4) What great debate is taking place in Europe and the United States regarding the impact of budget-cutting fiscal policy? What type of fiscal policies did the conservative government in Britain and the countries of the euro-zone pursue? How did it work? Explain. What was the fiscal policy adopted by the Obama Administration in the U.S.? How did the U.S. economy perform relative to Europe? What are the lessons from what happened in Europe and the U.S.? Explain.

The debate taking place in Europe and the United states regarding the impact of budget-cutting fiscal policy is whether the best way to recover the economy is through fiscal tightening of the government budget or if the aggressive budget-cutting tactics harm fragile economies. Britain and other countries in the European Union employed fiscal policies of austerity by increasing taxes and cutting budget. They have not had a good effect, with their economy recovering much slower than that of the U.S., which did not implement the same austerity measures. In the U.S., the Obama administration adopted a fiscal policy which was much more gradual and less aggressive than those applied in the European Union countries. The U.S. did much better than those countries in Europe, leading many economists to believe that the austerity measures implemented in the European Union are not an efficient or effective measure to combat the recession.  However, some people say that this is not proof that these measures don’t work, but that they were just implemented wrong such as tax increases instead of government budget cuts.

2) What do the moralizers say is the answer to our debt problems? Explain. What is wrong with their analysis that states that debtors must tighten their belts? How can debt problems create employment problems? What is a practical way out of debt induced employment problems? Explain. Which side is winning the political debate over debt? Explain.

Moralizers say the answer to our debt problems is “belt tightening” by the government, people living within their means, and people paying off their own debts. The problem with debtors tightening their belts is that if they are not spending, there is no one to replace that spending, and the economy will remain in a slump. If no one spends more, the overall income falls, depressing the economy and keeping unemployment high.  By refusing to support debt relief, they are keeping unemployment high. A practical way out of debt induced employment problems is for the government to spend when the private sector refuses to, to raise overall income and raise employment. Also, there needs to be debt relief implemented so that those in debt can pay back their debts in a way that is manageable and time-efficient to eliminate the debt overhang. The side calling for belt tightening measures is winning the political debate because most people are unaware of the real issues and causes, and what needs to be done. Most people do not understand very much about economics, so when politicians sell them an idea and it sounds good, they accept it at face value instead of questioning why it might not be the best measure.

Extra Credit Question #7

7.)  The nature of the debate within the republican party is how to bypass the reality of the fact that the public doesn't want what they want: low taxes on the wealthy, and less social insurance programs. The public by and large favors higher taxes on the wealthy and lower taxes for the middle class and poor. 

     The divide lies in how, then, to achieve their own agenda. Some believe in trying to twist President Obama's arm by refusing to raise the debt ceiling unless he implements the Republican Agenda, while others favor a more subtle approach of putting forth a fiscal agenda and hoping that the general public won't notice or understand the finer details of it. 

Extra Credit Question 1

1. Paul Ryan's views on monetary policy are based largely on Ayn Rand's views, and his main concern is about inflation, with a disregard to the concern of employment. He believes the federal reserve should focus more on inflation and if he had his way, he would have the federal reserve completely abandon attempts to ameliorate unemployment rates and solely focus on inflation. 

His views include other things such as linking the value of the dollar to a "basket of commodities" in order to stabilize the dollar. Ironically, this would do the opposite and in fact destabilize the dollar completely. Next, he believes that interest rates should be raised as a solution to the recession. This wouldn't work because while it would fix a supply problem, there is no supply problem within the US. The problem is one of demand, which would not be solved by this, but in fact the problem would be exacerbated. 

Ryan's ideas for fiscal policy relies mostly on pleasing a wide demographic, but not on actually implementing any effective ideas. His policies do not make any sense when closely analyzed and would not yield nearly as large of profit margins as he suggests. 

Ryan's macroeconomics, as the article states, seem nonsensical and illogical. They seem ungrounded in fact, and seem to be intended only as policies for show and tell, and not for any actual implementation. While they sound good in theory to the voters he was trying to appeal to, in actuality they fail to hold any factual basis and fall apart upon examination.