China to overtake ‘Murica

A while ago an article was posted on here talking about how China’s economic growth was unsustainable, and that in the long-run, the Chinese economy would run out of steam and fail to overtake the US of A, remember that?

Well, things changed.

According to some new calculations made by’ The Economist’ and the IMF, the size of the Chinese economy has been underestimated greatly. So much so, that the forecasts now suggest that China will be the world’s largest economy by the end of the 2014!

Crowning the dragon

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Economic growth and the rising pound.

With the IMF forecasting growth of 2.9% for the UK economy it increases the chances of an appreciation of an already strong pound.  As the articles below highlight a strengthening of a currency can occur for several reasons.

  • Strong macroeconomic management can lead to increased confidence and therefore more FDI which in turn increases demand for the currency.  With the highest forecasted growth, out of the G7 economies, the UK’s seems to be the one offering the highest return.
  • Higher interest rates, relative to other countries,  means higher returns on deposits.  Although UK interest rates have been at 0.5% for several years, falling unemployment and higher than anticipated growth will ultimately lead to an increase in the interest rate.  This is will encourage the demand for the pound to increase and therefore and increase in the value of the pound.
  • Include into the mix the pessimism surrounding the emerging markets and the above becomes exaggerated.

These articles are great for developing your chains of analysis with diagrams and evaluative points.

the rising pound and what will follow    highest growth since 2010       imf and UK

Generational tyranny?

The future is bleak, depending on where you are from or where you are going, according to a Mori survey.  Only the Chinese, young and old, had a majority believing that the younger generations will have a better quality of  life than the one they had. The majority of participants, in all other countries surveyed believe that the quality of life would be worse for the young; what is telling is the increase in disparity between the two age groups from the more developed the economies. The OECD commented on how destabilising this might be for an economy and it begs  the question how this will be redressed by governments?  Retirement ages are being increased yet the dependency ratio is increasing.  If you feel that your prospects are limited or have been sabotaged by a generation that is living a more comfortable life than the one you will ever have, at your expense, how will you react?  Will you be spurned on to prove your worth or accept your lot?

hopeful        the data

The Beer in the article is obviously a typo…:P – An interesting story on Progressive Taxation

This is an interesting analogy from Dr. David Kamerschen. It relates to progressive taxation. It is certainly worth a read. Dr. Kamerschen certainly presents a strong argument. Although, it could be suggested that it is a little simplistic in places, nevertheless, a compelling read.

Suppose that every day, ten men go out for beer and the bill for all ten comes to £100…
If they paid their bill the way we pay our taxes, it would go something like this…

The first four men (the poorest) would pay nothing.
The fifth would pay £1.
The sixth would pay £3.
The seventh would pay £7..
The eighth would pay £12.
The ninth would pay £18.
The tenth man (the richest) would pay £59.

So, that’s what they decided to do..

The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve ball.

“Since you are all such good customers,” he said, “I’m going to reduce the cost of your daily beer by £20″. Drinks for the ten men would now cost just £80.

The group still wanted to pay their bill the way we pay our taxes.

So the first four men were unaffected.

They would still drink for free. But what about the other six men?
The paying customers?

How could they divide the £20 windfall so that everyone would get his fair share?

They realised that £20 divided by six is £3.33. But if they
subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being paid to drink his beer.

So, the bar owner suggested that it would be fair to reduce each man’s bill by a higher percentage the poorer he was, to follow the principle of the tax system they had been using, and he proceeded to work out the amounts he suggested that each should now pay.

And so the fifth man, like the first four, now paid nothing (100% saving).

The sixth now paid £2 instead of £3 (33% saving).

The seventh now paid £5 instead of £7 (28% saving).
The eighth now paid £9 instead of £12 (25% saving).

The ninth now paid £14 instead of £18 (22% saving).

The tenth now paid £49 instead of £59 (16% saving).

Each of the six was better off than before. And the first four continued to drink for free. But, once outside the bar, the men began to compare their savings.

“I only got a pound out of the £20 saving,” declared the sixth man.

He pointed to the tenth man,”but he got £10!”

“Yeah, that’s right,” exclaimed the fifth man. “I only saved a pound too. It’s unfair that he got ten times more benefit than me!”

“That’s true!” shouted the seventh man. “Why should he get £10 back, when I got only £2? The wealthy get all the breaks!”

“Wait a minute,” yelled the first four men in unison, “we didn’t get anything at all. This new tax system exploits the poor!”

The nine men surrounded the tenth and beat him up.

The next night the tenth man didn’t show up for drinks, so the nine sat down and had their beers without him. But when it came time to pay the bill, they discovered something important. They didn’t have enough money between all of them for even half of the bill!

And that, boys and girls, journalists and government ministers, is how our tax system works.

The people who already pay the highest taxes will naturally get the most benefit from a tax reduction.

Tax them too much, attack them for being wealthy, and they just may not show up anymore.

In fact, they might start drinking overseas, where the atmosphere is somewhat friendlier.

For those who understand, no explanation is needed.
For those who do not understand, no explanation is possible

David R. Kamerschen, Ph.D.

Professor of Economics.