ubmit at least a 500-word summary of what you learned from group discussions on the U.S. trade policy, U.S. fiscal policy and the U.S. immigration policy.
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group_3_us_fiscal_policy.docxGroup 3 US Fiscal Policy
Fiscal Policy refers to the practice of monitoring spending levels and tax rates to try and influence our economy. Before the Great Depression, which started in the late twenties, our government had a hands off approach to the economy or a laissez-faire approach. After the Second World War it was deemed necessary for the government to become involved in our economy. (Heakal, Reem) They decided this would be necessary in order to attempt to influence unemployment, the business cycle and inflation. Of course there are many different ideas on the best approach and way to accomplish this.
The government takes initiative in trying to regulate unemployment, unemployment benefits, and taxation. They do this through the use of what is known as automatic stabilizers, which are programs and policies meant to balance fluctuations in the economy. During a recession, automatic stabilizers are expanded, and during an economic boom, the automatic stabilizers are reduced. An example of this would be unemployment benefits (David Weil). When there is a recession and unemployment is high, the government spends more money on unemployment benefits, whereas when the unemployment is low, the government spends less money on unemployment benefits. According to William J. Carrington, an analyst of the Congressional budget office, some of the fiscal policies used to reduce unemployment include household assistance (reducing employees’ taxes, increased unemployment insurance expenditures, and more refundable tax), business assistance, and financial aid to the states. Carrington also shows that to reduce unemployment, unemployment benefit policies must be modified such as an extension to the duration of benefits, reemployment bonuses, and offering wage insurance. Fiscal Policy can also be used to influence new ideas like those in alternative energies.
The United States government often tries to finds ways to stimulate the economy while looking towards its future. The government was given powers to accomplish this by our founding fathers when they wrote our Constitution. The Constitution of the United States speaks to this in the first article, “To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.” (Article I, Section 8, Clause 8). With this in mind the United States Government has distributed grants and loans to a myriad of industries to improve technologies. We see this today in the Department of Energy (DOE) and how they are focusing on Solar, Wind, and other sources of natural alternative energies to power the United States into the future. From January 2011 to September 2011 the DOE was responsible for 45 conditional or finalized loans or grants to the alternative energy industries (DOE, 2011). During this time companies were able to use the Energy Policy Act of 2005 section 1703 and 1705 to apply for loans and expand business. This pursuit led to the expansion of business and added additional employees. While many people have heard of Solyndra and its 535 million dollar loan and it’s later filling of bankruptcy not many have heard of Record Hill Wind LLC? This company focuses on wind power and they have actually been able through investment lower property taxes by 59 percent in their local community. Some companies will make it and some will fail the monies pumped into the local economies through the building of solar farms and wind farms will push for invention, infrastructure improvements which will create jobs and hopefully lead to a more robust stronger economy. Which leads to the mention of Quantitative easing within the Fiscal Policy, which deals a lot with the build-up of the economy.
Quantitative easing is an unconventional monetary policy where a central bank purchases government securities or other securities from the market for them to be able to lower interest rates and increase the supply of money. Overflowing financial institutions with capital aiming to promote increased lending and liquidity increases the supply of money. When short-term interest rates are at or approaching zero, and does not involve the printing of new banknotes is when Quantitative easing is considered (Hussain, 2014). Normally in the Fiscal Policy they agree to buy only short-term debt, but in some recent years they have been buying larger sums of money, which leaves a long-term debt (Adam, 2014). Things like this are outside of the policy agreement and leave the Federal Reserve (FR) exposed to, but indirectly the taxpayer to some risk. With this going on it blurs the line between fiscal and monetary policy and the FR is not taking any serious default risk. The problem then may come when the economy recovers, and inflation begins to become a problem rather than a wished for outcome (Hussain, 2014). With that being said there will come a time when the FR wants to withdraw that extra $1 trillion of money it created, which is why they should stick to only using short-term debt as stated in the Fiscal Policy.
Governments around the world try and find ways through fiscal and monetary policy to limit and control the recession portion of natural business cycle. The overall idea of these governments is to try and increase aggregate demand or consumer spending, investment, exports. There is no guarantee that any of theses methods will work. Each business cycle is different and the cause of a recession has a lot to do with what the plan used to recover from it. The important part is to continue to study these cycles so we can become better prepared to limit the length and damaged caused by a recession cycle.
Question 1 :Do you believe it is wise for the government to offer money and incentives to companies using the taxpayer’s dollars and not closely monitor them and their books?
I believe that provision of invectives to businesses may in certain circumstances be a necessity in order to protect the overall economy or to ensure that the wider population and there interests are provided. Protection of employment, employment generation and providing for the needs of the people are again justifications that can be provided for government providing incentives to the businesses. I do however believe that all such incentives once provided should be clearly monitored as they involve the use of hard earned taxpayer money. A relevant example here can be that of the bailout that the US government t provided to banks when it purchased Mortgage Backed Securities that were at risk of default and removed the same off from the banks books. One of the major events that lead to my belief of strong oversight when tax payer funds are involved was related to this bailout policy adopted by the US government and was the bonus scandal of AIG. The group after receiving a $170 billion bailout from the government distributed bonuses of $165 million indicating what a lack of proper monitoring can lead to. (Economist, AIG, 2009) (Kimberly, Bank Bailout, n.d)
Question 2 : Should unemployment benefits be closely monitored to ensure people are not just receiving the checks without actively seeking employment?
Monitoring of the unemployment benefits I believe is a must in a post-recession world and hence there is a strong need for restructuring of the unemployment benefit system. A higher degree of monitoring is needed as a result of the heightened risk of early withdrawal from the labor force and because of the fact that many countries used the unemployment benefits to mitigate the income losses that occurred as a result of the crisis. Further many countries increased the extent of these benefits to include those who were previously not covered and also increased the length of the duration of the benefits. Such an increase in the unemployment benefits I believe has reduced the job search incentive and as a result steps need to be taken to ensure only those deserving of such benefits are ones who receive them.(OECD, Social benefits, 2013)
Question 3: Do you believe the government should be more or less involved in our economy?
Through my understanding of the modern economically I believe that while theoretically it may make a good argument that government should not be overly involved in the economy in reality now a there is a greater than ever need for more government involvement. My argument is also supported by the CEO of one of the largest groups in USA Siemens who in a recent interview called for more element involvement in the economy. Mr. Spigeal in his interview argues that a greater level of government involvement would give businesses confidence and give them assurance. Further in a recent poll over 63% of the participants called for more government involvement in the economy. (debate.org, Economy, n.d) (The Atlantic, The Case for the U.S. Government to Get More Involved in the Economy, n.d)
References
Amadeo, K. (2014). How Did the Bank Bailout Bill Help Turn Around the Economy?. [online] About. Available at: http://useconomy.about.com/od/criticalssues/a/govt_bailout.htm [Accessed 17 Sep. 2014].
