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Spex 50
Spex 50
31 March 2014
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Issue 50
31 March 2014
Issue 50
31 March 2014
Over time, this increase in national debt is of grievous concern to creditors as they fear default in payments. This is termed as a sovereign debt crisis and Greece recently suffered deplorably from it. The above explanation should enable the reader to appreciate the importance of consumption on economic growth. Needless to say, if same-sex marriages are legalized, the total spending will increase, enabling the economy to grow. The 2007 U.S. Census Bureau reported that at least 5-6% of the total American population above the age of 18 is gay. The National Urban Institute (NUI) targets this to be around 10%. Even working on the assumption that the statistics presented by NUI is incorrect, 6% is a fundamental number. Given that an average American wedding today costs slightly over $25,000, the consumption possibilities are immense. Since same sex marriages were legalized in New York in 2011, the state economy has seen a whopping increase of $259 million funded solely by the wedding expenditure of gay couples. These expenses include issuing of marriage licenses (accounted for $20 million), hotel expenditure, tourism, florists, caterers, etc. Massachusetts witnessed an estimated $111 million economic boost over the first five years post same-sex marriage legalization. Maine also reported a $60 million increase. Thus, sufficient evidence of increase in economic growth being related to same-sex marriages can be found not only in the concepts of Keynesian economics but also through the past experience of these state economies.
Taxation
A couples joint income tax burden can change with marriage. For many couples, their taxes increase when they are married as they combine tax liabilities, as opposed to when they are single filers, in effect, paying a marriage tax. Simultaneously, some couples receive a marriage subsidy as their joint taxes fall with marriage. A recent study suggests that roughly half of all married couples pay an average federal marriage tax of $1600 whereas the percentage of couples who receive a marriage subsidy is significantly lower. The lack of data makes any precise determination of the total marriage tax that could be paid by gay and lesbian couples virtually impossible. However, using estimates based on the size of the homosexual population, the percentage of this population being in a relationship, the percentage who would marry if same-sex marriage became legal and the average incomes of these couples, it has been found that legalization of same sex marriages would lead to an annual increase in federal government income taxes of between $3 10.7 billion.
Issue 50
31 March 2014
contrarily save substantially on programs like Supplementary Security Income (SSI provides stipend to low income people), Medicare & Medi-Aid (national social insurance program which guarantees access to health insurance for Americans aged 65 and above). Marriage makes people more robust against financial shocks and therefore less likely to qualify for welfare programs. The Congressional Budget Office (CBO) calculated savings worth $100 million in SSI, $50 million in Medi-Aid and $300 million in Medicare. The overarching conclusion by the CBO was that with the removal of DOMA (Defense of Marriage Act), the federal government can decrease the budget deficit by $1 billion/year for at least the next 10 years (including saving on taxation, safety net programs and increased spending). Additionally, legalizing gay marriage would alleviate pay-roll headaches for many businesses. Many companies argue that by not legalizing same-sex marriage, the government is creating more administrative hurdles for itself having different tax laws for homosexual and heterosexual couples. Same-sex marriages have had vehement support from several multinational corporations. Hundreds of employees of companies like Google, Apple, Disney, Morgan Stanley signed the two-friend-of-thecourt briefs related to challenges over DOMA and Californias Proposition 8. These employers argue that a workers sexual orientation is of no concern to them whatsoever, and they want to recruit and retain the most creative and productive workers to make their business competitive. They want their LGBT workers to be able to focus on their work and not on dealing with the stigma and inequality forced onto them by the government. Gay marriages have seen massive support from the conservatives recently. 61% of young Republicans (under the age of 30) are strongly in favour of gay marriages making the anti-DOMA campaign considerably stronger in the political sphere. No deliberation is required on whether the political domain will change in the coming future. The bigger question is, however to comprehend the extent of the economic effect same-sex marriages will bring about the economy. Will it be able to solve the budget deficit problem? Probably not. Nonetheless, it definitely will provide the monetary assistance required desperately by the contemporary American economy.
Issue 50
31 March 2014
References
1. Allegretto, Sylvia Ann. An Empirical Analysis of Homosexual vs Heterosexual Income 2. Alm, James and Leslie A. Whittington. "For Love or Money? The Impact of Income Taxes on Marriage. Economica 66 (1999).
3. Alm, James and Leslie A. Whittington. "The Rise and Fall and Rise...of the Marriage Tax." National 4. Christine Halverson, A Gay Marriage. Retrieved from: http://economics.about.com/cs/moffattentries/a/gay_marriage.htm
5. Differentials (Boulder, CO: University of Colorado at Boulder Master of Arts Thesis, 1996) https://www.bc.edu/dam/files/schools/law/lawreviews/journals/bctwj/23_2/06_TXT.htm 6. Josh Barro, What is the Fiscal Impact of Gay Marriage? Retrived from: http://www.bloombergview.com/articles/2013-03-26/what-is-the-fiscal-impact-of-gay-marriage
7. Tax Journal 49 (December 1996): 571-589. 8. The Economic Rundown, Retrieved From: http://www.pbs.org/newshour/rundown/the-e/#the-rundown
9. Wedding Bell Blues: The Income Tax Consequences of Legalizing Same-Sex Marriage, James Alm, M.V. Lee Badgett, Leslie A. Whitttington
Issue 50
31 March 2014
Issue 50
31 March 2014
As Beijing recognizes the dangers of credit addiction and strives to squeeze liquidity out of the banking system, money rates have risen to significantly higher rates today than they were in the first half of 2012. As monetary policy in China tightens, it can be expected that growth will be compromised given that growth is highly dependent on credit. To boost growth, China has also depended excessively on investment by transferring resources from the household sector to subsidize manufacturing, infrastructure building and real estate development. This has led to huge imbalances between investment and consumption as mechanisms such as the undervalued currency, slow wage growth and financial repression have resulted in a downward pressure on household income. In particular, China has been significantly under-valuing its currency to convey a comparative advantage to Chinese producers and exporters in order to sustain a trade surplus. According to a report by IMF, Chinas exchange rate is currently undervalued by 5 to 10 percent on an inflation-adjusted basis. As a result, China has faced immense pressure from its major trading partners to appreciate its currency. Since 2005, China has modified its currency policy, allowing the RMB to appreciate by 10.7%. Even though many have criticized that the appreciation of the Chinese currency is still insufficient, the Peoples Bank of China stated that it is important to avoid any sharp and massive fluctuations of the RMB exchange rate, partly to ensure that Chinese corporations are able to adjust more easily to an appreciation of the currency. As the government commits itself to continue revaluing the RMB as well as reversing former policies which formerly served to boost growth, it is expected that there will be a slowdown in economic growth in the coming years. There have also been growing concerns regarding Chinas excess capacity, especially in industry and real estate, as evinced by the alarmingly large number of ghost towns in the country. Chinas average capacity utilization, which measures the rate at which potential output levels are being met, fell from 80% to 60% between 2007 and 2011 according to the International Monetary Fund (IMF)s Article IV assessment published in 2012. Chinas excessive capacity has been a result of over-dependence on investment for growth, cheap credit, and limited accountability. Local governments have further contributed to Chinas excess capacity woes by supporting the build-up of capacity with redundant investments which tie in with their primary objective of generating GDP growth within their own jurisdictions, regardless of whether the means used make any economic sense. As the government acts to wring out excess capacity by curbing credit growth and committing to other forms of provincial assessment other than growth rates, there will eventually be an inevitable reversal of the earlier growth impact.
Issue 50
31 March 2014
In particular, if the right incentives are put in place for banks to direct credit away from the large, stateowned enterprises, more credit can flow to small and medium-sized enterprises. This would give a muchneeded boost to the service sector and generate better employment growth. A better financial system with more liberalized bank deposit rates and development of broader financial markets can also help in the rebalancing effort. Traditionally, the household savings rate in China has been high, with a rate of 3.8 percent in 2010, compared to only 2.9 percent for Americans and 2.8 percent for Japanese. This is due to strong motivation for precautionary savings in China due to the underdeveloped insurance markets as well as a lack of developed credit markets especially in rural areas. With implementation of higher returns on savings, a better social safety net, and better opportunities for risk diversification, precautionary motives for savings will be reduced, hence promoting domestic consumption. This will not only help to reverse the imbalance between investment and consumption, adjusting Chinas growth model from an investment-led to a consumption-led one, but also serves to reduce income inequality in the nation.
Issue 50
31 March 2014
References
1. B. Murray. (2013). Yuans Real Exchange Rate Undervalued 5%-10%, IMF Report Says. Retreived from Bloomberg News: http://www.bloomberg.com/news/2013-08-01/china-s-real-exchange-rate-undervalued-510-imf-report-says.html
2. Chinas dangerous credit addiction. (2014). Retrieved from The Financial Times: http://www.ft.com/intl/cms/s/0/3a5de202-7ddf-11e3-b409-00144feabdc0.html#axzz2vAA9ndPG
3. China Banks Show Too-Connected-to-Fail Link to Loans. (2014). Retrieved from Bloomberg News: http://www.bloomberg.com/news/2014-03-03/china-banks-showing-too-connected-to-fail-link-withshadow-loans.html
4. K.B. Richburg .(2012). Getting Chinese to stop saving and start spending is a hard sell. Retrieved from The Washington Post: http://www.washingtonpost.com/world/asia_pacific/getting-chinese-to-stop-saving-andstart-spending-is-a-hard-sell/2012/07/04/gJQAc7P6OW_story.html
5.
M. Badkar. (2013). China Stimulated Its Economy Like Crazy After The Financial Crisis And Now The Nightmare Is Beginning. Retrieved from Business Insider: http://www.businessinsider.com/chinas-excesscapacity-problem-2013-6?IR=T&
6. M. Pettis (2014). China Debate: Prasad vs Pettis on the Future of Chinas Growth. Retrieved from Bloomberg Brief: http://www.bloombergbriefs.com/2014/01/22/china-debate-prasad-vs-pettis-on-the-future-of-chinasgrowth/
7. W. M. Morrion and M. Labonte. (2013). Chinas Currency Policy: An Analysis of the Economic Issues. Congressional Research Service.
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31 March 2014
Short-term
Contrary to media reports, we believe that Kim Jong Un will be successful in consolidating his leadership in the aftermath of his fathers demise. There have been no visible signs of instability and the recent sham elections in North Korea and the 100% win for the party seems to suggest that everything is bu siness as usual. Instead of generating greater instability, the purges might have successfully consolidated Kims power as potential political threats are eliminated and replaced with personnel that are loyal to Kim. Furthermore, we believe that removing Jang from power has enabled Kim to commandeer Jangs insurmountable influence over regional trade with China. This is especially important to provide financial support to the Armys elite personnel amidst the international embargo on North Korea. In retros pect, after Vladimir Lenins decease, the newly elected chairman of the Soviet Union, Joseph Stalin purged renowned individuals of the nomenklatura-ruling aristocracy- including Trotsky, Kamanev and Zinoviev.
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Similar events tend to resonate immediately after the death of supreme leaders in the communist history. The trial of the Gang of Four in China after the death of Mao exemplifies such a notion . As such, we should analyze the recent events unfolding in North Korea and its implications in a more rational and longterm fashion.
Long-term
1. The Little Kim might transform the socialist economy into a mixed economy system with certain capitalistic elements. Following the benchmarks of its socialist counterparts, such as China and Vietnam, the Communist Party might compromise its fixation on the Marxist dogma and establish free economic zones and industrial parks along the coastal regions of the nation. Last year, a large scale experiment may have initiated the start of a switch to family-based agriculture, something which can be interpreted as the de-collectivization of agriculture. Under the conditions that firms from the global arena actually invest in these projects, North Korea would no longer act in an erratic manner as its stakes in revitalizing its perishing economy are intricately bound with receiving substantial FDI. Of course, the international promise of investing into these projects must explicitly stipulate that the regime must abandon all its stocks of nuclear arms and long-range missiles. 2. With no doubt, a persistent preoccupation with its self-sufficiency ideology will plunge North Koreas economy into a bottomless abyss. This will definitely destabilize the established political base of Kim, as disgruntled citizens doubt his status as the son of the divine leader. The uncertainty over his capabilities will severely undermine the justifications for his existence as the Platos Philosopher -King of the nation. In extreme cases, the series of diaspora of refugees and coups attempted by power-seeking aristocrats will end the legacy of the communist monarchy. 3. Following in his fathers steps, the regime could continue to skew its butter -and-gun economic system, channeling most of its resources into boosting its military capabilities. This would directly imply that Kim would advance the progress of nuclear weapons development and ballistic missiles. Furthermore, more brigades of ruthless Special Forces would be cultivated, imposing severe threats on the regional harmony in the Asia-Pacific. Although the notion of a Third World War based in the Korean peninsula can be criticized as far-fetched, the sheer size of the population and entangled international interests of neighboring superpowers would serve as potential grounds for the breakout of most of ravaging war in the history of mankind.
Conclusion
Ultimately, Kim Jong Uns goal is to preserve the regime, not to transform it, and the current reforms we see are simply adaptations to the juche doctrine needed to facilitate economic revitalization. Yet a significant consequence of North Koreas isolationism and emphasis on defense spending is insinuating its increasing reliance on foreign imports for necessities like food, fuel and technology. This could serve as an important leverage point for countries like the U.S to force North Korea into negotiations and global engagement. An accelerated rate of change within the country could also exceed Kims ability to control it, resulting in more interdependence on the international community, and the inevitable collapse of the regime.
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References
1. Lankov, A. When North Korea may collapse. 2014 [cited 2014 20-3-2014]; Available from: http://www.nknews.org/2014/03/when-north-korea-may-collapse/.
2. Economist. Better tomorrow?. 2014 [cited 2014 20-3-2014]; Available from: http://www.economist.com/news/asia/21598712-worlds-vilest-regime-flirts-economic-reform-bettertomorrow
3. Quinones, C. Kenneth. "Beyond Collapse-Continuity and Change in North Korea". International Journal of Korean Reunification Studies. January (2003)
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