26 February 2013Macroeconomics:Expenditure approach to measure GDPY=C+I+G+NXEvaluating the economyLook at consumption, investment, government spending, and net exports.If we spend more money, there’s growth(limited DEBT)Recession: If GDP goes down for Q quarters(6 months) consecutivelyNot a useful definition bc we cant really tell if GDP is falling for several monthsLeading economic indicators: “forecasting variables”Consumer sentiment: survey people(they do a good job at guessing)Leading economic index: a completion of multiple indicators into indexFiscal Policy: Implemented by governmentChanges in taxing and spending to affect the economyExpansionary: to fix a recessionContractionary: to prevent overheating(worried about inflation, sustainability)Discretionary Fiscal PolicyDeliberate reaction to economic situationStimulus spendingPayroll tax holiday: Putting a little more money on paycheck to stimulate spendingMust be well time or it will miss and make things worseAutomatic StabilizersBuilt into the structure of taxing and spendingIncome taxDuring expansion, incomes rise and you pay more in taxes surplusThe reverse occurs during recessionsMonetary PolicyIn the hands of the bank not governmentChanges in interest rates and money supply to affect the economyExpansionary: “easy policy,” cutting interest ratesContractionary:”tightening” policy, raising taxesCentral BanksUS Federal reserve(Chairman: Ben Bernanke)Control monetary policySupposed to be mostly independent of government controltargets inflation rates at 3%MoneyGold Bullion Standard: A promise by the government(If you took $1, you’d get $1 of gold)Various gold and silver systems in historyBretton Woods System(summer of 1944)Countries were required to set monetary policy to maintain exchange ratesThe Nixon Shock: Nixon pulls out deal allows exchange rate to FLOATFiat Money: the value depends on what we thinkInflation : The decline in the purchasing power of a currency over timeDetermined/assessed by consumer price indexA little inflation(=2-4%) is a good thingstimulates spendingHyperinflation: BADMakes your money worthless(don’t save)Deflation: BADDiscourages investmentZimbabwe: incredibly(8%) inflationUnemploymentUnemployment rate: only looks at those actively looking for jobsThe labor forceUnderemployed: people who(for example) work 2 hours/ week at Starbucks=”employed”Discouraged workers: 6-12 months without jobs no benefitsTypes of Unemployment:Classical: wages are too high; market is out of equilibriumCyclical: Recession: there are periods of expansion and contraction(natural)Structural: Industry declineFrictional: Between jobsSeason: Different need for labor, from season to season(i.e. selling x-mas treesGovernmentWelfare and Social SecurityRIGHT: government hurt employment “trickle down” economicsLEFT: Taxes, regulation and spending done properly helpBOTTOM LINE: Government is bad at fixing thingsEntitlements:Guaranteed benefits/rights, for those who qualifyI.E. Medicare, Medicaid, Social SecurityDifficulty to budget because costs depend on how many qualifyPolitically very dangerous to reformPoliticsThe Right: cut spending(except defense), cut taxesThe Left: Maintain/increase spending, raise “revenues”(taxes)Sequestration: A hard cap on spending(placed in 2011)If more than set is spent, then there are automatic cuts$1.2 trillion over 10 yearsThe Left this is catastrophicThe Right: somewhat split “its not bad, just needs to be done smartly”TaxationProgressive taxes: as income increases, the tax rate increasesIncome taxRegressive Taxes: As income increases, the tax is same. The relative burden decreases. i.e. license feesSales taxState Government5 March 2013World War IIMorgenthau PlanReturn German to a “Pastoral state”Destroy or internationalize industryProhibit or restrict industrial productionMake another war impossibleMarshall PlanEconomic growth to rebuild Europe and make war economically unattractiveLiberalize trade policies, modernize trade practiceDevelop industry, not directly rebuildPrevent the spread of communismThe Cold WarMany proxy wars , but no “direct” fighting. If you didn’t have the U.S. fighting directly.KoreaThe United Nations and the united states were actively involved with warfare. The soviets were not, however the soviets were providing weapons and soldiers. This was a secret. If everyone would truly know what would that do? It would escalate to possibly nuclear warfare.VietnamThe U.S. was overly actively involved with the soviets who are fighting the Chinese who are sending supplies and forces over to the Vietnamese.AfghanistanThe U.S. was not actively involved with the U.S. in the 1980’s. The soviets actively in Afghanistan. We let the locals do that for the.Massive Massive spendingSpends millions of dollars on large programs competing with each other.“Star Wars” Program in the 1980’s with the Regan administration that states warfare. Now this program is put forth to compete over in the next frontier in states. The soviets were scared of this so they started producing more and more also.Rise of the military-industrial complexEisenhower spent more and more money on warfare. We have really developed a defense force. U.S. feels we need to protect before the next threat.CommunismBerlin wall collapsed. This was a gradual process by certain reforms put forth in Russia.Current ChallengesTerrorismViolence, civilian targets, and asymmetric warfare. We usually think about a relatively small groups like gorilla groups. Political agenda is violenceNon state actorsDoes not involve the government. Definition of TerrorismGlobalized economy and tradeInternet and technology. What is war?A large number of cyber hacks have been tracked back to China in one city who are train and target the U.S.War used to be gun to gun but now we see these cyber attacks. How do we fight cyber warfare?Environmental issuesPolicy ToolsWarChuck Able is the new secretary in defenseMoneyFinancial aid can be for warfare purposes or developmentIsrael is the top recipient in foreign aidWordsMixed statements, send letters, give speeches. Statements directly in the public without spending money.PosturingEngage in very simple acts to make our opinions clear.When we want to make a statement we can send an aircraft carrier saying “Hey we are watching you guys!”Iraq and Afghanistan9.11.01WMDWe first invaded Iraq and the Afghanistan to remove WMD’s(Weapons of Mass
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