"The failure of national economic policy is costing us more than jobs; It has begun to weaken that uniquely American spirit of risk-taking, large ambition, and optimism about the future. We must rally them now to bold departures that rebuild our national morale as well as our material prosperity." - Mitch Daniels
"Education is the best economic policy there is." - Tony Blair Many influential politicians and economists believe that economic policy directly affects the work force. That "bad" economic policy directly affects human capital. However, the term "economic policy" has great potential to be misunderstood or taken at face value. What exactly is this economic policy that is strong enough to diminish human capital and to destroy
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In a broader sense, supply-side economics seeks to deregulate the market to promote a flourishing economy through sound money and free trade. Supply-side economics is a relatively young theory of economic policy that has seen much use throughout history, despite only recently becoming a published theory. In the 25 years between 81 ' and 07 ' that supply-side economics was applied, the nation saw a 300% increase in net wealth, from $20 trillion to $60 trillion. Supply-side economics lowers marginal tax rates, the taxes paid per additional dollar of income, and increases the after-tax rate of return, which is the "nominal" or assumed rate of return minus the rate of inflation, from work and investment. It also deregulates the market, which is removing regulations and trade barriers enforced by the central government. This combination of lower taxes, higher returns, and less regulation is all geared towards increasing the incentive to produce. Many people believe that supply-side economics did not accomplish it 's goal, citing the Clinton administrations tax increases and it 's actual effect on the economy compared to the effect that the supply-side theory posits. In my personal opinion, supply-side econonomics has it 's faults. Most of the tax cuts and incentivization goes towards the wealthy. This increases the wage gap substantially as the wealthy are able to invest …show more content…
Each has it 's own strengths, weaknesses, and mysteries to deal with. Supply-side economics favors the wealthy. Keynesian economics favors the consumer and has severe long-term consequences. Monetary policy is the only way to manage and mitigate the strengths and weaknesses of economic ideologies and the Fed was created to that purpose and that purpose alone. We may often look at tax and interest rates and be disappointed by what we see. It is important for every American to realize that without economic policy, there would not be a stable
Leading up to the year 1981, America had fallen into a period of “stagflation”, a portmanteau for ‘stagnant economies’ and ‘high inflation’. Characterized by high taxes, high unemployment, high interest rates, and low national income, America needed to look to something other than Keynesian economics to pull itself out of this low. During the 1980 election, Ronald Reagan’s campaign focused on a new stream of economic policy. His objective was to turn the economy into “a healthy, vigorous, growing economy [which would provide] equal opportunities for all Americans, with no barriers born of bigotry or discrimination.” Reagan’s policy, later known as ‘Reaganomics’, entailed a four-point plan which cut taxes, reduced government spending, created anti-inflationary policy, and deregulated certain products.
A key to victory this November is the unemployment rate. According to a Bloomberg National Poll conducted in March 8-11, 42% of Americans consider unemployment and jobs as “the most important issue facing the country right now” (Priorities). Although there has been 24 consecutive months of private sector employment growth, the Federal Reserve suggests that the numbers could fade in the coming months. The importance of creating more jobs cannot be stressed enough. No President in the recent era has been reelected with the unemployment rate above 7.2% (Roth). To paint a picture, in late 1982, the unemployment rate topped 10.8 under Ronald Reagan. However, about 36 months later, the rate dropped to 7.2% percent. The drastic drop in the n...
Keynesianism and monetarism are both ways to stabilize the economy and promote growth when need. In keynesianism, government uses fiscal policy which is a list of policies that government spending and taxing can be used to improve the performance of an economy. The government produces stabilization by taxing and spending yearly plans. Taxing can occur when inflation is high and lowering taxes tends to occur during a high percentage of unemployment. By lowering taxes, it increases disposable income or the party of income that goes to financial responsibilities. When people have more money, they are able to spend more which in return goes into jump starting the economy. Monetary Policy is another policy used in Keynesianism which is a list of protocol designed to regulate the economy by setting the amount of money that is in circulation and controlled interest levels. The Federal Reserve system also known as the central banking system in the U.S. which holds control of this policy. Monetary policy has three tools used my the Federal Reserve to enforce this policy. Reserve Requirement is the first tool that determines the lowest amount of money a bank must possess and is not able to lend out. The second way to enforce monetary policy is by using the discount rate or the interest rank a bank will charge. The f...
Comparing Keynesian Economics and Supply Side Economic Theories Two controversial economic policies are Keynesian economics and Supply Side economics. They represent opposite sides of the economic policy spectrum and were introduced at opposite ends of the 20th century, yet still are the most famous for their effects on the economy of the United States when they were used. The founder of Keynesian economic theory was John Maynard Keynes.
President Obama, in his 2013 State of the Union Address, describes how the issues in education, job creation, new technologies, and environmentalism are crucial in the growth and development of our economy. His purpose is to urge members of Congress and Americans to help reform our government to ensure that those who work hard are able to succeed. Speaking with an authoritative voice, he persuades his audience that although things are going better than before, changes still need to be made to continue to improve the American way of life.
Between January 2008 and February 2010, employment fell by 8.8 million, the largest decline in American history. The 2008 Recession, which officially lasted from December 2007 to June 2009, began with the bursting of an 8 trillion dollar housing bubble. Job losses during the recession meant that family incomes dropped, poverty rose, and people all over the country were suffering. Things like this don’t just happen. Policy changes incorporated with the economy are often a major factor. In this case, all roads lead to one major problem: Deregulation. Deregulation originating from the Carter and Regan Administrations, combined with a decrease in consumer spending, and the subprime mortgage bubble all led up to the major recession of 2008.
Milton Friedman and Adam Smith both had similar ideas when it comes to laissez-faire which is referred to as “let it be economics.” Laissez-faire is a theory which opposes to any government interaction in business affairs. Friedman, an American economist, statistician, and writer who taught at the University of Chicago, believed that, “A laissez-faire government policy would be more desirable than government intervention in the economy” (New World Encyclopedia). Friedman believed in a laissez-faire government policy, because he assumed that it would help businesses th...
Keynes and Hayek represent different options. Should we steer markets or set them free? “Which way should we choose, More bottom up or more top down?” (Fight of the Century). These questions reflect the opposite ways Keynes and Hayek address the economy. Keynes wants to “steer” the economy from the “top down.” From his understanding of the economy, Keynes theorizes that the market can be directed by those with the power to do so to accomplish goals leading to a prosperous economy. This is the basis in his approach to dealing with recessions where the government or central bank manipulates the economy. The other side is a free market from the “bottom up” on which Hayek stakes his claim. Instead of steering the economy, Hayek proposes to leave it alone. Do not try to control it, but let the market determine the interest rate and price level, as it eventually will, through supply and demand. In this way, control is not exerted downward, but reality is expressed from basic economic forces. Fundamentally, Keynes’s model focuses more on the spending and consumption aspects of GDP, and Hayek’s approach focuses more on the investing aspect which flows from saving. These are the options from which to choose. Keynes vs. Hayek, Short run vs. long run, controlled vs. free, top down vs. bottom up, each possibility has its negatives and positives. This debate is not wrapped up
The clash between Hayek and Keynes has defined modern economics. On one hand we have Keynes standpoint, which was if investment exceeded savings, there would be inflation, but if savings exceeded inflation, a recession would be present. On the other hand Hayek presented ideas of less government initiative and to have people make their choices on economic decisions more freely. Hayek argument on Keynes government spending was that if the economy should be more concerned with consuming or investing.
Keynes believed that price levels have to be stabled in order to have a stable economy, and that is only possible if interest rates go down when prices rise. He also believed that the market forces alone will not deliver full employment but boosting government spending (main force of the economy in Keynes theory) will aim in his theory full employment or close to that. He believes Government intervention and spending will finally stop recession, unemployment and most importantly depression. Spending will increase the aggregate demand of the economy. As shown in the graph, Keynes believes that as you increase aggregate demand (shift it out from AD 1 TO AD 2), the real GDP increases (real GDP 1 to real GDP 2), this will then decrease unemployment (hopefully having 0% of unemployment).
Wolfson, M. (n.d.). The ideological attack on job creation. In J. Cypher, A. Reuss & C. Sturr (Eds.), Current economic issues: Dollars & sense Real World Economics (16th ed., pp. 38-40). Boston, MA: Economic Affairs Bureau, Inc.
On the other hand monetary policy is the expansionary or contraction of the money supply in order to influence the cost and the availability of credit. The three major and two minor tools that the fed can use to conduct monetary policy are easy money policy, tight money policy, reserve requirement, open market operations, and the discount rate. With the easy money policy the Fed allows the money supply to grow and interest rates to fall. This stimulates the economy when the interest rates are low people buy on cred...
On December 4th, 2013 in a speech at the Center for American Progress addressing the issue of Economic Mobility in the U.S. President Obama stated, “I believe this is the defining challenge of our time: Making sure our economy works for every working American. It’s why I ran for President. It was at the center of last year’s campaign. It drives everything I do in this office. And I know I’ve raised this issue before, and some will ask why I raise the issue again right now. I do it because the outcomes of the debates we’re having right now -- whether it’s health care, or the budget, or reforming our housing and financial systems -- all these things will have real, practical implications for every American. And I am convinced that the decisions we make on these issues over the next few years will determine whether or not our children will grow up in an America where opportunity is real”. The President’s remarks were in response to a growing concern in our country that income inequality has increased and lack of upward mobility has decreased. Too many citizens have incomes so low that they struggle to make end meet, and Americans are no longer sold on the concept of the “Land of Opportunity”, or the promise that if you work hard, you have a chance to get ahead.
The theory of economics does not furnish a body of settled conclusions immediately applicable to policy. It is a method rather than a doctrine, an apparatus of the mind, a technique for thinking, which helps the possessor to draw correct conclusions. The ideas of economists and politicians, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist." (John Maynard Keynes, the General Theory of Employment, Interest and Money p 383)
You fall more than you climb.” For decades, America has been training our young people to have the goal of “getting a job” once they get out in the real, cold, dark world. In America today there are not nearly enough good jobs to go around, and this crisis is only going to accelerate as we are forced into the future. As our immigration rates escalates, than you Obama, more people from around the globe are coming to the United States to try to achieve the stereotypical