Consumer Spending: Not Dead. Yet.
http://money.cnn.com/2007/05/02/news/economy/consumer_spending/index.htm?postversion=2007050215

Despite the fact that the US housing industry is struggling and the gas prices soaring, the current spending level within the US economy has not dropped as expected. This is surprising to many people especially when a recent government report said that the spending level is at the weakest point in the last six months. However, according to economists, the government report is not convincing enough to prove that spending level is down. Economists say that same-store sales will give a more clear and accurate understanding of the current spending level. With the said, in the near future the US economy should expect to receive a boost from the back-to-school sales, which is the second biggest sale season after Christmas. There are also two other factors, income levels and jobs, that determines how much households are spending. According to this article both these factors are currently at a stable rate, which would accommodate for the inflationary gas prices. As great of news this may be for the US economy in the short run, the same cannot be said long-term wise. According to a senior economist, the shocking spending level in the US could potentially lead to a huge problem in the future. While many of the US higher-tier stores have experienced an increase in sales, the lower-tier stores such as Wal-Mart have not been doing too well in with their sales. This means that these soaring gas prices are having a bigger financial impact on the low-income families. In order for these low-income families to meet the cost of their daily necessities, they are forced to use their home equity. While this strategy is working short-term wise, long-term success is not guaranteed.

Relation to chapter 6 - Consumption, Saving

I think the US economy is in a terrible situation because with the slumping housing market and inflationary gas prices, the US economy is currently quite unstable even though the consumption level does not justify that. In the article, economists heavily rely on the same-store sales, the comparison between sales of store that have been opened for one year or more, to determine the spending level of Americans. With that said, the fact that American consumption level remains to be quite high means that there is an increase in sales in stores. In my opinion, that is quite deceiving considering that US stores receive a huge boost in sales from major sale seasons, such as back-to-school sales and Christmas. These sales can only assist the US economy so long and eventually their weak housing industry and soaring gas prices will catch on to them. In fact, it already has with low-income household. Even though sales do not show a drop in consumer spending, low-income families are struggling to manage their spending level. Due to the fact that majority of low-income families are unable to save, since they tend to have a higher APC compared to the higher classes. With that said increased prices in goods actually puts them in a situation where they are dissaving. One of the ways the government can aid these group of people is to reduce interest rates, which would put more money into their pocket. Currently the middle and higher class are isolated from this problem, which would explain why American spending level is remaining at a high level. However, as long as gas price continue to inflate with the housing market struggling, the middle class will eventually show more resistance to spending, which would hurt the US economy even more.

Inflation out far from clear

http://www.canada.com/nationalpost/financialpost/story.html?id=6cb443f6-5e93-45e0-a7fc-bc63f0023296&k=44388

This news article talks about the potential inflation problem in the US economy. This is due to the recent increase in the oil prices which had a trickle down effect on other products such as copper and nickel and potentially agricultural prices. According to Ben Bernanke, the US Federal Reserve chairman, inflation is indeed a growing problem for the US economy and the future is still very uncertain. However not everyone believes that the recent price increase in goods is going to lead to an inflation problem like that of the 70’s and 80’s. David Laidler, a member of the C.D. Howe Institute, does not believe that an inflation problem will occur in this situation due to the theory that the government will have learnt from the past mistakes and recommitting it would be highly unlikely. Also as long as central banks continue to monitor the inflation growth carefully, there will be less chance of inflation problems in the future. To further downplay the potential of a huge inflation problem in the near future, the US economy is current not doing too well due to their housing market mess. The article also states that there are current three majoring things that are occurring around the world that is preventing inflation. In Germany, they realize that increase in wages gets out of hand; the productivity of goods would increase therefore an increase in price, so as a result they monitor the wage very carefully. In Britain, there is high increase in wages however to accommodate that, the Bank of England has set up more rate hikes which will force the economy is slow down. Lastly, in the US productivity has slowed down however wages are going up as a result company’s will experience a decrease in the profit margins.

Relation to chapter 5 – Inflation

Chapter 5 talked about the two types of inflation, Demand-pull inflation and Cost-push inflation. The current situation in Germany is an example of them attempting to prevent cost-push inflation. For example, wages in Germany are being heavily monitored and contained which reduces the pressure for manufactures to increase their prices to compensate for the production costs. Britain is doing the exact opposite to control inflation, they allow for wages to increase however they will attempt to slow down the economy through the Bank of England by creating high hike rates. In the US, companies simply don’t transfer their increased production cost to the consumers but take the hit or loss by decreasing productivity. The three situations here are examples of cost-push inflation prevention since they are all related to wages increase.

Despite the risk of inflation in the US economy due increasing prices of oil, it seems unlikely this would occur in the near future. Like this article stated, because of the recent struggles in the US housing market, the possibility of inflation is very low. The explanation for this is that the housing market will likely slow down the US economy which could led to higher unemployment rate resulting in a lower general price level. With that said the US housing market may be a blessing in disguise by reducing the chances of inflation. For this reason I do not see the possibility of inflation striking the US economy.

Provincial budget promises major tax cuts, housing assistance

http://www.canada.com/topics/news/story.html?id=89e9c614-cd62-4857-b6f5-5148ae611a43

This article talks about BC’s provincial plan to cut down on taxes. Over the next three years, the government promises BC citizens a $1.5 billion tax cut at the same time, they will also aid first-time house owners and the poor by making homes for affordable. They will also increase the number of homeless shelters for the homeless. Their plan is called Budget 2007 and its purpose is to have British Columbia a more attractive and safer place to live. Their plan includes a 10 percent reduction in income tax for every individual. For example, someone earning $50,000 will save about $350 and another person making $100,000 will save about $850 in taxes. This program is also expected to add seniors, with fixed incomes who are unable to keep with high property tax by allowing homeowners to defer their property tax at the age of 55 instead of 60. To add to this, the federal government has given BC extra funding for their anti-green house strategy, which is to prevent global warming. The plan also encourages more people to buy hybrid cars, by including a $2000 sale tax rebate. Without a doubt this will cost some serious money. However this is all possible because the Canadian economy had a surplus of $2 billion in revenue compared to last year. Despite all these good news, with US’s housing economy struggling as of late, it could have a huge impacts to BC, especially, the lumber industry.

Chapter 4 Relation- Consistency with Economics Objectives

The announcement of tax cut is huge for residents of British Columbia. This plan will be in effect for the next three years. The point of tax is to provide services that are accessible to the public without having to take out money out of their own pockets. So with lower tax rates, some might fear that the quality of public services will be reduced. However that won’t be the case here in BC. The reason why the government is able to reduce tax is simply because the economy is doing extremely well. In fact with reduced tax rates, it would further encourage the economy to boom, since people now have more money in their pockets to spend. However there is also another economic reason for the government deciding cut $1.5 billion tax over the next three years. That is to influence the allocation of resources. For example, one of the major issues that the government is facing is global warming, and their strategy is to encourage more people to purchase hybrid cars by including a $2000 sale tax rebate. Also with Vancouver’s recent price increase in housing, the BC government also included tax rebates for first-time house owners. Ultimately, their plan is to make BC a more attractive place to live, which would further improve the economy.

This is great news that BC government is going to cut taxes over the next three years, but like the article stated, the US economy is very influential to BC economy. If the market for US housing is unstable, the lumber industry will, without a doubt, take a huge hit, and since BC has such a heavy reliance on that industry many BC residents would feel the effects. Although reduced tax seems great for the next three years but what happens after that? Three years from now the Winter Olympics are coming to town. This would do two things. One, reduce quantity and quality of social services since most of the tax payers’ money are going towards it, and two, increase provincial taxes in order to make up for the over budget. I think people should look past the three years, and realize that tax will increase afterward because of the Olympics alone. However I doubt that would happen since many would be distracted by Canada’s success during the Olympics since they are considered to be one of the favorites to lead in medal counts.

Healthcare Nightmare: Controlling the Cost of Cost Control

www.capmag.com/article.asp?ID=4276

This article discusses the current and potential problems of the US Medicare system. As we all know, the cost of today’s healthcare is rapidly increasing. Two major factors are contributing to this, first one being new technology and advancement in medical research and development and secondly the retirement of the baby boom generation. With such a high demand and price for healthcare, the private insurance companies in the states simply cannot pay for everyone’s medical needs. In an attempt to balance things out, insurance companies have created higher deductibles with restrictions. Unfortunately their strategy is not a long-term solution. Just when it seems like things cannot get any worse, the government tries to intervene by creating regulations which only created more problems. Heavy government regulations were applied through all the hospitals and inconvenient issues arose. For example, government has the final say whether hospitals are allowed to purchase new equipments. This article claims that the government regulations are over 130,000 pages. No one is going to go through all that, let alone follow it. So what kind of effects would this government regulation have on hospitals and the US healthcare? In an attempt to make medical service more affordable, the government sadly did the opposite. For example, Duke University hospital had to employ more people in their billing department than both their doctors and nurses combined. As a result, they had to increase their cost of service and medicine in order to cover for that cost. The suggested solutions for these problems are to invest in Health Saving Accounts, eliminate administration fees, educate families to set their medical priorities and lower tax to compensate for higher deductible.

Chapter 3- Government intervention, Natural Monopoly

This is an unfortunate case, where there is such a sudden high demand for medical services at the same time the prices are at an unrealistic level. This article strongly criticizes the government’s failed attempt to control or regulate the prices in the US healthcare system. In fact, due to government regulations, the healthcare service prices actually increased in order to pay off their excise cost in the billing department. It makes little sense for government intervention in this market when you consider the fact that this is a private healthcare system and it is not a natural monopoly since competitors won’t reduce efficiency of healthcare services. This is a perfect example of why government should not intervene in a natural monopoly. In a market that is not a natural monopoly, competition is the best solution to fix unrealistic high prices.

In my opinion, one of the ways to fix this high demand and high price problem is to increase competition. With increased competition, there will be less shortage of healthcare service, therefore the market would be able to match the high demand. With more competition in the market, prices would likely drop, since competitors want to attract more customers. Also without government regulations, hospitals would be able to function more efficiently. Insurance companies would also be able to relax on their restrictions as well, and would probably be able to reduce their premium.

As the Dust Settles

http://liberalorder.typepad.com/the_liberal_order/economics/index.html

This articles talks about the how the Buffalo Sabres, an NHL franchise, is trying to attract more people to their games. The article mentions that they use a method that is called, “variable price ticket scheme.” This method categorizes 41 of the Sabres’ homes games into 4 different categories, Gold, Silver, Bronze and Value. Any games that are considered Gold would be games that generate the most interest. The example provided from the article, uses a home game against Toronto Maple Leaf. Ticket prices for this particular game would be higher compared to that of Silver, Bronze or Value because a larger amount of people are willing pay more to see this game. In contrast, games that are categorized as Value will have ticket price at an extremely low price but would still generate revenue due to increase in demand. For example, any home games against the Carolina Hurricanes would be considered value games because there is a lack of interest for the games. However with the reduced ticket price, the Sabres’ hope to sellout the games by attracting the poor fans or the non-hockey people to the Value games. If this method does succeed then majority of the Buffalo’s home games would be sold-out.

Chapter 2- Inelasticity, Elasticity, Demand

Chapter two talked about the inelasticity and elasticity for demand and this article give two good examples of them. The hockey market in Buffalo is not as strong as it is in Canada, with the exception of Calgary, their just bandwagoners, and as a result of this they are forced to come up with this marketing strategy to fill more seats in their arena. The demands for Gold games are inelastic because they will sellout regardless of the ticket prices. Even if the local hockey fans are unwilling to pay the increased ticket prices, Leafs fans would gladly drive 3 hours down to Buffalo and watch their Maple Leafs lose. Hockey is almost a necessity to Canadians and although there are substitutes, we as Canadians simply refuse to recognize them. The increased price would result in an increase in total revenue. On the other hand, the Value games are the complete opposite because the demands for them are elastic. When the prices of the tickets are reduced, the demand would immediately increase, resulting in an increase in total revenue. Here is an interesting example of a product being both elastic and inelastic. However I feel that there is a flaw to this method. For example, what kind of message would the Sabres be sending to their fans? “We charge less for admissions to games against Carolina because they suck.” Mr. Gary Bettman wouldn’t like that…

Scarce fresh water an investment boon

http://www.canada.com/edmontonjournal/news/business/story.html?id=60e8a4c1-b733-4f96-a85c-d723c1f4e221&rfp=dta

This article basically talked about how water is becoming scarcer due to human activities. From a finical stand point, this may be a good thing because as water become scarcer, the demand for it would increase as a result it. In fact, investment in water is far more popular than it is in the oil industries. The earlier investors get involved with the water industries, the better it is because of the demand for water in the next few decades would be booming. The United Nations predicts that when we reach the year 2050, about 48 countries would be in shortage of water, affecting a total of 2 billion people. This is a result of developed countries consuming massive amount of water. The articles suggest that $180 billion should be invested into water infrastructure a year in nations such as China and India. That would be doubling the current investment. The problem isn’t really on the supply of water but rather the lack of clean usable water. More than 98 percent of the world’s water supply is salt water and majority of left over 2 percent is locked up in ice caps.

Relations to Chapter 1 -Scarcity

There is no doubt that the scarcity of water is a growing concern world wide because there is such heavy reliance on it. I think in Canada we take for granted the water we have available to us. The supply of water is decreasing around the word and Canada is no exception. Since the government is responsible for the supply of water in Canada, I think they need to do more in order to have a stronger control on their water supply. Enforce strict policies and if they are to be broken, lay out heavy fines. Shortage of supplies of water may be a good thing for the investors investing in that market. However the same can’t be said about other markets. For example, if the price of water was to increase, it would greatly affect agriculture. Price to agricultural products would increase and the people in developing nations would suffer because they wouldn’t have access to it for two reasons. Firstly they simply wouldn’t be able to afford it and secondly, developing countries tend to be run by corrupted Governments that would sell their agricultural goods to foreign countries rather than providing it to their own people. Supply of water is gradually decreasing and there is little that anyone can do about it, at least for now in terms of finding a replacement. The supply of water simply can’t match the demand for water.