1. Describe how structural stagnation is different from a normal down turn (60-70 words).
Structural Stagnations are far less responsive to expansionary demand-side
policies that policy makers would normally rely on to put the economy back on its longterm growth trend. Structural stagnation requires difficult supply-side structural changes
to accompany any demand-side stimulus. A normal downturn or recession is a short
period of declining output whereas a structural stagnation is a period of protracted slow
growth and high unemployment.
2. How does structural stagnation hypothesis differ from secular stagnation theory (100 words)
To start out, the structural stagnation hypothesis is a hypothesis about the macro
economy that sees the recent problems of the U.S. economy directly related to the
structural problems caused by globalization. Structural stagnation had both long-run and
short-run causes. While structural stagnation says that the reason for long-run causes
are intricately tied to globalization while the short-run causes are intricately tied to the
aftermath of the financial crisis. Structural stagnation does not assume that low
investment will slow global growth, or that the world growth trend will fall. Instead it
focuses on globalization. Secular stagnation theory is a theory in which advance
countries such as the United States would eventually stop growing because investment
opportunities would be eliminated. The central tenet of this theory is that eventually all
investment opportunities will be met.
3. Why does globalization tend to make the distribution of income less equal (70 words)?
Globalization tends to make the distribution of income less equal because
different groups have been affected differently. International traders and workers have
done well from globalization,however, the unskilled and not highly skilled in the tradable
sector have been hurt by globalization through job loss or wage cuts. Workers in
nontradable sectors are affected because of the indirect competition for jobs from those
who have lost jobs in the tradable sector.
4. List policies that are needed to deal with the structural problems caused by globalization (20
words).
For short-term structural problems, the policies can make it easier for banks to
restructure their loans, and to temporarily rent houses to “underwater” homeowners who
otherwise would face foreclosure. Foreclosure is costly and destructive to the
neighborhood, and any policy that reduces foreclosure both reduces human suffering
and improves the economy. These measures will accelerate the housing market
economy.
For long-term structural problems, the policy makes can not do much about it.
Structural change is difficult, but required. Any solution will involve some combination of
the following: a rise in foreign goods prices (lower U.S. exchange rates), a rise in foreign
labor costs (higher wages or lower productivity), a fall in domestic labor costs (lower
wages or higher productivity), or a trade restrictions that raise foreign goods prices. The
policies to deal with structural stagnation will be policies that bring those changes about.
Policies include decreasing the exchange rate, differential wage growth, tariffs
and trade restrictions, lower wages, reduce unemployment insurance, and increasing
U.S. productivity by improving training or increasing resource production.
Why are politicians reluctant to discuss the structural problems caused by globalization (30
words)?
The policies that were listed are what might be called “suffer-as-best-as-you-can”
policies; they offer gain through pain, not gain without pain. Pain is not something that
politicians like to discuss. Few politicians are going to say that what is needed is for U.S.
wages to fall relative to foreign wages. They will be more likely to advocate for a policy
that seems to offer only advantages without acknowledging the costs. By hiding the pain
part of the proposals, most political policies provide the illusion of an effective policy but
do not offer a serious solution to the structural problems facing the United States.