Why aren't we doing more to
rebuild our infrastructure at a time when our needs are high and borrowing
costs, labor costs, and other costs of infrastructure are at bargain prices?
Not to mention the employment benefits that would come with enhanced
infrastructure investment. And why aren't we doing more to shore up our
financial infrastructure through new regulations and oversight of the banking
sector so that the problems we are having presently are less likely to
reappear? There have been some changes in financial regulation, but not enough,
and the financial sector is doing its best to block any further progress in
this area:
Alexander Field, Greg Clark, and
Optimism about the Current Unpleasantness, by Eric Rauchway: On the jacket of Alexander
Field’s new book A Great Leap Forward, my
colleague Greg Clark says this:
As we sit mired in the Great
Recession, Alexander Field’s exciting reappraisal of the Great Depression
offers surprising solace. By showing the Great Depression was coupled with the
most rapid technological advance in U.S.
history, he fundamentally recasts
the history of the 1930s. But he also offers hope that our own depression
likely will have no long-run costs to the U.S. economy.
By measuring total factor
productivity (TFP), or the improvement in productivity not accounted for by
traditional inputs, Field finds tremendous gains during the Depression. They
owe in part to private investment in manufacturing efficiencies, chemical
processes, and other technical improvements. Historiographically, there’s a
major payoff in showing that the vast majority of such innovation came during
the Depression, not during the war.
But (as the bulk of Field’s book
is devoted to showing) the productivity improvement owes mostly to construction
transportation infrastructure – to the construction of roads, bridges, and all that made the
modern trucking industry possible. Field even goes so far as to say the end of
the golden age of productivity in the American economy in 1973 “coincides with
[he does not quite say owes to] a tapering off of gains from a one-time
reconfiguration of the surface freight system in the United States”.
And this massive public
investment in infrastructure, which made possible the postwar suburbanization
and boom, went along with financial regulation. Field attributes both the
current crisis and that of the 1920s to “a failure to control, or really to be
interested in controlling, the growth of leverage.” If we want to come out of
the Current Unpleasantness with less than a Great Depression to show for it,
we’ll have to see regulation that responds accordingly, he says. “If an even
more serious crisis occurs within the next decade, it will be because the
regulatory response ended up being less effective than that which was summoned
during the New Deal.”
Which makes Field sound a lot
less optimistic than Greg. The Great Depression turned out relatively well in
the long run because we had not only significant private
investment in R&D and other improvements, but also the New
Deal – road-building and regulation. Do we have that, or anything like it, now?
Translater :
The Great Depression turned out
relatively well in the long run because we had not only
significant private investment in R&D and other improvements, but
also the New Deal – road-building and regulation.
Depresi Besar ternyata relatif
baik dalam jangka panjang karena
kami memiliki tidak hanya investasi
swasta yang signifikan dalam R
& D dan perbaikan lain, tetapi juga New Deal -
pembangunan jalan dan peraturan.
ARTIKEL II :
MONETARY
Monetarism asserts that monetary
policy is very powerful, but that it should not be used as a macroeconomic
policy to manage the economy. There is thus an apparent contradiction—if
monetary policy is so powerful, why not use it, for example, to create more
employment in the economy?
HISTORY
AND BACKGROUND
First
of all, it should be noted that monetarism was an attempt by conservative
economists to reestablish the wisdom of the classical laissez faire
recommendation and was an attack on the activist macroeconomic
policy recommendations of the Keynesian economists. It is thus helpful to
briefly examine the historical background against which monetarism developed as
a new school of macroeconomic thought.
KEYNESIAN ECONOMICS.
Keynesian economics was born during
the Great Depression of the 1930s. The classical economists argued that the
self-adjusting market mechanism would restore full employment in the economy,
if it deviated from full employment for some reason. However, the experience of
the Great Depression showed that market forces would not work as well as the
classical economists had believed. The unemployment rate in the United States
rose to higher than 25 percent of the labor force. Hard working people were out
in the street looking for nonexisting jobs. Wages fell quite substantially.
However, the lower wages did not re-establish full employment.
Economist John Maynard Keynes
argued that the self-adjusting market forces would take a long time to restore
full employment. He predicted that the economy would be stuck at the high level
of unemployment for a prolonged period, leading to untold miseries. Keynes
explained that classical economics suffered from major flaws. Wages and prices
were not as flexible as classical economists assumed—in fact, nominal wages
were very sticky in the downward direction. Also, Keynes argued that classical
economists had ignored a key aspect that determined the level of output and
employment in the economy—the aggregate demand for goods and
services in the economy from all sources (consumers, businesses, government,
and foreign sources). Producers create goods (and provided employment in the
process) to meet the demand for their products and services. If the level of
aggregate demand was low, the economy would not create enough jobs and
unemployment could result. In other words, the free working of the macroeconomy
did not guarantee full employment of the labor force—the deficient aggregate
demand was the cause of unemployment. Thus, if aggregate private demand (i.e.,
the aggregate demand excluding government spending) fell short of the demand
level needed to generate full employment, the government should step in to make
up for the slack.
The central issue underlying
Keynesian thought was that those individuals who have incomes demand goods and
services and, in turn, help to create jobs. The government should thus find a
way to increase aggregate demand. One direct way of doing so was to increase
government spending. Increased government spending would generate jobs and
incomes for the persons employed on government projects. This, in turn, would
create demand for goods and services of private producers and generate
additional employment in the private sector. Keynesian economists thus
recommended that the government should use fiscal policy (which includes
decisions regarding both government spending and
taxes) to make up for the shortfall in the private aggregate demand to reignite
the job creating private sector. Keynesian economists even went so far as to
recommend that it was worthwhile for the government to employ people to in
meaningless jobs, as long as they were employed.
The Roosevelt administration did
follow Keynesian recommendations, although reluctantly, and embarked on a
variety of government programs aimed at boosting incomes and the aggregate
demand. As a result, the Depression economy started moving forward. The really
powerful push to the depressed U.S economy, however, came when World War II
broke out. It generated such an enormous demand for U.S. military and civilian
goods that factories in the United States operated multiple shifts. Serious
unemployment disappeared for a long period of time.
Modern Keynesians (also, known as
neoKeynesians) recommend utilizing monetary policy, in addition to fiscal
policy, to manage the level of aggregate demand. Monetary policy affects
aggregate demand in the Keynesian system by affecting private investment and
consumption demand. An increase in the money supply, for example, leads to a
decrease in the interest rate. This lowers the cost of borrowing and thus
increases private investment and consumption, boosting the aggregate demand in
the economy.
An increase in aggregate demand
under the Keynesian system, however, not only generates higher
employment but also leads to higher inflation. This causes a
policy dilemma—how to strike a balance between employment and inflation. According
to laws that were enacted following the Great Depression, policy makers are
expected to use monetary and fiscal policies to achieve high employment
consistent with price stability.
Second, fiscal policy is
ineffective in influencing either real or nominal
macroeconomic variables. It has little effect, for example, on either real
output/employment or price level. Thus, the government can't use fiscal policy
as a stabilization tool. Monetarists contend that while fiscal policy is not an
effective stabilization tool, it does lead to some harmful effects on the
private sector economy—it crowds out private consumption and investment
expenditures.
Classical economists did not see
any role for the government. As market forces led to full employment
equilibrium in the economy, there was no need for government intervention.
Monetary policy (increasing or decreasing the money supply would only affect
prices—it would not affect important real factors such as output and
employment. Fiscal policy (using government spending or taxes), on the other
hand, was perceived as harmful. For example, if the government borrowed to
finance its spending, it would simply reduce the funds available for private
consumption and investment expenditures—a phenomenon popularly termed as
"crowding out." Similarly, if the government raised taxes to pay for
government spending, it would reduce private consumption in order to fund
public consumption. Instead, if it financed spending by increasing the money
supply, it would have the same effects as an expansionary monetary policy.
Thus, classical economists recommended use of neither monetary nor
fiscal policy by the government. This hands-off policy recommendation
is known as laissez faire.
Translate:
Keynesian economists thus
recommended that the government should use fiscal policy (which includes
decisions regarding both government spending and
taxes) to make up for the shortfall in the private aggregate demand to reignite
the job creating private sector.
( Ekonom Keynesian demikian
dianjurkan bahwa pemerintah harus menggunakan kebijakan fiskal (termasuk keputusan mengenai
baik pengeluaran pemerintah dan
pajak) untuk menebus kekurangan
dalam permintaan agregat swasta untuk menyalakan kembali pekerjaan membuat sektor
swasta ).
An increase in aggregate demand
under the Keynesian system, however, not only generates higher
employment but also leads to higher inflation.
(Peningkatan permintaan agregat di bawah sistem Keynesian,
bagaimanapun, tidak hanya menciptakan
lapangan kerja yang lebih tinggi tetapi juga menyebabkan inflasi lebih tinggi ).
Second, fiscal policy is
ineffective in influencing either real or nominal
macroeconomic variables. It has little effect, for example, on either real
output/employment or price level.
( Kedua, kebijakan fiskal tidak
efektif dalam mempengaruhi baik
variabel makroekonomi nyata atau nominal. Ini
memiliki pengaruh yang kecil, misalnya,
di kedua tingkat output / pekerjaan atau harga
riil ).
Thus, classical economists
recommended use of neither monetary nor fiscal
policy by the government. This hands-off policy recommendation is known
as laissez faire.
(Dengan demikian, ekonom klasik direkomendasikan
penggunaan baik moneter
maupun kebijakan fiskal oleh pemerintah. Ini rekomendasi
kebijakan lepas tangan dikenal
sebagai laissez faire ).
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