Thursday, February 28, 2013

Bob Solow is my alltime favorite economist

http://www.nytimes.com/2013/02/28/opinion/our-debt-ourselves.html?partner=rss&emc=rss&_r=0

7 comments:

  1. I think this is a very well written article. Every point is backed up with clear arguments that make sense, and I like the mention of "vague apocalyptic warnings" at the beginning of the article. It is very true.

    The point that seemed to stick with me the most was the idea that we should encourage inflation. I don't know much about economics, but I feel like when a government is choosing to encourage inflation things cannot be good. However, if we encourage inflation of our dollar and then repay our debts using a dollar that is worth less than it was when we borrowed it, isn't that stealing money? Especially if we intentionally made it worth less.

    You can't just break a loaf of bread in two and call it two loaves of bread.

    I also was fascinated that we owe about 11.4 trillion dollars to foreigners, scary. The US and the European Union together owe more than the rest of the world combined. Countries like Japan and China don't even compare to have the amount of debt that the US has. This article provides clear facts about our debt and gives basic solutions on ways to move towards being debt free!

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  2. This was a very well-written, concise summary of the national debt. What stuck out to me was his comment that borrowed money has been used on wars and tax cuts rather than improving infrastructure and improving workers' skills.

    We've already discussed in class how tax cuts, as long as they encourage increased consumer spending to make up for the decreased government spending, can actually be fine for the economy. And while wars and failure to improve infrastructure are concerning, I believe he is making a bit of a leap with the feasibility of improving worker skills.

    To do so would require wide-scale programs, either established or subsidized by the government. These would be extraordinarily expensive. A better alternative (or related initiative) would be to reevaluate our educational system: encouraging trade schools, high-school trade and shop classes, etc. While this sort of education has been quite successful in industrial powerhouses such as Germany, such reforms would be difficult in this country. The last major bi-partisan reforms pushed through in american education was the disastrous "No Child Left Behind."

    While owing much of our debt to foreigners is disconcerting, American production is far from a standard that could be quickly improved to make repayment easier. The troubled car manufacturers are one of the best examples of this; the economy itself is still a bit too shaky to implement any of these major reforms.

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  3. I agree with Johnny and Christina that this article nicely summarizes the main points about the national debt in a way that makes it easy for non-economists to understand. Also like Christina, the part that stuck out to me the most is when Solow claims that we could have helped ourselves by funneling more money into production earlier when in reality we made our debt harder to repay by using that money to fund wars and tax cuts.
    I think this shows how much of an impact the politics of the day can have on economic policies and practices. Even though the models tell us we should have been producing, the politics told us to cut taxes and increase military spending.
    I think it's interesting that Solow advocates for less publicly held debt. It makes sense that a lot of the debt is held publicly because treasury bonds are seen as a safe investment, but they have very low returns. If fewer people were invested in public debt, those who weren't would invest in things with higher returns, which would stimulate the economy.

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  4. I think this article is one of the most precise, clear, and easy to digest piece on government's involvement in macroeconomic. It is written in a way that the average Joe can understand. I think it's true that most Americans do not understand the facts Solow presented, and it is very important for taxpayers to decipher what is going on. If we hear something like the US government has reached the debt ceiling, people who do not understand economics wants the government to decrease spending. The politician, who wants the people's vote, will try and argue to decrease spending. However, as we learned in 102 and as Solow points out, more government spending and borrowing will encourage consumer spending and stimulate private investment.

    Another point Solow talked about is using government spending to improve public goods. Historically speaking, this method has worked pretty well. F.D.R. used the New Deal to put people back to work and revive the economy. Right now, the government is concentrating most of the money towards building and improving highways. However, other big projects, like rebuilding bridges, tunnels, even improving education, are worthy long term investments. The Federal Bank's job is to try and lower unemployment rates through monetary policies, and it is doing everything in its power. Now we need the fiscal policies to help out.

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  6. This article gives solid perspective on a multitude of issues and was very level headed. The distinction between debt owed domestically and abroad. I had never considered that even given the credit rating in the United States, dollars are dollars, regardless of their value, so a weaker dollar would mean that foreign debt can be paid off easier than domestic debt. Solow confirms the idea that we have already discussed many times that inflation is not right around the corner, meaning the future looks good for reducing some of the debt.

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  7. I liked how Solow was able to break down our debt and its problems with 6 simple, concise facts. I think that many times these economic articles can be tough to follow, but Solow presented the information in a easy-to-understand manner. In the media, there are many times when reporters or articles will attempt to compare the United States to one of the "PIGS" countries. In the article, Solow makes a clear distinction between the United States and European countries. We have control of our currency, they do not. Because we use the dollar and not the euro, we are able to effectively control the money supply and interest rates. Unfortunately, for countries like Greece, they do not have this ability and can therefore not execute monetary policy. They are left solely with the option of fiscal policy, which has led to overspending and huge amounts of debt.

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