Free-riding Wifi at Coffee Shops

There appears to be a tendency at coffee shops, where one purchases a single drink (or perhaps even nothing at all) and sits at a table for hours- connected to the free wifi provided. Should wifi use be charged or regulated? A price to be paid for each hour spent? Or does the influx of customers attract even more to the apparently popular coffee shop?

And what of the single-drink-buying customers who sit for hours, hogging up chairs with their laptops and bags; leaving no room for additional rounds of customers who could generate more revenue? Is the marginal cost to the business of providing free wifi compensated by the large number of customers it attracts?

pull the plug

classic free rider

preventing free riders

 

 

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Should England get off Scot-free?

    

Some of the first drafts of what Britain’s flag could look like without Scotland

http://www.theguardian.com/politics/2014/sep/09/-sp-scottish-independence-everything-you-need-to-know-vote

On 18 September voters in Scotland will be asked to make the greatest democratic constitutional decision in their nation’s history. The question is simple: Should Scotland be an independent country, yes or no? – but the impact will be felt for generations. Read on and comment below with what you think would be best and why?

The Yes Campaign

One of the central arguments made by the yes campaign is that independence will allow those living in Scotland to decide how that wealth is spent.

A key element of this is the debate around the worth and longevity of Scotland’s oil reserves. The yes campaign argues that the country’s growing economy, not based on oil alone, will be capable of sustaining welfare spending, including its pensions debt and the childcare plans that were a flagship policy in the Scottish government’s white paper.

One of the most consistent messages in favour of independence that has been driven home in recent months has been that a yes vote is the only way to rid the country of the cuts and privatisation agenda imposed upon it by a distant government.

The No Campaign

The no campaign has been relentless in highlighting the risks of independence to the Scottish economy. These include the uncertainties over what currency the country would use in the event of a yes vote, as well as raising doubts over the reliability of oil reserves and how the country will pay for its public services, in particular in relation to its ageing population.

It underlines the threat to jobs if businesses pull out of Scotland as some have threatened to in the event of a yes vote, and notes that economic instability would be exacerbated by uncertainties around Scotland’s continued membership of Europe.

If Scotland votes yes

If Scotland votes yes it is unlikely to look much different – if Alex Salmond, the first minister and SNP leader, gets his way.

Scotland would keep the Queen as head of state, use the pound, still watch the BBC, share open borders, energy policy and seamless trade with the rest of the UK, and be an active member of the European Union by the time independence is declared in March 2016.

If Scotland votes no

If Scotland votes no on 18 September, the UK parties are promising to give the Scottish parliament much greater power over taxation and policy-making, and to do so quickly, to increase its autonomy within the UK.

SOME OF THE ECONOMIC IMPLICATIONS OF THE INDEPENDENCE (Favourable to Scotland)

http://www.businessforscotland.co.uk/10-key-economic-facts-that-prove-scotland-will-be-a-wealthy-independent-nation/

1. Westminster has cost Scotland £64 billion in the past 30 years – 

Scotland has paid £64 billion in UK debt interest that Scotland didn’t need. An independent Scotland would have been far better off economically.

2. Scotland has a lower deficit and lower public spending than the UK –

Over the past 5 years Scotland had lower deficits than the UK. Scotland’s average deficit has been 7.2%, while the UK deficit has been 8.4%

3. Scotland has huge potential in renewable energy – 

Scotland has 25% of Europe’s total tidal energy potential, 25% of total wind energy potential and 10%of total wave energy potential. This has the power to reindustrialise Scotland bringing more jobs and greater prosperity. Key examples include the Pentland Firth – the Saudi Arabia of renewable tidal energy – and the Moray Firth – a substantial offshore wind energy project.

Scotland’s oil fields remain a massive financial asset – 

The oil in the North Sea is worth over £1 trillion. There are at least 15-24 billion barrels of oil remaining which will continue long into the 21st century. Over 90% of the tax revenue will go to an independent Scotland which can help to establish a national oil fund for future investment.

5. An independent Scotland can support Scottish business in tax, regulation, the labour market, innovation and global exports – 

An independent Scotland will prioritise the interests of business in Scotland following decades of Westminster prioritising London and the South East. This includes the opportunity to create a simpler tax system that supports Scottish business; reforming the labour market to improve employer/employee relations; encouraging migration to Scotland to balance Scotland’s unique demographic needs; and supporting Scottish exports globally through a Scottish diplomatic and trade service. The opportunities of independence are vast and long-term.

SOME OF THE ECONOMIC IMPLICATIONS OF THE INDEPENDENCE ( Unfavourable to Scotland)

http://www.forbes.com/sites/davidnicholson/2014/03/05/5-reasons-why-scottish-independence-would-be-an-economic-disaster/

1. Currency confusion – 

Not long ago (in 1999), SNP leader Alex Salmond described the pound as a ‘millstone around Scotland’s neck’ and derided the currency in 2009.  Today he is desperate to keep it, realising that an independent currency would be so volatile and problematic that it would dissuade investors, reduce trade with the rest of the world and threaten to turn Scotland into an economic backwater.

The European Union has effectively ruled out Scotland joining the euro (or even the EU) for many years, leaving Salmond exposed and blustering.

2. Delusions of oil grandeur – 

The SNP’s main economic platform is that Scotland should own the revenue from North Sea oil and gas, making it a petro-dollar paradise equivalent to Norway.  Although they have similar populations (5.05 million for Norway, 5.3 million for Scotland), the hydrocarbon revenues are massively different.  Norway’s government gathered $40 billion in 2013 (according to the BBC) while the UK made $10.8 billion (according to the Financial Times), a fall of 40 per cent from 2012.  Current predictions?  Further falls, to £3.3 billion ($5.5 billion) in 2016/17, according to the Institute for Fiscal Studies.

There’s no amount of careful stewardship that is going to magic $5.5 billion into $40 billion, when many of the North Sea rigs are at the end of their life and production levels are falling.

3. Financial mismanagement – 

The SNP announced in November 2013 that, under future independence arrangements, the Bank of England ‘would become a lender of the last resort’ following any future crises.

This would mean taxpayers in the rest of the UK bailing out Scottish banks, despite them being in an ‘independent’ country.  The evident nonsense of this position seems to be lost on the Scottish National Party.

4. Loss of credibility – 

The UK has sunk an awful long way since the height of empire in the 19thcentury, but it remains the world’s sixth-largest economy and the second-largest in Europe behind Germany.  This confers all kinds of useful benefits, including low interest rates, a permanent seat at the UN Security Council, leadership in NATO, a major role at G20 conferences and in the WTO, among many others. Independence may lead to the loss of all these benefits

5. Lack of natural resources – Once the oil runs out, what does Scotland have that will sustain its fabulously wealthy future?  It has whisky, but even with this contribution of £3 billion ($4.8 billion) across the economy, as estimated by the Scotch Whisky Association, it’s small beer.  The ability to attract major industries – manufacturing, IT, finance – to the country would be diminished by independence, for all the reasons listed above.

Other links to check out

http://www.economist.com/blogs/buttonwood/2014/09/markets-0

http://www.theguardian.com/politics/2014/feb/07/scottish-independence-economic-implications-niesr

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.

China’s economy will definitely overtake the US. Wanna bet?

It is easy to assume that China will become the world’s new superpower from analyzing  the nation’s burgeoning GDP figures. However, recent data research shows that this assumption may be too far stretched. There are various intricacies and factors that determine whether China will either continue growing  or just go bust. Although it may seem too pessimistic to say that China will collapse, the theories below provide very convincing evidence that this fall maybe inevitable for the superpower.

One of the key problems with the Chinese economy  is the lack of personal consumption. One might say, ” well that’s easily rectifiable, just provide a stimulus like lower interest rates to jump start demand.”. Well, life ain’t that easy. One of the major determinants of this low domestic demand is the astonishingly low wages. About 43% of Chinese labor earn less that USD 2 per day. Furthermore, the impacts of the one child policy and nation’s communist political system has left the people in a frenzy of precautionary motives. Due to the one child policy, the average Chinese worker thinks that there will be no one to provide for him when he turns old and the state’s totalitarian values do not  ensure the provision of a pension, social security benefits and welfare benefits. So no wonder these people are pinching their pockets!

Demographics also play a huge role and from the looks of China’s demographic structure it isn’t looking pretty. due to large population of China it can be predicted that after the one child policy, there will be a large peak in the labour force. however, this large peak in 10-15 years will result in a large decline, bringing about a massive aging population that could threaten china’s ferocious growth and productivity. How is the Chinese government going to support this aging population and what are the reforms that have to be taken to ensure social welfare is given to those who need it?

But lets get one thing straight, reforms are  DEFINITELY NOT going to guarantee 7% growth and prevent China from collapsing. We all know that due to China’s communist political system and mass production manufacturing objective,  there has been a increased reliance on debt, investments from foreign parties, an undervalued currency and that the Chinese people have to suffer from low wages, poor living standards, lack of freedom of expression, lack of social welfare benefits and  corruption from politically affiliated individuals and organizations. However these are the very factors that have allowed china to achieve turbocharged growth and to become the manufacturing giant of the world. Michael Pettis , author of ” Avoiding the fall” reinforces this idea as he states that China’s deleveraging initiative to reduce its reliance on debt and credit expansion will not increase the pace of growth but actually decrease it . Furthermore, the failure of banks to recognize misallocated investments through bad loans alludes to the fact that all of these optimistic Chinese GDP figures that we see are actually overstated.  This fact has also been supported by VikramManishmarani, author of “BOOMBUSTOLOGY“, who states that China has been generating GDP without adding any economic value. Chinese developers backed by the government have been sprouting out new malls, suburban communities and exorbitant skyscrapers that are absolutely EMPTY! These aimless, squandering mercenaries have been building, demolishing and rebuilding an unused bridge just so that the consumption of new construction labour, cement and new raw materials will push up GDP figures. Pettis further reiterates that although these reforms have been discussed for the last 2 decades, nothing has been implemented as it clashes with nation’s political values and it will inevitably result in the power of the state and politically elite to be passed onto the everyday Chinese household. Some of the GDP figures are biased and its is a fact that hidden transfers from the household sector has been substantially inflating GDP figures. This lag of information to the western world makes us believe that China is growing at the speed of a cheetah ,when in reality, it may be otherwise. So is China really going as fast as it seems to be and what will be its future? If these reforms are implemented, surely growth will be slowed down .

Forbes columnist Gordon Chang, author of “The coming collapse of china ” also sides with the view that China is now going to go backwards. His theories state that China will soon undergo an revolution that will be brought on by their growth. Although the Chinese may face a lack of choice in their communist political party, Chang asserts that the people are starting to get the idea that they have choice, especially the higher tier workers that have gained from a rise in income. However, this new discovery of choice does not fit into the communist regime and this potent resistance is apparently too strong to allow China to be led to become a democratic nation. Chang again like the others reiterates that corruption by the politically elite is robbing the everyday man of  his share . Macau ,with only a few of it casinos , has become the gambling centre of the world and the corrupted communist leaders. The people are led by their short term perspectives into making ill fated decisions that instead having a  benign effect, only make China’s economy more unstable. Mass amounts of money invested by leaders into the economy have only postponed the problem but chang asserts that in the future, when China has to deal with this problem it will be too late. although his predictions may be inaccurate as we are currently in 2014 with no Chinese collapse, Chang expresses that the future social disintegration of Chinese society may be the fall of China.

Last but not the least, lets not forget the export sector. Due to the detrimental Eurozone crisis and USA’s debt overload, much of demand for China’s exports have fallen and we could see this as a flaw of China for relying to much on the European nations, thus making itself susceptible to the shocks that comes along with a collaborated collapse. Thus it seems that the export surplus is not really going anywhere and that China’s balance of trade may as well be shrinking.  This just alludes that China’s is possibly going to lose out on some of its major revenue influxes.

Guys I know that its a lot to take in and there are obviously really strong arguments that supports China surpassing the US, but this information is the just start to the revelations of how China is entering a super cycle and that it may be overheating its economy and is on the brink of an inevitable fall that will occur in the foreseeable future. Although it seems that reforms may be a way to prevent this  mess, the consequences of this restructuring may  not only be felt by China but also by the rest of the world , the nations which are China’s suppliers and investors. Whatever the case, it is increasing likely that China will not surpass the US of A but may instead slow down considerably. There are a lot of links below that explain this dilemma better than I do but I absolutely recommend that you all check out the videos below, they are really insightful. Peace.

other videos and articles:

Gordon chang again!!! new revelations bout china      Michael Pettis       lunch alert from dick morris         questioning chinas rapid growth

Deck the halls with Macro Follies!

With the holidays around the corner… 🙂

Each year, our attention turns to the holidays… and to holiday consumer spending! We’re told repeatedly that, because consumer spending is 60 – 70 percent of measured GDP, such spending is vital to economic growth and job creation. This must mean that savings, the opposite of consumption, is bad for growth.

This view of macroeconomics was first popularly asserted by Thomas Malthus in 1820, nearly 200 years ago. Malthus believed recessions where caused by “underconsumption” because there was a “general glut” of goods unsold. To recover from a recession and grow, we needed to stop all the saving and spend more to buy up all the goods on store shelves. Savers are like the miserly Ebenezer Scrooge. If you want a happy holiday, you’ve got to clear those shelves and give people a reason to produce more and create jobs. Or so Malthus thought…

John Maynard Keynes resurrected this approach and built on it with his influential “General Theory”, which now underpins much of our government policy and public discussion of spending and economic growth. Keynesians believe aggregate spending drives the economy and savings is a “leak” out of the flow of spending. Indeed, this economic philosophy underpins many people’s widespread obsession with retail sales each holiday season. Keynesian Macro Santa’s sack is filled with spending.

But there is another view on recessions, recoveries and growth.

Classical and Austrian economists such as Adam Smith, Jean-Baptiste Say and Friedrich Hayek viewed savings as the vital lifeblood of economic growth and production as the means by which we live better and consume more in the long term. Our savings aren’t simply taken out of the economic system, but become the source of capital that entrepreneurs use to create new goods and increase productivity. These economists believe this increased productivity is the key to a wealthier world. Before we consume, we must effectively produce what others value — at prices that cover the costs. This fundamental idea, that our demand for goods is enabled and constituted by our supply of other goods came to be known as the “Law of Markets” and later “Say’s Law”. For classical and Austrian economics, recessions happen when producers make mistakes. They create goods that can’t be sold at a profit. These malinvestments tend to cluster in a recession as a result of systematic problems, such as disruptions in the financial system that cause monetary “disequilibrium”, often as the result of government interventions in the economy since they can be system-wide.

Recovery and growth in the classical and Austrian view is driven by restructuring production so that entrepreneurs discover again the best — i.e. the most valuable and sustainable — ways to serve customers. That process is lead by new entrepreneurs and driven by savers who make capital available to fund new investments and new ventures. Sustainable saving and investment means creating more value for others while using fewer resources. This process lies at the core of healthy economic growth, including better job opportunities and a rising standard of living. If there are problems in the financial system such that our savings aren’t effectively being invested but sitting idle in bank vaults, or people are hoarding cash under their mattress in distress, a classical approach seeks to get the root of that problem and resolve the monetary problems with monetary solutions such as increasing the money supply to meet demand and other approaches. Using up more real resources through additional consumption in such a case is a applying the wrong medicine to the disease.

Consuming is our end goal, but producing value must be the means to that end. That is to say, Macro Santa’s sack is filled with saving…

IAR