Greek lettering- like any academic field, economics has its fair share of hacks and phonies who use complicated langue to hide the banality of their ideasUp and down- the preoccupation with the latest news and number. This kind of economics has a reputation for being stupefying boring. Airport economics- these books are prominently displayed in airports. Whether optimistic or pessimistic airport economics is usually fun, rarely informed and never serious.This book tries to put its finger on where airport economic go wrong.
The book ends with a discussion of America's prospects: what’s likely to go wrong or right in U.S. economy?Will we on contrary experience a renewed prosperity that makes the doomsayers seem foolish? Or will we drift along as we have, neither doing well nor experiencing crisis
Suppose the us economy had no foreign trade so everything consumed had to be made here. How could we raise our consumption per capita?The iii. option is not long term way to increase consumption. We can consume for a while by investing less but that will surely cut our consumption laterOption (ii) can work for awhile if a substantial fraction of the populations unemployed, or if a social change brings a new group into the work forceNow lets put foreign trade back into the equationOption iv is like ii . It’s a short term option, eventually the borrowing need to be repaid. The problem with v is how to persuade foreigners to pay more for our goods. The only reliable way to do that is to make our goods better- which is just how productivity increases under another name.
In the 1980’s there was a time of satisfactory job creationsThe best solution to the trade deficit is export more than what is imported and the united states is not doing that
Hyperinflation is inflation at an annual rate in the thousands percent
Will it work? yes, This is what the united states did in 1979
To eliminate the trade deficit or reduce it requires driving down the dollar significantly
Inflation has gradually undermined some traditional economic institutions. The rise of inflation essentially bankrupted a large number of savings and loans- and Washington’s failure to face up to this fact turned what was initially a relatively a modest problem into a fiscal nightmare. Persistent inflation interacting with the tax system, encouraged corporations to replace equity with debt- a process bound up with the boom in takeovers and buyouts, and with reconstructing of the economy that the trade deficit s help make necessary
This book was written in the 90’s. even so I believe Krugman had a good hard grasp on where our economy was headed. Everything he spoke of and predicted is prevent in today’s society. When will our government pay attention to the accurate forecasting of some economist or maybe they don’t wish to.
The Age Of Diminished Expectation
THE AGE OF DIMINISHED EXPECTATION<br />Chioma Phillips<br />
There are three kind of writing in economic<br /><ul><li>Greek letter writing – formal theoretical , mathematical
Up and Down economics- on business pages of newspaper and television programs
Airport economics- the type of books economist write about predicting disaster</li></li></ul><li>This Book is divided into five parts<br /><ul><li>The first part addresses the overall economic landscape: The trend that has had the biggest impact on the well being of large number of Americans.
The second part turns to the widely regard problems with trade deficit and inflation.
The third part of the book discusses a series of narrower policy issues all interrelated: the budget deficit, health care, monetary policy, the dollar, protectionism and U.S,-Japan relations.
The fourth part of the book describes three “financial Follies”: the savings and loans crisis, the wild world of corporate finance.</li></li></ul><li>PRODUCTIVITY GROWTHhow could we raise our consumption per capita<br />We could increase our productivity so that each worker produces more<br />We could put a larger portion of the population to work<br />We could put smaller fractions of our output aside as investment for the future and devote more of our productive capacity to manufacturing goods for current consumption<br />We can import more without selling more abroad- which means that we have to borrow or sell assets to pay for extra imports<br />We can get a better price for our exports so that we can afford to import more without borrowing<br />
TRADE DEFICIT<br /><ul><li> America’s trade deficit problem has nothing to do with jobs
A lower trade deficit may seem to mean more jobs in a particular year but overall the long run trade deficit and the average rate of unemployment are unrelated
Our payments to foreigner are a direct drain on resources, and the longer the trade deficit continues, the larger the drain will become
The United states always buys just a s much as it is selling.
The big economic risk is the United States become a massive net debtor it will expose to financial crisis whenever the confidence of foreign investors is shaken.</li></li></ul><li>The Cost of Inflation<br />The Concrete cost of inflation is that it discourages the use of money. In economies experiencing hyperinflation, people may stop using money altogether, resorting to barter or to use the black market foreign currency to avoid holding cash that loses value by the hour<br />
The Cost of Deflation<br />To reduce the inflation rate by one percentage points, the economy has to run something like four percentage points below capacity. This is known as sacrifice ration. You have tot sacrifice the four points of the out put of to reduce inflation by one point. That’s a high price even though the loss of the output is temporary while the reduction of inflation is permanent<br />
The Dollar<br />The principle tool that United States has to influence its trade balance is the value of dollar on foreign exchange markets<br /><ul><li>The trade deficit i8s determined by balance between savings and investments, not the value of dollar, so depreciating the dollar can’t help reduce it
Depreciating the dollar leads to U.S. inflation, which will wipe out any apparent gains in the cost competitiveness of American industry.</li></li></ul><li>Why has the world of finance become so hyperactive?<br />There is no answer. Yet much of the explanation surely lies in the same persistence of the trade deficit and especially inflation that has preoccupied economic policy Inflation<br />