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John Broderick
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Based on the article of Hungary and what we had discussed in class it has become evident that limiting the import of inputs is a not a great idea. The idea of limiting inputs is to force firms to buy more domestic goods, which in theory would put more money into GDP. This is due to the money being saved from going overseas, which would now be given to domestic firms. The problem with this scenario is that the only reason why there is international trade is due to comparative advantage. We import from those who have the comparative advantage of producing a good or service, so we get it for cheaper prices. If there were to be import restrictions then firms would be forced to buy more expensive domestic products that are not necessarily better than those produced overseas. This will cause the firms products to increase in price drastically. Although the money saved from imports had stayed in the domestic economy, consumers are now forced to spend more on one good. This would leave them with less money to spend on other goods. In class we had said that the amount of money we saved from imports that went into consumption actually was counteracted by the lack of money consumers had after buying the now more expensive good. This would cause the overall GDP to fall. The article on Hungary had shown the evidence behind this idea, when it showed higher economic growth after tariff cuts. There was also the increase productivity when the firms started to import goods. Therefore based on this evidence, it is not a good idea to restrict imports due to the positive benefits imports have on the GDP.
Before taking economics classes, I would have said that having a balanced budget sounds like a good thing to help the economy. Which is why I believe that if someone were to preach a balanced budget in their campaign for president then they would get support from those who aren't educated in the area. After last week's classes it became evident that if we were to cap government expenditure it would put the economy at great risk. When we looked at the model for aggregate supply and aggregate demand, we took into consideration a recessionary gap. If there were to be a recessionary gap without any fiscal spending then the short term economy would be under a lot more stress. When the economy spends more during these times it pushes the aggregate demand up to possibly keep the economy stable during the beginning stages. We saw a lot of fiscal spending during the most recent recession, which helped give many jobs to people who would otherwise be unemployed. The investment on education also helps the economy in the long run by producing more and more capable workers. Even if the economy wasn't in a recession what would happen when there was a natural disaster with millions in damage. The people don't pay out of pocket to fix the public damage but they rather depend on the taxes that they pay. Without this spending many public services wouldn't be done that would help areas affected by the disaster. I believe the most important spending is in education. A great deal of government spending goes towards education so if there were to be an amendment that mandated the government spending there would definitely be some cuts to education. One should also consider where the government spends a lot of its money. Health care, pension, and defenses are some of the nations biggest expenses. If we were to restrict spending to having a fixed budget these key areas of spending would suffer greatly. I agree with the economists that say if we were to cap the government spending we would face many difficulties.
I think that the idea of pushing money towards education and other public goods will definitely do good for the economy. As we have spoken in multiple classes the public works jobs during the "Great Recession"helped a great deal. This will put more money into the economy while giving many people jobs. Public works projects are very good for the economy in the short term. In the long term I think that the push for education would be a great idea because it is also an investment in human capital, that will allow for greater returns to the economy in the future. With this all of this spending it is quite possible that a good amount of it may go to waste so I believe that here must be careful eye placed on where the money is going. The negative rates in banking have do have potential to stir up the market and force people to invest in different things. However, this could lead to risky trades being done, and lead to more complex problems. Therefore I think that the author definitely has some credibility when he talks about how the simple solution is public spending. From our formula for the GDP government plays a large role. With the capability of putting hundreds of billions of dollars into the economy, it would enable it to get back on its feet again and spur some growth. This would then be followed by the positive effects of the investment in education, providing much more human capital to the economy, again causing it to grow.
When looking at a possible minimum wage increase, policy makers have to take into careful consideration on how that increase would effect the labor markets. As learned in microeconomics, with a increase in minimum wage and a demand for workers staying the same the equilibrium point may be shifted up the demand line leaving some shortage of workers. This is where the balance needs to be made in order to raise minimum wage without losing many jobs. In her article Susan Kelly had written on the work of two men, Michael Lynn and Christopher Boone. Towards the end of the article she had noted that their study had concluded that small minimum wage increases for those who work in restaurant have shown to have negligible negative effects on the work force. They however warned the readers that this was only for small wage increases over the span of twenty years. I can definitely understand how small wage increases wouldn't affect the work force greatly. Because I think that as time goes on and inflation causes the price level to increase the wage will also follow suit. I do like how the ones who conducted this experiment said that their findings didn't necessarily apply to the rapid minimum wage increases like that of Los Angeles. Since this study showed benefits for both the workers in restaurants and for the restaurant themselves, I think that a rise in minimum wage should be made in at least the restaurant business. Something I found to be very alarming about this article was to hear some of the minimum wages for waiters and waitresses and how they can differ based on whether or not they are tipped. The tipped workers wage is obscenely below that of the non tipped worker, which is concerning. This is concerning because although they might make as much money as non tipped workers a lot of that money is undocumented. In professor Goldsmith's talk on thursday he spoke along the lines of how people like a waiter who is making the majority of their money off of tips will often find it very hard to get a loan due to a poor credit score. They only have so much documented income therefore their credit rate are low due to being considered a risky loan. This severely affects these workers. With this in mind I think that there should definitely be a push to raise the minimum wage of tipped workers to be closer to that of a nontipped worked, based on what Professor Goldsmith had to say in his talk Thursday.
I think Krugman really sheds light upon how someone can have an idea and be too stubborn to change it when they are presented with facts that disprove it. We then see this "elite opinion" as Krugman calls it, and then it is taken as the truth by many people. The facts of the Great Recession are that although there was a large drop in unemployment, it couldn't be structural because there was no change in the wages in job markets. If this were to be structural there would be a hike in prices, as they try to find more qualified workers for the positions. This is the basis for Krugman's argument, since there wasn't a change in wages it must not have been a problem with the skills of the workers demand, therefore it must be a cyclical. I found it interesting how Krugman criticized those who blindly followed the "elite opinion" without looking at the facts. If there is a chance to further dive into more deeply why people do this in class it would be great.
Before this article I had never known about negative interest rates, and now I find it to be a good idea if a country is going through troubles with their economy. This would cause people to be more prone to investing and spending their money instead of letting there money slowly be chipped at by these rates. If there are more people spending the economy will naturally rise a few percents like we saw in the Nikkei 225 charts in the article. I do see a problem with this negative interest rate, when people no longer have the security of putting money in the bank they have to turn to riskier ways of making money that hopefully will make some profit. After doing some research on Europe using the negative interest rate policy I found that government bonds also had negative returns. This would force investors to invest in stocks, which may not be the best way to hold ones money since stocks can drop insane amounts and could possibly lead to people losing a lot of their money.
Toggle Commented Feb 2, 2016 on ECON 102 at Jolly Green General
On the twentieth there was an overall drop in the stock market of one percent. This article talks about how there is widespread fear due to the price of oil decreasing, and how the Chinese economy has finally slowed down from its exponential growth this past decade. China, with a fifth of the worlds population, having a slowing economy is definitely a valid reason for investors/people to be afraid of what is going to happen next with the economy. They play a role in basically everything that goes on in the stock market. However, as we talked in class this fear should not control our actions because based on the idea of the paradox of thrift. If we start to pull money out of the stock market and the fear controls our actions things won't get much better. The decreasing oil prices make me think of what will happen to renewable energy stocks if the cost of oil continues to plummet. It would make it so cheap to buy oil that I think it would be impractical for people to buy renewable energy sources. I think that if it continues to fall, so will the prices of renewable energy. I find it really interesting how one thing so simple as oil can basically control economies. And how China, one country out of hundreds has such a great influence on the American economy. In my own opinion I think that we should be worried about the potential consequences of oil prices dropping so rapidly, and something should be done in order to stabilize its price. I would definitely be interested in looking more into this topic during class.
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Jan 24, 2016