Presentation on theme: "Brief Review of Lecture 1 on Policy and Development -- US, EU, Japan, and China are about 70% of the global economy -- Global economy is slowing down due."— Presentation transcript:
Brief Review of Lecture 1 on Policy and Development -- US, EU, Japan, and China are about 70% of the global economy -- Global economy is slowing down due to slow growth in the EU, reduced growth among emerging markets, lackluster performance by China, slower growth from the US. World growth about 3%. -- Considerable apprehension over possible recession, how to combat headwinds -- Two groups (i) activists who favor greater stimulus and less emphasis on budget control, easy money, tight regulations on financial institutions, greater government control over markets (ii) passivists who favor less stimulus and regulation, smaller government and rules-based policies. -- World seems to be turning away from austerity as a policy prescription and more towards discretionary economic policy, not rules. -- Recently some scholars have stated that too much debt (Debt/GDP > 0.90) can begin to reduced growth and can lead to a financial crisis. Need to have long range plans to reduce debt. -- Recently some scholars have argued that overall economic policies depend crucially on political system that delivers either inclusive (good) economic institutions or exclusive (bad) economic institutions.
Brief Review of Lecture 2 on the US Economy -- US needs to grow at 2.6% to lower unemployment significantly -- growth currently only about 1.4% (Q1 – 1.1% and Q2 – 1.7%) -- even faster growth need to return to potential output (4.0%) -- unemployment slowly improving currently about 7.4%, but many people leaving the labor force, baby boomers retiring -- long term unemployment (U6) still very high but falling -- inflation is below Fed target of 2%, but data is contaminated by jumps due to changes in USD and rising oil prices -- many uncertainties continuing to plague US economy including a. Sequester and debt ceiling negotiations (the new fiscal cliff) b. Implementation of Obamacare c. Depletion of two Social Security funds and Medicare fund d. Strong regulations on use of coal and oil e. Implementation of Dodd-Frank financial act f. Passage of comprehensive immigration legislation g. Winding down or tapering of QE by the Fed h. US housing market tenuously returning to normalcy -- Income and wealth inequality in US rising mainly due to lower interest rates, rising stock and bond prices, and concentration of ownership of assets in institutional hands
When you have wages or self-employment income covered by Social Security, you pay Social Security taxes each year up to a maximum amount set by law. For 2013, you will pay Social Security taxes on income below $113,700. You must pay Medicare taxes on all income. Also, beginning in 2013 you must pay 0.9 percent more in Medicare taxes on earned individual income of more than $200,000 ($250,000 for married couples filing jointly). The tax rates shown below do not include the 0.9 percent: Employees the Social Security tax rate is 6.2 percent on income under $113,700 through the end of 2013. The Medicare tax rate is 1.45 percent of all income; Employers the Social Security tax rate is 6.2 percent. The Medicare tax rate is 1.45 percent; and Self-employed the Social Security tax rate is 12.4 percent on income under $113,700 through the end of 2013. The Medicare tax rate is 2.9 percent.
The Development of the Global Economy Problems with the EU Economy Lecture #3
How is the EU Doing on Growth, Unemployment, and Inflation? Remember that Growth and Unemployment are far more important than Inflation
Average or Natural Growth is about 1.8% for the Euro Zone Growth in the Eurozone and EU The euro zone is likely to see an extended period of slow economic growth and European Central Bank's policy will have to stay loose for a long time, ECB Vice-President Vitor Constancio said on Friday. "Advanced economies, Europe in particular, face a long period of slow growth that will test the quality of our institutions, "The euro area is still facing a painful crisis of imbalances, financial fragmentation and low growth."
To reduce unemployment rate by 1%, the Euro17 needs to grow at a steady 2.2% for one year. 1% reduction in the Euro17 unemployment rate is 1.6 million good stable jobs.
Interesting Question: Which Country Leads Which in Growth? Does the US lead the EU or does the EU lead the US?
The Cross-Correlogram below indicates that the US probably leads the EU. This means that the EU might need the US to recover substantially before it can recover. Just a thought.
How is the EU doing with respect to unemployment?
EU labor market is largely to blame for the continued and rising high unemployment. Too costly to hire workers. US is moving in this direction.
What is the Recent EU Record on Inflation?
Stable inflation is very important since the main costs of inflation occur when the rate of inflation becomes variable and highly unpredictable.
Measured inflation in the EU has been very stable; well below 2%. However, there does not seem to be any danger of deflation in the EU right now.