Current Account Deficit- Switzerland

The diagram below shows the current account balance in terms of percentage of GDP in Switzerland over the last 20 years. In the early 80′s, Switzerland’s current account balance was relatively low, indicating that it had a surplus. Over time however, Switzerland’s current account balance began to increase. In the last 5 years or so, the current account balance declined significantly and it is currently about 9%. Switzerland reports a current account surplus, which indicates that it is spending less. A current account surplus indicates that the country is spending a lot. A high percentage of GDP indicates a deficit, in which imports is greater than exports. A low percentage of GDP indicates a surplus, in which exports is greater than imports. Swiss main exports are: medicinal and pharmaceutical products, watches and clocks, machinery for special industry and tools.

This article discusses the significance of Switzerland’s enormous current account surplus.

http://www.highbeam.com/doc/1P3-1643011111.html

Debate on Globalization

The 5 things that I learned throughout this debate are:

1) Many of the major economies that play a role in globalization (US) started off with protectionism
2) More than 37 million children are the world are involved in child trafficking
3) China’s environmental issues (air pollution) is due to globalization
4) “Race to the bottom” is a concept that occurs between nations because of regulatory competition
5) Those people who are involved in labour exploitation are potentially given a choice of whether or not they want to work. Their wages are substantial.

Exploring Protectionism

For or Against Protectionism?
In my opinion, an economy that is for protectionism is better off than an economy that is for free trade. There are many reasons that a country should be for protectionism. Protectionism mainly allows for an economy to safeguard their domestic employment, through protectionism policies that reduce the entry of imports. The lower the imports of an economy, the higher the aggregate demand will be and therefore, the higher the level of domestic output and employment. Another reason an economy should be for protectionism is to prevent labor exploitation in developing economies. An example of a developing country that exploits labor is Thailand. Thailand allows Burmese to work in their country under the Thai people. Protectionism prevents dumping, which occurs when an economy sells a good or service to overseas markets for a price that is below the cost of production. Local people are forced to buy the same goods and services at a higher price than those economies buying it overseas. Furthermore, it is important for countries to protect infant industries within their economies. If an economy has only recently started to develop and grow, it may enter the international market with increasing comparative advantages. In this case, the country would need protection from the power of other economies that are already established. Lastly, protectionism in the form of a tariff allows for a reduction in demand of imports as well as an increase in government revenue. If the demand for imports is price inelastic, government revenue will increase.

On the other hand, protectionism may not be a wise choice for economies. It could potentially lead to the downward multiplier effect , meaning one country’s reduction in imports will lead to another country’s reduction in exports. Another problem with protectionism is that when exports are reduced, retaliation can take over and hurt the economy. Although tariffs can work to reduce imports, this could create a welfare cost to the society. Consumers will have to pay higher prices for goods and services they consume.

Recently, China urged the US to resist protectionism in order to avoid damaging their own economy as well the Chinese economy. The US made a legislation that was designed to combat Beijing’s manipulation of currency. The Chinese disapprove of the US congress approving of bill. Exercising protectionism only severely damages the relationship and has negative impact on both economies and the global economies”. The legislation imposed by the US did pass and the legislation authorizes the Commerce Department to impose duties on imports from countries with undervalued currencies. The undervalue of the yuan makes Chinese goods cheaper to buy in the US and at the same time drives up to the price of US goods sold in China.

Danger zones in IB papers

In many of the IB practice exams and other data base questions, I have put myself in the biggest danger zone of labeling the question incorrectly. During the final exam last year and during another data base question that we did in class, I forgot to label one of the questions. This could have potentially gotten me no points. Another danger that I have often been in is with the lack of explanation about economic relationship. I do not explain the theories being asked about and their relationship with economics. Some of my papers have the question “Why?” asked by Dr. Anthony. I have to be able to “tell the story” rather than just to state the basic cause and effect of a theory.

A Gift the Wealthy Don’t Need

This article is found here:

http://www.nytimes.com/2010/08/08/business/economy/08view.html?_r=1&fta=y

This is an article based on tax cuts in the United States. It is soon the time for the Bush-tax cuts to expire (expected December 31st). The Bush-tax cuts were signed in law by President Bush during 2001 and 2003. These tax cuts were put on individual rates, capital gains, dividends and estate tax. Many stimulus opponents are desperately hoping for an extension in the tax cuts proposed by George Bush. Ironically, most professional economists have criticized this tax cuts and have enforced that rather than the tax cuts being helpful, they are increasing national debt by hundreds of billion dollars every year. Alan Greenspan, chairman of the Federal Reserve once supposed the tax cuts and is now publicly opposing to its possible extension.

Recent President Obama plans to eliminate tax cuts for “rich” families, who are generally earning more than $250,000 a year and for those who are earning $200,000 at the least.

This article was particularly interesting to me in that it explains why Obama wants to rid the tax cuts as well as why stimulus opponents want to continue them. Opponents argue that the tax cuts are necessary in stimulating the economy. A Senate minority leader, Mitch McConnell proclaims that “Raising taxes in the middle of a recession is not a good idea.”

The government of the United States seems to be resolved on the final decision that the tax cuts will expire on December 31st. “Because most poor and middle-income families consume their entire income, higher tax rates for those families would indeed deprive the economy of much-needed short-run stimulus”. On the other hand, by extending the Bush tax cuts for the wealthier families, it is expected that none of the wealthy will spend, therefore there is no way to stimulate spending. Wealthier families consume far less than what they earn because many choose not to use up their savings, but rather leave bequests.

Although tax cuts may be being eliminated during a rough time period of the economy, it may be a good start for the US economy. Because taxes will be increased again, the more revenue is generated for the government and this could be used to bolster spending in many other ways. These taxes can also provide federal grants to the many jobless people.

Figure 1:

This figure is known as the Laffer curve and it is a good representation of the effect of tax cuts and tax increase. The relationship is between government revenue and possible rates of taxation. After the Bush cuts expire, it is assumed that tax rates will go back to the normal rates (higher than what they used to be). What this mean is that citizens will now be being a great tax (shift from T1 to T2) and as a result, the government generates a greater tax revenue (increase from R1-R2).

California Taxes: Who’s Paying the Most?

This article, published on The Sacramento Bee, discusses the income tax system in California. The article can be found at : http://www.sacbee.com/2010/03/31/2648102/californiataxes.html

California runs under a progressive tax system which indicates that as income increases, the fraction paid in tax increases. More about the progressive tax system can be found at: http://www.ehow.com/about_5232180_progressive-tax-system_.html At this point in time, the wealthy people living in California are required to pay nearly 2/3 of the state’s income taxes. An income tax is a tax levied on the earnings of individuals and businesses. This has been a sharp rise in average income taxes since the last decade or so. Moreover, the cities of California are kindly accommodating the poor people by providing them with great amounts of subsidies. When the time comes to raise taxes, residents say “”Don’t tax me, tax the rich people who can afford it.” Those residents who earn over $200,000 control 39% of the state’s income, and pay 66% of its income taxes.

Figure 1:
Progressive Tax

This figure illustrates a progressive tax. The relationship is between the tax base (income) and the tax paid. If a tax is progressive, the effective tax rate increases as a person’s income goes up. In other words, as the income of wealthier resident’s increases, the tax required of them increases too. According to the article, most of the wealthy people reside in urban areas where the average state income tax is much higher than those people who reside in rural areas.

Problem Based Learning Reflection

Problem based learning was a completely new method for me to learn about ways to tackle an economic crisis. This method of learning was effective for me in that it required me to do my own research as well as to gain knowledge from other group members. Because there was a long process before the actual presentation, which was mostly group work without much of our teachers’ insight, we all felt obliged to understand the material as well as to make sure that our group members understood it. At first, we were unsure about what the presentation had to include and what measures we had to take to tackle the recession. However, after several discussions regarding the policies that we could have implemented and their effects, we were able to come to a conclusion about which policy was most effective. The process of the Problem Based Learning required time to understand economic material as well as to be able to apply it to the real world. This was of course the toughest part as we were only learners and not experienced economic advisors. However, the process of learning was fair in that all members of the group contributed to the best of their ability and we did not have any communication troubles.
The presentation itself was a great success. It went much more smoothly than we expected. Our presenter was Jo and she did an excellent job of presenting our slideshow. She was confident throughout and knew the presentation from start to end. Our presentation consisted of many smart art graphics which seemed to be useful for our audience. Our question/answer session also went very smoothly. We had our ideas clear for each member of the audience and were able to answer most of their questions. For each member, we had a solution and although not all members were satisfied, our ideas were effective for the long-run.

Phosphorus: It’s Running Out!

What is Phosphorous used for?
Phosphorus is used in provinces from Kansas to China’s Sichuan province. Farmers use phosphorus-rich fertilizer in their fields to increase the production of their crops. Phosphorus is a key function in our daily lives. It’s used in the construction of DNA and cell membranes. Although essential, phosphorus in underappreciated by humans.

What is the problem?
When farmers fertilize their fields, excessive amounts of this resource are lost from fields. Phosphorus escapes through soil erosion and runoff, it gets sucked through swirling toilets through both our urine and feces. James Elser comments, “Our dwindling supply of phosphorus, a primary component underlying the growth of global agricultural production, threatens to disrupt food security across the planet during the coming century”.In 1938, President Roosevelt proposed that the phosphorus content of American agricultural land would diminish. He warned that phosphorus would be a shortage and this would affect the “physical health and economic security of the people of the nation”.

Demand for phosphorus is growing at a rate of 3% a year and economists predict that this rate will accelerate in the future because of advances in the developing world (richer people will consume greater amounts of meat). Moreover, the bioenergy sector requires phosphorus for crop-based biofuels. Phosphorus is also essential for bone formation and development in humans. If supply does not meet demand, global agricultural production will encounter a “bottleneck” and the increasing population of humans will face serious nutrition shortage.

Figure 1: Shortage of Phosphorus

Figure 1 above shows the shortage of phosphorus. The two curves of demand (D) and supply (S) are shown. When there is a shortage of a resource such as phosphorus, there is a disparity between the amount demanded and the amount supplied. A shortage may also occur due to prices being “too low”. IN order to combat shortage, prices must increase until it reaches market equilibrium.

Is Japan’s fate going to be worse than that of the US?

Nouriel Roubini (also known as Dr. Doom) is the professor of economics in New York University. He initially predicted the global financial meltdown, but has become a more “sought-after man”. Many businessmen and policy/law makers ascertain his views on where the world’s economy and emerging markets are headed for. While attending a conference organized by Edelweiss in Bombay, Dr. Doom talked to ET Bureau in which excerpts were noted. The focus of the interview was for him to give his view on the US-China trade war and its effect on global markets. In one of the questions he was asked:

What about Europe and Japan? Are their fates going to be even worse than that of the US?
Dr. Doom predicts yes. He says that Europe and Japan’s growth rate potential is maximum 2%. This year’s data suggests anaemic recovery with problems of fiscal sustainability. In fact, they are problems of the loss of fiscal sustainability, external competitiveness and hence, growth. Even with fiscal adjustment, it is a challenging process to resume growth. Japan in fact is looked at as very anaemic especially because of its aging population, its public debt being 180% of GDP and because of it’s weak government that is incapable of accelerating reform. As a result, the Japanese currency yen is heavily strong and Japan’s growth is sustained from net exports due to domestic deflation. Deflation has been a result of falling prices and this had led to a weakness of aggregate demand to aggregate supply. Overall, economists have more reason to worry about Japan and Europe’s economy rather than that of the US.

Macroeconomic Trends: Austria (OECD)

Real GDP:

Over the last decade, Austria’s Real GDP (US$) has been fairly stable. Initially, it started out with $212 billion and decreased slightly for about 2-3 years. It then saw a gradual increase annually, and it reached $304 billion in 2005. It continued to increase and the last GDP recorded stands at $414 billion.

Real GDP per Capita:

GDP per Capita met with a slight decrease between the years 1999-2001. It then gradually increased until 2006. After 2006, GDP per Capita suddenly shot up and the last recording stands at about $50,000.

Real GDP Growth:

GDP Growth is measured by an annual percentage. It initially had a GDP annual percentage betwee 3.6% and 3.65%. In 2001, there was a massive decrease to 0.52%. It then went up and then down between 2001 and 2003. Thereafter, it continued to increase it suddenly fell from 3.07% to 1.77%.

Overall, Austria has been fairly stable in all 3 macroeconomic factors. Although the real GDP Growth met with a sudden fall and remained low for a few years, it slowly began to rise again.