In this country we tend to fear the rise of Monopolies. Most Americans probably think our country does a good job at keeping them at bay. But what if the main heavy-hitters in our economy were oligopolies? Are we any better off?
The consumer may think that when they go to the grocery store or chose a cellphone plan they have many options to choose from. Though there may be many toothpaste brand names for instance, in actuality more than 80% of toothpaste brands are controlled by two companies: Procter & Gamble and Colgate-Palmolive Business Practice - Oligopoly. A monopoly is when a market is controlled by one firm who has unlimited market power. When a small number of firms control the market we call that an oligopoly and it is more common than we may think. The oligopoly firms are too few to create any sort of competition and they make parallel pricing and production decisions. If these few firms were under one company name we would call it a monopoly.
Cellphone service providers are another classic example Big Cellphone Companies. If you feel like you're getting ripped off by your cellphone provider you are probably right. There are four main companies, AT&T, Verizon, Sprint, and T-Mobil, with AT&T and Verizon controlling two-thirds of the market Big Cellphone Companies. Although some smaller companies attempt to make the market competitive often times they end up being bought out. For a long time T-Mobil has made the same type of market controlling decisions as the other cellphone companies, like high overage charges, binding contracts, etc, but now they are going out on their own. T-Mobil is attempting to move in on the market by making better decisions for the consumer. They will set themselves apart by ditching contracts and roaming charges Big Cellphone Companies. This makes them a target for acquisition but hopefully they can bring some competition to the market, a market that so many American's rely on.
Saturday, April 12, 2014
Wednesday, April 9, 2014
Russia Wielding Monopoly Power
Monopolies can do more than just harm consumer surplus they can translate to substantial political power. Russia's government owned natural gas company, Gazprom has shown itself to be a huge player in the Ukrainian annexation. Gazprom holds control over many European natural gas supplies and the closer the country is to Russia the more dependent they are for Russian gas.
Gas Prices in Europe
Russian gas control has translated into strong political muscle. Acting as a monopoly Gazprom is able to raise prices on natural gas at will. Ukraine is somewhat helpless because they rely on Russia for half of their total gas needs. Gazprom "The chief executive, Aleksei B. Miller, said Gazprom had stepped up the price by an additional $100 per 1,000 cubic meters, to $485, far more than Gazprom charges utilities in other countries." Ukraine Struggle This influence has also been a factor in preventing intervention from other European Countries. Most of the continent is dependent on Russia for their natural gas supply. In order to be strong politically many are pushing for Europe to be independent from Russian natural gas. This however would be no small feat; it would cost Europe "$160 for every single person in Europe." Gas Prices in Europe If big changes don't come Europe may be "stuck with Russian gas" Gas Prices in Europe. One option is to get gas to Ukraine from other Europe how pay less to Russia, which could cause more harm than good. The other is to look elsewhere for a natural gas supply for all European, which would come from countries like the US or find some natural gas substitutes fast.
Russian gas control has translated into strong political muscle. Acting as a monopoly Gazprom is able to raise prices on natural gas at will. Ukraine is somewhat helpless because they rely on Russia for half of their total gas needs. Gazprom "The chief executive, Aleksei B. Miller, said Gazprom had stepped up the price by an additional $100 per 1,000 cubic meters, to $485, far more than Gazprom charges utilities in other countries." Ukraine Struggle This influence has also been a factor in preventing intervention from other European Countries. Most of the continent is dependent on Russia for their natural gas supply. In order to be strong politically many are pushing for Europe to be independent from Russian natural gas. This however would be no small feat; it would cost Europe "$160 for every single person in Europe." Gas Prices in Europe If big changes don't come Europe may be "stuck with Russian gas" Gas Prices in Europe. One option is to get gas to Ukraine from other Europe how pay less to Russia, which could cause more harm than good. The other is to look elsewhere for a natural gas supply for all European, which would come from countries like the US or find some natural gas substitutes fast.
Tuesday, April 8, 2014
Car Cartel
When we hear the word 'cartel' we may only think of oil-powerhouses or drug lords. But unfortunately cartels exist in many areas of business, most illegally. To form a cartel multiple companies enter into an agreement where they agree to set a monopolistic level of supply thereby incurring a monopolistic price and profit. Sometimes these agreements are simply referred to as 'price-fixing'.
Last September several Japanese auto parts companies were prosecuted. These companies, including Mitsubishi Electric Corp. were setting high-prices for their auto parts which they sold to American car companies. These prices eliminated the competitive market and elevated the prices on 25 million vehicles from GM, Ford, and Chrysler, to name a few Autoparts Cartel.
Luckily this type of activity is highly prosecuted. These auto part companies pleaded guilty and face $740 million in fines Autoparts Cartel. The main legal issue is the harm to consumers, which for this case that encompasses many individuals.
How Cartels Work
Cartels gain profits and divide them among their members by taking away some consumer surplus 'A' and leaving dead-weight loss 'B' or money on the table in a competitive environment. Cartels are a huge harm to the economy; "the consumer losses more than the cartel wins" How Cartels Work.
Last September several Japanese auto parts companies were prosecuted. These companies, including Mitsubishi Electric Corp. were setting high-prices for their auto parts which they sold to American car companies. These prices eliminated the competitive market and elevated the prices on 25 million vehicles from GM, Ford, and Chrysler, to name a few Autoparts Cartel.
Luckily this type of activity is highly prosecuted. These auto part companies pleaded guilty and face $740 million in fines Autoparts Cartel. The main legal issue is the harm to consumers, which for this case that encompasses many individuals.
How Cartels WorkCartels gain profits and divide them among their members by taking away some consumer surplus 'A' and leaving dead-weight loss 'B' or money on the table in a competitive environment. Cartels are a huge harm to the economy; "the consumer losses more than the cartel wins" How Cartels Work.
Monday, April 7, 2014
Price Discrimination
Often we see various discounts for all sorts of things. As long as you belong to some demographic group you may be eligible for some type of discount. There are discounts on a college education, car repairs, or coffee. One of the most common price discrimination is senior citizen discounts. We might not be apt to look at these discounts as price discrimination, but that's exactly what they are: charging different groups of people different prices for the same product or service.
Our initial reaction may be either "that's not fair" or "it's good to cut someone a break who has a lower income." Let's take the last reaction: Does price discrimination help senior citizens because they are on a fixed income. The truth is, "A 2007 study shows that poverty rate
among adults ages 19 to 64 is 15 percent but among people 65 and over is only 13 percent. Certainly there are struggling seniors, but as a group they are actually better off than the general population." price discrimination. So the real motive behind this price discrimination is increasing business revenues. Price discrimination takes advantage of groups who in one way or another have spending power. "Price discrimination exists because it is profitable. It allows sellers to capture demand along different parts of the demand curve." Just Marketing Blog Senior citizens in America “hold 80 percent of the country’s personal net worth" seniors. Making them a target market for many industries. If a senior citizen is going out to get a cup of coffee you might as well make sure they buy your cup of coffee.
Now our other reaction to price discrimination, "that's not fair." Using senior citizens as an example; they have enough money but still get a discount, that doesn't seem right. Remember price discrimination happens all the time in more discreet ways that we accept. Like charging different prices on soda based on packaging or different prices on a meal based on location. In the case of senior citizens I may not have a satisfactory answer but it is just not strictly fair. As far as business goes its good for the economy. "Thirty-five percent of our population is over 55 years old, and these very affluent senior citizens control almost 45 percent of the disposable income of our country." senior citizen purchasing power. It is good for everyone to have a group of people with money to spend, to use it and fuel the economy. Price discrimination is one of the ways to incentivize that spending.
Our initial reaction may be either "that's not fair" or "it's good to cut someone a break who has a lower income." Let's take the last reaction: Does price discrimination help senior citizens because they are on a fixed income. The truth is, "A 2007 study shows that poverty rate
among adults ages 19 to 64 is 15 percent but among people 65 and over is only 13 percent. Certainly there are struggling seniors, but as a group they are actually better off than the general population." price discrimination. So the real motive behind this price discrimination is increasing business revenues. Price discrimination takes advantage of groups who in one way or another have spending power. "Price discrimination exists because it is profitable. It allows sellers to capture demand along different parts of the demand curve." Just Marketing Blog Senior citizens in America “hold 80 percent of the country’s personal net worth" seniors. Making them a target market for many industries. If a senior citizen is going out to get a cup of coffee you might as well make sure they buy your cup of coffee. Now our other reaction to price discrimination, "that's not fair." Using senior citizens as an example; they have enough money but still get a discount, that doesn't seem right. Remember price discrimination happens all the time in more discreet ways that we accept. Like charging different prices on soda based on packaging or different prices on a meal based on location. In the case of senior citizens I may not have a satisfactory answer but it is just not strictly fair. As far as business goes its good for the economy. "Thirty-five percent of our population is over 55 years old, and these very affluent senior citizens control almost 45 percent of the disposable income of our country." senior citizen purchasing power. It is good for everyone to have a group of people with money to spend, to use it and fuel the economy. Price discrimination is one of the ways to incentivize that spending.
Sunday, March 23, 2014
Greek is Good for New York
The dairy market is experiencing a surge in production. But why? Do Americans drink more milk than at other times? Not necessarily. However, Greek Yogurt has become quite fashionable. It is perceived to be healthier than other types of yogurt and at the same time seems luxurious.
Two of biggest producers in the Greek Yogurt market have facilities located in the state of New York. Because of such high demand there are plans for building even more plants to keep up. The growing Greek Yogurt market has lead to an increase in demand for its key input: milk. Greek Yogurt requires more milk to produce than regular yogurt. It takes 3 lbs. of milk to produce l lbs. of Greek Yogurt Greek Yogurt Boom. Luckily for New York Dairy Farmers this provides a reliable buyer for their milk. New York Diary Farmers would have to increase milk production by %15 in the next two years to keep up with demand Greek Yogurt Boom. Milk producers have begun increasing their herd sizes. Because of the proximity of the growing milk market transportation prices have fallen dramatically.
Perceptions have a lot of power for change “It’s nutritious. It’s safe, it’s healthy and it’s delicious. How can you be any better?” - John Sanford, a dairy regulator with the Tennessee Department of Agriculture Greek Yogurt Boom
Two of biggest producers in the Greek Yogurt market have facilities located in the state of New York. Because of such high demand there are plans for building even more plants to keep up. The growing Greek Yogurt market has lead to an increase in demand for its key input: milk. Greek Yogurt requires more milk to produce than regular yogurt. It takes 3 lbs. of milk to produce l lbs. of Greek Yogurt Greek Yogurt Boom. Luckily for New York Dairy Farmers this provides a reliable buyer for their milk. New York Diary Farmers would have to increase milk production by %15 in the next two years to keep up with demand Greek Yogurt Boom. Milk producers have begun increasing their herd sizes. Because of the proximity of the growing milk market transportation prices have fallen dramatically.
Perceptions have a lot of power for change “It’s nutritious. It’s safe, it’s healthy and it’s delicious. How can you be any better?” - John Sanford, a dairy regulator with the Tennessee Department of Agriculture Greek Yogurt Boom
Saturday, March 22, 2014
Cost of Healthcare
A big determiner for whether or not to invest in a market is whether or not a market's price is greater or less than the average cost of production. One struggling industry we could easily apply this concept to is healthcare in America. It is no secret to the average American that our nations healthcare is under going major changes, reconfiguration, and exits.
Healthcare costs are also increasing for the consumer: "Between 2005 and 2013, average premiums for individual plans increased 37%." Rising Premiums But of course preceding consumer costs is the rise in costs for providers. The cost of malpractice systems, expensive drugs and devices, and tighter regulations (among many other variables) lead to increasing costs to maintain a feasible hospital. Some added regulations have come with the Affordable Healthcare Act that makes it mandatory to provide certain “essential health benefits” Rising Premiums. In 2011 a study found that "The average American worker costs their employer $12,000 annually for health care benefits and this figure is increasing more than 10 percent every year." 1/3 Hospital Closing
One study of the Massachusetts Hospital Association from 2008 showed that between 2004 and 2008 hospitals experienced a 50.2% wage increase for RNs alone. Massachusetts hospitals also saw an annual increase of 8.7% in Patient Care Supplies and Other Expenses. Hospitals also do a lot of their business with the government. With insufficient Medicaid and Medicare reimbursement hospitals sustain heavy losses. In the FY 2008 alone Massachusetts hospitals experienced Medicare payment deficits of $317 million MHA Costs.
With healthcare costs only rising some think the new Accountable Care Organizations could provide an answer. Does the problem of rising costs really come from the payment-for-treatment system? Will hospitals be able to operate on a "payment-for-healthy-patient" system? Many hospitals are finding the average costs of operation too high and are closing their doors. The fourth hospital in two years in the state of Georgia has recently closed Hospital Closing. Another harsh side-effect is that these closings are more common in poorer areas. Some are even predicting by 2020, 1/3 of all hospitals will close their doors or be completely reorganized 1/3 Hospital Closing.
Healthcare costs are also increasing for the consumer: "Between 2005 and 2013, average premiums for individual plans increased 37%." Rising Premiums But of course preceding consumer costs is the rise in costs for providers. The cost of malpractice systems, expensive drugs and devices, and tighter regulations (among many other variables) lead to increasing costs to maintain a feasible hospital. Some added regulations have come with the Affordable Healthcare Act that makes it mandatory to provide certain “essential health benefits” Rising Premiums. In 2011 a study found that "The average American worker costs their employer $12,000 annually for health care benefits and this figure is increasing more than 10 percent every year." 1/3 Hospital Closing
One study of the Massachusetts Hospital Association from 2008 showed that between 2004 and 2008 hospitals experienced a 50.2% wage increase for RNs alone. Massachusetts hospitals also saw an annual increase of 8.7% in Patient Care Supplies and Other Expenses. Hospitals also do a lot of their business with the government. With insufficient Medicaid and Medicare reimbursement hospitals sustain heavy losses. In the FY 2008 alone Massachusetts hospitals experienced Medicare payment deficits of $317 million MHA Costs.
With healthcare costs only rising some think the new Accountable Care Organizations could provide an answer. Does the problem of rising costs really come from the payment-for-treatment system? Will hospitals be able to operate on a "payment-for-healthy-patient" system? Many hospitals are finding the average costs of operation too high and are closing their doors. The fourth hospital in two years in the state of Georgia has recently closed Hospital Closing. Another harsh side-effect is that these closings are more common in poorer areas. Some are even predicting by 2020, 1/3 of all hospitals will close their doors or be completely reorganized 1/3 Hospital Closing.
Tuesday, March 4, 2014
One big idea in economics and a key to understanding a countries economic health is inflation. First what is inflation? and Why does it happen?
Inflation simply put is when there is "a sustained increase in the supply of money" which leads to the increase in the prices of goods and services. For the longest time I thought there was a little magic involved or someone at the capital must sit at a desk and guess at the worth of the dollar that is currently circulating. Now that I understand the concepts of supply and demand it would be logical that currency should follow the same rules.
The Federal Reserve, through the request of banks, is in charge of meeting the demand for money. Banks request the money they need to meet their customers demand and the Federal Reserve issues the currency while backing the notes with collateral in the form of Government Securities or Gold Certificates. Banks also return money in the form of a cash deposits with the Federal Reserve. The Fed in turn removes the bills that are unfit for circulation and destroys them. Then a request is put in to the Bureau of Engraving and Printing to replace the old money with new. The Fed When the Federal Reserve is seeking to meet the demand for currency they do not simply "print more money". "The important concept here is that every time the Fed creates money, that money does not increase the total money supply in the economy, it increases the size of the Fed's balance sheet." Inflation The more appropriate name might be an "asset swap" on the Feds balance sheet.
So how does inflation happen. What I didn't understand before was that inflation is a process. If the supply of currency increases that increases the demand for all goods and services because the average person has more money to buy them. Before production can match demand stores would have to set prices higher to avoid shortages. Even if this didn't occur producers respond to the spike in demand by increasing production. But increasing production happens at a price causing an increase in consumer prices. Each time prices across the board rise that means the dollar can buy less. Now you need more of them to buy what you did before with less.
On the flip moderate inflation can be a good sign. A rise in prices signals healthy demand. Money in circulation makes for a moving economy. Inflation can be good?
Inflation simply put is when there is "a sustained increase in the supply of money" which leads to the increase in the prices of goods and services. For the longest time I thought there was a little magic involved or someone at the capital must sit at a desk and guess at the worth of the dollar that is currently circulating. Now that I understand the concepts of supply and demand it would be logical that currency should follow the same rules.
The Federal Reserve, through the request of banks, is in charge of meeting the demand for money. Banks request the money they need to meet their customers demand and the Federal Reserve issues the currency while backing the notes with collateral in the form of Government Securities or Gold Certificates. Banks also return money in the form of a cash deposits with the Federal Reserve. The Fed in turn removes the bills that are unfit for circulation and destroys them. Then a request is put in to the Bureau of Engraving and Printing to replace the old money with new. The Fed When the Federal Reserve is seeking to meet the demand for currency they do not simply "print more money". "The important concept here is that every time the Fed creates money, that money does not increase the total money supply in the economy, it increases the size of the Fed's balance sheet." Inflation The more appropriate name might be an "asset swap" on the Feds balance sheet.
So how does inflation happen. What I didn't understand before was that inflation is a process. If the supply of currency increases that increases the demand for all goods and services because the average person has more money to buy them. Before production can match demand stores would have to set prices higher to avoid shortages. Even if this didn't occur producers respond to the spike in demand by increasing production. But increasing production happens at a price causing an increase in consumer prices. Each time prices across the board rise that means the dollar can buy less. Now you need more of them to buy what you did before with less.
On the flip moderate inflation can be a good sign. A rise in prices signals healthy demand. Money in circulation makes for a moving economy. Inflation can be good?
Friday, February 28, 2014
Price Floor and the Minimum Wage Bill
Government policy has an important effect on the economics system. Whether a government chooses to tax a good, pay out subsidies, imposes a price floor, or set a price ceiling on a good. The most influential price floor issue in the United States would be the Federal statutory minimum wage, currently at $7.25. What does setting a price floor (a minimum price) really do to the economy. The mandated minimum price set above the market equilibrium will create, excess supply, deadweight-loss, ineffecient increases in quality, and misallocation of resources. With the minimum wage issue, the key effect on the job market would be the excess of supply. It is not the American worker who is demanding a job but it is the American employer who is demanding workers. However employers cannot not afford the amount of labor in the market at the mandatory elevated wage level, thereby leaving some unemployed.
The current legislation on the floor proposes an increase to a $10.10 minimum. A survey done by the Wall Street Journal showed that 63% participants would be in favor of the new bill Minimum wage survey Perhaps this indicates a lack of communication of the whole truth to the average American.
The bill is backed by Democrats and is finding support also from the Republicans who fear opposing public opinion. "The Democrats believe fighting for a higher minimum wage demonstrates they care about working Americans. Republicans argue a wage hike would lead to fewer jobs and actually hurtAmerica." Minimum wage bill
What could the bill do?
European job markets could be a good indication of what is down the road for the U.S. with a higher minimum wage.
"There are nine countries with a minimum wage (Belgium, Netherlands, Britain, Ireland, France, Spain, Portugal, Greece, Luxembourg). Their unemployment rates range from 5.9% in Luxembourg to 27.6% in Greece. The median country is France with 11.1% unemployment...The biggest country in Europe is Germany. No minimum wage and 5.2% unemployment." What does high minimum wage do?
Germany did have a high unemployment rate. They did away with there minimum wage and allowed for more low-wage jobs and wage subsidies. We have the potential to offer some a higher wage but at the expense of more being out of work entirely.
Along with creating a higher unemployment the minimum wage takes away the employers' ability to compete for good employees. Employees are less willing to stick around with a certain company if they can get a comparable salary elsewhere, thereby effecting retention rates. They cannot attempt to attract employees with a higher salary. How can employers find and compete for the best labor?
Government policy has an important effect on the economics system. Whether a government chooses to tax a good, pay out subsidies, imposes a price floor, or set a price ceiling on a good. The most influential price floor issue in the United States would be the Federal statutory minimum wage, currently at $7.25. What does setting a price floor (a minimum price) really do to the economy. The mandated minimum price set above the market equilibrium will create, excess supply, deadweight-loss, ineffecient increases in quality, and misallocation of resources. With the minimum wage issue, the key effect on the job market would be the excess of supply. It is not the American worker who is demanding a job but it is the American employer who is demanding workers. However employers cannot not afford the amount of labor in the market at the mandatory elevated wage level, thereby leaving some unemployed.
The current legislation on the floor proposes an increase to a $10.10 minimum. A survey done by the Wall Street Journal showed that 63% participants would be in favor of the new bill Minimum wage survey Perhaps this indicates a lack of communication of the whole truth to the average American.
The bill is backed by Democrats and is finding support also from the Republicans who fear opposing public opinion. "The Democrats believe fighting for a higher minimum wage demonstrates they care about working Americans. Republicans argue a wage hike would lead to fewer jobs and actually hurtAmerica." Minimum wage bill
What could the bill do?
European job markets could be a good indication of what is down the road for the U.S. with a higher minimum wage.
"There are nine countries with a minimum wage (Belgium, Netherlands, Britain, Ireland, France, Spain, Portugal, Greece, Luxembourg). Their unemployment rates range from 5.9% in Luxembourg to 27.6% in Greece. The median country is France with 11.1% unemployment...The biggest country in Europe is Germany. No minimum wage and 5.2% unemployment." What does high minimum wage do?
Germany did have a high unemployment rate. They did away with there minimum wage and allowed for more low-wage jobs and wage subsidies. We have the potential to offer some a higher wage but at the expense of more being out of work entirely.
Along with creating a higher unemployment the minimum wage takes away the employers' ability to compete for good employees. Employees are less willing to stick around with a certain company if they can get a comparable salary elsewhere, thereby effecting retention rates. They cannot attempt to attract employees with a higher salary. How can employers find and compete for the best labor?
Monday, February 17, 2014
The Farm Bill
Many things effect the supply side of any market. Subsidies are supply-side shifters that shift the supply curve to the right. After a right sift a producer at any given price is willing to produce more of that good. Subsidies are incentives for businesses to produce more of a product because they have a guaranteed buyer.
Since the Agriculture Adjustment Act of 1933 and 1938, the government has been giving support to struggling farmers. The government initially set out to control the excess supply of crops and dairy products by paying farmers to restrict their crop size and then buy up their excess. During the 90's the government began paying out to farmers regardless of their yield. Therefore giving some farmers an incentive not to farm at all. This is one element of the Farm Bill that Congress is trying to address. Now if Congress does not pass the current Farm Bill the milk supply will shrink dramatically leading to rising prices. More milk will be sold to the government who will be the "highest bidder", thereby taking milk out of the market and reducing the supply to the average consumer.
Is the agricultural market too tied with the government to work itself out? Is it worth milk prices of $7?
http://www.csmonitor.com/USA/Politics/2013/1206/Milk-for-7-a-gallon-Farm-bill-impasse-could-send-US-off-dairy-cliff.
Saturday, February 15, 2014
Comparative Advantage and Economic Growth
The basic principle of global trade is comparative advantage among different nations. We live in a world that is easily traveled and seems to shrink in size. Our lives and choices in the United States impact many individuals all over the world and vice verse. To observe comparative advantage easily we look at a Production Possibilities Frontier model. How much does one country sacrifice in producing one good over another; what are their opportunity costs? Each country has limited resources and different resources available to them in comparison to other countries. The most important resource in producing any good are human resources. Many use this fact to help explain the trade deficit between the U.S. and China. It is more efficient for American companies to develop and design goods and have them assembled in another country like China where there is a vast supply of inexpensive labor. It would be inefficient for the U.S. to use its higher skilled labor force to assemble inexpensive products in factories, the opportunity cost would be great.
However another factor in trade between the U.S. and China is the standard of living in China. Countries are better off when they trade with each other but at times there can be an imbalance. Few Americans would prefer higher priced domestic goods over their efficient and inexpensive goods 'Made in China'. What can be done? Well using tariffs to 'push' China would be ineffective and possibly harmful. We essentially seem to be waiting for China's growing economy to 'catch-up'. Based on GDP China is second in the world but GDP per captia is 92nd (http://en.wikipedia.org/wiki/Economy_of_China). Luckily China is the world's fastest growing economy and this is a good thing even for Americans, "...new ideas are public goods that spread across continents." (http://www.nytimes.com/roomfordebate/2011/01/18/can-the-us-compete-with-china-on-green-tech/how-we-gain-from-chinas-advances)
An emerging middle class is coming in China and this is a sign for American companies. When the standard of living increases, demand for goods increases, thereby increasing production and the effect is felt beyond country borders. When one country succeeds and experiences growth many other countries experience the benefit. (http://www.bankrate.com/finance/economics/chinas-economy-influences-us-2.aspx)
However another factor in trade between the U.S. and China is the standard of living in China. Countries are better off when they trade with each other but at times there can be an imbalance. Few Americans would prefer higher priced domestic goods over their efficient and inexpensive goods 'Made in China'. What can be done? Well using tariffs to 'push' China would be ineffective and possibly harmful. We essentially seem to be waiting for China's growing economy to 'catch-up'. Based on GDP China is second in the world but GDP per captia is 92nd (http://en.wikipedia.org/wiki/Economy_of_China). Luckily China is the world's fastest growing economy and this is a good thing even for Americans, "...new ideas are public goods that spread across continents." (http://www.nytimes.com/roomfordebate/2011/01/18/can-the-us-compete-with-china-on-green-tech/how-we-gain-from-chinas-advances)
An emerging middle class is coming in China and this is a sign for American companies. When the standard of living increases, demand for goods increases, thereby increasing production and the effect is felt beyond country borders. When one country succeeds and experiences growth many other countries experience the benefit. (http://www.bankrate.com/finance/economics/chinas-economy-influences-us-2.aspx)
Friday, January 31, 2014
Incentives for Charity
Searching out our own best interest leads to benevolence towards others, in everyday life and the world of economics. Our best interests, if they are truly good will lead to the betterment of those around us or even those we never physically come in contact with. When we do a "good" or "right" thing, the majority of the time, it is because we sense some benefit for ourselves and seek to bring it about. Our good is the first thing willed and the benevolence toward another is secondary. The average person is not habitually drawn to pure selfless charity but may need a nudge in the right direction. This also points to our communal nature as persons. Without our knowing it we, in acting for our benefit, build up the lives of other people and the community around us. Our best interests are interrelated to those of our neighbor and should be sought with him in mind.
Unfortunately these personal incentives to benevolence, once taken away may reveal the lack of genuine good will on the part of the one acting. When we no longer receive that personal benefit for something done for another, will we still do it? Economists are fearing new tax reform, which may reveal the true willingness of some individuals to be charitable. In an effort to close the deficit in the budget, lawmakers may adjust the charitable deduction incentives in the current tax code. "President Obama has proposed limiting the value of charitable and itemized deductions for upper-income taxpayers, capping the deduction at 28 percent, regardless of whether the individuals are in the 33 percent or 35 percent tax brackets." Among other options for reform The Debt Reduction Task Force suggests to do away with charitable deductions all together, by "eliminating the charitable deduction and replacing it with a 15 percent refundable tax credit payable to nonprofits." Whatever shape this reform takes most are sensing a negative effect on charitable organizations, with a wide range of predictions on the actual outcome. "Predictions ranging from a minor impact (a decline of 1.9 percent) to a moderate impact (a decline of 4.6 percent) to a large impact (a decline of $9 billion.)"
http://www.councilofnonprofits.org/public-policy/federal/preserving-the-charitable-giving-incentive
If benevolence is so closely linked to incentives, there most certainly will be an effect on charitable giving. Perhaps this will be true until the first thing willed is the benevolence given to another before the secondary effect of personal gain.
Unfortunately these personal incentives to benevolence, once taken away may reveal the lack of genuine good will on the part of the one acting. When we no longer receive that personal benefit for something done for another, will we still do it? Economists are fearing new tax reform, which may reveal the true willingness of some individuals to be charitable. In an effort to close the deficit in the budget, lawmakers may adjust the charitable deduction incentives in the current tax code. "President Obama has proposed limiting the value of charitable and itemized deductions for upper-income taxpayers, capping the deduction at 28 percent, regardless of whether the individuals are in the 33 percent or 35 percent tax brackets." Among other options for reform The Debt Reduction Task Force suggests to do away with charitable deductions all together, by "eliminating the charitable deduction and replacing it with a 15 percent refundable tax credit payable to nonprofits." Whatever shape this reform takes most are sensing a negative effect on charitable organizations, with a wide range of predictions on the actual outcome. "Predictions ranging from a minor impact (a decline of 1.9 percent) to a moderate impact (a decline of 4.6 percent) to a large impact (a decline of $9 billion.)"
http://www.councilofnonprofits.org/public-policy/federal/preserving-the-charitable-giving-incentive
If benevolence is so closely linked to incentives, there most certainly will be an effect on charitable giving. Perhaps this will be true until the first thing willed is the benevolence given to another before the secondary effect of personal gain.
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