Ch 6

http://www.canada.com/windsorstar/story.html?id=d86a1aec-de4f-4eb5-835a-0f2fdaa15dd3&k=72787

This article is from April a year ago, so it’s not completely current. However, it is a very good example of how important consumer spending is to the GDP. It begins its argument that consumer spending will increase with evidence of two tax cuts: one by the Liberals before the election, and one promised by the Conservatives (GST) after. These two events should fuel our “national economic growth,” and therefore, our GDP.

This article also predicts increases in wages and in full-time employment along with stating that people in Alberta will be receiving $400-cheques from their government. It goes on to say that these three things will add over a billion dollars into the real disposable income for 2006.

All of this would contribute to the “wealth effect.” With more money in their pockets, consumers will naturally want to spend more. What happens when we spend more? The economy improves!

Real after-tax income should increase by about five percent in 2006, which is double the recent trend in the last few years. Forecasts of a higher wages and increased business investment should balance out other not-so-great areas such as slumping trade and result in an economic growth of almost three percent (after inflation). Along with all these positives, something else will escalate as well: consumer spending. Predicted to go up by about three and a half percent, this should provide another boost to the economy.

However, there are a couple of negatives expressed in this article. One is the rollback of income tax that the Liberals intend to implement that will cost consumers over four billion dollars, leading to probably a decrease in spending. Not good. Two is that even with an impressive revenue growth, the Canadian government still can’t afford to have both income tax and the GST cuts. Lastly, the Canadian dollar’s increase in value (against the American dollar) will come at a cost to our exports.

So, the bottom line?

Spending = GOOD

Ch5

Ch 5

http://www.canada.com/nationalpost/financialpost/story.html?id=bd74c16c-2845-4cbb-8812-453ccc261b2c&k=91189

This article analyzes the possible connection between population and economic growth. It takes a look specifically at two provinces in Canada: Newfoundland and Saskatchewan. These two provinces have both experienced decreasing populations (about 1% each) – however, both of their real GDPs have gone way up (Saskatchewan = 14.3% and Newfoundland = 27.9%). While this article acknowledges that this is an impressive accomplishment, there is definitely more going on underneath the surface.

Both Newfoundland and Saskatchewan rely heavily on their resource markets; this is what is driving up their GDPs. Should anything negative happen to the prices of their resources, the GDP is sure to plunge. This is so because employment hasn’t been spectacular in either of these two provinces. Not only that, they are losing potential employees to other more attractive provinces such as Alberta and British Columbia. On the flip side, Ontario and Quebec (who have had increasing populations) had some of the worst GDP’s among Canadian provinces. This was because their population growth was largely due to immigrants coming in. While they may still be able to pull in high incomes because of their skills, they probably still need time to adapt to a new country and a new job. This indicates a possible inverse relationship between GDP and population growth.

This relates to Chapter 5 because we are currently learning about economic indicators and the gross domestic product. Based on what we’ve learned about different kinds of unemployment (frictional, seasonal, etc), I would say that Newfoundland and Saskatchewan experienced heavy increases in unemployment because of seasonal unemployment – both of these provinces rely greatly on their resources, so they would probably have drastically fluctuating population numbers. Also, seasonal unemployment tends to be very uninviting because there really is no solution to it – all you can do is wait for the seasons to change, for the time to pass. Because of this, these two provinces are losing out to other more attractive areas in terms of work force retainment. Ontario and Quebec, neither of which is rich in resources, have declining GDP’s because they probably have to import more products (imports are subtracted from the GDP). Because of the special circumstances in these four provinces (seasonal unemployment, international immigration) I would go against what this article at first glance suggests and say that GDP and population growth go hand in hand (as opposed to having an inverse relationship).

http://www.canada.com/windsorstar/news/editorial/story.html?id=f5b7a1c8-a8d8-48e4-b9e2-e4e9b9663339

Ch 4

Cut Meaningful Taxes!

The article above was found in an Ontario newspaper last July. It is a response to the government’s much-heralded GST cut... from 7% to 6%. According to it, the average household would save about $300 a year because of this decrease in Goods and Services Tax. However, the government’s surplus last year was TWENTY-SIX BILLION dollars. The writers of this article suggest that this surplus would warrant more substantial tax relief than a 1% cut. They also divide the category “tax cuts” into two slightly more specific ones:

1) Tax cuts that improve the economy
2) Tax cuts that don’t do much

1) Cuts That Improve the Economy
Tax cuts that do fall in Category One, such as income tax cuts, encourage people to be more productive at work. Why? Income tax rates in Canada are pretty high, meaning that the harder you work, the more taxes you have to pay (because you earn more money). Doesn’t make much sense, does it? If the government lowered INCOME taxes, people would feel better about putting more effort into their jobs because they know that they’d get to keep more of their money. Canadians, then, could be persuaded to work harder, save more, and invest more - activities that would significantly improve the economy.

2) Cuts that Don’t
The average consumer’s reaction to a 1% decrease in GST:
“Oh joy! Instead of paying SEVEN percent GST, we’ll only pay SIX percent now!” Was that your reaction? …Because it kind of was mine.
Anyway, that said, our tax cuts would fall in Category Two. The reason: What does a lower GOODS & SERVICES tax make YOU want to do?

I can think of a four-letter word starting with S. Next letter’s H. Shop! A lower GST (even though it’s only one percent, hardly noticeable) would only encourage people to spend more and not save their money, which… wouldn’t be much good when they retire and realize they’re going to have to live off canned tuna for the rest of their lives.

Chapter 4 in the book explains Canada’s high tax rates, and the uses the money generated from these income taxes are put to. Canada uses a progressive income tax system; the more you earn, the more you have to pay. Which could be translated to be an undue penalty for ambitious people willing to work hard at their jobs. However, we also have a public health care system that many people are proud of. The flip side of this is the access to health care is sub par when you consider how much money is put into it. Instead of encouraging consumer spending by decreasing GST, the government should think about decreasing income tax rates to drive Canadians to work, save, and invest.

http://mises.org/story/2289

Ch 3

This is actually a response to a response to a movie. The movie is Groundhog Day, and the person whose response I’m writing a response to explains how the movie supports his view that market imperfections or failures do not necessarily warrant government intervention.

The movie itself is about a man, Phil Connors, who lives one day (specifically, Groundhog Day) loads of times. The first time he goes through it, he makes mistakes left and right. Little does Phil know that when he goes to sleep that night, time would rewind by a day, letting him relive it again… and again… and again. After about a few hundred do-overs, he is finally able to live Groundhog Day to complete perfection for everyone involved in his day. How does Phil do it? By accumulating more and more information until at last, he knows everything he needs to know in order to make the day perfect.

The person reviewing the movie compares the main character’s experience with a market. Phil’s ability to live Groundhog Day perfectly at the end is similar to how the government goes about stabilizing the economy (Chapter 3’s focus). This could make sense, except for the fact that Phil’s result of a perfect day was completely dependent on one factor: every single repeated day was identical to the one before it. The weather, traffic conditions, and even the people repeated themselves flawlessly. No change at all. In short, Every Day was the First Day.

Government intervention is based on information collected and its actions are based on the ideal of perfect market equilibrium. This is obviously impossible. Nevertheless, this is the yardstick that the capitalist system is often measured up against when economists judge it. Because change is constantly shifting the equilibrium, however, that creates “market failures/imperfections” that call for government involvement.

The movie reviewer’s opinion is that basically a free-market system allows for more coordination between suppliers and consumers, and supply has a better chance of matching demand. He admits that a free-market system, while flexible and efficient, is not perfect, but government regulations and price controls are more likely to increase disorder and confusion in a market. He proposes that we toss the ideal of “perfect market equilibrium” and just let the free-market system do its thing.

Personally, I think that the market imperfections in our system – information and competition – have been reduced by government intervention. Consumers are able to see how nutritious their food is, and new companies have a fairer chance of making it in the industry. I agree with the article, that continuous change in the market wrecks whatever information government intervention is based on and makes it less effective. But, you can’t deny the benefits that government involvement gives us. Knowledge about the food we’re buying, and equal opportunities for competition are both things that many consumers and company owners value.

http://www.hybridcar.com/news/in-the-news/demand-for-prius-continues-to-outweigh-supply.html

Ch2

The Prius is pretty ugly. It's also pretty energy efficient. That makes it IN-DEMAND.
It's what the article says. The Toyota Prius is growing more and more popular with consumers, and suppliers and manufacturers are finding it harder to catch up. Being a gas-electric hybrid, the Prius can help its drivers save a lot of money at the pumps, and with rising gas prices, people are finding it more and more (though not necessarily physically) attractive. Since gas prices right now are around Mount Everest level, SUV's and trucks are decreasing in demand, as they are The Gas-Guzzlers of today. Although its pretty early into the Hybrid age right now, the Prius is being seen more commonly on the streets, and even in Hollywood (Cameron Diaz and Leonardo DiCaprio can be seen routinely driving this energy-efficient car around).

Chapter 2 is all about Supply and Demand, and factors affecting these numbers. The rapid increase in gas prices, a complementary product to a vehicle, is causing the demand for cars to decrease, because it is becoming simply too expensive to drive an SUV around to the mall, or just out to dinner. This results in the increase in demand for smaller, gas-efficient cars like the Prius and the Civic Hybrids, because they use a combination of gas and electricity, something that is much cheaper than just pure petroleum.

While I agree that buying a Prius right now would be the smart move, its awkward design and unattractive exterior is giving me second thoughts about buying a car right now. I'd rather wait a few years and save up more money to buy a gas car; while it may be more expensive to refill at the pumps, it would look way more appealing. Hey man, a nice car to own is what keeps me going right now. =D

http://www.nytimes.com/2006/09/17/business/yourmoney/17every.html?ei=5090&en=6e569c2dbfa2afa4&ex=1316145600&partner=rssuserland&emc=rss&pagewanted=all
Ch1
Hey, it's my first blog!

This article is basically a description of conditions in one of Germany's camps in WWII; this psychiatric hospital in Hadamar was transformed into a euthanasia center on Hitler's orders. Not only Jews and Gypsies were sent here - people who were mental or "antisocial" in any way (like divorcing too much or drinking a lot) were delivered in curtained buses here. They would be led to a white-tiled 25 by 15 ft room, locked in tightly, and suffocated by carbon monoxide gas that flowed through valves into the cell.

The author of this article is worried that history will repeat itself in the United States; he fears what is down the road for Americans when retirements and the baby boomer era will cause shortages because the burden of having to support them will become too much for the rest of America.

The reason for this center (and what it has to do with Chapter 1) is the focus on the concept of scarcity. Hitler saw resources as being in definite limited supply; that means that almost everyone who wasn't Aryan (blonde hair, blue eyes) was a "useless eater." Because of the limited availability of resources, Hitler saw it as being necessary to conserve all resources for the use of true Germans, and not to be wasted on people who were of not the idealistic German race.

Like Chapter 1, this article talks about the significance of scarcity in determining the value of a product, and also what is to be done with it. Just the idea that something valuable will sooner or later run out is enough to make anyone want to conserve it and hoard it as much as possible. It can be understood why Hitler wanted to simply save more resources for his people, but what is inconceivable is how that motive could turn into genocide and the mass killings of human beings, just because they grew and consumed just like everyone else in the world.