Great Paper on the New Keynesian model

As I was scourging through interesting papers, I found a very interesting paper written by Cohen-Setton, Hausman and Wieland on the New Keynesian model. Within the contents of the paper, they discuss the New Keynesian model and it's effect on supply-side shocks in depressed economies. They utilized a very interesting example in France and its economy after a special measure where they had lifted the gold standard and set interesting economic measures. The results are quite fascinating and the paper goes into quite detail utilizing time series and a fantastic model to describe what had happened in detail. I'm still reading the paper, but it looks like they have found the key to the current debate over structural reforms within both the United States and the European Union. By utilizing these structural reform measures that were recommended before, the example shows that it doesn't particularly work very well in times of rare financial crises. A good read for anyone who is interested in these pressing matters, along with observing the model that they had utilized.

Justin Wolfers' Interesting Article on Bernie Sanders' Economic Plan

There has been considerable conversations over Bernie Sanders' economic plan over the internet and among several top macroeconomists in the United States. Among the economists that are talking about Professor Gerald Friedman's plan that has estimated a Sanders Presidency would greatly improve the economy of the United States with its plan of completely transforming the country into one that more or less resembles that of the Nordic social democratic societies. As my father is on the faculty at one of the University of Massachusetts schools, it's interesting to consider Professor Friedman's analysis of the Sanders economic plan. I personally think that the universal healthcare program that he has promoted is while valid, it might not be the plan of action. The Nordic welfare states (Norway, Sweden, Finland and Denmark) were created earlier on in the century and had promoted a decent foundation for their societies as a whole to function on a very high level. They were created when these states did not have any nationalized program of any sort or extremely complex healthcare systems. They were relatively small and homogeneous at that period of time. My main problem with Sanders' plan is that it does not go into detail about how and where the healthcare system will change. Also, there seems to somewhat of a disagreement between how mainstream economists and how Professor Friedman sees the topic of macroeconomics as a whole. We will explore this later on this blog post, but let's first talk about Wolfers' point of view.

Let's first look at what Wolfers and the Romers have to offer for the conversation over Sanders' economic plan. The Wolfers article goes into a recent short article of what Professor David and Christina Romer have written and explains that Friedman's plan is out of whack based on their point of view. I must admit that it is completely feasible for a bunch of center-left Democratic star economists, which include Paul Krugman, to fully denounce what someone from a (more-or-less) a Post-Keynesian perspective would have. They all focused on the demand-induced part of Sanders' plan. They find it incredulous that the plan would be in Wolfers' words, "an economic nirvana". I have read and looked over Professor Friedman's plan and it does not look incredibly implausible, especially when you look at the CBO estimates or in its calculations. Maybe it is somewhat different than what most center-left macroeconomists such as Wolfers would consider to be credible. If you read towards the end of his short article, Justin Wolfers pointed out that Gerald Friedman's long and careful analysis as one that is more or less the perspective of the Post-Keynesian macroeconomists from the tradition of Joan Robinson. Let's look into this historical phenomenon where generally liberal economists divulge tremendously.

If you look back into history, John Maynard Keynes truly changed the way many in the economics arena had seen economics. He argued that the mainstream neo-classical models mostly in the field of macroeconomics to be mostly wrong and his particular analysis of how the world of economics works to be right. Of course this does not come with its controversy in the world of economics as many traditional neoclassical economists did not view his completely "heretical views" very well. Then fast-forward 10 years, two top MIT economists, Paul Samuelson and Robert Solow, created a somewhat combination of Keynes' works with the earlier neoclassical economists into somewhat of a paradigm shift between the two competing schools of economic thought into the neo-classical synthesis. This is when Joan Robinson and others at the Department of Economics in Cambridge, of which Keynes last taught before his death, argued in the Cambridge capital controversy about certain components of their competing ideologies especially about the unrealistic assumptions component to their mathematical models. The Post-Keynesian school, of which Joan Robinson is famous for, argued based primarily on the Keynesian tradition, while the other somewhat Keynesian argued based on a moderate fusion of the two competing schools. This led to a long ideological battle that has also included an entire generation of economists in the "new classical tradition" that in Robert Lucas wanted to "bury Keynesianism" and also attacked the earlier mentioned unrealistic assumptions part in their math modeling. The Wolfers' article and Krugman's numerous articles explain this battle, but it is generally between the dominant faction of Keynesians and those like Friedman, which are in the more left-leaning Robinson faction of the Keynesians.

While I don't necessarily agree completely with Friedman's observations on Sanders' economic plan for the country, Professor Gerald Friedman and Bernie Sanders' economic plan is especially important in that it's exposing the general public to more of Keynes' economic thoughts. While Keynesianism might not be the solution to some of problems in the models that some in the New Classical school of thought ran into during the Great Recession, it should form the basis in any academic and policy discussion to correcting the country's trajectory towards an entrenched oligarchy and a mass of working poor.

A Short Analysis of Donald Trump's Economic Proposals

As Donald Trump edges towards winning the Republican Party nomination for President of the United States, I will break down Trump's economic proposals that he has for the United States. Three of the main proposals he has proposed will actually be very detrimental for the country. These three include deporting millions of Americans, large tariffs on goods with China, Japan and Mexico and an extremely unfriendly foreign policy towards the Middle East.

By deporting millions of undocumented Americans from Latin American countries such as Mexico, he might cause a large shortfall in minimum wage and other low wage positions in agriculture, in food preparation and in perhaps janitorial roles. There aren't enough people in the country that will comfortably fill those positions as those have been mostly filled by new immigrants, some of them illegal. While some of the domestic unemployed might be able to fill in some of these positions, they won't be able to cover all of these positions as some of the more vulnerable local populations might not want to even take these jobs, without a modest wage increase. While it might decrease unemployment among the working population, this might create a large void in the service economy and that might result in prices going up.

The second and most damaging of his economic proposals would be to slap large tariffs on goods with countries that provide some of the products that are consumed in this country such as China, Japan, Mexico, South Korea and elsewhere. His rhetoric contends that this will help to revitalize America's flagging domestic manufacturing industry, but this does not seem like it will be the case. The best case scenario will cause some of these offshore jobs to move to even lower income countries such as Indonesia, Vietnam and India and cause prices for goods and services to raise accordingly to the rate of tariffs. You would have to slap prohibitive tariffs to move the low-wage manufacturing jobs back to the country. Prices on everyday goods such as t-shirts might even double as a result of this import tariff. This will surely increase the costs of living in the United States and it will hit the working people even harder. The cheaper goods that the country has been receiving (some of the cheapest in the world) has been caused by low tariffs to low to middle income countries such as China, Mexico and cheap higher-quality goods from countries such as South Korea. This has been a boon for the working people to consume more cheaper products and has helped to move some of those same people into more value-added service positions that contribute to the less manufacturing intensive some of the economy. This has also been environmentally feasible for the country as heavy manufacturing plants has caused massive population problems for a country such as China. Let's also not talk about a massive trade war with China or a tariff war with the European Union...

The third and last of his proposals has been quite damaging for America's image and relations with countries in the Middle East as to outlaw all Muslims coming into the country might cause more hostility towards the United States in those Middle Eastern states. This might be an ideal solution for Trump but this might cause a breakdown in commerce between the United States and the Middle East. While relations with certain states in the Middle East such as Iran and Syria might not improve under President Trump, relations with allies such as Turkey, Saudi Arabia and Egypt might be strained. While the economies of this region do not figure much to America's export economy, it might cause a strain in developing good relations with a region that is so vital to providing the oil and gas to the world's second largest economy (the United States). By promoting and causing more Muslim hostility to the United States, the country might have to spend more on its wasteful military spending that does not provide much benefit to the domestic consumption economy of the United States and further drag the federal government into the brink of bankruptcy.

From these three proposals we can see briefly that a Trump Presidency will be horrible for the country's economic well-being, along with foreign policy problems with Muslim countries due to his well documented Islamophobic comments in order to win more fear on his behalf. While relations with countries such as Russia might improve under his presidency, he might cause rough relations with manufacturing countries such as China and South Korea. This would not put the United States in the right footing as to compete with these countries on a global level with heavy tariffs damaging domestic American firms' capabilities to compete on the international level. By deporting millions of undocumented immigrants, he might also put those that might be able to work in manufacturing jobs back to their home countries. Like Trump has used his "huge" quote on many things such as his proposals and his campaign, a President Trump would cause severe economic problems in the United States. This short blog post is just a brief summary of the problems that a President Trump would have and we will find out and see if the country is smart enough to elect a President other than Donald Trump.

Another Update

Here's an important update for those that read my blog:

I will no longer be posting information that primarily focuses on economics, but I will instead focus more on some of the slides that I have been writing on international affairs, on public policy and on political economy. I have realized that my interests primarily lie in these particular fields and less on certain categories that are perhaps more dismal in character. I will be more active in this blog this month as I have more free time to do so and I will try to publish some of the posts that have been delayed by unfortunate circumstances.

Concerning Short Working Paper on Application of Game Theory in Political Economy And the Nash Equilibrium

One of the professors in the program have given me an idea of writing a short working paper on the application of game theory in political economy. If you didn't know, I was quite fond of political economy charts and typology charts in R^1 when I was a teenager. This included websites such as the Political Compass, the Nolan Chart and many others like it that are numerous in size and scope. What I want to do here is to rummage through the hordes of papers on this particular subject and write a very short working paper on the Application of Game Theory in Political Economy and how it pertains to the Nash Equilibrium.

In the meantime, I also just started a working paper on economics and public policy and how these are intertwined and how we can utilize powerful tools in both fields to further study income inequality. I'm not exactly sure what the narrow subjects I will focus on this particular working paper, but I will have a good idea as next year rolls around.