The Glass is Still half Full

While searching the net for blog subjects I found a site called Dr. T’s EconLinks.com
I have to admit I was a little disappointed not to find Dr. Tufte’s smiling face and perfect hair. The are some great links however most of which are available at the class blog site. The Capital Spectator has a vast amount of writings dealing with the current topics we are discussing in class. I’d like to weigh in on GEORGE IS FALLING, AND HE CAN'T GET UP With the interest rate hike the author has a somewhat gloomy attitude for the future of the U.S. economy. The value of the dollar is slipping which in turn will mean higher prices are on the way for the consumer. Translation, inflation. The author sites “The mounting federal budget deficit combined with the sharp increase in consumer debt implies burdensome days ahead for the greenback. Servicing the growing pile of American red ink will only become more difficult as interest rates rise”.
I have been around through numerous hikes and drops in the federal deficit and my view is that nothing as far as inflation or recession really changes because of it. Debt is never good. At times it is necessary to bridge cycles of prosperity and leanness. I believe we are in leaner times than normal despite the growth we have seen. Americans are still a little leery about engaging in an all out spending binge since the U.S. economy has yet to really be soundly strong on its feet.
There’s also another note from the author “The U.S. trade deficit has hit record highs in each of the first 4 months of the year while net foreign inflows have persistently slowed during the same period." With U.S. manufacturing churning out less and consumers buying more foreign goods isn’t this a given?
After what we’ve discussed and studied these last few days I’ve come to the conclusion that this cycle, like the cycles of the past will be but a memory. I’ll choose to view the glass as half full.


C-Dizzle said...

What an optimist! Hey, I’m there with you Rolf. We learned in class that inflation will happen and the U.S. economy will go into recession from time to time and that there’s not much we can do but prepare personally.

I think the biggest thing that catches my eye is the comment about consumer debt being a problem. If people would stop trying to live outside of their means, I’m confident small recessions in the economy wouldn’t be such a big deal. So what if there’s inflation if you have real money in the bank to spend rather than a credit card with higher interest rate as predicted by the author of “George is falling and he can’t get up”.

Kid said...

What makes this time around any different then the others? Hasn’t there always been inflation and recessions? Why yes there has, as I’ve recently learned in macro. I agree with Rolf that debt is never a good thing. Instead of living off a credit card maybe we as a country should learn that we don’t need to “keep up with the Jones.” We should spend our money a little wiser. Our economy would be better off if more people lived within their means and didn’t have to claim bankruptcy. I’ve always been taught that if you don’t have the money to buy it you must not need it. Maybe there is something to this concept!

Dr. Tufte said...

I think the post and comments are essentially correct here.

Yes, interest rates are going up. But this will help some sectors of the economy and hurt others. Typically, what is important is the unexpected behavior of interest rates - and our current modest rise was expected. Also, it is nominal interest rates that have risen. If anything, the recent spurt in inflation makes me think that real interest rates may be dropping.

Yes, we do have a big deficit. But the message of the last 30 years is that the magnitude of this number isn't very important macroeconomically.

Yes, we do have a lot of personal debt, and this probably isn't a good thing. Is it going to sink the economy? I doubt it.

Anyone who is too focused on these issues is missing the big story: huge growth in American productivity over the last 10 years.