Inflation

Unemployment has always been a problem in society where money, and therefore a source of money, is essential for survival. Those individuals who are not able to find work are left without resources and capital with which they can support themselves or a family. Unemployment acts as a negative influence on the economy as it displays a lack of productivity. However, it cannot be avoided. Some forms of unemployment will always exist, even in the most productive society, and the system today actually encourages some people to remain unemployed.

Desires to increase productivity, numbers of jobs, and number of people working do not always translate into lowering the unemployment rate. In this paper we will discuss the major problems and effects of Unemployment and solutions to those problems. Problem Statement – Part I First of all, those people who have given up looking due to frustration but are capable of working are not considered part of the labor force, and are given the term “disgruntled workers”. The number of disgruntled workers is not measurable in the unemployment rate, and each searching worker that becomes disgruntled lowers the unemployment rate.

Also, the single rate does not indicate how the job market is behaving across specific industries or demographic groups. That information is available, but is not usually reported to the public as frequently as the main unemployment rate. Lastly, the duration of unemployment, or how long someone is looking for a job, is not indicated in the unemployment rate. This information can be derived from the initial data using some probability theory and setting up a stochastic process as a model of behavior. That’s a barrel of fun, but unfortunately way too complicated and confusing for me to go into.

There are several different kinds of unemployment to consider. Problem Statement – II As an industry changes and develops, skills needed for work change and the nature of the industry causes a change in the demand for workers. This is called structural or frictional employment. Structural unemployment refers to long term changes, while frictional is used for “short-run job matching skills”. (Bradley, 2003) Another term, cyclical unemployment, refers to changes (increases) in the unemployment rate during economic hard times. It cannot be avoided when the production is increasing as industries are shifting and changing.

In fact, “According to Marx, underemployment is a permanent feature of capitalism, a phenomenon deeply rooted in it, even though it emerges more or less strikingly according to the phases of the industrial cycle. This natural rate is often taken as the sum of frictional and structural and can be seen as independent of inflationary expectations. Discussion and Analysis So, how does the economy affect unemployment and vice versa? Some aspects of the economy operate independently of the job market, although just about everything is intertwined somehow.

The Phillips curve is used to link inflation to unemployment, giving that they exhibit a negative relationship. This curve satisfies a system of differential equations that has in the past modeled reality rather well. (Bradley, 2003) In most recent history (past twenty years) the relationship between inflation rates and unemployment rates has been erratic at best. As unemployment changes, so will the aggregate supply and demand of the society. Naturally, with more people working, the output will increase, and industry will be willing to supply more. Similarly, total demand increases as unemployment decreases.

The unemployment rate is determined from the working segment of the population. It is a good measure of the general trends of income and production, but is higher than it ought to be because of the uncounted disgruntled workers. (Farrington, David, 1986) These rates are ideally greater than zero, although excessive unemployment is obviously a great concern. The economy has a lot to do with the unemployment rate, as inflation, price levels, supply and demand, and many other factors have relationships with levels of employment. Inflation and unemployment have a direct impact on the aggregate demand of an economy.

The government uses a combination of monetary and fiscal policy to reduce inflation. Looking the example of the UK the government has lowered interest rates to encourage borrowing and increase the aggregate demand in the economy. This strategy has been successful as in 2001, 2002, 2003 the consumer spending was very high, which kept the economy going. With the better economic performance in 2004 the US government has raised the interest rates, which makes borrowing expensive. Solutions Through the use of the fiscal policy the government alters its expenditure and taxation to influence the economic activity.

An expansionary or deflationary policy could lead to reducing the levels of direct and in direct expenditure, which would increase the spending in the economy. (Western, Bruce, 1999) In our case when inflation is rising and unemployment is high the deflationary fiscal policy would increase taxation and cut the government expenditure to reduce the economic activity (Begg et al, 2000). Once demand is reduced the inflation levels would be reduced. Fiscal policy is an important tool for managing the economy since it can affect the total amount of output produced.

When the economy is in recession the idle productive capacity and unemployed workers the fiscal policy can be used to increase output without changing the price levels. Fiscal policy and monetary policy both work hand in hand to control the economy. Monetary policy affects all sectors of the economy while fiscal policy is targeted at certain actors in the economic systems (Begg et al, 2000) These include low-income households, large corporations, small and medium sized corporations. Monetary policy expansion is caused by the increase in consumer and capital spending which increase the national income level.

On the other hand expansionary fiscal policy leads to an increase in government spending which increases the aggregate demand. If the government borrowing is higher at this time it could lead to high interest rates, which would discourage investment. During a recession the business and economic confidence is low and in some cases monetary policy can be infecting in increase the spending and income. In such a situation the fiscal policy is more suitable as it stimulates demand. A good example is Japan where even zero interest rates could not enhance the economic output.

References

• Begg, Fischer, Dornbusch, (2000) Economics, sixth edition, McGraw-Hill, England Bradley
• R. Schiller (2003) The Macro Economy Today 9th Edition Mc Graw Hill Irwin New York Farrington, David P. ; Gallagher, Bernard; Morley, Lynda; St. Ledger, Raymond j. ; and West, Donald J. “Unemployment, School-leaving, and Crime” British Journal of Criminology 26, no. 4 (1986): 335–356.
• Western, Bruce, And Beckett, Katherine, “How Unregulated Is the U. S. Labor Market? The U. S. Penal System as a Labor-Market Regulating Institution” American Journal of Sociology 104, no. 4 (1999): 1030–1060.

Is it really worth it to go to college?  College is not cheap, but many believe it’s the way to get a good job.  You have to spend money to make money, right?  But does that make it worth it?  We are practically raised and conditioned to believed that one needs higher education in order to succeed in life.  There are people who have never set foot in a college and are doing better than people who have their master’s degree.  There are views from both sides that contain a valid argument. 

People going to college is not because they want to but because they have to.  The cost of a college education far outweighs its benefits.  The years college graduates are employed in jobs that do not require college degrees, people succeed without college degrees, and students that do not graduate just wasted their own money.  College is not just a choice, it’s the beginning of a lifelong journey, one that will shape and determine future choices, decisions and purposes.  College graduates have more and better employment opportunities, you make more money, and you are healthier and will live longer.

College is not worth going to because college graduates are employed in jobs that do not require college degrees, people succeed without college degrees, and the cost of tuition is growing at a rate far higher than the general inflation of the economy.  First, college graduates are employed in jobs that do not require college degrees.  ProCon says, “17 million college graduates were in positions that did not require a college education.”. 

In this quote, ProCon gives a high numbers of college graduates that did not need to go to get a college education for their job.  Second, people succeed without college degrees. ProCon says, “of the 30 projected fastest growing jobs between 2010 and 2020, five do not require a high school diploma, nine require a high school diploma, four require an associate’s degree, six require a bachelor’s degree, and six require graduate degrees.” . 

In this quote, ProCon shows the fastest growing jobs between 2010 and 2020.  There were certain jobs that did not require a high college degree.  Third, the cost of tuition is growing at a rate far higher than the general inflation of the economy.  Anderberg says, “more and more students aren’t actually able to afford college, but enroll anyway, because it’s still just what you do.”

(Anderberg, Jeremy. “Pros/Cons Attending College.” The , College, Money & Career, 28 Nov. 2017, www.artofmanliness.com/2014/03/24/is-college-for-everyone-part-ii-the-pros-and-cons-of-attending-a-4-year-college/.)  College is not for everyone, some students might waste their money for college just to not pass it.  Not all jobs need a high college degree for a job.  Some jobs pay high and don’t need much skill.

College is worth going to because you have more and better employment opportunities, you make more money, and you are healthier and will live longer.  First, students who graduate college will have more and better employment opportunities.  ProCon says, “85.2% of college freshman in 2015 said they attended college to “be able to get a better job.” .  In this quote, ProCon is giving percentages of college students that enrolled in college for the reason of getting a good job.  Second, college graduates will make more money.  ProCon says, “In 2016, the average income for people 25 years old and older with a high school diploma was $35,615, while the income for those with a bachelor’s degree was $65,482 and $92,525 for those with advanced degrees.” . 

In this quote, ProCon is comparing the average income of a people who have a high school diploma and people who have bachelor’s degree and up.  Third, as you finish college, you tend to be healthier.  ProCon says, “83% of college graduates reported being in excellent health, while 73% of high school graduates reported the same.” .  In this quote, ProCon is giving the percentage of  college graduates health and high school graduates health, college graduates is higher so they have more people with excellent health.  People that attend college are the individuals that want to make education a significant importance in their life, obtain a successful career, and live a wealthy life.

Finally, college is worth going to for a better and healthier life.  You learn more about what you want in the future and in generally you have a higher education.  Employers will go and hired the people that graduated college and have a degree.  They are put first in line of job employment.  Some jobs may have certain requirements, the people that graduated from college will have more education on what they wanted to do for a job so they studied more for it.  That brings them to a job that pays higher than any normal job, which is an advantage to the college graduates.  After getting your job, you pay for all the things needs such as: food, shelter, and bills. 

Your job is what will keep you healthier as long as you do your job right.  The money you earn from your job makes you a healthy person.  The education you learned from college is healthy in what you now know.  Overall, college will be beneficial to many people and they will experience a positive consequence after their years of education. Also, students can be more beneficial if they attend a college that best suits themselves.  By attending college, students have a higher chance of economic success in the future, have a better quality of life, and undergo a great opportunity to explore a wide variety of possible paths.

Price rise or price hike are the terms used to denote rise in price of goods and services. The economic term for rising prices or price hike is “inflation”. Fluctuations in prices of goods and services are common in world economies; though, it directly affects the consumer. While a drop in prices is good news for middle and lower class consumers; an increase might cause financial constraints to them. A price hike in the items consumed daily in the households, affects the consumer more. Such items include, fruits, vegetables, oils, LPG Cylinders, etc. Every price hike on an individual item affects a specific set of consumers, like, a hike in fuel price; affect the transport industry more than private users.

Long and Short Essay on Rising Prices or Price Hike in English

We are providing below long and short essay on rising prices or price hike in English.

These essays have been written in simple and easy to remember language to let you use them whenever required.

The rising prices or price hike essay will give you an insight of reasons and effects of price hike on general masses.

You can use these essays in your school assignments and various other competitions or general debates on the topic of rising price or price hike.

Essay on Price Hike in India and Common Man – Essay 1 (200 words)

Introduction

Price hike is a common phenomenon and happens in most economies. It is a reality in India as well. However, this reality isn’t only because of the natural progress of economics but also because of governmental policies and taxation, all of which contribute to the price of goods and services that eventually reach the common man.

Price Hike and the Common Man

For the common man, a hike in prices is always a matter of some concern. He has to make constant readjustments to his monthly budget and even give up using certain products and services since he can no longer afford them. Add in the fact that salaries don’t increase at a commensurate rate and the ability of the common man to afford many things goes down significantly.

What is also a matter of concern is that when the price of certain items is hiked, prices of other essential goods and services also go up. For example, if the price of petrol or diesel is hiked, the common man has to adjust that in his budget. But this increase in prices also means increased prices for public transport and goods that are transported across the country using petrol or diesel fuelled transport. In other words,  because the price of petrol increases, the price of vegetables and grains may also increase.

Conclusion

For the common man a price hike in one particular commodity can affect his entire budget and cut into his savings. It is up to the government to control hikes in prices so that the situation doesn’t become unbearable for ordinary citizens.

Essay on Rising Prices Inflation – Essay 2 (250 words)

Introduction

When the prices of goods and commodities increase over a period of time in a sustained manner, the phenomenon is called inflation. It is measured in terms of an annual percentage change in a price index, which is normally the consumer price index. In simple terms, inflation means that your purchasing power is reduced and a rupee doesn’t go as far as it used to. Therefore, when the value of money goes down and prices rise, you have inflation.

Causes of Rising Prices Inflation

While academics and economists haven’t agreed on one particular theory about the cause of inflation, they generally agree that certain factors are responsible for it.

• Demand Pull Inflation – As the name suggests, this happens when demand exceeds supply. There is an increase in demand for products and services and due to this increased demand, prices go up. The phenomenon is usually observed in economies that are experiencing rapid growth
• Cost Push Inflation – This comes from the supply side. When a company’s cost of production increases, it compensates by increasing the prices of its goods and services, so that it can maintain its profit margin. Production costs can go up because the cost of the raw materials goes up or because of taxation or because of increased wages to its workers.
• Monetary Inflation – As per this theory, when money is oversupplied in an economy, inflation occurs. Since money is also ruled by supply and demand, too much money circulating makes its value go down and therefore, prices go up.

Conclusion

People are directly impacted by inflation. What they fail to see, however, is that inflation is necessary to and sometimes beneficial for the economy. They should focus on demanding that wages rise as inflation does, so that their purchasing power isn’t affected negatively. Inflation by itself isn’t simply bad or good; the type of economy and people’s own circumstances determine whether it is one or the other.

Essay on Problems of Rising Prices – Essay 3 (300 words)

Introduction

As a developing country with the second largest population in the world, India faces quite a few challenges. One of these is rising prices and it is by far the most immediate problem. Because a large part of the Indian population lives on or below the poverty line, this issue impacts them severely. In addition, the middle class is also facing greater problems because of prices rising.

What Rising Prices Do

It has commonly been held that price rises are a normal part of a growing economy. This is true to some extent. However, recent years have seen exponential hikes in prices – hikes that are affecting those Indians who were already at subsistence level. The number of people living below the poverty line is actually increasing instead of decreasing.

Another segment of society that is affected by rising prices is the middle class. A robust part of society, the middle class, now finds itself struggling to make ends meet. These are people who earn a fixed income; they are the salaried class. Unfortunately, their salaries are unable to keep up with the constant increases in prices of necessary goods and commodities. As a result, the gap between the haves and the have-nots increases day by day.

Whenever such a situation continues for some time, unrest is inevitable. As wage earners find themselves facing the problems price hikes bring, they start agitating against their employers. This, in turn, brings a halt to productivity, causing shortage of goods and commensurate rise in prices. The whole thing becomes a vicious circle.

Conclusion

While price hikes are inevitable in any economy, uncontrolled or badly controlled increases hit the population of a country hard and amplify the gap between the rich and the poor. They lower the general standard of living and cause mass unrest. In order to have a stable and prosperous society it is necessary for the powers that be to exercise some measure of control over price hikes.

Essay on Rising Prices of Essential Commodities – Essay 4 (400 words)

Introduction

In India, certain commodities have been classified as essential commodities as per the Essential Commodities Act 1955. These commodities include but aren’t limited to oil cakes, cattle fodder, components of automobiles, coal, certain drugs, woollen and cotton textiles, edible oils, steel and iron, products manufactured from steel and iron, petroleum and its products, paper, food crops and raw cotton. These commodities are essential to both the population of the country and to its economy. Therefore, any shortfall can result in high prices quickly.

Rising Prices of Essential Commodities

Over the past few years, these essential commodities have seen price rises ranging from 72 percent to 158 percent. The hikes in price are caused by both the demand and the supply of these commodities.

India’s increasing population is one of the main factors in price hikes. The demand exceeds the supply by a huge margin and the demand keeps growing as the population increases. In addition, changing habits have increased the demand for certain commodities well beyond what can be supplied.

From a supply perspective, factors such as uncertain weather, lack of cold storage and lack of warehousing facilities play a huge role in pushing prices up. A very high percentage of vegetables and fruits are wasted because of inadequate cold storage facilities, affecting supply and raising prices.

Commodities such as petroleum, which are imported to a large extent, are subject to international prices. Therefore, the moment there is global shortage or global price hike, these commodities become dearer.

Artificial gaps in supply are created by unscrupulous operators such as black marketers, hoarders, and traditional traders. By holding back these commodities, they are able to create a bigger demand and thus, an increase in prices.

Impact

Since these commodities are essential, price hikes have both economic and political consequences. The price rises become part of the political agenda for opposition parties to attack the government. By doing this, they attempt to show solidarity with the common man. However, there is no doubt in the fact that it is the common man who is the one most deeply affected at the end of the day. Sweeping reforms are needed to control hoarders and reform agriculture in a way that price hikes for essential commodities don’t hit the common man where it hurts most – his wallet.

Essay on Causes of Rising Prices and its Effects – Essay 5 (500 words)

Introduction

There is no denying the fact that the Indian economy is one of the world’s largest economies. It has recently superseded China as the fastest growing large economy and ranks third in Gross Domestic Product in terms of Purchasing Power Parity. While these statistics are good, the Indian economy is also facing many challenges, one of which is rising prices.

Causes of Rising Prices

The factors that cause prices to rise are twofold – internal and external.

• External – Global inflation is an external cause of price rise. When the prices of certain goods abroad are higher, importing these goods costs more. This increased cost is passed on to the consumer directly and indirectly. For example, when oil prices rise globally, it becomes more expensive to import oil. In turn, this affects the prices of oil products such as petroleum and diesel in our country. The consumer then has to pay higher prices to get these products. Since these are products that are used in transportation, costs of goods being transported also increase. Therefore, goods such as foodstuffs and other necessities also become more expensive.
• Internal – These are factors that are caused by the economic and political situations inside the country. There are various internal factors that cause a hike in prices. Some of them are:
  • Rapid Population Growth – An increasing population demands an increasing amount of goods. Demand increases and supply can’t keep up, thus driving the prices higher.
  • Income Increase – As the purchasing power of the population increases, the demand for goods and services also increases. Again, the demand outstrips the supply and prices go up.
  • Insufficient Agricultural Output – Thanks to a growing population and increase in purchasing power, the demand for agricultural goods has increased. However, because this sector has been neglected to a significant degree, it cannot keep up with the demand. A drought or a flood is enough to disrupt supply and increase prices.
  • Insufficient Industrial Production – The industrial sector has fared better at the hands of the government. However, industrial growth rate has only increased in the last 30 or so years. Therefore, certain industrial products such as basic consumer products and agricultural and industrial inputs have not been able to keep up with the demand which has resulted in a price hike.

Effects of Rising Prices

An increase in prices inevitably affects the lives of the general population. When the prices of basic goods such as food increase, people who are living just above the subsistence level slip down below the poverty line. It also affects the pockets of the population that has fixed incomes. Prices go up but their wages remain the same and, therefore, they are either forced to spend more or give up certain goods entirely. The rich are not really affected by the price rise and therefore, the gap between the rich and the poor widens almost daily.

Conclusion

Price rises aren’t affected only by what’s going on in the country but also by the situation across the world. While certain factors aren’t under anyone’s control, it is imperative that governments act upon what they do control to cap huge price hikes.

How does tourism affect Hong Kong economically?

Tourism is one of the biggest industries in Hong Kong. In fact from research, Hong Kong is one of the most popular single destinations for tourists in the world. Hong Kong relies very heavily on tourism. Without tourism there wouldn’t be Hong Kong. Each year, Hong Kong brings in more than 10 million tourists. However, there are both advantages and disadvantages of the large tourism industry in Hong Kong.

Social Costs and Benefits

Firstly, tourism brings to Hong Kong both private costs benefits, as well as social costs benefits. Private costs are costs paid by economic decision makers. Private benefit is benefit received by economic decision makers. Social costs and social benefits are costs and benefits associated with the society.

• Private Benefit + External Benefit = Social Benefit
• Private Cost + External Cost = Social Cost

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This Social Cost and Benefit graph clearly shows the system of tourism. The private cost of tourism is the money spent by the government or private sectors to lure more tourists into Hong Kong. This could mean building more landmarks and tourist attractions or improving the surrounding environment. On the other hand, private benefit is when bringing in more tourists, a higher level of employment level could be achieved as the companies would be much more likely co hire more labour to improve the company’s service and efficiency to make more money from the tourists.

The external cost of tourism is resulted from the usage of Hong Kong’s land to produce landmarks to attract coming tourists. External cost of tourism also includes environment damage or loss of greenery. The external benefits of tourism is when the local companies improves their services in order to attract tourists, there would be a higher standard of living for the local residents.

The opportunity cost of the tourism industry is the next best alternative. If land is not used up to create build landmarks for tourists, the next best more might be to build better schools for improved education.

For the society, the total benefit is the private benefit + external benefit, or in other words the social benefit. Only when the social benefit exceeds pass social cost will the tourism industry be beneficial to Hong Kong. Therefore, the role of both the government and private sectors is to decide to produce the right amount of services to make the tourism industry beneficial to Hong Kong.

Circular Flow of Income

A circular flow of income could be suited to the tourism industry. In a circular flow of income diagram, it shows the flow of money around the economy as it as passed between consumers and producers over time. The withdrawals from an economy is the money which is paid for goods and services what are produced within the economy such as tax and savings. Injections are the government expenditures, investments or exports. Sometimes in the short term, withdrawals might exceed injection, however if the injection in the long run is more than that of withdrawals, there will be economic growth.

National Income

The tourism industry plays a large role in contributing to the national income of Hong Kong. It is researched that a tourist is more likely to spend more money during their holiday weeks than any other week of the year. Therefore when tourists visit Hong Kong, they tend to spend a large proportion of their savings all in the particular visit to Hong Kong. The income from the tourism industry is mainly contributed by hotels, restaurants, amusement parks, shopping, and tourist attractions. From research, in the year 2001, each tourist visiting Hong Kong spent an average of $4532HKD. This extra spending from tourists leads to a total addition to the GDP of Hong Kong. It also leads to more income by both private and public sectors. As more income is made by private sectors, the government would therefore tend to collect more tax revenue. They can use this money to spend of schools and colleges, hospitals, roads and many other services which would benefit us all. When the National Income per capita exceeds the number from the previous year, we say there is economic growth.

Economic Growth

Hong Kong, like any other economies grows from booms and suffers from slumps. But in the long term the economy continues to grow. During a boom, the standards of living are high because the unemployment level is low meaning everyone has a job to earn money. More money means more spending to satisfy people’s needs and wants. However during a boom, there is also a high inflation rate and a high deficit for the balance of payment. In a slump, or in other words a recession, the standards of living are low because of a high unemployment level. Less people are hired for services meaning less people have money to spend for satisfying their needs and wants. But on the other hand, the inflation level is low and there is also a low deficit for balance of payment.

As you probably know, the impact of SARS on Hong Kong tourism industry has been greatly damaging. During the SARS period, Hong Kong headed into a slump, in other words a recession. When a recession occurs, there are many negative effects to the economy. For example, the standard of living might drop, demand for goods might decrease, high unemployment level, deflation and much more. From the graph below, it clearly shows that during April 2003 to July 2003, the average visitor arrival has dropped magnificently from a monthly average of 1,347,386 to 493,666. This was due to the Severe Acute Respiratory Syndrome. Because the tourists were tried their best to avoid nearing not only Hong Kong but the Asian region as well where SARS was most devastating, there was a huge decrease in the tourism industry in the South East Asian Region. A lot less income was received by the local firms from tourists coming into Hong Kong. Even if tourists were to visit Hong Kong, they stayed for much shorter periods. However, the tourism industry as shown from below has begun to bounce back earlier than many expected.

Attractions offered to Overseas Visitors

Hong Kong has known to be “The City of Life”. But has Hong Kong lived to its reputation? Are tourists who visit Hong Kong satisfied by the attractions which Hong Kong has to offer?

According to the primary data which I collected from my surveys at different tourist points. I have found out that most tourists like to visit attractions such as The Peak, Stanley and the Big Buddha located on Lantau Island. These are the three most popular attractions in Hong Kong. However, the list goes on. Whether it’s the museums, great restaurants or the exciting nightlife, the Hong Kong tourism association tries their best to guarantee to offer a tourist an unforgettable experience.

Tourist Attractions – Hong Kong provides fun-filled experiences for tourists. The top tourist attractions include:

• The Peak Tower- The peak tower is definitely the place for tourists to visit if they want to take an overview of the magnificent infrastructures of Hong Kong. The Peak Tower has a wide range of restaurants and food outlets plus novelty shops where visitors can get a souvenir to preserve their memories of their exciting experience. A good idea of reaching The Peak Tower could be taking a ride on the Peak Tram where on the way up, a good overview of Hong Kong could be captured.
• Stanley Market – The Stanley Market is one of Hong Kong’s most popular destinations for overseas visitors. It fulfills a tourist’s day with both fun-filled shopping and relaxation. The Stanley Market is an open-aired market where souvenirs could be bought at a bargainable price.
• The Big Buddha – The Big Buddha is located on one of the out lying islands in Lantau. The Big Buddha statue weighs more than 220 tonnes and sits 24.6 meters high opposite the Po Lin Monetary on the hillside of Ngong Ping in Lantau Island.
• Ocean Park – Ocean Park is the one and only joint zoo and amusement park in Hong Kong. Located in the southern part of Hong Kong, the Park exceeds more than 200 acre of land. Ocean Park provides a mixed experience of education and fun. Built in 1977, it was primarily to promote animal preservation in Hong Kong. Very soon, it became very popular with both tourists and local residents developing into an amusement park. Overtime, the park has been renovated and updated with the top entertainment facilities.

Shopping – Hong Kong has grown into the reputation for a shopping paradise. The shopping malls such as Times Square and Pacific Place provide tourists with famous designer labels at a reasonable price. On the other hand the open-air market places such as Stanley and Temple Street gives tourists a taste of the cultural life in Hong Kong as well as providing memorable souvenirs which could be bought at a low price.

Cuisine – The international city of Hong Kong provides tourists with a rich variety of cuisines ranging from Asian dishes to Western buffets. You name it, Hong Kong has it. Restaurants are located everywhere in Hong Kong.

• Lan Kwai Fong – Lan Kwai Fong is a very popular destination among incoming tourists as it provides many western style restaurants along with bars and nightclubs.
• Jumbo Floating Restaurant – The Jumbo Restaurant is the world’s largest floating restaurant. At anytime, the ship can hold up to 3200 customers and employed with more than 300 staff members. At the Jumbo Restaurant, tourists have a chance to try the sea-food of which local residents would normally eat.

Neighboring Cities – The neighboring cities of Hong Kong, including Macau and Shenzhen adds to a tourist’s to-do list during their visit to Hong Kong. Tourists can take advantage of the convenient transportation to and from these cities.

What needs to be improved and how can this be done? What is being done already and how successful has it been?

Although Hong Kong already has sufficient top tourist attractions, in order for them to lure tourists into come again, many things have to be done and improved. For example, improve the quality of the provided attractions or even to build new landmarks. In the past few years, the Hong Kong Government has planned to develop five major tourism clusters in the territory with a view to enhancing the attractiveness of Hong Kong as a premier tourist destination. The five tourism clusters cover a wide range of projects, which are at various stages of development. A number of enhancement projects are being carried out to give a facelift to the existing popular tourist areas including the Central and Western District, Sai Kung waterfront and Lei Yue Mun. Other improvement schemes coming on stream include those at the Tsim Sha Tsui Promenade, Stanley waterfront and the Peak. Visitor signage is being installed in all 18 districts to make Hong Kong more tourists friendly.

A number of major projects are also under way. Phase 1 of Hong Kong Disneyland, Tung Chung Cable Car and Hong Kong Wetland Park are all scheduled for completion in 2005. To enrich the heritage tourism products, the Government has awarded to the private sector the development right to restore and convert the former Marine Police Headquarters (MPHQ) compound into a tourism-themed development.

Planning work is being conducted for the development of the south-east Kowloon tourism node, the integrated arts, cultural and entertainment district at West Kowloon Reclamation and the preservation and conservation of the Central Police Station, Victoria Prison and the former Central Magistracy compound into a heritage-themed development.

The Hong Kong Government is also working with the Ocean Park in the strategic development plan of the park, which will form the basis for the development plan of the Aberdeen Harbour tourism node. Also taking forward a Harbour Lighting Plan to enhance the night vista of Victoria Harbour with the use of modern, energy efficient technology.

The promotion of tourism is not simply about construction of new facilities. The Government has not lost sight of the fact that Hong Kong’s traditions, offering visitors a fascinating insight into Hong Kong and Chinese history by providing museums and other

The HKTB also offers a culture and lifestyle experience program called Cultural Kaleidoscope, enabling visitors to try out tai chi and kung fu, or appreciate the arts of Cantonese opera, Chinese tea preparation, Chinese antiques and feng shui.

With the building of the World’s third Disney theme park outside the United States, millions of people are sure to want to have a taste of the action. Tourists who have visited Hong Kong once already would probably come back again to visit this new theme park. This project would surely attract more overseas tourists to transit to Hong Kong. Mr. Donald Tsang, the financial secretary spoke of the many benefits to Hong Kong’s economy from this Disneyland project.

He describes the project as an infrastructure investment and he said it would cause returns not only for the government, “but for ordinary people who are operating restaurants in Hong Kong. Our hotels will benefit. Our tourist industry will benefit. Our airlines will benefit. And all the retail shops will benefit as a result of more tourists coming to Hong Kong”. The construction of the new Disney Land will definitely bring more tourists into Hong Kong by 2005. Although the Park is mainly aimed at mainland Chinese tourists rather than western tourists, mainland Chinese tourists already make up more than 85% of the total visiting tourist.

The Hong Kong Government has also planned many campaigns recently after the SARS period to boost its economy. The campaigns included the Hong Kong Super Draw and the Harbour Fest.

Through August and September, the Hong Kong government held a Super Draw campaign to encourage spending within both local residents and tourists. The draw allows a chance to prizes totaling up to $15 million. To enter the super draw, participants must spend at least $100 in three different areas; dining, shopping and transport. For each $100 they spend, they will be given a stamp. A collection of all three stamps will be eligible to enter the super draw.

The second campaign which the government held after the SARS crisis was Harbour Fest. The Harbour Fest is music festival featuring both International and Local pop stars. The aim was to attract tourists to visit Hong Kong to watch this fantastic music festival. It also tries to prove to people that Hong Kong is now SARs free and would rise again to be one of the top international tourist destinations.

On July 27th 2003, the Hong Kong Stadium hosted a football match between the top class English Premiere League team Liverpool and the Hong Kong National Football Team. Following this event, the less than 2 weeks later, it again hosted another football match against the even more famous Real Madrid as the Government-sponsored mega-events of the Relaunch Hong Kong campaign.

The Hong Kong Government has raised all these campaigns to prove that Hong Kong is now SARs free and is capable of hosting international mega events.

Conclusion

In conclusion, the government has done a great job trying to boost its tourism industry especially after the SARS epidemics. In the meantime, it has raised many campaigns and promoted Hong Kong’s tourism in various ways. As most Hong Kong’s economist predicted, the tourism industry in Hong Kong will hopefully bounce back to its original state by the end of 2003.

What is environmental pollution?

It can be defined as the act of environmental contamination, usually caused by man-made wastes.

The Environment and Opportunity Cost

At first thought, these two concepts seem to be fairly unrelated.

However, both of these concepts come down to one single principle – Scarcity. As economists, we have seen that society tries to make the best arrangements between various resources in order to gain maximum benefit. Unfortunately, these arrangements which provide maximum benefit to an individual or firm can have detrimental side effects to other individuals and/or firms.

Environmental problems would not arise if there was a superabundance of resources. There would be no worries about running out of supplies. Most waste products could be easily and harmlessly dispersed if there were boundless oceans and atmosphere. Many of our environmental problems occur simply because we have tended to treat world resources as if they were limitless.

Scarcity forces upon us the necessity of making choices by comparing alternatives.

We are all aware that if limited resources are fully employed, an increase in the output of one commodity or service can only be achieved by having less of another – more resources being used to clean-up the environment will mean fewer resources available for consumer goods.

(Explain opportunity cost and trade off)

(Explain shifting of PPC inwards in long run due to unhealthy workforce and hence less productivity of workforce – should we locate at A or at B? – Most developed nations would aim for B whilst most developing nations would really produce at A)

(Explain minimum consumption limited – why points below/above are unachievable)

Economic Causes of Environmental Pollution

Environmental pollution is basically caused due to economic actions of a firm – i.e. production of a good or service. Environmental pollution is a form of a negative externality.

Most economic actions of firms contribute towards some external cost. This is illustrated below.

The cost of producing oil, to a firm is C. However, this is only the private cost of production of oil – i.e. the cost of manufacturing oil to the firm, which includes its fixed and variable costs.

The firm pays C to produce an output of Q. However, it does not take into account the social cost of producing oil. The social cost is the private cost plus any external costs. In this case, the external cost is the vertical distance between the two supply curves, E1T. The oil factory emits harmful chemicals which damages the environment. This, in the long run, causes health problems for the local residents, as it contaminates the air, soil and water. These infected inhabitants will need to be treated at the NHS. This is ultimately funded by the government, who pays the cost of cleanup.

In order to bare this cost on the firm, the government must try to equate MPC with MSC, as the product is currently being overproduced, from society’s point of view. In order to do this, it must set policies to shift the MPC curve leftwards to the MSC curve, by basically reducing supply. At this point, the cost to the firm will be C1 at an output level of Q1. At this reduced output level, a social optimum point will be reached.

However, reducing production can lead to a firms cost increasing, as it moves leftwards on the AC curve.

If such an increase in costs comes from a more vital product, say oil, it can cause cost-push inflation in the economy.

We shall now take a real-life example of the French oil industry and a French oil company called TotalFinaElf. TFE has consistently been leading the list for the worst French polluters, followed by other French oil firms. The French government, a couple of years ago decided to implement more stringent policies in order to reduce pollution and environmental damage.

The policies that were implemented have been discussed below.

1. The first policy implemented was a flat rate tax.

The tax leads to an increase in the cost of production, a reduction in production and hence a reduction in pollution. The social optimum point of production is at OQ, where the firm pays tax equal to EQ. This is equal to its marginal profit in pollution and hence there is no profit on the last unit.

However, the French government soon realised that such a policy was not very effective for a number of reasons.

It placed the same amount of tax on producers regardless of their size and regardless how much they individually polluted the atmosphere.

It was very difficult to place a monetary value on the extent of the damage and hence the tax rate.

Oil is a necessity and has an inelastic demand. For this reason, the oil producers were able to pass on most of the tax cost onto the consumer and hence it had no effect on reducing pollution caused by these firms.

2. Another policy that was thought of, but not implemented was a form of regulation.

Under this policy the French government would allow production of oil of OQ barrels.

Beyond this limit, the French government decided to ban production of oil. However, this policy was not put into effect because of the fact that demand for oil is inelastic. Reducing supply, would lead to an increase in price and hence cost-push inflation. (Draw diag.)

The French government has still not decided on an appropriate policy to implement. The French government is trying to implement a policy which combines property rights and environmental taxes. They have realised that it is very difficult to extend property rights and identify the polluter.

The Kyoto Protocol

The policies implemented by various nations, to limit greenhouse gas emissions have had a fairly adverse effect on their economies and industries. The Kyoto Protocol was set up to alleviate these adverse effects and to continue pursuing the goal of reducing pollution and environmental degradation. The purpose of the mechanisms described in the protocol, entails channeling investments in energy efficient and energy conservation to countries and projects where the cost per unit of emissions reduction is lowest. This concept would entail a large-scale resource transfer from relatively energy-efficient, high cost countries to energy-inefficient, low cost countries.

The pact requires industrialised countries to reduce their greenhouse gas emissions by 8% of the 1990 levels between 2008 and 2012

The establishment of emissions reduction targets was a very complicated issue in the early phase of the international negotiations. Many countries could point to special circumstances that justified a more lax treatment of them compared to other countries. This argument was accepted to a limited extent. Notably, Russia and the Ukraine were given a zero target as opposed to the western industrialized countries that would have to reduce their emissions by 2010. The Kyoto Protocol uses a system of pollution permits which can be traded on an international market.

The USA is opposed to this treaty, because it claims that it will have a devastating effect on its economy. It claims that it will lead to serious job losses, inflation and a fall in GDP. How – We have seen that pollution occurs because of overproduction and over consumption. Reducing production will lead to more factors of production becoming unemployed, and also a fall in GDP.

This has brought various criticisms, especially from the UK. All nations claim that the USA, by a large margin, is the world’s largest polluter and hence should sign the treaty for the well-being of future generations.

“The US contains 4% of the world’s population but produces about 25% of all carbon dioxide emissions. By comparison, Britain emits 3% – about the same as India which has 15 times as many people”

Source: BBC

President Bush “Under the Protocol, the U.S. is supposed to cut its greenhouse gas emissions by seven percent. With four percent of the world’s population, the country accounts for about 25 percent of the Earth’s greenhouse gas emissions”

European Environment Commissioner Margot Wallstr�m says ‘But this ignorant, short sighted and selfish politician, long since firmly jammed into the pockets of the oil lobby, clearly couldn’t care less. The talks in Bonn in July must now concentrate on world action independent of the U.S.’ “

The government will have to borrow from overseas or International Monetary Funds to pay for the differences between the import spending and export costs. The European Union lend to Greece 109 billion of euros to bailout (Foreleg and Walker, 2011, July 23). This is really a burden for a country and it may bring negative effects to the government policy and function, because the government will have to response the imbalance in both the government spending and policies. It is a real social cost. Meanwhile, the confidences of the foreign will be effect. They may care about the external imbalance in their partner country because it is related to their profits and stability.

The external imbalance may make investors feel risky and then reduce the investment or charge more on the loans, which will make the imbalance worse. And for the country, it is really a risk because the economic imbalance has negative influences on many different factors, such as the value of the currency and the national credit rating. Portugal, Italy, Ireland, Greece and Spain (PASS) face the decreasing of value of their credit rating. Now Greece is C and Portugal is B+ (Hawkers, 2012, January 14). Both of them are not optimistic. When government face recession they will consider increase public expenditure and cutting taxes to stimulate demand and decrease the unemployment rate (Quailing, Eastward and Holmes, 2009).

However, in this case, the crisis countries have so many debts that make their government deficit large enough to do no actions. What they have to do is to austerity their fiscal policy to reduce the deficit. So Greece executes the 5 years plan to get loans. Comparing to other European countries, PASS are relatively falling behind. Their economies are more relied on labor force type of industry such as globalization, companies are seeking for cheaper labor forces; their advantages are no longer existed. If these countries do not adjust their industry structure, they will e much fragile than now during the financial crisis. Also, the labor forces among European Union are also not liquid.

Companies from different country have different tax system so their funds become bubbles. The theory of optimum currency area is based on labor mobility, price and wage flexibility as the preconditions. Also the mobility can instead of the floating of exchange rate. Euro zone creates a system that labor can move freely, however, because of the culture, language, welfare and social norms, the labor forces inside European Union cannot achieve completely liquid Robinson, 2008). Monetary Policy The central bank of Europe has set several targets to help to achieve and maintain the macro economic objectives. The main target is to keep the prices stable and achieve the low inflation level in the medium term.

And it also set targets of maintaining financial system stability and improves the payments system. The purpose that the central bank of Europe sets these targets is to achieve the economic objectives, promoting the healthy growth of the whole economy (Paula, 2009). And the most common and effective measure used by it is the monetary policy. The central bank helps to achieve the macroeconomic objectives through meeting its targets, with using the monetary policy. Using the monetary policy, the central bank can change the interest rate to adjust the aggregate demand, and then help to achieve the macroeconomic objectives. When the inflation occurs, the central bank will carry out the cash rate target, bringing up the official interest rate.

And then, the central bank will sell the government securities to commercial banks. The interest rate for cash will be increased, because the decrease of the cash supply. In order to maintain heir profits, financial institutions charges more rates on loans and so does the deposits. Therefore, the households and firms will borrow less and prefer to save money in the banks rather than spend quickly. It means that the aggregate demand is reduced and so does the inflationary pressure. The reduction of demand brings the prices down, so domestic produced goods will have advantage in the prices in the international market. More export earnings will be got and the external balance will be achieved.

In addition, the low prices may attract more foreign investors to invest, which will benefit to the long term economic growth and full employment. It means that although the higher interest rate will reduce the production and make people lose their Jobs in the short term, it could bring chances for the future development. The similar theory is suitable for the opposite condition. When the aggregate demand needs to be pulled up, the central bank will decrease the interest rate and encourage economic activities, stimulating the growth of the economy so European Central Bank decreased interest rate in December 2011 by 0. 25% to increase aggregate demand (European Central Bank, 2012).

Also, European Union has the same monetary policy but without the same fiscal policy (Brittany, Timelier, Bergsten, Exchanging and Meltzer, 2010). Government financial policy serves internal to increase economic growth and decrease the unemployment rate. Indeed, these two on the allocation efficiency, currency policy serves external to keep low inflation rate and the stable currency exchange rate (Hudson and Quailing, 2009). Currency system and government financial system are not unedited so the coordination is difficult. When European Union was founded, they do not consider the quitting system, so hen there come problems, the costs of negotiations are very high (Repack, 2010). It leads the problems to the Euro crisis.

When one or two membership countries have problems with their economics, they only can discuss inside the meetings to solve the problems. Then the market will face the strong fluctuations, and these fluctuations also make the problems unsolved. The banks among Euro zone have other European Union countries’ debts. This makes European banks’ credit expansion crazily, and the management risks increase fast. Their ratio of total capital and Tier 1 capital is even Geiger than the banks in supreme crisis in the USA (Beg, 2009). Conclusion Overall, although investors are losing confidence with euros, the monetary policy keeps the Euro price stability at an acceptable range. MIFF also lend huge amount of euros to save the market.

The Story Behind Financial Deregulation a. Wild Optimism & the Deregulation Movement b. The Political Influence of the Financial Sector (and the Wealthy in General) PART II: THE SOLUTION Section 3: The Solution is Government Stimulus (and a Few Other Reforms) 7. The Solution is Government Stimulus 8. Objection #1 : Government Stimulus Doesn’t Spur the Economy (and Response) ; a. Exhibit A: The Great Depression b. The Initial Stimulus Effort Was Too Small 9. Solution Specifics a. Stimulus Specifics b. Additional Federal Reserve Actions c. Housing Relief (et. L. ) 10. Objection #2: The Danger of Government Debt (and Response) ; . The Problem of Investor Confidence b. The Problem of Paying off the Debt in the Future 1 1 . Objection #3: The Danger of Inflation (and Response) Section 4: The Chances of Government Stimulus Being Implemented (and How to Improve Them) 12. Pragmatic Politics and the Coming Election a. An Obama Sweep b. An Obama Win, and a Divided Parliament c. A Rooney Victory 13. Conclusion Since the housing and financial crash of 2008, America’s economy has been stuck deep in the doldrums.

Indeed, GAP has remained well beneath pre-2008 levels, and employment levels have failed to recover. In an effort to resuscitate the economy, the American government tried first to Jump-start it through stimulus spending, and has now replaced this approach with greater austerity. Nothing seems to be working. For Nobel Prize winning economist Paul Grumman, though, the answer is clear: the problem is that the original stimulus effort was too small, and, since that time, the government is moving squarely in the wrong direction.

Indeed, Grumman argues that America’s current situation bares a striking resemblance to the stagnation of the Great Depression, and that history has taught us what to do in such situations: the overspent must take an aggressive approach to stimulate the economy into recovery. This is the argument that Grumman makes in his new book ‘End This Depression Now! ‘ Now, Grumman is not a proponent of big government spending under normal conditions. Indeed, even in a recession, German’s preferred approach is to drop interest rates in order to spur consumer spending.

The problem now is that interest rates are already at zero, and this has not been enough to get consumer spending off the ground, thus leaving the economy in what is called a ‘liquidity trap’. For Grumman, the liquidity trap is actually quite common in economic downturns that allow financial crashes (as is the case with the current one, and as was the case with the Great Depression), and is why such slumps tend to be deep and prolonged. According to Grumman, the best and surest way to save the economy from a liquidity trap is for the government to step in and undertake the spending that consumers won’t.

That is, the government must stimulate the economy back into action, until consumers can get back on their feet enough to take over for themselves. For Grumman, this is precisely what happened in America during WI, when the government’s military spending served to stimulate the economy and save it from the rips of the Great Depression. Now, German’s opponents will point out that the American government has already tried the stimulus approach during this downturn, and that this strategy did not work, thus showing that it cannot be relied upon.

What’s more, these same opponents argue that the government’s debt is already enormous, and indeed dangerously high, and that further government spending at this point may well render the debt completely unmanageable, if not force the government into insolvency (which is indeed a threat that is currently being faced by several countries in the European Union). Finally, German’s detractors maintain that pumping more money into the economy at this time only threatens to drive up inflation to dangerous levels, perhaps even triggering a hyperinflation spiral.

Grumman, though, claims that he has answers to all of these objections. In the first place, as noted above, the author maintains that the failure of the government’s first stimulus effort did not prove that this approach is ineffective, but that it simply wasn’t large enough to do the trick. Second, Grumman argues that though government debt does pose a concern, America’s debt is actually not that dangerous by historical tankards. What’s more, since America has its own currency (unlike the countries of the European Union), it is able to print money to turn over its debt, thus preventing the possibility of bankruptcy.

Finally, with regards to inflation, Grumman contends that inflation simply cannot get off the ground in a depressed economy (as the current situation would attest to), and that when it is triggered in an upturn the government can always reverse its policy, thus keeping it firmly in check. Here is Paul Grumman speaking about his new book (Part II of the interview is available on Youth): http://www. Tube. Com/watch? What follows is a full executive summary of End This Depression NOW! By Paul Grumman.

PART l: THE PROBLEM Grumman begins by way of establishing the gravity of the problems that America’s economy is currently facing. This can be seen in the numbers. To begin with, consider America’s Gross Domestic Product (GAP). As Grumman notes, GAP indicates “the total value of goods and services that are produced in an economy, adjusted for inflation… In a given period of time” (loc. 274). As such, GAP provides a general picture of how much an economy is producing, and how quickly it is growing.

Between the Great Depression and the beginning of the current recession, America’s GAP grew at an average rate of between 2% to 2. 5% per year (loc. 277). The biggest downturn during this time occurred between 1979 and 1982, when America’s economy experienced a ‘double dip’ recession-?which Grumman characterizes as essentially “two recessions in close succession that are best viewed as basically a single slump with a stutter in the middle” (loc. 283). At the low point of this recession, in 1982, America’s “real GAP was 2 percent below its previous peak” (loc. 83), meaning it basically went flat. However, the author continues, the economy rebounded very quickly in the immediate aftermath, “growing at a 7 percent rate for the next two years-?morning in America’-?and then returned to its normal growth track” (loc. 283). When we look at the latest recession, we find that the low point occurred between 2007 and 2009. When compared with the recession of the late sass’s and early sass’s, we find that the latest “plunge… As steeper and sharper, with real GAP falling 5 percent over the course of eighteen months” (loc. 287). What’s more, the American economy has not seen a strong recovery this time around, as “growth since the official end of the recession has actually been lower than normal” (loc. 287). All in all, the author claims, “the U. S. Economy is [currently] operating about 7 percent below its potential” (loc. 295), and has lost $3 trillion in value since the slump began (loc. 299).

Most significant of all, though, is that the economy shows no signs of a major come back any time soon; thus leading Grumman to conclude that “at this point we’ll be very lucky if we get away with a cumulative output loss of ‘only $5 trillion” (loc. 299). . Unemployment Is Way Up While the GAP numbers are certainly telling, the more significant numbers, according to Grumman, are those concerning unemployment. As the author reminds us, unemployment statistics cover only those who are looking for work but who can’t find it, and “in December 2011 that amounted to more than 13 million Americans, up from 6. 8 million in 2007” (loc. 94). This is already a staggering number, but when you take into account all of those people who have stopped looking for work out of frustration, or who have taken part-time work out of desperation, this number balloons even Geiger: “by this broader measure there are about 24 million unemployed Americans -?about 15 percent of the workforce-?roughly double the number before the crisis” (loc. 202). And since the current slump has dragged on so long, the number of people who have been out of work long-term (meaning 6 months to 1 year, or longer [loc. 224]) has risen to levels not seen since the Great Depression.

Indeed, Grumman writes that “not since the sass’s have so many Americans found themselves trapped in a permanent stats of Joblessness” (loc. 228). The unemployment numbers are particularly important, the author argues, since hey bring home the human element of the story. Indeed, while GAP statistics represent the abstract loss of an entire economy, unemployment numbers reflect the loss of income of real people. What’s more, unemployment not only affects income, but self-esteem as well: “people who want to work but can’t find work suffer greatly, not Just from the loss of income but from a diminished sense of self-worth.

And that’s a major reason why mass unemployment-?which has now been going on for years-?is such a tragedy’ (loc. 173). Adding to the tragedy here is the fact that those who are shut out of the Job market or long stretches end up being stigmatize, which can hurt their prospects of landing work in the future: “Does being unemployed for a long time really erode work skills, and make you a poor hire? Does the fact that you were one of the long-term unemployed indicate that you were a loser in the first place? Maybe not, but many employers think it does, and for the worker that may be all that matters.

Lose a Job in this economy, and it’s very hard to find another; stay unemployed long enough, and you will be considered unemployable” (loc. 241). While all of these factors have very such affected people who were already in the Job market, it has been even worse for young people who had not yet established themselves before the recession hit. Indeed, unemployment levels among the young tend to be higher than the general population in the best of times, but in the worst of times they tend to get hit even harder. As Grumman notes, “truly , this is a terrible time to be young…

Roughly one in four recent graduates is either unemployed or working only part-time. There has also been a notable drop in wages for those who do have full-time Jobs that don’t make use of their education” (loc. 249-58). 3. The Potential Long-Term Consequences When it comes to the plight of young people, as well as those who have found themselves shut out of the Job market for an extended period, these phenomena not only affect those directly involved, but also threaten to damage the economy in the long term. This proves to be the case because, as mentioned, present unemployment, or underemployment, can threaten future opportunities.

As Grumman explains, “if workers who have been Jobless for extended periods come to be seen as unemployable, that’s a long-term reduction in the economy’s effective workforce, and hence in its productive capacity. The plight of college graduates forced to take Jobs that don’t use their skills is somewhat similar: as time goes by, they may find themselves demoted, at least in the eyes of potential employers, to the status of low- skilled workers, which will mean that their education goes to waste” (loc. 324). And lost employment opportunities is not the only way that a prolonged slump can adversely affect future economic performance.

As Grumman argues, an extended downturn tends to deter businesses from investing in and expanding their operations, which can leave them in a position where they are unable to meet emend when the economy finally does turn around and demand picks up: “the problem is that if and when the economy finally does recover, it will bump up against capacity limits and production bottlenecks much sooner than it would have if the persistent slump hadn’t given businesses every reason to stop investing in the future” (loc. 328).

German’s claim that an extended economic downturn does in fact have significant long time repercussions is bolstered by an MIFF study that looked at previous recessions. As the author explains, “the International Monetary Fund has tidied the aftermath of past financial crises in a number of countries, and its findings are deeply disturbing: not only do such crises inflict severe short-run damage; they seem to take a huge long-term toll as well, with growth and employment shifted more or less permanently onto a lower track” (loc. 41). Even more important, for Grumman, is that there is also evidence that a concerted effort to pull an economy up out of a slump can mitigate the future damage (loc. 341). For the author, then, the message is clear: America is in the midst of a very serious and damaging slump; the longer the country remains in the slump, the worse things ill be in the long run. As such, we must take swift and direct action to extricate the nation from the current situation.

Before we take a look at what form Grumman thinks this action should take, it well help to hear the author’s assessment of the current situation, and what he thinks landed the country here to begin with. According to Grumman, while America’s current situation is really quite dire, the reason why the country finds itself in this situation is really rather simple. It all has to do with demand: “why is unemployment so high, and economic output so low? Because we-?where by We’ I mean consumers, businesses, and governments combined-?aren’t spending enough… E are suffering from a severe overall lack of demand” (loc. 453-62). Actually, this whole scenario is unfolding as somewhat of a domino effect, as is the case with all downturns. To be specific, consumers have stopped spending, which means that businesses do not feel the need to hire more employees and/or ramp up production; and since production is down, governments are earning less revenue through taxes, and are themselves more reluctant to spend (loc. 459). So, how does a country get itself out of this kind of slump?

Under normal circumstances America’s Central Bank (the Federal Reserve), would pump more money into the economy, thereby lowering the interest rate (by the law of supply and demand) (loc. 554-59, 590). This has the effect of making credit cheaper, which spurs individuals to lower their savings and consumer more, thus pulling the economy out of the slump. As Grumman reports, this strategy has proven to be very effective over the years: “it worked spectacularly after the severe recession of 1981-82, which the Fed was able to turn within a few months into a rapid economic recovery -?morning in America.

It worked, albeit more slowly and more hesitantly, after the 1990-91 and 2001 recessions” (loc. 559). The problem this time around is that when the recession hit in 2008 interest rates were already at the rock bottom rate of zero percent, meaning the Fed could not lower them any further (loc. 594). Since that time the interest rate has remained at zero, but, through it all, even this has not been enough to spur consumer spending to the point where it has been able to rescue the economy from its slump.

When interest rates are at zero, and people still aren’t spending, you have what is called a ‘liquidity trap’. As Grumman explains, “it’s what happens when zero isn’t low enough, when the Fed has saturated the economy with liquidity to such an extent that there’s no cost to holding more cash, yet overall demand remains IoW’ (loc. 596). And for the author, this is the crux of the issue. According to Grumman, a major part of the problem this time around is that when the latest recession hit, a large number of Americans were already deep in debt due to the housing crash, as well as other personal debt.

What this meant is that even at zero percent interest a vast number of Americans could not afford to resume pending, for they had to get out of their debilitating debt first (loc. 755, 774, 2240). Nor is that the worst of it. Indeed, one of the most straightforward ways to get out of debt is to sell off your assets. But when a large number of people try to sell off their assets (including their houses) all at once, this drives down the price of the assets, thus reducing the amount of money that people can raise in order to pay off their debt, thus exacerbating the problem (loc. 63). But there’s more! As the prices of assets fall, the purchasing power of money correspondingly increases (called fellatio), and this increases the relative burden of debt (for the money that you are paying back your debt with is ever increasing in value), thus complicating the matter even further (loc. 767). 5. The Root of the Problem: The Deregulation of the Financial Sector Now, a lot has been made of the issue of how Americans came to be so indebted in the first place, for this was a major part of why the current problem is so bad.

Commentators on the right tend to blame borrowers who took out loans that they were not in a position to pay back, as well as government supported agencies who provided cheap loans to under-funded home-owners (loc. 059). Commentators on the left, on the other hand, tend to put the blame on deregulation in the financial industry, which allowed banking and investment companies to take on undue risk, as well as the banking and investment companies themselves who took advantage of the situation by way of providing loans to overly-risky borrowers. Grumman himself is primarily in the latter camp.

To begin with, Grumman claims that the vast majority of bad mortgage loans were made by private firms, not the much maligned government-sponsored Fannies Mae and Freddie Mac (loc. 1072); who, the author contends, got into the bad mortgage name only very late (loc. 1072), and not nearly to the extent that private companies did (loc. 1072). But the root of the problem, according to Grumman, is the steady deregulation of the financial industry that began under Reagan in the sass’s, and that culminated with the Grammar-Leach-Bailey Act of 1999, which repealed a provision of the Glass-Steal Act.

Glass-Steal was a bill passed in 1933 to deal with the ongoing Great Depression (loc. 977). The major provision in the bill was that commercial banking deposits would be insured up to a certain point by the federal government (loc. 977). This was meant o restore confidence in banks, many of whom had fallen to bank runs in the previous years (loc. 977). The issue with insuring bank deposits, though, is that this creates a moral hazard for the banks. For the banks know that they will ultimately be bailed out by the government (meaning taxpayers) if they fall into insolvency (loc. 86); and, as such, they are tempted to make overly-risky investments. As Grumman explains, “it could have created a situation in which bankers could raise lots of money, no questions asked-?hey, it’s all government insured-?then put that money into high-risk, high stakes investments, curing that it was heads they win, tails taxpayers lose” (loc. 986). In order to protect against this moral hazard, the legislators behind Glass-Steal also included a provision that stipulated that commercial banks could not act as investment banks. This was meant to keep commercial bank deposits safe from overly-risky investments.

As Grumman notes, “any bank accepting deposits was restricted to the business of making loans; you couldn’t use depositors’ funds to speculate in stock markets or commodities, and in fact you couldn’t house such speculative activities under the same institutional roof” (loc. 990). In 1999, though, this provision of the Glass-Steal Act was repealed by the Grammar-Leach-Bailey Act (loc. 1017). According to Grumman, this move was the height of irresponsibility, and was a major contributor to the extreme risk-taking environment that led directly to the financial crash of 2008 (loc. 007-1017). For the author, though, the repealing of Glass-Steal was not the only article of deregulation that prompted the crash. Indeed, he identifies several pieces of anti-regulatory legislation that also had a hand to play in triggering the whole mess, from President Carter’s Monetary Control Act of 1980 (“which ended isolations that had prevented banks from paying interest on many kinds of deposits” [loc. 1003]); to President Reggae’s Garn-SST. German Act of 1982 (“which relaxed restrictions on the kinds of loans banks could make” [loc. 003]); to the failure of legislators to keep up with new innovations in the financial industry, such as shadow banks (loc. 1029-42). Now, unlike some left-wing commentators, Grumman is not prepared to let consumers off the hook entirely for the debt problems that complicated the crash. Indeed, the author (following the economic thinker Hyman Minsk) argues that a big actor behind the growth of consumer debt in the recent past was a general natural tendency for people to forget about the dangers of debt during good times (loc. 733, 798-815).

As Grumman explains, “an economy with low debt tends to be an economy in which debt looks safe, an economy in which the memory of the bad things debt can do fades into the mists of history. Over time, the perception that debt is safe leads to more relaxed lending standards; businesses and families alike develop the habit of borrowing; and the overall level of leverage in the economy rises” (loc. 810). As the quote makes clear, the optimism in question touched all Americans, not Just the lenders, and so all involved deserve some share of the responsibility (loc. 33, 806). 6. The Story Behind Financial Deregulation According to Grumman, though, it was ultimately the lack of regulations that allowed this selective memory and wild optimism to become dangerous, for the regulations were essentially keeping these sentiments in check (loc. 838). Now, it may rightly be said that the same emotions that led to growing debt also influenced the legislation that allowed it to become dangerous in the end (loc. 40). But for Grumman, there were other reasons behind financial deregulation that are also important to consider.

For one, even before regulations were removed from the financial sector, the government had already begun to deregulate other industries (such as air travel, trucking, and oil and gas) (loc. 999-1003). These reforms had led to significant gains in efficiency in these industries (loc. 999), and thus many were optimistic that the same approach would work in the financial sector. The problem, as Grumman points out, is that “banking is not like trucking, and the effect of deregulation was not so such to encourage efficiency as to encourage risk taking” (loc. 007). B. The Political Influence of the Financial Sector (and the Wealthy in General) Over and above the factors mentioned above, though, Grumman argues that there is a still more sinister explanation behind the deregulation of the financial sector. And this has to do with the political influence of those who benefited most from it: the bankers themselves. Take the Grammar-Leach-Bailey Act of 1999, for instance (which, you will recall, revoked a crucial regulatory provision of the Glass-Steal Act).

As Grumman points out, the gassing of the Act was largely influenced by the lobbying of Citron and Travelers Group, who in 1998 had wanted to amalgamate to become Citreous, but who had encountered obstacles due to Glass- Steal (loc. 1043, 1357-65). And even before this, the political elite stood in defense of increasing deregulation, despite initial indications that the measures were problematic (loc. 1414, 1130). Indeed, as Grumman is wont to stress, the problems posed by deregulation did not begin with the financial crash of 2008.

Instead, they began to surface even in the sass’s when the banking sector was first deregulated. For instance, in 1989 the Federal government was forced to shut down the thrift banking industry due to a collapse induced by bad debt (loc. 1099-1120). A desperate move that put taxpayers on the hook for $130 billion (loc. 1120). Then, in the sass’s, further difficulties arose when several large commercial banks over-extended themselves “in lending to commercial real-estate developers” (loc. 1119).

Finally, “in 1998, with much of the emerging world in financial crisis, the failure of a single hedge fund, Long Term Capital Management, froze financial markets in much the same way that the failure f Lehman Brothers would freeze markets a decade later” (loc. 1123). For Grumman, all of these events should have acted as clear warning signs that there was something seriously wrong with financial deregulation (loc. 1 125-30). So why did the political elite fail to heed the warning signs? For Grumman, this become a good deal more understandable when we appreciate how profitable deregulation was for the financial sector (loc. 142), and how much influence this sector has on government. Indeed, as the author points out, while deregulation did virtually nothing to increase the incomes of middle class families (loc. 137, 1190), the move was a great boon to the wealthy (loc. 1142, 1201), and especially the bankers themselves (loc. 1300, 1418). In addition, it’s no secret that the wealthy, and the financial sector in particular, has a major influence on government (loc. 1351). This influence exists not only in the form of significant monetary contributions (loc. 346), but in the two-way cross-over between the financial sector and political office (loc. 1380, 1392). What’s more, the influence of the wealthy has been increasing as the rich have gotten richer since the time when deregulation first took off (loc. 1388). Section 3: The Solution is Government Stimulus (and a Few Other Reforms) 7. The Solution is Government Stimulus Grumman certainly maintains that reforms in financial sector regulations are needed if the country is to avoid falling into future debacles such as it finds itself in presently.

For him, though, the more important question has to do with how to get the country out of its current situation. As you will recall, Grumman contends that America’s problem now is that it is in the midst of a liquidity trap. That is, interest rates are already at zero, and yet this still isn’t enough to reignite consumer pending. What’s more, since consumers aren’t spending, businesses have no reason to hire workers and/or expand their operations, and so they aren’t spending either (loc. 461). Any yet, for Grumman, this lack of spending is very much the heart of the problem.

So what can be done? According to Grumman, the answer is simple: the government must step in and take over the role of spending (loc. 879). As the author puts it, “the essential point is that what we need to get out of this current depression is another burst of government spending. Is it really that simple? Would it really be that easy? Basically, yes” (loc. 688). German’s argument is that government spending will put money into the hands of the people, who will then be able to recover enough to resume spending themselves.

As consumer spending increases, businesses will increase production and hire more workers, thus fully pulling the economy out of its current slump (loc. 679). 8. Objection #1 : Government Stimulus Doesn’t Spur the Economy (and Response) Now, some argue that government spending doesn’t actually increase demand and spur the economy at all, since, they claim, all it really does is take resources from one sector of the economy and transfer them to another.

The argument is well-rendered by Brian Riddle of the right wing thing tank the Heritage Foundation, who Grumman quotes in his book: “the grand Keynesian myth is that you can spend money and thereby increase demand. And it’s a myth because Congress does not have a vault of money to distribute in the economy. Every dollar Congress injects into the economy must first be taxed or borrowed out of the economy. You’re not creating new demand you’re Just transferring it from one group of people to another” (loc. 474).

Now, for Grumman, this argument may hold true under normal circumstances, when banks are lending and companies are competing for resources (loc. 2369). But in a depressed economy this is not the case. Rather, in such a situation banks are not lending because safe investments net very little profit, and risky investments are, well, too risky (loc. 2369). So in a depressed economy, resources go unused by the private sector (loc. 2079). This being the case, government spending does not displace private spending; rather, it does nothing but increase demand