Karl Marx's Theory of Population

Karl Marx (1818-1883) is regarded as the Father of Communism. He did not separately propose any theory of population, but his surplus population theory has been deduced from his theory of communism.  Marx opposed and criticized the Malthusian theory of population.

According to Marx, population increase must be interpreted in the context of the capitalistic economic system.  A capitalist gives to labor as wage a small share of labor's productivity, and the capitalist himself takes the lion's share.  The capitalist introduces more and more machinery and thus increases the surplus value of labor's productivity, which is pocketed by the capitalist.  The surplus is the difference between labor's productivity and the wage level.  A worker is paid less than the value of his productivity.  When machinery is introduced, unemployment increases and, consequently, a reserve army of labor is created.  Under these situations, the wage level goes down further, the poor parents cannot properly rear their children and a large part of the population becomes virtually surplus.  Poverty, hunger and other social ills are the result of socially unjust practices associated with capitalism.

Population growth, according to Marx, is therefore not related to the alleged ignorance or moral inferiority of the poor, but is a consequence of the capitalist economic system.  Marx points out that landlordism, unfavorable and high man-land ratio, uncertainty regarding land tenure system and the like are responsible for low food production in a country.  Only in places where the production of food is not adequate does population growth become a problem.

Malthusian Theory of Population

Thomas Robert Malthus was the first economist to propose a systematic theory of population.  He articulated his views regarding population in his famous book, Essay on the Principle of Population (1798), for which he collected empirical data to support his thesis. Malthus had the second edition of his book published in 1803, in which he modified some of his views from the first edition, but essentially his original thesis did not change.

In Essay on the Principle of Population,Malthus proposes the principle that human populations grow exponentially (i.e., doubling with each cycle) while food production grows at an arithmetic rate (i.e. by the repeated addition of a uniform increment in each uniform interval of time). Thus, while food output was likely to increase in a series of twenty-five year intervals in the arithmetic progression 1, 2, 3, 4, 5, 6, 7, 8, 9, and so on, population was capable of increasing in the geometric progression 1, 2, 4, 8, 16, 32, 64, 128, 256, and so forth.  This scenario of arithmetic food growth with simultaneous geometric human population growth predicted a future when humans would have no resources to survive on.  To avoid such a catastrophe, Malthus urged controls on population growth. 

On the basis of a hypothetical world population of one billion in the early nineteenth century and an adequate means of subsistence at that time, Malthus suggested that there was a potential for a population increase to 256 billion within 200 years but that the means of subsistence were only capable of being increased enough for nine billion to be fed at the level prevailing at the beginning of the period. He therefore considered that the population increase should be kept down to the level at which it could be supported by the operation of various checks on population growth, which he categorized as "preventive" and "positive" checks.

The chief preventive check envisaged by Malthus was that of "moral restraint", which was seen as a deliberate decision by men to refrain "from pursuing the dictate of nature in an early attachment to one woman", i.e. to marry later in life than had been usual and only at a stage when fully capable of supporting a family. This, it was anticipated, would give rise to smaller families and probably to fewer families, but Malthus was strongly opposed to birth control within marriage and did not suggest that parents should try to restrict the number of children born to them after their marriage. Malthus was clearly aware that problems might arise from the postponement of marriage to a later date, such as an increase in the number of illegitimate births, but considered that these problems were likely to be less serious than those caused by a continuation of rapid population increase.

He saw positive checks to population growth as being any causes that contributed to the shortening of human lifespans. He included in this category poor living and working conditions which might give rise to low resistance to disease, as well as more obvious factors such as disease itself, war, and famine. Some of the conclusions that can be drawn from Malthus's ideas thus have obvious political connotations and this partly accounts for the interest in his writings and possibly also the misrepresentation of some of his ideas by authors such as Cobbett, the famous early English radical.  Some later writers modified his ideas, suggesting, for example, strong government action to ensure later marriages. Others did not accept the view that birth control should be forbidden after marriage, and one group in particular, called the Malthusian League, strongly argued the case for birth control, though this was contrary to the principles of conduct which Malthus himself advocated.

Trading Blocs and Regional Trade Agreements (RTAs)

Trading Blocs and Regional Trade Agreements (RTAs)

Over the years average tariffs and other import controls have declined, with progress especially marked in developing Asia and in Eastern Europe after the break-up of the Soviet Union. But the breakdown of theDoha trade talks has dashed hopes of a globally based multi-lateral reduction in import tariffs and other forms of protectionism. In its place there has been a flurry of bi-lateral trade deals between countries and the emergence of regional trading blocs.

Some of these deals are free-trade agreements that involve a reduction in current tariff and non-tariff import controls to liberalise trade in goods and services between countries. The most sophisticated RTAs include rules on flows of investment, co-ordination of competition policies, agreements on environmental policies and the free movement of labour.

Examples of Regional Trade Agreements (RTAs):

• The number of RTAs has risen from around 70 in 1990 to over 300 today
• The European Union (EU) – a customs union, a single market and now with a single currency
• The European Free Trade Area (EFTA)
• The North American Free Trade Agreement (NAFTA) – created in 1994
• Mercosur - a customs union between Brazil, Argentina, Uruguay, Paraguay and Venezuela
• Association of Southeast Asian Nations (ASEAN) Free Trade Area (AFTA)
• Common Market of Eastern and Southern Africa (COMESA)
• South Asian Free Trade Area (SAFTA) created in January 2006 and containing countries such as Indiaand Pakistan

In 2012 there were numerous new bi-lateral trade agreements between countries – here is a selection:

• US – Colombia
• Panama – Peru
• China – Costa Rica
• New Zealand – Malaysia
• Australia - Malaysia
• South Korea – United States
• European Union – South Korea
• European Union – Latin America
• European Union - Singapore

Each of these is a reciprocal trade agreement between two or more partners that the countries hope will stimulate cross-border trade and investment. One of the dangers of this bi-lateral approach rather than progress in reaching multi-lateral trade agreements through the World Trade Organisation is that a patchwork quilt of trade deals is emerging, including over-lapping agreements between clusters of countries.

Far from promoting mutual gains, RTAs might cause numerous distortions of markets. Keep in mind also that trade agreements can be expensive to monitor – eating into some of the economic welfare benefits.

Stage of Economic Integration	No Internal Trade Barriers	Common External Tariff	Factor and Asset Mobility	Common Currency	Common Economic Policy
Free Trade Area	X
Customs Union	X	X
Single Market	X	X	X
Monetary Union	X	X	X	X
Economic Union	X	X	X	X	X

Customs Union

The European Union is a customs union. A customs union comprises countries which agree to:

Abolish tariffs and quotas between member nations to encourage free movement of goods and services. Goods and services that originate in the EU circulate between Member States duty-free. However these products might be subject to excise duty and VAT.

Adopt a common external tariff (CET) on imports from non-members countries. Thus, in the case of the EU, the tariff imposed on, say, imports of Japanese TV sets will be the same in the UK as in any other EU country.

Preferential tariff rates apply to preferential or free trade agreements that the EU has entered into with third countries or groupings of third countries.

A customs union shares the revenue from the CET in a pre-determined way – in this case the revenue goes into the EU budget fund. The EU receives its revenues from customs duties from the common tariff, agricultural levies and countries paying 1% of their VAT base. Payments are also made through contributions made by member states based on their national incomes. Thus relatively poorer countries pay less into the EU and tend to be net recipients of EU finances.

A single market represents a deeper form of integration than a customs union. It involves the free movement of goods and services, capital and labour and the concept are broadened to encompass economic policy harmonization for example in the areas of health and safety legislation and monopoly & competition policy. Deeper economic and business ties requires some degree of political integration, which also requires shared aims and values between nations

Trade Creation and Trade Diversion with Customs Unions and Regional Trade Agreements

Trade Creation

Trade creation arising from trade deals between countries involves a shift in domestic consumer spendingfrom a higher cost domestic source to a lower cost partner source for example - within the EU - as a result of the abolition tariffs on intra-union trade

So for example UK households may switch their spending on car and home insurance away from a higher-priced UK supplier towards a French insurance company operating in the UK market

Similarly, Western European car manufacturers may be able to find and then benefit from a cheaper source of glass or rubber for tyres from other countries within the customs union than if they were reliant on domestic supply sources with trade restrictions in place.

Trade creation should stimulate an increase in trade between countries that have signed trade agreements and should, in theory, lead to an improvement in the efficient allocation of scarce resources and gains in consumer and producer welfare.

Trade Diversion

• Trade diversion is best described as a shift in domestic consumer spending from a lower cost world source to a higher cost partner source (e.g. from another country within the EU) as a result of the elimination of tariffs on imports from the partner
• The common external tariff on many goods and services coming into the EU makes imports more expensive. This can lead to higher costs for producers and higher prices for consumers if previously they had access to a lower cost / lower price supply from a non-EU country
• The diagram next illustrates the potential welfare consequences of imposing an import tariff on goods and services coming into the European Union.
• In general, protectionism in the forms of an import tariff results in a deadweight social loss of welfare. Only short term protectionist measures, like those to protect infant industries, can be defended robustly in terms of efficiency. The common external tariff will have resulted in some deadweight social loss if it has in total raised tariffs between EU countries and those outside the EU.

The overall effect of a customs union on the economic welfare of citizens in a country depends on whether the customs union creates effects that are mainly trade creating or trade diverting. 

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What is Equity Market

DEFINITION OF 'EQUITY MARKET'

The market in which shares are issued and traded, either through exchanges or over-the-counter markets. Also known as the stock market, it is one of the most vital areas of a market economy because it gives companies access to capital and investors a slice of ownership in a company with the potential to realize gains based on its future performance.

INVESTOPEDIA EXPLAINS 'EQUITY MARKET'

This market can be split into two main sectors: the primary and secondary market. The primary market is where new issues are first offered. Any subsequent trading takes place in the secondary market.

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What is Intraday Trade

Intraday trading, often called simply "day trading," is the practice of buying and selling a financial product on the same day. It is often mentioned in reference to the stock market, but you can also day trade many other types of financial vehicles. It is a high-energy field that carries substantial risks but also offers considerable profit opportunities. Successful day traders can earn a good and consistent living. 

Definition

• Day trading is a tightly regulated practice in the stock market. Thus, it requires a strict definition. The Financial Industry Regulatory Authority, or FINRA, defines day trading as the buying and selling of a security on the same day. The buying and selling may occur in either order. If you "short" stock, which means you sell stock you do not yet own, and then buy it back later in the same day, this is also a day trade. Day traders can profit from intraday declines in any stock in this way.

Pattern Day Trading

• People who day trade stocks, or securities, are subject to strict FINRA regulations. Anyone can day trade occasionally. But if you complete more than three day trades in a rolling five-day period, brokers must flag your account as a "pattern day trading" account.

  Once this is done, new rules apply. First, your account is immediately suspended if it does not have at least $25,000 in assets, including cash and stock. Second, you must convert your account into a margin account if it does not already use margin. Margin is the process by which your broker lends you cash for every stock transaction. Thus, you can purchase more shares than your cash would normally allow.
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Leverage

• When your account is automatically converted into a pattern day trading account, you immediately get access to "4x" leverage. This means the margin allows you to purchase up to four times the stock shares as your cash balance allows. A $50,000 account can buy up to $200,000 shares.

  Leverage allows day traders to meaningfully profit from small fluctuations in stock prices over short periods of time. However, as the potential for reward increases, so too do the risks. A bad trading decision that is highly leveraged can cause substantial loss very quickly.

Account Suspension

• If you fail to close a day trade before the market's end at 4 p.m. New York time, your account is suspended until enough funds are deposited to cover the size of the trade without 4x leveraged margin. It is important for all day traders to thus make sure they close any large positions before the session's end. Smaller positions require less capital, and the cash in the account miht be enough to satisfy the margin demands.

  Suspended accounts that do not receive a new cash deposit are reactivated after 90 days. Similarly, pattern day trading accounts can switch back to non-pattern accounts after 90 days.

Intraday Indicators

• Day traders tackle the market differently than long-term investors do. They use information that is not applicable to long-term results. One of the most popular day trading indicators in the "Tick," a data stream distributed by the New York Stock Exchange. The Tick shows at any point, any time, the number of stocks that are advancing minus those declining.

  When the Tick reaches extremes, day traders can often accurately predict a short reversal in prices across the market. But no day trading tool is foolproof, and the risks always remain high. It takes considerable experience to develop a winning strategy in day .

Negative Externalities

Many types of activity give rise to externalities. And these externalities can be positive and negative.

Externalities are third party effects arising from production and consumption of goods and services for which no appropriate compensation is paid.

Externalities occur outside of the market i.e. they affect people not directly involved in the production and/or consumption of a good or service. They are also known as spill-over effects.

Economic activity creates spill over benefits and spill over costs – with negative externalities we focus on the spill over costs

Negative externalities

Negative externalities occur when production and/or consumption impose external costs on third partiesoutside of the market for which no appropriate compensation is paid.

• Smokers ignore the harmful impact of toxic ‘passive smoking’ on non-smokers
• Air pollution from road use and traffic congestion and the impact of road fumes on lungs
• External costs of scraping the seabed for supplies of gravel
• The external cost of food waste
• The external costs of cleaning up from litter and the dropping of chewing gum
• The external costs of the miles that food travels from producer to the final consumer
• The externalities linked to the oil sands project in the Canadian wilderness

The importance of property rights

• Property rights confer legal control or ownership of a good.
• For markets to operate efficiently, property rights must be protected – perhaps through regulation.
• Put another way, if an asset is un-owned, no one has an incentive to protect it from abuse. The right to own property is an essential building block of a market-based system
• Failure to protect property rights may lead to what is known as the Tragedy of the Commons  - examples include the over use of common land and the long-term decline of fish stocks caused by over-fishing which leads to long term permanent damage to the stock of natural resources.

Private Costs and Social Costs

The existence of externalities creates a divergence between private and social costs of production and the private and social benefits of consumption.

Social Cost      =          Private Cost + External Cost

Social Benefit   =          Private Benefit + External Benefit

When negative production externalities exist, social costs exceed private cost. This leads to over-production if producers do not take into account the externalities.

Social costs are the total costs incurred by society from an economic action – they include private and external costs

External costs from production

Production externalities are generated and received in supplying goods and services - examples include noise and atmospheric pollution from factories.

External costs from consumption

• Consumption externalities are generated and received in consumption - examples include pollution from driving cars and motorbikes and externalities created by smoking and alcohol abuse and also the noise pollution created by loud music being played in built-up areas.
• Negative consumption externalities lead to a situation where the social benefit of consumption is less than the private benefit.

Negative externalities from production – social cost > private cost

Marginal cost or marginal benefit is the change in total cost or benefits that results from an increase in production or consumption by one unit

In the absence of externalities, the private marginal costs of the supplier are the same as the costs for society. But if there are negative externalities, we must add the external costs to the firm’s supply curve to find the social marginal cost curve.

If the market fails to include these external costs, then the private equilibrium output will be Q1 and the price P1 where private marginal cost = private marginal benefit.

From a social welfare viewpoint, we want less output from activities that create an “economic-bad” such as pollution. A socially-efficient output would be Q2 with a higher price P2. At this price level, the external costs have been taken into account. We have not eliminated the pollution – but at least the market has recognised them and priced them into the price of the product.

Economic and Social Welfare

Private economic welfare requires us to consider only the private (or internal) costs and benefits of production and consumption of goods and services.

But if we wish to look at the economic welfare of the whole community (i.e. the social welfare) then we need to calculate the positive and negative externalities and add them to private benefits and costs. Here is a simple numerical example:

A government is considering four possible capital investment projects. It has the resources to finance and implement only one of these projects. The table below shows the estimated value of the private and external costs and benefits that each project is expected to yield:

	New city by-pass (£ million)	New schools (£ million)	Improvement to an existing airport (£ million)	New hospitals (£ million)
Private benefits	50	135	130	80
Private costs	120	80	100	65
Positive externalities	90	55	35	120
Negative externalities	60	20	60	45
Net private benefit	-70	+55	+30	+15
Net social benefit	-40	+80	+5	+90

Net social benefit may be taken into account by a government when deciding which project offers the best potential return for society as a whole

Negative Externalities and Government Intervention

To many economists interested in environmental problems the key is to internalise external costs and benefits to ensure that those who create the externalities include them when making decisions.

Pollution Taxes

One common approach to adjust for externalities is to tax those who create negative externalities.

• This is known as “making the polluter pay”.
• Introducing a tax increases the private cost of consumption or production and ought to reduce demand and output for the good that is creating the externality.
• Some economists argue that the revenue from pollution taxes should be ‘ring-fenced’ and allocated to projects that protect or enhance our environment.
• For example, the money raised from a congestion charge on vehicles entering busy urban roads, might be allocated towards improving mass transport services; or the revenue from higher taxes on cigarettes might be used to fund better health care programmes.

Examples of Environmental Taxes include some of the following

• The Landfill Tax - this tax aims to encourage producers to produce less waste and to recover more value from waste, for example through recycling or composting and to use environmentally friendly methods of waste disposal.
• The Congestion Charge: -this is a high profile environmental charge introduced in February 2003. It is designed to cut traffic congestion in inner-London by charging motorists £8 per day to enter the central charging zone.
• Plastic Bag Tax: A tax on plastic bags in Wales has seen the number given away drop by sizeable amounts according to this news report Since 1 October 2011, there has been a minimum charge of 5p on all single use carrier bags. The Welsh government acted in a bid to encourage re-use of bags and therefore lower demand for single-use free bags. The justification was on economic and environmental grounds:
• Vehicle excise duty (VED): Also known as ‘road tax’ – VED starts from a theoretical 'nil' rate and accelerating up depending on the carbon emissions of the vehicle

Problems with Environmental Taxes

Many economists argue that pollution taxes can create problems which lead to government failure.

• Assigning the right level of taxation: There are problems in setting tax so that private cost will exactly equate with the social cost.
• Consumer welfare effects: Producers may pass on the tax to the consumers if the demand for the good is inelastic and, as result, the tax may only have a small effect in reducing demand. Taxes on some de-merit goods (for example cigarettes) may have a regressive effect on lower-income consumers and leader to a widening of inequalities in the distribution of income.
• Employment and investment consequences: If pollution taxes are raised in one country, producers may shift to countries with lower taxes. This will not reduce global pollution, and may create problems such as structural unemployment and a loss of international competitiveness.

Externalities and Regulation

• The government may intervene through the use of regulations and laws.
• For example, the Health and Safety at Work Act covers all public and private sector businesses. Local Councils can take action against noisy, unruly neighbours and can pass by-laws preventing the public consumption of alcohol. The British government introduced a ban on smoking in public places from July 1st 2007.
• The European Union has introduced directives on how consumer durables such as cars, batteries, fridges freezers and other products should be disposed of. The onus is now on producers to provide facilities for consumers to bring back their unwanted products.

Carbon Emissions Trading

The EU Emissions Trading Scheme (EUETS) was launched in 2005 and is a market-based mechanism to incentivise reduction of C02 emissions in a cost-effective and efficient manner.

The EU scheme operates through the trade of CO2 emissions allowances. It creates a market in the right to emit C02. One allowance represents one tonne of C02 equivalent. Companies get most permits free now but many electricity generators in Europe will have to pay for all these from 2013.

A cap is set on emissions – this creates the scarcity required for the market. At the end of each year businesses are required to ensure they have enough allowances to account for their installation’s actual emissions. There are heavy fines for those without such permits.

The aim of carbon trading is to create a market in pollution permits and put a price on carbon. In this way, policy can help internalize environmental costs of firms’ production and encourage lower emissions to tackle climate change

In a cap and trade system, the number of available permits would gradually decline. As the price of the permits rises, so the economics of investing in cleaner technologies will change.  The hope is that businesses will look for ways of reducing c02 emissions in the most efficient way possible

Supply and demand analysis diagrams can be used when discussing carbon trading schemes. The idea is to gradually cut the supply of permits so that the carbon price is sufficiently high to incentivise businesses to look for ways to cut their total emissions in the most cost-efficient way.

Subsidising positive externalities

• An alternative to taxing activities that create negative externalities is to subsidise activities that lead to positive externalities
• This reduces the costs of production for suppliers and encourages a higher output
• For example the Government may subsidise state health care; public transport or investment in new technology for schools and colleges to help spread knowledge and understanding
• There is also a case for subsidies to encourage higher levels of training as a means to raise labour productivity and improve our international competitiveness.