Instability of economic development. Conditions and factors determining the instability of economic development
5.4 Economic instability.
The market economy has a certain instability, instability economic development. However, this instability is not an evil that inevitably leads to catastrophe and the collapse of the economic system. With phenomena economic instability should be considered and taken into account in the economic policy of the state.
The task of economic policy is to achieve the stabilization of the functioning and development of the economy, thus providing a sound basis for social and political stability.
Among the many forms of economic instability, the most significant are:
- cyclical fluctuations in the level of GDP, investment, consumption, employment;
unemployment;
inflation.
Economic development in a market economy implies a successive change in periods of growth in production, the level of GDP, employment, periods of their decline.
The regularity of these successive alternations of ups and downs gives economic development a cyclical character.
Business cycles are periodic fluctuations in the level of economic activity in a society.
The first economic crisis, from which recurring crises are counted, was recorded in England in 1825. Then the crisis began in other countries, repeating every 8-12 years. In 1873, the economic crisis began simultaneously in a number of countries around the world. It was the first world economic crisis in the history of cycles.
In economic theory, there are:
- long-wave cycles (Kondratiev cycles) with a period of 50 years, which are associated with the change of generations of equipment and technology;
average (industrial) cycles with a period of 8-12 years, which are associated with the deviation of demand from supply; their length is determined by the period necessary for the mass renewal of fixed assets;
It should be noted that all these types of cycles are superimposed on one another.
We will consider and characterize the main phases of the average (industrial) cycle.
Phases of the middle (industrial) cycle
A cycle is a period of time during which the following phases change in succession: recession, depression, recovery and recovery.
Decline - starts from the peak of the previous cycle and continues to the lowest point of the cycle.
This phase is characterized by a sharp decline in business activity. Firms suddenly find that they have overestimated the projected demand for their products and are unable to sell the goods produced at the previous prices.
In order to sell the resulting surplus, they are forced to reduce the prices of their products. Firms suffer huge losses, they are not able to return the loans taken and pay interest on them. A wave of bankruptcies begins and spreads throughout the economy. Unable to sell already manufactured products, enterprises reduce production volumes. Of course, there is no longer any talk of expanding production, and, as a result, enterprises are reducing their investment in production, and the demand for equipment is falling.
The decline in production causes a wave of layoffs of workers, unemployment is growing. People's incomes are falling. Due to the decline in income, and also because of the desire of people to put aside part of these incomes “for a rainy day”, the population’s spending on consumer goods is falling, which means that the demand for consumer goods and services is decreasing.
The standard of living of the employed is declining. Panic and general pessimism reign in society. We note in particular that during this period, interest rates on loans are growing: firms tend to re-borrow money in order to avoid bankruptcy, there is a general pursuit of money, demand for free cash is growing. In addition, banks themselves seek to set higher rates, as there is a high risk of non-repayment of loans issued by them.
Perhaps the most severe was the recession of 1929 - 1933, which went down in history under the name "Great Depression", then the United States, according to economists, was thrown back by 146 years, national income decreased by almost 2 times, per capita income decreased by 30%, the unemployment rate reached 25%.
Depression: Having reached a low point, the economy remains in this state for a while.
The decline in production has practically stopped, and production and employment are at their lowest levels. Enterprises avoid long-term investments, the population does not make expensive purchases. Everyone is in a state of uncertainty, afraid to start new business.
However, commodity stocks are gradually dissolving, the fall in consumer and investment demand stops, and commodity prices stabilize. Since the demand for money has now fallen sharply, there is a decrease in interest rates on loans to the lowest level.
And the business world is slowly starting to come to life: enterprises that have managed to survive the crisis are beginning to upgrade equipment, acquiring more modern technology (fortunately, loans are now more available), introducing new technologies, and taking measures to improve production efficiency. Their goal is to reduce costs in order to make a profit in the conditions of low prices for products.
As a rule, without the participation of the state, the way out of the state of depression proceeds very slowly, but, having reached the bottom, production gradually begins to gain momentum and the depression is replaced by a revival.
Recovery - begins at the lowest point of the depression and ends when the economy reaches the pre-crisis peak.
The beginning of economic activity revitalization creates an expectation of an increase in the level of current income. This is manifested in a gradual increase in consumer demand. In response, production begins to increase, primarily due to the involvement of free capacities, employment grows and, as a result, incomes (profit, wages) grow.
Incomes are rising both nominal and real. People have the opportunity to purchase the goods they need. As a result, there further growth demand. At some point, it becomes clear that it is no longer possible to expand production without large-scale investments, and their rapid growth begins. Enterprises have all the conditions for the growth of investments: there is an opportunity to expand production at the expense of relatively inexpensive loans and there is a motive - profit growth. Investment demand is growing and at the same time there is an expansion in the production of almost all goods and services.
The expansion of production contributes to the emergence of new jobs, an increase in demand for labor and, accordingly, an increase in employment. The well-being of people is growing, in society pessimistic moods are replaced by optimistic ones.
Economists note that at this stage, demand growth outstrips supply growth and, as a result, aggregate demand exceeds aggregate supply.
It should be noted that, since there is an increase in demand for all types of resources, including monetary resources, then simple interest rates begin.
Rise: comes after the revival phase and continues until its peak.
At this stage, the “trot goes into a gallop”, there is an acceleration of economic development, which is manifested in the fact that new goods, new enterprises appear, investments grow, interest rates, prices, wages, and employment grow. Part of the demand begins to be speculative: many people have a desire to purchase goods in order to resell them profitably, since prices for most goods are rising. Large loans are taken for these purchases, i.e., demand is partially supported by loans. When approaching the peak - the highest point of recovery, the economy overheats. Credits become more and more expensive, inventories grow, and inevitably there comes a moment when the whole system collapses like a house of cards, and the economy again finds itself in a state of deep crisis.
In the vast majority of cases, each subsequent “peak” turns out to be higher in level than the previous one, which reflects the overall growth of the economy, its progressive development
Economists attribute the sharp transition from rise to decline to the fact that production growth is purposefully and systematically organized by producers, and demand is spontaneously formed in the market by buyers and depends on many random factors. And since demand can easily fall, this is exactly what happens during a recession: aggregate supply is more aggregate demand.
Of course, the crisis for the country's economy is a big test, it brings many negative aspects, but we note the positive side of the economic crisis, which is the recovery of the economy. According to the principle of natural selection, inefficient enterprises with a high level of costs go bankrupt during a recession. The "surviving" enterprises carry out innovations that lead to increased efficiency, and in the future to an increase in production. Old technologies are being replaced by new ones.
At present, recessions in developed market economies have become less deep (up to 2% of GDP) and shorter (6-12 months). There is a clear violation of the classical cycle, the phases of the cycle have become more blurred, some phases completely drop out. Now, in the recession phase, there is no decrease in prices, on the contrary, there is an increase in prices. This phenomenon is called stagflation.
Stagflation is a simultaneous increase in inflation and a decline in production, accompanied by an increase in unemployment.
The emergence of stagflation is explained by the fact that the state has a monopoly on the issue of money. The importance of production monopolies has increased, which prefer not to lower prices, but to reduce the volume of production; trade unions have appeared on the labor market that do not allow wage cuts.
Reasons for business cycles
There is no consensus among economists about the causes of this complex phenomenon. Each economic school explains in its own way the nature of economic cycles.
Some economists argue that cycles are related to the influence of external factors. They name such factors as major discoveries in science and advances in technology, natural disasters (droughts, floods), wars, revolutions and other political upheavals, population fluctuations, etc. There is a theory that explains cycles by changing the ratio of pessimistic and optimistic moods in society . There is even a theory that links the dynamics of the economic cycle with changes in the configuration of sunspots.
Other economists believe that the explanation of the cycle lies in the internal processes occurring in the economy, and external factors are of secondary importance. They believe that crises occur because there are contradictions between a rigid organization of production and an unregulated market, that the spontaneous development of the market leads to market imbalances, and this in turn leads to sectoral imbalances. That the crisis can also be caused by failures in the monetary sphere and errors in the state budget policy.
However, almost all economists agree that:
- fluctuations in the level of economic activity is a consequence of the deviation of the economy from the equilibrium state;
- investments in real capital, primarily in machinery and equipment, are of decisive importance in the movement of the cycle;
- the state can actively influence the mechanism of the cycle, using methods budget policy, i.e. by regulating their income and expenses, as well as the methods of monetary policy, i.e. by regulating interest rates and the money supply.
In order to regulate the economy, the state conducts targeted economic
5.2 Government policy to stabilize the economy
The main goal of the socio-economic policy of the state is to ensure economic and social stability and promote the economic development of the country. This general goal can be fleshed out into the following goals:
- economic growth (allows for a higher standard of living);
full employment (provides the population with income and saves society from losses associated with underutilization of labor resources);
economic efficiency (use of resources with maximum return for society);
economic freedom (providing freedom of choice, freedom of entrepreneurship, etc. within the framework of the law);
growth in the well-being of citizens (all citizens should be given the opportunity to lead a life worthy of a person);
price stability;
ensuring strong positions in relations with other countries.
To achieve these goals, the state applies the following methods of influencing the economy.
1) Administrative methods are based on the power of state power and include measures of prohibition, permission and coercion. The fact is that the state has special rights that other actors in the economy do not have, first of all, this is the right of coercion. The state has the right, for example, to force you to pay taxes, and if you refuse, it can deprive you of your property and even put you in jail. To control compliance with the rules established by the state, it creates special bodies, for example, the tax police. Administrative methods are methods of direct impact on economic entities.
In countries with developed market economies, these methods are used by the state mainly to ensure environmental protection (for example, a ban on the emission of harmful substances); guarantees of minimum acceptable living conditions for the poor (for example, the introduction of a minimum wage), as well as to combat shadow business (for example, the requirement to provide information about income in the event of the acquisition of real estate), etc.
2) Economic methods are associated with the creation of additional material incentives or possible financial penalties, for example, in the form of fines, and are methods of indirect influence on economic entities. Economic methods are divided into methods of monetary regulation and methods of budgetary regulation.
When we are talking on the provision of soft loans to manufacturers of products that you
are given at a low interest rate (loan fee) and for long periods, or when the state changes the amount of money in the economy using the methods available to it, this means that the state resorts to monetary policy measures.
Monetary policy is a set of measures in the field monetary circulation and credit aimed at regulating the economy.
When the state uses budget funds to regulate the economy, for example, reduces taxes for individual producers or introduces subsidies for the production of especially important products, then these are already measures of budget policy.
Budget policy is a set of measures to change the volume of budget revenues and expenditures in order to regulate the economy.
3) Another comprehensive instrument of state regulation is the state
etc.................
On February 15, the HSE hosted a master class “What the global economic crisis means for Russia”, which was held by the head of the Permanent Mission of the International Monetary Fund in Russia, Mr. Odd Per Brekk.
The chief representative of the IMF in the Russian Federation devoted his master class to the peculiarities of the pre-crisis development of the Russian economy and how they influenced the current situation in the country. He began his speech by identifying the main problem of the Russian economy, which turned out to be not a raw material orientation, as the students previously interviewed in the audience assumed, but instability. Moreover, according to Brekk, the Russian economy entered a period of instability long before the 2008 crisis itself.
Thus, dependence on raw materials, a primitive structure of exports, and high inflation are just prerequisites that allow us to talk about the most important problem - instability. Even in times of storm economic growth the last decade, which averaged 5% per year, the volatility of this growth was quite high. It is clear that it largely repeated the behavior of oil prices and international conjuncture. The bad thing is that it introduced an element of instability into the entire system, and this affected investments.
Over the past 10 years, the average annual investment in Russia has been about 20% of GDP, which is almost two times less than in China, and one and a half times less than in India - also the BRIC countries. With high volatility in oil prices and double-digit inflation, investors do not want to take risks and invest a lot of money in the country, said Odd Per Brekk.
The economic policy of the state also contributed its share of instability even in the so-called fat years. In particular, if we turn to fiscal policy and look at the dynamics of increasing government spending and increasing the budget, we can conclude that fiscal policy was and still is pro-cyclical. At the same time, economic theory teaches that fiscal policy is one of the main tools for smoothing fluctuations, the IMF representative noted.
From 2002 to 2007, when oil prices were very high and the Russian economy needed no stimulus, government spending also grew, additionally heating up the economy. During the crisis, when the Russian GDP began to fall, the authorities, fearing budget deficit, severely cut spending, depriving the economy of assistance. This is a typical example of an ineffective pro-cyclical policy, says Brekk.
Another trouble for Russia is weak institutions and corruption, and coupled with instability, this seriously worsens its competitive position in the world market. The main recommendations for the country in the near future are the transition to a counter-cyclical fiscal and monetary policy, the fight against inflation, strengthening the independence of the Central Bank as an institution, and the fight against corruption. All this will help create a more favorable investment climate in the country.
In this regard, accession to the WTO can be considered as a serious measure to improve the institutional environment. For Russia, more open access to markets or lowering some tariffs is not so important. Much more important for the country is the import of high-quality international institutions, the IMF representative is sure.
Anna Stasova, especially for the news service of the HSE portal
Photo by Vasily Begal
Our country has relatively recently moved into a market economy, and many still think that the series of economic crises that accompanied this was caused solely by the mistakes of state administration, the intrigues of foreign enemies, the costs of the transition period, etc. All this may be the case, but the truth is that market economy unstable on its own even in the absence of all these factors. As, by the way, and a planned economy, or any combination of them. With this text I am going to open a series of posts to discuss internal economic factors that determine this instability. In it, I will also share with you a decision that has recently dawned on me about what is needed in order to ensure economic stability.
The economy is largely determined by what forms of ownership it is based on. In modern Russian economy the main forms of ownership are private and state. Let's take a closer look at them.
Private property belongs to one person who makes all decisions regarding it - about buying and selling, exchanging, donating, using and even destroying it. An economy built ONLY on private property can NEVER be sustainable and predictable. The behavior of many people, each of whom makes his own decisions, is a priori unpredictable. Yes, such an economy will change faster than all other possible ones, but this cannot be identified with development, since not every change is development. A pure market economy is more of a Brownian motion economy than a development economy. Some of its supporters pass off precisely this property as stability, because this is how it can look on generalized graphs, but this is incorrect. Is there any difference to a person who has lost his house, whether he lost his house because he collapsed it personal business, or due to the fact that the entire economy of the country collapsed? There may be different nuances in both cases, but in general it is the same situation: a lost house. In a pure market economy, some people constantly win and some lose, and the probability that an individual taken at random (or each!) will one day suffer major economic losses for him tends to one (i.e., almost certainly). In fact, it can be seen as a continuous crisis, stretching over time.
Since the mass of people prefer development rather than marking time, there is no pure market economy anywhere, and private property is in many cases regulated and protected by the state. At the same time, the powers to make decisions regarding the object of ownership are partially transferred to the state. If all such powers are transferred to the state, then the property becomes state. Decisions regarding such ownership are made collegially - by universal suffrage or at least by voting authorized representatives for which everyone voted. In this case, decisions are made in such a way as to improve the "average temperature in the hospital", i.e. there is development at first, but simultaneously and equally for all, which means that everyone moves forward at the speed of the slowest, while those who develop the economy faster than others may be subject to either artificial slowdown or collective exploitation, i.e. all “excess” growth is redistributed to those who are lagging behind. This reduces their motivation for efficiency and incentives to work. Such development tends to slow down to stagnation, after which, over time, a crisis still sets in - even more concentrated in time and space, more massive and obvious than the market one. Actually, those crises that are usually spoken about are of this nature, i.e. in one way or another are the result of state intervention, but most often this intervention was carried out to deal with small local crises arising from private management, so that the state is simply extremely to blame. It is important to note that stagnation is not stability, but a situation where some monitored statistical parameters are kept at an acceptable level at the cost of a decline in others, equally important and significant, but not officially monitored statistically. Those. beautiful picture in a bad state of affairs. The decisions made by the unqualified majority are almost as unpredictable as the decisions of individuals, and are highly dependent on the quality of the statistical information supplied, on the honesty of the media.
The main benefit of this form of ownership is the alignment of property differences in order to achieve social stability, even at the cost of reducing economic efficiency and increased risk of economic instability. The decrease in economic efficiency occurs, firstly, because maximizing this efficiency is not the main goal, since decisions are strongly influenced by social factors, and secondly, because decisions are very large-scale, and fine adjustment is impossible. Leveling inevitably means that someone will get more support than he really needs (but he, of course, does not admit, because the private trader seeks to maximize individual utility, for him there is no concept of “too much”), and someone will receive too much. few. Whether to issue maternal capital wealthy families? Yes, all the same! Should pensions be paid to working and wealthy pensioners? Yes, all the same! "Manual control" can allow solving some of the most pressing issues, but always at the cost of social stability, because. collegiality and equality are sacrificed.
In practice, these forms of ownership are often mixed or legally modified. For example, public funds can be distributed collectively only at the stage of formation of the annual budget, and then decisions are made individually, for example, by ministers. This duality - the property of the state, and decisions on it are made individually, as if it were private - and creates opportunities for corruption. The seemingly absurd term has already become widespread "private-public" property as applied to public corporations. They are state-owned in terms of acquisition and de jure, but in terms of management and de facto they are private. In fact, almost all state real estate is just such a “private-public” one, which allows one-man decisions to carry out its privatization and turn it into a completely private one. The problem is that the reason is not only in legal laws, as Navalny seems to see it, but also economic. This becomes possible because, in fact, the state form of ownership is really not very suitable for managing such objects in the current conditions. To be a de facto state, it must be governed by universal decisions, and this is the slowest and most unskilled way to make decisions. In this way, you can make rules, for example: in each city there should be so many lanterns per square meter. km., giving such and such a degree of illumination at such and such a time of day. We decided once, and then we only look at the execution statistics. This method is applicable to the management of the planned mass production of the same type of standardized goods of guaranteed demand: "... so many tons of iron and steel per capita per year ...", the quality is prescribed in such and such GOST. But if the population needs more varieties of goods of a certain category, then public administration will not be effective for such an industry, because either drown in a huge number of GOSTs, or will not produce a sufficient range of goods. Also, this method is weak when trading in market conditions. The private trader can change prices flexibly, while the state sets them centrally once a year or at some other period, which means that it will almost always lose. Actually, it is this circumstance that is most likely the deep economic reason for the transformation state property into "public private". Public administration can ensure the production of oil and gas in accordance with GOSTs, but to establish prices for them in market conditions, individual decisions are needed. And if the property is managed by individual decisions, then this is de facto not state property.
To solve this dilemma, a mechanism has been developed in which the state receives fixed payments, and the corporation - everything else, if any, i.e. The private owner takes the risk. There is a mechanism of state contracts that can work on the principle of an auction: who will offer the best price. Perhaps corruption could be combated by making the corporation entirely public, governed only by open collegiate decisions, and selling products at a fixed price set for the year, while private intermediaries would resell at their peril and risk at market prices, thus avoiding undue exposure on the state corporation of sole decisions. But at the same time, of course, the state would have to come to terms with the fact that such private traders would work at a profit, i.e. would resell its products for more than they bought. Now this looks like a crime for the state, although in fact it is probably the only sustainable solution to the problem.
The state will never be able to trade in a market economy as efficiently as a private trader, if only because of the slower decision-making speed. The reservation about the market economy is made here to eliminate cases like wars, when a private trader cannot trade because it is life-threatening, and the state has an army and can trade, i.e. there is a powerful factor of influence of non-economic nature. State administration is the lowest profit of all economically possible, otherwise all the others simply would not be needed and would not arise. It is impossible to come up with some kind of magic rules so that everyone can act in the same way and at the same time get rich faster and evenly faster than if they united in groups of professionals using the effects of team synergy, or if everyone would work for themselves to the maximum of their efforts in that area. where they have the best ability. For different types tasks are better suited to different forms of ownership. Where local profit maximization is needed, private property is better suited. State ownership works better where there is a need for redistribution among the many, for property equalization, rather than an exchange between two parties to maximize mutual benefit. There is an opinion that public economic management can be more efficient due to scale, which is not true for all industries, due to what was said above about inefficiency due to leveling and small assortment.
This is not the only mechanism for turning state property into de facto private property. Electoral fraud, political blocs, bribes, lobbying, etc. are also forms of private influence on government decisions for personal selfish purposes. V last years the public began to pay more attention to this and to control the observance of laws, which is very useful for the country. As far as one can judge, these phenomena are mainly not of an economic nature, but of a political one, therefore we do not consider them here, although, of course, it is important to keep them in mind as well.
One of the determining factors in modern world becomes unstable. The traditional markets for raw materials are changing, the amplitude of fluctuations in currency systems reaches dangerous limits, and the losses from unemployment are becoming more and more significant.
Paul Samuelson
Cyclical development of the economy. Types of cycles. Cycle phases and dynamics economic indicators. Structural crises.
Purchasing power of money. essence of inflation. Causes and main forms of inflation: moderate, galloping and hyperinflation; open and suppressed inflation. The concept of inflation expectations. Demand-pull inflation and cost-push inflation. Stagflation. Measuring the rate of inflation using a price index.
Economic and social consequences inflation. Adaptation and anti-inflationary policy.
Unemployment, its essence and causes. The main types of unemployment: frictional, structural, cyclical, their distinctive features and methods of partial overcoming.
The problem of full employment. The concept of "natural rate" of unemployment. Unemployment rate and excess unemployment. employment indicators. productive employment.
Socio-economic losses from unemployment. The essence of Okun's law. Directions and types of state regulation of the labor market.
Relationship between unemployment and inflation. The essence of the Phillips curve and the limits of its practical application.
From the previous topic, you already know that economic growth is not the same as economic development. On the way to the growth of the national product, there are periods of sharp acceleration, accompanied by an increase in the price level and inflation, and periods of decline in production and employment, when economic growth slows down or even stops. These violations macroeconomic equilibrium are considered by economic science as manifestations economic instability.
As practice shows, this uneven development of the market economy is rhythmic: acceleration and deceleration of economic growth alternate in a certain rhythm, forming economic cycle.
Business cycle are fluctuations in macroeconomics, consisting of alternating recessions and upsurges in general business activity.
The propensity of a market economy to repeat economic phenomena was noticed by economists in the first half of the 19th century. They drew attention to the periodicity of such phenomena as an increase or decrease in demand, an increase in production volumes or its stagnation.
A certain sequence in the alternation of these phenomena was also revealed. The problem was of such great importance for economic development that almost none of the leading economists ignored it. Recognizing the objective nature of the economic cycle, economists propose to study this phenomenon through an analysis of internal and external factors that affect the nature and duration of the cycle.
TO external factors Cycle researchers include such non-economic phenomena as fluctuations in solar activity, wars, revolutions, earthquakes, population migration. The cycle can be affected by major mineral discoveries, scientific and technological discoveries and innovations.
Major innovations such as railways, aviation, automobiles, computers, have a great impact on consumer spending and investment. But such global innovations appear very irregularly and therefore cause economic instability. Some economists see the reason for fluctuations in the economy in the ratio of optimism and pessimism of participants in business life, that is, they single out the psychological factors of the cyclical nature of the economy.
Theories that explain the economic cycle by the presence of external factors are commonly called external, Unlike internal theories that consider cyclicality as a product of factors inherent in the economy itself. The main internal, inherent in the economic system itself, the cause of fluctuations in business activity, most economists call the dynamics of the ratio of aggregate demand and aggregate supply.
If a boom began in some industries, causing a sharp increase in demand for machinery and equipment, then it is quite natural to assume that the phenomenon will repeat itself in 10-15 years, when these machinery and equipment will be completely worn out. In addition to the physical depreciation of fixed capital, there are other reasons that give rise to the economic cycle. Among them are:
- - personal consumption, the reduction or increase of which affects the volume of production and employment;
- - investing, i.e. investing in the expansion of production, its modernization;
- - economic policy state, expressed in direct or indirect impact on production, demand and consumption.
Modern economic theory assigns to external factors the role of a generator of long-wave impulses, while internal causes are considered as converters of these impulses into fluctuations in large cycles.
The general "pulse" of the economic cycle covers all aspects of economic development: the level of production, employment, income and prices, stock prices, sales volumes, construction of various facilities, etc. Since economic processes affect such non-economic phenomena as fertility, people's health, marriages, as well as political events, we can conclude that the economic cycle has penetrated into all spheres of a nation's life.
No cycle is similar to another in terms of the intensity and duration of fluctuations in the main macroeconomic indicators: GNP, employment and price levels. But there are a number of characteristics that are inherent in any cycle to one degree or another. First of all, this is the passage of the economy in the course of the cycle in succession of four phases - crisis, depression, recovery and recovery.
A crisis (recession, recession) is a phase of the economic cycle during which real GNP decreases for two or more quarters.
Let's try to present the general picture of the crisis as a deep shock to the entire economic system from top to bottom.
The market, which soaked up all the produced goods without hindrance, at some time turns out to be overcrowded, the goods continue to flow, and the demand gradually decreases and, finally, stops altogether. Anxiety is spreading throughout the market. Demand has disappeared and inventories are huge, and many enterprises continue to operate at full capacity due to inertia. A sharp fall in prices follows.
Truly heroic efforts are being made to save the situation, but all means are futile. Liquidations of enterprises and collapses begin. First of all, banks are dying and credit institutions. The trust of market participants to each other is undermined.
All require cash payment. Bills of exchange, which yesterday did not raise doubts, are becoming mere paper. The interest rate goes up. Crowds of unemployed appear on the streets. Starvation, suicide begins. According to such a dramatic scenario, the crises of the last century passed.
The most grandiose attempt to overcome the crisis with the help of state events was undertaken by the United States during the Great Depression. Its essence is known to you from the previous lectures. However, despite certain results, industrial crises continued.
In a crisis, only enterprises with large financial possibilities continue to make a profit by cutting costs. Medium and small enterprises do not have such an opportunity and suffer bankruptcy. Their ruin has its advantages for the industry as a whole, as it increases the overall level of labor productivity. This lowers the cost of goods and, as a result, weakens the fall in the rate of profit. It turns out that the crisis reveals not only a limit, but also an impulse in the development of the economy, gives rise to predominantly intensive development, performing a stimulating function.
But the transition to the expansion of production cannot happen overnight. Therefore, in place of the crisis comes phase of depression.
A depression is the post-crisis phase of the cycle when the recession lasts substantially longer than two quarters.
The level of production remains stable, but very low in relation to the beginning of the crisis. The unemployment rate remains high. But the fall in prices is suspended, commodity stocks are stabilizing.
Recovery is a phase of the economic cycle during which real GNP increases and employment grows.
Recovery is accompanied by a slight increase in the level of production, some reduction in unemployment. Gradually, prices rise, and the interest rate begins to rise. The demand for new industrial equipment is growing in the commodity market. The emerging recovery covers an increasing number of industries. At the end of the revival phase, the incentives for renewal exhaust themselves, and extensive development begins again in the upswing phase.
The rise is the highest phase of the cycle, when the level of production exceeds that achieved in the previous cycle.
The rise often becomes a rush. Prices are skyrocketing. Unemployment is reduced to a minimum, with a simultaneous significant increase in wages. The demand for the products of industries that determine trends in scientific and technological progress is growing sharply, the demand for raw materials is increasing, and their prices are rising. The economy is approaching the next round.
A new cycle begins, but with different characteristics, duration and depth. Even from this largely superficial picture, it is clear that each of the phases of the cycle has the ability to reproduce the subsequent phase. As a result, the economic cycle as a whole acquires the property of reproducing a new cycle.
What is the duration of the cycle? Let us turn to the experience of the highly developed US economy. The economic system of this country between 1854 and 1986. went through 30 business cycles of varying intensity and duration. From the point of view of duration, the following types of cycles are distinguished.
Large (classical) economic cycles cover a period of 7-11 years. Within a large cycle, two or three small, or "commodity" cycles lasting 3-5 years are usually distinguished, which are generated by the dynamics of the value of inventories at enterprises. Two large cycles roughly characterize in time the cycles associated with fluctuations in investment activity in the construction industry. These are building cycles. If we consider economic growth from a historical point of view, then with early XIX v. you can find very long cycles lasting 50-60 years, the existence of which was revealed in the 20s of the XX century. Russian economist N.D. Kondratiev.
Having processed data on the dynamics of the most important economic indicators in England, Germany, France and the United States using special mathematical methods, Kondratiev discovered interesting patterns. Countries with market economies in their development regularly go through stages of rise and fall, which are repeated in 50-60 years. These cycles are still called "Kondratieff Waves". They are associated with a radical renewal of equipment that has a particularly long service life (railways, bridges, canals, dams).
The fate of Nikolai Kondratiev is very tragic. His views were at odds with the "party approach to economic planning" theory. In 1930 he was arrested on false charges and sentenced to 8 years. At the end of 1936, Kondratiev fell seriously ill and began to go blind. However, in 1938 he was re-convicted in the same far-fetched case and shot. He was only 46 years old.
The modern picture of the market economy began to differ from the traditional scheme. For example, the industrial cyclical crisis of the mid-70s. was exacerbated by the oil crisis, but only in oil-consuming countries. Those countries that had their own sources of energy resources, not only did not suffer as a result of the two crises, but even had a tendency to some development.
On the other hand, the expected rapid development of industry in the recovery phase in many countries does not occur as a result of a sharp aggravation of the situation caused by the environmental crisis. Oil, food, energy, raw materials crises are supplemented in recent decades by crises of the monetary system. These are the so-called structural crises.
Structural crises are generated by disproportions between the development of individual areas and industries, are, as a rule, protracted and do not always coincide with the onset of cyclical crises.
Thus, the reason for the cyclical nature of the development of the economy lies in the conflict between the conditions of production and the conditions of sale, in the contradiction between production, which is striving for expansion, and the growth of effective demand that does not keep pace with it. The material basis for the periodicity of crises is the renewal of fixed capital.
There is another approach to explaining the causes of crises in a market economy. According to this approach, the abstract possibility of crises is connected with the function of money as a means of circulation: the discrepancy between purchase and sale in place and time can create prerequisites for breaking many links in the chain of sales and purchases; and as a means of payment: any entrepreneur cannot have a guarantee that by the time of payment the buyer of his products will be solvent, and then this rupture of obligations will cause a chain reaction.
Since there are different views on the causes of cyclic fluctuations, there are different approaches to the problem of their regulation. But there is also a common understanding of the fact that, firstly, the state is able to smooth out cyclical fluctuations, and secondly, the state must do this in order to achieve economic stability.
There is also a common understanding of what should be, in general, the state's line of conduct aimed at overcoming cyclical fluctuations. This is already known to you from 3.1. "The Politics of Expansion and the Politics of Containment".
In the decline phase all government measures should be aimed at stimulating business activity. In the field of tax policy, this means lowering tax rates, providing tax breaks for new investments. In the field of monetary policy, this is a decrease in interest rates for loans issued, an increase in bank credit resources, i.e. revitalization of economic life with the help of additional loans.
During the rise economic situation, in order to prevent overheating of the economy and related painful phenomena, the state pursues a containment policy, which includes opposite measures in the field of fiscal and monetary policy.
That is, in order to smooth out cyclical fluctuations, the state must implement a counteraction policy: measures must go in the opposite direction to the current fluctuations in the economic situation.
Of course, these are only general guidelines for countercyclical policy. We will talk in more detail about the methods of state regulation of the economy in the next paragraph.
An integral element of the modern economic cycle has become inflation. This is another manifestation of macroeconomic instability.
inflation (from lat. inflatino Bloating is a process of raising the general level of prices for goods and services, in which the purchasing power of the monetary unit falls.
Purchasing power of money This is the quantity of goods and services that can be bought at a given price level for a given monetary unit.
At first, the cause of inflation was considered the widespread transition to paper money, because they can be printed in any quantity. There was a certain reason for this statement, and when frenzied inflation broke out in Germany after the First World War (prices rose a trillion times in three years!), The blame for this lay largely on central bank country.
However, even after the emission of money was taken under the strict control of parliaments, inflation did not disappear. And then economic science took up deeper research and found that inflation is diverse, it has several causes, many forms of manifestation and, accordingly, there must be different ways to deal with it.
Note that not every price increase is an indicator of inflation. Prices may rise due to improved product quality, deterioration in the conditions for the extraction of fuel and raw materials, and changes in social needs. But this will not be an inflationary rise in prices, but to a certain extent a logical, justified rise in prices for individual goods.
For example, the transition to the production of new modifications of cars with an economical diesel engine that meets international standards will obviously lead to an increase in the selling price: more advanced and high-quality products require more costs and are valued more.
But if there is a systematic rise in prices for mass-produced cars of the same model without any improvements, and often with deterioration in performance, then it has a pronounced inflationary character.
P. Heine: “We should not forget: prices change not only for commodities, but also for measuring their value, i.e. money. Inflation is not an increase in the size of objects, but a decrease in the length of the ruler that we use.
Inflation is an extremely complex, controversial, insufficiently studied process.
First of all, inflation is distinguished by rates as 1) moderate or creeping (usually no more than 10% per year); 2) galloping
(from 20 to 200% per year); 3) hyperinflation(more than 50% per month for three quarters).
Economic theory considers moderate inflation as a boon for economic development, and the state as the subject of an effective economic policy. It allows you to adjust prices in relation to changing demand conditions.
Galloping inflation is already a process that is difficult to control, a serious strain on the economy, although most transactions and contracts take into account such a rate of price growth.
Hyperinflation is the greatest danger, causing enormous damage to the population, even to the wealthy sections of society, trade turns into barter, and the national economy is destroyed.
Guinness Book of Records: The world's worst inflation
in Hungary in June 1946, when the gold penge of 1931 was worth
130 trillion paper penge. On June 3, 1946, banknotes in the amount of "egibillion billion" were issued.
According to the forms of manifestation are distinguished open and suppressed inflation. Open inflation is manifested in rising prices. Suppressed inflation is inherent in an economy with administrative control over prices and incomes: outwardly, prices are stable, and an excess of money is transformed into a shortage of goods, there are constant angry queues and a “black market”, which to some extent reflects real prices.
inflation may be balanced when price increases are moderate and simultaneous for most goods and services, and unbalanced when prices rise at different rates for different commodity groups.
According to the nature of expectations, economists distinguish between expected inflation and unexpected. Expected inflation can be predicted: take into account its rate in collective agreements, prices for factors of production, the government can change taxes and transfers in a timely manner, then the impact of inflation on the economy as a whole will be insignificant.
Another thing is unexpected inflation. It is characterized by a sudden jump in prices, which has an extremely negative impact on money circulation and the taxation system.
In such a situation, if inflationary expectations already existed in the economy, the population sharply increases the cost of purchasing goods, which in itself creates difficulties in the economy, distorts the real picture of needs in society and leads to a breakdown in economic ties. Thus, a sudden jump in prices could trigger further inflationary expectations and shape inflationary psychology- a thing, although subjective, but quite real and extremely dangerous, since it gives rise to a vicious circle of self-sustaining inflation.
From the point of view of cause, one distinguishes demand-side inflation and cost-push inflation.
Demand-pull inflation occurs when aggregate demand is greater than aggregate supply (too much money "chasing" fewer goods as government, household, and firm spending grows faster than production).
Causes of demand inflation:
- 1) expansion of state orders (military and social);
- 2) an increase in demand for means of production in conditions of full utilization of production capacities;
- 3) growth purchasing power population (wages) as a result of concerted actions of trade unions.
Cost-push inflation occurs when prices rise due to an increase in the cost of production.
Causes of cost inflation:
- 1) oligopolistic pricing practice;
- 2) the financial policy of the state;
- 3) rising prices for raw materials;
- 4) the actions of trade unions demanding higher wages.
The danger of cost-push inflation for society is connected with the so-called inflation spiral: a general increase in prices leads to a decrease in real incomes of the population, hence the demand for wage increases and public policy income indexation. This, in turn, increases costs, which leads to a new jump in prices.
In practice, it is not easy to distinguish one type of inflation from another, they closely interact, so wage growth, for example, can look like both demand-pull inflation and cost-push inflation.
Starting from the second half of the 20th century, prices in all developed countries grew steadily, and since the 70s. - even during periods of economic downturns, when the underload of production reached significant proportions. This phenomenon, as you remember, is called stagflation.
Stagflation - inflation combined with stagnation (stagnation, depression) of production and high unemployment.
Quantitative assessment of inflationary processes is carried out with the help of inflation indicators. The inflation rate is measured using price index.
The price index is a relative indicator that characterizes the ratio of prices over time. To calculate the price index, the prices of the base year are usually taken as 100, and the prices of subsequent years are recalculated in relation to the base year.
Inflation rate for the current year is determined as follows. The price index of the current year is subtracted from the price index of the previous year and divided by the price index of the previous year, and then multiplied by 100%.
In a market economy, inflation has become almost an integral attribute of economic life. This allows us to talk not just about the consequences, but about some specific functions of inflation.
We have already considered the point of view according to which a small amount of inflation (say, an annual increase in prices by 3-4%), accompanied by a corresponding increase in the money supply, can stimulate production. But whatever the allegedly “positive” functions of inflation, getting out of control and even remaining relatively weak, regulated, it has a whole range of purely negative, negative influences on the course of economic development. Let us briefly mention just a few of them.
First, inflation affects efficiency at the microeconomic level. The higher inflation, the more disrupted relative prices, the weaker their relationship with costs. Remember how in Russia, until the end of 1993, cattle were fed with bread, since the prices for it were significantly lower than the costs, which resulted in an inefficient distribution of society's limited resources.
Secondly, inflation makes it difficult to conduct macroeconomic policy due to disproportions between sectors of the economy, falling production and reducing incentives to work.
Thirdly, inflation causes a flight from money to goods, turning this process into an avalanche, exacerbates the hunger for goods, revives barter.
Fourth, when inflation is high, the owners of factors of production bear huge losses, because in the short term, the prices of factors of production are fixed, and the prices of final goods and services rise very quickly. As a result, there is a sharp decline in the real incomes of the owners of factors of production.
Fifth, inflation has a negative impact on the fiscal system due to the Tanzi-Oliver effect (the Latin American economists who first paid attention to it). Its essence is that inflation devalues tax revenues, which are accrued, for example, in the third quarter, and paid in the fourth quarter of the year, when they real value has already fallen.
Sixth, inflation is destructive to accumulated wealth, especially in the most liquid forms. This applies to the savings of the population, and to banks and institutions that provide loans.
Seventh, the most important social consequence of inflation is the redistribution of national income, the decline in the living standards of the population, since both nominal and real wages lag behind sharply rising prices, even if incomes are indexed.
Eighth, the internationalization of production facilitates the transfer of inflation from country to country, complicating international monetary and credit relations.
Speaking about the redistribution of income, it must be borne in mind that although the entire society bears the losses from inflation, this happens to an unequal degree. During inflation, it is advantageous to live in debt. Therefore, creditors lose much more than debtors. The biggest beneficiary of inflation is the government, because it is the country's biggest debtor, and inflation devalues debts.
To a lesser extent, those who can dramatically increase their income also lose. And pensioners, disabled citizens and public sector employees do not have such an opportunity, so they bear the main burden of inflation on their shoulders.
There is also an age factor. Among those who receive loans, the absolute majority are those who are under 45 years old, so it turns out that through the use of loans, they actually redistribute in their favor the wealth that the older generation accumulated in the pre-inflationary period.
negative social and economic consequences inflation forces governments different countries pursue a certain economic policy in this area.
There are two possible approaches to managing the economy in conditions of inflation: the first is to develop an adaptation policy, i.e. adjustment to inflation, the second - in an attempt to eliminate inflation with the help of anti-inflationary measures.
Adaptation policy It is based on the fact that all subjects of a market economy take into account inflation in their actions, primarily through taking into account losses from a decrease in the purchasing power of money.
Adaptation measures include: indexation of the interest rate by the amount of the inflation premium; introduction of inflationary wage adjustments into labor agreements; perestroika family budget in the direction of the most inelastic goods and services, the rapid materialization of money; share increase borrowed money relative to their own through the issue of shares, leasing, factoring.
Anti-inflation policy proceeds from the fact that the modern market economy is inflationary in nature, since it is impossible to eliminate all factors of inflation in it (budget deficit, monopolies, disproportions in the national economy, inflationary expectations, the transfer of inflation through foreign economic channels, etc.) Therefore, the goal anti-inflationary policy- to make inflation moderate, controllable, to prevent its destructive scale.
For this, the following measures are applied:
- 1) reducing the budget deficit by raising taxes and reducing government spending;
- 2) the establishment of strict limits on the annual increase in the money supply, which allows you to control the level of inflation;
- 3) changing the inflationary psychology of the population through stimulating production, liberalizing prices, weakening administrative customs control, etc.;
- 4) reducing the inflationary impact on the economy of foreign capital overflows in the form short-term loans governments abroad to finance the budget deficit;
- 5) gradualism- a policy aimed at slowly reducing inflation over a long period of time by managing aggregate demand and without prejudice to employment;
- 6) privatization of part of state property in order to increase budget revenues.
Among the most painful consequences of a recession in the economy (depression) is unemployment.
Unemployment is a surplus of labor force caused by the excess of the supply of labor force over the demand for it.
Reasons for unemployment:
- 1) structural shifts in the economy, manifested in the fact that the introduction of new technologies leads to the release of labor (structural unemployment);
- 2) an economic downturn that forces employers to reduce demand for all resources, including labor (cyclical unemployment);
- 3) the policy of the government and trade unions in the field of wages: increase minimum size wage increases production costs and thus reduces the demand for labor;
- 4) seasonal changes in the level of production in certain sectors of the economy (seasonal unemployment);
- 5) changes in the demographic structure of the population, in particular the growth of the working-age population;
- 6) the existence of lumpen strata in society that do not have and are not looking for work, at least in the legal economy (constant unemployment).
At the same time, it should be clarified that the category of unemployed includes only those who are looking for work or are waiting to return to work. After all, “unemployed” and “unemployed” are not identical concepts. A person may not work for various reasons: some are studying and not yet working, others are retired and no longer work, others simply do not want to work.
In the United States, for example, only those citizens who are unemployed, immediately ready to work, have been actively looking for a job for the last 4 weeks, and are waiting to start working (already invited) within 30 days are considered officially unemployed.
Depending on the causes, the following types of unemployment are distinguished.
frictional unemployment(from English. Friction- friction, disagreement) is unemployment caused by constant and necessary changes in the distribution of society's resources between types and spheres of production of goods and services.
It arises either due to the fact that employers do not have complete information about the availability of the categories of workers they are interested in, or employees do not know about the availability of suitable jobs for them. Frictional unemployment covers those who are in a position “between jobs” (voluntary or forced change of place of work, residence; temporary unemployment of women associated with the birth of a child; job search by those who have returned from military service, etc.).
A certain part of people is always in such a situation, so this type of unemployment exists constantly. It is believed that frictional unemployment is society's payment for an efficient economy. Anything that improves information about jobs and the availability of workers, or reduces the time it takes to find a job, reduces frictional unemployment.
Structural unemployment caused by changes in the structure of the national economy - the withering away of some professions and even entire industries, the emergence of new ones, the restructuring of the regional economy, changes in technology.
Structural unemployment differs from frictional unemployment precisely in that during frictional unemployment, the worker retains sufficient qualifications to change industry or production. Those who actually lost their jobs due to structural changes are faced with the need for a complete or significant retraining. Now Russia is faced with a structural adjustment that has no analogues in world history.
We are talking about the elimination of millions of jobs, the existence of which did not meet the needs of the country. For the most part, those who have occupied these positions (especially millions of managers) have no chance of finding a job without a radical retraining.
American experts in the late 90s developed a forecast for the development of the US labor market for the next 5-10 years and discovered the inevitability of serious changes in it. It turned out that the share of employed in the industry will fall from 18 to 9.7%, 43% of workers will work in the field of computer science.
There will be a special demand for people who have the following specialties: accountant-auditor, delinquent reformer, nurse, public relations specialist, programmer, occupational therapist, medical equipment technician. The state and needs of the labor market of the new century as a whole confirm this forecast.
Structural unemployment is caused by objective reasons, therefore it is inevitable and always exists in society, but it can be reduced by the creation by the state and private firms of a network of retraining centers.
Cyclical unemployment occurs as a result of cyclical downturns in production, causing a decrease in aggregate demand for all factors of production, including labor.
This is the most "unpleasant" type of unemployment - often massive and painful. The cyclical nature of economic growth is insurmountable, therefore, it is not possible to eliminate this type of unemployment, however, anti-crisis measures can smooth out the economic downturn and, accordingly, reduce the number of cyclical unemployed.
However, it suggests that the full employment of the labor force does not mean the complete absence of unemployment.
In a dynamic economy, some part of the workers, for many reasons, is inevitably and always out of work. Therefore, the question arises: what number of unemployed can be considered acceptable if the labor market is working effectively and the economy is not in recession? No one will give an absolutely exact answer to this question, however, economists still have a general understanding of what full employment is.
Full employment - the level of employment that develops in the country in the presence of only structural and frictional unemployment.
If the number of unemployed exceeds the average levels of frictional and structural forms of unemployment over many years in a given country, then this excess is most likely associated with the emergence of cyclical unemployment, i.e., with a recession in the economy. In the USA, for example, experts believe that full employment is achieved if 94-95% of able-bodied citizens have a job.
Thus, the concept of full employment comes from the idea of the existence of a natural rate of unemployment. - this is the state of the labor market, in which there is an approximate balance between the number of vacancies and the number of qualified workers looking for work.
If the actual rate of unemployment in the country is higher than natural, this means that we are faced with excessive unemployment- a phenomenon undesirable and even dangerous in social and political terms.
Unemployment rate is the proportion (in percent) of the total economically active population of those people who are unemployed.
Full employment, natural rate of unemployment, excess unemployment and unemployment rate are the main interrelated indicators that are used to characterize the state of employment.
Guinness Book of Records: The lowest unemployment rate was registered in Switzerland in December 1973 (population 6.6 million people), the total number of unemployed was 81 people. In Europe, in 2012, the lowest unemployment rate in Austria is 4.4%, and the highest - in Spain (25.8%).
Full employment is an empty idea if it means employment in jobs where nothing useful is being produced. The semantic goal of the idea of full employment is productive employment.
productive employment- organization of the use of labor in such a way that the employed produce the goods and services necessary for the population at the lowest cost.
Unfortunately, in our country over the past decades we have managed to create millions of positions of useless managers, hundreds of thousands of positions for quasi-scientists, for reserve workers in large enterprises, especially in the branches of the military-industrial complex.
Despite the objective nature of unemployment, socio-economic the losses it generates are obvious:
First, products are underproduced; some part of the GNP is lost.
Secondly, tax revenues are reduced: the worker receives income that is taxed.
Thirdly, the standard of living of those who have lost their jobs is declining, since unemployment benefits are lower than wages.
Fourthly, the psychological state of the unemployed worsens due to the loss of qualifications and self-respect, moral decline begins.
Fifthly, social and political tension in society is growing.
To determine the magnitude of the loss of GNP as a result of unemployment, the so-called Okun's law(was formulated American economist Arthur Oken).
Okun's law: the excess of the actual rate of unemployment of its natural level by 1% leads to a lag in the volume of actual GNP compared to potential GNP by 2.5%.
Assessing unemployment as a socio-economic phenomenon, one cannot unequivocally state whether it is good or bad. From the point of view of a person left without a job, this can be a tragedy. It is no coincidence that Americans say: "Unemployment is 100% if you yourself are unemployed." And from the point of view of economic dynamics, unemployment is an objective necessity.
Moreover, frictional unemployment is a means of more efficient deployment of society's labor resources, and structural unemployment, if, of course, the benefits from retraining workers exceed the costs of it, brings society a net gain.
However, given the negative consequences that cyclical unemployment has on society, and frictional and structural unemployment on people who find themselves out of work, employment needs targeted state regulation.
Directions of labor market regulation:
- 1) employment of the unemployed population and assistance in vocational training and retraining (labor exchanges);
- 2) creation of a flexible labor market, legal support of labor relations;
- 3) social protection of people affected by unemployment (support system).
In world experience, two main types of impact on the level of employment have been developed:
- 1) active type includes measures to create new jobs and to maintain and increase the level of employment in enterprises;
- 2) passive type includes the payment of various benefits to the unemployed.
In this way, market system arithmetic "full employment" and too high unemployment are equally contraindicated. At an unemployment rate equal to its natural rate, one speaks of effective full employment, which means a certain ratio between employment and unemployment.
Already in the 50s. many economists and politicians have suggested that it is possible to reduce the unemployment rate by being patient with a higher rate of inflation.
From the previous topic, you know that the fight against inflation inevitably leads to a decrease in investment in the economy, since it requires limiting the money supply by reducing public investment and raising interest rates.
In turn, the reduction in investment leads to a reduction in the demand for labor and, accordingly, an increase in cyclical unemployment. Attempts to reduce the mass of the unemployed by increasing the number of jobs require an increase in investment through the expansion of government investment programs and a low interest rate policy. This inevitably raises the rate of inflation. The same result is obtained in attempts to mitigate unemployment through the system of benefits to the unemployed.
This relationship was discovered on the example of the English economy by the Australian economist Arthur Phillips. This phenomenon, as Phillips found statistically, existed in the English economy for almost 100 years.
Phillips curve
Phillips curve segment to the left of the point M characterizes demand-pull inflation, which can occur as a result of government attempts to establish an artificially high level of employment. Segment to the right of the point M reflects the fall in prices during the crisis.
During the period of stagflation, there is not a movement along the Phillips curve, but a series of shifts of the curve itself to the right and up, which indicates an increase in both inflation and unemployment at the same time.
Un- the natural rate of unemployment;
Rp - the growth rate of prices at the natural rate of unemployment.
Until the mid 70s. many economists still believed that A. Phillips' hypothesis continued to be working. However, the real Phillips curve, based on the real relationship between inflation and unemployment in the United States for 25 years (1961 - 1986), turned out to be a twisted broken line.
The fact is that inflation is growing much more steadily than it is falling. An increase in aggregate demand almost always leads to higher inflation and lower unemployment. But a fall in aggregate demand does not always have symmetrical repercussions. Even, most likely, the economy will not give these results.
Therefore, the relationship between inflation and unemployment is clearly visible only in the short term, and it is precisely the opportunity to choose a relatively long-term fiscal and monetary policy economists hoped, having received in 1958 the discovery of A. Phillips.
In the short run, the steeper the Phillips curve, the more significant the reduction in inflation due to the more modest decline in employment. Quantitative estimates are as follows: to reduce inflation by 1%, unemployment during the year must be 2% above its natural rate. According to Okun's law, this means a decrease in real GNP by 5% of potential.
The problem of the need to pay unemployment for lowering inflation is solved ambiguously. This is a dilemma. Some economists argue that quantitatively such a fee is not large, while others speak of the moral and psychological inadmissibility of even a slight increase in unemployment. In any case, no one has proven that it is more profitable for the economy to fire a person than to provide him with a job and get a larger amount of product as a result.
D.Kennedy : "We believe that if people have the talent to invent machines that push people into the ranks of the unemployed, then people will have the talent to find new work for the unemployed."
CONTROL QUESTIONS
- 1. Define a cycle.
- 2. Name the external and internal causes of the cycle.
- 3. Describe how the cycle phases work. Why does each phase of the cycle contain the possibility of exiting it?
- 4. Describe the different types of cycles according to their duration.
- 5. What are the main directions of countercyclical policy?
- 6. What is meant by the purchasing power of money?
- 7. Explain the essence of inflation and name its main types.
- 8. What are the signs and negative consequences of subdued inflation?
- 9. What is called demand-pull inflation and cost-push inflation?
- 10. What indicators can be used to measure the rate of inflation?
- 11. What are the main economic and social consequences of inflation.
- 12. What are the main measures of adaptation and anti-inflationary policy.
- 13. Give the definition of unemployment and name the reasons that give rise to this phenomenon.
- 14. What are the main types of unemployment.
- 15. How do they differ in terms of cause and partial overcoming?
- 16. What does economics call full employment?
- 17. Why is the unemployment rate corresponding to it called natural?
- 18. What are the main indicators of employment.
- 19. What are the economic and social consequences of unemployment?
- 20. Formulate Okun's law.
- 21. What are the main directions and types of state regulation of the labor market?
- 22. How are unemployment and inflation interrelated?
- 23. What is the essence of the Phillips curve? What are the limits of its practical application?
TASKS AND EXERCISES
- 1. Suppose the inflation rate was 0 and the real interest rate was 5%. What nominal interest rate can guarantee the same real interest rate subject to an increase in inflation to 15%?
- 2. The inflation rate is 100% per year. What will be the consequences of inflation for the following persons:
- a) a lender who provided a loan for a year at 50% per annum?
- b) a borrower who has taken a loan for a period of 1 year at 50% per annum?
- c) a person with a fixed income?
- d) a tenant, if the rent has increased by 70% in a year?
- 3. If prices rise by 15% per month, how much will they rise in a year?
- 4. Try to determine the status in the labor force of the following people:
- a) a skilled mechanic who cannot find a job that matches his level and is waiting for a general improvement in the economy in order to look for a job again;
- b) full-time student;
- c) a temporarily laid off worker in a bearing factory (due to lack of demand for certain types of bearings) and waiting to return;
- d) a woman who has left work and is expecting a child;
- e) a woman who left work on maternity leave;
- f) an engineer fired due to the liquidation of the office, working
janitor in housing and communal services;
- g) an engineer dismissed due to the liquidation of the office, who did not find a job.
- 5. If the official unemployment rate is 10% and the number of employed is 90 million, how many are unemployed?
- 6. Below are conditional data on the dynamics of unemployment and the price index:
Unemployment rate, % |
|||||
Price index |
Draw a graph that characterizes the Phillips curve.
- 7. In Russia in 1994, the employed population was 68.5 million people, and the economically active population was 73.96 million people. What was the number of unemployed, and what was their share in the economically active population?
- 8. Using Okun's law, calculate the absolute loss of output associated with unemployment:
Actual unemployment rate = 9.5%.
Natural rate of unemployment = 6%.
Nominal GNP = 3300 billion rubles.
9. Establish a correspondence between the phases of the cycle and their content:
10. Establish a correspondence between the forms of unemployment and their content:
TASKS FOR THE WORKSHOP
- 1. List your own portfolio of assets. What part of it do you store in the form Mr Do you have any assets in the form M 2, such as, savings deposits? Do you have securities or real estate? Does the portion of your asset portfolio held in the form change over time? Mr If so, what are the reasons for these changes? Does your personal demand for money have a stable relationship with your income and with existing rates of interest? Discuss these questions.
- 2. Try to find reasons why government price and wage controls may not be effective in suppressing inflation.
- 3. During the New Year festivities in all Christian countries, the demand of the population for cash increases. How should the Central Bank react to this if it wants to support money supply like a constant? What will happen to the monetary base and the money multiplier?
- 4. You already know the views of Keynesians and monetarists on how to maintain macroeconomic stability. Compare their advice on regulating money circulation and curbing inflation. Record the results of the comparative analysis in the form of a table.
- 5. Despite the fact that money is more convenient for transactions than barter, the latter still has not disappeared from the modern economic system. Give an example of barter from your personal experience and explain why barter was used in this case.
- 6. What inflation rate do you expect this year? To what extent are your expectations driven by the experience of the previous year? Have articles with economic forecasts or political reviews influenced your expectations of future inflation rates?
TESTS
- 1. When the economy is in a boom phase:
- a) inflation starts to rise
- b) real GNP does not change;
- c) frictional unemployment disappears;
- d) cyclical unemployment is on the rise.
- 2. Expected inflation hurts:
- a) money holders
- b) people with fixed incomes;
- c) restaurant owners;
- d) all of the above.
- 3. External signs of inflation are as follows:
- a) the price of labor power rises, the supply of goods decreases;
- b) commodity prices rise, real wages fall;
- c) the prices of goods fall;
- d) the real income of the population is growing.
- 4. An indicator of the inflation rate is:
- a) foreign trade price index;
- b) consumer price index;
- c) nominal exchange rate;
- d) purchasing power parity of currencies.
- 5. Economists believe that cyclical unemployment:
- a) a temporary phenomenon;
- b) capable of self-regulation;
- c) is not a serious problem;
- d) occurs during recessions.
- 6. Full employment is associated with:
- a) the complete absence of the unemployed;
- b) hyperinflation;
- c) the concept of the natural rate of unemployment;
- d) cyclical unemployment.
- 7. Stagflation refers to the combination of:
- a) inflation and unemployment;
- b) growth of aggregate production and inflation;
- c) rapid economic growth and unemployment;
- d) rapid economic growth and inflation.
- 8. Cyclical unemployment is associated with:
- a) with a decrease in the level of economic activity;
- b) with the growth of labor productivity;
- c) with a phase of recovery in the economic cycle;
- d) division of labor.
- 9. Over time, the natural rate of unemployment:
- a) should decrease
- b) should grow;
- c) may change;
- d) can decrease, but cannot increase.
- 10. When the inflation rate is below the expected rate:
- a) unemployment changes;
- b) unemployment should rise;
- c) unemployment should decrease;
- d) unemployment is constant.
- 11. With full employment but high inflation, which policy is most likely to bring it down:
- a) an increase in government spending;
- b) cut government spending;
- c) tax cuts;
- d) an increase in taxes.
BLITZ POLL
- 1. The cyclical nature of the economy is the continuous fluctuations in market conditions.
- 2. Periods of increased economic activity are characterized by intensive development.
- 3. The economic cycle includes four phases.
- 4. Investment fluctuations do not affect the economic crisis.
- 5. State regulation can prevent an economic crisis.
- 6. Structural crises are of short duration.
- 7. Inflation is usually not related to the money supply.
- 8. Inflation is impossible in the absence of money.
- 9. Even at 1000% per annum bank deposits the real interest rate can be negative.
- 10. Inflation in any case is tantamount to a decline in real incomes.
- 11. A 10% decrease in prices at constant income means a 10% increase in real income.
- 12. The population quickly restructures its behavior in the course of inflation.
- 13. From inflation, the entire society suffers losses equally.
- 14. Income indexing is very effective method fight against inflation.
- 15. Full employment means total absence of unemployment.
- 16. The simultaneous existence of inflation and unemployment is called a depression.
- 17. Frictional unemployment is viewed by economists as completely unacceptable.
- 18. The Phillips curve describes a positive relationship between inflation and unemployment.
- 19. When the economy goes through a boom phase, inflation starts to rise.
- 20. Excessive unemployment - a situation where the official rate of unemployment is higher than natural.
- 21. Structural unemployment is caused by a decline in general economic activity.
- 22. An active type of employment impact is the payment of unemployment benefits.
BASIC CONCEPTS
Adaptation policy
Anti-inflation policy
Counter-cyclical policy
Unemployment
Hyperinflation
Gradualism
Depression
Natural rate of unemployment
Okun's Law
Long-term unemployment
Excess unemployment
Inflationary psychology
Inflation
cost inflation
Demand inflation
Phillips curve
A crisis
revival
Official unemployment rate Suppressed inflation Rise
Purchasing power of the currency
Full employment
productive employment
seasonal unemployment
Stagflation
Structural unemployment Structural crises Inflation rate Frictional unemployment Cyclical unemployment Business cycle
LITERATURE
- 1. Blaug M. economic thought in retrospect. M.: Delo, 1995.
- 2. Bogdanov I.Ya. economic security Russia: theory and practice. Moscow: ISPI RAN, 2004.
- 3. Gershaft M. Wage, employment and social protection. //REZH. № 3. 2002.
- 4. Grebnev L.S., Nureev R.M. Economy. Basics course: Textbook for universities. M.: VITA, 2005, Ch. 14.
- 5. monetary policy in terms of inflation. //Money and credit. No. 6. 2005.
- 6. Livshits A. Inflation. Short course. //REJ, No. 4-6. 1992.
- 7. McConnell K, Bru S. Economics: principles, problems and politics. M.: INFRA-M, 2002, TL, p. 163-173, 338-344. T. 2, p. 346-357.
- 8. Nikitin S.M. Inflation and the fight against it: foreign experience and Russia. //Money and credit. 2003. No. 5.
- 9. Macmillan's Dictionary of Contemporary Economic Theory. M.: INFRA-M, 2003.
- 10. Heine P. Economic way of thinking. M.: News, 1991, p. 483-490.
- 11. Economic and national security: Textbook / Ed. Oleinikova E.A. M.: Exam, 2004.
ABOUT TOPICS
- 1. Features of inflation in Russia.
- 2. Methods of fighting inflation: Western experience.
- 3. Picture of Russian unemployment.
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