Macroeconomists 2

Care in the World

As a group of passionate, intelligent, female economists we have strong feelings towards the great division of the world, especially lower incomes. Learning about the lack of GDP and seeing greed as being an influence for many businessmen and women, and the economic crisis hurting more ‘common’ people versus those who were blamed for causing the economic fall. We have a great concern for middle and lower classes. Global poverty is a major problem in our world, and our group was curious to see how the economic crisis has impacted them. In our recent research we found some interesting news. Recently reported this year, we see the issue has been affected positively instead of negatively through the recent stages of this economic crisis; surprising right?

In a article posted on The Economist, it was reported from World Bank’s Development Research Group that, “both the number and share of the population living on less than a $1.25 a day (common accepted poverty line) was falling in every part of the world.”

This news affected us. As college students we always claim to be poor, but that is really not the case. People in other countries are living on less than 1.25 per day and we are complaining that we cannot go to Starbucks everyday. There is a point where the economy should look around and just see us as greedy. We only care about what we have and don’t want to help out anyone else. Coming from a Christian university where we ‘engage the culture and change the world’, we should not be focused about ourselves, but what others need.  Americans are all about justice but it does not really seem like it because instead of helping out other people, we ignore what is going on and make sure that our lives are being taken care of. Walking through downtown Seattle, we often see many homeless people begging for money as tourists walk by. I know sometimes people get scared about this and just turn the other direction denying the fact that there is so many that need help. I think that the homeless do get some help whether it is with spare change or with leftover food from restaurants from the surrounding area that some people out there do care. There are so many reasons to be grateful that this number is decreasing because it shows that other countries are willing to help.

An interesting fact is who seems to be helping with this issue the most. China, one of the most powerful countries in the world, is currently the number one supporter of helping the poor. It is like a breath of fresh air to see that greed hasn’t occupied all who are in power but those in high economic status give to the lowest of low. China has been a big contributor seeing that “half the long-term rate of decline is attributable to that country alone.” China has taken approximately 660 million people out of poverty since 1981.  China accounts for the largest share of the long-term improvement and Africa has had the largest turnaround. For the first time, less than half of Africans are below the poverty line. This reflects the “success of China, the impact on social programs in Latin America and recent economic growth in Africa”.

 

This inspired one of our group members’ to express the importance of this occurrence, especially from Biblical principles. Abject poverty is something that every human being should be concerned with. In this increasingly global and interdependent world the suffering of one group of people echoes in the lives of many others. Why should we care about impoverished people half way around the world? First of all, the Bible is very clear about the fact that God cares about the poor and hates injustice and greed. Luke 6:20-23 says, “‘Blessed are you who are poor, for yours is the kingdom of God. “Blessed are you who are hungry now, for you shall be satisfied.” Jeremiah 22:13 says: “‘Woe to him who builds his house by unrighteousness, and his upper rooms by injustice, who makes his neighbor serve him for nothing and does not give him his wages.'” The passage goes on to say that to know God is to care for the poor and that it well with those who do so (Jeremiah 22:15-16). Thus we should care for the poor not only because God cares about them and because it is the right thing to do (Matthew 7:12), but also because we will eventually benefit from it as well. In other words, everyone will be better off this way. In an indirect way poverty in the Global South takes a toll on the wellbeing of people in the West.

This should be inspiration to our world leaders, especially economists and politicians because they have the power for change. Economists and politicians play a mighty role in our society. Economists evaluate our economy, measure it with GDP, figure out the peaks and toughs, and work with politicians to create policies for our country. These policies are made to figure out how much money should the government tax, invest, export and import, as well as being concerned with consumers consuming. We see military spending is a huge part of our economy. While some argue that it brings money into the U.S., it can also be a bad thing because it adds to the national debt and drains money that could be used to improve schools, healthcare, social programs, and other factors of wellbeing. Thus, we believe that we should fight to end poverty not only because it is the right thing to but also because it will make this world a better place for everyone.

 

References:

Article: http://www.economist.com/node/21548963

Greed as incentive: Speech by Dr. Baker

Economic Concepts: Macroeconomics by Dr.Mason

Macroeconomists 15

Humand Capital and Outsourcing

By: Brittany Leaman

This week, we as a group did articles focused on different topics unfortunately out of habit. But for our second journal article entries, when reflecting as a group that second or third week of school we realized we all coincidently picked the same article, so we thought we would go back to that article and kind of dig deeper and see why we all found it so interesting and what all our different viewpoints on it were.
The article that we all read was “How U.S. Lost Out on iPhone Work” by Charles Duhigg and Keith Bradsher. The article was on January 21, 2012 and was 4,707 words. The article was about how the United States lost out on iPhone work, because Apple chooses to do some of their production overseas. The article talked about the controversy of this and how by employing 20,000 people overseas, Apple is choosing not to help boost our economy and gives jobs to worker here in the U.S.
As a group, we debated what the topic of this would be related to class and we went back and forth between Outsourcing and Human Capital. But our group member Hope had a convincing point in that “if you extract any presuppositions or emotions that come attached to outsourcing and look at it from a purely economic stand, you’ll see that at its very core, the article is talking about human capital.” What it comes down to is there are thousands of jobs made available through the production of Apple products and
these jobs are going to go to whoever can make them the cheapest and most efficiently. Apple still employs 43,000 people in the Unites States, but that 20,000 employed overseas still bothers people. But overseas production is not only more productive, but the factories are cheaper and the amount of work that they are able to produce can’t even be closely matched by an American factory.
The U.S. doesn’t have enough workers, who are skilled in the right way, technical workers to meet the quota that Apple needs. This means that the U.S. does not have enough human capital for these kinds of jobs. On the other side of the world, China not only already has plenty of the right kind of human capital, skilled technical workers, but even the physical capital (factories) already in place to make the transition to China fast and cheap for Apple.
Outsourcing is a huge controversy because it takes away from jobs for US workers. This makes most Americans mad, demanding more from companies such as Apple. But in reality, if Apple chose to do their manufacturing in the U.S. there would be less supply of the product, which wouldn’t make American consumers happy either. Apple chooses to do overseas production because it is the American consumer that is in constant demand of a flawless, new innovative product.  Not only is the consumer wanting flawless product, but if Apple was to produce in the U.S. their costs would increase greatly from training, pay, and the capital needed to build the product; this would increase the cost for consumers greatly, which would add one more thing for a consumer to be unpleased with. Would anyone be left complaining about outsourcing if their iPhones suddenly cost $100 more, was sold out everywhere and was a product that was hard to find and was rarely updated? The answer is no.
Our society is quick to complain and point fingers, but when it comes down to these matters of human capital and outsourcing there are a lot of little things that the consumer doesn’t think about.  People are all about their own self-interest, and what they don’t realize is that there is a much bigger picture. As a group we agreed with Apple’s choice to produce overseas and we belief the benefits outweigh the controversy caused by it. Because ultimately, Apple is doing their job and doing it how they know best and making the consumers pleased with outstanding product, constant updates, and a supply to meet demand.

http://www.nytimes.com/2012/01/22/business/apple-america-and-a-squeezed-middle-class.html?ref=todayspaper&pagewanted=all

Mankiw’s Musketeers

Blog #8: Cloud Computing

Cloud computing. No, I’m not talking about a fluffy white mass of condensed water vapor floating
through the atmosphere with a laptop; rather, I’m referring to the
centralization of data on remote servers that can be accessed by means of the
internet. To break it down, cloud computing offers both individuals and
companies an ability to centralize all of their applications and data into one
specific location. This then allows for these same individuals to access this
data from any location simply by logging into this remote “storage space” so to
speak. Now, why are we talking about cloud computing? Well, a recent article in
The Seattle Times explained how the market behind cloud computing is not only
projected to grow, but to promote the growth of jobs as well. The article which
was written by Janet I. Tu explains the findings of a recent study which was
paid for by Microsoft, and conducted by IDC. As the article points out, cloud
computing is not only projected to strengthen productivity and job growth
within developed countries, but within emerging markets as well. Since we have
learned throughout the quarter that we are all economists, and that economic
principles can be translated to almost all areas of discussion, it is easy to
see how the technological advancements behind
cloud computing can be analyzed, discussed, and projected upon by
Mankiw’s growing economic minds.
As we have learned, technological advancements can lead to economic growth. However, as
trained economists, we have also learned how to analyze all the facts at hand.
In this article’s case, the study we refer to was paid for by Microsoft, a
company that offers a multitude of cloud services. Furthermore, the study’s
claims to growth are based on somewhat particular situations. Although the
study claims that 14 million jobs could be created through cloud computing, the
claims are more dependent on a multitude of circumstances that the title does
not clearly define. At first glance, one might presume that cloud alone adds 14
million jobs; however, the study suggests otherwise. As the article points out,
“the basic rationale for job growth is that IT innovation allows for business innovation,
which leads to business revenue, which leads to job creation” (IDC par. 7).
While job growth can be projected, it actually is a lengthy process that is
reliant on business management and operations as opposed to cloud computing in
of itself.
Nevertheless, technological advancements from cloud have led to growth in the economy;
particularly after the dot-com boom. Throughout the quarter, we have talked
about the booms and busts of the business cycle. As we have learned, hindsight
is often 20/20 after the bust, and smart, innovative companies attempt to make
wiser business choices. For example, immediately preceding the dot-com fiasco,
Amazon.com began to adopt the principles found within cloud computing, which
ultimately placed them as one of the leaders in the market. While companies
like Amazon have already seen the benefits of cloud, other companies are still
projected to benefit as well. As the article points out, there are “lower
capital constraints with cloud…That translates to job creation…These are jobs
in all sectors of the economy, not just IT departments…Even small companies
in emerging economies have a chance to better themselves through use of the
cloud” (John Grantz par. 11).
Although we have already seen growth in IT market, as the article points out, growth in other
sectors is expected as well. When analyzing how this potential growth could
affect the economy, Mankiw’s Musketeers first narrowed in on the effect it
could have on employment. In the short run, cloud computing would likely have
little effect. However, looking towards the long run, the benefits could be
astronomical. Since the majority of growth is dependent on changes that cannot
happen overnight, investments today will likely reap future rewards,
specifically in the job market. Next, our group analyzed how cloud could affect
the global economy. Since the greatest projection for growth was linked to
developing countries, Mankiw’s Musketeers couldn’t help but come to the
conclusion that using cloud would likely help systematize operations within
countries like India and China, which could subsequently raise their GDP. As we
have discussed throughout the quarter, a strong equitable global economy is
ultimately beneficial for everyone.
So, after debating the article at hand, the question that faced Mankiw’s Musketeer’s was as
follows: can the technological development behind cloud computing really lead
to as much growth as projected? Or, was the study paid for and conducted by a
company with a biased agenda? After some economic debate, Mankiw’s Musketeers
decided that based on economic principles, cloud computing should lead to
substantial economic growth. Despite the fact that the article was paid for by
Microsoft, the technological innovation being developed within cloud helps
increase productivity in businesses throughout the global economy. Since
technological advancements are linked to growth in the economy, cloud computing
will likely lead to more efficiency, which leads to the creation of more jobs,
which ultimately increases consumer spending power, which trickles back to the
firms that initially created the extra jobs. As we can see, we live in a
circular economy that can be changed and strengthened with something as simple
as technology.

Since all good things must come to an end, this is where Mankiw’s Musketeers must sadly
depart. However, we can’t sign off without leaving you with a question…If you
had one wish that could change our economy, what would it be?-MM

Manikiw’s Musketeers

Crisis and Recovery in the Market and Our Lives

Since this is the second to last entry from Mankiw’s Musketeers, we’d like to take a serious approach to a problem that seems to have gone unchecked for far too long, a problem that has essentially gone unnoticed or ignored until the global financial crisis that manifested after the United States housing bubble burst in 2007. This problem is something that we have been experiencing and perpetuating since our birth: our culture. The most recent book that we have been studying in class, Crisis and Recovery: Ethics, Economics, and Justice, written by Rowan Williams, the Archbishop of Canterbury, and Larry Elliott addresses this problem through a series of short essays written by economists, investors, financiers, and other concerned individuals in the United Kingdom.

This collection of works from prominent men in the world makes it very clear that their overarching belief is that the crisis and current recession that we are experiencing is a direct cause of the way that our culture has developed over the past fifty years. Although we’ve advanced at a dizzying rate both technologically and globally, it seems as though our society has regressed. Individuality has seen greater and greater praise and emphasis in Western society, which has boosted Adam Smith’s idea of self-interest to a level at which it is now considered to be valuable traits if one is to survive in this world. Self-interest and making profit have become the sole driving forces in business, which make for a very selfish economy once increasing global interconnectedness is introduced to the mix. Sensitivity to others and building relationships in business has lost importance, developing into something that without genuineness if it is at all present. Jon Cruddas and John Rutherford say of society, “Individuals are treated as as maximum utility-seekers governed by economic self-interest. It is a highly idealized view of human interaction suited to the governance model of utilitarianism and market calculation, but it leaves individuals with no meaningful relationship to one another.  […] this understanding of human nature undermines wellbeing, destroys social connection and impoverishes human potential” (64). Another mindset that is ailing today’s business and quality of life is the introduction of regulations and requirements that were originally intentioned to protect consumers and set standards to artificially create equity. This ideology is best explained by contributor Andrew Whittaker when he states that, “[…] the standards that matter are those that are written down on behalf of the authorities rather than those adopted by individuals or communities. Values that go beyond strict requirements are seen as luxuries, whose sphere, if any, is to inform the private choices of the individual, rather than actions in the commercial or public arena. Action becomes acceptable if you can get away with it. The minimum standard becomes the common standard” (156). If businesses aren’t required to do it, they won’t. If there isn’t a rule against it, greedy, self-interested people are going to do it. Even during a student’s academic career, most are looking to do the minimum amount of work possible to get the job done. The crisis was caused by overconfidence that the good times would keep rolling in, and the knowledge that passing off risky investments to the next person would only profit the individual, even if the next person got hurt in the process. It’s disheartening to realize that this is the world we live in, but is it possible to change the world around us after we have perpetuated these quasi-morals for so many years?

There are no definite, clear solutions offered in Crisis and Recovery, but each and every contributing author in the book makes it perfectly clear that the only way to change the way that business is conducted, and the economy as a whole is through changing our culture. As a society, we have lost our morals along with the reason why we get an education and enter the workforce. Franklin D. Roosevelt perfectly worded the aim of business when he said that, “‘Happiness lies not in the mere possession of money; it lies in the joy of achievement, the thrill of creative effort. The joy and moral stimulation of work no longer must be forgotten in the mad chase of evanescent profits’” (2). Due to the fact that, “Our interdependency is fundamental to our existence” (68), Mankiw’s Musketeers believes that our culture can be changed by teaching others how to healthily cultivate that interdependency. By thinking about equity, we’ll be able to create more efficiency in our markets. We champion methods that put emphasis on creating relationships with other people instead of profit maximization. We think that this could be implemented in schools and during job training, since we have always been taught that the most “highly respected” people are the ones that have made millions—in truth, those people are often some of the most unhappy people as well.  By being genuine with others, not putting on a friendly face in order to make a sale, we can better the economy and the world we live in. Although this plan may not take on quickly, we believe it will provide many long-term benefits to our society, potentially preventing future financial woes.

Sadly, we will end our time with you next week, dear readers. But don’t avoid reading because you’re sad! It’s going to be a great last post, so come back next week and check it out! –MM

The Italian Mafia

National Debt

National debt. This is a phrase that has been thrown around quite a bit in the past few years and it is not likely to slow down. As presidential elections begin to heat up, so do the promises of reducing the debt and creating a surplus once again. Now, regarding the debt, there is one question that burns in the minds of all Americans, how hard is it really to balance the budget? Everyone has to do it, so why can’t our government do it? I mean, isn’l t it just like my checkbook just with billions instead of thousands (or hundreds if you are a college student)? Well, the New York Times website gives the opportunity to view the budget from the eyes of a policy maker and I guarantee every person who completes the exercise will have said, “I could do that, but then…” at least once. Although the activity was somewhat one-sided with very biased descriptions of the changes in fiscal policy it only reviewed the benefits, not the costs. Soon one of the core principles of economics comes shining through, tradeoffs.

There were a multitude of policies that could have led to reducing our countries debt. Everything from cutting Navy and Air Force spending to enacting national Carbon tax. However, some policies put more of a dent in those dastardly boxes than others did. Usually, the more the policy increased revenues or decreased costs, the greater the impact on the country; so naturally, I am going to be explaining the biggest financial policy changes in my budget’s defense.

First, I am going to start with the reducing of loopholes and tax breaks. The Italian Mafia chose this policy because it comes with what we feel is mostly good aspects. Does it slightly increase the costs for firms and individuals? Yes, but it also proposes tax cuts in places that can potentially stimulate the economy. The Obama administration has spoken of taking these cuts to manufacturing in the U.S., increasing exportation abilities and raising GDP. Another perk to eliminating loopholes is the simplification of the tax system that has become so incredibly complex. All of these pieces of the puzzle lead to a contribution to long-term economic growth.

Next, the economic impact of the number of troops in Afghanistan truly shocked the Italian Mafia, which is fairly tough to do to a bunch of mobsters. By reducing the troops to 60,000, which is still a significant presence, the U.S. can save $149 billion by 2030. This would also increase the size of the labor force in the U.S. allowing for a greater economic output while keeping our men out of harms way. The gradual training of Afghani troops and pullout of American forces has already begun and continuing to doing so seems logical both in a military and economic sense.

Finally, the Mafia agreed whole-heartedly in the raising of Social Security eligibility to 70 years of age instead of the current 65. When the Social Security Act began in 1935 the life expectancy of the average American was 61.7 years. More than anything, the act was literally a safety net just in case someone lived 3.3 years longer than they should have. With the increases of technology in healthcare, the average life expectancy of Americans has shot up to 78.1 years in 2010. This means that the government is paying elderly people for an average of 13.1 years of life! It has become a part of retirement for everyone, definitely not what it was originally intended for. With the new eligibility age, people will have to work a bit longer before retirement; but because of the healthcare today, the population is healthier as well, making it possible to work longer. Likely, this policy would cause hardships, as many policies focused on economic efficiency do; however, with the amount of money that could be saved with this action, the government could create programs to teach saving habits and planning for retirement. Using some of the money in this way would benefit the macro economy as well as the individual households and their finances.

Our savings are split right down the center, 51% from tax increases and 49% from spending cuts. In my opinion there is no correct way to balance the budget through solely one means or another, there must be compromises. One lesson I learned through this process is that tradeoffs are in every corner of the economy. They are in every tax, every spending cut, and every policy that is made. There has to be sacrifice because there is no perfect policy. The past decade has been a time of indulgence for Americans and it is time to cut back. Nobody actually enjoys the times of recovery, its like going on a diet, but they are necessary if we are going to get back to the economically strong superpower of old.

If you would like to view our full budget, click on this link: http://www.nytimes.com/interactive/2010/11/13/weekinreview/deficits-graphic.html?choices=8cbnd84m

Macroeconomists 15

PIECING TOGETHER THE BUDGET PUZZLE: It’s more complicated than it looks!

By Hope Estes (with lots of help from Lizzie and Brittany!)

 

Using the New York Times Budget Puzzle (www.nytimes/interactive/2010/11/13/weekinreview/deficits-graphic.html), we developed a new budget including several deficit-reducing policy decisions!

 

Our top five policy changes:

1. Cut aid to states by 5%
2. Reduce military to pre-Iraq War size and further reduce troops in Asia and Europe
3. Reduce Social Security benefits for those with higher incomes
4. Payroll tax: subject some incomes above $106,800 to tax
5. Millionaire’s tax on income above $1 million

By the way of reducing government spending, which accounted for 41 percent of our new budget’s savings, our group chose to cut aid to states, reduce Social Security benefits for people with higher incomes, and reduce military size because we agreed that these policy choices seemed to be the best options in their categories. The military does not need to be as large as it is now, especially with conflict settling in Iraq, so that means a lot of government money is essentially being wasted by training troops that may never see combat, when that money could be going more efficiently into training more skilled workers or to lessening the government deficit. Cutting aid to states by 5 percent seemed less efficient, but more equitable, because instead of cutting entire government programs or large parts of the federal workforce, this policy spreads out the burden of the cuts over all states. And reducing Social Security benefits for higher-income individuals also seemed like an equitable decision, because it would ensure that more of the people who really need those benefits are the ones actually getting them, instead of wealthy people who get Social Security benefits as an added bonus to fund their post-retirement RV purchases, etc.

 

By way of increasing taxes, which accounted for 59 percent of our new budget’s savings, we chose to subject incomes over $106,800 to the payroll tax because it would again cover 90 percent of income and bring a lot more money into Social Security and Medicare, making more benefits available to our aging population. This policy would only negatively affect a small number of very wealthy people, but it would have a broad positive impact. We also chose to add a 5.4 percent surtax on incomes above $1 million. Because the current top bracket is $375,000, those with incomes much higher than that pay the same percentages of their incomes in taxes as those with $375,000 incomes. We believe that those with million dollar incomes can afford to pay the extra taxes, and it would help increase our savings by $50 billion by 2015 to help with the government deficit.

 

The reduction in government spending would reduce our overall GDP, but our policy plans would not directly affect consumer spending, investment or net exports. We also believe that the budget we’ve created is a more equitable, sustainable one with less spending and more institutions in place to increase quality of life for everyone, especially the lower class. We believe that the money saved can go into more programs that will stimulate long-run economic growth such as more skilled worker training in the place of redundant military spending.

 

This activity was a great way to visualize (with those nifty blue boxes that showed projected 2015 and 2030 budget shortfalls) the true seriousness of the US government deficit and how our different policy choices can contribute to its reduction. Creating a budget for a government that is in a huge deficit but also has over 300 million citizens to care for is hard work, and we think we’ve done a good job, but I can say for myself that from now on, I’ll think of the US budget differently and have a much higher respect and grace for the men and women are responsible for developing it!

Collective Gorgeous Unit

The Cracks in our Country’s Capitalism

You can tell a lot about a person or group of people by the way they react to different scenarios. How should one react to growth? How does one person or a group of people respond to such a privilege? These are questions that we believe both Dr. Baker and the book, Crisis and Recovery, have helped us answer. The book states “Ideology had ended as economic advancement was presaged by a new model of capitalism that was finally going to provide prosperity for all.” So it seems that we once had the ideological values, and they are gone now. Is this what we’re missing as an unstable economic nation? Dr. Baker suggests so.

Bruce Baker’s lecture on altruism and self-interest in the free market was enlightening. Standing out boldly were the connections and analogies. The morality of the free market depends on interactions between one another. While society wants to act on its own desires (ideally to make a profit and make shareholders money), relationships within in the business world are equally important. Having those connections and relationship allows one to thrive in the free market and gain a profit. Bruce Baker put everything in perspective when he told us this: the dollar bill would have zero significance or meaning if it wasn’t for that one word printed on the front: trust. The only reason we see value in money is because we trust one another that it is in fact worth something. Trust, however, is harder to come by than one would think. Within our capitalist society there is much mistrust between the privileged and the underprivileged. With such a huge racial majority in power its important for our society to seek out and understand those who are underrepresented and thus create a stronger whole. And maybe get back to some of our ideological values.

The Born Identity, in Emerson’s Lobby, offers us insight in to something most of us don’t think about. How a capitalistic society has favored the white majority. SPU is generally filled with rich, white Christians, and is a testament to the privileges Caucasians have had all these years. But within the confines of the Born Identity exhibit we are offered another take on our seemingly efficient capitalist system

The exhibit, put on by the SPU Bridges program, is meant to give students a perspective that aids in their understanding of the true nature of SPU’s mentality. In order to serve others, we must understand their hardships first. The exhibit covers the topics of racism and privilege. Within a capitalist society these are issues that can be easily swept under the mat by the majority. People fall through the cracks. And in many cases they only fall because of the neglect of people that assume they will anyways.

Within our capitalist society a vast majority of the governmental positions are held by Caucasians. In addition, an incredibly high percentage of CEO’s are white. These people hold the power in deciding where money flows to and from. They decide how things are going to be done and which systems will receive the most financial support. Favoritism is inevitable. Intercity programs are the first to get cut when money is tight as well as afterschool care for low wage families. The privileged white become even more privileged while many other ethnicities are neglected. Even with the supply of goods, it’s the large, rich Caucasian market that is majorly targeted as the consumer. As a note card in the Born Identity exhibit so pointedly asks SPU’s majority “Can you turn on the TV and see people of your race widely represented?”. Visitors tally up their responses to help gain a perspective. Even the television media is geared majorly to a white audience. It’s clear that major inequalities exist within our system, adding to the concern for our lack of ideological values.

When reading the book Crisis and Recovery we see two main scenarios: One in which humans react to growth in an economy, as well as the reaction to that of a crisis. Let’s take a glance at how the general population reacts to growth in an economy.

This is what happens with a change in growth: economists scatter in the midst of a crisis; trying to figure out what exactly to do, or how they can prevent this issue from happening. Many citizens (including ourselves) begin to wonder if what we are missing is, in-fact, those ideological values. There are many unanswered questions that are crucial to answer. There’s obviously something missing. By the evidence of our immoral reactions to the fluctuations of the economy, there is something wrong. We believe strongly that the answer to this question is the increase of ideological values; values that indicate a strong sense of altruism. The lack of selfishness is key. Although Adam smith is partially correct in saying that the key to a wealthy economy is self interest, there must still be a balance that stables the economy. A balance in which we not only focus on the wellbeing of ourselves, but also the well being of others that may not have the same privileges. The book, Crisis and Recovery, has primarily shown us the importance of the study of behavioral reactions to the economy. The success in our behavior in our economy comes through altruism. As our lecturer, our book, and our local exhibit all seem to say: our success as a capitalist society can not only be measured by gross profit. By bending to help those that have been forgotten and dividing privileges across ethnic groups we create a more stable society as a whole that caters to everyone’s needs and that also, by showing altruistic behavior when a change in growth occurs, helps ourselves.

The Italian Mafia

And the Winner Is…

For centuries there has been a disagreement of which economic policy should be used. This is portrayed as a fight in ‘EconStories’ two YouTube videos. I really enjoy these videos, first because they can be watched purely for entertainment, but also because they are a great way to learn about economics. Although watching the two videos consumes 17 minutes of our precious time on earth, as an Economics student, this was time well spent. Besides being entertaining, the videos are very educational and do a great job of explaining the two different views. The two main policies are John Maynard Keynes’ top-down policy, that the government should control the economy and promote spending; and Friedrich Hayek’s bottom-up policy, that the economy should be controlled by the people and allowed to run more or less freely. In the two videos, Hayek is obviously the underdog. This is a correct portrayal of him, because Keynes’ theory is a lot more well known. This does not mean that Hayek does not have valid points, though.

Our group, The Italian Mafia, has decided that the winner of the Econ Battle is… (drum roll please) Friedrich Hayek! That’s right ladies and gentlemen, we are siding with the underdog, and saying that his theory is the best. This is a bold move by the Italian Mafia; we haven’t made this big of a prediction since predicting that we were going to win the ‘Mafia’ Nerf gun war last quarter (which we did win). Although Hayek isn’t the favorite, we are confident that he has the best ideas for the economy. Keynes view is, “see it’s all about spending, hear the register cha-ching. Circular flow, the dough is everything”. The economy must be controlled by the government. They should inject money when there is a recession; this will, in Keynes’ opinion, increase spending. The reality is that this increase in money will cause inflation and amplify the booms and busts.

As Hayek views it, if the economy is set free, then it will run more smoothly. Yes, there will be booms and busts, but if we ride them out, in the end, they will not be as bad. Keynes’ view is that the economy is made up of people who are not perfect and cannot be predicted. Although this is somewhat true, the government is also made of people who are not perfect, so they should not be allowed to have complete control over the economy. The government is very slow to change monetary policy, which can often have the opposite effect. Like taking to long to increase spending during a recession, and accidentally increasing spending during a boom. This will greater increase the boom, and amplify the cycles. As Alex J. Pollock says in our book, ‘Boom and Bust’, “every reform requires another reform to address the effects of the prior one—and on ad infinitum” (64). Hayek’s view is that if we just ride out the cycles, it will be better than trying to do anything big. Keynes’ theory seems to work best in select situations, but as Hayek says it, ‘The long run is here, it’s time to get sober’.

Hayek is not completely opposed to government regulations; there is definitely a time and place for them. For example if there is an unexpected disaster, like September 11th, the government should step in somewhat to get the economy going. But they must be very careful and not simply throw money into the economy recklessly. In the second ‘rap-battle’ Hayek says, ‘you see slack in some sectors as a general glut. But some sectors are healthy only some are in a rut. So spending’s not free, that’s the heart of the matter’. He makes a very good point here, saying that when we put money into the economy, we must be careful to only put money into the places in the economy that need it.

It may sound like Hayek wants the economy to run free on it’s own. He does not have that extreme of a view, though. At the end of the second video he says, ‘we need stable rules and real market prices’. The government should control the economy, but carefully, and minimally. This is because the market is not a machine that you can jump start with cash, it is an organism, made of people, so it must be left alone to run it’s course.

Although there is no clear winner in the video, we believe that Hayek comes out on top after round two. His ideas are more sound, especially in the long run. With his theory, we will be able to ride out the cycles, and achieve consistent, natural growth. Hayek correctly understands how complicated the economy is, saying, ‘The economy is not a class you can master in college, to think otherwise is the pretense of knowledge’. Hhmm, I thought this class was about understanding the economy? I guess no one will ever be able to fully understand it… No matter how many classes they take from the famed ‘SPU Business Program’.

By visiting this blog, you must be somewhat interested in economics, so I highly suggest that you watch these two videos, they are very entertaining, and it will not be a waste of 17 minutes.

-The Italian Mafia

The Collective Gorgeous Unit

“Beer: Barley Bringing Billions in Bounty”

Written by Mark Mathias – Edited by Sydney Sanders

Beer – the drink that brings us together. What many of us don’t know is that this “closeness” is also represented on a global scale. Beer is manufactured, bought, and sold in massive quantities every day, contributing greatly to the global economy. China, a surprising example, is home to one of the largest markets for beer in the world, exceeding $100 billion RMB profit in 2009. China has surpassed many other countries in terms of imports and exports, accounting for over $100 million USD through exporting beer to America, in 2010 alone. On the other hand, the U.S. has gained 300 million USD by exporting their beer to destinations such as Hong Kong, Chinese Taiwan, and Vietnam (Globaltrade.net).  Thus, it’s safe to say that a significant amount of commerce can be done between many nations with just one product.

China produces a vast majority of the products that we come into contact with every day. The phone you text that special someone on. The shoes you wear from that hipster-clothing store down the street. The toy fire truck coated with led-based paint that you, somewhat dangerously, licked as a child. Chances are, it came from China. With all of these goods and services provided by China, we need their countries cheap labor in order for us to purchase their cheap products. However, China needs us just as we need them. Because it costs so little for companies to export their labor to China, it is inevitable that one of the richest free market countries in the world supports one of the largest. In a hypothetical world, if China were to say, “We will no longer import or export beer to America,” the U.S. economy would take a drastic turn for the worst. Let us divulge.

The main question we must ask ourselves is: “Who is suffering from the lack of beer from China?” The lack of cheap beer from China will result in American brewing companies producing more beer. This will cause the average price of beer to rise. As a result, the demand for beer will decrease, causing a snowball effect for externalities. This shift in demand would not only affect foreign beer companies but would cause those in the Chinese beer industry to lose their jobs due to the lack of business. In addition, the lack of inexpensive beer would result in bars and clubs losing profits, potentially putting them out of business. Through all of this, we could expect a higher unemployment rate, discouraged workers, and more tax dollars being spent to keep things afloat.

Luckily, this catastrophic situation is nothing more than hypothetical. Other than the fact that America is in debt to China for over a trillion dollars, they’re on somewhat good terms. This is a prime example of how major countries interact in the global economy. Beer is a major product that is sold and distributed all over the world. Keeping this in mind, if trade between the U.S. and China were to stop, smaller companies like Dixie and Solo (the ones who produce those inconspicuous red cups) would be economically damaged. It is interesting to observe how the smaller companies within our country are affected by U.S. interactions with other nations. If one choice made in the global economy is the flap of a butterfly’s wings, the effects seen nationally are millions of hurricanes, wreaking havoc on local businesses.

The Italian Mafia

“Another Way of Doing Economics–Blog 3”

I have never written a blog before. All that I’m used to is cut and dry, information and analysis-based papers grounded on literary quality. To be honest I have never really seen the point in blogging up until this point. I evaluate things and come up with the answer. In short, I understand Economics… not blogging. But that’s the point I suppose, to broaden understanding. To gain a new, possibly enlightened perspective.

In Chapter 5 of Macroeconomics: Principles, Applications, and Tools, it speaks to this, however in economic terms. GDP, or Gross Domestic Product, is the worldview of the value that nations produce in final goods per year. Fairly cut and dry it seems and yet there are multiple different ways to arrive at the same place. Aggregate spending involves an equation (Y = C + I + G + NX) showing where people, government, and firms in the economy are placing their money. An analytical and mechanical approach, which I can appreciate. Then there is the factor income approach illustrating all the income paid to all of the factors of production such as wages and rent. Finally, we have the value added method, which is the sale minus the value of the purchased inputs.

Three methods of measure and yet so much left out. Where is the value of a father and son playing catch on the beach or a family singing out-of-tune songs on a road trip? That is where my group, The Italian Mafia, brings in the Needs and Leisure Index (NLI). Now, why is it called the Needs and Leisure Index you ask? Simply, because it sounded like the name of a random term that would be found in Macroeconomics: Principles, Applications, and Tools right next to the Laffer curve or something. What this index proposes is splitting up the consumption portion of the aggregate spending equation and put it into the category of needs or leisure (hence the beautifully original name). When consumers file for taxes, a new aspect would be added in which they would report the larger sums of leisure spending in their lives and rate them on an incremental scale as to their satisfaction of the purchase. Using said scale; the leisure portion of the population’s consumption would be multiplied by a factor that corresponds with the satisfaction and pleasure that the consumer obtained through the purchase. In other words, if they liked it, it’s worth more and represented in the NLI!

So, it makes sense, why don’t we use it? Well leisure is tough to quantify. Even with a scale it’s tough to justify that a Hawaiian vacation sunset is worth $10,000 more to the NLI, while a mountain ski trip is worth $5,000. Also, while we know that Professor Mason would love to have people come up to her with more statistics about their lives, people don’t want taxes to be even more confusing than they are currently. However, there is a clear flaw that GDP has and the Needs and Leisure Index is a rough beginning to mending it by displaying the quality of life consumer purchases provide. The numerical value of NLI would be slightly higher than GDP, because we are measuring different factors. This means that we could not compare the NLI of current years with previous years, because we do not know how much people spent on leisure in the past. In the future we will see if the NLI is increasing or decreasing. NLI cannot replace GDP, but it is another, better, way to measure the economy. Wealth and Justice states, “A capitalist society needs to produce an educated citizenry. It needs to be buttressed by people who possess and who teach others virtues, such as sympathy, altruism, compassion, self-discipline, perseverance, and honesty” (10). It is through times of leisure and calm that these lessons are passed on to the next generation and developed. This time of education must be included in the measure of our economy.

Economics is an attempt at explaining patterns in markets and solutions to problems. For GDP alone there are three methods of finding the same number just so that some of the aspects of the process can be displayed. Economics can teach us the issues of inflation and unemployment but more than anything I see now that it shows that one piece of data, one way of getting to a number, or one perspective isn’t enough. I know that for me, without this blog I would never have seen this side of economics. It’s a new outlook and with it, I feel that I grasp economics in a way that I never could have solely through numbers and equations.

I might get used to this blogging thing.

— Italian Mafia