Most economists would agree that technology and globalisation may well allow economies to grow faster than in the past before inflation takes off. But there are claims which are much more controversial than that. The argument is that these structural changes will make a resurrection of inflation almost impossible for the foreseeable future.
Some economists reject the orthodox economic view that inflation is primarily a monetary phenomenon - ie,the result of too much money chasing too few goods. Crude monetarism - the notion that a rise in the money supply is automatically followed by a rise in prices - has long been discredited, in part because different measures of “money” behave differently. But,even if it is not the
sole yardstick, monetary growth still matters. If lax monetary policies allow economies to grow too rapidly, inflation will eventually start to rise.
Indeed, it must be accepted that even in the new world of price stability, governments will still need some form of nominal anchor - a target for, say, inflation or the exchange rate - to keep inflationary pressures in check.
The death-of-inflation thesis is flawed in several other ways. For a start, rich countries’ imports from emerging economies are supposed to constrain price rises. But these imports today are not much bigger as a share of rich nations’ gdp than they were in the late 1980s, when inflation last took off.
Another objection to the thesis is that competition from emerging economies should affect only relative prices, not overall inflation. It will hold down the prices of basic manufactured goods in rich countries. But with a given stock of money, these lower prices will increase the real money supply. This, in turn, will boost spending on other goods and services, raising their prices. Moreover, emerging economies will spend their export earnings on imports from rich countries, again pushing prices up. Likewise, foreign competition should swell.
Finally, there are two big differences between past eras of price stability and today. The gold standard, which was abandoned in the 1930s, played a crucial role in keeping the value of money stable, by tying currencies to gold. Another big difference with the past is that governments now provide extensive social safety nets, which put a floor under wages. This makes it hard to see how wages (and hence prices) will fall in recessions, as some predict.
Not quite a zero era
The least controversial, and most useful is the analysis of how firms, workers, investors, pensioners and governments need to adapt their behaviour to zero inflation. Much of this is still valid even if inflation persists, albeit at lower levels than in the recent past.
For instance, in a period of low inflation, a home becomes simply a place to live, rather than a speculative investment. Workers can no longer expect annual pay rises. Companies and savers must also get used to lower nominal annual returns on their investments. The snag is that people suffer from what economists call “money illusion”: price stability makes them feel worse off. Indeed, their very fondness for inflation will make it harder to kill off.
Financial markets, by contrast, hate inflation. And their behaviour does support the thesis: investors now swiftly penalise inflationary policies by charging governments higher interest rates on their debt. This should help keep policy-makers on their toes. They need to be alert. A big reason why inflation has remained subdued in most countries is that there is still considerable spare industrial capacity. The real test will come as economic recovery builds up steam.
Perhaps it would have been better if, instead of (prematurely) burying inflation, the economists had focused more on what governments can do to ensure that it remains low. One way of doing so would be to entrench price stability as the principal formal goal of monetary policy. That could prove to be a particularly effective murder weapon.
VOCABULARY
| 1. to hamper (growth) | мешать, препятствовать росту |
| 2. redistribution (s) | перераспределение |
| 3. saver(s) | банковские вкладчики |
| 4. borrower(s) | заёмщики |
| 5. average inflation rate | средний уровень (темп) инфляции |
| 6. labour-saving technology | трудосберегающая технология |
| 7. low-wage economies | страны с дешевой рабочей силой (низким уровнем зарплаты) |
| 8. measure (s) of «money» | зд. показатель (и) денежной массы в обращении; денежный (е) агрегат (ы) |
| 9. speculative investment | зд. инвестиции с целью получения прибыли; выгодное капиталовложение |
| 10. spare industrial capacity | свободные (незагруженные) производственные мощности |
4. Переведите отрывок: «Not quite a zero era».
5. Напишите реферат и аннотацию данного текста.
Text B.
1. Переведите следующий текст:
In 1968 (a few years, as chance would have it, before a big leap in inflation), Germany’s economics minister, Karl Schiller, announced that “inflation is dead, as dead as a rusty nail”. More than a quarter of a century later, the “inflation is dead” school is making another bid for posterity. Some economists even declared that inflation is “an extinct volcano”, dangerous only because some foolish central bankers refuse to see that it has vanished.
What to make of claims of these sort? It is, for a start, worth noting that even if inflation is indeed dead, nobody has managed to persuade financial markets of the fact. This week, in the wake of news that the United States had created more jobs than expected in March, bond prices plunged on fears that a stronger economy might reignite inflation. Conventional wisdom is often wrong. But in the case of inflation there is a better answer than the gamblers’ one: it is to wait and see.
Another point to note about these claims is that they form part of a trend among some economists to rewrite some of the core assumptions of their own discipline. They are doing so, they say, in order to accommodate the big changes that are sweeping the world economy, and in particular its growing integration. In the face of “globalisation”, these economists have begun to challenge not just the persistence of inflation but also the theory of comparative advantage and the proposition that new technology creates more jobs than it destroys.
As Keynes said, a discipline that changes its mind as the facts change is more admirable than one that clings to obsolete dogma. The trouble with letting the paradigm-busters have their fun is that each of their new “insights” implies a policy reversal that politicians will favour even if they do not. Inflation is dead? Then relax monetary discipline. No such thing as comparative advantage? Time for protectionism. Technology destroys jobs? Make it harder for firms to hire and fire. By their zeal to proclaim a new era, these economists are in danger of lending respectability to dreadful policies.
And on thin grounds. Consider the alleged death of inflation. It may well be true, that sharper competition at home and abroad, new technology and weaker trade unions have made it harder for firms and workers to raise prices and wages. But even if structural changes of this sort increase the rate at which economies grow before inflation takes off, monetary discipline remains crucial. Does anyone seriously believe that Germany’s inflation rate is lower than Italy’s because its economy is more open, not because it has followed stricter monetary policies?
The claim that globalisation has wiped out comparative advantage is just as extravagant, and based on equally thin reasoning. It is true that free trade and new technology make it easier for the rich world’s firms to shift production to where labour is cheapest. And it is true that some low-skilled jobs in the rich world will be lost. But the fear that China, say, will be able to make everything more cheaply than America, stems from an old economic fallacy: confusing comparative with absolute advantage. The basic principle that all countries are better off if they specialise in industries and services in which they have a comparative advantage still holds; and it is free trade that enables them to specialise.
Pollyanna, and the absence of a free lunch
Some of those who argue that globalisation has changed some of the core assumptions of economics accuse those who disagree with them of complacency. On the one hand, they imply, stands the vanguard of a new economic paradigm, ready courageously to acknowledge and adapt to big historical changes; on the other are the Pollyannaish defenders of the status quo. Nothing could be further from the truth.
To believe in the threat of inflation and in the continuing benefits of free trade is not to argue smugly for inaction. It is to stress the need for some familiar but painful choices. It means tempering growth with monetary discipline, and finding ways to help those workers who will indeed suffer from foreign competition without panicking into the wealth-destroying option of protectionism. The striking point about globalisation is not how economics has changed, but how durable, and demanding, the discipline’s main ideas remain.
VOCABULARY
| 1. economic fallacy | ошибочная экономическая посылка |
| 2. absolute advantage | абсолютное преимущество |
| 3. economic paradigm | экономическая система понятия (парадигма) |
| 4. Pollyanna | неисправимый оптимист |
| 5. tempering growth | зд. регулировать темпы роста |
2. Напишите аннотацию данного текста.
«Inflation»
Topics for discussion
1. The effect of inflation on economic growth.
2. The popular thesis that «inflation is dead» - thanks to new technology and increased global competition - is about to face its first real test.
3. When growth in different countries is synchronised, inflationary pressures build as strong demand in one country spills over into others.
4. Financial markets hate inflation.
5. Price stability as the principal formal goal of monetary policy could he an effective weapon to kill inflation.
UNIT VI.BUSINESS AND BUSINESSES.
Text A.
WORLDBEATER, INC.
1. Дайте ответы на следующие 1. What rove do multinational
вопросы без предварительного corporations play in integrating the
чтения текста: world’s economies ?
2. Where does the economic logic of
multinationals lie ?
2. Дайте ответы на следующие 1. What are ways and reasons for
вопросы после беглого просмотра companies to become multinational ?
текста: 2. Could globalisation make multinational
companies less necessary ?
3. What is common criticism of
multinational companies ?
4. Why are multinationals more prominent
in developing economies than in richer
ones ?
3. Прочитайте следующий текст и найдите ключевые слова и предложения:
WORLDBEATER, INC.
Multinational corporations stand at the heart of the debate over the merits of global economic integration. Their critics portray them as bullies, using their heft to exploit workers and natural resources with no regard for the economic well-being of any country or community. Their advocates see multinationals as a triumph for global capitalism, bringing advanced technology to poorer countries and low-cost products to the wealthier ones.
Both of these stereotypes have some truth to them. But it would be wrong to portray the multinational corporation as either good or evil. Companies become multinational in many different ways and for many different reasons. Their impact on the global economy is far from simple to determine.
There is no doubting that multinationals matter. They are one of the main conduits through which globalisation takes place.Multinational firms’ sales outside their home countries are growing 20-30% faster than exports.
Multinationals also play an important role in global investment. The total stock of foreign direct investment - plants, equipment and property owned by businesses outside their home countries - stands at trillions. World-wide, foreign direct investment has been growing three times as fast as total investment, although it still accounts for only 6% of the annual investment of rich industrial economies. In addition, the UN’s World Investment Report estimates that 70% of all international royalties on technology involve payments between parent firms and their foreign affiliates, showing that multinationals play a key role in disseminating technology around the globe.
Few companies, even the most familiar household names , are truly global. The average multinational produces more than two-thirds of its output and locates two-thirds of its employees in its home country. Although both operate worldwide, the culture of General Motors is distinctively American, that of Volkswagen identifiably German. Yet there is no denying that multinationals are the main force behind worldwide flows of capital, goods and services.
Scale and scope
In the public mind, globalisation and multinational corporations are closely related. The stereotype has giant companies shifting production from one country to another in search of the cheapest sources of labour, without regard for the well-being of either the high-wage workers who stand to lose their jobs or I the low-paid ones who will be hired. Yet globalisation could just as easily make multinational companies less necessary.
Why? As transport costs and trade barriers fall, it becomes easier to serve foreign markets by exporting, rather than establishing factories and research centres around the world. And as capital markets become more integrated and liquid, it is easier for single-country firms to raise money by selling bonds or shares. Big American, Japanese or European firms, which have benefited from their ready access to capital, should therefore be losing one of their main advantages.
This suggests that the economic logic of the multinational company lies elsewhere. Some explanations appear more valid than others, but none fully clarifies why multinationals have become so prominent at the end of the 20th century.
The most common explanation for multinationals’ growth is economies of scale. In certain industries, the argument goes, firms can become more efficient by becoming bigger and producing more. What better way to accomplish this than by serving a global market?
Upon further inspection, however, the notion that economies of scale force companies to become multinationals does not holdup. Consider aircraft manufacturing, an industry in which a big producer has enormous cost advantages over a small one. This industry is dominated by two firms, Boeing and Airbus Industrie. Boeing assembles almost all of its aircraft in the United States, although it buys components from subcontractors around the world. Airbus, which is made up of four separate firms in four different European countries, manufactures only in those countries and relies on exports to sell its aircraft elsewhere. The mere existence of significant scale economies has not forced either to become a true multinational.