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Kasey Canon
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Blanchard discusses how monetary policy has changed over the past few years in dealing with the crisis. He also discusses the need for monetary and fiscal policy to work together. The article points out the argument for the FED to increase the inflation rate. By increasing the inflation rate, the FED aims to increase domestic demand. As PJ mentions, an increased interest rate would also lower our national debt. Blanchard then explains three issues related to monetary policy: "the implications of the liquidity trap, the provision of liquidity, and the management of capital flows." I agree with Syed that Blanchard is referring to the liquidity trap as the reluctance of banks to lend out money. As discussed in class, the FED has done nearly all it can do. Unfortunately, the FED cannot force the banks to lend out more money. I think Blanchard does an excellent job explaining these three issues and the arguments both for and against possible resolutions.
I found this article very interesting. It ties in nicely with what we have been discussing in class. As the author states, the primary duties of the FED are to maximize employment and to keep stable prices. The FED pursues these two goals through changes in interest rates. However, because the interest rate is essentially at zero right now, the FED cannot lower the interest rate any further. Instead, the FED is using quantitative easing. Although quantitative easing aims towards stimulating the economy, our economy will still need help in the long run. As the article points out, quantitative easing is not as powerful as traditional price easing or interest rate lowering policy.
This article does an excellent job explaining how the marginal propensity to consume differs between the poor, middle, and upper class. As demonstrated in Figure 1, the poor have a much higher MPC than the wealthy. By understanding the reasons behind different marginal propensities to consume, policy makers can better create stimulus packages. Because of the differences in MPC, lower income households will more effectively use stimulus packages than wealthier households. The article offers two types of experiments--government transfer and redistribution policy. Although the article does a fine job explaining the effects of each of these experiments, the author does not include which policy he would support or advocate.
Bruce Bartlett makes an excellent point by emphasizing the distinction between investment spending and consumer spending. As discussed in class today, investment spending can lead to high returns in the long run. Therefore, as Jacob mentions, investment spending should be exempt from budget cuts. As Bartlett suggests, the government should increase investment spending on physical capital, infrastructure, R&D, and human capital. Increased investment spending would not only lead to returns in the long run, but also decrease unemployment.
Economists are making strong arguments to create more inflation. As the article points out, there are many positives about increasing inflation. Higher inflation is a way to "boost growth without additional government spending." By increasing the inflation rate, real interest rates would decrease. This would give people more incentive to spend and invest--both of which could only positively effect the economy. Furthermore, higher inflation would reduce the real value of debt which allows there to be more money for consumers to spend. The article also argues that high inflation could increase US exports by reducing the value of the dollar. Unfortunately, although models can depict the likely outcomes of increasing inflation, the only way to find out the effects of high inflation is to actually put it into action in the economy.
Although unemployment rates have decreased, this article does not seem very positive. Because the employment-to-population rate has decreased, some of the decrease in the overall unemployment rate is due to people simply leaving the workforce. The article explains that "workers with less than a high school degree were the big winners in September with a drop of a full percentage point in their unemployment." As Syed mentions, I wonder if this decrease could simply be a result of people going back to school in order increase their education. Furthermore, as discussed in class, the unemployment rate only includes those who are actively looking for jobs. Therefore, the unemployment rate might have decreased because people gave up on looking for employment. As Maddie discusses, the article does not consider the underemployed. I would be interested to see the rate for underemployed as well as those unemployed.
I agree with both Jacob and Maddie. Although Reich made some great points on the myths about a free market, he did not offer any solutions for change. I would have enjoyed the article much more if he had offered his opinions or insights on possible improvements for the economy. I like how Reich describes the free market as "a bunch of rules" and that the governments must organize and maintain. Although Reich seems very knowledgable and enthusiastic about this topic, he, as Maddie said, is simply restating a problem. As Reich says himself, if we want to reduce the inequalities and insecurities that undermine the economy, we need to change the rules and make the economy work for us. I would have loved to hear what rules Reich would like to change.
Toggle Commented Sep 17, 2013 on Link from Twitter econ 102 at Jolly Green General
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Sep 16, 2013