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    Trade Deals

    May 21 • Businesses, Demand, Supply, and Markets, Developing Economies, Economic Debates, International Trade and Finance, Labor, Macroeconomic Measurement, Thinking Economically • 442 Views

    What if Mr. Jones, an assembly line worker, lost his job because of low cost imports? And, what if Mrs. Smith, a travel agent, also is unemployed but the reason is online firms like Expedia? 

    Princeton economist Uwe Reinhardt asks us why Congress is likely to express more concern for Mr. Jones than Mrs. Smith. Instead, he suggests that whether the reason is global or domestic job disruption, perhaps all who gain should compensate those who have lost.

    Dr. Reinhardt’s perspective takes us to the current debate in Congress and the size of our safety net. Should a yes vote for free trade agreements with Panama, South Korea, and Colombia include more assistance to people who, as a result, lose their jobs? The NY Times tells us that a group of Democrats say, “Yes” while a group of Republicans say, “No.”

    The Economic Lesson

    The 4 basic causes of unemployment are 1) structural (technological change), 2) cyclical (recession) 3) seasonal 4) frictional (everyday reasons like quitting and moving).

    An Economic Question: If government provides a safety net of retraining and payments to the unemployed, what are the tradeoffs? ( Here and here, you can access facts about government aid to workers who lost jobs because of trade agreements.)


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    Population Pyramids

    May 20 • Demand, Supply, and Markets, Developing Economies, Gender Issues, Households, International Trade and Finance, Labor, Macroeconomic Measurement, Thinking Economically • 582 Views

    These graphics are wonderful!

    Shaped sort of like a triangle because the elderly population is so small, this population pyramid for Egypt illustrates a youth bulge of men and women who are 15 to 29. The “bulge” represents 28% of the population–maybe 23 million people. For Jordan, Algeria, Iran, Yemen, Saudi Arabia and Bahrain the demographic picture is similar.

    But the U.S. is different. Our graph has a baby boomer bulge. As you might expect, population pyramids for other developed nations resemble the U.S. graph. (You can open “Demographic Indicators” at this OECD site to compare.)

    The Economic Lesson

    What does a youth bulge imply? It takes us to jobs. The Washington Post reminds us that when freedom is limited, unemployment among so many young people fuels instability.

    By contrast, for the U.S. and other nations with an aging population, entitlement support for the elderly is the challenge.

    An Economic Question: We know that population matters…but how? How might the size of a country’s population and the relative size of its different age groups affect GDP growth (the value of a country’s production of goods and services during one year)?



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    Econ Fun

    May 19 • Economic Debates, Economic Humor, Economic Thinkers, Government • 563 Views

    The second Keynes/Hayek rap video, “The Fight of the Century” just arrived. Like the first one, it focuses on the never ending debate between economists who want more government and those who believe in less. In this Econtalk discussion, the writers discuss their content decisions. And here, during a Marketplace segment, a briefer background description of the video is presented.

    Also, you might enjoy looking at Merle Hazard’s songs which now include “The Greek Debt Song” and “Inflation or Deflation.”

    Explaining interest rates in the U.S., this Paul Solman PBS report takes us to Zimbabwe, Japan and Merle Hazard.

    Finally, here is the Freakonomics movie trailer with several economic insights.

    The Economic Lesson

    Perhaps economics need not be the dismal science as described by Thomas Carlyle in 1849. 

    An Economic Question: In “The Fight of the Century,” Hayek says, “We brought out the shovels and we’re still in a ditch… still digging, don’t you think it’s time for a switch…”

    Saying the Great Recession ended in 2009, Keynes replies, ” I deserve credit. Things could have been worse. All the estimates prove it-I’ll quote chapter and verse.

    Your economic policy preference? Bottom up (Hayek) or top down (Keynes)? 


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    An Optional Income Tax

    May 18 • Economic Debates, Government, Households, Innovation, Macroeconomic Measurement • 696 Views

    What if you could decide whether to pay an income tax?

    Boston University economist Laurence Kotlikoff has a plan that gives us a choice. His basic message, though, is that Congress had better start to think creatively because our current system is “dysfunctional.” With a new approach, we can create better incentives.

    Hoping to prove that neither liberal nor conservative ideas will work, he starts by explaining why an income tax and a sales tax are similar. Both affect our purchasing power and purchasing decisions. One just happens beforehand because it limits what we can spend while the other is after because it makes purchases more expensive. You can read his 3 billion steak example (!) here.

    He calls his plan the purple tax because it combines a red state philosophy (with revenue primarily coming from a sales tax instead of an income tax) and a blue state approach (dependence on an income tax for most revenue). Red + Blue = Purple. The purple tax plan lets people decide whether they want to pay a sales tax or a “wealth” tax. You can see the details here.

    The Economic Lesson

    Sometimes, when you look at something different, you can better judge something that is familiar. By considering the purple tax, you can see our current tax system as just an alternative approach.

    The most typical tax approaches include revenue coming from individual income, corporate income, and the VAT. Smaller categories are estate taxes, capital gains, sales taxes, and tariffs.

    An Economic Question: The proposal for the purple tax plan says that it will “help the economy save, grow, produce jobs, and deliver high wages.” After looking at a summary here or the plan here, decide whether you agree.

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    Bailout Fatigue

    May 17 • Demand, Supply, and Markets, Economic Debates, Economic History, Economic Thinkers, Financial Markets, Government, International Trade and Finance • 469 Views

    Yesterday, in a 94-0 vote, the U.S. Senate said it had bailout fatigue. No, they were not referring to Fannie Mae or General Motors. They meant Greece.

    This is the connection:

    By selling government securities, Greece had borrowed money to fund massive spending. When it appeared that Greece might not pay back the money they borrowed, they received bailout money.

    Here the U.S. enters the picture. Approximately 2/3 of the Greek bailout money came from the European Union and 1/3 from the International Monetary Fund (IMF). As a leading member of the IMF, U.S. money is a part of the $40 billion that so far has been allocated to the Greek bailout

    This takes me to 2 questions:

    1. How much money is involved? This 2009 congressional research document indicates the outlay is very small although a larger loan guarantee to the IMF could be involved.

    2. If one purpose of the IMF is to preserve financial stability, wouldn’t nations with troubled finances most need their help? 

    The Economic Lesson

    At the Bretton Woods (New Hampshire) Conference, in 1944, as World War II was ending, the IMF was proposed. The next year, it was established. With 29 original members, the IMF’s basic goal was worldwide financial stability and cooperation. During 1947, France was the first country to borrow from the IMF. (John Maynard Keynes attended the Bretton Woods Conference.)

    An Economic Question: Explain why you support or oppose the Senate vote.


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