Our first week of study of macroeconomics has generated a thoughtful and spirited discussion that has generated a list of economic questions/challenges facing the US today. At the left you will see a poll based upon the challenges presented by students in ECN 211 Principles of Macroeconomics online at Mesa CC. Please take a moment and vote for the one issue that you feel is the most pressing. Then, take a moment and post a comment/reply to this posting explaining your reasoning.
Comments and questions
Also, after reading the assigned chapters, I think we have all learned that something is only worth as much as a person is willing to pay for it.
This is a clear conclusion from studying human behavior and an
extension of this point, if person A is willing to pay 5 dollars for an item and person B is willing to pay 2 dollars for an item, who should own the item?
Regarding ethanol - This is a great example of our government
trying to solve one problem, and creating a dozen more.
This is an excellent illustration of the tension between principles 5 and 6. A element in societies that tend to develop and grow is the ability to adjust to mistakes or unintended consequences. Principle 5 that observes that decentralized markets tend to be a good way to resolve questions implies that, when mistakes or errors are made, the
decentralized decision makers in the make can adjust or respond quickly.
We all know that, in spite of the contention of principle 6, that governments are much slower to adjust or react. Recall the governmental action to prohibit alcohol production and consumption in the early 20th century in the US. While it became almost immediately obvious that this action was ineffective and in fact created any number of unintended consequences, it was years before the government adjusted
to correct this mistake.
How likely is it that supply and demand is what is driving up the gas prices?
This is a great question and reveals both an understanding of the economic way of thinking and a sense about how society operates. The answer is clear from both an economic perspective as well as an empirical perspective.
The real question is what are the elements that make up demand and supply and what are the variables that change demand and supply.
I think, that the "political stand point of our government" has almost every effect on the economy. Tax the wealthy, tax the poor. Raise the minimum wage, do not raise the minimum wage. Chapter 6 sums up the answer to your question beautifully. It discusses payroll tax, luxury tax, and whether or not to tax the seller or the buyer. It was
a pretty interesting chapter.
Yes, and it is important to keep in mind an observation about the role of government (which is vital) to the economy. The government can assist in decision making with a clear set of guidelines that protect property, insure compliance with contracts, and allows for an independent and transparent judiciary.
If higher gas prices mean we change the way people think about scare resources, then bring it on.
our price has increased due to the increase in the value of the euro. So, if the euro has increased then that means they are paying more for their gas which, in turn, effects the purchase price for Americans also.
My economic question is do you think the tax rebate checks were a true benefit to our society, or were they merely a ploy to distract us from other issues our nation faces?
I hear a lot of different things coming from China. Is it true that since they have been hording as much of the American dollar that they can, that if they want to dump it all back into the American economy at once, it would completely ruin us?
My question may be a controversial one, but I once heard that the only thing that America produces is weapons and that most everything else is bought from other countries, which pretty much leaves our country dependent on other countries. Is this
true?
I understand utilizing trade with others so you can specialize in a field that yields the highest output for yourself but how does a starting economy grow when it is not good enough at its specialty to really benefit itself or make enough money to purchase its other needs? What do you do if you simply don't have the resources or revenue to grow your economy?
On one hand, Federal oversight may stop the band lending practices from happening in the future, thereby adding stability to the housing community. On the other hand, the government has done few things right when they intervene in the private sector. Either way, some type of policy should be in place if Americans are expected to pay for the lenders mistakes and greed.
How likely is it that supply and demand is what is driving up the gas prices?
I personally believe there is a lot of corruption and wrong doings, not just supply & demand, which is driving the cost of fossil fuels.
I think, that the "political stand point of our government" has almost every effect on the economy. Tax the wealthy, tax the poor. Raise the minimum wage, do not raise the minimum wage. Chapter 6 sums up the answer to your question beautifully. It discusses payroll tax, luxury tax, and whether or not to tax the seller or the buyer. It was a pretty interesting chapter.
If you are interested in my comments or responses to student questions raised during the first week of our summer session class, click on the comments link below.
I look forward to the results of this informal poll.
Subscribe to:
Post Comments (Atom)
Posts
17 comments:
One of my students in ECN 211 Principles of Macroeconomics asks:
Will we (the United States) always have an enormous amount of national debt?
How does the government reduce the debt to something more manageable?
Nine trillion
dollars isn't that a little too much?
Mr. Pratt would you please answer this question.
As to this excellent question about debt - there really is no simple answer, rather a number of perspectives that tend to reflect the normative view of the individual. As we know from our reading of chapter 2 in Greg Mankiw's excellent textbook, economics can be viewed from a positive point of view as well as a normative view.
Positive economics tells us:
The US GDP is approximately 13 trillion dollars. As this student points out, federal debt is estimated to be 9 trillion.
Normative economics:
As some of you may know from your study of Am History, Alexander Hamilton called the debt a National Blessing. (*If you are not familiar with a wonderful book by John Steele Gordon of the same name it is an excellent introduction to public finance - http://www.johnsteelegordon.com/books.html)
So the ratio of federal debt to income is 9 trillion/13 trillion or under 70 cents. Stated differently, every dollar of annual income (GDP) supports 70 cents of debt. Now think of the average American consumer or corporation and think about the ratio - for both it is probably 150 t0 300 per cent.
So just the stated public debt is really not a burden or a problem.
However . . .
Off balance sheet obligations, primarily social security and medicare are estimated to be 55 trillion. Private consumer debt (credit card, mortgage and other) is estimated to be 7 trillion and corporate debt is estimated to be approximately 8 trillion.
So, in addition to the 9 trillion in stated federal debt, the US economy has another 70 trillion in future obligations.
Is this a problem? Well, the private consumer debt, corporate debt, and perhaps even the stated federal debt is manageable. The real issue are the New Deal and Great Society promises that were made . . . . and cannot be kept. So, provocative question . . . . we will read more about this topic in week 4 when we consider fiscal policy.
Greg
Very enlightening! It is amazing we are still afloat. Thank you for answering the questions.
I had not really thought too much about the debt crisis in our country until this blog and I am quite intrigued that you brought it up! It seems that there is no end in sight and I am forced to think back on the image of the national debt calculator posted who knows where that shows the debt rising by the second. I cannot believe that we as a country have let it get so bad but yet cannot come up with any solutions around it!
The New Deal was never intended to be a long term solution to anything. It was in response to public perception that government needed to take action to improve a difficult economic situation. Many of the "temporary" actions and programs that were instituted continue in existence today 75 years later. The FDIC, Social Security, the SEC, and strengthened collective bargains are just a few. All of these programs were intended to provide a temporary improvement in the welfare of the country until growth could be re-established. The cost of these programs are now becoming more than the country can support. To coin the expression "There is no free lunch", we are getting ready to pay for these programs in a big way. If these programs are not reviewed, modified, or eliminated, then market forces will continue to show their strength in opposition to them. All of these social programs have restricted the invisible hand and thus the natural forces of a free market. The free market cannot be restricted in the long term. The forces are too strong.
Wow. I haven't really thought about the debt in the United States that much. I didn't even know that the debt was so huge. I knew it was big, but that amount is astounding! The debt is still going up and many of the solutions that are offered are just temporary and what will happen in the future?? At this rate we will never be able to pay it off.
More on the role of prices:
What Are Just Prices?
Daily Article by Jeffrey A. Tucker
http://www.mises.org/story/2976
We all have strange and contradictory wishes concerning what prices should be. We are outraged at what is happening to the price of gas and food. We don't think they should go up. In real terms, we want them to fall, and they have fallen in the last decade and a half. That's a good thing, right? That's how the world should work.
But housing? Now, that's a different matter. When the prices fall, people freak out. It's like the end of the world. How is it possible that my own home would fall in price?! That's not the way the world should work. Everyone knows that house prices are suppose to go up up up, all the time, without fail, until the end of time.
Same with stocks. We want to open the webpage that lists our portfolios and see the prices higher and higher all the time. When they fall, we flip out and demand justice.
But let's stop and think about how peculiar this is. What kind of theory of the world insists that houses and stocks always go up in price, whereas gas and grain prices always go down? That doesn't really make sense. A price is not set by natural law, nor are price movements intended to follow a preset pattern like the movements of stars. Prices are nothing but exchange ratios — points of agreement between buyer and seller. They reflect many factors, none of them fixed parts of the universe.
Excellent analysis of the role of prices!
Greg
Why do we expect house prices and real estate prices for that matter to continually rise over time? The building gets older. It needs more and more repairs in order to retain its usefulness. With the passing of each day it gets nearer and nearer to the end of its useful life just as most other goods do. Why do we expect house prices to continue to increase as their useful lives continue to decline? Supply and Demand?
Mike- I understand the idea that houses should not go up, but what are the houses on? Land and for centuries people have wanted/need different types of land. You can always build a new house on land even if it means removing the one that is currently there.
Tricia, you make a great point. There is always a need for land. Some farm the land to make their income, some find prime locations for their businesses and will pay top dollar, and some want a nice, quiet place to retire in peace. All of whom will pay to attain what they are after. But as a home buyer, it is always one's hope that the house will appreciate. However, if we are to hold ourselves to such expectations, we have to be more responsible and active in our communities. In Indianapolis, Indiana where I am from, it is very common to see old, run down neighborhods. Frankly, they are ghettos, with houses that used to be beautiful, but are now housing gang members, drug addicts, and worse, all members of society that don't have the income to maintain a higher standard of living in their surroundings. In these areas, the streets are lined with empty homes (and lack of maintenance leads to many house fires). One can be bought for less that $ 30,000. The housing market is terrible. These neighborhoods are peppered with retirees that have maintained their homes, but not their neighborhood. How would the market be in these areas if the oldest citizens had truly outlawed the drugs? Had they held the police to the standards of safety they are to uphold by nipping these problems in the bud, I don't believe they areas would be so dismantled now. Had the earlier citizens of the neighborhood stepped in to help the struggling single mother before her child was left to learn life on the streets, while she was at work to pay the bills, would her son now be robbing the local market while she is at home smoking her crack to escape her troubles? These are examples of one small area, not the national economy, but the idea applies both. Although this is not the single cause of falling housing market, the principle can applied to all reasons. In order to ensure that our investments move the direction we want them to move, we must be active in the factors that cause the market to move. We wouldn't expect a tree planted in our back yard to grow if we allowed the neighbor kids to saw at it more and more everyday.
In "Superman Returns", Lex Luthor recounts his father's wisdom: "You can print money, manufacture diamonds, and people are a dime a dozen, but they'll always need land. It's the one thing they're not making anymore of." His plan to take over he world seemed pretty ingenious and evil to me, and it makes me wonder why more people don't invest in land. It's like a bond that can only increase in value, right? Just buy 20 acres in North Dakota for a thousand dollars, wait till people need to move there, and sell it for profit.
Concerning my choice in the poll, I went with a general decline of the U.S. economy, because it's too hard to pinpoint any one thing. I'm sure each problem only serves to exacerbate another, and everything gets increasingly worse. I keep telling myself that with years of economic history and theory, somebody knows a way to fix this problem. But for the first time in my adult life (maybe 2 years), I find myself really not trusting our economy at all.
In addition to my comment above regarding the national debt, I would like to make a comment on Ben's posting. While I believe that land is a very important and sometimes profitable resource, I believe purchasing land in the mid west in such states as North Dakota or Nebraska would more than likely be a very long term investment. Even with the expansion of housing in the United States, states in the mid-west do not seem to be increasing in population at any kind of rapid rate which in turn diminishes profitibility. I believe it would be a wise purchase if you were to will it to your children and possible grand children for a profit in the distant future but for right now, paying property taxes on a chunk of field would not be a very wise decision and a probable poor investment.
What do you think the government will do to counter inflated gas prices?
I believe McCain is looking into cutting gas taxes right now. We will see what happens:)I know this may not be the right thing to say, but I think it is a good thing gas prices are so high. We really need to look into alternative fuel, carpooling, taking public transportation. All of these things will be better for us and the environment.
On the poll, I checked that rising gas prices and the weakening of the United States dollar were two of the biggest economic challenges facing our society today. These two challenges go hand-in-hand with each other. Gas prices have reached a high point and only continue to become higher. The demand for gas has decreased slightly but Americans are so used to driving trucks and SUV’s that a sudden change in habits is highly unlikely. However, some people have made drastic changes in their gas consumption which is beneficial to their wallet. There have been countless new articles about people moving closer to work, taking the bus, or buying a more gas-efficient vehicle.
The weakening of the U.S dollar is one reason why gas prices have increased. Gasoline is paid for with the U.S dollar, and because the dollar is weak overseas, we are forced to pay more for gasoline. I do not see this changing anytime soon, so all we can do right now is pay careful attention to our gasoline consumption and make a conscious effort to use less gas.
I voted for the general decline of the US Economy. During this time of instability, as a country, we are facing the war, weakening US dollar, high gas prices, an upcoming election and the housing / credit crisis.
Has there been a time of such global turbulence where the US still prospered? Where the quality of life still improved?
I feel that our elected officials are facing too many obstacles at one time. I feel that multiple solutions exist to solve the nations problems, but is anyone strong enough (or qualified) to make them?
I understand that the primary goal of any corporation is to make money for their shareholders. Is it possible that mega corporations, in their one-sided goal of profit, help to contribute to the decline of the US? If we continue to base our economy on spending, and the reliance on cheap imports (from Wal-Mart per say), how can we gain any control of our economy? I'm not suggesting we become self-sufficient. I'm suggesting that we become a more balanced country. A country that has a direct impact on the strength of their economy.
My name is Charles Stevens, to the responce to the poll, and the belief that rising gas prices is the greatest challenge. I believe the main problem that america is having with the prices is not just that the prices are high, but we were not prepared for this jump, which is shaking the foundations of our budgets, creating anxiety, panic, and even anger towards the oil providers. The data shows that over the last 50 years the prices should have inflated much higher/faster, but also since about 2001, in under nine years, the price of gas has Quadrupled. This raise in gas price may be the cause of the apparent recession by influencing all aspects of our market and our economy, not really vice a versa like it seems. It seems that most of the economic challenges stated in the poll are, or could be, in some way related to gas usage or prices, and at this point in our economy we have a very low elasticity towards oil demand.
There are a lot of things wrong with the economy, but what is hurting people the most is gas prices, weakening of the dollar, and health care for both regular population and veterans. I believe the dollar will strengthen once the current administration is booted, which will help the economy a great deal. Gas prices on the other hand probably won't go down anytime soon. All people enjoy having money especially those involved in oil and therefore gas prices will remain high. Even though election was rigged according to some, me included, there was enough people who voted for bush to allow it to happen. Those who voted for him really have nothing to complain about as they got what they wanted, wide spread corruption and higher gas prices, but unfortunately those who didn’t vote for him still have to suffer. I do not believe the account of some that it is a matter of supply and demand partially because that would reflect on other parts of the world and not just here plus bush is involved in oil and also earning mega bucks with the price of crude. By cutting the supply from Iraq, through an illegal war, this too helped create our problem of paying more and bush earning more. Veterans and health care in general is something that no one is talking about. However, the veterans side alone is running up a huge deficit, but instead of trying to fix it correctly the governments just keeps cutting programs to fund it. This is a serious issue and needs to be dealt with soon without anymore earmarks and corruption. Yes I am a disabled veteran affected by it.
Post a Comment