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Guilherme Baldresca
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Halpern, Koren, and Szeidl make the case for free trade by analyzing the Hungarian economy, and coming to the conclusion that a higher share of imported goods increases a firm's productivity, which evidently impacts long-term economic growth and the population's well-being. They found that increasing the share of imported goods for a given firm increases their revenue productivity by 22% and their quantity productivity by 24%. Their model also permits for heterogeneity in importing patterns existing, recognising that half of the firms do not import at all. They also note that foreign-owned companies not only import more, but are also more benefited by importing than domestically-owned ones. This opens room for policy discussion, in which perhaps easing trade tariffs can be paired with less restrictive foreign direct investment policies. This study takes a clear side in one of the most contended debates in the 2016 election cycle: free trade. Populist politicians as Donald Trump and Bernie Sanders have brought the issue to the media spotlight, criticising current US trade policy for being too free. While clearly this is a very nuanced issue with several difficult implication, the evidence overwhelmingly states that the general population is better-off with free trade than without it. Reducing trade would increase the price of all goods, as not only labor becomes more expensive but other inputs' prices spiral up, which is clearly not beneficial to consumers. This causes them to have less money and spend less, which then hurts companies and job creation, defeating the very purpose of a protectionist trade policy.
Barry Eichengreen's article advocates for a shift in world governments' efforts to restart the global economy away from a loose monetary policy and toward the more traditional countercyclical government deficit spending policy. Writing about the G-20's meeting, he says: "...all that emerged from the meeting was an anodyne statement about pursuing structural reforms and avoiding beggar-thy-neighbor policies." I disagree with his dismissal of the importance of structural reforms to restart the global economy. Several countries, in Europe and in emerging markets, are in dire need of deep structural reforms to strengthen the financial system and ease trade and business-doing. The only way a countercyclical measure by the government to expand the economy would have the long-lasting effects he hopes for "Productive public investment would also enhance the returns on private investment, encouraging firms to undertake additional projects.", would be if those structural reforms are made to facilitate private firms's investment. Latin American countries, for example, suffer from excessive bureaucracy and terrible property rights. European countries, on the other hand, suffer in many cases from excessive, unnecessary regulation and excessive taxation. The type of expanded government investment that Eichengreen is advocating for can only be effective, without simply creating a plethora of "white elephants", if those structural reforms he mocks in the beginning of his article are made.
Susan Kelley, in this article, discusses a study that showed that modest increase in the tipped minimum wage do not severely affect the profitability of restaurants or their ability to conduct business. I would hypothesize that there are two main reasons for this phenomenon. Firstly, the demand for restaurants could show itself to be quite inelastic, not responding to increases in prices dramatically. Secondly, it is possible that in many states a large portion of restaurant workers, especially in places with high costs of living, already made above the minimum wage and were not affected by the changes in public policy. It is also important to remember that the results of the study are an average of many increases in many states over the course of more than two decades; I would theorize that in more rural, poverty-stricken areas, demand for food services may be more elastic and so restaurants would be more affected by the changes. This is why, perhaps, a more local approach may be a better alternative.
Japan's adoption of negative interest rates is unsurprising. Abenomics, dubbed after Prime Minister of Japan Shinzo Abe, derives its policies from an economic mindset that would almost certainly support monetarily expansionist measures like negative interest rates. The intended result is to kickstart the economy by increasing the volume of currency in circulation, through a mechanism that encourages banks to sustain lenient lending standards. This practice has already been adopted by the ECB (European Central Bank), with practically insignificant results, as most of the population is not willing to commit to higher levels of spending and investment, which is likely to be the same in Japan as both regions share very similar economic problems (ageing population, deflation, low levels of investment and spending, etc.)
Toggle Commented Feb 1, 2016 on ECON 102 at Jolly Green General
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Feb 1, 2016