Article - Making the Most of Our Financial Winter (Oct 16)

This time of high unemployment in America can be referred to a 'Financial Winter.' Article in New York Times compares the 'Financial Winter' to a winter on a traditional farm. During the winter when there is no need for planting, fertilizing or harvesting, it is time for infrastructure projects such as fixing the barns, building fences or digging wells - important tasks that could have been done in any season if there weren't other jobs that needed to be done. Even if the winter is unusually long, people do not usually sit around and do nothing. They use their time  to get the important things done. The farm doesn't usually go to debt while undertaking these additional infrastructure projects because all the people on the farm are expected to contribute to these projects with their labor which is viewed as an informal tax. Later on everyone on the farm enjoys the benefits of all that work and the farm is economically growing. 
The 'American Jobs Act', proposed by President Obama but blocked by the Senate last week, would do the same thing for U.S. during the current 'Financial Winter.' The plan proposes undertaking various infrastructure projects such as school modernization, airport and highway improvements - modern equivalents to fixing the barn and building a fence on the farm as already mentioned. And these projects would be made possible by taxes. As Mr. Obama said in his speech last month: “Everything in this bill will be paid for. Everything.” The bill would start public improvement projects in 2012, and raise taxes, in the form of a 5.6 percent additional surtax on millionaires, in 2013. Therefore the infrastructure development projects suggested in President Obama's proposal would have been fully paid for by the tax surcharge so the national debt would not be raised temporarily. This plan of spending money on infrastructure projects to create jobs for unemployed has also been proven successful in the times of Great Depression in 1930s. A revolution in economic thinking, led by John Maynard Keynes, enabled us to think of the economy as "something that can spontaneously fail, that the government can stimulate to get going again and make everyone better off." This government stimulus has also been proven by other economist. For example, Walter S. Salant and Paul A. Samuelson realized that during a depression or in near-depression conditions, any government expenditure fully funded by taxes will increase national income approximately one for one, without raising national debt. This is known as the balanced-budget multiplier. 

From this article I learned a lot about how the 'Financial Winter' works and how can it be possibly used for the country's own benefit. I learned that the time of economy crisis, people should not just wait and do nothing. Government should spend this time by working on infrastructure projects which will also bring jobs for the unemployed people in the country. I also learned that these projects do not necessarily have to cause raise of the national debt. In this particular example, the projects can be paid by the increased tax on millionaires. The example of a farm really helped me to imagine this situation better and it contributed to my overall understanding of this topic. 
This topic does not really relate to the topics that we have studied in the class so far. However, I still learned a lot from this article and maybe some time in the future I would be able to relate this topic to something that we will be studying in class.

Article - Rising prices of peanut butter (Oct 9)

CNN Money article suggests "Get your peanut butter -- before prices soar" ! After one of the worst peanut harvest seasons, price of peanuts is going to noticeably go up. The intense heat and drought that hit the southern U.S. this year cause that U.S. peanut production will only hit 3.6 billion pounds which is 13% less than last year according to Department of Agriculture Report released this week. Since there is less peanuts harvested the price is going to rise to $1200 per ton on peanuts. That's a huge jump from last year when it was only $450 per ton of peanuts. The rising prices of peanuts are also going to affect the companies that are making peanut butter. For example, Kraft will raise prices for its Planters brand peanut butter by 40% starting October 31. Another well-known company that makes peanut butter, ConAgra, expects to increase the price of its Peter Pan brand by more than 20%. Other companies are planning to increase the price of their peanut butters too. Even though the prices of peanut butter are going to dramatically rise, Marion Nestle, a nutrition professor at New York University, says that "a shift in peanut butter consumption shouldn't make a huge difference to the nutritional quality of most Americans' diets." She also says that "for the average person in America it would be a good idea to eat less of almost everything."

One of the things I learned from this article is to what extent can the price of resources affect the price of goods. Here we can see that now as the price of peanuts rose, the price of peanut butter is going to rise too. Moreover, I was really impressed that a slight rise of peanut price can cause that peanut butter is going to be nearly twice as expensive. Of course I knew that the price of peanut butter is going to go up but I would never think that it's going to rise to that huge extent.I also learnt that laws of supply work in real life too.

This topic closely relates to law of supply that we are now studying in class. The law of supply says that as the price increases the quantity supplied increases and as the price decreases the quantity demanded decreases too. It is also true that as the cost of resources changes there is going to be a shift to either right or left; to the right when the cost of resources decreases an to the left when it increases. This particular example of peanuts perfectly shows a shift to the left because the price of peanuts, the material used in peanut butter, rose so the price of peanut butter rises too. It also shows that peanuts and peanut butter have a positive relationship and as price of peanuts  increases the price of peanut butter increases too and as price of peanuts decreases the price of peanut butter decreases too.