The Natural Rate of Unemployment

The article explains, that the natural rate of unemployment is a combination of structural and frictional unemployment. The Fed is tasked with eliminating unemployment completely however,  instead uses a prediction of a level of unemployment in the long term that can still allow the country to sustain itself as its measure of the natural rate. The principle, is that all members of the workforce should be able to get jobs but due to various factors like new technologies replacing workers in structural unemployment, full unemployment is nearly impossible. The economists at the Fed use government spending as the tool to manage unemployment, but this can be tricky as in normal times when unemployment is not very high, they run the risk of inflation. This is caused by higher wages which likely would result in higher prices and consequently the devaluing of money.

https://www.economist.com/news/economics-brief/21727050-policymakers-have-spent-half-century-search-natural-rate-unemployment

Puerto Rico: Hurricane Maria Hammers Economy that can’t take much more

http://money.cnn.com/2017/09/20/news/economy/puerto-rico-hurricane-maria/index.html

Maria hit Puerto Rico, as a category 4 hurricane, which will lead to overwhelming economic damage. Puerto Rico is already in years of debt, due to mismanagement of funds, poor policies, and a struggling economy. Puerto Rico owes around $74 billion dollars to bondholders and $50 billion to government employees. The cost of clean- up of the damage caused by Maria will send the debt up even higher. On top of their debt problem, many of Puerto Rico’s residents are leaving the country due to many factors including high unemployment which is around 10.1%. This leaves the country with fewer workers to help repair due to the damage of the hurricane. Puerto Rico’s economy has been in a recession since 2006, it can ill afford natural disaster expenses. Even though their government has tried to offer major tax incentives to entice new wealthy property owners and business startups. Their end goal is to boost their taxes to help them get out of debt.

            Due to the high unemployment, many residents of Puerto Rico have left or will leave to find better opportunities elsewhere. No one is going to stay if there are few jobs and it is difficult to take care of your family. This disaster will cause at least a short-term increase in demand for skilled workers in Puerto Rico, but due to Puerto Rico’s debt burden the economy may not be able to increase wages. However, increasing taxes would cause many problems due to the high percentage of unemployment. The unemployment level may decrease in the future, due to the loss of workers, but Puerto Rico will still have to train new workers. This will take time away from productivity which can lead to the decrease of consumption and overall lead to a decrease in the GDP. Also, due to the hurricane many people won’t be able to work due to injuries or be able to get to work due to weakened infrastructure. In addition, Puerto Rico has been trying to get people to start businesses so that they can increase investment and overall lead to an increase in the money supply. This investment effort also may be affected by the hurricane.

What would happen if the US walked away from NAFTA?

The 23 year old NAFTA is currently undergoing renegotiations. 58% of Americans support participating in this trading bloc, while 74% of Canadians are in favor, followed by 79% of Mexicans. While this is popular in each participating country, none of them seem to be afraid of leaving. They state that they will "simply strengthen trade with other nations". 

This is interesting because a large part of our trade deficit is made up from autos, and auto parts. While at the same time, we are growing our auto imports from SE Asian countries.

Without import tariffs, LDCs like this would become much more competitive with their lower wages. (This is as long as shipping costs plus production costs are less or equal as well)  So if trade does what it does best, consumers would have lower prices.   

What do you guys think would happen if we directed these trade agreements away from North America? 

Do you think we would get more or less trade benefits?

https://www.cnbc.com/2017/09/22/commerce-sec-wilbur-ross-says-scariest-part-of-nafta-is-autos-auto-parts-make-up-nearly-all-of-the-trade-deficit.html

The Start-Up Slump

The delayed growth in the economy since the recession partially results from the lack of new businesses.  Many Americans are under the impression that startups are as strong as ever, but the data presented in this article indicates otherwise.  In 2006, 558,000 new businesses were formed. 2015, on the other hand, saw the creation of only 414,000 new businesses.  While other aspects of the economy (such as unemployment) have recovered fully, businesses are still forming at a slower rate than before the recession.  

This "start-up slump", as it is called by economists, owes itself in part to the burgeoning presence of multinational corporations.  It has become increasingly difficult for new businesses to compete with the presence and scale of the largest corporations, such as Wal-Mart.  Some attribute the slump to the abilities of the larger companies to block competitors and create barriers of entry to their respective industries.  The trend of acquisitions, such as Google acquiring YouTube, has also allegedly discouraged many would-be entrepreneurs.  Other potential cuprits include the decline of community banking, increased regulation, and the aging of the baby boomer generation.  

https://nytimes.com/2017/09/20/business/economy/startup-business.html

BIS Says Globalization Is Answer to Inflation Puzzle

Globalization is the most likely explanation for surprisingly low rates of inflation, suggesting that central banks should be patient in seeking to meet their targets and avoid providing too much stimulus, a senior official at the Bank for International Settlements said Friday.

The bank's advice comes as the global economy has accelerated this year, while unemployment rates continue to fall across developed economies. Despite that, inflation rates across the Group of 20 largest economies have eased and stand at levels last seen in 2009, when the world was just starting to emerge from the sharp economic downturn that followed the global financial crisis.

Central bankers are puzzled at the breakdown in the economic relationship between activity and prices.

http://www.foxbusiness.com/features/2017/09/22/bis-says-globalization-is-answer-to-inflation-puzzle.html

How caregiving impacts the economy

http://www.politico.com/sponsor-content/2017/09/americas-modern-heroes?cid=201709hp

Healthcare has been a major part of economic policy discussions lately, as Congress debates passing a bill that will impact 17% of the US economy without a Congressional Budget Office measure of how it will impact premiums or healthcare costs. However, informal or family care is often left out of this measure. As healthcare grows more expensive, with some private nursing homes (especially those with memory facilities) costing upwards of $80,000 a year, many American families are trying to take  care of sick, elderly family members on their own. This disproportionately affects GDP, as caregiving would be counted as part of GDP if it was in a nursing home, but the providing of this service is not counted when performed by a family member; this means that we may not have a truly accurate sense of the value of all healthcare services provided in the US.

Cryptocurrencies Being Raised for Natural Disaster Relief

The Mexican bitcoin exchange, Bitso, has recently announced they have begun collecting donations for victims of the 7.1 magnitude earthquake that took place on September 19 in central Mexico. Directly before this campaign, Bitso had been collecting funds for the earthquake that occur just barely two weeks prior, and other private organizations have been since matching donations for the multitude of natural disasters that have transpired in the past thirty days. The trading platform has promised that it will provide verifiable receipts signed by Mexico’s Central Bank confirming that donations were made to ensure full transparency. This campaign helps to present cryptocurrency in a less nefarious sort of light in that it isn’t simply an underground, dubiously legal method of collecting wealth, but instead has potential to be used for global good. Given Bitcoin’s recent 10% decline in value as a result of China’s increased restrictions on cryptocurrency as a whole, there may be a chance that these types of movements can help solidify its overall confidence level for the public.

https://news.bitcoin.com/bitso-exchange-raises-cryptocurrencies-for-mexican-earthquake-victims/

In sign of U.S. economy’s strength, Fed to start reducing $4.5 trillion balance sheet

Article Link: https://www.washingtonpost.com/news/wonk/wp/2017/09/20/in-sign-of-u-s-economys-strength-fed-to-start-reducing-4-5-trillion-balance-sheet/?utm_term=.3246d27a2676

After the financial crisis in 2008, the Fed increased its holdings of "government bonds and mortgage-related securities from $900 billion to $4.5 trillion in an effort to turn the economy around" (Long). As we can see today, U.S. economic performance has been doing well enough that the Fed believes it can start reducing its balance sheet in October. They will start with a reduction of $10 billion in October, and gradually raising that amount until they are deducting $50 billion a month.

The Fed is so confident in the amount of consumer spending, business investments, and hiring from firms that it projects a 2.4% growth this year. Additionally, the Fed believes this growth rate will be strong enough to allow for an interest rate increase by the end of the year, and three more increases in 2018 to bring rates above 2%. Moreover, the Fed expects unemployment to fall to 4.1% next year.

It is unclear what the possible outcomes could come from this move. Since the Fed will be selling off its assets, that will increase the money supply and potential increase inflation as well. However, since they will be putting money back into the economy in a gradual manner, and since our economy will still be growing, perhaps inflation will be minimal. However, we won't start to see the effects of this reduction until October. What do you think could happen from the reduction of the Fed's balance sheet?

Fed says Harvey and Irma will have no lasting impact

The two most recent hurricanes that have ripped through the south has caused a lot of damage to many homes and businesses. The Fed has however stated they don't expect the economy to alter much from its normal growth track. The central bank after a two day policy meeting says they see unemployment falling to the 4.1 percent area and economic growth rising which is to be expected from all the rebuilding taking place. The higher fuel prices in the south has caused some inflation but they expect it to fall back down to the normal 2 percent area.

While it is tragic what has happened to so many people who have had to uproot and move because of the storms, as they return they can look forward to economic growth in their area with plenty of chances for employment.

https://www.cnbc.com/2017/09/20/fed-says-hurricanes-will-have-no-lasting-economic-impact.html

G.M. Workers Strike in Canada

G.M. workers from Ingersoll, Canada are on strike because they upset with reports of jobs being moved from Canada to Mexico. This is the first automobile industry strike in Canada in 21 years. Currently, Ingersoll is the primary assembly cite for the Chevrolet Equinox. The Ingersoll assembly cite also used to be the primary assembly cite for the GMC Terrain. In July, G.M. decided to move the primary assembly cite of the GMC Terrain to Mexico. This resulted in 600 workers to lose their jobs. The Equinox is also made at the G.M. factory in Mexico. Therefore, the workers of the Ingersoll factory worried that they might end up losing their jobs again.

The largest private-sector union in Canada, Unifor, held a town-hall meeting in Ingersoll. Unifor demanded that the current negotiations of the North American Free Trade Agreement to lead to a greater amount of Canadian factory jobs. Right now factory production has moved out of Canada to the United States and Mexico. Unifor president, Jerry Dias, has blamed Mexican wages and the standards of factory employment for the shift of jobs from Canada to Mexico. Mr. Dias has made statements similar to Trump's views, saying, "Look, Canada and the U.S. agree that the problem isn’t us — especially in the auto sector. The problem is Mexico.” 

Personally, I agree that it would be unfair to the Ingersoll workers, if the primary assembly cite Chevrolet Equinox was moved from Canada to Mexico. Canadian G.M. workers have already lost jobs to Mexico because of the GMC Terrain. What do you guys think? Would it be fair for G.M. to move the main assembly cite from Canada to Mexico?

https://www.nytimes.com/2017/09/18/business/general-motors-strike-canada.html?rref=collection%2Fsectioncollection%2Fbusiness-economy&action=click&contentCollection=economy&region=stream&module=stream_unit&version=latest&contentPlacement=4&pgtype=sectionfront

"Toys R Us, crushed by online competition, files for bankruptcy"

After years of continued struggle (and debt), Toys R Us is filing bankruptcy ($1 billion in debt). However, the chain doesn't plan to halt operations yet. 

“Like any retailer, decisions about any future store closings – and openings – will continue to be made based on what makes the best sense for the business,” Michael Freitag, a spokesman for Toys “R” Us, said in an email.

Although Toys R Us is not closing down just yet, this decision has immediate impacts on other retail vendors. I expect Toys R Us' stock to continue to fall at a steady rate, along with other companies such as: Payless Inc., Gymboree Corp. and Perfumania Holdings Inc. (who are experiencing similar fates). Amazon, a major factor to this trend, will continue its steady growth. Amazon is dominating the retail market and taking "brick-and-mortar" stores off the map. Even though Toys R Us has an online store, Amazon has blown it away with its customer benefits and diverse inventory. In the long term, jobs will be lost in the U.S., however, Amazon continues to grow and create more jobs daily. It's disappointing for me to see stores like Toys R Us go out of business (since I used to be a consumer of the goods as a child) but I understand the switch to quicker/more available purchasing.

http://www.msn.com/en-us/money/companies/toys-r-us-crushed-by-online-competition-files-for-bankruptcy/ar-AAscl80

Industrial production falls for first time since January

On Friday, September 15, 2017, CNBC posted that for the first time since January, the industrial production has fallen. Overall the industrial production has fallen about 0.9% since it was updated at the end of July. One of the main causes of this could be Hurricane Harvey, which has hit the oil, gas and chemical industries hard along the Gulf Coast.

To back this data up, the Fed used a combination of high frequency plant data and economic modeling. Thus far, there is nothing to dispute otherwise that the industrial production has been slammed as a result of the massive hurricane that has hit much of the southern part of the United States. What makes this data much more interesting is that there was supposed to be an increase in production even with the hurricane hitting.

The oil, gas and chemical industries are not the only ones that took a hit as a result of the declining production. Mining has also decreased about 0.8% since the end of July. Some of the industries are still on the rise as a result of the hurricane. For example, the auto parts and vehicles rose 2.2% this past month.

The biggest concern for our economy now is how the United States will bounce back and what industry will be hit next as a result of the multiple hurricanes that have hit. Some have had a serious decline in production while others have had an incline in production. Hopefully, the next will be a step in the right direction for the United States economy.

https://www.cnbc.com/2017/09/15/industrial-production-fell-0-point-9-percent-in-august-vs-0-point-1-percent-increase-expected.html

Apple’s New iPhone X Tests Economic Theory

Thorstein Veblen, an American economist and sociologist theorized that certain products could defy the economic laws of gravity by stoking more demand with super high prices.  His book, “Theory of the Leisure Class,” made him famous and more than a century later his ideas are embodied in products like Bugatti cars and Patek Philippe watches.

Now-a-days, Apple and Samsung are testing whether the social commentator’s theory on what has come to be known as the “Veblen good” can work for one of the most common consumer products—a cell phone.  Typically, raising the price of a good lowers demand for it, however, Veblen’s theory is that some consumers want a product even more when the price rises because the expense will broadcast status, wealth, and taste.

Earlier this year, Samsung Electronics Co. unveiled the $950 Note 8.  Apple Inc. is testing the limits even further by releasing the new iPhone X last week with a price of $1,000.  Both companies are fighting for customers with expensive price tags, rather than attracting consumers with cheaper prices.  Steven Haines, chief executive of Sequent Learning Networks, which advises companies on product management said, “They can create a super-premium model and perception of super-premium that pushes those buyer types into the stratosphere...this is a classic product management.” 

Horace Dediu, an industry analyst at Asymco and a former Nokia Corporation business development executive, said the iPhone X isn’t a pure example of Veblen’s theory because demand will be driven by the device’s functionality, not simply price.

https://finance.yahoo.com/news/apple-pricey-iphone-x-tests-150000248.html

Intel's self-driving tech will make Waymo vehicles fully autonomous

Intel bought into the self-driving car market; they bought MobilEye for 15 billion earlier this year. Intel has started a partnership Google's self driving offshoot. Intel is testing on Waymo's cars and believes they will be almost completely self-driving. Waymo develops the chip for the self-driving software to put into the cars. They are a major key to the development of this market. Waymo is a company launched by Google to get into the self-driving car market. Intel is also trying to partner with Uber and is fully partnered with Waymo and Lyft. But Google is in a lawsuit with Uber which is causing a stall in the partnership. The lawsuit is over patent infringement. The case opened an influx of emails to be surfaced about how Google was going to partner with Uber to make driverless riding sharing. Google turned down the offer to launch Waymo with Intel.

I believe that if Intel is successful with their partnerships that they will change the whole transportation system. The technological advancement will kill the taxi business and Uber unless Uber joins the partnership. Because it would kill the taxi business, it would cause a separation in the job market. A lot of people would loose their jobs and will be required to learn to job skills. This could cause the unemployment rate to increase. Also, It will create a huge profit for the companies involved because it would take out the cost of paying the driver. The company would be now paying for the car and the gas, not the driver's fee. The price of ride sharing would dramatically decrease, causing a huge saving to consumers. It will cause an increase in the job market of software engineers. If the companies can get the technology to work effectively I believe this would make a big change to our economy.

https://www.engadget.com/2017/09/18/intels-self-driving-tech-will-make-waymo-vehicles-fully-autonom/

Renault, Nissan and Mitsubishi have unveiled plans to work together on electric and self-driving cars.

Autonomous driving technology has been growing rapidly in recent years and Renault, Nissan and Mitsubishi are teaming up to try and be the leader in drive-less taxis according to announcements they made Friday. The companies are planning on launching 12 new all electric vehicles by 2022. They set the goal of making the range of these electric cars at 373 miles which is comparable to Tesla's highest range car. They are also implementing a quick charge where a 15 minute charge will give you a range of 143 miles which is very impressive since cars today with a quick charge can only go 60 miles. The companies laid out a timetable for the various releases with the first coming next year in the form of a vehicle that could be used on the highway that is highly autonomous but requires a human to still pay attention which is very similar to Tesla's autopilot. The trio of companies outsold Volkswagen in the first 6 months of the year to become the "worlds largest seller of automobiles".

I think there are many positives to an increased number of autonomous vehicles being introduced but it will be interesting to see how they actually react when put into real situations with human error around them. I think it will still be a long time before autonomous vehicles become a normality but I believe fully electric vehicles will be common very soon. With ranges of almost 400 miles it makes these vehicles a lot more sensible. While they become more common the number of charging stations will increase as well and it will be interesting to see what affect it will have on Gas prices.

http://money.cnn.com/2017/09/15/technology/renault-nissan-mitsubishi-alliance-electric-self-driving-cars/index.html?iid=SF_LN