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Abigail Summerville
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Using data from Hungary, the authors argue that firms see a substantial increase in productivity when they import inputs. They saw that imported inputs effect productivity differently depending on how close of a substitute the imported good is to the domestic good, and the difference in pricing between the two. When the imported input is an almost perfect substitute for the same domestically-produced good, the firm should buy more import inputs. They also found that current or previously foreign-owned firms benefit from imported inputs more than non-foreign-owned firms. Two factors account for this trend: foreign firms "have know-how about foreign markets and can access cheap suppliers abroad", and foreign firms have lower import costs because their fixed cost schedule is lower than that of domestic firms. They advise a tariff cut because it would increase firm imports and firm and aggregate productivity. The initial participation of producers in importing also effects firm and aggregate productivity, with an initially high amount of participation causing larger gains from a tariff cut. If a country were to cut tariffs to increase input imports, the firms in that country would benefit, and so would the consumers of that country who get to buy that good at a cheaper price, and lastly the foreign firm they're buying the inputs from would benefit. However, as we've discussed in class, the domestic workers would bear the cost because they'd get fired if a domestic firm decides that importing inputs from a foreign country has a higher comparative advantage than using domestic inputs.
In his article, Brad DeLong argues that the US economy has not fully recovered from the Great Recession of 2008. Before 2008, he thought that the economy would self-correct after a few years, however, now he realizes that the economy takes a long time to self-correct. He most likely now agrees with Keynes statement, "In the long run we're all dead." The government needs to interfere to help the economy correct itself faster. However, most citizens, and politicians, have the ideology that government should not interfere with the economy, especially by borrowing and creating a deficit. However, someone or something needs to jumpstart economic growth, and the government can do just that by borrowing money to make investments. One such investment that DeLong mentioned was investing in education, because if you invest in a person's education, the country benefits by their future contributions with their human capital. I wonder how many citizens, and especially politicians, would agree with DeLong and advocate for increased government borrowing.
In her article, Susan Kelley argues that modest increases in minimum wages of restaurant employees does not negatively effect the restaurant, and might even have a positive effect on the restaurant. Kelley writes that restaurants will have to pay workers more, but they will also raise prices, so in the end they will have the same, if not better, profits. However, there is a tipping point where the minimum wage will become too high and thus the restaurant food prices will be too high, and consumers will have a lower MPC and consume less from restaurants to save money. Then, the rise in minimum wage will have a negative effect on restaurants. Kelley also adds that the effects of a rise in minimum wage vary from place to place because each city and state has their own minimum wage laws. Each city has consumers with different MPC's. For example, people living in Los Angeles have higher incomes, and thus a higher MPC, so a rise in minimum wage and higher restaurant prices wouldn't change their MPC, and they'd consume the same amount from restaurants; whereas people living in Detroit have lower incomes and a lower MPC so rises in minimum wage and restaurant prices would lower their MPC and they'd consume less.
"When it comes to the economy, much of the debate about climate change...is framed as a trade-off between environmental protection and economic prosperity." Instead, Robert Rubin says that people should be asking "what is the cost of inaction?" in response to climate change, which yields a greater cost than action. He lists three ways to "take action": the government should create policies protecting the environment, companies should disclose the affect climate change would have on their business in terms of assets and costs, and GDP should include externalities of the final goods and services produced, such as greenhouse gas emissions. I thought the third point was especially interesting and I'm curious to see if this new GDP idea will be adopted on a large scale. I think a fourth point should be to encourage individual investors to invest their money into R&D for environmentally-friendly technology and inventions, such as solar power, wind power, electrical cars, etc. Currently, most of the people who are being negatively affected by climate change are poor people who live on islands that are affected by rising sea levels, rural people who see changes in the ecosystem of the forest around them, and many more. The investors with all the money who live in New York City and other major cities around the world are not currently being affected by climate change, and thus see no need to start investing all their money into stopping it. However, their attitudes need to change because, as Rubin points out, climate change will have major economic costs in the future.
Toggle Commented Feb 3, 2016 on ECON 102 at Jolly Green General
Japan making interest rates negative reminded me of when we talked in class about how if people have uncertainty about the inflation rate or probability of default, they will lend less and borrow less because they think the risk is high. In Japan, citizens are borrowing and lending less because they have uncertainty about the economy, causing a deflationary period where people save money rather than spend it. By adopting a negative interest rate, Japan will charge people a fee for keeping money in the bank, encouraging people to spend rather than save money and encouraging banks to loan money to businesses, which Japan hopes will stimulate their economy and stop the current period of deflation. At first, when I read the article I was shocked that a country would make citizens pay to keep their money in a bank, but after I read my class notes and had time to think about the impacts of a negative interest rate I realized that it is a smart move, although I'll have to wait a few months to see if the policy will indeed help their economy.
Toggle Commented Feb 1, 2016 on ECON 102 at Jolly Green General
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Jan 27, 2016