Stimulating the Us EconomyEssay Preview: Stimulating the Us EconomyReport this essayAbstractAccording to International Monetary Fund (2009) the recession in U.S started in 2007 and was brought under control in June 2009. However, the U.S is still suffering from the aftershock of this recession. This is why the economy is yet to fully recover; indeed some experts warn that if the government does not take appropriate measures then another recession may occur. This will mean that unemployment may as well increase since it is directly affected by recession. The decline in economic growth means that inflation and unemployment are on the rise, and consumers have little to spend. Therefore, there is need for the government to formulate and implement economic policies that can stimulate the economy. There are three basic things that can stimulate the economy; these are regulations, fiscal policy and monetary policy.
The Economist, 9 November 2008, p. 5, quotes the following: “While the macroeconomic fundamentals are clearly improving, we have become a few years behind that when it comes to the actual labor force and a substantial number of low-wage jobs are open and many of them fall vacant as a result of the recession. “It was a big risk of the government taking action and making the economic adjustment necessary to achieve these potential things. . . . But if we are to achieve these outcomes, governments must first focus on policy that will encourage businesses to hire lower-wage workers, reduce the costs of hiring them, and make it easier for firms to attract and retain workers. Even if no such action is taken, there is certainly going to be a problem for a generation. The government must be willing to take a large part in the creation of a labor market that, if it does manage to get there , will support growth in the U.S. By creating jobs through a combination of regulations and economic policy — i.e., the implementation of the fiscal stimulus and the use of monetary policy — the government has finally arrived at a path toward further job creation.” (Washington Post, 1 December 2009)
1. The Economist. 2009. “The United States has embarked on an ongoing recovery that has forced the Federal Reserve to intervene to spur economic growth. The nation’s economy shrank, as many economists and government officials predicted, before the 2008 financial crisis to 0.8%, 1% and perhaps even lower-end 1%, according to a new survey released today.” (The Washington Post, 1 Jan 2009)
2. The Economist, 2 July 2009, p. 41, quotes David Brooks: “The first step in stabilizing the Federal Reserve’s money supply has been to let banks open up accounts for any excess money they were willing to lend. Although some banks still keep some amount of their reserves in reserve, they won’t be able to use less money to pay back those loans until the Federal Reserve can start a process of liquidating them from its own reserves or through private sector borrowings. Some banks have begun building loans through government securities auctions, which are used to manage foreign debt. In some cases, these new private-sector investors can be bought by a bank to pay off the loans by taking on a debt in foreign currencies. That money can then be used to lend to an investor who would otherwise be required to buy the debt in order to keep up with increased interest.” (Bureau of Labor Statistics. 2011. Real-time and Monthly Percentage Earnings, Employment, and Earnings For All Workers.)*
3. The Economist, 3 January 2010. “As the economy shrinks faster than expected, demand for American workers faces a challenge,” the National Bureau of Economic Research (the source for the Economist article) quotes Larry Summers: “The number of low-wage workers has already fallen precipitously since the height of the recession, when it came to an expected fall of about 5 percent. The number of low-wage jobs added in January grew at a 2.5 percent annual rate over the same number of months — double the rate growth economists predicted a year and a half ago. And the number of low-wage workers has remained stagnant, at around 3 percent.” (NBER Working Paper No. 952328.)
“Job growth has been stagnant this economic term … in the United States. . . ”
The Economist, 4 November 2010, p. 15, compares the first-quarter growth in U.S. private-sector job creation in the previous two years to the second quarter 2010 growth. In the second quarter, private-sector job
All sources and findings will be presented in a compare and contrast format against the subject matter to highlight the pre and post-recession conditions of the economy. Since a majority of the research is based on factual findings and statistical data gathered by multiple experts and sources over the period of time, the paper will exclude any personal opinions.
TABLE OF CONTENTSIntroductionAtlas Insurance Company is a big American multinational company dealing in insurance services. The main business of the company is to provide insurance policies, which include private vehicles, commercial vehicles and even motorcycles; it also provides travelers insurance and life insurance. The company has created a very exceptional reputation about its insurance services, particularly America. However, the recent U.S financial crisis that saw the economy decline has negatively affected the company as the revenue of the company has considerably dropped due to losses and it has suffered. Accordingly, as the CEO of the company I write this letter to request the American government to undertake the three discussed measures to stimulate the economy.
Three things that the government should undertake to stimulate the economyThere are three things regarding the economy that the U.S government should apply to stimulate economic growth, as discussed in the paper, these include, fiscal policy, monetary policy and regulatory policy. Though, the impact and effectiveness of each of these measures might vary, many economists agree that they strongly impact the consumer as well as business behavior. These include the fiscal, monetary as well as regulatory powers the government has as enshrined in the constitution. The following section briefly explains these ways.
Regulatory measuresAs the US emerges from the recent financial crisis that saw its economy slump, the government can use regulatory policy measures to stimulate its economy. As pointed out by Ahrend, et al. (2009) better regulation measures taken through deregulation and structural reforms can enhance economic growth. Ahrend, et al. (2009) adds that the significance of a strong regulatory structure in bringing in investment and innovation cannot be underrated. Accordingly a good regulatory structure can impact the economic growth in two manners:
One, it positively affects market entry, by the government lowering barriers to entry, and reducing bureaucracy for new and existing businesses. At the same time, regulations can as well improve market exit, this could be through better regulations regarding bankruptcy. Consequently, the regulations can enhance market mechanisms as well as competition; this will result in higher productivity within the market and improved growth. According to Marvin (2007) regulations have the potential to reduce open up markets and completion and encourage best market results.
Two, as noted by were regulations improves the confidence of investors in the country because they increase transparency and clarity. Likewise, they can reduce the risks and enhance investment for important facilities, especially in the main infrastructure sectors like energy, transport, telecommunication and water. A good regulatory policy system that improves transparency assists to foster trust and reduces the level of costs of doing business.
It has been explained by Marvin (2007) that structural and regulatory reforms and policies are an influential complement to fiscal and monetary policies in developing positive conditions to jumpstart the economic growth. Indeed, Marvin (2007) adds that a countrys regulatory policies have a substantial impact on its economic growth. Particularly labor as well as product market policies are able to significantly affect structural unemployment, tendency in labor participation as well as labor productivity.
An effective and current regulatory policy framework remains critical to support any structural reforms. The recent financial crisis has brought the need for extra structural reforms, particularly in the financial sector, so that the economy can move in the right direction and markets can be stimulated.
However, the government has to remember that poorly formulated and executed regulations are bound not be followed. This in turn undermines the laid down rules and endangers the achievements of underlined policy objectives. Regulations that are formulated