Reflection

Because I will be going on study abroad in Scotland in the fall I think that the material which will be most applicable to me is the economics of standards as well as the exchange rate material. In the study abroad process with the CIP we go through a lot of the emotional, the social and cultural informational segments which address how life abroad will be significantly different from that in the US. However, what is not discussed of course is the economic variances that occur. While exchange rates and the various changes in standards are obvious factors that are country specific, they are two things that did not cross my mind in preparing myself for study abroad so I am very glad that I took this seminar.

Moving forward in life, I think I’ve learned a lot of material that will help me be more globally aware. I am not an economics student. The extent of my econ history traces back to Econ 101; my interests and strengths lie in business. Therefore, a lot of the material was unfamiliar to me as far as financial portfolios, foreign exchange markets and the specifics on interest rates, for instance. Therefore, now having an understanding of them and how they effect a national and global economies will help me understand more “economic language” and be a more informed citizen. 

With that said, I am probably most interested in learning more about governmental economic policies. With everything that has gone on in our country and throughout the world, and all of the economists speaking on the news channel and being quoted in the newspapers, I want to make sure that I understand the implications of the government’s actions and be able to make my own assertion of the justification of their actions based on brief understanding of economic policies. While of course I am not interested in becoming an economist or plunging deep into the study, I think that a lot is already more clear for me after we discussed the expansionary fiscal policy today in class. 

For students considering this class, I would definitely advise them to take it if they are planning to study abroad the following term or year. I would recommend to them that they invest in a planner and keep organized to remember all of the blog posts. Also, tell them that it’s important to keep up on the reading because of the material discussion which dominates class time. I would also recommend that they have taken at least Econ101 as a prerequisite; otherwise it may be difficult to initially comprehend the supply and demand material as it is addressed in a much shorter duration because of the class material in the seminar as compared to in Econ101. 

Weekly country blog

http://www.moneyweek.com/investment-advice/share-tips/what-to-buy-as-uk-economy-falters-22100

This article addresses the economic standpoint of the UK and discusses the IMF’s suggestions for the nation. Up until recently, the IMF believed the UK’s main priority to be cutting the deficit as it has jumped from £9.1bn in April 2011 to £11.5bn. However, the IMF is now most focused on the aspect of economic growth; the IMF claims that “growth is too slow and unemployment, including youth unemployment, too high.” They are further urging the Bank of England to open the door to more quantitative easing and cut interest rates even lower than the historic low rate of .5%. 

 As discussed in class, in order to decrease interest rates the UK must increase the money supply. All of this in turn will increase investment. Therefore, the UK is currently considering printing more money. As inflation is currently at its lowest level in two years, advocate of money printing are suggesting now is an excellent time. Those who do not support money printing suggest that this is only a short-term boost in the stock market if more money was to be printed and that it will do nothing for long-term growth. Also, as discussed in class, an increase in currency will cause the pound to depreciate in value:

as domestic products are cheaper exports would increase and imports would decrease because they’d be more expensive. 

Based on the decrease in taxes, the possibility to cut interest rates and the increase in transfer payments, it seems that the UK is currently employing expansionary policy. The main problem with this is of course the budget deficit which the UK is clearly experiencing. Because the nation is spending more it is forced to borrow which results in debt. Also, the UK cannot keep up this type of spending as the article states that “public finances leave precious little scope for any significant boot to public spending.”

Weekly blog

http://www.guardian.co.uk/business/2012/may/24/uk-economy-contracted-2012

This article discusses the recent decline in GDP by .3% in the first few months of the year. The struggling eurozone as well as downturn in the construction sector has resulted in a state of economic depression. “Deputy prime minister Nick Clegg suggested that the coalition plan to expand its policy of credit erasing, using government guarantees to kickstart spending on infrastructure and housing to boost the economy.” As we’ve learned in class, Clegg’s suggestion includes important short term and long term remedies. In the short-run, by helping to boost the housing market, citizens will face eased financial burdens on their home which will then lead to an increase in consumer spending. In the long run, by investing in infrastructure the government is expanding its capital resources. This will lead to an increase in jobs which will help boost consumer spending as more employment equates to more money and more disposable income.

Beware of Greeks Bearing Bonds

a) The passage I was most interested by was the discussion about Greek taxes. I was shocked that in 2009 Greece stopped collecting taxes because it was election year. While I am aware that politicians will do a lot (some may do anything) for a vote, disintegrating taxes is absurd. However, it seems to be a commonality in Greece, as was revealed in one of the interviews that ““The first thing a government does in an election year is to pull the tax collectors off the streets.” The estimations that two-thirds of Greek doctors reported incomes under 12,000 euros a year is another fact that I was startled by. However, it’s explained that the reason so many Greeks evade their taxes is because of the inefficient legal and justice system; Greek courts take up to 15 years to resolve tax cases. Ultimately, I’m just blown away that the government did not think about the long term effects of all of these practices.

b)The financial crisis in Greece affects the rest of Europe because Greece is in debt to many European countries. If they default on their loans, “then the European banks that lent the money will go down, and other countries now flirting with bankruptcy (Spain, Portugal).” This also has a great effect on countries like the UK for instance that are offering Greece bailout money in order for Greece to stay in the EU and keep the euro as their currency. The UK is dishing out millions of tax payer dollars to Greece when the UK is not in a position of economic strength themselves. Ultimately, whatever decision Greece makes will be felt greatly by its fellow European nations.

c)According to the equation GDP= C  + I + G + E - I, GDP in the short-run would significantly decrease. Increasing taxes would cause consumption to decrease and thus result in a decrease in GDP. The affect is the same if the government were to decrease government spending; it would cause GDP to go down. Investment is also likely to go down as businesses will actually have to pay taxes and be unable to seek governmental assistance. 

How Walmart is Changing China

I thought that the parallels the author made between Walmart CEO Sam Walton and the Chinese Communist Party’s secretary general, as well as Walmart and the Chinese Government were very interesting. The author states that both leaders have created cult  status in their authoritarian organizations “held together by an elaborate belief system or ideology bordering on the religious.” Furthermore, the advertising, promotional methods and propaganda of both organizations have the same goal in mind: to influence the outside world and prevent dissenting behavior. Each organization proclaims a responsibility to serve: the government has a service to its people while Walmart has a service to its customers. Perhaps the most startling similarly is how both organizations monitor its citizens and its employees and customers to make sure they “stay within the boundaries of ‘correct’ behavior.” 

The article showcased how the strong presence of a successful multinational firm can completely change a culture and its economics. Walmart revolutionized China with an American ideal of “bulk shopping.” The article states that Walmart’s annual revenue is in the top quartile of the GDP of sovereign nations. With such success as a company like Walmart, its power seems unstoppable. Walmart has been able to both change Chinese cultural conventions/preferences as well as adapt to them because of their strong variety and low prices. For instance, while Walmart has created a new type of Chinese consumer with access to electronics and millions of other products, Walmart has also undergone efforts to make their company more environmentally friendly which has been  a step in the right direction for the Chinese consumers disgusted by pollution and in the market for organic foods. A more specific example of how multinational firms, economics and culture interact is Walmart creating the Direct Farm Program that in which Walmart deals directly with the dismantled mandatory collective and commune farmers of the Mao era. Through this interaction, Walmart is able to cut down its supply chain, have better standard control of its food while working with traditional farmers of Chinese culture to promote economical well being of both parties.

Multinational firms have a large presence in the UK because of the nation’s GDP and level of development. Like any other country, multinational firms are going to influence consumer spending, employment and perhaps standards of living. In developing countries, these firms can promote economic growth and surge foreign investment. This then brings jobs to the country, boosts the economy and calls for an increase in teh ability of citizens to purchase and consume. Moreover, governments will often times adapt their policies to be more agreeable for businesses and citizens as it promotes foreign investment. However, multinational firms have also been accused of exploiting local labor and taking advantage of corrupt governments to do unethical business. While there are certainly drawbacks, multinational firms ultimately help to create a more equal playing field in world economic standing. The UK, for instance, is a top developing country with a strong base of multinational firms. Many multinational firms are headquartered in London and thus has helped to promote the city as a financial world headquarters and increase its GDP.

UK weekly blog

http://www.telegraph.co.uk/finance/currency/9269819/What-on-earth-is-Britain-doingtrying-to-save-the-euro.html

This article addresses the leadership of the UK and their attempts to save the euro. The Prime Minister and the Chancellor have given their support to expensive bail-out schemes; Osbourne has committed tens of billions of pounds of British taxpayers’ money to the euro bail-out funds. However, the article states that the size of the various bail-out funds that are so far mobilized to help save the eurozone countries is much larger in real terms than the reparation payments and reconstruction plans of the First and Second World Wars combined. Clearly, this is a an incredibly large sum of money and much of the burden is being placed on UK tax payers who are already suffering from a decade of being encouraged to borrow money to help pay for the unaffordable standards of living. Therefore, helping to save the euro will only further devastate the UK. 

The author is skeptical as to why the UK governmental leaders would even want to save the Europe when the author believes that euro has outlived its usefulness. What is more, the author states that if Greece reverts to its own national currency than the country would start to recover within months, and the same can be applied to Portugal and Spain. He makes these claims based on historical records that since the end of WWII many countries have quit fixed currency systems, and in almost every case that has been the moment when growth has been restored. 

Therefore, it seems that it is in the UK’s best interests to avoid financial aid. The financial burden that will be placed on the UK citizens’ shoulders will cause consumption to plummet. While government spending will increase, it will be spent on saving the bail out eurozone countries. Industries will suffer without consumer spending and therefore companies will be unable to invest. Ultimately, the GDP will plummet and there will need to be efforts to help promote long-term growth. 

UK, week 7

http://www.bbc.co.uk/news/business-17836624

According to the article, the UK economy has returned to recession "after shrinking by .2% in the first three months of 2012." The UK economy was last in recession in 2009. The article talks about the decrease in construction and production industries as well as a decrease in government spending. As we've learned in class, an increase in government spending and business investment promotes long term economic growth. Increased government spending in creating jobs, as well as tax cuts should be used to increase consumer spending. However, in the UK, the deputy chairman of industry body Judy Lowe said, "The huge cuts to public spending - 25% in public sector housing and 24% in public non-housing and with a further 10% cuts to both anticipated for 2013- have left a hole too big for other sectors to fill." Based on this article and the last blog post about the UK, it is clear that consumer spending is suffering, especially in the public housing sector.While this is an oversimplified solution, efforts could be made to help the UK citizens with affordable housing initiatives, which could then spur more consumer spending and help aid the suffering retail industry, for example.