http://money.cnn.com/gallery/smallbusiness/2014/01/27/minimum-wage/index.html?iid=SF_E_River
This article discusses how a minimum wage increase would impact small businesses. It tells the story of a doctor who has several minimum wage patients that often don't have enough to pay for their medical needs. She allows them to pay with food or services, but if there was a minimum wage increase, they would be able to pay with money, thus stimulating the economy.
It is interesting to see the perspective of a small business person, since much of the argument in favor of not raising minimum wage is that it would be detrimental for small businesses.
Friday, April 4, 2014
America and The Fight For Free Trade
http://www.economist.com/news/leaders/21596934-barack-obamas-unwillingness-fight-free-trade-expensive-mistake-how-make-world
"No nation was ever ruined by trade." - Ben Franklin
Trade between nations is a key to global economic prosperity and all of the benefits that come along with it. In this article from The Economist the writer discusses the state of free trade among the major world economic players. America, who has been at the forefront of promoting an open global economy, has been particularly bad recently by seeming almost reclusive. Congress has failed to honor commitments and the Federal Reserve has put forth regulations that could hurt foreign banks.
President Obama has also had a major roll in this issue. Prior to being elected, he was cited in saying "America cannot turn inward" but many of his actions do not fit these words. Specific examples are described in the article, but overall The United States and its leaders are negatively impacting the global economy by not employing easily-done trade boosters.
"No nation was ever ruined by trade." - Ben Franklin
Trade between nations is a key to global economic prosperity and all of the benefits that come along with it. In this article from The Economist the writer discusses the state of free trade among the major world economic players. America, who has been at the forefront of promoting an open global economy, has been particularly bad recently by seeming almost reclusive. Congress has failed to honor commitments and the Federal Reserve has put forth regulations that could hurt foreign banks.
President Obama has also had a major roll in this issue. Prior to being elected, he was cited in saying "America cannot turn inward" but many of his actions do not fit these words. Specific examples are described in the article, but overall The United States and its leaders are negatively impacting the global economy by not employing easily-done trade boosters.
Thursday, April 3, 2014
Higher inflation may be needed to leave extra-low interest rates behind
Inflation and Interest Rates
Central banks across the world have been going in separate ways. For example, England and the Federal Reserve are moving away from easy monetary policy while European Central Bank (ECB) may need to be a little more strict in order to keep the European economy away from deflation.
When looking at the past decade, you'll notice that the ECB has had a significantly lower projected interest rate at about 1% while the Fed is closer to 3% and the Bank of England is closer to 2.5%. While the Fed and England both project to be much closer to normal rates, they still have some ways to go, as they are currently at 1.2% and 1.7%, respectively. They are expected to still be just around 2% in the next few years.
These rates to have a positive to them: economies need to avoid debt. With these lower interest rates, it allows central banks a little more "wiggle" room. Economies are currently running at full tilt with the real interest rate at low levels. In addition, rising inequality also adds to how money is no being used. As the rich get richer, they save more of their income (as they don't need to spend as much, meaning consumption actually decreases).
Central banks are more responsible, however, for the low inflation rate. Even though prices have been more stable, the interest rates have fallen due to borrowers not needing to worry about changing inflation rates. Prices have been relatively the same for the past few years. So while it is an accomplishment that central banks have set inflation rates of about 2% per year, it also leads to some issues.
Some options to get out of this tricky situation are to increase the inflation rate target to 3% (decreasing unemployment) or possibly to just try and promise to not tighten anything up until inflation is back to projected levels (about 2% currently).
http://www.economist.com/news/finance-and-economics/21599774-higher-inflation-may-be-needed-leave-extra-low-interest-rates-behind-up-up-and
Central banks across the world have been going in separate ways. For example, England and the Federal Reserve are moving away from easy monetary policy while European Central Bank (ECB) may need to be a little more strict in order to keep the European economy away from deflation.
When looking at the past decade, you'll notice that the ECB has had a significantly lower projected interest rate at about 1% while the Fed is closer to 3% and the Bank of England is closer to 2.5%. While the Fed and England both project to be much closer to normal rates, they still have some ways to go, as they are currently at 1.2% and 1.7%, respectively. They are expected to still be just around 2% in the next few years.
These rates to have a positive to them: economies need to avoid debt. With these lower interest rates, it allows central banks a little more "wiggle" room. Economies are currently running at full tilt with the real interest rate at low levels. In addition, rising inequality also adds to how money is no being used. As the rich get richer, they save more of their income (as they don't need to spend as much, meaning consumption actually decreases).
Central banks are more responsible, however, for the low inflation rate. Even though prices have been more stable, the interest rates have fallen due to borrowers not needing to worry about changing inflation rates. Prices have been relatively the same for the past few years. So while it is an accomplishment that central banks have set inflation rates of about 2% per year, it also leads to some issues.
Some options to get out of this tricky situation are to increase the inflation rate target to 3% (decreasing unemployment) or possibly to just try and promise to not tighten anything up until inflation is back to projected levels (about 2% currently).
http://www.economist.com/news/finance-and-economics/21599774-higher-inflation-may-be-needed-leave-extra-low-interest-rates-behind-up-up-and
Average U.S. 30-Year Mortgage Rate Rises To 4.41 Percent
The rate of fixed 30 year U.S. mortgages rose to 4.41 percent. They are still at very low levels. This news came from the information provided by Freddie Mac. Furthermore, for the average of 15 year U.S. mortgages, rates increased from 3.42% to 3.47%. According to CoreLogic, a real estate data provider, U.S. home prices have increased at a decent rate last February, which would indicate that the supply of homes is more strict. As winter is finishing, it is predicted that sales of available homes will increase due to various factors, such as the season for spring buying about to occur.
China: stepping up?
http://www.reuters.com/article/2014/04/02/us-china-economy-tax-idUSBREA3114L20140402
China finally pulled the initiative in order to improve their economy, fluctuating with instability. First the government has reduced taxes for small firms on Wednesday (4/2). Moreover they are announcing accelerating the progress of railroad construction. Since the railroad is a great system for transportation and to dispatch supplies, a mammoth country such as China having the entire region connected increases productivity and reduces cost of production.
During last semester, there was an economics conference and there was a comment from one of the professionals that the growth rate of China in 2013 was lower than anticipated, thus a disappointment. However China would probably boost the output more in 2014. Their goal is to reach 7.5% of economic growth this year.
The Railway corporation, in order to proceed to the construction plan, sold bonds worth $32.2 billion. This movement might actually make Chinese economy ameliorate, not in the short run, but in the long run.
China finally pulled the initiative in order to improve their economy, fluctuating with instability. First the government has reduced taxes for small firms on Wednesday (4/2). Moreover they are announcing accelerating the progress of railroad construction. Since the railroad is a great system for transportation and to dispatch supplies, a mammoth country such as China having the entire region connected increases productivity and reduces cost of production.
During last semester, there was an economics conference and there was a comment from one of the professionals that the growth rate of China in 2013 was lower than anticipated, thus a disappointment. However China would probably boost the output more in 2014. Their goal is to reach 7.5% of economic growth this year.
The Railway corporation, in order to proceed to the construction plan, sold bonds worth $32.2 billion. This movement might actually make Chinese economy ameliorate, not in the short run, but in the long run.
Wednesday, April 2, 2014
A Republican tries to save the minimum wage increase
Republican Senator Susan Collins of Maine wishes to bridge the gap between Republicans and Democrats and compromise, at least on the minimum wage increase. She has laid out the initial framework for her compromise, as I summarize below.
- Increasing the minimum wage to something between $7.25/hr (the current rate which she feels is too low) and $10.10/hr (the Democrat-proposed rate, which she feels might be too high)
- Increasing the number of hours to define "full-time" employees as set forth under Obamacare, which is currently 30 hours or more.
- Extend small business tax credits
Collins has previously worked to compromise on the government shut down, unemployment benefits extension, and has often been a key vote in the Senate. However, both Democrats and Republicans have been unyielding on the subjects Collins hopes to compromise on.
Soaring Profits but Too Few Jobs
Low interest rates aren't working, but we need a debate about what will.
In class, we have began discussing the effects of lowering interest rates. In class, we saw that lowering the interest rate to near zero maximizes the amount of income the economy can expect to earn based on the LM curve constraint. However, what are the effects of such a policy on the economy outside of that model? This article discusses the ramifications and increasingly diminishing returns to keeping interest rates low: distortions in borrowing costs, the low opportunity cost of holding cash, the acceleration of increasing capital substitution. I want to know what your take on this article is, and what you think about Fed policy in general.
http://online.wsj.com/news/articles/SB10001424052702304886904579473900839794492?mod=WSJ_Opinion_BelowLEFTSecond&mg=reno64-wsj
Tuesday, April 1, 2014
U.S. Consumers Spent More in February, but Showed Less Optimism
http://www.nytimes.com/2014/03/29/business/economy/us-consumers-spent-more-in-february-but-showed-less-optimism.html?ref=economy&_r=0
After the impact of unusually bad weather, The Commerce Department said on Friday that consumer spending rose 0.3 percent last month, matching economists’ expectations. According to the article, the increase in consumer spending in February was due to an increase of demand for health care and utilities, which is services consumption.
However, the increase in consumer spending doesn't suggest the economy is good right now. A second report said that the consumer sentiment index dropped 80.0 in March from 81.6 in February. The survey director, Richard Curtin, said “Current conditions in the overall economy were reported by consumers to have recently weakened.”
After the impact of unusually bad weather, The Commerce Department said on Friday that consumer spending rose 0.3 percent last month, matching economists’ expectations. According to the article, the increase in consumer spending in February was due to an increase of demand for health care and utilities, which is services consumption.
However, the increase in consumer spending doesn't suggest the economy is good right now. A second report said that the consumer sentiment index dropped 80.0 in March from 81.6 in February. The survey director, Richard Curtin, said “Current conditions in the overall economy were reported by consumers to have recently weakened.”
Connecticut Is Increasing Minimum Wage to $10.10 an Hour
Last Wednesday march 26,
Connecticut became the first state in our country to pass legislation to
increaser the minimum wage to $10.10 an hour. The bill was approved through
general assembly and will be in effect by 2017. Governor Dannel P, Malloy and
President Obama publicized the proposal and the governor states that increasing
minimum wage is not just good for workers; it’s also good for business. Congress
and other lawmakers are excited about what Connecticut is doing and believe it
will help things at the federal level move into the same direction. But when
the minimum wage is increased the unemployment rate will rise and people are
going to lose their jobs. In Connecticut between 70,000-90,000 people earn
minimum wage and their wages will continue to rise over the following years as
the new bill continues to increase wages.
http://www.nytimes.com/2014/03/27/nyregion/connecticut-is-increasing-hourly-pay-to-10-10.html?ref=economy
Slowing Economy Leaves Chinese Leaders with Tough Choice
China’s property and manufacturing sectors slide further
this month. Now the Chinese Leaders are faced with a tough decision on whether
to accept this economic slowdown or stimulate the economy at the risk of
creating long-term problems.
The economy is showing many signs of sharp slowdowns. Manufacturing,
which accounts for almost half of China’s economy, has slowed down greatly over
the last few months. Domestic economic activity has slowed down since the
beginning of 2014. Real estate is also showing signs of slowdown. This weaken economy is adding to concerns
that China will not reach its government-set economic growth target for first
time in 16 years.
Housing is a particular problem for China. "Signs are
mounting that the housing market in a number of cities is not just cooling but
actually cracking," said Wei Yao, an economist. China is producing more residential
property than it really needs.
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