Chinese Population Growth

Chinese Population Growth- Nicholas Sieb

As abundant as the infamous “Made in China” tags upon our products is the notion of the one-child policy enforced by the Chinese in a desperate attempt to stem overpopulation. However, this notion was out of a desire to control a population growing exponentially when the economy could not keep up and many were destined to a lifetime of poverty. While China still maintains a large population, it has obtained an urban unemployment rate of only 4.1 percent, one of the lowest in the world. Say what you will about the humanitarian conflicts of the Chinese regime, but the fact remains that China has enjoyed a rise to a modern economic power through their efficient and cost-effective factory workers that has brought both increases prosperity to China and sustains the consumers in more developed nations. 

                Enter the issue of development, while the world increasingly depends on the cheap production costs and abundant labor force that churns out a multitude of products, China is also experiencing the same economic development the consumer nations have already been through. With an increasingly abundant middle class, and the birth rate steadily declining, thanks in part to the one child policy allowing effectively 1.47 children per woman as well as the more urban nature of Chinese cities discouraging large families, the Chinese working-age population in beginning to decline. This decline in population has a worrying effect on the world economy that relies so heavily on imports and the outsourcing of manufacturing processes.  While China’s economy has grown at an average rate of 9.8 percent a year since 1995, only .7 percent of the growth can be attributed to an increased population, meaning more than just numbers is at play such an increasing service industry, economic development, and new technology to increase efficiency in factories.

China experienced a loss of 3.45 million workers, signifying a change in the trend of over a decade of vast increases to the working age population. Over the past 35 years China has added workers each and every year by the millions in order to keep up with the demand for labor, but the additions may now decline. Even removing the one child policy, according an estimate by Duke University would only yield an increase to 1.62 children per woman, not enough to reverse the trend. This trend could benefit the workers of China but will surely change the dynamics of international trade, while the international community is used to the low wage rates and high saving economic culture of China, with a decrease in supply for laborers there will be a greater demand, raising the cost of labor. Over the next 10 years the number of young workers is expected to decline by 21percent, even with improvements to efficiency, labor and production costs will surely rise.

The projected results upon the world economy vary greatly, with some estimates that the rural population of China will begin to urbanize and stabilize the workflow as the rising wages attract more workers. Another possibility is the restructuring of the Chinese economy, sending older less productive workers to service industry jobs and taking the younger workers to work in the factories. On the other hand the possibility of a decrease in supply of workers overall and an increased cost of production seems inevitable, but the time frame is a matter of debate. Developed nations tend to move away from pure manufacturing jobs and expand in the service sector; there is already evidence of such activity in China, with Chinese companies outsourcing their labor to poorer countries such as Vietnam. Regardless, China will need to carefully analyze policy in regards to population growth and economic development in order to soften a supply shock for cheap manufacturing labor that in destined to appear in the near future.

China has a new future, a perfectly valid and logical one, they are heading to development in the same way the US and Europe has done. Although this change will shock supply for a small time, new nations will take the place of China as a manpower driven manufacturing economy, or improvements must be made to bring manufacturing up to par with the economic development that China is expecting. As supply of workers drops in China, it will raise somewhere else as poorer nations seek to ride the same manufacturing wave that brought the Chinese economy back to power. Even if this news temporarily increases the price of manufactured goods, it will pay off in the end with a more developed and capable economic partner with China.

Q: What do you think the result of Chinese economic development and the subsequent drop in supply of workers will be? (Supply/Demand)

Q: Do you believe the one-child policy removal would create a different dynamic or would the trend continue?

Works Cited

"China Q4 2012 GDP." Business Insider. N.p., n.d. Web. 1 Feb. 2013. <http://www.businessinsider.com/china-q4-2012-gdp-2013-1>.

"China’s population: Peak toil | The Economist." The Economist. N.p., n.d. Web. 1 Feb. 2013. <http://www.economist.com/news/china/21570750-first-two-articles-about-impact-chinas-one-child-policy-we-look-shrinking>.

 

Raising the Economy's Speed Limit

Raising the Economy’s Speed Limit

Claire Fernandez

The primary issue on the mind of most Americans is the economy and it is hard to discuss anything about our country without that being the topic of conversation. Many try to come up with their own schemes as to how they could fix the economy if only they were president but with the world’s top economist trying to solve the issue, the question of whether it is even possible to solve the problem comes into play. In the article, “Raise the Economy’s Speed Limit” by Jared Bernstein of the New York Times, the author states that America’s underlying growth rate, that is, the best the economy could do under optimal conditions, without driving up inflation, has slowed from just under 4 percent in 2000 to just under 2 percent today. This means that, without the underlying growth rate to increase, the economy cannot possibly expand as much as the majority of American’s would like it to.

            But, why is it that our underlying growth rate has slowed? It is much simpler than one may think and based purely in the principles of economics we have learned thus far. Growth rate is determined by the supply of labor and capital and how efficiently we use those inputs to make output, which can be measured in gross domestic product. And, apparently, we are not up to par in any of these categories. The growth of the labor force is decelerating due to the retirement of baby boomers, the recession, which caused even young potential workers, who got discouraged with their job prospects, to leave the labor force and the plateau of the influx of women into the workforce. And, we have underinvested in our capital stock and spent too much on goods for the present rather than the future, restricting economic growth. But, with a weak economy, fewer people want to invest their money and therefore the economy can’t grow. It is an endless cycle that we never seem to be able to get out of.

            In order to solve the problem that is the American economy, we need to fix the problems in the categories already mentioned. We must invest in the future, increase productivity and find a way to accelerate the entrance into the workforce. But, in my opinion, these do not seem to be what policy makers seem to have their focus on. When I hear about the economy, I hear about little arguments over the marginal tax rate or cutting government spending for one program in order to make room for another. With our nation being 16 trillion dollars in debt and that number increasing every day, I think it is time to stop micromanaging the smaller issue and focus on the core of the problem. For when there is a counting clock of how much debt we are in, it is truly sad. You can see the clock here if you would like. http://www.brillig.com/debt_clock/. We need to get more people into the workforce and decrease unemployment, make economic investments in order to be able to grow in the future, find ways to increase supply and demand for labor and stop playing people pleasing political games while still spending more than we have. Seems easier than you may thing, right?

The Little Dipper

By Chace Goff

The economy is always a large topic of interest in America, and for obvious reasons. We, the American people, pride ourselves on being the richest in the nation and being the best “well-off” of any other nation in the world. However, the fact that our economy’s recovery from a few years back has been fairly slow going is nothing close to news.

In the third quarter of 2012, it was reported that there was a 3.1% growth in GDP. By the fourth quarter, there was a slight drop of 0.1%. Both private stock building, referring to growth of business inventories, and federal defense spending dropped 1.3 points from growth. 

On January 30 of this year, the Federal Reserve met and claimed that the pause in the growth of the economy was due to “weather-related disruptions and other transitory factors.” Referring to the tragic superstorm Sandy which caused extreme devastation to millions of Americans, especially those living in the east coast states of New York and New Jersey.

In addition, a huge scare was put on the growth of consumer spending and business investments upon the dreaded arrival of the variety of tax-increases and spending cuts at the end of the year known as the fiscal cliff. Astonishingly, an article from The Economist stated:

           

“…those were in fact the strongest sectors of the economy, growing at a combined brisk 3.3% rate, faster than in the third quarter. Housing construction and machinery investment were especially robust.”

Although many were relieved to avoid a horrible devastation that could have been caused by the fiscal cliff, consumer confidence has definitely been bruised from expired tax cuts on the wealthy and a temporary payroll tax cut, which overall largely impacts the economy of our country. Consumer confidence has an enormous factor in the end on the country’s GDP. This can be explained by the wealth effect: the more perceived wealth an individual or household has, the more one will buy with their money, therefore affecting the overall well-being of America.

Also according to the article:

“In March automatic federal spending cuts, worth some $85 billion this year, kick in if Congress and president cannot agree on delaying or replacing them, which is looking increasingly unlikely. Those factors together represent fiscal drag worth some 1.5% of GDP this calendar year.”

Any American citizen would agree this drag would be horrible for America’s economy and would be yet another stunt in our growth.  Only time will tell if this is put into effect, so until then we will all just have to cross our fingers and hope for the best. 

             

It can be seen from the two charts that this year has not been our best, but definitely not our worst. Again, as you can see we’ve come a long way since 2009. That was not the first time we as a country had struggled economically, and it certainly will not be the last. There is no concise cycle the economy goes through, but according to a man, Adam Smith’s, theory, an “invisible hand” will help guide us, and it will ultimately fix itself.   

-Chace Goff

                                          

Health of the Economy

 By Mattie Warbelton

 

As the health of the United States economy declines, different ages of individuals find themselves stuck in very different places facing a diverse set of issues. One of the 

biggest issues that effects everyone within society is the real-estate market- simply because everyone needs a house. Whether you admit it or not, the changes within this 

market can cause changes in every aspect of life. An article in the Chicago Tribune states that " In the 50-plus population, 16 percent of home loans are underwater, or lack the equity necessary for refinance." In the older population, it has became harder and harder for them to make mortgage payments on the houses- a big issue in the US economy right now. Because of this, the older population is left with no other choice but to attempt to refinance their home. If successful at refinancing their home, the owners would receive a lower interest rate per month, giving them money to spend on other things. Within the 50-plus population, the article stated that many of these individuals would put the money into their retirement funds- something very important at their age. So what happens if that refinance isn't possible? 

Because of refinancing, there is also the possible chance to tap into homes equity. The equity is the increased market value of their homes, versus what the actual homes value was when it was bought. This adds an additional flow of money, which could possibly help the older population make payments into retirement funds or to pay for any credit card debt they may have accumulated throughout the years. If this refinance isn't possible, mortgage payments go unpaid, and more and more houses are foreclosed per month. 

This issue has also brought out many underlying problems. In an interview with Guy Cecala- publisher of Inside Mortgage Finance- about this issue, he stated "We don't have 

any proactive program to help people before they get into trouble." It is without these programs, that the US Economy sees more and more home being foreclosed per 

month. In august 60,600 homes entered into the foreclosure process. The problem was also brought to light about the savings decisions of the older population. Perhaps if 

they might have saved more in their past- they would have enough savings to refinance, or they wouldn't even be presented with the issue in the first place. If only someone reached them sooner.

So far, the only program put into effect to help there people is the HARP mortgage, or the Home Affordable Refinance Program. This is a federal debt relief program that allows homeowners who don't have enough equity to qualify for a basic refinancing in order to get a lower interest rate of mortgage. In order to be eligible for this program, applicants have to be up to date on their mortgage for 12 months- something that has ruined the chances of most receiving aid. This all directly circles back into the fact that the overall status of the economy is declining. No matter what problems the economy is facing- there are issues in it's past that arise. It makes you question the choices we are making now- hopefully we will all be able to avoid potential problems like this in the future.

Housing Offers Hope of Strength in the Economy

By Hannah Fahey

http://www.nytimes.com/2013/01/25/business/signs-of-a-housing-recovery-point-to-a-stronger-economy.html?pagewanted=1

            After our recession of about four years that was created greatly due to people buying properties for more than they could afford to pay back, the housing market is finally starting to get better as of about September of 2012. It has taken the US and the entire world’s economy a long time to work off the excesses of the boom. This means that all the abundance homes that never should have been built in the first place or were sold to people that they shouldn’t have been have been cleared from the market. As we all have learned in AP Economics a surplus will lead to the supply/demand curve not being at equilibrium and the prices lowering. Now that this surplus has been accounted for, the housing market has been moving the closest to equilibrium it has since 2008.

            This equaling out of the housing not only benefits the housing industry, but it will slowly work its way to balance the entire economy. Job creation in the housing industry will lead to those workers spending more money in other industries which will lead to more jobs being created in other industries and so on and so forth. There has been debacle though, “analyzed data from 1982 to 1999 concluded that rising home prices increased consumer spending, but falling prices did not reduce spending significantly,” (Norris).  This point has been proven false though, by what has happened in the past four years. It has been now realized that the increase in spending because of an increase in housing prices was less than the decrease in spending due to a decrease in house prices. Some people in the houses they are in now, the only way they could afford them is because of the dramatic drop in housing prices, and are now chained to those new homes because they know if they leave they couldn’t afford anything as nice as what they are used to.

The proportion of sales that were forced as being foreclosed homes or short sale homes, where the house is sold for less than the amount owed on the mortgage, has been slowly declining. This astonishing fact has to do with the banks mainly, because they are finally starting to address their backlogged foreclosure inventory by finally putting behind them the operational and regulatory issues that have plagued them in the past. It now could possibly lead to the Federal Reserve allow the interest rates to finally rise, which then could lead to a rush of people buying quick, worrying about the rising prices and mortgage interest rates increasing too fast. This probably will end up happening, Norris believes, but not as badly as in the earlier days, “People do know now that prices can fall, demographics will limit the number of new families that need housing, and banks are far less willing to make loans than they were,” (Norris). These are precautionary so that what happened in 2008 won’t happen again right after this new housing boom starts to shape up.

Feds Waits for the Job Market to Perk Up

 By Bailey Zimmerly

The United States extremely loose monetary policy is the cause of currency wars that many economists see a threat to the world economy. The idea of currency wars is to have a very low value for your currency to aid in your country’s exports, making them cheaper than the rest of the worlds. So it’s basically the devaluation of the dollar to help exports from the United States compete with the much lower prices of a country like China. This is done through increased spending and debt and by keeping the Federal Fund rates at virtually zero. All of this to help increase the amount of money we bring in to help our struggling economy. 

                With uncertainty in the United States economy, the Federal Open Market Committee expects to keep short-term interest rates extremely low until the United States unemployment falls to 6.5%. However this goal remains daunting due to the fact that currently the jobless rate has been unchanged for the past few months at a rate of 7.8%, while the job market created a measly 155,000 jobs in January, the same as February. At this rate the US economy looks as if its recovery efforts are at a standstill, so short-term rates will remain at 0% to 0.25% and the US will continue to buy bonds each month to hold down long-term rates. 

                Another damper to the economy of the United States was the expiry of a 2% payroll tax cut that is going to undoubtedly hurt the American consumer. It is going to stunt consumer spending and hurt the middle class. Although 2013 is expected to have an average growth rate of 2.8%, barely keeping up with inflation, some economists are weary due to an ever-growing debt and the expiry of the payroll tax cut. With all of the uncertainty about the future, the feds for now will wait for the economy to perk up before they begin to raise interest rates, hopefully leading to the end of the dollar downgrade and sigh of relief for the rest of the world. 

                This article is relatable to our own AP Econ class in many ways. It deals with not only the United States economy, but how it affects the world economy. This is an idea that the super-giant United States controls how the rest of world reacts, at least economically. If the United States pushes through, by lowering its unemployment, the amount of working people, and raising its rates, the looming threat of currency wars would be over. All of these terms such as GDP, unemployment, even inflation help to determine the health of the economy. 

                I think that the government should have not let the 2% pay roll tax cut expire because it will hurt not only the poor, but the middle and upper-middle class as well. Two percent of your pay check is a significant amount that could determine if a person eats three meals a day as a pose to two or if a family can buy their children that birthday gift they dreamed of. The government should step back for a moment and re-examine themselves. They should look out for the individual instead of playing games on Capitol Hill. The only way to solve our country’s economic downfall is to lower spending and decrease taxes on all Americans, including the rich who provide the jobs in America, to increasing consumer confidence and strengthen the economy.