Saturday, February 28, 2009
Monday, February 23, 2009
In some ways, technology has brought us down. Overall, I would rather have a computer than not. Technology probably helped that teacher get to work, keep up on world affairs, and keep a grade book. There are costs and benefits of every invention.
Saturday, February 21, 2009
Now, let’s see what implications this has on two relevant discussions about today’s economy. First, what happens if people are scared and start to save money? This will increase the savings rate, γ. If we assume a straight line depreciation, δ, of 10%, .10, an initial savings of .8 then y = 8. If savings increases, to .9, then y increases to 9. This simple derivation concludes that an increase in savings will INCREASE income per worker. In macro we discuss the paradox of thrift. Is it a paradox? Consumers are saving more fearing a long protracted recession. Are consumers really helping to build capital stock for future generations?
The next question I address is how to spend the stimulus. Returning to point 2, an increase in k will increase income per worker at a diminishing rate. Not obvious from the equation is that the economy will begin to accumulate capital and work toward a higher steady state. In other words, spending on infrastructure will provide more income and tools for long-run growth. Does this sound Keynesian?
In a Facebook post by Troy White, "MySpace says it already has 130 million users worldwide, including 76 million in the U.S. Facebook says it has more 175 million active users, 70% of which are outside the U.S. Facebook has been growing at a torrid pace lately, adding new users at a rate of about 600,000 a day." You can read the article here.
My questions are: (1) with information that can be shared so quickly, are all markets approaching perfect competition? (2) Can a critical mass develop that unsettles equilibrium by affecting supply chains? (3) How do social network affect general equilibrium?
I really do not understand myself what I'm thinking, but enjoy the thought process.
Friday, February 20, 2009
Wednesday, February 18, 2009
Monday, February 16, 2009
Here's just stuff I've found while completing miscellaneous research. There's no theme.
18% of our national debt is owned by foreigners.
The stimulus package represents 5% of GDP.
20% of the unemployed are long-term.
The IMF does think there is any difference if the government spends or reduces taxes/
The table above is from McConnell-Brue shows the composition of exports and imports.
Sunday, February 15, 2009
I believe that everyone weights the benefits and costs when making a decision. Many will spend more energy getting out of an assignment that it would take to complete the assignment. In this cartoon, the professor makes the assignment worth the cost of the alternate activity.
Fox and Friends has been airing a nice series on pork spending and the stimulus, Are You Serious? The lastest installation is a mayor of Bringham, Utah who wants 15 million for a sports park that creates 33 jobs. She wants a 20 million dollar dance academy. The video is here. Here are some more in the series: $20 for zoo construction; $5 million for a new polar bear exhibit; The Shreveport mayor defends request for stimulus dollars to pay for fleet of Harley Davidsons; Virginia Beach's deputy city manager defends request for nearly $1 billion from stimulus package.
Will Rogers, to paraphrase, said all he has to do to be funny is watch government.
Saturday, February 14, 2009
I have got to believe that wage contracts will expire long before the economy begins to recover. I expect to see wages decrease and labor lose bargaining power. This is classical economics working to equilibrium making a long run adjustment.
Thursday, February 12, 2009
Wednesday, February 11, 2009
Tuesday, February 10, 2009
Monday, February 09, 2009
Sunday, February 08, 2009
The circular flow model that I use in macroeconomics can be used to look at the current stimulus package. If the government wants to spend one trillion dollars, the government must get the money from taxes or financial markets. Assuming private savings from households is not enough to fund the stimulus, the funds have to come from the Rest of the World. Foreign lending means that the rest of the world is buying our financial instruments like stock and bonds or our capital assets. What happens to the interest rates, investment, and GDP is debatable, but the circular flow shows that the loanable funds have to come from the rest of the world. Our deficit spending and our trade deficit is tied to the inflows of capital from the rest of the world. As long as we keep borrowing, we are selling off our country. Paul Krugman estimates that 39% of our GDP is owned by foreign investors.
The current unemployment rate is now 7.6% as the economy shed almost 600,000 jobs last month. Government workers and those in education were insulated.
Say the country of Wii has a labor force of 1000 (unemployed and employed) with 100 workers unemployed and 200 discouraged workers who are not counted in the labor force. The unemployment rate is 10% (100/1000). Due to a prolonged recession, assume 100 of the discouraged workers enter the labor force. Now the unemployment rate equals 20% without any job loss. As more enter the labor force seeking employment, the unemployment rate goes up if everything else stays equal.
I am only speculating now. Suppose I live with my parents and both lose their jobs at the factory. I would be now motivated to seek employment to supplement unemployment insurance. Plus, job opportunities exist that previously did not. Maybe some of the jump in unemployment is due to new or discouraged workers entering the labor force. (Source is Wachovia.)
According to Fox News, 15% of the unemployed have a college degree.
Saturday, February 07, 2009
The great Rodrigo, makes a sharp point. We need the banks, a lesson we learned in the Great Depression, but which ones? I know the community banks are solid. For years I watched the auto industry over produce a product and sell it for an over valued price. I also believe that the auto industry created the wealth the US citizens enjoy. We are now witnessing the dawn of a new era of economics. New macro models are going to be invented to solve new problems. In this great challenge will be great opportunity.
Friday, February 06, 2009
A nice podcast on President Obama's stimulus package is here. Interviewed is Tyler Cowen from George Mason University. Tyler has a new book on macro growth to be released in October. Mr. Welker's blog is one of the best economic sources for teachers and students.
Thursday, February 05, 2009
Wednesday, February 04, 2009
I love this cartoon on many levels. A crash dummy doesn't get hurt so it looks like this one will survive the current crash with the help of taxpayers. A random thought is that the auto industry looks like Humpty-Dumpty and no one will be able to put it back together again. Jim's comments are salient.
Tuesday, February 03, 2009
Are you saving more? Data shows the worried consumers are saving more of their income after taxes. There's only two things you can do with disposable income--spend or save. If savings increases then consumption decreases. This graph from Wachovia shows that households are saving a bigger percentage of their disposable income. My research shows that demand deposits have skyrocketed but consumers are writing the checks that normally accompany deposits into checking accounts. So banks are flush with deposits, consumers are saving, and the recession rages.
Monday, February 02, 2009
Wow, is this esoteric or what? Why have I taken the time to do this rigorous algebra. Because a trade deficit means that we are selling off part of the United States. According to my textbook, 4.3 trillion of US assets are owned by foreign countries. This is 37% of US GDP.
What does high government borrowing mean? Higher interest rates that might crowd out investment. Foreign countries might doubt our ability to repay our debt. Lastly, there's the threat of inflation through government borrowing.
This graphic from my Krugman-Wells textbook shows that the natural rate of unemployment is 5.6%. The natural rate of unemployment is equal to structural plus frictional unemployment. A deviation from 5.6% means short-run fluctuations in the business cycle. At 5.6% the change in unemployment is zero and thus, the economy is in equilibrium. The shaded bars show a recession. Note that unemployment is greater than the natural rate during recessions. The current unemployment rate is 7.2%. One should observe inflation when the natural rate is below 5.6% according to the Phillips Curve.
Sunday, February 01, 2009
The translation from German to English is, "According the evaluation and estimate of the analysts at Commerce Bank, the payouts and dividends for 2009 will lie at 23.6 Billion and thus only 15% under the record year 2008."
I think the cartoon is sartorically pokes at CEO pay at Commerce Bank who in troubled banking times make sure they get their cut.
For a 1000 years the standard of living improved only slightly. When the railroad began to move goods, the stimulus was so large that it created jobs, income, and production. Moving goods across land was hard in the middle 1800's so the economy grabbed a hold of the new technology and a period of long-run growth was ignited. I love this cartoon on many levels.
Both fiscal policy, taxes and government spending, and monetary policy, open market operations, are ineffective. When an economy is as large as the US, maintaining 3.5% growth requires huge job creation and innovation in the private sector. I believe the only thing that will get the US back on track is a huge demand shock like the railroad. Thanks to NetRightNationBlog for the cartoon.