Is Abenomics Coming to a Halt?

February 21, 2013 · Filed under 4. International Economics, Current Issues · Tagged , , , , , , , , , , , , , , , , , ,

Abenomics

Abe Shinzo, the Japanese Prime Minister, advocates yen devaluation

Wall Street Journal: Abenomics Will Be Felt Beyond Yen

Hankook Ilbo(Korean): 아베노믹스 ‘거꾸로 효과’(Abenomics ‘Reverse Effect’)

Abe Shinzo had explicitly announced that he would artificially devalue yen in the hope that this will help its export-dependent economy. His idea was that devaluation of yen against other currencies, especially USD, would improve price competitiveness of Japanese products overseas. This announcement was quickly criticized by many nations dependent on export such as Korea and Germany.

The Japanese government said that it would pump ‘infinite’ amount of money supply in the economy until it reaches its target inflation rate of 2%, thus achieving the devaluation of yen. Wall Street Journal expected that the inflation rate would make it less attractive for Japanese households to save and invest their money else where or simply use them to go on shopping. “Deutsche Bank said in a note Wednesday, spurring a “meaningful reallocation” of these deposits into offshore assets.” Therefore, Abe’s policy should have helped to vitalize the consumer sector of Japanese economy and at the same time increase its export to foreign countries.

However, Hankook Ilbo, a Korean newspaper, has published an article that Abe’s devaluation of yen is actually having a reverse effect on Japanese economy. According to the report published by Japanese Ministry of Finance in February 20th, 2013, exports decreased 9.4% compared to the previous month, while imports increased 8.2%. This resulted in 1.63 trillion yen deficit.

The newspaper analyzed that the main reason for this deficit is the rising prices for the energy imports due to the yen devaluation. The nation has been importing more of energy supplies such as LNG, oil, and naphtha, as it tried to diversify energy usage and reduce nuclear power following the Fukushima Nuclear Accident. According to Hankook Ilbo, “If Japanese firms fail to significantly recover from this deficit, Abenomics will be hit hard.”

In addition, many Japanese firms are showing their reluctance in raising wages for workers, which is very important for Abenomics to work in order to revive the real economy. They believe that devaluation alone will not simply rejuvenate the economy. Many Japanese companies have been outsourcing their factories overseas and it would be very hard to retrieve all those back to Japan in very short period.

Of course, it has only been several months, so it will be hard to tell whether Abe’s yen devaluation is doing well for the Japanese economy. But, I think that, from reading these articles, it would be better off for a Japanese economy to appreciate yen due to significant the increase in the energy import. The devaluation certainly is doing no good for Japanese economy and disturbing other export-driven economies such as Korea, Germany and etc.

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Patent Lawsuit: Apple, Samsung and the Prisoner’s Dilemma

May 31, 2012 · Filed under 2. Microeconomics, 4. International Economics, Current Issues, IT, Science and Politics · Tagged , , , , , , , , , , , , , , , , , , , , , , ,

Apple vs. Samsung in a Patent War

CNET News 1: “Apple vs. Samsung: 50 suits, 10 countries – and counting”

CNET News 2: “Samsung, Apple CEOs meet without coming to agreement?”

Meritz Investment Bank (Korean): PDF File

A hostile patent litigation between Apple and Samsung started ever since Apple accused Samsung of copying its designs for smartphones and tablet PCs. In response, Samsung dodged back with patent lawsuits concerning the mobile technology. According to CNET News, this litigation chaos augmented into 50 lawsuits against each other in 10 different countries. Apple became wary of Samsung’s ever-increasing market share of the smartphones and tablet PCs.

A smartphone or a tablet PC market can be said to be an oligopoly. There is only a handful of firms offering the product: Apple, Samsung, HTC, Sony, and so on. It is definitely different from a PC components market where there are lots of firms providing the identical product.

As Samsung’s market power is increasing in both the smartphone and the tablet PC market, Apple has opened a Pandora’s Box by filing a lawsuit against Samsung, as it was mentioned above. This has triggered the problem of Prisoner’s Dilemma, of which the ‘players’ in a ‘game’ are forced to choose the option that makes both of them worse off. In this case, the ‘players’ are Apple and Samsung, and the ‘game’ they are playing is the chicken game of patent litigations.

Table based on Game Theory: Prisoner’s Dilemma

This table illustrates the situation that Apple and Samsung is facing. According to the table, whatever the opponent chooses to do, the best option for a player is to file a lawsuit against the opponent. For example, for Samsung, it is the best option for it to file a lawsuit against Apple because the best-case scenario is that it will possibly kick Apple out of the market. The worst-case scenario is that both Samsung and Apple will possibly be kicked out of the market. However, this case is better than Samsung being kicked out of the market while Apple stays in the market with the market gain, in the point of view of Samsung. The reason behind choosing to file a lawsuit is the same for Apple.

As a result, they reach a Nash equilibrium, in which both of them file a lawsuit against each other, making them worse off. The patent lawsuit can be seen as a deadweight loss that is ‘wasted’ in a litigious process. Some people argue that the only people gaining from this situation are the lawyers. Consumers are the ultimate victims of this patent war because the ligation burdens are passed through higher prices for the products Apple and Samsung produce.

However, it should be noted that this ‘game’ of patent lawsuits is repeated numerously, 50 lawsuits as it was mentioned. Meritz Investment Bank’s analyst Lee Secheol anticipated in April that Apple and Samsung would stop and reconcile with each other as the ‘game’ is repeated. He anticipated that both firms would realize that this situation is making them worse off and that they would sit down at the negotiating table.

According to CNET News, CEOs of Apple and Samsung did have a meeting. However, they have never came up with an agreement. The fact that they had a meeting to reconcile showed that both of them realized they were in a situation of prisoner’s dilemma. However, their disagreement over withdrawing from a patent war also showed that this issue has become somewhat emotional, which makes it beyond the problem of prisoner’s dilemma.

Consumers should realize that this is not only doing harm to both the companies but also doing harm to themselves. This patent war will inevitably lead to an increase in the prices of products that Apple and Samsung produce and will significantly limit the number of choices that consumers can make if one of them are kicked out of the market as a result of a lawsuit. Also, the products they purchase may be limited in functions or features due to the patent constraints.

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California’s Tradable Permit on Oil Refineries

April 14, 2012 · Filed under 2. Microeconomics, Current Issues · Tagged , , , , , , , , , , ,

Californian Government Implements Tradable Permit on Oil Production

The Reporter: News Article

According to The Reporter, California decided to implement the tradable permit policy for the production of oil, which is responsible for the global warming. The government has budget deficit of “$9 billion” and it hopes to gain “$14 billion” by 2015, profiting from auctioning tradable permits to the oil companies.

The main reason for implementing tradable permit policy is that there is a negative externality associated with the production of oil. The social cost exceeds the private cost and this makes the society to take care of the environmental cost. In order to internalize the cost of pollution of the oil production and move the quantity supplied from Q market to Q optimum, the Californian government introduced tradable permit.

The government or EPA sets the amount of pollution allowed and auctions the pollution rights (tradable permits) to the oil companies. If the amount of tradable permit is appropriately chosen, it effectively moves the quantity supplied to Q optimum both eliminating the negative externality and increasing the government profit. The government would profit P times Q optimum amount of money.

However, some critics argue that the increase in the price of oil will increase the overall price of consumer goods. The cost of production will increase for virtually all the consumer goods that are produced from oil-running factories. Also, the means of transporting goods from city to city will be more expensive. All this will contribute in increasing the price of consumer goods. The economic size (or social welfare) would decrease also.

The overall increase in the price of oil and the price of consumer goods will lead to the decrease in the consumer spending overall. United States, especially California, is a place where the public transportation is not as advanced and popularly used as Korea. People usually drive their cars to go to work and go shopping. The increase in the price of oil will act as a disincentive for the people to go out on shopping. This will shift the demand curve from Demand 1 to Demand 2 decreasing the price of consumer goods from P2 to P1 and decreasing the quantity demanded from Q1 to Q2. Again, the economic size (or social welfare) will decrease. Some argue that the tax revenue form the taxes such as VAT will decrease countering the benefits by profits from implementing tradable permits.

In conclusion, the tradable permit will increase the profit of Californian government and at the same time cut down the level of pollution contributing to the global warming. However, the government should be fully aware of the complicated consequence or unintended effects of implementing any sort of policy distorting the market will have.

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List of Definitions for Section 2

March 13, 2012 · Filed under 2. Microeconomics · Tagged , , , ,

1. Market is a place where the consumers and the suppliers meet together. Here, the resources are allocated through the price mechanism. The price and the quantity demanded are determined by the equilibrium price. However, a market does not need to be a physical place where people meet face-to-face. Online shopping is one example of how the market is formed without requiring the consumers and the suppliers to meet face-to-face.

2. Structure of Market in the spectrum of competition

  • Perfect Competition occurs where there are many competitors who produce the same product and the market sets the price.
  • Monopoly occurs when there is only one supplier for the market. These monopolists set the price and profits very highly. They may set as many barriers as they can to stop other possible competitors from entering the market they are in control of.
  • Monopolistic Competition occurs when the market has both the characteristics of perfect competition and monopoly.
  • Oligopoly occurs when there are just few competitors in the market. However, they have interdependence to each other. Also, they may spend a lot of money on advertisement and promotion.

Summary of market types

Type of Market

Number of Firms

Freedom of Entry

Nature of Product

Examples

Demand Curve for Firms

Perfect competition

Many

Unrestricted

Homogenous

(undifferentiated)

Cabbages

Carrots

Horizontal

the firm is a price-taker

Monopolistic competition

Many, Several

Unrestricted

Differentiated

Plumbers

Restaurants

Downward sloping, relatively elastic, some control over price

Oligopoly

Few

Restricted

Undifferentiated or Differentiated

Cement

Cars

Kinked

Monopoly

One

Restricted or Completely blocked

Unique

Local water companies

Downward sloping, inelastic, considerable control over pric
Table Obtained from Triple A Text

3. Demand is defined as ‘that quantity of a good or service that would be bought at each and every price over a period of time’. Must include these three factors:

  • The desire for a product
  • A willingness to pay for it
  • The ability to pay for it

4. Supply is defined as the quantity of goods and services that will be supplied to the market at various prices over a given period of time. These are some of the determinants of supply:

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China on Equity vs. Efficiency

March 13, 2012 · Filed under Current Issues, IT, Science and Politics · Tagged , , , , , , , , , , , , , , , , , , , , , ,

Should China slow down and focus more on Equality rather than Efficiency?

The Economist: News Article

As the gap between the rich and the poor increases substantially, China’s prime minister, Wen Jiabao, has ordered the new upcoming president, Xi Jinping, to “satisfy the people” by focusing more on the equality. Wen Jiabao has set a low target of 7.5% growth rate for Xi Jinping in order to slow down the overheated economy, lower the inflation rate, and focus more on dividing the economic pie equally for the people.

This old debate about whether an economy should focus on equality or efficiency is a ever-real problem for China as its economy is growing at double-digit growth rate, however, the gap between the rich and the poor has widen. This gap stirs the conflict between the people and the government as they get upset about the problem. There has been outburst of unrest in many parts of China in relation to the low income and the ever-increasing inflation rate.

Therefore, this political situation has forced the Chinese government to focus more on the equality. Otherwise, the government will soon lose the support from people and authority, which will result in the demise of the communist China.

I think that the Chinese officials are well aware of the trade-off of focusing more on equality. The economy will soon lose the efficiency once it had and the economic pie will shrink, instead of increasing. Surely the officials will be able to slice the pie more equally for the poor, however, this will act as a disincentive for the rich to work hard, which lead to the shrinkage of the economic size. In short term, the poor experience the prosperity from equality. However, in the long run, “The poor will get poorer and the rich will get less rich,” which is a quote by Margaret Thatcher.

This is a video of Magaret Thatcher commenting on socialist policies and how everyone will be hurt by focusing on equality.

China’s GDP per capita is only $8,394 according to the recent data from IMF (2011). Its GDP might be the second biggest in the world, however, there are too many people, which decreases the GDP per capita. UK’s GDP per capita was absolutely higher than China’s around 1990, and they were still arguing about equality verses efficiency. UK led by Margaret Thatcher focused more on efficiency. China will almost certainly decrease its economic pie if Xi Jinping focuses on equality. If I were at the decision-making position, I would certainly have focused more on efficiency. I would focus on equality later when the GDP per capita is high enough.

I understand that China has to satisfy and relieve complaints from their people to sustain political power. I am also aware that the government is focusing on slowing down the economy at an appropriate level. However, if the economy loses its economic momentum from socialist policies, the chance that China will become a developed country will decrease substantially.

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All-iPad Classroom, Is it educational?

March 12, 2012 · Filed under IT, Science and Politics · Tagged , , , , , , , , , , , , , , , , ,

An interactive textbook running on iPad

Oregon Live: News Article

The success of iPad and other tablet PCs has brought about the prospect of a classroom with interactive tablet textbooks. As soon as Steve Jobs introduced an iPad, everyone went frenzy about how it will ‘reshape the future’ of every aspect of our lives. It is true that Apple’s innovation has brought about changes in our daily life. For example, now nearly everyone has a smartphone and it has led to a huge success in social networking services and etc. Therefore, it is valid to expect for some changes in educational environment.

The educational market for digital, interactive, tablet textbooks will certainly be a big market for many electronics companies such as Apple or Samsung. Many schools, especially international schools, are looking forward to invest a lot of money in IT concerning their students’ education. Also, if a school buys a product from one company, it is highly likely that the school will continue to buy the same product from the same company. This is what Apple has been doing for years. Apple affiliated with school teachers and sold their products with discounted prices. This strategy has proven valid for Apple. Now, many students have apple laptops and it is likely that they’ll stick to it for years. For the same reason, many electronics companies making tablet PCs are keeping their eye on this new arising market for interactive tablet-textbooks.

It will certainly be a big market for many electronics companies, however, is it for the best for the students? Is it really educational? In my opinion, I don’t think this is the case.

Of course, these tablet textbooks have some benefits. It’s light, and you don’t have to carry all those heavy textbooks. Along with that it is interactive in a sense that you could actively apply what you have learned through internet.

However, all these benefits are in vain if the students do not have self-control over their tablets. In most cases, students will likely to be playing Angry Birds or some racing games on a tablet rather than studying from it. I’ve had experience with laptop classroom environment, and most of the time, many of my friends were on Facebook. If students keep playing games or chatting on Facebook, these tablet textbooks will be a waste of money and time.

In addition, I have read from some news articles that giving tablets to children under age of five will inhibit their psychological development, as well as their linguistic skills. It is just a form of a high-tech bad parenting that will spoil your kid.

In conclusion, I do not think the tablet textbooks will be educational for most of the students unless they learn how to gain self-control over them. However, I do think that for responsible students, this will be a great resource for his or her education. It is kind of like a double-edged sword that could be either beneficial or detrimental.

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Aids for Developing Nations

April 4, 2011 · Filed under 5. Development Economics · Tagged , , ,

Map of Africa

Aids for developing countries could be beneficial for their economic growth. What the many of the developing nations have problem in common is the lack of security. If a nation’s security is bad, it is highly unlikely that people will work hard to achieve high economic development. One way the developed countries could help these countries is through stabilizing security either by sending police or UN peacekeeping forces. The major reasons why people become rebels is that the price of the necessities are very high and they have no work. By providing the necessities at low price, they could solve the major part of the security and the economy of the developing countries.

As soon as the security issue is resolved, the developed countries could send aids to the developing nations if the leadership of their country is reliable. If the large sums of money is squandered in the official’s ‘personal uses,’ then the likelihood that the nation will experience the economic growth is very slim. The developed nation must guide the developing nations to spend the financial aids to build on to the capital goods. In the short run, this will result in the increase in the imports and therefore the increase of expenditure, however, this will increase the productivity of the developing nation and increase the exports in the long run.

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