems to coup with the new US tax system in order to make the most of the tax cut, so from this point of view, the short term costs increase due to the new tax reform.

The development of market is a process of completing the market (to make the market complete). A complete market means that the market has negligible transaction costs and perfect information and there is a price for every asset in every possible state of the world. Once the market is relatively close, it means all sectors attach with each other. The US tax reform is an exogenous change and the entire market has to adopt the change systematically. Such systematic change is costly as some work has to be redone, people may need more training to adopt the changes.

Therefore, to conclude, in a more complete and more developed market, a minor change requires a systematic change within the market, which could be very costly in the short term.

The costs of crime

Crime, of course, hurts the society, as the existence of crime increases individual risk and could potentially destroy the capitals that can create values for our society. In macroeconomics, there is a belief that stealing and robbery do not create negative impacts on the entire economy as long as the expenditure does not change in its whole. This is because the entire economy does not lose any capital from stealing and robbery and the money would merely be transferred from one person to another and then spent into the economy again. However, such belief ignores the side effect of stealing and robbery. The existence of stealing and robbery could change people's consumption attitudes, and the individual expenditures are different between when there is stealing and robbery and when there is no stealing or robbery. This is because of the first cost of crime I mentioned in the beginning. When there is stealing and robbery, individuals face the risk of losing incomes due to stealing and robbery. When individuals face greater risk or uncertainties, they tend to lower their expenditures on consumption; therefore, when there is stealing and robbery, the expenditures on consumption will be lower. It means when there is a high level of crime, the consumption level in the economy would be low. In addition, crimes would destroy the capitals that can create values for our society. Individuals could be potentially hurt by crimes when individuals suffer physical damage, their productivities would be affected as well as the values they create for the society would also be affected.

To conclude, crime does not only affect individuals but also affect the entire economy and the entire society as well.

New sales record

Tomorrow is Boxing Day, the most important shopping day in a year in the West; and I expect that it will create a sales record tomorrow and I have these following several reasons.

Firstly, there is an inflation. This means even with the same real value, this year’s nominal value is definitely higher than the previous year’s nominal value. Secondly, retailers have great significant incentives to boost their sales on this particular day. Boxing Day sales are one of the most important figures that investors and banks pay attention to. If retailers can have very good sales records, they are easier to have access to more finance. Thirdly, the GDP is growing over years, this indicates the population is becoming more wealthier. When individuals become wealthier, they are more likely to spend more. Fourthly, more of the goods people buy need frequent updates, this forces people to buy the updates more frequently. This means people may buy similar goods every year, and the prices tend to be higher every year, since they are updates. Therefore, the revenues will increase over time.

To conclude, I expect this year the Boxing Day will create new sales record.

The US tax cuts

The Republicans are celebrating their huge success of passing the new tax bill, of course, the US President Trump is also celebrating and calling it the Christmas present for the Americans. However, I think that it is not a present for every America, as it mainly benefits those whose annual incomes are higher than 100,000 dollars. Those people' incomes are above the American average income. Given there is a wealth gap in America, the median income could be lower than the average income in America. This means the wealth gap would become even wider under the new tax policy. In general, any tax cut would lead to a wider wealth gap.

Usually, the policy of tax cuts aims to increase people's incentives to work harder and improve their productivity. In America, it does not have such issue. Moreover, too wide wealth gap would reduce the productivity. Therefore, the tax cuts may not be a wise move at the moment for the US. In addition, the corporate tax is also cut significantly; however, it may not mean that the US companies would transfer their benefits back home, especially those large multinational companies. The US corporate tax is not the lowest even after the tax cuts. The current US economy is actually in its almost best shape, no change is actually required at the moment, as the economic growth is strong, the unemployment rate is low and the number of jobs created increase over time. An additional policy may not stimulate the economy further but creates more social equality problems.

Inequality

There are many types of inequality existing in the real world: gender inequality, income inequality, race inequality and etc. To some degree, these inequalities mix with each other; for example, one of the phenomena for gender inequality or race inequality is income inequality that people across different races or genders are paid differently. In the modern world, it is hard to see de jure inequality, especially in the developed world; however, it is very common to see de facto inequality.

The problem of many inequalities is caused by the abilities of the disadvantageous people. The reason for the closing gender inequality gap is that in the modern society, males and females have equal opportunities to receive education and are equally capable in the labour market as they can do similar jobs. The racist problem is caused by the ability difference across different races. Of course, the ability differentiation is caused by many historical reasons and even cultural reasons. 

The average ability difference between different groups of people causes the income gap between different groups of people, leading to the issue of social inequality. Many people believe that to narrow down the social inequality is to provide more education; however, nowadays many researchers find that the contribution of education to incomes only counts 5%, the income is largely determined by people’s backgrounds.

To improve people’s backgrounds is extremely difficult, as the systematic shift of people’s backgrounds is usually caused by exogenous events. For example, the two world wars caused a sharp reduction in the number of Western noblemen and created a social class change.