The Role of Fiscal and Monetary Policies
In the United States
July 25th, 2012
Over the past ten years, we have seen a weary world with uncertain economic turns with more downswings than upswings. Some might say the worst affected economies have been the once invincible super-powers of the western world such as Western Europe and the United States. The ongoing uncertainties of the Euro as well as numerous bailouts have caused more speculation and fewer expectations. Critics argue that with proper policies and regulations the financial meltdown could have been assessed more efficiently or altogether prevented. The realization of uncontrollable powers such as political environments, foreign economies, consumer expectations, and the market forces itself will help in analyzing the policy adjustments the US government takes. Only after analyzing the US economy through several economic indicators such as unemployment, Gross Domestic Product growth rate, and consumer confidence we may then evaluate the policies that are in place. Unemployment, GDP growth rate, and consumer confidence along with other indicators such as the interest rate are all strung together and affect each other greatly as well as the economy. We know that when the interest rates are low, the rippling effect on investments, GDP, production, income, and subsequently employment is a positively increasing one (Erhan). According to the Organization for Economic Co-Operation and Development, or OECD, the long-term interest rates for the months of June, April and January have been 1.62, 2.17, and 1.97, respectively. This would lead to suggest that production would increase while unemployment decrease, yet this has not been the case. Agreeing with the United States Bureau of Labor Statistics, the OECD also shows unemployment staying at around 8.2 percent in the month of June. The unemployment rate and GDP growth is what the media seems to focus on, so we must also look at the effect the unemployed have on the growth rates and vice versa. The GDP growth rate is one of the most anticipated figures when released but it also receives much criticism due to how it affects businesses, the labor force, and future actions taken by the federal government. The US Department of Commerce released their second quarter real gross domestic product rate at an increase of 1.5 percent. Even though compared to our counter parts in the Eurozone we have grown, it is not enough growth to decrease the unemployment. The underemployed are also feeling the lack of growth. A recent article in the Wall Street Journal, “Which States Have the Worst Underemployed?” stated the large percentages of underemployed in states such as California, who accounts for 13% of the GDP, is starting to become a real concern. The economy is moving but we are still increasingly vulnerable to outside forces such as oil prices and the Euro woes, Izzo and Vigna, of the WSJ Live point out. The upward crawl the economy has been making has not only affected the employment rates, but it has also affected the spending and saving of consumers. Along with tying unemployment and GDP growth rate, we can also tie in consumer confidence. The US economy has been floating at around eight to almost ten percent unemployment the last few of years that even though there has been low interest rates, consumers and businesses have not completely responded to the almost two percent decrease in interest rates since the 2009-2010 rates. Due to the free flow of information and technologies like the internet, consumers have become smarter but more hesitant. The Conference Board measured “Consumer Confidence Index®, which had declined in May, fell further in June…the index now stands at 62.0 (1985=100), down from 64.4 in May.” People are able to see statistics and forecasts, and even though they hear about consumer friendly federal government policies most consumers do not react right away. Now that we...