Posts tagged good

Saving is a Good Habit, but also a Bad Habit

Japan’s $15 Trillion Not Enough to Make It a Buy by William Pesek: Click Here

Is saving a good habit? If you look at Japanese people, they save a lot. As a result of assiduous saving, Japanese households have about $15 trillion according to the Bloomberg commentary by William Pesek. Wow, $15 trillion dollars! It’s higher than United State’s GDP of $14.2 Trillion (2008). However, the author acerbically criticized that Japanese people’s habit of saving is actually harming the Japanese economy for several reasons.

As you see, the saving is considered as a leakage along with importing and taxing. Why is saving considered a leakage? It is because the money saved is not used in the economy or market for long period of time. It is like blocking a current of river by building a dam. Saving is necessary, however, excessive saving can result in deflation, which Japan is severely suffering from.

Although the Japanese households have $15 trillion, they do not use it. This is one of the major roots of Japan’s lost decades and current economic crisis. The news columnist William Pesek claims that Japanese people’s saving of consuming is causing the deflation because the market has lack of currency flowing through it. If an economy is compared to a human body, people’s lack of consuming can be compared to low blood pressure. There just aren’t any money to get the economy going. Due to low demands for almost all the goods and services in Japan, the suppliers has to lower the price of their product. And this causes deflation, which William Pesek considers it to be a big problem for Japanese economy. The market is just hamstrung by Japanese’ excessive saving.

Japanese government’s public debt of 200% (to GDP) has resulted from this excessive saving too. Because there is a big leakage (saving) in the market, the Japanese government has to borrow from banks or households and pour it in the market to make it working. If the government do not support the market, the economic crisis would have been more devastating. As a result of trying to pour the money into the market, the Japanese government’s 45% of its spending is from Japanese’ households lending. This has further accumulated the public debt of 200% (to Japanese GDP).

Why are Japanese people reluctant in spending? It is from the lack of confidence about the future. The Japanese government is to be ascribed to the blame. The government did not take aggressive measures to tackle the problem. This has resulted in Japanese people’s distrust toward the government. The government now has to take aggressive measures to tackle the economic depression and encourage the people to spend more.

In sum, saving is a necessary habit, however, it could also hurt the economy if this is done excessively, when no one is willing to buy anything and just save money. I think that the best solution for Japanese economy to rise again to for the Japanese people to spend more again. Just think. If Japanese people spends all of $15 trillion, the GDP will surpass the US GDP. 🙂 yay and Japan will have the top GDP in the world. I personally do not think that that much of spending is worth it :(. Yet, this will be the best solution to the economic crisis in Japan.

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Some Ideas for the Seminar

Seminar Question: : Is capitalism so deeply flawed that all attempts to ensure the public good are doomed to failure?

Definitions:

Capitalism: An economic system in which the means of production and distribution are privately or corporately owned and development is proportionate to the accumulation and reinvestment of profits gained in a free market.

Public Good: A good that is non-rivalrous and non-excludable. A good or service that is provided without profit for society collectively.

Examples of Public Good:

  • Health Care System
  • Military
  • Police
  • High Road

Health Care System in North Korea

N Korea healthcare ‘near collapse’: Click Here

Main Point: North Korea’s healthcare system has failed. It does not have medicines in hospitals to cure its patients. Also, it lacks sufficient medical instruments.

North Korea’s health care system charges their people no fees. It is totally free. It is surely a great contrast from United States, which only started to debate whether they should have laws related to health care passed or not. However, there’s a big flaw in North Korea’s medical system. It simply does not have enough medicine and medical instruments to take care of the patients. Virtually, there is no point in going to the hospital because there simply are anything to cure with.

Health Care System in Cuba

Wikipedia: Click Here

Unlike North Korea, Cuba’s health care system is well-developed. It has advanced medical support for its people free of charge. Cuban hospitals are advanced as any other hospitals in United States or Europe. But, they provide medical surgeries with low fee compared to the hospitals in United States or Europe. So it attracted many health tourists for 20 years.

Sum: The example of North Korea’s medical system seems to imply that communist countries cannot provide medical service. However, looking at Cuba’s example, it contradicts to this idea that communism cannot support medical system.

<Pure Capitalism-Mixed System-Pure Communism>

There aren’t countries with pure capitalism or communism in the world. Even North Korea isn’t a pure communist country because it allows South Korean factories to do business in their ‘special economic district.’ Most countries are in the middle part where they mix a little bit of capitalism and little bits of communism.

US, which is the closest to pure capitalism, has failed to support medical services. Its citizens have to pay medical fee on their own. Pure capitalisms always fail to ensure public goods. Socialist (a capitalism but has some aspects of communism) countries such as France has successful medical system. It takes 40% tax on its citizens and use that tax on the public goods. Capitalist countries often have low taxation on its citizens to ensure their economic freedom. However, it makes it difficult for the country to establish a good medical system. As it has low taxation, it’ll be hard to provide government-owned hospitals. Instead, privatized hospitals dominate the medical market of the country and charge extremely high price for its medical service. Even though North Korea would have 100% tax on its people, as its economy is extremely feeble, it does not have any money to do anything. It’ll virtually have no money to establish hospitals and buy medicine even though it taxes its citizens 100%. So public goods can only be supplied when the economy has a firm foundation. However, even though the economy is strong, like US, the tax rate is so low that it cannot support medical services. So it is very important for countries to be communistic when it comes to public goods. However, not so communistic that you end up being like North Korea.

Capitalism is the best thing out there for growing markets ands economy. However, it does not ensure public good to be provided to the people. It is wise for countries to change their economic system to socialist system as soon as they achieved the goal of well found economy by capitalism.

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