The Age Of Diminished ExpectationPresentation Transcript
THE AGE OF DIMINISHED EXPECTATION Chioma Phillips
There are three kind of writing in economic
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
This Book is divided into five parts
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.
PRODUCTIVITY GROWTHhow could we raise our consumption per capita We could increase our productivity so that each worker produces more We could put a larger portion of the population to work 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 We can import more without selling more abroad- which means that we have to borrow or sell assets to pay for extra imports We can get a better price for our exports so that we can afford to import more without borrowing
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.
The Cost of Inflation 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
The Cost of Deflation 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
The Dollar The principle tool that United States has to influence its trade balance is the value of dollar on foreign exchange markets
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.
Why has the world of finance become so hyperactive? 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