This is Danielle Spickard's Typepad Profile.
Join Typepad and start following Danielle Spickard's activity
Join Now!
Already a member? Sign In
Danielle Spickard
Recent Activity
By looking at evidence from the Hungarian economy, Halper, Koren, and Szeidl argue that increasing imports is beneficial to the domestic economy. First looking at the microeconomic level, studies show that improved access to foreign inputs has had a positive impact on firms’ productivity in multiple countries such as Chile, India, and Indonesia. “Imported inputs affect firms’ productivity in two channels”: whether they have higher price-adjusted quality, and whether they are imperfect substitutes for domestic products. Results reveal that increasing the fraction of tradable goods imported increases productivity. From 1992-2003, Hungary increased their manufacturing sales from 21% to 80% due to the fact that foreign firms have a certain “know-how” about foreign markets and can obtain cheaper suppliers, therefore being able to gain more on imports. When firms are more productive, they have a greater ability to increase their consumption and possibly their ability to make loans. This increases both C and I in the real GDP equation, which therefore increases the real GDP of the economy. On an ending note the authors state that “the magnitude of redistributive losses due to import substitution depends strongly on both the extent of the substitution and the initial level of tariffs.”
Many Americans associate a balanced budget or a surplus budget with being good, while they associate a budget deficit with being bad. There have been several amendments proposed to Congress that require a balanced budget. While this may seem like a solid plan, a group of leading economists explained in a letter to President Obama and Congress as to why such an amendment would be a “very unsound policy.” When we face a recession, consumer and investment spending both decrease, affecting the real GDP. In order to accelerate the economy, a solution is to increase government spending. However, doing so requires the government to spend more than the revenue it receives, thus causing a budget deficit. Already in place are “built-in stabilizers,” so that when the economy faces a recession, tax revenues fall and unemployment benefits rise. If the government was required to keep a balanced budget, the recession would be aggravated and not be able to be fixed by government spending. Furthermore, a balanced budget would prevent the government borrowing to invest in infrastructure, education, environmental protection, and so on. The letter argues that no other nation relies on a balanced budget mandate, and it is unnecessary to restrain the economy in this way. The budget has been balanced before under our current Constitution, and these leading economists have faith that with proper budget plans, we can again record surpluses and reduce the debt just as we did back in the 1990’s.
In Brad Delong’s article, he argues that while this might not be the “Greatest Depression,” it is highly probable that it will be remembered as the “Longest Depression,” for according to economist Joe Stiglitz, “we didn’t do what was needed, and we have ended up precisely where [he] feared we would.” Our economy is self-correcting, and many people believed that it would rebound quickly after 2008. However, while economy might be self-correcting, it can take a very long time. This is when the government should intervene. After the recession began in 2008, Professor Goldsmith mentioned how the government implemented the Troubled Asset Relief Program. Essentially, the government bought the non-performing loans held by Wall Street firms in the hope that it would increase loanable funds and decrease interest rates. However, the cash ended up sitting due to the fear of making loans during a recession. Another reason this was perhaps not the best decision to boost the economy is because when money is given directly to the people or to firms, the aggregate demand curve shifts by less than an equal sized spending on government purchases (such as on infrastructure). This is because when the government makes purchases, all of that money is directly placed into the economy. Contrarily, when money is given to firms or individuals, they will save some of it, reducing the amount of consumption in the economy, and thus having a smaller effect on the real GDP. However, even with the Stimulus Program that followed, the government did not invest a substantial amount of money into the economy so the effects were negligible—another reason it has taken us so long to get out of the recession. Delong believes that our first task is to educate the people and have everyone understand that we need “debt relief and much tighter financial regulation.” Our second task is to become politically organized and to remove the ideological and political blockages so that we can return to the economic state prior to 2008.
Susan Kelly’s article reveals how whenever federal, state, or local laws have increased minimum wages, US restaurants oppose them, claiming that an increased minimum wage requires layoffs, jacked up prices, and overall unhappy customers. However, a new study by Michael Lynn and Christopher Boone is now claiming that small or gradual rises in the minimum wage do not have the negative effects that restaurants claim. In fact, there is evidence supporting that a modest rise in the minimum wage increases total earnings of the restaurant workforce, and result in benefits for the restaurants as well, such as happier, more productive employees who are less likely to quit their jobs. The slight increase to the minimum wage will change the disposable income of employees, which will in turn change the MPC. Due to the spending multiplier, this change in MPC can greatly affect the spending and consumption of the economy. However, Kelly warns that a larger increases in the minimum wage, as seen in Los Angeles, San Francisco, and Seattle, could have more negative effects. This is a difficult situation, as these three cities have a much higher cost of living than other parts of the country, and many people could benefit from the increase in minimum wages and actually be able to survive. However, if this jump is too large and happens too quickly, and restaurants are forced to drastically increase their prices and cannot adjust accordingly, they might reach a point in which they risk an eventual decrease in demand and profitability. As we have learned that there is no magic answer to solve all of the world’s problems, and that different cities or countries respond to similar changes in very different ways, I am curious to see if the large increase in minimum wages will have varying results among the cities.
In Paul Krugman's article, he criticizes the notion that the Great Recession's rise in unemployment was structural. A large portion of the population assumed that as the economy was changing, workers simply lacked the skills capable of fulfilling the new jobs. However, this argument lacks evidence, for if skills were the problem, the wages of more skillful occupations would rapidly rise to compensate for the lack of supply of skilled workers. Krugman refers to how many people believed unemployment was structural during the Great Depression as well, but that this idea was disproved due to the stimulation that World War II provided. The evidence shows that the cause of high levels of unemployment during the Great Recession was cyclical instead, meaning unemployment is directly related to the fluctuations in growth and production that occur in the business cycle. The number of unemployed workers exceeds the number of jobs available, resulting in many economists believing that government intervention is a viable solution. Such methods involve deficit spending or certain tactics dealing with monetary policy. Nevertheless, elite circles continue to promote the idea of structural unemployment as a simple fact despite the fact that this is not the case.
Danielle Spickard is now following Caseyj
Feb 14, 2016
Alvin Powell’s article, “The Costs of Inequality: When a Fair Shake Isn’t,” discusses the rising level of inequality among the US. Real wages for most workers have remained relatively stagnant since the 1970s. However, real wages for the top 1 percent have increased 156 percent, while real wages for the top .1 percent have increased 362 percent. In 2014, the poorest 20 percent only received 3.6 percent of the national income, while the upper 20 percent received nearly half of the US income. The issue of inequality is definitely a popular topic right now in the political debate, and the issue of inequality has been present for some time. However, while the issue is very popular, there is hardly any mention of the causes of inequality, and most presidential candidates’ plans to fight inequality are shaky. While income is important, Picketty argues that wealth is critically important, as capital grows faster than the economy. Essentially, the more capital a person owns, the quicker the wealth will grow, as compared to wages alone. Many believe that the root of the cause lies in poverty and racism. Minorities face lower health and education levels, and thus do not possess human capital that can greatly increase their income—there is a link between where a child lives and that child’s success rate. Two suggested initiatives to solving the inequality issue were to raise the minimum wage and to change the tax policy. I thought the idea of raising the minimum wage was very interesting, as being from California, there has been a lot of discussion recently regarding California raising its minimum wage to $15 per hour by 2021. Having lived near LA and witnessing the severe homeless population and their struggles to afford many necessities, I’m hoping that a higher minimum wage benefits these people and helps reduce inequality. I’m curious to see the changes that a higher minimum wage has on California’s economy, and if other states follow suit in the future.
Prior to reading this article, I had never considered how implementing a policy that cuts interest rates below zero could actually help stimulate the Japanese economy. However, this idea now makes sense as a viable option, for it will push banks to lend to more companies, which will, in turn, result in companies both spending and hiring more. I also thought it was interesting how the article mentioned both the low oil prices and slowing growth of China--two topics that were mentioned in a previous article. The negative impact that low oil prices and a slowing Chinese economy is affecting the confidence of Japanese businesses, which will then affect an already nervous US economy, and increase the risk of sending the US economy into another recession. Furthermore, by decreasing their interest rates to -0.1%, the Japanese are decreasing the value of the yen, which will hurt China as it struggles to contain outflows of money and prop up its own currency. I find it extremely interesting how because many economies in the world are so intertwined, that a decision made by the Japanese administration will affect the entire global economy. The Bank of Japan even admitted that “the rate cut was based on global conditions, not the Japanese economy itself.” I'm interested to see if Japan's new policy will stabilize its economy, and hopefully quell the fears of many large businesses.
Toggle Commented Feb 1, 2016 on ECON 102 at Jolly Green General
This Washington Post article was very relevant to what we discussed in class on Wednesday. As Iran continuously pumps a surplus of oil, the US economy is experiencing oil prices plummeting by about 30% to $26 a barrel, the lowest since 2003. Many believe that this decreased global oil demand is possibly foreshadowing a future recession. This fear of a recession is impacting a myriad of businesses such as Netflix, Facebook, and Apple, each who are experiencing falling shares. As more people believe that the stock market is an indicator of a future recession, they are more likely to cut back on their spending, and begin to save. This is known as the paradox of thrift, a phenomenon in which people save money in hopes of increasing their income where in reality the saving decreases demand, and thus decreases jobs and income. If the global economy continues to make these rash decisions, we could actually end up in another recession regardless of whether or not our economy is headed in that direction currently. It will be interesting to see how the global economy responds to these events, and if Chris Hyzy, a chief investment officer at Bank of America Merrill Lynch, is correct in claiming that “the 80 month-long expansion is still alive.”
Danielle Spickard is now following The Typepad Team
Jan 21, 2016