Chapter 6

“Canada’s new government announces Tax Fairness Plan”, Dept. of Finance Oct. 31/06
[http://www.fin.gc.ca/news06/06-061e.html]

The Minister of Finance, Jim Flaherty, announced a tax fairness plans for Canadians after months of “careful consideration and evaluation.” It was created to bring back balance and fairness to the federal tax system by making a level playing field between income trusts and corporations. Before this statement, there had been a growing trend for corporate tax avoidance. Companies had converted to income trusts in search of more favourable tax treatment by capitalizing on an available tax rule. In the 2006 year, there had been nearly $70 billion in new trust announcements. Minister Flaherty had concluded that the current situation was wrong and unjust. He made it clear that the responsibility was that of the Canadian government’s to rectify. Sadly, Canada is alone in its treatment toward income trusts. The system being used here was shut down in Australia and the United States.

I think the government is taking a step in the right direction with this new proposal. It is unfair for corporations to make the decisions that they did. Although they benefit from short-term tax benefits, they create an economic distortion that undoubtedly affects Canada’s long-term economic growth. It shifts future tax burdens on to hardworking individuals and families. If things continued the way they were going, these corporate decisions would result in billions of dollars in less revenue for the federal government to spend on the needs of its citizens. This also meant less revenue for the provinces and territories.

Because of this new plan, there will be Distribution Tax that taxes and limits income trusts, a reduction in general corporate tax so they’ll be able to keep more of their money, an increase in the age credit amount by one thousand dollars so low- and middle-income seniors will benefit, and a change in tax policy for pensioners that will affect them positively. These measures mean a major tax reduction for Canadians. The tax fairness plan will deliver over $1 billion of new tax relief every year. And who can complain about personal income tax relief? I sure won’t.

--commented on Ling Ling's

Chapter 5

“Unemployment falls to a 30-year low in Australia”, iBlog Forex June 9/06
[http://iblogforex.com/34/forex-news/unemployment-falls-to-30-year-low-in-australia-inflation]

As the title states, unemployment in Australia has dropped to its lowest level in 30 years. This has ignited market fears of a further hike in interest rates and a huge drop in stocks. The jobs figures contributed to a 2.35 percent plunge on the Australian Stock Exchange. It was the biggest one-day loss since the 9/11 attacks in 2001 on the United States. The May unemployment rate of 4.9 percent was the lowest in Australia since November 1976. It came as a surprise and well below market expectations – the prior month of April was at 5.2 percent. The number of people employed upped from a seasonally adjusted 56,000 to 10.14 million compared with consensus forecasts of a 12,500 rise. It was only the twelfth time the data showed more than 10 million people employed in the country. However, analysts warned that if the jobless rate kept falling, the Reserve Bank of Australia could be, again, forced to raise interest rates to control inflationary pressure in the economy.

I believe Alberta recently had a case similar to this one where they’ve also reached a 30-year low in unemployment. That’s astounding, to say the least. This increased rate of employment undoubtedly contributes to the country’s labour force and will ultimately play a role in a higher annual GDP. Because of the increased amount of workers, more people have more money to spend, and GDP measures the value of final goods and services to indicate total income, so its raise is justified. However, no matter how well utilized the economy becomes, there will be the natural rate of unemployment. That is, if the economy is working at 100%, there will always be some type of unemployment present, be it due to frictional, seasonal, or structural factors.

In reference to the first paragraph, it’s also clear that there is another hindrance. If unemployment continued to lower, then interest rates would be amplified to keep the economy in check. This would be a form of demand-pull inflation. Thus, with Australia’s decreased unemployment, they just need to be wary about having the rate drop too low. On that note, kudos Aussies!

Chapter 4

“Norris promises low-income tax cuts”, Edmonton Journal June 30/06
[http://www.canada.com/edmontonjournal/news/culture/story.html?id=847f7e9c-78d2-493a-b67f-ab8069bfff8a&k=92242]

Mark Norris is a Conservative leadership candidate in the province of Alberta. He says that low-income Albertans are missing out on the Alberta Advantage. He promises to make tax cuts for the less wealthy instead of to those who are. His proposal is to reduce taxes for low- and middle-income Albertans by increasing exemption levels and eliminating health care premiums. The lower end in Alberta is struggling, and he thinks they need a helping hand. Currently, the health care premium is extremely regressive. If your income is $100,000, you pay $1200, and if you make $30,000 it is still $1200. He wants to get rid of that and instead add a 1.5% premium to the tax code, spreading it out so it’s based on the ability to pay.

This is something that I think requires a little more perspective before fully generating an opinion. Alberta is probably Canada’s richest province, rivalled by Ontario. Because of their wealth, they don’t even get any benefit out of the federal government’s equalization payments (money given to poorer provinces to help narrow the gap between have and have-not provinces). Not to mention the $400 prosperity cheques every Albertan resident gets. It’s hard to see how people would be missing out on the Alberta Advantage. I can see why wanting to reduce taxes for low-income earners is a good thing, but you’d be hard-pressed to actually make that promise since Alberta already enjoys the lowest overall taxes in Canada with among the highest level of services.

Nonetheless, I agree with his plan to change the health care premiums. I believe that a progressive system is far more advantageous than a regressive one. It helps those that are financially challenged (however few there are in Alberta – they have the highest disposable incomes and the lowest unemployment rate in Canada) and take more from those with higher dividends, which exudes better equality. As long as the marginal tax rates aren’t that high, progressive is definitely the most overall efficient, beneficial, and fair system.

Chapter 3

“The Business of Government”, The Freeman Dec. 1/06
[http://www.mises.org/story/2396]

This article speaks rather candidly about the pitfalls of a government-run business. Traffic congestion, water shortages, religion or no religion at schools, education of socialism or free enterprise at schools, they all have something in common: they are problems bred by government operations. The author begs the questions why there are no fierce disputes over what kind of steel automakers use to produce vehicles or why television firms don’t have trouble finding capital for expansion. “Is there traffic congestion? Ban all cars! Water shortage? Drink less water! Postal deficit? Cut mail deliveries to one a day! Crime in urban areas? Impose curfews! No private business could survive with kind of thinking. But when the supplier is the government, rather than catering to the customer wants, it directs him to do with less or without.” Also, it would be impossible for a government service to run as a business because the capital is conscripted from the taxpayer, which is inevitable, and because private enterprise gains profit by cutting as much cost as possible. The problem, you see, is that government doesn’t need to cut costs; it can either cut its service or simply raise prices.

Relationship to Ch.3

Government service is always a monopoly or semi-monopoly, there’s nothing to change that. But the government does more than the article gives it credit for. They provide quintessential services like phone service and municipal sewage which, if privatized, would cause a myriad of problems. Why would you pay separate companies for the same services when a natural monopoly is so much simpler? And on the topic of market imperfections, another upside of the government is that they provide consumers with information (eg. nutrition and ingredients label on foods) so they can make the best choice possible. Fierce disputes over things like education are impossible because, ultimately, it’s up to the consumers to see to it what’s best for themselves. As for unmet public goods, services such as national defence and police protection couldn’t be run by private companies due to the sheer difficulty of charging people. Although the article has a point when it points out that private businesses are more efficient and competitive from their motivations. It’s beneficial both to their profit and the consumers alike. This, in turn, creates positive third party effects. The business makes profit, the customers are satisfied, and this pattern continues so therefore there’s more money circulating in the economy. Overall, good stuff.

Addressing the above statement where it tells to do with less or without, that’s only partially true because of the government’s ideal want for equality. They try to evenly distribute income so people are level on the playing field. If prices for products become ridiculously high, the government will set a price ceiling to stop that, and if things are getting out of hand at the other end of the spectrum, a price floor is set. Sometimes it’s just hard to distinguish for certain products/services, do we need the government’s involvement in this one?

Chapter 2

“AMZN: CustomFlix and Amazon.com Launch CD on Demand Service” Sept.19/06
[http://technology-news-earnings.blogspot.com/2006/09/amzn-customflix-and-amazoncom-launch.html]

CustomFlix is a subsidiary owned by Amazon.com, Inc. It’s just like their DVD on Demand service but instead of movies they offer music from independent musicians, artists, and labels. Their goal is to cater to the needs of the independent musician community as well as specific labels that want them to distribute their music. This is a relatively new way to share this type of music to millions of worldwide Amazon.com customers. It is actually quite a clever system because it benefits the suppliers as well. They use a manufacture-on-demand approach that permits the musicians and labels to have a distribution method that’s less expensive and still keep the same flexibility over their content. CustomFlix also provides a Future-Proof Archive service that supports more advanced formats. Even support for HD-DVD and Blu-ray have already been announced. All in all, it really is a win-win situation.

Relationship to Ch.2

As long as there is some kind of demand for a product or service, it’s almost certain that there will be supply. In this case, Amazon.com believes that there is sufficient demand to provide a service. Although the market might not be very big, it is still possible to make a profit. However, I think the intentions of the independent musicians are more to have people just listening to them rather than being paid a specific amount of money.

If demand ever goes up, and at this point it’s still hard to say, I don’t think the system of how the CDs are supplied would change because it would be counter-productive to the aim of the service. If the suppliers were anything other than independent musicians, prices would increase along with demand in a heartbeat. Corporations wouldn’t let something silly like ideals and individuality get in the way of their sales. And as far as elasticity goes, CustomFlix is without a doubt inelastic. Sure, it’s cheap, but it’s also completely unnecessary and there are more than a few substitutes. The best way to go about it is probably to try all of them and stick with the one you like the most.

Chapter 1

“Scarcity, Mother of Invention”, the New York Times Aug. 10/06
[http://www.iht.com/articles/2006/08/10/opinion/edsass.php]

This is an intriguing article I happened upon about the pitfalls of scarcity. It makes note of the inevitabilities of scarcity and how, throughout history, it has forced our hand to innovate or be innovative out of necessity. Sometimes the change can be something small, like migrating to a place with an abundance of natural resources when the existence of a village is in jeopardy because trees around it have been depleted, and sometimes can be monumental. Back in the 12th century, bronze was the common metal and iron was very much esteemed. However, when the resource of tin to make bronze was shrinking, a technological revolution occurred. Artisans learned to extract iron from iron-rich materials by heating it with charcoal (smelting). The price of iron fell by a factor of 80,000 over 1200 years. This was known as the beginning of the Iron Age.

Relationship to Ch.1

Humans are lucky. We have been fortunate in that every time we’ve been cornered (metaphorically speaking), we have found a way out of it. That is to say, we’ve been creative and invented something new or discovered a more favourable alternative to avoid disaster. In the world right now, this “disaster” would be the scarcity of fossil fuels. Although all natural resources are generally limited in quantity, fossil fuels deserve more paying attention to. The consumption of oil is being used at an unprecedented rate and currently, not enough is being done about it. History exists so we can learn from it; economics exists so we can better the world by it (idealistically at least). The fact is that earth’s fossil fuels are gradually and surely depleting. Something must be done the remedy this problem. Be it an alternative or completely new sustainable source or energy, it best be soon. People have grown far too dependent on fossil fuels. We need to learn from history and take action now. Scarcity leads to insufficiency, and insufficiency will lead to catastrophe. “If we use up, or more realistically, greatly deplete, the resources of this earth, we have no place to go.”

The First of Many

Hello, fellow marshmallow. This is a blog created mainly for the pleasure of a rather stoic man who goes by the name of Mr. Bach, obviously a moniker of an economics teacher. However class oriented this blog may be, it shall meander into the trivial as often as blogically possible.

P.S. Kudos if you spelled the URL properly on your first attempt.

P.P.S. I have no idea what I was talking about.