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.

Content creation

Many companies are competing in the content creation market. Apple, Netflix, Disney are all offering subscription services to their clients. The price for subscription is between $5 and $10 per month. This is not cheap, if we combine all music, game and film contents. At the moment, it seems these companies are competing for creating better contents instead of prices.

Price competition is the easiest competition strategy but also it is the least profitable strategy. Once one company starts to launch a price competition, the others will follow and the price is racing to the bottom. Under such circumstance, there will be no winner until someone wins the entire price competition and get the whole market share. Such competition will not help companies to earn profits for a long period of time. So they are competing for creating better contents to attract more clients.

These companies are investing millions of dollars in creating good contents. They make their investment based on how many subscribers they expect to have given the expected quality of their contents brought by the investment they make. Of course, they are trying to make enormous investment to create very good contents, so they may suffer losses for a short period but win a significant market share.

However, when every company in the business has enormous resources, they do not want to play the game so aggressively. Then their success is based on the return from the contents they create, and it is a very risky investment since the success of contents is dependent of too many heterogeneous factors.

Who is going to buy bonds with no interest?

Germany is planning to sell 30-year bond with no interest at all. It sounds odd as it means whoever buys the bond will pay a price for holding the bond and get back his or money after 30 years. Why would anyone do so? They can simply save their money in a saving account and even get more money in 30 years as banks generally pay interests. Saving in a bank account could almost be assumed to be risk free; however, this is not absolutely risk free. In finance, the risk-free rate is considered to be the 10-year UK bond yield or the 10-year US bond yield. At the moment, they are not zero at the moment; anyone who buys the zero-interest rate bond must believe these German sovereign bonds are less risky than the 10-year US bond or the 10-year UK bond.

Why do some people believe the German bonds safer than the US bonds or the UK bonds? Germany is an economy which is different from the UK economy or the US economy and it is a strong economy. In addition, comparing with the increasing budget deficit in the US, the German budget deficit seems to be much under control. Moreover, the political environment surrounding Germany is rather stable and predictable. These elements and more make the German sovereign bonds attractive to some investors.

In addition, the German banks are setting very low interests and the zero interest rate may also be a cause of the general low interest rate environment as well.

Maybe Andrew Yang is correct

One of the Democratic president candidates, Andrew Yang, is not as popular as Joe Biden, Elizabeth Warren or Bernie Sanders is but I am very interested in one of his proposals. He proposes that if he is elected, he is going to give every American $1000 a month. It seems that he is buying votes; however, the reason he gives for this policy proposal is very reasonable. He thinks that AI is going to replace the majority of our current jobs and people need to be compensated.
Such future is very likely and even it may come sooner than we estimate, since the rate of AI replacing human jobs is likely to accelerate and we are not not finding more new paid jobs for humans. If people are out of work, they will not be able to afford their previous lifestyle, so the demands for all kinds of goods will significant decrease. When the population does not have sufficient incomes, the firms are not able to earn as many profits as previously. Under such circumstance, it may be reasonable to consider Andrew Yang’s proposal.
I think his proposal has one major issue, which is where the money comes from. He suggests that the money coming from the firms which benefit from the development of AI; however, if the firms no longer have sufficient numbers of consumers, they will not earn sufficient profits to pay for the $1000 plan.

What determines consumers’ demand?

Demand and supply are the two probably most important concepts in economics. Demand is determined by consumers’ preference and price. In the majority of cases, when a product’s price goes down, the demand for this product will increase. However, what determines if a person demands the product at a given price is this person’s preference. There are many factors determining a person’s preference and people’s preferences vary across different individuals. Often these factors can be very personal. For example, if someone wants to buy a pair of headphones, the sound quality provided by a pair of headphones is not necessarily consistent, as the performance may vary based on what song the user is listening to, therefore how much this person is willing to buy a particular pair of headphones can depend on his or her preference of music. Moreover, his or her preference may also be influenced by his or her work. If his or her work requires a lot of travelling, he or she may want a pair of noise cancelling headphones and is likely to value noise cancelling headphones mor than those who do not travel so often.
Therefore, a person’s preference is based on his or her previous experience and expectation about the future. Let’s focus on how a person forms expectation. People generally form their expectation based on what they see at the moment, what they have learned and experienced. What they have learned and experienced can also be seen their experience so far. What they see at the moment depends on their accessibility to information. A person’s accessibility to information is based on their network connections, jobs. However, these elements (even including experience) may depend on people’s family and background.
If the hypotheses are true, then we can use the population characteristics to model the population preference as a whole, due to all factors are correlated with people’s background and family, which are known objectively.

Who is paying for tariffs?

Tariff has become one of the hottest topics at the moment since the US president, Donald Trump, decided to lower the US trade deficits. Tariff is a way to lower trade deficits, but it does not work exactly like what it is like in the president’s tweets. The US president’s tweets often give us such impression about tariff that China is paying money to the US government when the Chinese companies export certain products to the US. This impression inaccurately explains how tariff works. Tariffs lower trade deficits by making foreign products more expensive, so the domestic consumers will be less willing to pay foreign products comparing with domestic products. When people consume fewer imported goods and services, the trade deficit will be lowered. Then although tariff is hurting the Chinese exporters significantly due to the weaker demand, it seems that the domestic consumers are paying for tariffs, as they determine the demands for imported goods and the companies are very likely to transfer the increased costs caused by the tariffs to their consumers.