When We Talk About Gun Control, Here is the Business We Are Talking About

In addition to the belief in the Second Amendment Right, economics in the firearm business could also a reason for the difficulty of implementing gun control in the United States.

Firearms industry is a billion-dollar business. According to the IBISWorld, by June 2017, the revenue for guns and ammunition manufacturing industry is $13.3 billion with $1.0 billion profit. According to the latest Annual Firearms Manufacturing and Export Report in 2016, there were 11,069,333 pieces of firearms, including pistols, revolvers,rifles,shotguns, produced in that year with only 3% of them being exported. The rest of them stayed in America. According to Firearms and Ammunition Industry Economic Impact Report 2017 , there are 301,123 jobs related to firearms industry. The industry also had over 51 billion dollars impact and generated over 6.5 billion taxes.

In order to keep this business running, Center for Responsive Politics said in 2016, gun lobbyist spent over $10 million to protect gun rights. Moreover, gun owners also fear that their guns would be taken away or they would be banned from buying guns. he National Shooting Sports Foundation (NSSF)  said since Obama took office, the gun industry has grown 158%. The CNN has called Obama “the best gun salesman in America.”

Last year, since people were afraid that Hillary Clinton would win the election and take away guns, FBI said the background checks for buyers reached record high during the 2016 Black Friday. Now with Trump in office, according to the National Shooting Sports Foundation, the background checks in July 2017 drop 25% to 907,348, the lowest since 2013 because run owners are more confident about their gun rights. Due to the low demand for guns,  gun companies like Sturm Ruger & Company also experienced drop of their stocks, according to a Fortune article.

Moreover, since people fear a more strict regulation would be put on guns after mass shooting, gun companies tend to see a rise of sales after these tragedies. After Sandy Hook shooting, San Bernardino shooting, and Las Vegas shooting, gun shares all expressed a boost.

 

What would be the potential impacts as China is banning American trash imports?

On July 18, China claimed that it would stop taking foreign shipments of waste goods, such as plastic and paper, from foreign countries.According to a Reuters report, China wrote in a statement to WTO that “to protect China’s environmental interests and people’s health, we urgently adjust the imported solid wastes list, and forbid the import of solid wastes that are highly polluted.”

An BloombergView article said China has practiced imports of trash for more than 30 years, and it is a significant contributor to the rise of the Chinese economy. The Chinese environmental authorities estimate that more than 5,000 tons of garbage imported every year. The CNN Money calls it “a $5 billion annual business that is now in danger of sinking.” However, this is not a new trend. In 2013, the Chinese government launched “Operation Green Fence” Program to block imports of illegal and low-quality waste through improved inspections of container ships. In February 2017, Chinese customs officials initiated “National Sword” program to reduce illegal shipments of industrial and electronic waste. According to Resource Recycling Inc, in 2013, it costs about $2,100 per container that was rejected by China and shipped back to Los Angeles/Long Beach port.

The idea of shipping trash to China originates the balance of trading and maybe also the thought that the United States should not let empty ships going back China. Thus, America fills the return-trip containers with recycled cardboard boxes, waste paper and other trashes. The Economist said it is a double-win solution. It said America can earn a return from their waste, while China can have a constant supply of cheap recycled materials.

However, the issue is the quality of trash.

“We found that large amounts of dirty wastes or even hazardous wastes are mixed in the solid waste that can be used as raw materials. This polluted China’s environment seriously,” China’s WTO filing said. The Chinese government criticized Americans for not separating trashes ahead , and the Chinese government said failing to handle trash separation in the United States increases pollution in China.

On the other side, the critics said most of the waste consumed by China’s recycling industry comes from domestic sources, not imports. Adam Minter, the author of “Junkyard Planet”, wrote in an article on BloombergView this July to argue that China’s government has long played up stories about foreign waste, partly to deflect attention from unmanageable garbage problems at home.

Who will be the loser in this trash ban? The answer is everyone, including China, America, the environment, and global economy.

It is for sure not a good news for Americans. Jeff Harwood, an Olympia-area recycling center manager in Washington,  tells Washington state’s KIRO-TV in 2013 that the problem is American does not have market for recycling goods. It is still true today. Minter claims that “on average roughly one-third of the stuff that’s tossed into U.S. recycling bins can’t be made into new products domestically.” Moreover, Winter wrote in his book that in Foshan, China, the salary of a recycling worker is 100 dollar per month plus rooms and boards. The cost of recycling process would be much more expensive in America. He also claimed that it is cheaper to ship trashes from America to China than to transport them from Los Angeles to Chicago through railway.

It also has potential to hurt Chinese economy. For China, The trade of trash imports is a more than half of the $1 billion a year business to recycling industry. Although China today is not as eager to recycling materials as it was decades ago, the ban still will drastically decreases the demand. Minter wrote in July that imported recyclables are cleaner than their Chinese counterparts, and banning them will force many Chinese recyclers to shut down and thousands of workers losing jobs. Moreover, recycling materials imported from America is also much cheaper than the ones in China. As the Chinese economy still heavily rely on manufacture, the ban might also causes the rise of goods.

The ban might could not even protect the environment or improve the public health. As China bans its trash imports, its 29 million tons of paper and 7 million tons plastic scrap still need to find place to go. They might end with landfill that does not have effective recycling ability as China has.

At the last, the ban will also affects the price of paper and plastic globally. It would be “chaotic for the global recycling industry,” said Bill Moore of Moore & Associates, an Atlanta-based paper recycling consultant.

“Mixed paper prices would plummet in the U.S., North America and in Western Europe because all the mixed paper we’re pumping out in residential [programs] would have no home,” Moore explained. “So that would be chaotic at the local government level, at the MRF level, at the collector level. It would be complete disruption.”

 

[Final]Can Natural Disaster Ever be Good to Economy?

Hurricanes, earthquakes, and wildfires … America and the world have been entangled by natural disasters recently. The natural disasters never could be considered as a positive force because of the destruction and death the bring. However, disasters also tend to make reconstruction the primary task for the government, making it easier for public money to flow into hard-hit regions. Economically, in what case would natural disasters be a boost to the regional economics? It depends the previous economic status of the affected region and the immediate assistance efficiency from the government.

In Sichuan, China, where a magnitude 8 earthquake took place in 2008, is an example how the local economy can recover and even expand during the post-disaster reconstruction. Poor infrastructure exacerbated the damage, leading to an official death toll of 87,150 and 4.8 million people homeless, according to the BBC News. The economic loss was estimated at $191 billion, the second highest in absolute number in history, according to 2013 CATDAT Damaging Earthquake Database. The noteworthy part was that the central counties in 2008 Sichuan earthquake, WenChuan and Ya’an, were neither a raw material production base nor manufacturing zone. Actually, these counties were poor. Thus, the earthquake did not hurt the Chinese exports or GDP to any great degree.

The rebuilding efforts cost the Chinese government almost $150 billion, equivalent to a fifth of its entire tax revenues for a single year, according to the state media of China in 2008. Quickly after the earthquake happened, the National Development and Reform Commission of China announced a reconstruction plan that “envisages buildings 169 hospitals and 4,432 primary and middle schools to replace collapsed structures. Another 2,600 schools that remained standing will be strengthened. More than 3 million homeless rural families will get new houses and 860,000 apartments in the city will be built.”

Relying on such tremendous capital investment, the regional economy of Sichuan was able to recover in an amazing speed. Here is the chart associated with the Gross Regional Product(GRP) of Sichuan from 1998 to 2010.The blue, yellow, and green line respectively indicate the GRP of Sichuan, of the hardest hit region of Sichuan in 2008 earthquake, of else of Sichuan, in the form of percent of Chinese GDP. The pinkish line represents the GRP per capital as ratio to Chinese GDP.

The graph tells that before the earthquake happened, the hardest hit region in Sichuan earthquake, which is composed of the ten serious-damaged counties, generated about 0.25% of Chinese GDP. Meanwhile, the Sichuan generated about 4.1% of Chinese total GDP.

By 2010, 2 years after the earthquake, the GRP of Sichuan and the GRP of non-central damage area of Sichuan both not only recovered but even had growth.

“The GRP level of the worst-hit area of Sichuan decreased by 35.4% in 2008 compared to the 2007 level. After three years of reconstruction, the region had still not returned to its pre-earthquake GRP level, but the GRP level of the rest of Sichuan experienced a boom in those three years because of the reconstruction demand stimulus,” according to a studies conducted by MOE Key Laboratory of Environmental Change and Natural Disaster of the Beijing Normal University.

The GRP per capital in Sichuan had a huge growth; however, it is meaningless considering the tragic death tolls.

In a article published by China Daily , by 2012 when reconstruction basically completed, the Deputy-Governor of Sichuan Gan Lin said, Sichuan was the fastest growing of the major economic provinces in China. China Daily asserts “the quake zone has seen unprecedented changes.” Governor Gan said, during the past four years, Sichuan’s GDP doubled more than 2 trillion yuan ($317 billion), enabling its per capita GDP to surpass $4,000.

*A noteworthy point for the above statement is the “go west” strategy to increase inland development formulated by the State Council in 2000 also plays an significant factor to Sichuan’s growth.

“When something is destroyed you don’t necessarily rebuild the same thing that you had,” said Mark Skidmore, an economics professor at Michigan State University. “You might use updated technology, you might do things more efficiently.” With massive amount of national resources, “the disasters allow new and more efficient infrastructure to be built, forcing the transition to a sleeker, more productive economy in the long term, a New York Times article commented on the Sichuan Earthquake in July, 2008.

More practical and explicit reflection of the benefits from 2008 earthquake to Sichuan region comes from the 7.0 magnitude Sichuan earthquake in Ya’an. According to the BBC report, “none of the buildings built since the Sichuan earthquakes collapsed.” The quality of housing for sure has improved.

However, the previous economic condition of the hardest hit region in Sichuan earthquake facilitated the recovery session. A New York Times article wrote about one month after the earthquake, “only 1 percent of China’s population lives in the hardest hit quake-affected area, in northern Sichuan Province. Those residents account for an even smaller share of China’s economic output, because many of them are impoverished farmers.” In other words, these areas might not receive this much of national investment or resources within short period of time.

The economic affects brought by Northridge earthquake in 1994 was a different story. That 6.7 magnitude quake struck an area of 2,192 square miles in the San Fernando Valley, causing 57 people killed and 11,800 injuries. It is still ranked by CNN Money as the most expensive earthquake in American history, costing $44 billion.

In the research “The Northridge Earthquake, USA and its Economic and Social Impacts” conducted by Professor William J Petak from University of Southern California and Research Fellow Shirin Elahi from University of Surrey explains the difficulty of reconstruction for Northridge area, “Northridge earthquake was a direct hit on an urban area and the scale of losses caused by the earthquake far exceeded expectations.”

Unlike regions in Sichuan, US has a large concentration of localised industries, such as the entertainment and aerospace industries in southern California, which was severely undermined by the earthquake, the research argues. Moreover, unlike most people lived in Sichuan’s affected regions were rural farmers, San Fernando Valley supports half of the city of Los Angeles’ population. “Approximately 48% of the population were homeowners – middle class and therefore not obviously insecure- yet many proved to be vulnerable to the hazard,” the Northridge Earthquake research claims.

Another important factor that determines the success of reconstruction after catastrophe is how effective and efficient the state or the federal government respond to the recovery assistance. The highly-centralized government system allowed the Chinese government to respond Sichuan Earthquake immediately, ordering national assistance and resources investment. Kevin L. Kliesen, Economist from Federal Reserve Bank of St. Louis wrote in his article “The Economics of Natural Disaster,” explains the difference in American government, “although emergency funds for food and shelter are usually disbursed immediately by Presidential directive, monies for longer-term rebuilding efforts are often appropriated by Congress with a substantial lag.” The research “The Northridge Earthquake, USA and its Economic and Social Impacts” criticizes the reaction from the government during the Northridge Earthquake. The research attacks the lack of “a desire for a recovery to reproduce a return to normalcy, and achieve the status quo of the socio-economic and built environment prior to the earthquake.” Many federal, state and local officials were not willing to sacrifice their own political, economic, social or environmental agenda to cooperate to help the affected regions, the research asserts. They were at best willing to make adjustment.

An extreme case is the Haiti’s response to earthquake. The Bernard L. Schwartz Chair in Economic Policy Development Martin Neil Baily wrote in an article for Brookings that Haiti, which is too poor to manage the immediate recover after hurricane, has to wait international aid to get basic rebuilding, leaving alone economic growth. It is so difficult for Haiti to recover.

The study of economy in disasters is not new. In 1969, Douglas Dacy and Howard Kunreuther, two young analysts at the Institute for Defense Analyses, published a book called “The Economics of Natural Disasters.”  It was probably one of the first attempts to measure the economic influence of catastrophe. The book argues that the dreadful Alaska earthquake of 1964 helped the Alaska economy by garnering government loans and grants for rebuilding.

“We got a lot of hate mail for that finding,” said Kunreuther, now a professor of business and public policy at the Wharton School of the University of Pennsylvania.

The theory of economic boom from disasters also received criticism.“Over any reasonably relevant period of time, society is not made wealthier by destroying resources,” Donald Boudreaux, an economics professor at George Mason University, said. If it were, “Beirut should be one of the wealthiest places in the world.” Economist Frédéric Bastiat labeled the disastrous economy theory as “the broken window fallacy” in his article “What is Seen and What is not Seen.” Bastiat compares the disaster reconstruction to fix a broken window. It costs $100 dollar to fix a window. The repairman and window shops got money because the window owner pays it. In the reconstruction case, the money comes from tax payers or just money printers. The natural disaster could be an economic boost to a region, but it always is an economic downturn for the whole nation.

In conclusion, the theory model of disastrous benefits for economy should be viewed as that the areas that would not receive national resources or investment during the normal time becomes privileged after suffering catastrophe. It also gives these areas more opportunity and capital to develop during the reconstruction period. The previous economic condition of the affected region and the efficiency of government assistance determine the success of the recovery. Despite to the regional growth, we should never be positive toward disasters because it never generates economy but merely redirects capital and resources to recover a definite loss of wealth.

Can Natural Disaster Ever be Good to Economy?

Hurricane, earthquake, and wildfire… America and the world have been entangled by natural disasters recently. The natural disasters indeed never could be a positive thing because of its destruction and death tolls; however, the disasters also tend to make reconstruction the primary task for the government, which would face little obstacle to pour money into the affected regions. Thus, setting humanity aside, natural disasters in some situations could be a boost to the regional economics.

Sichuan in China, where a magnitude 8 earthquake stoke in 2008, is an example that the local economy benefits during the post-disaster reconstruction. The poor infrastructure led the Sichuan earthquake in China to end with 87,150 people death toll and 4,800,000 people homeless, according to the BBC News. With $191 billion economic loss, the Sichuan Earthquake was the second highest in terms of economic losses. The fortunate part was that the center counties in 2008 Sichuan earthquake, Wenchuan and Ya’an, were neither a raw material production base nor manufacturing zone; actually, these counties were poor. Thus, the earthquake did not hurt much the Chinese exports and GDP.

(from BBC)

The rebuilding efforts costs the Chinese government almost $150 billion,equivalent to a fifth of its entire tax revenues for a single year, according to the Guardian.The rebuilding plan will “envisages building 169 hospitals and 4,432 primary and middle schools to replace collapsed structures.” “Another 2,600 schools that remained standing will be strengthened.Under the plan, more than 3 million homeless rural families will get new houses and 860,000 apartments in the city will be built.”

It is brutal but true to say this immense earthquake served as a stimulus to Sichuan’s local economy. “When something is destroyed you don’t necessarily rebuild the same thing that you had,” said Mark Skidmore, an economics professor at Michigan State University. “You might use updated technology, you might do things more efficiently.”

As poor and small counties in China, WenChuan and Ya’an have minimal chance to receive this much of national investments and resources.

“The GRP level (as a percentage of Chinese GDP) of the worst-hit area of Sichuan decreased by 35.4% in 2008 compared to the 2007 level. After three years of reconstruction, the region had still not returned to its pre-earthquake GRP level, but the GRP level of the rest of Sichuan experienced a boom in those three years because of the reconstruction demand stimulus,” According to a studies conducted by MOE Key Laboratory of Environmental Change and Natural Disaster of the Beijing Normal University.


It is understandable for the chart above that depicts the economic recovery of the worst-hit region in Sichuan and else of Sichuan. The hardest hit region suffered the destruction and the labor shortage the most. Even with such tremendous amount of resources and capital, the quake center regions hardly could reach effective capacity and productivity. The else of Sichuan are in a much better situation that these recovery investment creates job opportunity and industrial production.

More practical reflection of the benefits from 2008 earthquake to Sichuan region comes from the 7.0 magnitude Sichuan earthquake in Ya’an. According to the BBC report, “none of the buildings built since the Sichuan earthquakes collapsed.” The quality of housing for sure has improved.

The claim that natural disaster would boost regional economy is not new, but it has remained a small field of study because critics charge “disaster economists with oversimplifying enormously complex economic systems and seeing illusory effects that stem only from the crudeness of the available economic measuring tools.”

In 1969, Douglas Dacy and Howard Kunreuther, two young analysts at the Institute for Defense Analyses, published a book called “The Economics of Natural Disasters.”  It was probably one of the first attempts to measure the economic influence of catastrophe. The book argues that the dreadful Alaska earthquake of 1964 helped Alaska economy by garnering government loans and grants for rebuilding.

“We got a lot of hate mail for that finding,” said Kunreuther, now a professor of business and public policy at the Wharton School of the University of Pennsylvania.

Gus Faucher’s study also supported the Dacy’s and Kunreuther’s claim. Fauncher is the director of macroeconomics at Moody’s Economy.com. He found sharp increases in construction employment after Hurricane Andrew attacked Florida in 1992 and after the Northridge earthquake of 1994.

The Bernard L. Schwartz Chair in Economic Policy Development Martin Neil Baily said whether the economy of affected regions can be benefited depends on “the way the country or region responds to the crisis”. The time factor is the most important here. He gave an example that Haiti, where is too poor to manage the immediate recover after hurricane, has to wait international aid to get basic rebuilding, leaving alone economic growth.

The Hurricane Katrina was a debatable case. Faucher accuses government aid was slow to arrive and with insurance payouts so low, there were so many residents left New Orlean. The economic recovery and boost both did not come.

However, there are also many critics to the theory of disaster economic growth. It is important to remember that the wealth to the affected regions is not generated by the hurricane or earthquake, “the money and labor that go into postdisaster rebuilding are simply being redirected from other productive uses.”The natural disaster could be an economic boost to a region, but it always is an economic downturn for the whole nation. Moreover, some jobs are benefited at the cost of other industries.

“If you’re a carpenter, a trash remover, a physician, you may be made better off,” said Donald Boudreaux, an economics professor at George Mason University. “But the things that those producers would have otherwise produced are not going to be produced.”

Here is the chart of the wage and employment growth for New Orleans during the immediate recovery time after the Hurricane Katrina.

It is clear that construction, waster service, and real estate enjoyed a huge economic boost, while entertainment and food service suffered.

“Over any reasonably relevant period of time, society is not made wealthier by destroying resources,” Boudreaux said. If it were, “Beirut should be one of the wealthiest places in the world.”

The theory model of disastrous benefits for economy should be viewed as that the areas that would not receive national resources or investment during the normal time becomes privileged after suffering catastrophe. It also gives these areas more opportunity and capital to develop during the reconstruction. The catastrophe wiped out the outdated facilities and infrastructure and replace them with more efficient and modern ones. “It might be seen as Mother Nature’s contribution to what the Austrian-born U.S. economist Joseph Schumpeter famously called capitalism’s ‘creative destruction.'”

As long as the government responds to the disaster quickly with reconstruction capitals, it is general to see a quick recovery for the affected area and a bullish future for the local economy.

Once again, it is inhuman and cruel to say the natural disaster is a good thing, and it is significant to remember it hurts national economy as a whole. However, it could be an opportunity for the specifically affected regions to develop and reform its economy.

Debt Creates a Double Win-or-Lose Bond Between China and America, Even No Chance to Pay Back

That “China owns the U.S. National Debt” has become an universal knowledge for American people, being taught from the lower school to the university. How does this debt relationship work? Will America ever pay off its debt? Why is China willing to keep borrowing to the United States?

The U.S. National debt exceeded $20 trillion on September 8, 2017, surpassing the American gross GDP. Based on the data as of May 2017, China has cut its American foreign debt holding to $1.102 trillion, no longer holding the largest portion. With $1.111 trillion, Japan now has become the No.1 U.S. debt holding country.

Owning U.S. Treasury notes benefits China by increasing the demand of U.S. dollar and so decreasing the value of RMB (as the Dollar-to-Yuan conversion increases) . Thus. Chinese exports are cheaper than those of America. Consequently, Chinese cheap exports gain global market and produce more jobs opportunity for Chinese people. The strategy of devaluing RMB led Chinese economy to grow 10 percent annually for the past three decades.  On the other side, American people can enjoy lower consuming prices and lower interest rates. American economy also grows.

Will America ever pay off its debt to China? Probably never. There are three paths for America to pay back its debt: cutting spending, raising taxes, and boosting GDP. Unfortunately, there is not much in American budget to cut to save $1.102 trillion. It would terminate any politician’s career to raise tax for paying off Chinese debt. Boosting GDP is far more difficult to execute than to say.

However, such double-win situation might not last longer. Since the Chinese government purposefully decreases the value of RMB, the Chinese businessmen are hurt by the interest rate. They start to take loans in dollars or invest outside, leaving cash flowing out of China. Moreover, the Chinese government has asserts its voice in the global market through this low-value RMB process. The Chinese government ambitiously aims to replace RMB to Dollars as the global reserve. On November 30, 2015, the International Monetary Fund awarded the RMB status as a reserve currency. The IMF added the RMB to its Special Drawing Rights basket on Oct 1, 2016. At last, that the American government allows the value of dollar to drop made the debt China holds less valuable.

As China begins to sell parts of debt out, the situation is shifting to a double-lose. American interest rate would rise, and the economic growth slows. The Chinese exports also loses competitiveness.

The anxiety is not necessary. China would not sell all or large amount of U.S. debt at one time because it will drastically devalue dollars and ruin the international market. The American and Chinese economy will still be bonded together through this tremendous debt for a long time.

Sources:

https://www.thebalance.com/dollar-to-yuan-conversion-and-history-3306089

https://www.thebalance.com/national-debt-by-year-compared-to-gdp-and-major-events-3306287

https://www.thebalance.com/will-the-u-s-debt-ever-be-paid-off-3970473

https://www.thebalance.com/u-s-debt-to-china-how-much-does-it-own-3306355

https://www.thebalance.com/yuan-reserve-currency-to-global-currency-3970465

The Quality of Our Dining Foreshadows the Health of Our Economy

There is an idiom expression in China saying that “hunger breeds discontentment.” It is not hard to understand that people are less likely to spend money on fancy meal and dining environment when the economy is bad. With little money in their pocket, people tend to turn to fast-food or eat at home, and the restaurant business goes down. Thus the Performance of the Restaurant Industry is a significant indicator of the health of our economy.

According to the National Restaurant Association(NRA), Restaurant industry sales constitute 4 percent of the U.S. GDP. The president of NRA Dawn Sweeney said restaurant business also stimulates employment and generates tax revenues. He said, “What’s more, for every dollar spent in restaurants, an additional $2 is generated in sales for other industries, generating even more tax dollars and economic activity.”

RPI Index

The Restaurant Performance Index provided by the National Restaurant Association examines a comprehensive health of the U.S. restaurant industry, including sales, traffic, labor and capital expenditures. If the index value is above 100, it means the American restaurant business is growing during this period of time. An index value below 100 means this business is shrinking.

If we compare this chart to the United States GDP, we could see a general trend that the RPI and GDP have a positive relationship. The higher RPI foreshadows a growing GDP, usually about one year ahead. For example, RPI falled below 100 value after 2007, while American confronted a recession in 2008. While RPI started to recover after 2009, the GDP began to increase after 2010.

American GDP Chart

Stifel analyst Paul Westra and his team believe that “US restaurants are showing signs of heading toward a sector-wide recession.” Restaurant spending is a strong indicator of consumer behaving, which is a large part of American economic growth. It also demonstrates people’s confidence about their money. Stifel’s team said “Restaurants have historically led the market lower during the 3-to-6-month periods prior to the start of the prior three US recessions”. The RPI and GDP charts above has backed up Stifel’s statement.

The RPI Index for 2017 is pretty close to the value of 100. Westra said, “restaurant performance this year, particularly in the second quarter, is shaping up to look pretty similar to the second half of 2000 and the first half of 2007 – the periods that immediately preceded the last two U.S. recessions.” If the history repeats itself, it means 2018 might become the beginning of another U.S. recession period.