What Is A Tariff?

In March, President Donald Trump set two tariffs. He set a tariff on steel imports and aluminum imports. Import is goods that are bought from another country. Export is goods that are sold to another country.
Tariffs are a tax on imported goods. Businesses and people inside the country will pay extra money when buying goods from another country. That extra money is the tariff. It goes to the U.S. government.
Governments use tariffs to help their own businesses. They want people to stop buying goods from other countries. Tariffs also help the government make money.

The Effects Of Tariffs
Here is an example. Cocoa beans are used to make chocolate. Turkey needs to import cocoa beans.
Turkey imports many cocoa beans from the Republic of Cote d’Ivoire, a country in West Africa. Imagine if Turkey set a tariff on imported cocoa beans. Three things would happen.
First, cocoa beans from the Republic of Cote d’Ivoire would cost more. Chocolate makers in Turkey would have to pay the extra tariff. However, what if Turkey had its own cocoa bean farmers? Then, these Turkish farmers could sell cheaper cocoa beans than those from the Republic of Cote d’Ivoire. Chocolate makers would buy more beans from Turkish farmers because they are cheaper. Turkish farmers would make more money.
Second, the tariff would harm the Republic of Cote d’Ivoire. The farmers in the Republic of Cote d’Ivoire would have to lower their prices. Otherwise, people would stop buying cocoa from them. These farmers would make less money.
Finally, Turkey would buy less cocoa from the Republic of Cote d’Ivoire. The two countries would not trade as much as before.

The Risks
There is also another problem. In our example, farmers in the Republic of Cote d’Ivoire would lose money because of the tariff. So, the Republic of Cote d’Ivoire might want to do something about it. It might set its own tariffs on goods from Turkey. It would hurt companies in Turkey.
These kinds of actions can lead to a trade war. That is when countries punish each other with tariffs. It is why experts usually do not like tariffs.

Capitalism Needs a New Economics Theory

The theory of today’s economy, that is, the neoclassical economics method, which was first modified by the theory of monetarist economics and then the theory of rational expectations, is, in fact, the theory of economy of the capitalist system. Thirty years ago, there were countries in the world with a mixed economic system that emphasized the capitalist system and its imitation of crony capitalism, as well as socialist systems. At that time, the neoclassical theory did not dominate by itself. For that reason, its universality was controversial. Because the market model, which is the decision-maker, has a limited place remarkably, a kind of centralized market management system called the planned economy model was the decision-maker. Today, the market economy has become dominant everywhere, with the globalization trend spreading all over the world. Thus, at first glance, the theory of neoclassical economics, which is the theory of capitalism, has become the universal theory of the economy in the global system. However, even if the dominancy of capitalism seems in the closest way to pure capitalism in some countries, in some other countries, it took place in the form of crony capitalism. Therefore, the universality of the neoclassical economic theory is still arguable.

Neoclassical economic theory is based on several assumptions. The most important of them are as follows:
(1) People rationalize and make decisions in this direction (assumption of rationality, thought of homoeconomicus.)
(2) The full competition system is exemplified in describing the markets (assumption of competition prevalence).
(3) Decisions are based on margins (marginality assumption).
(4) The purpose of the consumer to obtain the maximum benefit, the producer’s goal is to maximize the profit (maximization assumption).

Discussing the assumptions of a theory comes at a time when questioning whether that theory is in accord with reality. The debate about the neoclassical economic theory, which is long-lasting, can not fully explain the real life. So the results that come out of assumptions are not exactly in line with real life. However, a theory is established to define real-life events by reducing, classifying, and generalizing them. No matter how well-simplified, how well-categorized, and generalized it is, the theory does not work if the results do not fit into the real world. The assumptions of the criticized neoclassical theory are in the forefront of these criticisms since they have not been fully compliant with real life for a long time.

When we look at the landscape today, we can see that the prevalence of irrational behaviors, competition is everywhere under the feet, that people often make their decisions by considering the averages rather than the margins, not the maximization principle in many decisions of the consumer or the manufacturer. At this stage, my mind is stuck with the question, “Does the theory of neoclassical economics remain inadequate while explaining capitalism?” We argue that this theory does not work at all; the theory must be re-applied, and none of us maintains the validity of the theory. But none of us question whether capitalism has changed the quality. Neoclassical theory is a theory for an environment in which capitalism rules are applied. So if a company is going to sink, it will not be saved by the state. On the other hand, the state becomes unable to process the rules of capitalism when it goes to save the companies that are going to sink. Then it comes to discuss the theory is a wrong practice.

I think that capitalism can no longer be like the ideal form, but that it will continue to operate half-timely. In doing so, we have to start by changing assumptions. It would be much better to set up a theory based on half-patronized rationality, a distorted competition order, a lot of coincidence, and assumptions of motion appropriate for averages instead of margins. By incorporating the behavioral economy and the theory of chaos, the ambiguous logic, and the irrational expectation approaches, a new theory of economics will have to be established in accordance with the dominant crony capitalism.

It is not as easy as it seems. Because we are talking about a significant economics theory based on the assumptions of rationality, competition, maximization, and movement in margins, an entire economic theory can be upside down when you remove these assumptions.

What Is Keynesian Economics?

Keynesian economics is the use of fiscal policies (government spending and taxes) as a means to control the economy. This idea was adopted by the British economist John Maynard Keynes, one of the most important thinkers of the 20th century. Keynes's ideas shaped the modern world economy. Keynes is still respected and followed.

Keynes's masterpiece The General Theory (General Theory of Employment, Interest and Money) published in 1936 was written in response to the Great Depression. He argued that the government had a mission that they had previously ignored. This task was to keep the economy alive during trauma. The book was written to criticize the idea that the French Jean-Baptiste Say (1767-1832) would "each supply creates his own demand". According to Say's idea, in the economy as a whole, the production of goods was enough to create demand on its own.

Revitalizing the economy

Up to the Great Depression, the assumption was that the economy was largely self-regulating. The invisible hand left to itself will bring employment and economic efficiency to the optimum level. Keynes strongly opposes it. In periods of economic downturn, defend the claim that reducing the demand will cause the economy to shrink with a serious crisis and increase unemployment. The government's task is to revive the economy. The government can do this by borrowing money and creating employment in the neighborhood sector, increasing cash in infrastructure projects (eg roads, railways, hospitals and school buildings). Decrease in interest rates may not be enough, but it may stimulate the economy a bit.

According to Keynes, the extra expenditures the government will make are spread throughout the economy. For example, a new highway construction creates jobs for construction companies. That company's employees spend money on food, products and services, which hinders the economy from entering the crisis. The key in Keynes's argument is the idea of ​​multiplying.

Let's say the American government has ordered a $ 10 billion plane ship to shipbuilding company Northop Grumman. We can think that the effect of this is the transfer of 10 billion dollars to the economy. However, according to the multiplying argument, the effect will be much larger. Northop Grumman will hire more people, make more profit, and spend workers' money on consumer goods. Total economic efficiency will increase much more than the initial money, depending on the "consumer tendency" of an average consumer.

If 10 billion dollars increased the American economic efficiency by 5 billion dollars, the multiplier is 0.5. If it has increased 15 billion dollars, it is 1.5.

Six Key Principles of the Keyneysen Economy

According to former presidential adviser Alan Blinder, six key principles lay behind Keynesianism. These:

1. Keynesists argue that the economy is influenced by both institutional and private sector decisions and that it sometimes behaves unevenly.
2. The short term is sometimes more important than the long term. Short-term increases in unemployment can lead to more damage in the long run, because it can cause permanent damage to the economy. It reminds us of the words of Keynes' famous' 'We will all die in the long run.' '
3. Wages, and in particular salaries, respond very slowly to changes in supply and demand. This means that unemployment is generally higher or lower than the economy's power.
4. Unemployment is usually very high and varied; recessions and crises are not an effective market reaction to unpleasant opportunities like invisible hand dictation, but rather economic disease.
5. Governments must actively stabilize the natural spikes and falls in the economy.
6. Keynesians tend to struggle with unemployment and give more importance to struggle with inflation.

Is the Keynesian Theory a Controversial Theory?

Keynesianism has always created controversy. Critics of it ask why we should assume that governments will better govern the economy. Is economic variability really dangerous? despite all these criticisms, the Great Depression of the 1930s was overcome by the ideas of Keynes. Franklin D. Roosevelt's program, known as the New Order, was presented as a reaction against the Krzysztyn and was a classic example of the government's spending billions in the recession to encourage the economy. It is still debated whether these policies or the Second World War ended the Great Horn. But the message from history is that government spending is working.

After the publication of the General Theory, governments around the world have greatly increased their spending. It is based on social reasons, such as improving the welfare state that will overcome the consequences of high unemployment, and Keynesianism, which emphasizes that governments should control the economy.

These interventions have worked for a long time, inflation and unemployment have declined considerably, and the economy has grown. But in the 1970s monetarists (monetarists) began criticizing Keynesian politics. One of the main arguments was that governments that implement fiscal and monetary policies on a regular basis to increase employment would not be able to fine-tune the economy. The time between the moment of realizing that there is a need for such a policy (eg tax reduction) and the effect of politics is very long. Even if the politicians problem is quickly identified, it takes time for the regulations to be written and approved. It takes longer for the tax cut to affect the entire economy. When the tax cuts finally start to work, the problem to be solved may already be worsened or destroyed.

Look at the business, Keynes came back after the 2008 crisis. Economics argues that governments should borrow and cut taxes by spending, when it is understood that the discounts on interest can not prevent the recession in America, the UK and other countries. At the end, these policies have been implemented, breaking away from the economic policies of the past twenty-five years. Despite everything, Keynes is back.

Different Types of Goods-2

I continue to lecture about types of goods on this article where i stayed at the previous post. There are two types of goods that need to be known and those types of goods have anomalies which are contrary to the law of demand. One of them is Giffen Good and the other one is Veblen Good. Let's start with Giffen good.

Giffen Good: A giffen good is a good that as price rises, demand increases and, as price falls, demand decreases. The increase in demand stems from the income effect of the higher price outweighing the substitution effect. It is hard to find empiricial evidence about it but it can be applied to extremely poor people who have limited diet.
Suppose that you are very poor and you can't afford other alternative expensive foodstuff. On the other hand, the price of your basic foodstuff is increasing. In that situation, you will end up buying more your basic foodstuff. Because, it is the only foodstuff that you can afford.

                                                          Diagram for Giffen Good

Veblen Goods: A veblen good is a good that as price rises, demand increases and, as price falls, demand decreasse because of its exclusive nature and appeal as a status symbol. A veblen good has an upward-sloping demand curve like giffen good.

Studies suggest that people get more satisfaction from buying expensive goods and very expensive goods are indicator of having a hıgher status in society. Besides, consumers think that more expensive goods have better quality. Very expensive goods-such as designer jewelry, pricey watches, luxury cars can be classified as veblen goods.

The Basic Similarity and Difference Between Giffen Good and Veblen Good: For both giffen good and veblen good, as prices rises, demand increases. But, for veblen good, people demand more because the good is indicator of having a higher status in society and people think that it is expensive because it is a better quality. For giffen good, people demand more because the income effect outweighs the substitution effect.

Different Types of Goods-1

First, i will tell you about income elasticity of demand and cross elasticity of demand in order to make easy to understand the type of goods.

Income Elasticity of Demand: It measures the susceptibility of demand in reaction to change in income.
Cross Elasticity of Demand: It measures the quantity of demanded one good in response to a change in price of another.

Normal good: It is a good or service that as consumer income increases, demand of the good rises but, at a rate lesser than the rate of increase in income. In other words, income elasticity of demand increase is positive but, less than one. For instance, if the demand for clothing increases by %8 when real income increases by %12, clothing is classified as a normal good and it is said that it has %12 income elasticity.

Luxury good: It is a good or service that as consumer income increases, demand of the good rises at a rate that bigger than the rate of increase in income. It means that income elasticity of demand is bigger than one. If the demand for sports cars increase by %15 when real income increases %10 then, it is classified as luxury good.

Inferior good: It is a good or service that as consumer income increases, demand of the good falls. As consumer becomes finacially better, the demand for such goods fall because consumers can now afford higher priced goods and services. For example, a consumer prefer his personel car if his financial situation gets better rather than public transportation. In that case, public transportation is an inferior good.
It is a good that has a neagtive income elasticity. Because, demand of inferior good decreases at a rate more than the change consumer's income.

Complementary goods: It is a good or service that its use is dependant to another associated goods or service. For example, tennis ball and tennis racket, car and gasoline.
Complementary goods have a negative cross elasticity of demand. If the price for one good increses, the demand for both complementary goods fall. The more goods are linked eachother, the higher cross elasticity of demand.

Substitute goods: Substitute goods are two different goods which can be used to satisfy same needs. If the price of one good rises, the demand for the substitue increase. Hence, substitutes good have positive elasticity of demand.

What is Mercantilism?

Mercantilism is a movement of thought that is maintained between the Middle Age and Physiocracy between 1450–1750s. As this thought of movement was interpreted differently by thinkers, it was implemented differently in each country, and it is another article’s topic. So, first, I will explain the events leading to the existence of Mercantilism, then; I will indicate the objectives and principles of it.

Mercantilism is derived from the word ‘mercante’ which means merchant in Spanish. Mercantilism is a system of thought that asserts that valuable mines constitute the real wealth of states. Mercantilism defends the entry of mines to the country and prohibits the importation in order to prevent the exit mines from the country. Briefly, it advocates protective policies.

The events that cause the existence of Mercantilism

The collapse of feudalism and the emergence of central states between the end of the Middle Age and Indıstrial Revolution can be shown as

primary reasons for Mercantilism that cause its existence. I will indicate them below:

• The Collapse of Feudalism and Establishment of Cental States: With the collapse of feudalism, states founded newly needed new income resources to maintain their power. At that time, the essential income resource of states was foreign trade. So, foreign trade was encouraged.
• New Inventions: With the invention of the compass, it was facilitated trade with overseas countries. While products which are high in value but light in weight -silk, spice, and so on- were traded with medieval primitive transport vehicles, new trade routes were found with the developed maritime transport. On the one hand, new trade centers came to existence such as London, Lisbon, and Amsterdam; on the other hand, trade improved with geographical discoveries, and golden was imported to Europe, especially from American Continent.
• Religion reform and Renaissance Movement: The rapid spread of trade has caused the Catholic worldview to begin to be questioned. On the one hand, Luther argued that prices and interest rates should be at the control of the state, on the other hand, Calvin stated that the wealth attained by working in this world would be awarded in the next world, too. Renaissance, which symbolizes awakening in Science and Art, made widespread that the thought that prosperity and happiness of the individual should be prioritized.
• Change in Economic and Social Structure: The agriculture was a prevalent economic activity in this term. However, the manufacturing industry began improving. The money supply increased with gold and silver, which was brought from colonies, causing a rise in inflation. While wage- laborers became prevalent, rising prices militated in favor of debtors and cause impoverishment of wage-laborers.
• The Invention of Printing House and its spread: With the invention of the printing house in 1438 and its spread, reformist thoughts of thinkers became widespread quickly.

The Basis of Mercantilist Thinking

According to Mercantilist thought, the power of a country increases with the wealth of that country. The amount of valuable mines which that country has is the magnitude of its wealth. In that case, the goal of a state should be the politics that increase the input of valuable mines. As a result of this thought, economic activities came into prominence, being wealth became a goal for countries.

What is Cryptocurrency?

Crypto means ‘a person who adheres or belongs secretly to a party, sect or another group’; currency means something (such as coins, treasury notes, and banknotes) in circulation as a medium of exchange. The word cryptocurrency created by combining these two words, means encrypted currency. Cryptocurrency used via the internet is a virtual currency that is not bound to a central authority. Individuals or institutions can spend or earn money just as they do with real currency. Cryptography is the deciphering of messages in secret code or cipher; also: the computerized encoding and decoding of information. Reaching and capturing the stored data created by cryptography is quite difficult.
There are a few kinds of cryptocurrencies today: The most known is Bitcoin.
Litecoin, Namecoin, PPCoin, Ethereum, Dogecoin, Devcoin, Primecoin are also other cryptocurrencies that make a transaction on the internet.
Their secrecy stems from the transactions that they make on the internet. In other words, they are not circulated on the market physically, like Dollar or Euro. Their value arises from that people acknowledge the cryptocurrency as a barter item. Their value is determined according to supply and demand conditions.
Founded by Satoshi Nakamoto who is still not known whether he is a real person or not,
Bitcoin was the first of cryptocurrencies and was founded limited to 21 million units. Around 16 million units, Bitcoin was circulated on the internet until today. As of today, 1 Bitcoin is equal to $3921. Bitcoin can be divided up into 8 steps. Its one millionth (0,00000001) is called Satoshi. Calculated how many Bitcoin is circulated, we see that there are more than 62 billion dollars. For making a comparison, I should indicate that there are 1,5 trillion dollars circulated in the market.
Individuals can store their money via the virtual wallet that they create on the internet and make transactions via these wallets.
The most important thing that distinguishes cryptocurrencies from real money is that individuals don’t need to share their identities to make a transaction.
The most superiority of cryptocurrencies from others is that they are not bound to any central bank of a state; therefore, they are not influenced by the economic situations of states. Besides, because the accounts created by cryptocurrency are not known by whom they are created, and they can’t be controlled any authority, the systems are being open to every kind of illegal financial activity.
Suppose you will buy something on the internet, and you need a cryptocurrency account to purchase. First, You need to create a virtual wallet. Encoding the wallet is very important because, in case of no encryption, the wallet will be open to theft. After this stage, it is possible to make a transaction via cryptocurrency. You need to buy this virtual money from a website that sells and put it to your virtual wallet. Then, you are making your payment. When you make that kind of payment, whom, when, how much money you paid can’t be followed. In the same way, when another individual makes a transaction to you, it can’t be controlled.
On the ground that it causes to illegal money transfer, cryptocurrencies are not welcomed by governments. But, the usage of cryptocurrencies is increasingly growing.