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October 2013

Happy 100th Birthday to the Automobile Assembly Line

Today's Detroit News has a nice article on both the development and impact of the assembly line in car production. Henry Ford brought assembly line technology to the car industry in 1913.  Before the assembly line, cars were luxury items, affordable only for the very wealthy.  Ford's innovation reduced costs dramatically and allowed for cheaper car prices, which made them more affordable for the masses. 

Ford was first to implement the line, allowing Ford Motor Co. to increase production of its Model T sevenfold and drop the price by nearly half — from $600 to $360 — during a five-year stretch from 1912 to 1916.

The innovation propelled the auto industry and the American economy to new heights, and changed the way ordinary Americans lived their lives. 

The assembly line is a great illustration of a technological advancement.  We often visualize new technology in terms of new goods (like the new Samsung Galaxy Gear).  However, the idea behind the item is the technological advancement.  New technology is a result of somebody arriving at a more efficient way of doing an old task.

Today's Unusual Fiscal Policy: Japan

Japan is simultaneously implementing both expansionary and contractionary fiscal policy.  According to The Wall Street Journal, the massive government debt has necessitated an increase in the national sales tax:

Prime Minister Shinzo Abe took a long-awaited decision to raise Japan's sales tax by 3 percentage points (LC: up to 8% total), placing the need to cut the nation's towering debt ahead of any risk to recent economic growth...

In order to offset this increase in taxes, Abe also promised an additional fiscal stimulus:

The stimulus measures total around ¥5 trillion ($51 billion), including cash-handouts to low-income families, Mr. Abe said. On top of that, there will be tax breaks valued at ¥1 trillion for companies making capital investments and wage increases.

Both of these policies are focused firmly on aggregate demand.