Labor Unions vs Management - Economic Weapons

Throughout this essay, I will describe the economic weapons available to employers and unions during negotiations. For each, I will explain how the weapon is designed to exert pressure on the other party and the advantages and disadvantages of each. Bear in mind, I will be concentrating on private sector employees covered by the NLRA. I will try to make distinctions that would apply to public sector and non-NLRA covered workers as I go along.

Employers' economic weapons consist of lockout; plant closings, and other forms of economic pressure.

Although lockout is a primary economic weapon utilized by employers; it is rarely used. According to a class handout, an employer may lock out its employees in order to bring economic pressure on a union. For example, an employer may lockout offensively, i.e., to put economic pressure on the union to accede to its bargaining demands. In other words, a theater could lockout unionized workers in a preemptive maneuver during a slow season to outmaneuver the possibility of the union striking during its busiest season to exert its pressure on the theater. Thus, the theater hopes to resolve the labor issue, to their advantage, before the busy season (e.g. Christmas season).

Lockout is consisted of other components, besides the generalized aspect described in the preceding paragraph, such as: replacements; pre-impasse lockouts, and partial lockouts. An employer can hire temporary replacements during a lockout but it is not allowed to hire permanent replacements. Pre-impasse lockouts are lockouts implemented before an impasse (a deadlock in negotiations).

On the other hand,

partial lockouts arise from the act of an employer which, although allowing employees to work normal hours of work, withdraws the provision of other contractual obligations such as the opportunity to work overtime or the payment of penal rates.are lockouts rendered in a partial manner (www2.stats.govt.nz).

Both pre-impasse lockouts and partial lockouts are legal as long as they are not

in support of a bad faith bargaining position; to discourage union activity; to aid ULPs, and etc. If not, they would be unlawful and would be disadvantageous to the employer.

Like lockouts, an employer may use a plant closing as an economic tool to exert pressure on a union. A plant closing can be divided into three major parts: a complete closing; a partial closing, and a runaway shop. The advantage of a complete closing is that an employer may completely cease its operations, even if it is motivated exclusively and admittedly by anti-union animus. However, the employer may be obligated to bargain over the effects of the closure.

A partial closing (as the name implies) is legal unless it can be proven that the employer intended to "chill" unionization. If not, remedies would be applied to reopen the plant or other remedies may be provided.

As for a runaway shop, it is defined as when the employer transfers the work from one plant to another existing plant or opens a new plant to replace the closed one. It also applies within a plant, where work is transferred from one department or group of workers to another. The same is true if the work is subcontracted out to an "alter ego" employer. The advantage and the disadvantage of a runaway shop is that although the NLRB considered the transfer of work to be inherently destructive (disadvantage) of employee rights, that theory was later rejected (advantage) in the absence of a specific contractual prohibition. In other words, an employer can claim that economic necessity dictated that he/she applies the runaway shop to avoid an unduly burdensome economic situation.

Other forms of economic pressure include corporate campaign; publicity, and political pressure. These forms of economic pressure are advantageous as long as they toe the line of the law. For example, an employer shouldn't undermine the NLRA during its corporate campaign and publicity, and it shouldn't break the law when applying political pressure (stay away from bribing officials).

To counter employers' inherent (as owner/management) upper hand in negotiations and his/her economic weapons, unions employ economic weapons such as strikes and picket lines. Strikes can be divided into economic strikes; ULP strikes; secondary strikes, and unprotected strikes.

First, economic strikes are a strike usually used to coerce an employer to agree to a raise, for example. The disadvantage of an economic raise is that striking workers can be permanently replaced after 12 months on strike. For the preceding reason, ULP strikes are used, for the most part, since the employer cannot legally replace strikers with permanent replacements after a year of striking. Regardless, ULP strikers have to avoid to striking against a third party to influence their negotiations because a secondary strike is illegal - an unprotected strike.

Other unprotected strikes that a ULP striker has to avoid are failure to provide 8(d), (g) notice; disloyalty or violence; striking for an illegal object; partial or intermittent strikes; slowdowns, and sit ins. Let's begin with the 8(d), (g) notice; it's a notice that has to be provided during a certain time frame to avoid a strike or picketing from gaining an unprotected status. Likewise, a striker defaming an employer without a logical connection to the strike or perpetrating violence are unprotected. For example, a striker cannot say an employer's product is of a low quality without implying its low quality is caused by inexperienced/untrained temporary replacements thus jeopardizing safety.

Similarly, strikers cannot strike to compel an employer to agree to an illegal or permissive subject of bargaining otherwise known as striking for an illegal object. Unlike partial lockouts, partial or intermittent strikes are not protected. In the same vein, slowdowns and sit ins are not protected, too. The employer reserved the right to discharge unprotected strikers.

Besides strikes, unions use picketing as a tactic, also. For example, a union may picket an employer to gain recognition. However, a union has to be careful not to create the intent or effect of preventing individuals employed by other entities from ceasing to provide services to the picketed employer. For example, they will be considered unprotected if they preclude the making or picking up of deliveries by third parties. Thus, the employer can have the picketing union removed, or severely restricted, or sanctioned in other ways. However, if the delivery employees (not employed by the employer) refuse to cross the picket line (hence 'crossing picket lines at other employers') in support of the picketers is a different story. The NLRB and the Courts would weigh the relative interests of the employer in replacing the employee and the interest of the employee in honoring a picket line.

As I mentioned in the introductory paragraph, there are exceptions to the rule in regard to the employment of economic weapons by both employers and unions. For example, there are different rules for unions representing public employees (e.g., NYPD unions cannot legally strike) and private employees (e.g., nurses and doctors are legally hindered from striking, too), respectively. In addition, secondary boycotts are legal and protected for agricultural workers as per the Act regulating agricultural unions while secondary boycotts like secondary strikes by NLRA covered workers are unprotected.

In conclusion, I described the economic weapons available to employers and unions during negotiations. For each, I explained how the weapon is designed to exert pressure on the other party and the advantages and disadvantages of each. Although I concentrated on private sector employees covered by the NLRA, I endeavored to make distinctions that would apply to public sector and non-NLRA covered workers throughout the essay.

Karl A. Mitchell

2011 Economic Forecast-Part 1: The World Forecast From a US Perspective

2010 is ready for the history books and most of us are glad that year is finally in the rearview mirror. Worldwide economic collapse was avoided in 2009 and the global economy stabilized and strengthened some in 2010. However, the pace of recovery was very modest in 2010, constrained by the continued effects of the US recession suppressing demand and curtailing imports, and the EU euro dollar debt crisis diverting hundreds of billions from the capital markets to fund internal emergency loans. With all the conflicting forecasts and lackluster predictions, what will the future hold for 2011? Here's my forecast for the coming year.

The World View from the US Perspective

Overall, the world economic recovery is very fragile and economic power is rapidly concentrating in just a few nations outside the US; the OPEC oil exporting countries, the European Union, and China.

OPEC

It's old news that economic power continues to grow in the oil exporting nations that we send our dollars to. What might be new news is that the much anticipated peak in worldwide output occurred in 2007 and 2008, much sooner than most predictions. China's emergence as a major crude importer caused worldwide demand to outstrip production capacity for the first time in history, resulting in spot market prices that reached record levels. Remember $150 per barrel crude and its effect on fuel prices?

While many nations export crude, the OPEC cartel in general, and Saudi Arabia in particular, tries to balance their production to have supply exactly meet worldwide demand. OPEC's goal is to get maximum value for its diminishing resource, while balancing the knowledge that too little supply will drive up prices and push the world economy into recession (which results in lower production and revenue for their member countries). Expect the Saudis to vary their production to try and hold spot market price at $90-$100/bbl to achieve this balance.

However, China's emergence onto the world stage to compete for available oil supplies means that the era of cheap energy is ending. We just haven't realized it yet because the Great Recession in the US (the world's biggest importer) has temporarily reduced its internal consumption and made more supply available on the world market.

In the meantime, China has further increased its crude oil imports, taking up some of the slack. In this scenario the stage is set for an astronomical increase in oil prices when the US economy recovers and returns to importing at previous levels to meet its energy needs.

The OPEC bottom line - The most likely scenario is for a slow, steady increase in crude oil prices throughout 2011 as the global economy gradually recovers.

An alternative scenario is for crude prices to remain essentially stable if demand is suppressed by continuing recession in the United States or China's real estate bubble bursts, sending it into economic recession (see below for more on this possibility).

Europe

The formerly robust European Union is more and more often being viewed as a misfit conglomeration of "have" and "have not" countries.

Germany and France are the economic powerhouses of the EU. The economic weaklings are the so-called PIIGS countries, Portugal, Italy, Ireland, Greece, and Spain, whose national budgets have been fueled by huge levels of deficit spending for several decades. In many cases now servicing the associated debt consumes double digit percentages of their national budget (Ireland's is an astonishing 32%!) and is straining them to the breaking point.

There is substantial fear that these countries could default on their national debt obligations, dragging down the value of the euro dollar and endangering the economies of every EU member. In 2010 Germany led the bailout effort for Greece, which has had to reduce its national budget by a whopping 12%. The reduction in traditional government services and associated layoffs has not been received well by its citizens as news coverage of the many nationwide demonstrations has shown.

Ireland, which offered token resistance to the idea of a EU bailout, was next on the list. Arguably, it's in the worst financial shape of any of the EU member nations for two reasons. First, many years of deficit spending in concert with so many of it's sibling EU members.

However, unlike other EU nations, Ireland also had its own real estate bubble growing, which finally (and inevitably) burst. Irish banks began to go insolvent when the values of mortgaged real estate dramatically declined. To quell a rising financial panic the national government then took the bold (and very risky) step of publically guaranteeing all deposits, after the fact, in order to stave off economic collapse. Unfortunately, the enormous resources required to make good on that guarantee coupled with inadequate regulatory oversight to spot troubled banks before they failed, exceeded even what the Irish government could muster. The Irish government is now sporting a new $100B+ EU loan to bailout its banks and keep the economy functioning.

But, like Greece, the Irish bailout came at a cost of laying off thousands of government workers (further pushing up unemployment), cutting government salaries, and, most unfortunately, cutting the government pensions of those already retired. And also like Greece, Irish citizens are protesting in the streets over the reduction in salaries and services.

The creditworthiness of these countries had declined to the point where they were unable to borrow on the world market (at reasonable interest rates) to fund their governments, and they wouldn't have been able to borrow at all if they had retained their national currency. Next on the bailout list may be Portugal or Spain.

Note that Great Britain, which still uses the pound sterling and not the euro, is currently running equally high budget deficits, although for fewer years than its European neighbors. It has begun budget reduction efforts driven by 2010 election results, which has resulted in the greatest civil service layoffs since World War II and has reduced this once proud world power, whose national anthem is Rule Britannia, to investigating the sale of the Royal Mail Service to a foreign company and exploring ways of sharing operating costs of its new aircraft carrier with rival France.

Will the value of the euro dollar collapse or be abandoned by some EU members? It's unlikely in the intermediate term because the weaker nations don't want to leave a currency backed by economically stronger nations. If stronger nations like Germany and France reverted back to the mark and franc, they would suffer an avalanche of capital inflow from those abandoning the weakened euro to seek currency stability.

The 2011 EU bottom line - The EU will remain intact and (with the exception of Great Britain) will remain committed to the euro. That stability is good for the world recovery. However, EU economies as a whole will underperform because of the hundreds of billions of euros in internal loans that will be diverted to bailout its weaker members. Look for the EU to develop some type of controls to prevent its deficit spending members from continuing to drag down the whole Union. The EU's potential to be an economic powerhouse will be unfulfilled until the finances of its major members are set in order.

China

Economic power is rapidly shifting east and military power will soon follow. China is VERY rapidly moving beyond being merely a technologically backward player to becoming a dominant force on the world economic stage. One example of China's pace of development is its achievement of being only the 3rd nation in the world to place a human being in orbit, a remarkable feat by any measure.

China is awash in the dollars amassed from their long term trade surplus with the US, so many in fact, that they cannot convert them into the yuan, the Chinese national currency, to directly power their economy because dumping such a huge amount of dollars on the open market to buy up the available yuan would severely devalue the dollar (sudden oversupply) and drive up the value of the yuan (sudden scarcity), making Chinese exports much more expensive. Obviously China doesn't want to impair its export driven economy by making those exports more expensive.

So, what is China doing with all the dollars it's holding but can't convert? It's almost literally buying entire countries and continents!

China is aggressively moving to secure sources of raw minerals to ensure that its economic development can continue. It has invested heavily in Australian mining companies to the point where Australia now derives a significant portion of its GDP from mineral sales to China. China wants to further increase its ownership stake in these Australian corporations, but the Aussie government has refused to allow further investment leading to majority ownership, fearing a complete takeover of its national mineral wealth.

China is also investing heavily in natural resources across the African continent. Africa has very few large cap mining corporations on the continent (DeBeers of South Africa being one of the few exceptions), so China is dealing directly with each country's national government to negotiate exclusive deals to develop their mineral wealth.

For African nations, in exchange for the exclusive right (key words) to exploit their mineral resources China offers to use its financial and technological muscle to rapidly develop the mines, often located in remote areas, and associated infrastructure like rail lines and ports, along with guarantees to employ a large segment of a nation's population in each mine's operation.

This rags-to-riches promise is obviously attractive to impoverished governments with limited economic means to develop their mineral resources on their own, but it comes at a terrible price. So far the workforce for these mines has indeed been hired locally, but their new work situation is far from Utopian. In most cases they "work for the company store" as was common in the USA a century ago, are charged exorbitant rent for living in barracks far from home, and make nearly every purchase at high price from local retailers wholly owned by the company. As you might suspect, little is left to send home to the family after meeting these expenses.

Meanwhile, management remains firmly in the hands of the Chinese corporations, effectively preventing African nationals from gaining management experience and improving the intellectual capital of their country.

The effect of all this activity will be to eventually drive up the cost of strategic minerals worldwide as China locks up the remaining mineral resources essentially at the cost of extraction.

Finally, China is in the midst of its own housing bubble fueled by rampant real estate speculation, very similar to what the US experienced early in this century. The rapidly growing Chinese middle class has very few financial instruments to invest in, but real estate is available to anyone with sufficient cash to fund the purchase. In a Chinese version of Flip This House, individuals and extended families are investing in real estate for the sole purpose of the prospect of selling in the near future at substantial profit.

After watching the fallout when the bubble burst on the American market, Chinese officials recognize the dangers and are taking steps in their command-and-control economy to cool things off. Recently, foreigners have been limited to a purchase of a single home in China, the government is urging banks to curtail credit used for real estate purchases (not expected to have much of an effect since most purchases are 100% cash), and is talking about limiting the number of houses, apartments, or condos that their citizens can own at one time.

If the Chinese real estate bubble bursts causing a huge loss of personal net worth like the American bubble did, you can expect China's internal consumption to dramatically decline, reducing the volume of consumer goods that China imports from around the world. A dramatic reduction in Chinese imports could tip the world back into recession as exporting nations lose the jobs and revenue exporting to China provides.

The 2011 China bottom line - China's consumption of world resources has reached the point where it affects worldwide market pricing and availability. If China's economy continues to perform well in the coming year, it will compete more aggressively on the open market for limited global resources.

Much depends on whether the government can reign in internal real estate speculation. The most probable scenario is that China will successfully cool off the overheated housing market that threatens its economy. However, if the real estate bubble bursts, then China's new middle class will lose a significant portion of its wealth, driving down internal consumption. Dramatically reduced imports of luxury goods and high end manufactured products will impact the global recovery and could produce another global recession.

The 2011 World Economic Forecast

Most likely scenario - Slow, steady economic improvement as the EU powerhouses (Germany and France) continue to fund bailouts of its heavily indebted partners in the euro dollar and China avoids its own economic recession by deflating its real estate bubble.

Alternative scenario - Worldwide recession if several European nations abandon the euro dollar and revert to their own sovereign national currencies or China's real estate bubble bursts, seriously reducing its internal consumption and the imports it drives. The recession could be severe in this scenario, since the United States' own economic recovery will not have progressed to the point where it can make up for the reduced demand on the world market. The countries who will be least affected and could emerge as new economic superpowers would be Germany, France, and the OPEC countries who have amassed decades of oil trade surplus funds.

I share my economic forecast for the US in 2011 Economic Forecast - Part 2: The United States (US).

Which scenario will come to pass? It's hard to tell because we haven't been here before, but I've shared my best guess. Do you think I nailed it or do you have a different opinion? I look forward to your thoughtful comments, insight, and opinions.

Dan Elder is an experienced business coach and management consultant with Business Growth Accelerators, specializing in growing professional practices and retail and service industry businesses. He offers a free initial phone consultation to those interested in significantly improving their business situation. Learn more about how he can help you at bgaccelerators.com/services-business-coaching.html.

Dan is also a regular columnist for Business in Savannah (The Savannah Morning News), speaks on a wide variety of business topics, and is the author of the Business Growth Accelerators series on Amazon.com. He welcomes your comments. Contact him at bgaccelerators.com.

(c) 2010 - Daniel J. Elder. Permission is granted to reproduce and distribute this article in its entirety without fee or royalty. Portions may be excerpted for publication provided attribution is made, including the author's contact information.

Explore the Exciting Options Offered by an Online Economics Degree

When contemplating an Economics career, what images come to mind? Do you envision long hours leaning over computer keyboards performing complicated statistical analyses? Perhaps you picture dull accountability meetings that feature long-winded explanations and visual presentations to bored board members. If so, you are not alone.

Contrary to popular belief, Economics is not nearly as dull and dry as many deem it to be. Take a momentary pause. Put down the calculators and pull away from the keyboards. We are about to embark upon an expose into the economies of obtaining an online Economics degree. Class has now commenced.

An exercise in versatility

Economics is the driving force that underlies everything. On financial fronts ranging from the global marketplace to household budgets, economy is essential. Much like geologists, the heart of economists' job is preservation. Instead of the natural environment, economists are concerned with scarce monetary resources.

A broad array of opportunities are available to Economics majors. Commercial entities are very common employers. Economy professionals are also found in medicine, law, non-profit organizations, and government.

Levels of learning

A bachelor's degree is the minimum requirement for entry-level economist positions. Most Economics majors find private-sector employment. Non-profit concerns and government also yield abundant opportunities. In the Federal government especially, many newly-minted Economics majors find professional havens in facility-based statistical and data analysis operations.

Academia is also an attractive professional destination for economists. Professorships at major universities are wide open for those with doctoral Economics degrees. This career path is also attractive to incurable research and writing fetishists who provide running commentary about economic trends and concomitant public policy.

An online economics degree at the master's level is an ideal fit for those seeking a pragmatic professional position in Academia. It closely matches the hiring protocols at most high schools or junior colleges.

Envision your options

Many students cannot visualize many - or any - practical economist careers that interest them. This is unfortunate, as Economics majors possess practical skills that are extremely marketable. Think about it, class. The basic concepts underlying every economist job are money and math. When combined, they add up to a knowledge base of universal high value. Here are some examples:

Economic Forecaster

Every business' top priority is maximizing the bottom line. A flawless crystal ball would yield guaranteed unlimited profits. Unfortunately, such devices have not been invented. Forecasters are the next best thing available. Their complex analyses are extremely helpful to commercial concerns. Current economic climate and market conditions are gauged for maximum marketing efficiency.

Finance, Banking, and Accounting

Economists' extensive numbers knowledge is always needed in other areas, as well. Half of maximizing bottom lines is minimizing expenses. Economists advise organizations on achieving maximum budgetary efficiency. Operational costs from employee restroom toilet paper to multi-billion-dollar capital acquisitions are scrupulously scrutinized and monitored by economists.

Public Policy, Government

Economists accurately comprehend and evaluate demographic, socioeconomic, and financial patterns. These trends can be monitored, compiled, and evaluated. Realistic projections about the likely effects of proposed budgetary allocations, tax regulations, and other legislation are performed with great accuracy. Economists frequently conduct feasibility studies for accurate assessment of proposed projects or policy changes.

Other Options

Economists explore statistical arenas aside from purely monetary and financial matters. Research positions in scientific oriented organizations is a popular career path. The logical deductions and inferences that may be drawn from economists' conclusions are very valuable to such organizations.

Economic rewards of Economists

Here is a thinking exercise, class: If someone caused an extra $1 million to flow into your bank account during a given year, how much would they be worth to you? Even payment of a half-million dollars would be profitable, don't you agree? Businesses think the same way.

A 2008 Wall Street Journal study showed that average starting pay for Economics majors was $43,419 per year. This pegged economists as the fourth highest-paid occupation. Economists even exceeded average starting salaries of new-minted MBAs.

The moral of this story is pretty clear, students. If you have the right knack for numbers, an economist career is an excellent choice. All available data clearly reveals this. Implement your own economic policy today by enrolling in the online economics degree program of your choice. Your future bottom line will make it well worthwhile. Class is now dismissed.

My Colleges and Careers helps students connect with the best schools to earn their college degree and embark on a rewarding career! A powerful resource for individuals of all walks of life, My Colleges and Careers connects people with the programs that help them earn degrees on campus or online.

Quantum Economics - Philosophy of the Economy - Quantum Leap in Market Economics

In market economics economic tools (quantum economics: parameters) are used indiscriminately (not politically motivated but statistically formulated) to maintain balance (quantum economics: grid or quantum quantities) demand-to-supply ratios. Compare to currently used production (based economics that should be using self-adjusting dialectic economics of trickle-down approaches for development.

Because, economic tools (parameters) are "artificially" applied to limit over-capitalization or under-capitalization effect on real economies and markets, these (economic tools, parameters) may well be used to increase or decrease different parts of economies, markets by artificially accelerating or slowing business activities.

In modern times ecological issues are becoming extremely relevant to Earth survival: developing and less developed countries' industrialization (considered by the standards of production economics only ways for development) will destroy Earth either by polluting the environment to point of no return or by exhausting Earth recourses to point of no return: both scenarios Earth will not survive such mass industrialization; In third scenario if developing and less developed countries and markets are pressed to stay as these are by using financial means and these (developing and less developed countries and markets) remain in such underdeveloped condition these still are growing in population and gradually polluting Earth and destroying Earth resources in much higher then most developed countries and markets rates; also in deregulated global market environment when environmental rules are regulations are obeyed by most developed countries and markets but not obeyed by other markets then industrial production will move to deregulated areas thus pollution is unavoidable in current production profit (only) based economics.

Quantum Economics Leap or Quantum Leap is 'controlled' economic jump executed by pointed use of financial means (low rate business loans and subsidies) to different areas of real economies and markets particularly less developed countries, markets or parts of markets (in this category: parts of most developed countries and markets' underdeveloped areas could be considered)

Predominantly, development of less developed countries and markets, or parts of markets should be directed toward environmentally friendly technologies: renewable energy sources, organic farming, environmental tourism and etc. In economics of Marketism countries and markets should not necessary become industrialized to raise their life standards and development is not (only) related to industrial production:

Question:

Where industrial good will come from to bring needed supply to such growing demand from non-industrial development?

Answer:

It will come from globalizing rapidly expanding production of countries and markets of US, Japan, China, India, etc.

Globalization of industrial production and rapidly rising productivity could provide needed industrial and high tech "supply" to growing by quantum leaps consumers "demand"; to prevent from imbalances of demand-to-supply ratios central banking system should be established that uses formulas for monetary quantities and fiscal quantities and precisely applies economic tools (parameters) to limit economic recessions (quantum economics: energy buildups and consequential big waves). (See: Quantum Economics-Philosophy of the Economy-Monetary Quantities Formulas and etc related articles).

http://sites.google.com/site/mcngconsultinginc/

http://sites.google.com/site/philosophyoftheeconomy/

The Evolution of Economic Understanding and Postwar Stabilization Policy

In introduction, I will be expounding on the evolution of economic understanding and postwar stabilization policy from the perspective of Christina D. Romer (Professor, University of California at Berkeley) and David H. Romer (Professor, University of California at Berkeley) throughout the paper. In detail, I will cover the time periods of the 1950s to the 1990s. Finally, I will comment on the commentary and discuss the general discussion as presented by Thomas J. Sargent, Professor, Stanford University and Senior Fellow, Hoover Institution.

The evolution of economic understanding in the 1950s was realistic as it pertains to the relationship between capacity and full employment. The 1950s model held that there was a positive long-run relationship between inflation and unemployment (summarized from Romer). In other words, monetary policymakers believed if the economy should rise above full employment that inflation would occur. Thus, the monetary policies would create a domino effect by negatively impacting long-term growth, and worst, causing a recession. In addition, Federal Reserve Chairman William McChesney Martin shared a common view (depicted in Minutes, August 19, 1958, p.57) that the inflation that would result from overexpansion would eventually raise unemployment, not lower it.

In the 1950s, monetary and fiscal policymakers were 'on the same page' in regard to how the economy worked. For example, the 1956 Economic Report stated: "As a Nation, we are committed to the principle that our economy of free and competitive enterprise must continue to grow. But we do not wish to realize this objective at the price of inflation, which not only creates inequities, but also is likely, sooner or later, to be followed by depression." (EROP, 1956, p. 28.) The 1958 Economic Report warned against mortgaging the long-run health of the economy for the sake of applying measures to provide a spurt in activity. The 1959 Economic Report discussed the mechanisms by which inflation hurt economic growth.

The evolution of economic understanding in the 1960s took an optimistic turn from the economic understanding in the 1950s. For example, policymakers adopted a view of the levels (higher than the levels of the 1950s) of output and employment that could be reached without triggering inflation. Eventually, policymakers in the 1960s came to believe in a long-run tradeoff between unemployment and inflation, in stark contrast to policymakers in the 1950s. (As per Romer and Romer.)

The fiscal policy makers of the 1960s depicted the most dramatic departure from the policymaking of the 1950s. For example, "in discussing the further rise in inflation in the second half of 1967 (when unemployment was 3.9 percent), the Economic Report stated: Demand was not yet pressing on productive capacity-over-all or in most major sectors. The period of slow expansion [from mid-1966 to mid-1967] had created enough slack so that production could respond to increasing demand without significant strain on productive resources." (EROP, 1968, p. 105.) The preceding quote lends to the fiscal policymaker's, in the 1960s, strong confidence in their estimates of the sustainable rate of unemployment that they consistently attributed inflation that arose before unemployment reached this level to sources other than excess demand. (Paraphrased from Romer and Romer). The Romers gave other supporting documentation to the preceding paraphrase such as the 1962, 1966 and 1967 Economic Reports.

The monetary policymakers in the 1960s proved to be more conservative, if not ambiguous than the fiscal policymakers in the 1960s. Nonetheless, monetary policymakers were optimistic about the sustainable levels of output and employment, which reflected the views of fiscal policymakers. However, monetary policymakers did not view the high levels of activity as unsustainable. To the contrary, monetary policymakers were mainly concerned that inflation might continue, not that it would rise. (RPA, March 5, 1968, p. 117 - 123 expounded on the preceding issues.) Both monetary and fiscal policymakers expected inflation to fall although monetary policymakers were less optimistic about inflation. In other words, although monetary policymakers' view was ambiguous (like an Alan Greenspan's speech...pun intended), it was on the same page as the views of fiscal policymakers.

The evolution of economic understanding in the 1970s shifted again, especially in the early 1970s. The emergence of the Friedman-Phelps natural-rate framework was brought about by the adoption of both fiscal and monetary policymakers. The Romers continued, "Throughout the decade, policymakers believed that the change in inflation depended on the deviation of the unemployment rate from its normal level. However, the 1970s saw considerable swings in both the estimates of the natural rate and in views about the downward sensitivity of inflation to economic slack."

In the early 1970s, the policymakers adopted the natural-rate framework. In the middle part of the 1970s, policymakers returned to more conventional views of the dynamics of inflation. Thus, the optimism, in the 1960s, of views concerning sustainable output and unemployment was dampened over the early and mid-1970s. Both fiscal and monetary policymakers underwent a similar evolution.

In the late 1970s, the natural rate framework was not emphasized or utilized, effectively, in policymaking. The preceding trend is a slight reversal of the model used in the early and mid-1970s. For example, President Carter's signed section of the 1978 Economic Report underlines the difference.

The evolution of economic understanding in the 1980s and 1990s is termed 'The Modern Consensus' by the Romers. The Romers described 'the modern consensus'as a new consensus of beliefs with four critical elements beyond the central place of he natural-rate hypothesis. First, policymakers in the early 1980s had substantially higher estimates of sustainable unemployment than many of their predecessors over the previous two decades as illustrated by the 1982 Economic Report. Second, policymakers returned to the view that aggregate demand policies did provide a means of reducing inflation as illustrated by the early Economic Reports of the Reagan Administration. Third, the agreement that means other aggregate demand policies were not viable cures for inflation as illustrated by the 1982 Economic Report. Fourth, the agreement that the costs of inflation were substantial as illustrated by the 1982 and 1983 Economic Reports. Both Monetary and Fiscal policymakers shared the same view.

There was continuity and change in the 1990s. As a matter of fact, in the 1980s and 1990s, there was little change in the views of policymakers as it pertains to 'harm to inflation' as illustrated by Federal Reserve Chairman Alan Greenspan (Greenspan, 1997, p. 1.) In addition, a natural-rate framework continued to be a core element of policymakers' beliefs illustrated by George H. W. Bush Administration. (EROP, 1990, p. 177.)

The postwar stabilization policy in the 1950s was an early commitment to aggregate demand management. Both fiscal and monetary policymakers reacted to macroeconomic conditions and make adjustments to stabilize the economy.

The postwar stabilization policy in the 1960s as it relates to the macroeconomic beliefs affected was two-edged sword, especially on the fiscal policy. The 60s witnessed a large-scale tax cut, which was similar to George W. Bush's tax cuts of the 2000s. Ironically, the 1964 Economic Report argument that fiscal expansion was necessary because the current unemployment rate was above its normal, sustainable level is similar to President Bush's argument for a tax-cut rate because of our current unemployment rate in 2003. Moreover, George W. used a clip of JFK speaking about the early 1960s tax cut in his Presidential campaign. In a state of Déjà vu, "The combined effect of these actions, together with the initial spending increases resulting from the Vietnam War (in Bush's case, Gulf War II), reduced the ratio of the high-employment surplus to GDP from 1.6 percent at the end of 1960-1.8 percent at the end of 1965. (Summarized from Romer and Romer.) In other words, history repeats itself.

The monetary policy was more stable and consistent during the 1960s, except the Federal Reserve kept real interest rates low despite high output, low employment, and rising inflation. The theory behind the above action was that many members of the FOMC was convinced by the model at the time that inflation would disappear on its own if output growth merely returned to normal.

The postwar stabilization policy in the 1970s (as described by the Romers) was a period of rapidly fluctuating beliefs about the macroeconomy, which resulted in rapidly fluctuating macroeconomic policies. In part, politics played a role in the macroeconomic policies under President Carter. Plus, policymakers, at the beginning of the Carter administration increased their estimates of the natural rate and began to believe once more that aggregate demand contraction could lower inflation. Chairman Burns, who stated in September 1974 that he "would not wish to see a prompt recovery in economic activity, expressed this view. If recovery began promptly, economic activity would turn up at a time when inflation was continuing at a two digit rate." (Minutes, September 10, 1974, p. 65)

The postwar stabilization policy in the 1980s and 1990s utilized the Volcker disinflation. The Volcker disinflation led to a massive and long-lasting shift to tighter monetary policy in late 1979. The Volcker disinflation was inspired by the FOMC under Chairman Paul Volcker. Basically, the policy was motivated by the belief among policymakers that inflation was very costly and that unemployment above the natural rate was the only way to reduce it. Thus, throughout the 80s, the Committee repeatedly expressed its willingness to accept high unemployment to bring inflation down. (For example of the preceding paraphrase of Romer and Romer, see RPA, July 6-7, 1981, p. 116; February 1-2, 1982, p. 89.) The preceding policy was accepted and reflected the views of the Reagan Administration, also.

In conclusion, I expounded on the evolution of economic understanding and postwar stabilization policy from the perspective of Christina D. Romer (Professor, University of California at Berkeley) and David H. Romer (Professor, University of California at Berkeley) throughout the paper. In detail, I covered the time periods of the 1950s to the 1990s.

In regard to the commentary and the general discussion as presented by Thomas J. Sargent, Professor, Stanford University and Senior Fellow, Hoover Institution, I will just make a few points. The commentary and the general discussion pointed out the shortcomings and failures of the Romers' failure to discuss, in detail, about the political climate, pressures and constraints the FOMC and its Chairman worked under. For example, the 1970s fits the bill. In turn, the Romers defensively stated (and I quote):

"Ms. Romer: I will be brief too. I want to make one thing clear: We

are very much not about where policymakers' beliefs came from. One

of the ways that we limited our paper is to only look at what policy-

makers believed not why they believed it. The role of academics and

the role of learning are at some level outside our story. It is not that we

don't think these issues are important, it is just that they are beyond

the scope of this study.

Likewise, on the role of politics, the way we envisioned our question

is how far can we get in explaining the changes in stabilization policy

with only the change in policymakers' beliefs. Again, I agree that an ele-

ment of politics is certainly important. What I think surprised us is how

far we could get in explaining the evolution of policy with only views.

On Chairman Martin, one thing to say is he may have not said that

he had a macro model, but he had a framework. He was making deci-

sions, he had views about how the economy worked, and what infla-

tion did to the economy. You can't make policy without some view

about how the economy works. On this idea about how quickly the

framework changes, and how Martin changes, it is not necessarily that

a particular person.s view changes. Rather, what may change is the

belief carrying weight within the FOMC. Our view of Martin is that at

some point.and again this is speculating and something we are work-

ing on.loses faith in his own framework, the framework that had

inflation being very costly.

In response to Allen Sinai's comment on the Greenbooks, again

we're looking for data. We were trying to get some indicator of poli-

cymakers' beliefs other than narrative evidence. When the Fed staff

members make their forecast, does that reflect the Board? Does it

influence the Board? I guess my naive view is that if the staff were

coming in with a wacky model that wasn't being supported by the

members of the FOMC, they wouldn't be there for long. So, I would

still stand by this notion that there is some relationship between the

model inherent in the staff forecast and the beliefs of actual policy-

makers. And, whether the modern Federal Reserve rejected the natu-

ral rate hypothesis in the 1990s, I think the much more plausible view

of what happened is that they kept the framework and they greatly

lowered the estimate of the natural rate. So, I don't think you have to

say they threw away the whole model.

Mr. Romer: Two very brief things. Alan cited the standard error for

estimates of the natural rate. That was a paper published in roughly

1997. It was a stunning result. Reading especially the Economic

Reports of the 1960s, you expect from their tone to see the second and

third decimal places on their estimates of the natural rate. They really

think they understand what is going on, and they are willing to dis-

count evidence that goes against it. They are willing to work very hard

to move the economy to what they think is the natural rate.

Regarding politics, Tom Mayer had a line that I found very persua-

sive. He said, .If the political story were really central, what you

would see in reading the records of the Fed, is that the Fed is straining

at the leash all the time.. You occasionally see a Fed that is in conflict

with the White House. You don't see a Fed that for two decades is try-

ing to do something that it wants to do but feels grossly constrained by

outside pressures."

In empathy with the Romers, my paper could have discussed more points in the

Romers' paper. Furthermore, I could have developed my paper a bit further as

reflected by my ambitious outline (as pointed out by Dr. H. Gram as it pertains to a

three page paper of summary). However, (as I implied in the prior parenthesis),

is not that I don't think these issues are important, it is just that they are beyond

the scope of this paper. (A paraphrased comment from Ms. Romer's response in

The General Discussion held by Dr. Sargent).

Karl A. Mitchell

The Global Economic and the Financial Crisis

The worst economic and the financial disaster of modern era is now almost over and most of the countries are now recovering from it. The situation is utterly different from the one that media shows and this crisis did not emerge suddenly. It is a result of poor financial policies which have been adopted in the last two decades.

The first signs of this economic crisis started to appear in the late 1990s and at the beginning of new millennium. The companies were not able to sense the threat and continued to shift their businesses online and selling items through credit cards. E-commerce did bring positive things but like anything else, brought its drawbacks with it. Sadly, the consequences of this online purchasing system were far reaching than the benefits.

Circulation of money has positive effects on the economic and the financial indicators. Money has to circulate in the market to help grow the economy but in this scenario, it is either held by the banks or the customers and most of the corporate entities collapsed due to ill management of finances. Their return on investment was close to nil in the worsening economic and the financial situation whereas interest rates on loans from banks kept on mounting and that drained their held finances as well. The organizations were threatened to be taken to liquidation and few survived the scare.

The economic and social effects of this crisis were devastating in some countries especially Philippines and they might get even worse. The world does not have the idea of severity of the problem. Millions of Filipino workers have lost their jobs due to this economic and the financial crisis and have been forced to move to their native soil. They were major contributors of foreign exchange to their country in this economic and the financial downturn but now they have joined hands with millions of unemployed people.

It is repeatedly said now that the world might face another economic and financial crisis in the year 2016 which might last for 2 to 3 years. The analysis performed considering the economic and financial position of different countries and the financial situation of different markets causes the analysts to believe that the period of 2016 will be much worse.

The "supposed" war on terror has cost billions of dollars to various countries and it is one of the basic reasons of economic and the regularly discussed "security" crisis. It is not predictable that how long this war will go but the economic and security situation of the world will continue to get worse.

The point to ponder is that the politicians do not understand the economic and the financial situation of the world and they always come up with useless solutions. The things that caused the present economic and job crisis will be the base for the next crisis as well. America and Japan will probably be the first countries to come under attack of the future economic and other related crisis.

You can assess the risk yourself as well and should not believe in all the analysis because they may not always be true. If the economic and other indicators look positive to you then they probably will be. Avoid taking excessive risk while planning any investment in this economic and social downturn. Short term investments will be beneficial for you though they may not give you high returns. The term "high risk high return" is logically true but only if you can bear the loss.

If the world wants to avoid future economic and financial crisis then immediate measures should be taken. The politicians should not play any role in the formulation of economic and financial policies unless they have proper knowledge of the matter.

Usman Shahid is an author, freelance writer and an entrepreneur in Lahore, Pakistan. He holds a Bachelor's Degree in Business and Finance and is an avid Internet Marketer. Visit his blog to read his articles.

The Economic Ascendancy of China - China as a Major Player in World Economics

China has experienced unparalleled economic growth within the last two decades. This growth has undoubtedly earned China the position of a major economic power in Asia. China ranks slightly behind Japan in economic power and marginally behind the United States in purchasing power. In world rankings, China is the sixth largest merchandising nation in the world, the twelfth largest exporter of commercial services, and the largest beneficiary of foreign direct investments. China's ascendancy has been furthered by its entry into the World Trade Organization in late 2001. Although there is some argument that the actual growth of China's economic status is not as high as the Chinese government presents, however there is little doubt that China has officially entered the global stage as a major economic player.

Many experts are so impressed by the exponential growth of China's economy in recent years that they have referred to the nation as "the worlds manufacturing center". Surely, as China has become a major exporter of world goods, this description, although exaggerated, is largely descriptive of China's position in the world economy. However, this growth has been questioned by some experts and has worried other Asian nations. China's growth within the Asian market itself has increased steadily in the last two decades; a phenomenon largely unequaled by any other nation in the world.

With other nations within Asia, as well as with nations outside of the geographic area, China's exports have far exceeded their imports. This growth has excited the investment sector and resulted in the inflow of global capital into the nation's economy. Although China's exports are still a relatively small portion of the Southeast Asian totals, most experts insist that China will be the areas largest exporter of goods within the decade. Experts have also noted a steady trade surplus with western nations such as the United States and the European Union that are likely to sustain and encourage China's economic growth.

Part of this economic growth has been fueled by China's attraction as a tourist destination. The past two decades has seen a rise in the influx of tourists as well as the increase in both inbound and outbound business travel. Just like the rise in China's economic growth, its tourism market has also experienced significant increases. Currently, China has the world's fastest growing tourism market with over two million visitors each year in recent years. And as the nation continues to grow in a business sense, more and more individuals will be traveling into and out of the nation. There has been some concern that China's growth as an exporter of consumer goods may render other exporters somewhat impotent in the global consumer goods market.

However, some experts argue that this will not occur because the increasing globalization of the world consumer goods market is likely to render other nations equally competitive in the production and exportation of such goods as communication technologies and electronics and that the production chain that exists throughout nations, especially in the case of Southeast Asia, will only be enhanced by the growth of such nations as China and their ascendancy as a world economic player. However, experts also predict that, especially in the areas of clothing and textiles, China's growth may result in increased competition in the Southeast Asian market that may render competing markets unable to keep up. Although this will surely keep market prices low, it will also give China a distinct advantage over its Southeast Asian neighbors and have an undesired effect on the wages and profit margins of industries in those other nations.

There is also some concern over the amount of funds that are flowing into China as opposed to the investments that are entering other Southeast Asian nations. China has a decidedly larger share of foreign investment funds than its neighbors. Especially in Southeast Asia, the competition for foreign investors is intense with almost half of these funds now going to China and the rest of the nations of the area realizing an almost 50% reduction in foreign investment funds. Many experts note that the majority of China's growth has been a result of the opening of China's markets to foreign investors. Although doing business in China remains difficult in some sense, the opening of the economy has been a boon not only to investors, but, obviously to China as well. Before China's economic rise, Japan was the only nation in Southeast Asia to be recognized as a major world economic player and they were also the recipient of the majority of foreign investment funds.

However, as can be imagined, Japan has suffered financially as a result of China's growth in that as foreign investors recognize China's economic potential, the bulk of foreign investments funds have shifted away from Japan and into China. Additionally, Japan has had to decide whether to invest some of their own funds into China's economic market and growth. Although they have been reluctant to invest in China's growth in the past, there may now be a growing trend toward Japanese investments in China with the planned relocation of several Japanese businesses. Some experts predict that China's growth will benefit its neighbors as China begins to invest in other Southeast Asian nations. In fact, China herself has asserted that her economic growth should not make the surrounding nations nervous but should instead be a welcomed part of the entire area's growth as China promises to share the wealth.

Although some individuals see China's explosive growth as a recent event, it has actually been a long time coming. Since China opened its economic and physical borders to investors in the early 1990's, the nation has been the beneficiary of much of the world's investors who were searching for new markets in which to invest. However, some experts predict that the general political instability of the region may well be the downfall of China's economic growth as these experts wonder how long such growth can be sustained especially to the disadvantage of the rest of the area. These same experts predict that the only way for other Southeast Asian nations to compete will be to develop similarly effective trade policies as has China. However, these nations, bogged down by internal political problems and poor leadership may not be able to keep up. China's rise in recent decades from a poor country with a stagnant economy has been noted as a huge success story.

China has been one of the few nations to realize steady economic growth even during periods of economic depression. Some analysts insist that this growth has put China behind only the United States as a total world power and some even assert that the next few years may indeed see China overtake the United States as a major world power in every respect, not just economically. Certainly, China's rise as a world player in economics as well as politics has opened communications between China and the U.S. as well as with the rest of the world. China is now the United States' second largest trading source and many U.S. investors have flooded China with U.S. investment funds. However, as some analysts predict that China will overtake the U.S. as the world's largest economy within the next decade, other analysts argue that, even if China continues to realize sustained economic growth, it does not have the political structure to overtake the U.S. as a world superpower.

Rebecca J. Stigall is a full-time freelance writer, author, and editor with a background in psychology, education, and sales. She has written extensively in the areas of self-help, relationships, psychology, health, business, finance, real estate, fitness, academics, and much more! Rebecca is a highly sought after ghostwriter with clients worldwide, and offers her services through her website at http://www.forewordcommunications.com/