Intro to Macroeconomics

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Staycee Furukawa
ECO 106
Final Paper
6 June 2011
Future U.S. Economy
The United States’ economy just experienced the biggest and longest economic downturn since the Great Depression in the 1930’s. What we now call the Great Recession lasted from 2007 until 2009, and the U.S. economy is in the state of recovery currently. Many actions were taken to try to get out of the recession and rebuild the economy. So far the economy is getting stronger, but it will not be a continuous growth. Within the next year to two years, the U.S. economy will experience growth, but it will take on the bathtub effect which means that there will be a pattern of growth and decline, but the growth will outweigh the decline. The Obama Administration used active fiscal policy to help the economy recover by implementing a 787 billion dollar stimulus package. The package was highly effective in restoring the economy. For example, it created jobs, extended unemployment benefits, and reignited the housing market again. Just when the stimulus kicked in, the recession came to an end. However, the point of the stimulus was to short circuit the recession and spur recovery (Zandi 2). It definitely did its job, but the effects will not be long-term. Therefore, the government must use other methods to keep the economy on an upward turn. Currently, the economy is slowing down which is one of the standstills that it will experience during the recovery process. One of the major factors that is contributing to the decline is the labor market. The employment growth rate is slowing rather than accelerating. This shows that businesses are turning more cautious and the soft patch may last through the summer. One of the major problems, according to Phil Izzo, is “the lack of wage growth among those with a job and those gaining new employment. Between labor market slack, which reduced bargaining power among the employed, and the mix of job creation being on the lower end of the scale, there has been no meaningful increase in aggregate earnings” (Izzo). An example of a threat to the labor market and the economy is the debate going on in Wisconsin. They are working to revoke the rights of state workers to bargain collectively. This act makes it impossible for them to ensure fair wages - aside from legal limits (which can now start being stripped too). Therefore, if that finishes going through, it could have a huge impact on national trends for labor unions and workers, leading to a decline in average salary for low skilled laborers. A decline in average salary means that the marginal propensity to consume will decrease and the consumer demand as well as production will also decrease leading to an overall decrease in GDP. Obviously the government cannot raise wages drastically otherwise it would result in high inflation, but cutting back wages for the lower skilled workers will lead to the same kind of problems that a recession shows. However, economists argue that the soft patch that the economy is going through will not persist past the summer of 2011. Much of it is due to the high shock of oil prices, the crisis in Japan, and spring floods and tornados. The price of a barrel of oil has already fallen to about $100 per barrel. As for the weather, summer always promises better weather, and Japan has already been making good progress in getting production back up to plan. The long-term issues that need attention are cutbacks in local and state governments, limits to federal spending, and the ongoing drag from depressed commercial and real estate markets (Izzo). Another reason that the economy is experiencing a slow growth rate is due to imports and exports. A sharp rise in energy prices contributed to a widening in the trade deficit. The high prices of crude oil made the import price for petroleum surge, but now that they have lowered, the import prices should normalize again. The Dismal Scientist says that “The effects of Japan’s March 11 disaster will show up in...
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