I had never heard of a babysitting Co-op until now and the way Krugman metaphorically ties the Fed and the babysitting Co-op together is very realistic and also creative. People have hoarded money in a time when it was scarce, just like the couples that hoarded coupons for a babysitting service, and now there's not that much money to go around. People are very scared and reluctant to use their money, they want to hold it and keep it just in case. Basically, they'll find ways to 'cheat' the system and save money when in actuality they need to go out and spend their hoarded money to stimulate the economy.
I was totally against inflation at first in class. When we discussed how it actually could stimulate the economy, it changed my view. Controlled inflation is not a bad thing. It puts more money in circulation and creates a stimulated economy that can provide more jobs and happier people, in my opinion. This is what our economy needs. Someone needs to step up and take action.
In Sumner's article, he supports the fact that controlled inflation is the way to go. For example, he talks about workers and how in a "mild inflation" climate, workers actually have a better possibility of getting small pay increases whereas an economy with close to zero or right at zero inflation rate end up have to cut all workers' pay.
It's very clear that both authors think that controlled inflation is the best thing for our nation's economy. I agree with them. If we had a little bit of inflation, it would be better for everyone. Inflation rates don't need to go too high and they don't need to drop. Just the right percent will stimulate the economy and create a better place for everyone.
I agree with you (and Krugman and Sumner) that controlled inflation is not a bad thing. I said some of the same things in my blog post for this week; like you, I was very anti-inflation before reading some of the articles we've now read and discussing it in class. It can be exciting to have your view changed!
ReplyDeleteOne question for you: At what point does spending to stimulate the economy become wasteful? I agree with you that people should spend more in times of recession, but at what point does this become hazardous to their livelihood? This is something I've been thinking about. I think it varies from person to person based on their individual circumstances. Individuals have to know their limits and the limits of our economy.
I agree with what you had to say about Krugman and Sumner. They both think that controlled inflation and having a little bit of inflation would be alright. I also think that maybe sometimes inflation can still hurt some citizens more than others, but overall I agree that a small amount of controlled inflation would be best for the economy.
ReplyDeleteAlso, after reading each article, which one was more appealing to you and which do you agree with more?
ReplyDeleteI believe that a balanced supply of money in circulation is necessary for people to conduct business; however, the more critical issue is the effect that inflation is having on the value of the dollar. Our recession has not been from a lack of money supply but a failure in demand. As in the case with the baby-sitters, the deficiency of tickets clearly models what could happen if there was not enough money in circulation. We are nowhere near that point, and deficit spending and inflation are by no means helping the economy recover sooner.
ReplyDeleteLuke, that’s a very good question. I think an individual’s approval or rejection of fiscal policy largely depends on his or her political ideology and how they participate in the economy. Someone who wants to invest will not like low interest rates, though debtors would obviously favor them. It’s hard to define when consumer spending becomes wasteful, but government spending and Federal Reserve policies surely do not stimulate the economy. This has been especially true with interest rates, as they have been on par with the inflation rate which provides little incentive for people to make long term investments. The incentive to make investments just isn’t there, and will remain this way until the Fed increases interest rates and/or deficit spending is curtailed.
ReplyDeleteIn the blog, you discussed the issue of people hoarding money instead of putting cash back into the system. Although i do think it is a good idea to supply the economy with money, i am also one who saves my money for a rainy day. I think it is a bad idea for people not to save any money. If people spent their retirement funds on a porsche, the government would have another issue of homeless retirees. So we need to come up with a middle ground where people don't spend, spend, spend, or save, save save.
ReplyDeleteHow do we determine "the right percent"?
ReplyDelete