Nordhaus Opportunistic Model Essay Example

Nordhaus Opportunistic Model Essay Example Nordhaus Opportunistic Model Essay Nordhaus Opportunistic Model Essay The overall conclusion of Nordhaus analysis is that governments manipulate the economy to increase their electoral results, and be re-elected. This means that inflation may be changed to non-optimal positions to gain public support, and adjust unemployment to more popular levels. In the case of this model the problem created by dynamic inconsistency (namely unnecessarily increased inflation) is exacerbated as the incumbent party manipulates the economy in order to stay in office. Despite the promise of this model it has been shown in empirical studies that its usefulness is limited Rogoff and Siberts model centres on the analysis of political budget cycles, with similar assumptions to that of the previous Nordhaus model. Their models shows that there is a separating equilibrium, with the incumbent choosing a positive seigniorage. This leads to all policy makers apart from those who are incompetent to distort pre election fiscal policies so that their level of competence is shown. This leads to the pre election level of tax being below the efficient level and inflation greater than optimal. Therefore, this opportunistic model, like the Nordhaus opportunistic model, predicts that electoral cycles will lead to inflation rising, exacerbating the dynamic inconsistency problem (assuming that politicians objective is to be re-elected). When the first partisan (ideological) models by Hibbs is examined it can be seen that similar to the model by Rogoff and Sibert it is more of a conceptual tool rather then a full theoretical analysis. This model assumes that economies are characterised by expectation augmented Philips curves, inflation expectation is adaptive, politicians are not identical, there are two candidates in every election, different voters have different preferences for inflation and unemployment levels, policy makers choose instruments deterministically related to aggregate demand, and the timing of elections of exogenously fixed. Diagrammatically the ideological differences in policy of right and left wing parties can be shown as below: Hibbs Partisan Ideological Model Alesinas model uses the same assumptions as the traditional partisan model (by Hibbs) expect that Alesina assumes that inflation expectations are rational. The result of these believes are that there is an incentive to increase growth greater than the natural level of employment (or output). This leads to distortions of the labour market. For example if a labour tax is reduced then economic activity will be greater than the understated full employment and real wages will rise. The premise of the Alesina partisan model can be seen below: Alesina Partisan Model The model shows that electoral cycles will exacerbate the problems cause by dynamic inconsistency. Empirical evidence supports the temporary partisan effects on production and employment4, implying that the partisan models are appropriate for such analysis. Overall it can be seen that whether opportunistic or ideological in manner, political business cycle theory (in reference to electoral cycles) exacerbates the problems of higher inflation than could be attainable. This is due to parties and politicians artificially (and temporarily) inflating the economy to benefit from re-election for selfish power maximising reasons, or to implement ideological policies.

Todd Economics and Wall Street Journal Essay

Todd Economics and Wall Street Journal Essay Todd: Economics and Wall Street Journal Essay Economist’s Jargon: Unite and Divide By Con Scientious The economics profession’s jargon serves a variety of purposes. For example, their common terminology serves to make for more precise communication. It allows ideas to be communicated clearly and exactly. This exactness and clarity of terminology serves society by allowing economists to discuss economics with each other and with society with clarity so that other economists have a better understanding of what an economist is saying. A common terminology also serves to divide insiders from outsiders. For outsiders, for example economic students, who do not have a clue what these terms mean, economists’ terminology is exclusionary. It makes economists the gatekeepers of economic ideas. Economists’ terminology serves as a barrier to entry, restricting the supply of economists, and increasing the value of the services provided by existing economists. Which of these two reasons is the strongest? To answer that question let us consider two examples given by Amanda Bennett, the author of The Wall Street Journal article, â€Å"Economists + Meeting = A Zillion Causes and Effects† [The Wall Street Journal, January 10, 1995]. The two examples are the concepts of externality and utility, Why do economists use these terms? Based on her article, and on my classroom experience, I would judge that, of the two reasons, the self-serving reason is the stronger. Essentially, economists create their terminology primarily to make life difficult for students. Consider the first example: externality. Why no simple call externalities â€Å"unintended side effects†? It would be much easier for students to comprehend. Or alternatively, consider the second, utilities. How much clarity can the concept, utility, provide when the text tells us that, essentially, it means happiness? If it means happiness, why not use the term, happiness? The very fact that Ms. Bennett can provide a simple translation of economists’ jargon suggests that the jargon was unneeded for precise communication. And even, if there is some value added in terms of clarity of the jargon, do its costs in additional memorization for students, outweighs the gain. For me, the answer is clearly, no. Actually, to answer anything other than economists are self-serving would show that I have not done my homework. Economists’ basic premise is that people are self-serving. Why should economists be any different. With a difficult to learn economic terminology, economists can create a monopoly position for themselves; they can restrict supply and increase price for their services. To quote the textbook, â€Å"people do what they do because it’s in their self interest.† Thus, the preponderance of the evidence suggests that economists have developed their economic jargon with their self-interest, not society’s interest, in mind. Essay 2 I think the self serving reason why professions develop a separate terminology that only members can follow is more important because people are greedy and always want what is good for them, not what is good for society because of the problems of the barriers to entry and the free rider and thus, the self serving reason is more important. On the other hand, it is good for society if professions develop a separate terminology that only members can follow because then everyone can understand them, and they can understand each other. A common terminology permits effective interpersonal communication, thereby resulting in clear, complete, open dialogue. So in a way, the society-serving causes of professionals’ terminology outweigh the self-serving causes because if we didn’t have it, then we wouldn’t be able to understand the weighty and eloquent locutions spoken by the eminent economists of yesteryear and today. For these reasons, I think that sometimes the society-serving reason is the most important. This the intellectual importance of the self-serving reason which is also the most important sometimes. The whole theory

Insights Essay Example | Topics and Well Written Essays - 250 words

Insights - Essay Example India for instance has not passed through the process of industrialization but has jumped into the post modern period unlike the developed nations who have their foundations in place. In order to hold back from the dangers of sudden breakdown, it is important for these nations to insulate themselves properly against the impact of economic downfalls in US which might trickle down to the regions enjoying so far the benefits of outsourcing. The countries like India and China need to develop a strong base of R&D in order to be self sufficient in technology instead of having to borrow the knowledge and tools from abroad. The economies need more inventions and innovations in this field in order to preserve originality. This will help the economies to gain more confidence in them because in a flat world sustainability is also an important concern to be addressed. One major problem which often arises is the fact that owing to the difference in exchange rate. Any invention requiring a patent is more likely to be shelled out to a multinational firm which will buy it expensively rather than an India firm. With globalization being so effective over the last decade and the common playing field enabled by triple convergence, Indians are more likely to sell their inventions to a multinational firm especially if it is something related to IT which might help business operations perform more efficiently.