Notes for February 18, 2022

ADMINISTRATIVE: Paper Topic Presentations Next Friday. Prepare a 2–3 minute presentation
and a one-page summary.

TODAY IN MACROECONOMICS
NYT: Could Wages and Prices Spiral Upward in America?
 More open positions than unemployed job seekers
 Concern: People have moved onto other, higher-skilled, pandemic-proof jobs, and
there’s a shortage of workers/the supply of workers has shrunk
 Current unemployment is low, but it has been lower without a lot of inflationary
pressure.
 LF participation still lower than pre-pandemic levels
 Last 10 years, rapid increase in hiring of women in higher-level jobs; at the same time,
pandemic decreased LF participation of women
 Could adults be returning to school?
 What do we do about a wage-price spiral? What can the fed do in a supply-shock driven
inflationary event?
o There isn’t much to do from the supply side, but wage growth-driven inflation
could still be a problem; given that unemployment is low, the Fed might not care
about unemployment/slowing the economy as much right now.
o 164 million in the labor force. If we slowed GDP by 2% less than it would be,
that’s a lot of jobs lost.
o The Fed doesn’t have much to do with the supply side, and slowing spending
wouldn’t necessarily help. We should do it with fiscal policy.
 Lower taxes on businesses, subsidize wages? What would that do? Would
they just skirt whatever the policy asks for and drive shareholder
revenues?
 Encourage businesses to hire more workers through more loans? Close
more loopholes? Apply it to small and/or big business?
o Lower payroll taxes so workers retain more wages?
 If we’re really concerned about a negative supply shock, we need to question whether
lowering demand is a rational decision.

INTERNATIONAL TRADE
Do Trade Deficits Matter?
 Prof. likes trade deficits—we’re getting sent more stuff than we’re sending them
o Exploitative of poorer economies? Is this good for the global economy?
o Now that China’s a serious economic powerhouse, should we be concerned about
taking more from them?
 There’s still pride in producing “the best in the world”—German watches, American cars
(not anymore lol). People like being producers.
o Also, when we run a deficit, countries are investing in our bonds and betting on
the long-term health of the economy.
 Large amounts of trade and a globalized economy vs. continual trade deficits
 o Short run: sure, there are winners and losers, and the greater the growth of
international trade, the speedier these changes and the better our policies have to
be to help the losers
o Long run: concerns over stability, but why do we care about the trade deficit?
 When people see unemployment and a trade deficit, causes political problems in the
home country
 Colonialist aspect: if we’re doing resource extraction in poorer countries, that’s probably
bad for the world and the exporting country; if we’re shipping manufacturing jobs
overseas, that’s probably better for the world and exporting country (because it helps
grow the economy and the earnings of the population)
o It wouldn’t make sense to have manufacturing in a Central American country, it
wouldn’t make sense to grow bananas in Russia; self-sufficiency is impossible,
and reliance on other countries is necessary.
o Resource curse: bad economies, no growth, no human capital investment,
unstable politics vs. stable integrated economy
 We’ve also started to ship service jobs overseas, too
Be skeptical of trade gap statements. On face value, trade is good, and getting imps>exps is
better, unless the bills hit at an inappropriate time.
i.e., as long as the countries don’t try to cash the money (bonds) in.
China and Japan like the status quo based on exchange rates
If they cashed in, our ability to consume would drop.