#20 The American Economy:  Looking Behind the Numbers

Thursday – 10:00 a.m.                                                      Winter Term 2009
Coordinator:  Roy Helfgott                                              Co-coordinator:  Murray Spector

Course Description
The American housing boom turned into a bubble, the financial system is in disarray and we are in a recession.  Yet, we have had recessions before and recovered fairly quickly.  Will that be the case now or does the nation face long-term economic difficulties?  In this S/DG, we shall try to answer these questions by looking behind the numbers at the underlying factors operating on our free market economy.

Topics

1. Introduction.  What is economics all about?  Answer:  determining what to make,
   how much and for whom.  Production possibilities curve.  The players:  households,
   businesses, government, plus international trade.

1. Historical performance of the U.S. economy has been one of secular gain, interrupted by recessions.
     Over the long-run, increases in output, income, jobs, and living standards.  Will future generations do as well?   

1. The American Market Economy.  Supply, demand, equilibrium.  Moves to freer markets - deregulation.
     Can there be market failures?  The case of pollution – role of externalities.  Arguments over rent control.

1. Consumption (the household) – 2/3 of total spending.  People buy durable goods, nondurable goods, and services.
     Consumers suffering now, as jobs and wages have declined.  Keynes and the consumption function.

1. Investment.  Definition, relation to savings.  Private investment – businesses.  What to do when it falls?
     Rent.  Interest.  Profit.  Neglect of public investment; crumbling infrastructure.

1. International Trade.  Principle of comparative advantage.  Who gains, who loses?  Role of exchange rates.
     Mutual dependency:  we buy other countries’ goods, they finance our debts.  Case studies: NAFTA. OPEC.

1. Fiscal Policy.  Taxing and spending.  Who bears the burden of taxation?  Rewarding the successes
   of capitalism vs. creating the equalities of democracy. Public and private debt – living beyond our means.

            
8)    Monetary Policy.  What is money?  How is it created?  The role of banks.  
The Federal Reserve System.  Milton Friedman’s contribution.  Use of
monetary policy to stabilize the economy.

1. The sub-prime debacle.  Could it have been prevented?  Why did it lead to a financial crisis?  Morality as prevention vs. regulation for corrective action vs. laissez-faire.  How can we prevent it from happening again?

1.  Inflation.  What is it?  Its history in the U.S.  Its costs and benefits.  Indices

           of prices. Inflation and factor prices. The conundrum facing Bernanke:  can 
we control inflation without damaging the economy?.

1.  Unemployment. How come when the government reports a loss of jobs, unemployment does not necessarily rise?  Definitions.  Measurements.  Types of unemployment.  The impact of immigration.  Education.

1.  Tears in the Safety Net.  Decline in employer provision of benefits.  Need

 for extended unemployment insurance benefits?  Can we save old age 
insurance?  Medicare?  The question of universal health Insurance. 

1.  Poverty.  U.S. richer than other countries, but has more poor people. 

 Increasing inequality.  Economic growth.  The energy problem.   
Parenting.

      14)  Summing Up:  The Future of the American Economy.

Bibliography
Economics for Dummies.  Wiley, 2005.

Phillips, Kevin.  Bad Money:  Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism.  Viking, 2008.

Morris, Charles R.  Dollar Meltdown:  Easy Money, High Rollers, and the Great Credit Crash.  Public Affairs, 2008.

Soros, George.  The Credit Crisis of 2008 and What It Means.  Public Affairs, 2008.

McCarty, Nolan; Poole, Keith T. Rosenthal, Howard.  Polarized America.  MIT Press, 2008.