Archive for April, 2007

Apr 17 2007

IB – Demand-pull or cost-push?

Published by under AD/AS Model,Inflation

Fuel, food prices lift CPI but core CPI in line with target – Mar. 16, 2007

As we learned in chapter 8, inflation rears its ugly head in a couple of ways. Here’s a recent article the rising price level in the US. Read it, and post your comments and analysis. Which kind of inflation is discussed in this article?

Powered by ScribeFire.

9 responses so far

Apr 16 2007

Marco Garofolo on the imperfect science of Economics

Marco’s IB Economics Blog: Class Discussion Continued

Marco, in the above post, brings up some serious questions about the science of economics. Good insights, as always Marco. I tend to agree with him on his main idea, that economics as a science tends to perhaps unwittingly make value-based judgments even as economists claim to be objective observers of some fundamental law or principle.

The risk with broadening economics’ focus to the Aristotelean “metaphysical” level that Marco speaks of is that a science rooted in the law of scarcity is scarcely equipped to deal with metaphysical resources beyond those very physical resources we deem to be finite (land/labor/capital).

Some economists, such as Julian Simon, have explored the idea of the infiniteness of resources due to the creativity and innovation of the human mind, claiming that any physical scarcity that may exist on our finite planet can be overcome as human ingenuity (the “ultimate resource”) constantly develops new and better means of employing those otherwise finite resources. Even this venture beyond classical economic thought runs the risk of shattering the foundations of the basic science, that is the belief, the TRUTH, that “scarcity exists”. If we accept this truth, and we accept that the market mechanism is an effective means of dealing with scarcity, then we have no other choice than to embrace the price mechanism in all its materialistic and dehumanizing, “Machiavellian” glory.

“…as a social study, economics studies society and the world around us. However, that does then not mean that we should only perceive the world in terms of economics, and economics today connotes profit maximization.”

As Marco says, “we should not only perceive the world in terms of economics”. On this point I could not agree with him more. Indeed, economics may not provide you or me with answers to life’s most basic questions, like where I’ll go when I die; but one question this imperfect science will help answer is how will my basic needs be met while I’m here on this earth burdened with the curse of scarcity? The answer? Markets. Alas, the invisible hand of which Smith spoke may not be that of God, rather that of the Almighty Dollar.

Powered by ScribeFire.

2 responses so far

Apr 16 2007

“Savior Syndrome”: my case in point

Damage control:

Greenspan: Global growth could cushion U.S. economy – Apr. 16, 2007

Paulson: Economy to grow this year

Here’s a follow-up to my last entry, where I hinted at my developing theory of America’s affliction with “savior syndrome”. A few months ago former Fed chairman Alan Greenspan uttered the “R” word to a group of businessmen in Tokyo, and within hours the US stock market fell by almost 3%. If American investors place so much weight on the words of one man, could it be that the pessimism of American consumers about the future stems solely from Greenspan’s statements in Tokyo?

This article couldn’t have been more timely… only a day after 64% of Americans claimed they believed a recession to be just around the corner, Mr. Greenspan reportedly rescinds his Tokyo statements! Obviously Mr. Greenspan understands the sway he holds over the hearts, minds, and pocketbooks of American consumers. Despite his having stepped down as Fed chairman almost two years ago, Greenspan is indeed still the savior and the saint of the macro economy!

The short article here also touches on an important point from Chapter 37 (tonight’s reading) about the importance of services to America’s export market.

“Greenspan said growth in the rest of the world is creating demand for services from firms such as Microsoft”

While America’s manufacturing sector has surely suffered as labor intensive factory jobs have moved overseas, the service sector has boomed as the developing world has turned to the US as a source of intellectual, technological and entrepreneurial innovation. After reading chapter 37, refer to this article and post your comments. Do you think American’s suffer from a “savior syndrome”?

Powered by ScribeFire.

One response so far

Apr 16 2007

Irrational Expectations

Americans united in recession fears — Shanghai Daily | 上海日报 — English Window to China News

Here’s an interesting article with which one could launch a case study into the American psyche. It also connects to AP Economics in that it seems to support the Rational Expectations Theory that firms and households will respond to expectations of future economic conditions by altering their behavior now, thus accelerating the onset of those very conditions; a sort of self-fulfilling prophecy, if you will.

The irony of America’s current economic situation is, however, that while 60% of Americans predict a recession in the near future, these predictions seem wholly irrational when we consider the state of the economy at this very moment! Unemployment is at its lowest level in five years, 64% of Americans surveyed said their own finances were very secure, and 57% seem to think the economy is doing well. So why the fears of recession?

Interesting article, all told. The American people seem to have things as good as they’ve been in years, yet there’s this predominant fear of things turning for the worse any day. If rational expectations theory is correct, then it’s a safe bet that American’s pessimism in itself could trigger a recession, in which case we’ll all get just what we didn’t want, but somehow failed to avoid due to our irrational expectations!

I have another theory about what may have triggered American’s pessimism in the first place; it has something to do with something I call the “savior syndrome”… but I’ll save that one for another posting!

Powered by ScribeFire.

12 responses so far

Apr 15 2007

Meanwhile, back in the real world…

How Uncle Sam Spends Your Tax Money

…lots of unlucky Americans are mailing their tax returns (or procrastinating doing so) to Uncle Sam. April 15 is the dreaded “Tax Day”

“Of the $2.7 trillion federal tax coffers, about 20% goes to military spending, 20% to Social Security payments, and 15% to Medicare for theelderly and disabled. An additional 35% funds education, government agencies, and a range of social programs. And the remaining 10%? That’sfor interest payments to service the debt from all that spending.”

“Costs exceed revenues by far, but the Defense Dept. budget just keeps increasing. That means bigger interest payments on our debt.”

“To service the $9 trillion-and-growing national debt, the U.S. government spent $406 billion on interest in 2006, up 13% since 2001. All told, about 15 cents of each tax dollar is spent on interest payments.”

Read this great article, it fits perfectly with our latest unit in Macro. Gives lots of current numbers about government spending and the national deficit.

Powered by ScribeFire.

Comments Off on Meanwhile, back in the real world…

« Prev - Next »