- 産業: Economy; Printing & publishing
- Number of terms: 15233
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Earmarking taxes for a specific purpose. It may be a clever way to get around public hostility to paying more in taxation. If people are told that a specific share of their income tax will go to some popular cause, say education or health, they may be more willing to cough up. At the very least they may be forced to make more informed decisions about the trade-offs between taxes and public services. There is a downside, however. Hypothecated taxes may tie the hands of a government at times when the hypothecated revenue could be spent to better effect elsewhere in the public sector. Conversely, and perhaps more likely, hypothecated taxes may prove to be less hypothecated than the public is led to believe. Civil servants, doubtless under pressure from their political bosses, can usually find ways to fudge the definition of the specific purpose for which a tax is hypothecated, letting government regain control over how the money is spent.
Industry:Economy
The stuff that enables people to earn a living. Human capital can be increased by investing in education, training and health care. Economists increasingly argue that the accumulation of human as well as physical capital (plant and machinery) is a crucial ingredient of economic growth, par¬ticularly in the new economy. Even so, this conclusion is largely a matter of theory and faith, rather than the result of detailed empirical analysis. Economists have made little progress in solving the tricky problem of how to measure human capital, even within the same country over time, let alone for comparisons between countries. Levels of spending on, say, education are not necessarily a good indicator of how much human capital an education system is creating; indeed, some economists argue that higher education spending may be a consequence of a country becoming wealthy rather than a cause. Never the less, even modest estimates of the stock of human capital in most countries suggests that it would pay to greatly increase investment in medical technologies that would extend the working lives of most people. The non-economic benefits would be worth having, too.
Industry:Economy
A Peruvian economist who advocates establishing formal property rights for the poor to help them rapidly escape from poverty. In books such as The Other Path and The Mystery of Capital, he argued that, in developing countries, capitalism will thrive in the long run only if legal systems change so that most of the people feel that the law is on their side. One of the best ways to achieve this is to give full legal protection to the de facto property rights that are observed informally by the poor, such as when a community recognizes that a certain family is entitled to occupy a particular piece of land. According to his research, carried out in several countries with his think tank, the Institute for Liberty and Democracy, such informal property rights cover assets (notably land and housing) worth many billions of dollars. Informal systems of property rights usually make such assets "dead capital", meaning that it is hard to use them as collateral for a loan, which might be used to start a business, for example. He argues with that an efficient, inclusive legal system preceded rapid development in every rich country and that bringing these rights into the formal legal system of poor, developing countries will unleash this hitherto dead capital and spur growth. His ideas have been much talked about but little acted upon.
Industry:Economy
These bogey-men of the financial markets are often blamed, usually unfairly, when things go wrong. There is no simple definition of a hedge fund (few of them actually hedge). But they all aim to maximize their absolute returns rather than relative ones; that is, they concentrate on making as much money as possible, not (like many mutual funds) simply on outperforming an index. Although they are often accused of disrupting financial markets by their speculation, their willingness to bet against the herd of other investors may push security prices closer to their true fundamental values, not away.
Industry:Economy
Reducing your risks. Hedging involves deliberately taking on a new risk that offsets an existing one, such as your exposure to an adverse change in an exchange rate, interest rate or commodity price. Imagine, for example, that you are British and you are to be paid $1m in three months’ time. You are worried that the dollar may have fallen in value by then, thus reducing the number of pounds you will be able to convert the $1m into. You can hedge away that currency risk by buying $1m of pounds at the current exchange rate (in effect) in the futures market. Hedging is most often done by commodity producers and traders, financial institutions and, increasingly, by non-financial firms. It used to be fashionable for firms to hedge by following a policy of diversification. More recently, firms have hedged using financial instruments and derivatives. Another popular strategy is to use “natural” hedges wherever possible. For example, if a company is setting up a factory in a particular country, it might finance it by borrowing in the currency of that country. An extension of this idea is operational hedging, for example, relocating production facilities to get a better match of costs in a given currency to revenue. Hedging sounds prudent, but some economists reckon that firms should not do it because it reduces their value to shareholders. In the 1950s, two economists, Merton Miller (1923–2000) and Franco Modigliani, argued that firms make money only if they make good investments, the kind that increase their operating cashflow. Whether these investments are financed through debt, equity or retained earnings is irrelevant. Different methods of financing simply determine how a firm’s value is divided between its various sorts of investors (for example, shareholders or bondholders), not the value itself. This surprising insight helped win each of them a Nobel Prize. If they are right, there are big implications for hedging. If methods of financing and the character of financial risks do not matter, managing them is pointless. It cannot add to the firm’s value; on the contrary, as hedging does not come free, doing it might actually lower that value. Moreover, argued Messrs Miller and Modigliani, if investors want to avoid the financial risks attached to holding shares in a firm, they can diversify their portfolio of shareholdings. Firms need not manage their financial risks; investors can do it for themselves. Few managers agree.
Industry:Economy
What economic activity is all about, but how can it be made to happen? Economists have plenty of theories, but none of them has all the answers. Adam Smith attributed growth to the invisible hand, a view shared by most followers of classical economics. Neo-classical economics had a different theory of growth, devised by Robert Solow during the 1950s. This argued that a sustained increase in investment increases an economy's growth rate only temporarily: the ratio of capital to labor goes up, the marginal product of capital declines and the economy moves back to a long-term growth path. Output will then increase at the same rate as the growth in the workforce (quality-adjusted, in later versions) plus a factor to reflect improvements in productivity. This theory predicts specific relationships among some basic economic statistics. Yet some of these predictions fail to fit the facts. For example, income disparities between countries are greater than the differences in their savings rates would suggest. Moreover, although the model says that economic growth ultimately depends on the rate of technological change, it fails to explain exactly what determines this rate. Technological change is treated as exogenous. Some economists argued that doing this ignored the main engine of growth. They developed a new growth theory, in which improvements in productivity were endogenous, meaning that they were the result of things taking place within the economic model being used and not merely assumed to happen, as in the neo-classical models. Endogenous growth was due, in particular, to technological innovation and investments in human capital. In looking for explanations for differences in rates of growth, including between rich and developing countries, the new growth theory concentrates on what the incentives are in an economy to create additional human capital and to invent new products. Factors determining these incentives include government policies. Countries with broadly free-market policies, in particular free trade and the maintenance of secure property rights, typically have higher growth rates. Open economies have grown much faster on average than closed economies. Higher public spending relative to GDP is generally associated with slower growth. Also bad for growth are high inflation and political instability. As countries grew richer during the 20th century annual growth rates declined, as a result of diminishing returns to capital. By 1990, most developed countries reckoned to have long-term trend growth rates of 2-2. 5% a year. However, during the 1990s, growth rates started to rise, especially in the United States. Some economists said this was the result of the birth of a new economy based on a revolution in productivity, largely because of rapid technological innovation but also (perhaps directly stemming from the spread of new technology) to increases in the value of human capital.
Industry:Economy
Another measure of a country's economic performance. It is calculated by adding to GDP the income earned by residents from investments abroad, less the corresponding income sent home by foreigners who are living in the country.
Industry:Economy
Very, very bad. Although people debate when, precisely, very rapid inflation turns into ¬hyper-inflation (a 100% or more increase in prices a year, perhaps?) nobody questions that it wreaks huge economic damage. After the first world war, German prices at one point were rising at a rate of 23,000% a year before the country’s economic system collapsed, creating a political opportunity grasped by the Nazis. In former Yugoslavia in 1993, prices rose by around 20% a day. Typically, hyper-inflation quickly leads to a complete loss of confidence in a country’s currency, and causes people to search for other forms of money that are a better store of value. These may include physical assets, gold and foreign currency. Hyper-inflation might be easier to live with if it was stable, as people could plan on the basis that prices would rise at a fast but predictable rate. However, there are no examples of stable hyper-inflation, precisely because it occurs only when there is a crisis of confidence across the economy, with all the behavioral unpredictability this implies.
Industry:Economy
Gross national income is a term now used instead of GNP in national accounts.
Industry:Economy
