In an effort to raise consumption in the Middle Kingdom, the Ministry of Finance (MOF) has been subsidizing the home appliances market since 2009, especially in rural areas. Already over 585.5 billion RMB (~$92 bln USD) has been spent to keep China's home appliance business (the largest in the world, at least for refrigerators) surging (China Daily: "China rural subsidy program drives home appliance sales"). According to another article in China Daily, back in 2011, the industry already provided well over 400,000 jobs to mostly rural and migrant workers, and through the expanding of the project to include 6 major home appliances and an old-for-new trade-in deal, Chinese consumers have greatly improved their home energy efficiency and standard of living. Because of the project, consumers can save up to 13% in purchasing these new models, while producers get to increase their production, meaning both parties can be happy, and not to mention the Chinese government can breathe a little lighter (as tough as that may be in Beijing) due to the decrease in energy use, subsequent decrease in pollution, and increase in rural area living standards and employment (China Daily: "Rural subsidy program spurs home appliance sales").
This brings up the question that I did not address as well in my last blog post about the Chevy Volt, which is that as opposed to limiting foreign competition and dealing a loss to consumers as Coughlin et al. would suggest, can subsidies benefit producers, consumers, and society as a whole? Would subsidizing the production of more efficient and environmentally friendly goods, which would normally be uncompetitively costly for the producer be a bad thing for the wider economy?
Perhaps, these industries could be likened to infant industries in that the subsidies provide a way to get over the barrier of researching and developing cost competitive products for a new segment of the market (e.g. hybrid and electric cars in the auto industry, energy efficient home appliances in the home appliance industry). More importantly, however, these goods provide a benefit that other goods normally do not in that they deal inherently with the negative externalities. Instead of paying an environmental tax or emissions fee, these eco-friendly, yet costlier products deal with the negative externality of pollution themselves.
Wednesday, September 26, 2012
Tuesday, September 25, 2012
The Chevy Volt's Complex Protectionist Circuitry
While the Chevy Volt is still in relative infancy, reports (Reuters, CNet) have come out that Chevy loses as much as $49,000 on each Volt that is produced. After reading Coughlin's article "Protectionist Trade Policies: A Survey of Theory, Evidence and Rationale" (1988), the reports about Chevy's loses would seem to be contrary to Coughlin's thoughts about the way protectionism works, which is that consumers suffer from price increases as producers benefit from protectionist policies that limit foreign competition (p.17). Of course, times have changed, and while the government subsidizes the auto industry, the benefits are being passed on to the consumers in the form of lower prices along with government tax incentives for buying more fuel efficient cars.
With the tax rebates and new leasing programs for the Volt, these cars are more readily available at lower prices (although still high for many at a roughly $40,000 base price). While protectionist policies like subsidies usually hurt low-income earners while benefiting high-income earners, the payoffs of being able to afford or lease a high quality car should allow low-income earners a chance to benefit from these subsidies (Coughlin 21).
Part of the reports stated that the Volt was "over-engineered and over-priced," and seeing how the volt would be as much as $89,000 without the subsidies, tax breaks, and other mechanisms to reduce consumers' costs, it seems that this statement is true. In GM's mind, however, this venture will serve as a jumping off point for developing technologies for their fledgling line of EVs and high mpg cars while at the same time building a consumer base for these new types of hybrid vehicles.In the meantime, competition with Toyota's Prius, the most popular hybrid in the U.S., is going well for Chevy, considering the number one car being traded in for the Volt is the Prius.
Besides the taxpayer cost of the government's bailouts for the auto industry, consumers can benefit from these subsidies, and from GM's perspective, they look for gains in the future having developed new technologies to be used on future models.While the Chevy Volt cannot currently compete with the Prius in terms of prices, it certainly has gotten good reviews for its advanced electronic system, smooth ride, and long range driving capability. Perhaps these protectionist policies will benefit both the consumer and the producer though at the cost of the taxpayer.
Is it possible to create a better redistributive system beyond taxes and transfers through subsidies?
With the tax rebates and new leasing programs for the Volt, these cars are more readily available at lower prices (although still high for many at a roughly $40,000 base price). While protectionist policies like subsidies usually hurt low-income earners while benefiting high-income earners, the payoffs of being able to afford or lease a high quality car should allow low-income earners a chance to benefit from these subsidies (Coughlin 21).
Part of the reports stated that the Volt was "over-engineered and over-priced," and seeing how the volt would be as much as $89,000 without the subsidies, tax breaks, and other mechanisms to reduce consumers' costs, it seems that this statement is true. In GM's mind, however, this venture will serve as a jumping off point for developing technologies for their fledgling line of EVs and high mpg cars while at the same time building a consumer base for these new types of hybrid vehicles.In the meantime, competition with Toyota's Prius, the most popular hybrid in the U.S., is going well for Chevy, considering the number one car being traded in for the Volt is the Prius.
Besides the taxpayer cost of the government's bailouts for the auto industry, consumers can benefit from these subsidies, and from GM's perspective, they look for gains in the future having developed new technologies to be used on future models.While the Chevy Volt cannot currently compete with the Prius in terms of prices, it certainly has gotten good reviews for its advanced electronic system, smooth ride, and long range driving capability. Perhaps these protectionist policies will benefit both the consumer and the producer though at the cost of the taxpayer.
Is it possible to create a better redistributive system beyond taxes and transfers through subsidies?
Thursday, September 20, 2012
A Major Challenge for the Leaders of the 21st Century
(Timed ~1 hr)
The term "greatest" can be applied in many ways, but for me, it is a thing, event, idea, in this case, a challenge, that outstrips all other challenges in terms of the degree of importance to the widest range of participants and the length of time that its effects last for.
As we have recently capped off the first decade of the 21st century, we have seen nations globalize and form tighter and stronger bonds with other countries in economic terms, political terms, cultural terms, and in a host of other ways more than ever before. Unfortunately, for many this has meant decline. As the United States' housing bubble burst and the ensuing "Great Recession" brought economies around the world to a halt, many countries, peoples and leaders have started questioning not only the structure of the United States's economy, which has provided a bedrock for economic growth worldwide, but also the structure and ideals behind capitalism itself, the economic system behind most of the Western World's development. While the economic ideologies of capitalism, socialism, state-capitalism, and others will, in my opinion, always compete for credibility, what is of greater importance is the more fundamental question of how international political economics can create a better world for its inhabitants.
In the 21st century, I believe that (essentially) free energy will give the leaders of the 21st century their greatest challenge and likewise their greatest reward. While we have seen that freedom of communication is a great thing in itself, allowing people and cultures to connect and share their thoughts and beliefs and allowing people to rise up and demand accountability from their governments among other things, the next step seems to be the freedom of energy, which would allow people to more freely produce what they need or want, transport what they need and want, and many other things besides these two fundamental activities of a free and personally-created life.
For the purpose of being brief, I would name solar energy as the champion of "free energy" because in its natural state solar energy is relatively equal in accessibility and relatively limitless in its supply. While people might say that we have already surmounted the challenge of harnessing solar energy, my aim for global leaders is to make solar energy more accessible in at least two important ways: increasing the economic efficiency of harvesting solar energy and making it more readily exchangeable on international markets. Facing this challenge would not only solve one of the most pressing issues of future generations, the limited supply of fossil fuels, but also serve as a means to promote greener production standards, which would help alleviate our current issues with human-produced green house gases and climate change.
While this project may seem idealistic with terms like "free energy", the international leaders must ensure that the international community competes for solutions to this goal without inciting trade wars, creating an unfair competitive environment through high subsidies or tariffs, or other ways that countries might disrupt what should essentially be a humanitarian effort. What is needed is a common goal and common reward that all countries can take part in, which would be the exponential increase in the production capabilities and living standards of all people if energy became free.
The term "greatest" can be applied in many ways, but for me, it is a thing, event, idea, in this case, a challenge, that outstrips all other challenges in terms of the degree of importance to the widest range of participants and the length of time that its effects last for.
As we have recently capped off the first decade of the 21st century, we have seen nations globalize and form tighter and stronger bonds with other countries in economic terms, political terms, cultural terms, and in a host of other ways more than ever before. Unfortunately, for many this has meant decline. As the United States' housing bubble burst and the ensuing "Great Recession" brought economies around the world to a halt, many countries, peoples and leaders have started questioning not only the structure of the United States's economy, which has provided a bedrock for economic growth worldwide, but also the structure and ideals behind capitalism itself, the economic system behind most of the Western World's development. While the economic ideologies of capitalism, socialism, state-capitalism, and others will, in my opinion, always compete for credibility, what is of greater importance is the more fundamental question of how international political economics can create a better world for its inhabitants.
In the 21st century, I believe that (essentially) free energy will give the leaders of the 21st century their greatest challenge and likewise their greatest reward. While we have seen that freedom of communication is a great thing in itself, allowing people and cultures to connect and share their thoughts and beliefs and allowing people to rise up and demand accountability from their governments among other things, the next step seems to be the freedom of energy, which would allow people to more freely produce what they need or want, transport what they need and want, and many other things besides these two fundamental activities of a free and personally-created life.
For the purpose of being brief, I would name solar energy as the champion of "free energy" because in its natural state solar energy is relatively equal in accessibility and relatively limitless in its supply. While people might say that we have already surmounted the challenge of harnessing solar energy, my aim for global leaders is to make solar energy more accessible in at least two important ways: increasing the economic efficiency of harvesting solar energy and making it more readily exchangeable on international markets. Facing this challenge would not only solve one of the most pressing issues of future generations, the limited supply of fossil fuels, but also serve as a means to promote greener production standards, which would help alleviate our current issues with human-produced green house gases and climate change.
While this project may seem idealistic with terms like "free energy", the international leaders must ensure that the international community competes for solutions to this goal without inciting trade wars, creating an unfair competitive environment through high subsidies or tariffs, or other ways that countries might disrupt what should essentially be a humanitarian effort. What is needed is a common goal and common reward that all countries can take part in, which would be the exponential increase in the production capabilities and living standards of all people if energy became free.
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