Summary
In the face of claims by US government agencies and others that it has a monopoly on Internet online advertising, Google has responded that it is actually quite small. Christine Varney, the soon-to-be President Obama’s antitrust chief, claims that the Bush administration was extremely lax against monopolies. To fit the “change” platform of the Obama administration, they will take a more hard-line approach to Google’s monopoly. Google has countered by hiring former US Department of Justice antitrust lawyer Dana Wagner, who has helped to formulate Google’s argument to advertising clients, public officials, reporters and other forms of media to remove all indications of Google monopolizing the search advertising business. Moreover, Google claims it only has a 2.66% share of the advertising market. Surely as more claims and antitrust reviews are made, Google will be bigger efforts to dwarf the perception of its market dominance.
Connection: Monopoly
The obvious connection between Google and Chapter 10: Industrial Organization in Canada is the issue of monopoly. As cited in antitrust reviews and claimed by US government agencies, Google may very well have a monopoly on Internet online advertising. If taken to court and legally designated as a monopoly, Google will face many domestic and international challenges, as Microsoft did when it was declared to have a monopoly. If determined a monopoly, business decisions, endeavours and pursuits, and acquisitions will become increasingly difficult with the resulting interventionist competition policies. In short, being labelled a monopoly can only result in trouble because believers of the free market system will stress competition law problems. In Google’s defence, online search advertising is only a small portion of the entire advertising market, which includes newspaper, television, radio averts, junk mail, highway billboards, etc. However, in order to pin Google as a monopoly, critics and the US government alike will stake Google’s primary market as that of Internet search advertising. In order to avoid being deemed a monopoly, Google must continue to downplay its size and share of the advertising market.
Reflection
Whether or not Google has a monopoly on Internet online advertising is entirely dependent on our definition of Google’s main market. If we say it is purely online search advertising, Google holds a clear monopoly. If we say it is encompassed by the entire advertising market, Google holds a minuscule portion of the market. Regardless, Google has not abused the power in its monopoly nor has it unjustly raised its prices. As a student, I do not find myself particularly strained or stressed over Google having a monopoly on the search advertising business. In fact, a monopoly does a wonderful job in simplifying matters on the Internet. Google has essentially created a product so simple, easy to use and efficient that the majority of Internet users take advantage of it. Google’s pitch is ultimately its convenience, which will have its users continue using Google even if it is deemed a monopoly. This situation is very similar to that of Microsoft’s in that it was essentially designated as a monopoly because of its efficacy. While users can use Yahoo! Search engine or Ask.com, they choose to use Google. While users can use Linux or OpenSolaris, they choose to use Windows. Can you blame either company for its product’s popularity? In any case, Microsoft has brought a real contender in “Bing” to challenge Google.
Link:http://www.washingtonpost.com/wp-dyn/content/article/2009/06/06/AR2009060600056.html
Friday, June 12, 2009
Friday, April 17, 2009
China's "Bamboo Shoot"ing Recovery
Summary
Even in this global recession, many economists now believe that China’s massive fiscal stimulus will indeed help China to achieve its growth target of 8% in 2009. After being stagnant in the 4th quarter of 2008, China’s GDP has risen an estimated annualized rate of 6%. The economy looks to be recovering as various sectors are performing well. Industrial production is up 8.3% from a previous 3.8% two months ago. Retail sales are 16% higher than a year ago, while fixed investments have increased 30%. Although this is indicative of government infrastructure-led stimulus working, exports are still considerably down and the demand is forecasted to remain weak. With one of the biggest fiscal stimulus in the world and the ability to force state-owned firms to spend and state banks to lend, China’s efforts to reverse the current economic trend are being employed quicker than anywhere else. JPMorgan believes that this credit and investment boom could help China’s growth to an annualized 10% in the remaining three quarters of 2009. Jonathan Anderson, an economist at UBS, explained how the property market is already rebounding after falling sharply and is up 36% year-to-date, a key factor as more houses sold will result in more construction done. If infrastructure spending continues to rise and construction continues to quickly recover, China could see its GDP grow by 8% at the end of the year, even if exports remain weak. Despite the good forecast, there are others who are concerned over government-influenced spending accounting for ¾ of China’s GDP growth because it may potentially lead to overcapacity, low rates of return, and potential bad loans for banks.
Connection
This article is primarily concerned with discretionary fiscal policy as China alters its government spending in order to improve economic conditions. As there is a need to combat the recession and level of unemployment, China had to go through a lengthy process to determine the appropriate combination of government spending. However, the greatest connection, or perhaps lack thereof, is the issue of time lag. The textbook clearly states there is a recognition lag, time before evidence of a problem becomes apparent, and decision lag, time it takes for a decision to be made, passed in government and implemented. However, China’s response to the global economic downturn shows no signs of the adverse effect of time lag. As its economy began to slow in 2007, well before America’s exports stumbled, China recognized its problem immediately and already began to prepare for the economic downturn that hit recently. Also, China does not waste any time as their fiscal stimulus was prepared, passed in government and implemented rather quickly. This decision lag is clearly a non-factor in China’s fight against the recession. They have recognized that the fall in domestic demand is leading its economy down and also that by raising it, it can reverse the circumstances and help China’s economy rise again. The fact that China is run under a single-party system means that political consideration is not a factor either in determining fiscal stimulus. China’s single-party communist state allows the country to skip the time lag and go straight to reversing the economic slowdown.
Reflection
I can honestly say that I am thoroughly impressed with China’s ability to eliminate the time lag. Although I do not have full knowledge of the process they went through to pass the massive fiscal stimulus, it is evident to me that they did it in quick and efficient fashion. Conversely, as many people have criticized Canada’s actions against the current economic crisis and our Prime Minister Stephen Harper’s decisions on what to do about our country’s circumstances, the general idea I have gained is that there is a definite time lag that Canada faces when making a big financial decision. The political difference between China and Canada are clear, China is a single-party communist state and Canada is a multi-party democratic country. Perhaps this is the biggest issue when discussing the decision lag as China passed its fiscal stimulus with relative ease, while Canada had to go through an incredibly lengthy process to pass it as law. Furthermore, it is likely that political considerations came into play when developing the fiscal stimulus. There is no doubt the reigning Conservative party considered its status and perception in future upcoming elections. While I am not asking Canada to become a communist state, it would be in the country’s best interest that all parties work more closely, instead of defying each other, to lift Canada from its recession. Canada can learn quite a bit from China if they begin to work faster in similar situations. After all, time is money.
http://www.economist.com/finance/displayStory.cfm?story_id=13496444&source=features_box2
Even in this global recession, many economists now believe that China’s massive fiscal stimulus will indeed help China to achieve its growth target of 8% in 2009. After being stagnant in the 4th quarter of 2008, China’s GDP has risen an estimated annualized rate of 6%. The economy looks to be recovering as various sectors are performing well. Industrial production is up 8.3% from a previous 3.8% two months ago. Retail sales are 16% higher than a year ago, while fixed investments have increased 30%. Although this is indicative of government infrastructure-led stimulus working, exports are still considerably down and the demand is forecasted to remain weak. With one of the biggest fiscal stimulus in the world and the ability to force state-owned firms to spend and state banks to lend, China’s efforts to reverse the current economic trend are being employed quicker than anywhere else. JPMorgan believes that this credit and investment boom could help China’s growth to an annualized 10% in the remaining three quarters of 2009. Jonathan Anderson, an economist at UBS, explained how the property market is already rebounding after falling sharply and is up 36% year-to-date, a key factor as more houses sold will result in more construction done. If infrastructure spending continues to rise and construction continues to quickly recover, China could see its GDP grow by 8% at the end of the year, even if exports remain weak. Despite the good forecast, there are others who are concerned over government-influenced spending accounting for ¾ of China’s GDP growth because it may potentially lead to overcapacity, low rates of return, and potential bad loans for banks.
Connection
This article is primarily concerned with discretionary fiscal policy as China alters its government spending in order to improve economic conditions. As there is a need to combat the recession and level of unemployment, China had to go through a lengthy process to determine the appropriate combination of government spending. However, the greatest connection, or perhaps lack thereof, is the issue of time lag. The textbook clearly states there is a recognition lag, time before evidence of a problem becomes apparent, and decision lag, time it takes for a decision to be made, passed in government and implemented. However, China’s response to the global economic downturn shows no signs of the adverse effect of time lag. As its economy began to slow in 2007, well before America’s exports stumbled, China recognized its problem immediately and already began to prepare for the economic downturn that hit recently. Also, China does not waste any time as their fiscal stimulus was prepared, passed in government and implemented rather quickly. This decision lag is clearly a non-factor in China’s fight against the recession. They have recognized that the fall in domestic demand is leading its economy down and also that by raising it, it can reverse the circumstances and help China’s economy rise again. The fact that China is run under a single-party system means that political consideration is not a factor either in determining fiscal stimulus. China’s single-party communist state allows the country to skip the time lag and go straight to reversing the economic slowdown.
Reflection
I can honestly say that I am thoroughly impressed with China’s ability to eliminate the time lag. Although I do not have full knowledge of the process they went through to pass the massive fiscal stimulus, it is evident to me that they did it in quick and efficient fashion. Conversely, as many people have criticized Canada’s actions against the current economic crisis and our Prime Minister Stephen Harper’s decisions on what to do about our country’s circumstances, the general idea I have gained is that there is a definite time lag that Canada faces when making a big financial decision. The political difference between China and Canada are clear, China is a single-party communist state and Canada is a multi-party democratic country. Perhaps this is the biggest issue when discussing the decision lag as China passed its fiscal stimulus with relative ease, while Canada had to go through an incredibly lengthy process to pass it as law. Furthermore, it is likely that political considerations came into play when developing the fiscal stimulus. There is no doubt the reigning Conservative party considered its status and perception in future upcoming elections. While I am not asking Canada to become a communist state, it would be in the country’s best interest that all parties work more closely, instead of defying each other, to lift Canada from its recession. Canada can learn quite a bit from China if they begin to work faster in similar situations. After all, time is money.
http://www.economist.com/finance/displayStory.cfm?story_id=13496444&source=features_box2
Wednesday, April 1, 2009
Deceiving Plastic!
Summary
An investigation ran by the Competition Bureau of Canada will attempt to find out whether credit card titans like MasterCard and Visa are breaking the law by charging ridiculous transaction fees to businesses and retailers. Across the country, complaints are being made that these credit card companies are abusing their dominant position and charging unfair and unwarranted fees. Liberal New Brunswick Senator Pierrette Ringuette hopes that legislation can be brought to Australia’s level where interchange rates are maxed at 0.45% for businesses, 0.33% for governments and a friendly zero for charities. Compared to Canada’s rates, maxed at 3% for businesses, 1.8% for government and 1.5% for charities, Australia’s rates are downright small. The Retail Council of Canada has recently started a website, stopstickingittous.com, which boldly states Canadian consumers have paid over $4.5-billion dollars in hidden credit card fees in 2008. In simple terms, the credit card companies take approximately $2 out of every $100 businesses receive in sales. MasterCard has recently responded that they welcome the investigation and hope to clear up any negative press spread by the retail and business sectors.
Money and the Canadian Banking System
As the recession has caused households to cut down on expenses, cash is becoming both less available and less spent. Instead, credit cards and debit cards have taken over as easily accessible forms of money. While the non-profit association Interac dominates the debit market with its low flat-rate fees, monster credit card companies such as Visa and MasterCard are seemingly taking advantage of their dominant position. In doing so, they have put themselves in a predicament where consumers and businesses may be reluctant to favour credit cards as much as they do now. Credit cards are handy because they allow for purchases to be made on the spot without an actual item of monetary value and eliminate the need to carry cash. Despite this, the popularity of Visa and MasterCard may fall if the Competition Bureau of Canada discovers they are indeed in violation of Section 79: abuse of a dominant position. In any circumstances, high interest rates from either the bank or credit card companies defer people from spending and ultimately, will keep the company in a recession. It is commonly agreed upon that you must spend your way out of a recession. The more money paid towards interchange fees, the less money business and retailers will have to spend on business purchases and endeavours. In order to raise the demand for money, interest rates need to be low in all areas to increase the supply of money in order to encourage spending in the midst of a recession.
Reflection
Although it is only natural to feel ill will towards Visa and MasterCard after reading this article, they too are companies trying to meet their quarterly and yearly target in a time where the movement of money is scarce and slow. Credit cards have brought us convenience upon making transactions. As a great deal of Canadian citizens now pays with credit cards, consumption and spending have become a whole lot easier. If credit cards were to lose popularity, I would think that consumer spending would take a great hit as people would need time to adjust to spending cash over whipping out the plastic. In any sense, if people were able to adjust and the level of consumer spending does not decrease, we could be moving in a positive direction by spending cash rather than paying with credit cards and being hit with hidden fees. Undisputedly, the only party that benefits from hidden fees is the credit card companies, while both consumers and businesses lose money. I believe a good way Canada could encourage spending is to introduce competition in the way we pay for goods and services; it could help to lower fees paid by consumers and businesses. On the note of interest rates, however, it seems relatively simple to me how credit cards should be used. The most ideal way to use a credit card is to religiously clear the balance at the end of every month to avoid charges.
http://www.calgaryherald.com/business/fp/Competition+bureau+probes+credit+card+fees/1430376/story.html
An investigation ran by the Competition Bureau of Canada will attempt to find out whether credit card titans like MasterCard and Visa are breaking the law by charging ridiculous transaction fees to businesses and retailers. Across the country, complaints are being made that these credit card companies are abusing their dominant position and charging unfair and unwarranted fees. Liberal New Brunswick Senator Pierrette Ringuette hopes that legislation can be brought to Australia’s level where interchange rates are maxed at 0.45% for businesses, 0.33% for governments and a friendly zero for charities. Compared to Canada’s rates, maxed at 3% for businesses, 1.8% for government and 1.5% for charities, Australia’s rates are downright small. The Retail Council of Canada has recently started a website, stopstickingittous.com, which boldly states Canadian consumers have paid over $4.5-billion dollars in hidden credit card fees in 2008. In simple terms, the credit card companies take approximately $2 out of every $100 businesses receive in sales. MasterCard has recently responded that they welcome the investigation and hope to clear up any negative press spread by the retail and business sectors.
Money and the Canadian Banking System
As the recession has caused households to cut down on expenses, cash is becoming both less available and less spent. Instead, credit cards and debit cards have taken over as easily accessible forms of money. While the non-profit association Interac dominates the debit market with its low flat-rate fees, monster credit card companies such as Visa and MasterCard are seemingly taking advantage of their dominant position. In doing so, they have put themselves in a predicament where consumers and businesses may be reluctant to favour credit cards as much as they do now. Credit cards are handy because they allow for purchases to be made on the spot without an actual item of monetary value and eliminate the need to carry cash. Despite this, the popularity of Visa and MasterCard may fall if the Competition Bureau of Canada discovers they are indeed in violation of Section 79: abuse of a dominant position. In any circumstances, high interest rates from either the bank or credit card companies defer people from spending and ultimately, will keep the company in a recession. It is commonly agreed upon that you must spend your way out of a recession. The more money paid towards interchange fees, the less money business and retailers will have to spend on business purchases and endeavours. In order to raise the demand for money, interest rates need to be low in all areas to increase the supply of money in order to encourage spending in the midst of a recession.
Reflection
Although it is only natural to feel ill will towards Visa and MasterCard after reading this article, they too are companies trying to meet their quarterly and yearly target in a time where the movement of money is scarce and slow. Credit cards have brought us convenience upon making transactions. As a great deal of Canadian citizens now pays with credit cards, consumption and spending have become a whole lot easier. If credit cards were to lose popularity, I would think that consumer spending would take a great hit as people would need time to adjust to spending cash over whipping out the plastic. In any sense, if people were able to adjust and the level of consumer spending does not decrease, we could be moving in a positive direction by spending cash rather than paying with credit cards and being hit with hidden fees. Undisputedly, the only party that benefits from hidden fees is the credit card companies, while both consumers and businesses lose money. I believe a good way Canada could encourage spending is to introduce competition in the way we pay for goods and services; it could help to lower fees paid by consumers and businesses. On the note of interest rates, however, it seems relatively simple to me how credit cards should be used. The most ideal way to use a credit card is to religiously clear the balance at the end of every month to avoid charges.
http://www.calgaryherald.com/business/fp/Competition+bureau+probes+credit+card+fees/1430376/story.html
Monday, March 9, 2009
Canada's GDP Contracts 3.4%
Summary
On March 2nd, Canada announced that its Gross Domestic Product (GDP) had contracted 3.4% in the fourth quarter of 2008. The most significant drop in nearly two decades, Canada’s Gross Domestic Product has been decimated largely due to the global recession. Statistics Canada reported that everything is falling in the Canadian economy: exports, imports, household spending, factory output, investment profits and business profits. While all aspects of the Canadian economy are falling, there is clear evidence that the level of saving rising substantially and consequently, adding the level of spending to the list of declining areas. Bank of Canada governor Mark Carney and Finance Minister Jim Flaherty both strongly agree that Canada is in the midst of a recession. As a result of this economic downturn, the Bank of Canada has cut down its interest rates to 0.5%. The value of the Canadian dollar is falling significantly alongside Canada’s Gross Domestic Product. Despite all of these negative indications of the economy, there are a few positives that citizens can feel good about. While Canada posted a 3.4% contraction in Gross Domestic Product, countries like the United States of America declared a 6.2% decline and Japan plummeted 12.7%. Also, the overall year was positive for Canada’s Gross Domestic Product having increased 0.5% in all of 2008.
Determination of National Income
As vividly detailed in chapter six, Gross Domestic Product, through measuring a country’s goods and services produced and provided in a year, determines the national income of a country. Canada’s contracting Gross Domestic Product is a direct result of the fewer goods and services provided as demonstrated by the figures provided in the article. As we have witnessed throughout the duration of the current economic recession, jobs are much harder to come by now that a smaller workforce is needed to produce the goods and services that are necessary. With less jobs and disposable income available, everyday citizens are keen on holding onto their money and reducing their superfluous spending. Because of the increased level of saving and decreased level of spending, a vicious cycle results in the economy where little money is circulated. On the business side of economy, reduced sales result and layoffs occur frequently in order to save on costs. Even then, businesses are finding it hard-pressed to please shareholders and owners alike. These layoffs directly affect households as many no longer hold jobs and as a result, spend a significant amount less. Households are no longer purchasing as many goods and instead, are protecting their self-interests through saving their money and reducing their spending greatly. With less money moving through the economy, businesses have no choice but to, again, continue cutting jobs. With this, the vicious cycle repeats itself with more jobs being lost and spending brought to a near halt. On this note, the interesting trend of deteriorating revenue looks to continue contributing to the failing economy.
Reflection
Albeit not the worst in the world, Canada’s economy is undeniably in dire condition. While Monetary Policy definitely has its merits, it is unlikely to salvage the Canadian economy on its own. Regardless, lowering the interest rate is a fantastic way to encourage consumer spending. To be able to take out a loan with such a ridiculously low interest rate is indeed very tempting and a great sign of the effort the Bank of Canada is making to encourage spending in our nation. While Monetary Policy works to get people spending and investing in the market, Fiscal Policy is focused on rescuing businesses. Fiscal Policy is essential to our resurgence, not only in saving businesses from going bankrupt, it saves millions of jobs as a result of the businesses staying afloat. On a side note, however, I do not understand the contradictory responses when the notion of deficits is brought up. Everyday citizens and economists alike stress the need for government intervention to boost the economy, yet the word ‘deficit’ seems to send them into some sort of ‘fear-mongering’ state of mind. Considering both policies and the current global recession, I say with certainty that our economy will be able to rebound in the long term (which many people seem to have a problem with as they want everything fast and immediate). Although I do not deny that Canada is in financial strain, I do not believe it would appear as grim without the sensationalism present in media and journalism in this day and age. Sensationalists make great use of exaggeration and choose to portray only the losses, as indicated by highly underplaying the fact that Canada’s Gross Domestic Product grew 0.5% overall in the year 2008. Sometimes I really do wonder what our economy would be like without the sensationalist coverage.
http://business.theglobeandmail.com/servlet/story/RTGAM.20090302.wgdp0302/BNStory/Business/home
On March 2nd, Canada announced that its Gross Domestic Product (GDP) had contracted 3.4% in the fourth quarter of 2008. The most significant drop in nearly two decades, Canada’s Gross Domestic Product has been decimated largely due to the global recession. Statistics Canada reported that everything is falling in the Canadian economy: exports, imports, household spending, factory output, investment profits and business profits. While all aspects of the Canadian economy are falling, there is clear evidence that the level of saving rising substantially and consequently, adding the level of spending to the list of declining areas. Bank of Canada governor Mark Carney and Finance Minister Jim Flaherty both strongly agree that Canada is in the midst of a recession. As a result of this economic downturn, the Bank of Canada has cut down its interest rates to 0.5%. The value of the Canadian dollar is falling significantly alongside Canada’s Gross Domestic Product. Despite all of these negative indications of the economy, there are a few positives that citizens can feel good about. While Canada posted a 3.4% contraction in Gross Domestic Product, countries like the United States of America declared a 6.2% decline and Japan plummeted 12.7%. Also, the overall year was positive for Canada’s Gross Domestic Product having increased 0.5% in all of 2008.
Determination of National Income
As vividly detailed in chapter six, Gross Domestic Product, through measuring a country’s goods and services produced and provided in a year, determines the national income of a country. Canada’s contracting Gross Domestic Product is a direct result of the fewer goods and services provided as demonstrated by the figures provided in the article. As we have witnessed throughout the duration of the current economic recession, jobs are much harder to come by now that a smaller workforce is needed to produce the goods and services that are necessary. With less jobs and disposable income available, everyday citizens are keen on holding onto their money and reducing their superfluous spending. Because of the increased level of saving and decreased level of spending, a vicious cycle results in the economy where little money is circulated. On the business side of economy, reduced sales result and layoffs occur frequently in order to save on costs. Even then, businesses are finding it hard-pressed to please shareholders and owners alike. These layoffs directly affect households as many no longer hold jobs and as a result, spend a significant amount less. Households are no longer purchasing as many goods and instead, are protecting their self-interests through saving their money and reducing their spending greatly. With less money moving through the economy, businesses have no choice but to, again, continue cutting jobs. With this, the vicious cycle repeats itself with more jobs being lost and spending brought to a near halt. On this note, the interesting trend of deteriorating revenue looks to continue contributing to the failing economy.
Reflection
Albeit not the worst in the world, Canada’s economy is undeniably in dire condition. While Monetary Policy definitely has its merits, it is unlikely to salvage the Canadian economy on its own. Regardless, lowering the interest rate is a fantastic way to encourage consumer spending. To be able to take out a loan with such a ridiculously low interest rate is indeed very tempting and a great sign of the effort the Bank of Canada is making to encourage spending in our nation. While Monetary Policy works to get people spending and investing in the market, Fiscal Policy is focused on rescuing businesses. Fiscal Policy is essential to our resurgence, not only in saving businesses from going bankrupt, it saves millions of jobs as a result of the businesses staying afloat. On a side note, however, I do not understand the contradictory responses when the notion of deficits is brought up. Everyday citizens and economists alike stress the need for government intervention to boost the economy, yet the word ‘deficit’ seems to send them into some sort of ‘fear-mongering’ state of mind. Considering both policies and the current global recession, I say with certainty that our economy will be able to rebound in the long term (which many people seem to have a problem with as they want everything fast and immediate). Although I do not deny that Canada is in financial strain, I do not believe it would appear as grim without the sensationalism present in media and journalism in this day and age. Sensationalists make great use of exaggeration and choose to portray only the losses, as indicated by highly underplaying the fact that Canada’s Gross Domestic Product grew 0.5% overall in the year 2008. Sometimes I really do wonder what our economy would be like without the sensationalist coverage.
http://business.theglobeandmail.com/servlet/story/RTGAM.20090302.wgdp0302/BNStory/Business/home
Monday, February 23, 2009
Challenging Unemployment Benefits
Summary
As unemployment offices become increasingly packed across the United States of America, more unemployment benefits claims are being denied. With unemployment in America reaching nearly five million individuals, more and more employers are doing their best to block unemployment benefits by challenging the claims. Recent research conducted by Wayne Vroman, has shown there has been a rise in the number of claims that have been challenged by employers (through tracking trends using data from U.S. Department of Labour). He states that up to sixteen per cent of claims are being challenged on basis of misconduct and ten percent are being challenged on basis of voluntarily quit by an employee. Companies are increasingly looking to block benefits, which increase the unemployment insurance taxes that they pay. They have even gone to the extent of hiring third-part firms that specialize in dealing with unemployment claims, worker compensation cases and health insurance matters. Claims are dealt with inefficiently because many do not file for unemployment immediately and are not aware of their eligibility. Further complications arise when they fail to provide accurate and complete statements on the application when asked to describe the reason for unemployment.
Economic Indicators: Unemployment
Much like the rest of the world, the American economy continues to falter in the midst of a recession. With the financial situation the United States of America are facing, a dramatic rise in unemployment is nearly a given. In fact, unemployment is becoming a predominant force in countries worldwide. How this dire problem is to be solved has yet been presented in the form of convincing evidence. The lack of overall spending in the American economy has resulted in an overload of demand-deficient unemployment. As the state of the economy falls, the world of business faces great difficulty in the sale of its products. As the level of spending by consumers decreases, so do the sales for businesses. If consumers are not spending money on goods and services, employers will not need to hire as many workers. As a result, demand-deficient unemployment has become a powerful force that persists in society today. Before the recession, it was thought that unemployment benefits (both in Canada and the United States of America) encouraged unemployment and spawned an increase in the unemployment rate. However, the recession has caused true unemployment and now unemployment benefits are being denied, yet now is the time when they are definitely necessary.
Reflection
Naturally, unemployment benefits claims and unemployment go hand in hand. It is only expected of companies to want to save money during times of financial trouble, but the means by which they are doing so are definitely questionable. How bad are finances now that they must resort to denying ex-employees of their unemployment benefits, simply to save on paying unemployment insurance taxes? By attempting to evade paying unemployment insurance taxes, the companies could be seen as making a statement that it is unemployment due to employee misconduct and not unemployment due to demand-deficiency. Perhaps fewer claims would be challenged if there was less unemployment, but in order for the unemployment rate to decrease, the American economy must rebound to a state where it can prosper. I believe a prominent problem with the current American economy is the media. The sensationalist media portrays the economy in the worst angle possible, striking fear and despair into households and businesses across the country. With national confidence in the American economy absolutely decimated, employers are continually looking to cut costs wherever possible and unfortunately, are costing millions of people their jobs across the nation. The sensationalistic journalism must stop in order to restore confidence as the economy can and will be fixed with time and cooperation from all parties (workforce, employers, government, etc...). The future outlook already appears very bright; President Barack Obama’s lengthy 1,534-page stimulus package, passed February 17th, looks to create three to four million jobs. The stimulus bill is the first big step towards fostering change in order to bring long-term growth and prosperity. The American economy is very capable of rebounding under President Obama’s guide, and when it does, the unemployment rate will fall considerably, and maybe then, less unemployment claims will be challenged.
Link: http://abcnews.go.com/GMA/Weekend/Story?id=6928837&page=1
As unemployment offices become increasingly packed across the United States of America, more unemployment benefits claims are being denied. With unemployment in America reaching nearly five million individuals, more and more employers are doing their best to block unemployment benefits by challenging the claims. Recent research conducted by Wayne Vroman, has shown there has been a rise in the number of claims that have been challenged by employers (through tracking trends using data from U.S. Department of Labour). He states that up to sixteen per cent of claims are being challenged on basis of misconduct and ten percent are being challenged on basis of voluntarily quit by an employee. Companies are increasingly looking to block benefits, which increase the unemployment insurance taxes that they pay. They have even gone to the extent of hiring third-part firms that specialize in dealing with unemployment claims, worker compensation cases and health insurance matters. Claims are dealt with inefficiently because many do not file for unemployment immediately and are not aware of their eligibility. Further complications arise when they fail to provide accurate and complete statements on the application when asked to describe the reason for unemployment.
Economic Indicators: Unemployment
Much like the rest of the world, the American economy continues to falter in the midst of a recession. With the financial situation the United States of America are facing, a dramatic rise in unemployment is nearly a given. In fact, unemployment is becoming a predominant force in countries worldwide. How this dire problem is to be solved has yet been presented in the form of convincing evidence. The lack of overall spending in the American economy has resulted in an overload of demand-deficient unemployment. As the state of the economy falls, the world of business faces great difficulty in the sale of its products. As the level of spending by consumers decreases, so do the sales for businesses. If consumers are not spending money on goods and services, employers will not need to hire as many workers. As a result, demand-deficient unemployment has become a powerful force that persists in society today. Before the recession, it was thought that unemployment benefits (both in Canada and the United States of America) encouraged unemployment and spawned an increase in the unemployment rate. However, the recession has caused true unemployment and now unemployment benefits are being denied, yet now is the time when they are definitely necessary.
Reflection
Naturally, unemployment benefits claims and unemployment go hand in hand. It is only expected of companies to want to save money during times of financial trouble, but the means by which they are doing so are definitely questionable. How bad are finances now that they must resort to denying ex-employees of their unemployment benefits, simply to save on paying unemployment insurance taxes? By attempting to evade paying unemployment insurance taxes, the companies could be seen as making a statement that it is unemployment due to employee misconduct and not unemployment due to demand-deficiency. Perhaps fewer claims would be challenged if there was less unemployment, but in order for the unemployment rate to decrease, the American economy must rebound to a state where it can prosper. I believe a prominent problem with the current American economy is the media. The sensationalist media portrays the economy in the worst angle possible, striking fear and despair into households and businesses across the country. With national confidence in the American economy absolutely decimated, employers are continually looking to cut costs wherever possible and unfortunately, are costing millions of people their jobs across the nation. The sensationalistic journalism must stop in order to restore confidence as the economy can and will be fixed with time and cooperation from all parties (workforce, employers, government, etc...). The future outlook already appears very bright; President Barack Obama’s lengthy 1,534-page stimulus package, passed February 17th, looks to create three to four million jobs. The stimulus bill is the first big step towards fostering change in order to bring long-term growth and prosperity. The American economy is very capable of rebounding under President Obama’s guide, and when it does, the unemployment rate will fall considerably, and maybe then, less unemployment claims will be challenged.
Link: http://abcnews.go.com/GMA/Weekend/Story?id=6928837&page=1
Friday, January 23, 2009
Flat Tax Benefits
Summary
In this edifying article, Charles Cirtwill discusses the many possible benefits of a flat 10 per cent personal income tax that could be implemented in New Brunswick. Undisputedly, the biggest benefit is the advantage the Maritime province would gain in attracting skilled workers. The executive vice-president of the Atlantic Institute of Market Studies explains how the upsides greatly outnumber the downsides. Not only would it separate New Brunswick from the rest of the country, it would also make its tax system easier to understand and deal with. Opponents of the proposed flat tax say it is not progressive enough to replace the progressive tax system that currently predominates. One of the biggest arguments constantly brought up is the $415 million a year needed to implement the personal flat tax. Despite these concerns, general reception has shown that most people are in favour of paying fewer taxes.
Government In Canada: Tax Rates
The topic of tax rates is the connection between chapter four and this article. There are three types of tax rates (progressive, regressive and flat) and Canada currently utilizes a progressive federal tax rate when dealing with individuals’ earned income. However, this article is mainly concerned with the progressive provincial income tax and what a flat tax could possibly achieve in New Brunswick. Following the progressive tax system, the amount of tax an individual pays increases as their income increases. Although more well-off members of society may not mind paying more taxes, it arises as a serious problem to the financially-unfortunate who need every cent to live. While worrying about survival necessities, the poor are unlikely to worry about how much they are being taxed in relation to the wealthy. It is understandable that the provincial government may think a progressive tax achieves vertical equity as the rich pay more taxes, but, in the grand scheme of things, all individuals would benefit and prefer to pay fewer taxes. The flat tax that Cirtwill suggests for New Brunswick would accomplish just that and would save everyone many dollars in the Maritime province. In this sense, the flat tax would be appropriate, not to achieve perfect vertical equity, but to provide all citizens with a system that everyone benefits from.
Reflection
Not only do I strongly believe New Brunswick should implement the proposed flat 10 per cent income tax, I also believe that our province of British Columbia would benefit greatly following suit. Currently, Alberta is the sole Canadian province that employs the 10 percent income tax and provinces should look at this as an opportunity to attract skilled workers. It is a given that the income tax rate will be substantially lower, but there will be more working individuals to tax (essentially providing equilibrium). The provincial government benefits greatly as they yield the same amount of tax while gaining a larger workforce. With more individuals earning incomes, more shopping for needs and wants will be done and as a result, more GST and PST revenue will be generated. These sales taxes will help both the federal government and the provincial government in the current financial downturn. Possibly the only opposing reason is the issue of inflation. As more money is present in the economy, the prices of items and good are bound to rise. Regardless, a province in which more people are working, more people are shopping and more people are living a healthier life sounds infinitely better than a stagnant society.
Link: http://timestranscript.canadaeast.com/news/article/529923
In this edifying article, Charles Cirtwill discusses the many possible benefits of a flat 10 per cent personal income tax that could be implemented in New Brunswick. Undisputedly, the biggest benefit is the advantage the Maritime province would gain in attracting skilled workers. The executive vice-president of the Atlantic Institute of Market Studies explains how the upsides greatly outnumber the downsides. Not only would it separate New Brunswick from the rest of the country, it would also make its tax system easier to understand and deal with. Opponents of the proposed flat tax say it is not progressive enough to replace the progressive tax system that currently predominates. One of the biggest arguments constantly brought up is the $415 million a year needed to implement the personal flat tax. Despite these concerns, general reception has shown that most people are in favour of paying fewer taxes.
Government In Canada: Tax Rates
The topic of tax rates is the connection between chapter four and this article. There are three types of tax rates (progressive, regressive and flat) and Canada currently utilizes a progressive federal tax rate when dealing with individuals’ earned income. However, this article is mainly concerned with the progressive provincial income tax and what a flat tax could possibly achieve in New Brunswick. Following the progressive tax system, the amount of tax an individual pays increases as their income increases. Although more well-off members of society may not mind paying more taxes, it arises as a serious problem to the financially-unfortunate who need every cent to live. While worrying about survival necessities, the poor are unlikely to worry about how much they are being taxed in relation to the wealthy. It is understandable that the provincial government may think a progressive tax achieves vertical equity as the rich pay more taxes, but, in the grand scheme of things, all individuals would benefit and prefer to pay fewer taxes. The flat tax that Cirtwill suggests for New Brunswick would accomplish just that and would save everyone many dollars in the Maritime province. In this sense, the flat tax would be appropriate, not to achieve perfect vertical equity, but to provide all citizens with a system that everyone benefits from.
Reflection
Not only do I strongly believe New Brunswick should implement the proposed flat 10 per cent income tax, I also believe that our province of British Columbia would benefit greatly following suit. Currently, Alberta is the sole Canadian province that employs the 10 percent income tax and provinces should look at this as an opportunity to attract skilled workers. It is a given that the income tax rate will be substantially lower, but there will be more working individuals to tax (essentially providing equilibrium). The provincial government benefits greatly as they yield the same amount of tax while gaining a larger workforce. With more individuals earning incomes, more shopping for needs and wants will be done and as a result, more GST and PST revenue will be generated. These sales taxes will help both the federal government and the provincial government in the current financial downturn. Possibly the only opposing reason is the issue of inflation. As more money is present in the economy, the prices of items and good are bound to rise. Regardless, a province in which more people are working, more people are shopping and more people are living a healthier life sounds infinitely better than a stagnant society.
Link: http://timestranscript.canadaeast.com/news/article/529923
Monday, November 24, 2008
Detroit's (Not So) Big Three
Summary
As stock markets around the world continue to fall, a great surge of bailout talk has surfaced. Among these various cases, the situation regarding Detroit’s Big Three seems to be the most discussed. Executives from Ford, Chrysler and General Motors were unsuccessful in their attempts, last week on Capitol Hill, at acquiring the $25 billion bailout. Congress was evidently unsatisfied with the auto companies’ lack of plans. The leading Democrats are urging the three formerly-powerhouse automakers to outline, in great deal, their financial circumstance, short-term monetary needs, and a feasible long term plan. Unless Congress authorizes the $25 billion bailout, it is likely that Detroit’s Big Three will declare bankruptcy in the upcoming months.
The Role of Government in a Market Economy: Government Involvement
Ford, Chrysler, and General Motors are asking the government to intervene and rescue their privately-owned companies. The main connection to the concepts in Chapter Three: “Role of Government in a Market Economy” is government involvement. However, the government involvement is not due to any of the reasons described in our textbook. There is no apparent lack of information nor are there any signs of market shortcomings. Third-effects may seemingly be present, but are actually simply direct consequences of the failing auto industry. Although the act of possible government intervention does not fit the outlined textbook definition, it can definitely be considered as a form of government intervention. Perhaps the sole fact that the government may intervene, despite none of the textbook reasons, is a sign of the economic hard times we are facing. The recession has caused general confidence in the economy to falter and hundreds of thousands of jobs to be lost. Congress debates now whether or not to grant the three automakers the bailout with millions of jobs on the line. Of course, a granted bailout would save many jobs, but perhaps now is a good time for the government to leverage the automaker companies into making environmentally-friendly vehicles. Conversely, a denied bailout would result in many lost jobs across the nation. A large portion of the American work force is depending on the bailout to be passed in order for them to keep their jobs. A denied bailout may result in more layoffs by Ford, Chrysler and General Motors or perhaps even bankruptcy filed by one of Detroit’s Big Three. Either way, the general consensus is felt that the job market looks to take a hit if the bailout is not granted.
Reflection
When I first began following the bailout situation, I thought that it would be in the best interest of everyone that Detroit’s Big Three receive the $25 billion bailout. It would be commonplace to think that rescuing the three automakers would save jobs and in due course, increase consumer spending and provide economic expansion. After thinking more carefully however, I came to a conclusion that this would not be the case. Firstly, I do not believe that millions of jobs will be lost as the automakers could easily file for bankruptcy under Chapter 11 (essentially permits reorganization of a company) and the labour force could remain employed. Obviously the reduction of wages and benefits would be necessary in order for companies to remain competitive with Asian automakers like Toyota and Honda, but I am sure many would agree that lower wages and benefits are better than none at all. Consumer spending would not increase by much as people would rather save their money in a time where recession is ever-looming. Any economic expansion would be miniscule and unnoticeable. A $25 billion bailout for Detroit’s Big Three is not the solution; it would only slow the bleeding. In order to stop the bleeding entirely, the companies need to be restructured and retooled through bankruptcy under Chapter 11. No, bankruptcy of Ford, Chrysler, and General Motors will not send the New York Stock Exchange into oblivion, but rather it is what analysts are sensationalizing and what these three companies are hoping will push Congress towards granting them the $25 billion bailout. In the long run, bankruptcy will force these three formerly-powerhouse automakers to focus on creating cleaner, more efficient, and overall better cars, rather than polluting the environment with their trucks and SUVs. As a final note, I hope Congress denies them of the $25 billion bailout plan and lets Detroit’s Big Three be reduced to simply Detroit’s Three.
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