United States Debt and Its Effect on Tourism

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The economic issue

The US debt crisis has been at the center of debates among economic analysts in the past six weeks. On September 24^th, the focus was on the recently proposed Obama job’s plan. This was designed to boost the economy. A number of parties opposed it owing to their lack of belief in the plan’s ability to raise consumer taxes; it dwells on individual tax cuts. Others believed that the current deficit prevented a full stimulus (Romer 2011).

On September 25^th, it was reported that there was an impasse in Congress and the Senate. Republicans wanted spending cuts that would neutralize disaster aid expenditure while Democrats wanted more revenues. A standing committee was formed to reduce deficits by 1.2 trillion in 10 years (Calmes & Steinhauer 2011). On September 27^th, it was reported that disagreements between Republicans and Democrats over the deficit would continue even after passing a 7-week long law (Cicero 2011). On October 3^rd, Nixon and Lichtblau (2011) claimed that President Obama proposed the elimination of tax breaks as a solution to the debt issue.

On October 17^th, The Tea party affirmed that a survey they carried out revealed that people did not support reductions in health care spending, but they endorsed federal government spending like the elimination of entire government departments (Zernike, 2011). On October 18th, it was reported that many citizens opposed the level of secrecy that was prevalent among members of the standing committee who were working on the deficit problem (Tama, 2011). The overall trend in these debates is that the US debt problem will take a long to get fixed, as various proposals keep being shot down.

Broad implications for tourism

Whenever there is a continued economic decline, it is always likely that this will have implications on certain sectors of the economy like tourism. In other countries around the world that source their markets from the US, stagnations or declines may be reported (Johnson, Scholes and Whittington 2008). This already happened when the 2008 economic depression occurred. If the value of the dollar continues to reduce, and the credit worthiness of the United States is maintained at these low levels, then it is likely that fewer tourists will stream out of the US. This means that other countries around the world will continue to report declines in tourism earnings.

In other words, any international tourism destination such as Spain, Australia, and France can only be successful if the countries that come to visit them are economically stable. The US is one such market, yet it is not doing so well.

How the issues affect tourism on a microeconomic scale

The laws of demand and supply are quite applicable in this scenario. Demand is a function of price; the greater the price of a commodity or service, the lower its demand (Capon 2008). In the case of tourism, the higher the number of money individuals need to pay in order to visit a certain tourist destination, the lower the demand for that destination. The current debt issue in the United States is reducing the value of the dollar. This implies that tourists from the US, who may be interested in visiting other international destinations like Australia, will have to use more of their US dollars to pay for accommodation or travel.

These amounts would have been much lower if the value of the dollar was higher. Therefore, the US debt crisis has affected tourism in international markets like Australia because it has devalued the dollar and automatically increased the price of tourist-related products; this has reduced demand. Demand is also a function of income. Consumers with higher disposable incomes would be more willing to engage in international tourism than those without.

This debt crisis reduced demand for tourism in markets such as Australia because people in the US have less to spend. Supply is a function of technological factors. The debt crisis implies that there will be less money to invest in infrastructures like airplanes that get tourists from the US to other destinations. This means that fewer travels will occur, and international tourist sources will suffer (Tribe, 2005).

The possible direction of change in Australia and other international destinations

It is likely that an international tourist destination like Australia will start focusing on non-traditional markets. The US debt crisis will not fade away overnight. Current discussions in parliament are being stalled by partisan considerations. The Republicans and Democrats all want to protect their political interests, and this behavior compromises the level of progress that they can make. Australia may source some of its tourists from emerging economies such as India, China, and the Middle East. These areas have been chosen as possible targets because western countries (they would have been preferable as they have similar cultures) in the Eurozone are also grappling with their own debt crisis (Kerkar 2011).

Conversely, Australia may make certain adjustments to mitigate the problems that were created by the ongoing US debt crisis. For instance, hotel fees could be paid in US dollars instead of Australian dollars so that exchange rate losses could be minimized. Since this is an important market, even overall hotel costs should be minimized. The focus could also be given to personal visits from the US rather than business meetings, as these are likely to reduce.

Personal reflection

My thoughts when choosing the issue

When choosing the issue, I knew that it would go as far as it did because of the nature of the country chosen. The people of the United States have always been heavily involved in their political developments. Members of parliament, such as the tea party, solicited remarks and opinions from the public before they could make their decisions. There are also great stakes for both parts of the house because an election is due in the coming year. All legislative decisions are constantly being challenged because the opposing sides want to protect their political futures. This was the reason why I was not surprised that many proposals were always being shot down.

Whether I thought it would have such an effect on tourism

I did not think that the United States’ economic conditions would have such an adverse effect on the economy of another country like Australia because I thought that this issue was far-fetched. However, I learned that internationally oriented tourist destinations are vulnerable to economic fluctuations in other countries. I was also surprised that this could be explained by the simple laws of demand and supply.

How the assignment has changed how I look at economic issues

I have now realized that tourism is a highly sensitive industry. Laws of demand and supply can be used to understand or even predict results in certain businesses in this sector. Most of these businesses need to stay abreast of developments in their source markets so as to change strategies when unfavorable issues come up. This assignment has also taught me that diversification is very crucial for survival. If Australia did not have other source markets other than the US, then its tourism revenues would have been adversely affected. By focusing on other markets, businesses can keep on being profitable in these sectors.

The assignment has also exposed me to the connections between political and economic systems. Countries and governments have the ability to alter economic performance in their own countries and in others.

References

Calmes, J and Steinhauer J 2011, ‘As sides dig in, panel on deficit has an uphill fight’, New York Times, p. A17. Web.

Capon, C 2008, Understanding strategic management, Prentice Hall, Hemel Hempstead.

Cicero, R 2011, ‘Governing by crisis’, New York Times, p. A22. Web.

Johnson, G, Scholes, K and Whittington, R 2008, Exploring corporate strategy, Prentice Hall, Hemel Hempstead.

Kerkar, P 2011, ‘US, Europe debt crisis could impact flow of tourists to India’, The Economic Times, p. 15.

Nixon, R and Lichtblau, E 2011, ‘In debt talks, all tax breaks are not alike’, New York Times, p. B6. Web.

Romer, C 2011, ‘A plan on jobs deserves a hearing’, New York Times, p. BU6. Web.

Tama, J 2011, ‘In defense of the back-room deal’, New York Times, p. A29. Web.

Tribe, J 2005, The economics of recreation, leisure and tourism, Butterworth Heinemann, Oxford.

Zernike, K 2011, ‘A tea party panel supports health care law’s repeal’, New York Times, p. A17. Web.

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