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Krugman Notes - Krugman Notes Introduction-American outlook...

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Krugman Notes Introduction -American outlook on the economic future is not as bright as the previous generation. -Above all, jobs are still open for people, even during the 1990 slump unemployment was never greater than 7.7%. -Typical American families make the same that American workers made 20 years ago. -Inflation declined after 1980. -Unemployment stayed low after 1982. -Real income of families=stagnant. -More people in poverty in 1990s than in 1970s. I: The Roots of Economic Welfare A-Introduction -The economy is affected by large and important things that need to be filled such as productivity, income distribution and unemployment. -If the economy has all of its important things filled then it will go without problems, if it’s not filled then it will falter. -Other issues such as the state of financial markets or budget deficits only have an indirect affect on a nations well-being and not on an economy. Example: The inflation in the US does little or no harm, but it does indirectly harm production growth. -Two out of the three important issues have been neglected in the US economy and there is no movement to fix it. B-Productivity Growth -A country’s ability to improve its standard of living is dependent on its need to raise its output per worker. -WWII Veterans came back and doubled productivity in the next 25 years, doing what their parents could not. Vietnam veterans came back and productivity was 10% less in 15 years and they lived the same or worst than their parents. -87% of the things consumed in the US were domestically made in 1996. -Productivity and living standards are related. -Three ways to increase consumption per capita: I) Increase productivity; each worker must produce more. (Only viable solution) II) Put a bigger percentage of the population to work. (Works if social change or unemployment is present, but even so has limitations and is short term.) III) Use less output in investment to produce more and use it to for immediate consumption. (Not efficient on long term) -Consumption & productivity per capita in the US is 4x what it was at the turn of the century. -If there is more imports coming in than exports going out, then consumption will rise.
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-This then adds two more methods per consumption capita can grow: IV) Import more than what we export, and borrow/sell to pay for the imports. (Short term) V) Receive better prices for exports in order to pay for imports. (Hard to persuade foreigners.) -Real solution is to increase quality in products which is a form of an increase in productivity. -In conclusion the long-term growth in living standards is dependent on productivity. -Stagnant growth in productivity has kept family incomes down. Productivity and competitiveness -Productivity is not important when competing with other countries.
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