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Ian Gipson
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By using concrete numerical evidence from the Hungarian economy, Halpern, Koren, and Szeidl, are able to concisely and effectively argue that limiting imports would not help the domestic economy. In fact, their findings are the opposite. They can demonstrate that by decreasing import costs aggregate manufacturing productivity is actually increased by nearly 6% between 1992 and 2002. Though originally examined at a microeconomic level, this finding has great connection to macroeconomic concepts. Primarily, it shows that by allowing firms in an industry to decreases their costs by importing input materials, they can improve their production by a measurable amount. In connection to the GDP equation, this allows for consumption to increase as the lower prices in this industry would allow for spending in other areas as well as allowing firms to invest more both in themselves or in other entities. Though it also means an increase in imports, this is likely less than the effect of the other two factors. This would lead to an increase in aggregate demand and therefore an increase in GDP and a growing economy. Assuming a scenario where imports are limited, the opposite effect would likely take place. The production prices would remain at a higher level, people still need to consume manufactured products at the same rate meaning they cannot direct their wealth to consume or invest more in other areas. In conclusion, while it might protect certain participants in the domestic economy, it decreases efficiency overall and can harm the economy overall by preventing growth.
In the current political climate, the federal budget certainly receives a great deal of attention, and this article does a fantastic job of addressing what is certainly a rash idea. As with anything, taking things to an extreme is rarely advantageous. Of course, a balanced federal budget can be a great thing in many situations and can demonstrate responsible allocation and efficient agencies and programs. However, requiring a balanced budget can be negative in as many ways as it can be positive. As the authors of the letter to the president and congress lay out, in the event of economic downturn, as well as other situations like war efforts, a balanced budget can hinder the ability to respond. It severely limits the extent to which expansionary fiscal policy can be employed, and can slow recovery or even potentially exaggerate the downturn. Compounding on top of the issues that come during a contracting economy, there would also be a slowing of federal investment spending. As the authors point out, even in times of stability it would be far more difficult to achieve the funding necessary to improve the education system, maintain infrastructure, or encourage research and development of future technologies. Though a balanced budget is by no means a negative thing. Striving for a balanced budget certainly can yield improvements like optimizing branches and programs that run inefficiently or better focussing funds towards research projects that are producing results. In the end, the article does a great job of not arguing against achieving a balanced budget, but rather arguing against mandating one as there are times when deficit spending can be necessary.
In my opinion, it is interesting to see people continuing to analyze and examine the continuing aftermath of the 'Great Recession.' It is also exceptional to examine the concepts and ideas presented here in context of other countries' recently employed policies as places like Europe and Japan struggle with their domestic economies. Primarily examining the comments on interest rates and inflation, there exists a great deal of relevance to what we've discussed in class over the last few weeks. I actually find it most important to mention that the attitude of policy makers and economists is ironically irrelevant. As we can see in today's world, people have a great deal of uncertainty and fear inspired by a turbulent past and unsure future. Economic policy on any level is dependent upon a rational and measured approach by the actors in said economy. Currently, a majority of people are showing that they are uninterested in following the strategies of those in power. For example, the negative effect negative interest rates have had in countries like Japan. The Japanese people and banks have virtually entirely rejected the concept of negative interest rates, and this has likely caused a great deal of money to flee the Japanese economy altogether as savers look for stability. While not arguing for negative interest rates, DeLong is using the same train of thought that by lowering interest rates and providing debt relief we will be able to manufacture a hike in aggregate demand. However, as we are seeing in Japan, what if people don't want to invest or consume in a way expected with low interest rates? In fact, companies like Google and Apple are demonstrating that not only do individuals not want to take advantage of the low interest rates for investment but corporations are staying away as well. Currently, people are looking for the most stable and safest option for their money, and in my opinion, adopting DeLong's discussed policy would dramatically upset current stability. While it makes logical sense for people and corporations to take advantage of such low interest rates, it is likely not what people or corporations will do. In theory, perhaps DeLong's ideas could prove successful, but as all economic policy is, it relies on logical actions of the people. Something extremely unlikely in the current economic setting and aftermath of the 'Great Recession.'
The federal minimum wage, and specifically some form of an increase, will be serious topic for the upcoming presidential election. In this article, Susan Kelley argues about the effect of not a dramatic change but a gradual one. Like anybody else paying their employees an hourly wage, owners of restaurants are generally unhappy when asked about an increase in minimum wage. However Kelley argues that there is a much smaller effective what is anticipated from the owners if the increase is a small one. Using macro concepts, this could make sense. Primarily, inflation is happening, and this means that the real wage will decrease if minimum wage doesn't increase at a comparable rate. Secondly, this means that the expenses of the restaurant will also increase at a slight rate yearly assuming their supplies are effected by inflation. If it's such a minimal increase for wages as well, then there will just be as slight adjustment that mimics the inflation rate meaning the negative effect on the restaurant would be minimized and comparable with standard inflation. Like Kelley says, a large increase would harm the restaurants because it is a large change that occurs at once. Instead of having each year to adjust budgeting and plans for a slight increase in expenses, they all of a sudden have double wages to pay. Kelley argues that this slight increase of expenses from a gradual increase in minimum wage is worth the benefits of a happier and more productive work force. In the end, it seems like the discussion will continue until a minimum wage solution is uncovered and this article shows that a gradual increase will be far more reasonable than an altogether increase.
After discussing this event in class, it is clear how the unemployment resulting from the 2008 Great Recession was not cyclical but rather structural. Krugman addresses the fact that the scenario wasn't one where workers were out of a job because the economy was simply rising or falling. Yes the economy was in poor shape, but it was only partially due to the economy crashing. Otherwise, unemployment during the great recession was structural. The demand for certain jobs was simply falling and the size of the labor force remained the same. In a way, there was a perfect storm. The economy faced challenges with the burst of the housing bubble that certainly could inspire difficulties, but there was certainly also an amount of structural unemployment. As with anything in economics, the answer is not straight forward, and there are many factors at play especially in a situation as complicated as the great recession.
Coming from a Catholic high-school, our religion classes spent a good amount of time discussing inequality as a factor of social injustice. This article addresses the same idea from a primarily economic view point. By examining not just the income distribution of American citizens but also the opportunity distribution, Powell takes a distinct perspective on the growing issue. He brings up factors like decreased union membership, race, education, health, and a decreasing real wage to help explain why the wealth inequality presents itself as a problem. However the most interesting part of the article is related to the search for a solution for the government. Economically, things like raising the minimum wage or changing tax policy are potential steps towards a solution, but as the comparison to Sweden showed, many people aren't on board to actually follow these plans. Whether it is due to distrust of the government or simply fear of a new policy, there exists a gap between thoughts and actions. As somebody who has traditionally believed in a conservative political philosophy, it is easy for me to understand this line of thought. However I can also recognize that the 'invisible hand' cannot prevent many market failures. In this case, the result of allowing the system to continue down the current path is hinted at by the Powell. It would lead to a system where workers decide they no longer want to work therefore collapsing the system by effectively eliminating the labor force. For my personal political views, the country is seemingly stuck between a rock and a hard place. I know that the government must intervene prior to anything extreme, but I also have reservations about trusting the government to find success in this endeavor.
Negative interest rates seem to be growing more popular these days. The first I ever heard of them was in regard to Switzerland in my high-school economics class, and now Japan, such a dynamic economy, is employing the same tactic. The point of a negative interest rate is to simulate the economy by encouraging spending. Where banks would normally store their money with a central bank, they now are forced to invest their money into other areas. As the equation for expenditure approach equation tells us, investment is a crucial part of economic growth. Furthermore, the Japanese central bank has already attempted to solve the issue by cutting taxes to increase consumer spending and increasing government spending. With both of these failing to stabilize the economy, they were forced to consider other solutions. The only other ways to stimulate the economy within control of the Japanese government is to address the investment variable of the expenditure equation. However, the traditional method of lowering interest rates near zero were unsuccessful therefore the only remaining option was a negative price of money. It is once again interesting to see the extraordinary power that China has on the economy. As the Chinese economy falls, economies all over the world are forced to use unconventional and risky tactics to try offsetting the adverse effects.
Toggle Commented Jan 29, 2016 on ECON 102 at Jolly Green General
This article, in a subtle but still noticeable manner, takes into account the unpredictability of people's decisions. As explained by Chris Rupkey, a lot of people involved in the trading of the technology stocks have been panic selling despite it not being the most reasonable course of action. This is one of the potential downfalls of our current economic system. As investors fear a recession, whether valid or not, those fears can often turn a mild economic down turn into a reasonably large economic issue. As Chris Hyzy explains, it is based on prior experiences with the 2007-2008 recession that people are hesitant. Therefore investment officers are forced to warn their investors to try to prevent an occurrence similar to the paradox of thrift. This article also discusses the same topics we referred to in class regarding the reasons behind falling oil prices. One of which is the floundering Chinese market, and another is the vast oversupply coming from large oil exporting countries in the Middle East. It is odd to consider that despite a smaller increase in Consumer Price Index, there still exists the possibility of a falling market due simply to inefficient human behavior.
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Jan 21, 2016