Micro financing is a valuable tool to eradicate poverty. Its importance and relevance lies in its ability to improve quality of life for people living in enduring poverty. It gives people a chance that would not otherwise get a loan from a traditional bank. Even with a satisfactory business plan, banks would not risk giving them a loan because of the possibility that they default on the loan. Micro-loans have given people, mostly women, a chance to show their natural ability to become entrepreneurs.
Micro-credit has been a major influence in reducing poverty in countries like Bangladesh, India, and other developing nations. Micro-credit assists people living in poverty to develop skills and advance their careers. Sometimes, the people create a group-lending scheme. This way they borrow as a single entity and repay the loans as a group, therefore lowering borrowing costs. One of the reasons Bangladesh had success through micro-credit was because of the advances made by the people receiving the loans. An economy can be successful when everyone is reaching his or her full potential. Another factor was that these micro-loans were given to people, mostly women, who had lived their whole lives in poverty. These loans gave them a chance to fulfill their dreams. Some of the borrowers have been able follow through on brilliant ideas that they never would have been able to pursue before. If other countries give micro-loans to people who will manage the money well and put it to good use, they will be successful, like Bangladesh has been. *This post uses excerpts from an essay I wrote in 2017.
0 Comments
A monopoly occurs when a company takes exclusive control of an industry or sector. There have been very few cases of antitrust and anticompetitive cases brought up in recent years. The only one that comes to mind is Microsoft in 2001. It appears, however, that it may be time for such a case on Amazon.
Amazon is a very tricky case. Although it dominates the e-commerce industry, it has become an giant octopus: extending into many different industries and putting themselves in a position to take over. Because the company has done this extremely successfully, it has been able to avoid such cases. Amazon definitely have a huge economies of scale advantage meaning that its average marginal costs decrease as the company produces and ships more items. Interestingly enough, comments from Amazon founder and CEO, Jeff Bezos, got me thinking about why now the time is now to start ligation on an antitrust case. I’m not attacking Bezos’s personal character. It’s hard to argue he isn’t a brilliant businessman. However, I do consider his support for a $15 minimum wage to be a ploy to give his company an even stronger leg-up. He knows as well as anyone that Amazon can afford a $15 minimum wage. In fact, it already has a company minimum wage of $15 for all United States employees. Amazon can afford massive investments in artificial intelligence to reduce the number of employees necessary. Bezos understands this and he understands that smaller ecommerce places cannot afford these investments. The smallest of these businesses likely cannot even afford a $15 minimum wage. One of the reasons people see Amazon as good for industry is that it often has the cheapest prices. What if, however, the company was enacting a Rockefeller type of strategy by offering the lowest prices for an extended period of time in order to wipe out competition and then charging excessively high prices with no other companies in the market. Amazon may be a little different because it has different sellers and other factors, but the corporate offices could charge their sellers more in fees, charge more for shipping, and increase prices on Amazon Prime among many other tactics. I acknowledge that Amazon may not fit the true definition of a monopoly. However, when the company shows its true intentions, it may be too late. An economies of scale advantage is one thing, but Amazon has now extended far beyond that. In the interest of consumers and a competitive market, it is time to act. Economists are a quirky group of people. However, they also bring across a lot of good points. One such area that economists may think differently than the crowd is personal finance. I believe every single purchase you make can be viewed as an investment.
The classic example I use to explain this is cars vs houses. If someone is going to buy a car, they should expect it to lose about 20 percent of its value the second they drive it off the lot. The car’s depreciation will be at least 5 percent a year, depending on how much it is driven. If the car owner took out a loan to purchase that car, it is like they are paying for it twice. They are paying the interest while the asset they purchased via borrowing is losing value. To be clear, car loans serve a purpose and can be a necessary evil at times. For example, if that car enabled you to take a job that was further away from your house, but you made $20,000 more annually, a car loan might be worth it. However, as a whole, cars are bad investments that do not keep their value over time. Tesla will change that for their cars if Elon Musk has anything to do with it, but it remains to be seen if that can hold true. Houses, on the other hand, are usually appreciating assets. Mortgages are more common than cars, just because the price of a house. Even though the mortgage charges the borrower interest, the value of their asset typically increases more than interest. This is especially true in the current rate environment. Education is another area that people can think about this idea. If someone pays 5% interest on a student loan, but that degree enabled them to increase their salary by $25,000, it is probably worth it. It’s not just stocks, bonds, or cryptocurrencies: everything you purchase should be considered an investment. Economic bubbles are considered a period of rapid appreciation of market value. Bubbles are best defined looking back. The problem with bubbles is that assets that are significantly overvalued often come back down to earth. Investors may be stuck with a stock that they bought when the bubble was at its high. They would have to make the decision to take the loss or to wait for the growth that they anticipated that that company would have.
The most recent examples of bubbles have been the infamous “dot com” bubble in 1999-2001 and the housing bubble of 2008-2009. The dot com bubble was defined by investors putting their money into any internet company when they IPO’ed. The housing bubble, on the other hand, was a bit more complicated. It began from mortgage debt becoming too much of a burden as well as the investors losing on their investments in Collateralized Debt Obligations (CDOs). Even though the economy has been hurt from the coronavirus shutdowns, the stock market has recovered and then some. The market has soared for a while save for at the end of March and Quarter 2 in 2020. This leads to the question: is the market in a bubble? I believe so. DoorDash and AirBnB are two examples from this past month of the bubble. DoorDash and Airbnb finished their first day of trading up 85% and 112% respectively. This led to Jim Cramer calling the IPO process “definitely broken.” He did not go as to far as saying that the market is broken. These two examples show the market is nearing a period similar to the dot com bubble era. It’s not necessarily a bad thing, but buyer beware: all bubbles pop. As the country prepares to transition into a Biden administration, there are many economic plans that could be in play, especially with a Democrat majority in the House of Representatives and Senate. One such option is eliminating student loan debt. Some more progressive Democrats have advocated for wiping out student loan debt completely, but Biden is said to be favoring a plan that would eliminate $10,000 per student. Whether you agree with this policy or not is politics. However, I think it is time to ask a bigger question: how do we limit the student loan debt in the future?
The main idea that I would support is a venture capitalist model. We always hear: “Make an investment in yourself.” Well, why not accept investments from others too? This idea has been proposed before by 13th Avenue Funding: financing students the same way venture capitalists finance companies,” that require students to give 6 percent of their income after graduation to the fund for 15 years to pay back what they have borrowers”. These numbers seem a bit high to me, but it varies by degree. If the investor takes on little risk (MBA/JD student), they will gain little in interest. I believe plans like this should be an option. The investor takes on some risk that they do not get their full principal back and the student takes the risk of getting a really high paying job and paying back a decent amount more than they borrowed. I also think students should be able to negotiate with multiple investors and borrowers. I envision it a little like Shark Tank. Students can write the plan they have with their degree and investors can make an offer. The offer could be one such as 5 percent of their income for 10 years after they finish their degree or it could be a loan, potentially with a lower interest rate than market average if an investor truly believes in their plan. Another idea I thought of to complement the venture capital one is to eliminate the sales tax on books and laptops. This idea would obviously make a less substantial impact on student loan debt. In some states, it would not make a difference because there is no sales tax. However, with some law books and higher-level business books as well as laptops, the savings could add up over the course of a degree in high sales tax states. Students could send a picture of their student ID and have to use a .edu email to prove their status as a student. These are just a few ideas that I think should be brought to the table. If the government forgives student loans, it still will not solve the long-term problem. Some have kicked around the idea of making public university free, but it does not seem like a viable option. These options should be considered in creating a more maintainable solution. ***Check out 13th Avenue’s Plan and Results of Pilot Study here: https://www.13thavenuefunding.org/ This blog is not going to be political. However, we can acknowledge that there is a crossroads between politics and economics. Instead of discussing politics, I will be discussing the resulting economic consequences of political decisions. The Georgia Senate races are upcoming and there could be a slight shift in the market.
Regardless of political affiliation, the stock market typically seems to favor at least one chamber of Congress to be the opposite party of the President. The market recognizes that if this is the case, there is unlikely to be any major changes in regulation, taxes, and other economic areas. Regardless of who wins, we can expect a sell-off when the winners are official due to political panic. This is mostly to be ignored as it will be an overreaction. If Democrats gain a majority in the Senate, there is a clear path towards marijuana legalization on the federal level. This decision would be symbolic in nature at this point. However, there are definitely stocks in this industry worth putting on your watch list. (My personal preferences are ACB and TLRY). I will be keeping a close eye on that sector regardless. Another sector that seems to benefit is electric vehicles and green energy as Democrats create policies in accordance with their environmentally friendly platform. It also remains to be seen how both Democrats and Republicans will regulate cryptocurrency. Though if Ripple is any indication, there is most likely going to be more regulation soon. Again, I won’t get into my personal politics here. However, I will say this: I am confident that however the market as a whole is going to act long term, it will do so regardless of politics. Politics makes up about 5 to 10% of the influence on the stock market. Enough to make it drop short-term? Of course, but not enough to crash it or pump it up for longer than a week or so. Ever since Bitcoin’s rise in December 2017, economists and the financial industry have explored the question of if Bitcoin actually is currency. There are three properties of money that economists use to classify something as currency: store of value, means of exchange, and unit of account.
All three categories are debatable for Bitcoin. However, I would argue that the cryptocurrency has store of value and means of exchange. There is nowhere you can put your money currently that will grow as fast as Bitcoin. The US Dollar is not growing nearly as fast as Bitcoin. That in itself should prove its worth as a storage (and even an enhancement) of value. Means of exchange is a little trickier. People can now send Bitcoin to each other. The means of exchange will become more defined as businesses accept Bitcoin as payments. They have incentive to do so as it will be cheaper to process these transactions. Both sides will benefit. Lastly, there is unit of account. Bitcoin struggles in this area currently. If a friend sends you $10 through Venmo, Cashapp, or Zelle, you know what that $10 means. It means about 5 cups of coffee, 2 and a half Big Macs, or 10 things from the dollar store. If someone sends you .0001999 Bitcoin, you don’t really know what goods or services you can purchase for that until you calculate what it is in US Dollars (or your native currency). With Venezuela now using Bitcoin amid hyperinflation in their country and NFL player Russell Okung getting half his paycheck in Bitcoin, this topic of discussion is not going away. In fact, it will become a hotter debate as Bitcoin has become more mainstream in 2020. Maybe it is just a growth investment, but Bitcoin sure is looking more and more like money everyday. |
Archives |