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"The productivity effects of importing inputs: evidence from Hungary" written by László Halpern, Miklós Koren, and Adam Szeidl is an exploration of the effects of imported inputs on overall firm productivity. Their claim from the start is that there is a large productivity increase from the importing of inputs. It makes sense that foreign-owned firms would benefit from foreign imports. It seems logical that international companies would have a larger command of the international trade market compared to a domestic company. This is important to note for Hungary, as the article illustrates, because their foreign companies control 80% of the markets in Hungary. It is also interesting that the authors note how tariff cuts would generously increase productivity. I would have never considered that because Hungary already has low tariff rates, they have implicitly high activity from foreign owned companies, which it has been seen increases their economy. Of course, this implies that by enacting a tariff cut, they would increase substantially their own firms productivity. I found it interesting, though, that this hinges on the quality of the imported good versus the domestic input. This article was very enlightening to me. It makes intuitive sense in many ways, but also, it surprises me that importing an input could actually drastically increase a producers' productivity. Perhaps in many ways, since this is mostly the case for foreign companies, this is a result of not having to develop new methods in every new country that a firm opens in. Overall, however, this article makes a strong case for the evidence of exports and imports as an indicator for growth.
'Balanced Budget Amendment “Very Unsound Policy,” Leading Economists Warn' from the CBPP summarizes its purpose in its title. In contemporary times, politicians are frequently quoted stating something in the realm of "If a family has to leave within their means, why shouldn't our government?" These anthems are met with cheers from disenchanted Americans who are tired of the increasing national debt and their perception that our government is wasteful and ineffective. While these disenchanted Americans aren't necessarily incorrect in their thinking, this article reminds readers why we have an electoral college system rather than an election by popular vote. These leading economists explain every facet of the impossibility that is a balanced budget act. They explain how reducing the borrowing ability of the government would aggravate recessional years as the federal government would "require states, localities, and private businesses to do what it cannot finance itself." These smaller jurisdictions would already be hurting from the recession, and wouldn't be able to receive government intervention in the form of infrastructure or other investments. These economists also make a good point that these amendments frequently require "super-majorities" which would be practically impossible to attain and which would render many battles as to just what is "balanced" to court systems, moving the economic policy making power to the judicial branch. The concept of the balanced budget may seem, at first, a highly logical necessity to combat the ever-expanding national debt. However, that seems to be a fairly microeconomic perspective. When considering deficit spending and borrowing that is conducted by the Federal government one must consider that this spending is most likely being conducted in conjunction with lowered taxes in order to alleviate the strain of a recession on the rest of the country. As the article last week mentioned, a laissez-faire attitude does not seem to be working in regards to pulling our nation out of the 2008 recession, and that author made an excellent argument for the necessity of increased deficit spending on infrastructure and education. This repeated opinion from leading economists cannot be taken with a grain of salt. While, depending on who you might ask, the government may very well be making poor decisions with its deficit spending, the resounding opinion is that this type of spending is necessary to prevent major depressions and perpetuated recessions.
As the article title would suggest, Kelley's "Restaurant industry unharmed by modest minimum wage hikes" summarizes the research conducted by Christopher Boone and Michael Lynn, which indicates that the financial climate for restaurants is not so volatile that small increases to the minimum wage for their workers would result in drastic consequences. The restaurant industry has not been forced to raise the federal minimum wage for tipped workers in 25 years, as Caleigh astutely points out, granted the last time a federal minimum wage raise for untipped workers occurred was in 2009. The most interesting part of this article, in my opinion, is the discussion of how this study was conducted. It is so simple but so ingenious to use the existing differences in minimum wage across the US to study potential effects that raising the minimum wage might have. This is an amazing example of economics research practices. I would be interested to see an extended study conducted, since Boone and Lynn claim that higher paid restaurant workers would be more likely to do a good job and less likely to quit--granted this is the logical conclusion. However, it seems that these workers with higher wages are in areas within which the general minimum wage is higher, it forces the reader to wonder if the cost of living is higher in these places and perhaps the effect of the higher minimum wage is offset by the fact that the workers are still on the lower end of the earning spectrum. Obviously this type of study would be more subjective, but it would be interesting to attempt and link the two factors. Perhaps this would convince restaurant chains that increasing the minimum wage could actually increase their business!
"Structural Humbug Revisited" is a brief commentary by our textbook's author, Paul Krugman, defending his (appropriately justified) dissent that the cause for high unemployment during the Great Recession was cyclical rather than structural. Krugman's defense for this lies in the unavoidable fact that during the Great Recession, there was no rise in higher paying jobs accompanying the so-called structural shift in employment. As a result, it is very unlikely that the majority of jobless individuals found themselves in that situation as a result of a lack of skills for more specialized jobs. Rather, it is likely that the demand for labor from firms was reduced as a result of the contemporary economy. It seems a logical perspective that one of the deepest recessions in recent memory would be the cause of unemployment derived from a multitude of issues with the economy. However the adamancy that structural unemployment was to blame primarily for the peak during that particular era seems blindly misguided. I would be interested to see an argument in favor of this idea, considering Krugman mainly sticks to his case, pointing out the reasons illustrating his point. I did find this study: which suggested that skill mismatches did, in fact, increase unusually during the Great Recession period, they estimate though, that there was less than 2% increase in the rate of structural unemployment due to these factors. This fully explaining the peak unemployment rate of 10.1% seems unlikely
This article, "The costs of inequality: When a fair shake isn’t", scribed by Mr. Alvin Powell is an interesting synopsis of Harvard investigations into American inequality. Powell first stuns his audience with an animated graphic highlighting the astronomical imbalance in wealth distribution in the US, the conclusion of which is, of course, that the bottom 20% of Americans are actually so in debt that they make up a negative percentage of the nation's wealth. Partly, Powell ascribes this to the immobility of the wages for the middle and lower class over the past 50 years: While the rich continue to earn increasingly more each year, the poor earn steady wages. He partly attributes this "poverty, exacerbated by racism" on political choices made in the conservative ages of the 1980s, when tax cuts intended to shrink government favored big businesses. This is further illustrated in the quote "...there exists an almost ironclad link between a child’s ZIP code and her chances of success." Another interesting fact Powell highlights comes from the research of Professor Michael Norton: Given the choice, most Americans would choose the income distribution of Sweden over the current American inequity. Powell continues citing Norton and Dean James Ryan who suggest that much of this inequity results from educational imbalance in minority groups. A hypothesis that is backed by statistical data from NCES and NEAP. This article holds value in that it draws attention to the inconsolable inequity in America. Some would of course argue that America is the land of the free, and as such, everyone is free to make their own way. Unfortunately, though, there is such a difficult maze of bureaucracy and as Powell comments, wealth is power. As a college student with little significance other than having the privilege of being raised in a good home, I now find myself dropped into a world where I have to choose between the American freedom to do what I want, and the knowledge that what I want may not get me the wealth to give my child the same life I had. If I don't somehow catapult myself into the top 20-40% I can easily see my future family suffering the inequality of a uniquely American social stratification.
"Bank of Japan, in a Surprise, Adopts Negative Interest Rate" by Keith Bradsher is a brief explanation of a substantial economic decision made by the central bank of Japan that will have far-reaching effects on the global economy. Japan has adopted a -.1% interest rate on funds deposited and saved (over the legal minimum requirement) by banks. This policy, in essence, disincentivises saving money at the central bank for peripheral banks, and instead, encourages (hopefully) investment spending to stimulate the Japanese economy. This is a policy that has been adopted already in several European countries, as the author mentions, and one that has more effects than simply encouraging growth: It also devalues the Yen and any currency held to the Yen's value. To me, this tactic seems as logical as the adoption of stimulus packages by the Obama administration in the 2008 recession. The ideas are the same, except the hope of Japan is that while the Yen will be temporarily devalued, and by injecting the pre-existing cash back into the economy, eventually, interest rates could be raised back into the positive values. At this point, the Yen's value rescued, the new capital created by the investment spending during the negative interest rate era would stimulate the economy enough to not necessitate a perpetuation of this negative interest rate. That's the theory, now whether or not this will work in practicality is a different story. To me is seems that Japan will have difficulty maintaining their ground on this interest rate with the economic pressure from China, whose currency will also be losing value. Moreover, in devaluing their currency, Japan is devaluing the investment spending that is the exact goal of the rate. Banks are having to loan more money to generate the same new capital, which could also be counterintuitive.
Toggle Commented Feb 5, 2016 on ECON 102 at Jolly Green General
"Some Economics for Martin Luther King Jr. Day" by Timothy Taylor is a collection of thoughts and analyses on racial inequality as it relates to economics. His first idea pulls from a 2012 article in which he discusses how gender and racial discrimination is detrimental to society as it prevents each individual from achieving their optimal personal level by assuming that women or non-white men are inherently less skilled than white men. He presents data illustrating that potentially over 48 years, that assumption is shifting slowly, as women and non-white men step into more roles at high-skill occupations. I think his point that economic growth depends on allowing all individuals to reach their full potential plays really well into our discussions this week of the microeconomics concepts of advantages. We would never condone a firm or country allocating resources to an inefficient task (hiring a less efficient white male over a more efficient woman or non-white man), so it makes sense in more than just a socially justified sense that everyone should have the chance to reach their potential. Taylor's second point is extremely haunting as it discussing the implication that, on average, African American children are noticeably behind their caucasian counterparts in a school context. Taylor's third point is one that should be discussed more frequently. He and Glenn Loury discuss how typical discrimination studies are conducted in economics. When it comes to determining the disparity from an economic standpoint, how does it make sense to hold the group under question accountable for their disparity. While the world and life are not fair, it is important to look at these groups and realize that their situation necessitates the courses of action in some cases. In many ways, they have no choice to "prepare themselves of the labor market" as they are stuck combatting the situations in which they find themselves. The fourth point I found particularly ironic as just last week, the MLK concert on our campus was cancelled because they could not secure the rights to the music and speeches to perform them for what has previously been an annual concert. Overall, these four points were quite varied, but they held a singular unique theme relating back to Dr. Martin Luther King Jr's work to propel us into a more equal and better future.
Toggle Commented Jan 21, 2016 on ECON 102 Reading at Jolly Green General
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Jan 21, 2016