Brief Review of Lecture 1 on the Global Economy

-- US, EU, Japan, and China are about 54% of the global economy

-- Global economy is slowing down due to slow growth in the EU, reduced growth among emerging markets, lackluster performance by China, slow growth from the US. World growth 3.5% for 2015 (IMF).

-- Considerable apprehension over possible global recession, controversy over how to combat headwinds. Important to raise productivity. Productivity growth is slow now.

-- Two groups

(i) activists who favor greater stimulus and less emphasis on budget control, easy money, tight regulations on financial institutions, greater government control over markets

(ii) fiscal conservatives who favor less stimulus and regulation, smaller government and rules-based policies.

-- IMF seems to be turning away from austerity as a policy prescription and more towards discretionary economic policy, not rules.

-- Recently some scholars have stated that too much debt (Debt/GDP > 0.90) can begin to reduce growth substantially and can lead to a financial crisis.

Short Run – Long Run Dilemma (Stimulus vs. Austerity)

Where do we place our worry and policy thinking?

-- Still another set of scholars have argued that overall economic development depends crucially on a political system that delivers either inclusive (good) economic institutions or exclusive (bad) economic institutions.

Political Economic Dilemma (Inclusive vs. Exclusive Institutions)

Can a country destroy itself trying to be more inclusive ?

Brief Review of Lecture 2 on the US Economy

-- US needs to grow at 2.5% to lower unemployment significantly-- slow growth since 2010 -- even faster growth need to return to potential output (4.0%)-- unemployment has improved substantially about 5.5%, but many people leaving the labor force, baby boomers retiring-- long term unemployment (U6) still very high but falling-- inflation is below Fed target of 2%, but data is contaminated by jumps -- many uncertainties continuing to plague US economy including a. Debt ceiling negotiations in the near future b. Implementation of Obamacare c. Depletion of two Social Security funds and Medicare fund d. Strong regulations on use of coal and oil e. Implementation of Dodd-Frank financial act f. Lack of comprehensive immigration legislation g. Raising short term interest rates h. US housing market tenuously returning to normalcy-- Income and wealth inequality in US rising mainly due to lower interest rates, rising stock and bond prices, and concentration of ownership of assets in institutional hands

When you have wages or self-employment income covered by Social Security, you pay Social Security taxes each year up to a maximum amount set by law. For 2013, you will pay Social Security taxes on income below $118,500. You must pay Medicare taxes on all income. Update

Also, beginning in 2013 you must pay 0.9 percent more in Medicare taxes on earned individual income of more than $200,000 ($250,000 for married couples filing jointly). The tax rates shown below do not include the 0.9 percent:

Employees — the Social Security tax rate is 6.2 percent on income under $118,500 for 2015. The Medicare tax rate is 1.45 percent of all income;

Employers — the Social Security tax rate is 6.2 percent. The Medicare tax rate is 1.45 percent; and

Self-employed —the Social Security tax rate is 12.4 percent on income under $118,500 in 2015. The Medicare tax rate is 2.9 percent.

The Development of the Global Economy

Problems with the EU Economy

Lecture #3

How is the Eurozone Doing on Growth, Jobs, and Inflation ?

Eurozone continuing to struggle to escape recession threat. Growth

remains low at 1.6% at best

Growth 0.4% QoQ for 2015 Q1

Average or Natural Growth is about 1.5% for the Euro Zone

Eurozone needs stronger growth 2.5% - 3.0 % to resolutely reduce unemployment.

What is holding the EU back from strong economic growth and low unemployment?

Source: IMF

Source: Markit Economics

Short video by the IMF on the Eurozone Economy

What About Eurozone Unemployment?

Eurozone Long Term Unemployment Rate Drops Below 6%even as Overall Unemployment is Falling to 11.1% in May 2015

Eurozone Youth Unemployment Still HIgh but Falling to 22%

No Core Deflation in the Eurozone But There Certainly has been Disinflation

The Economist had a Good Roundtable on Eurozone Inflation 2014

(1)Guillermo Calvo

(2)Demosthenes Tambakis

(3)Andrea Ferrero

(4)Paul De Grauwe

How about the Eurozone Debt Problem ?