The selected event is from Forbes Advisor, and it answers the concepts of fiscal policies and the fluctuation of prices. Fiscal policies can be termed as the actions taken by the US government to regulate the economy and mitigate challenges in poverty (O’Connell, 2021). The policies impact microeconomic concepts such as price ceilings and price floors.
Fiscal Policy Tools
Fiscal policies are more visible when a country is undergoing economic contraction. The US federal government should prioritize expansionary policies between contractionary and expansionary policies. The main tools of fiscal policies used by the federal government are taxes and government expenditures (O’Connell, 2021). It is faster, given that its implementation is accurate, since it promotes profits by expanding the monetary supply.
Aggregate Supply (AS) and Aggregate Demand (AD.)
While aggregate supply addresses the total quantity of a country’s GDP, aggregate demand is the comprehensive evaluation of services and finished products a country requires to sustain supply and demand chains. The US is in short-run equilibrium because there has been an increase in demand, and the supply has reduced (Lock, 2022). Demand-pull inflation has driven inflation because the county cannot sustain its residents’ needs.
Recessionary Gap
Recently, the country has faced a recession, and banks have warned their clients against the deterioration of the country’s economy regarding investments. Inflation of fuel prices and other commodities promoted the recession gap, which can worsen in the coming years (Ponciano, 2022). Determinants of cost-push inflation and demand-pull inflation have accounted for the recession in the country’s economic development.
Mitigating Short-Run Equilibrium
Mitigating the short-run equilibrium challenges requires more government resources spending and reducing commodity taxes. Cutting taxes eliminates budget deficits for small business owners and residents, promoting monetary profits (O’Connell, 2021). The US will soon face higher prices due to heavy taxation of commodities, resulting in higher inflation.
A recession is a decline in economic activities for some time. When the trading situation is terrible, many economic activities are reduced until the country is in a sustainable place. Committees are set to facilitate these recessions and ensure they are done in the best way possible (Karakosta et al., 2021). Based on holistic images that present poor business activities, industrial production, and currency gains the committee find data related to economy that help in starting and dismiss of recession. Recession serves a significant role during economic falls to reduce losses.
Recession periods depend on the nature of the economic situation of a country. The worst crisis may take longer compared to a less impactful one. Though no fixed rules are placed to facilitate recessions, the government always looks into better ways to determine how to decline them (Best, 2019). The committee may borrow the termination rules from the records based on government statics. Recession can only designate when started strategically in a country revolving governmental plans.
It takes cooperation between the committee and the government officials to overcome the recession. Improving domestic expenditures increases government economic gains and declines recession periods. Focusing on fixed investments may help dismiss and enhance the country’s economy. Solid growth is essential in economic activities that bring about development (Holmberg & Sandbrook, 2019). The development of better payroll strategies may reduce recession and prevent these situations in the future. Revising the trends is vital to control recession and downturns in economic expansion firms and projects.
In conclusion, recession can be reduced through proper payroll planning and cooperation between the committee and the government. In pandemic cases, the authority and payment offices should facilitate a better way to control overspending on salaries to prevent a downturn. This way, it is thoughtful to formulate fewer payment employments to allow the government to invest for more income. This process will help reduce recession periods in countries.
Whether the discretionary fiscal policy is desirable or undesirable has yet to receive much recent discussion. In this environment, the timing of fiscal measures is a hot topic. The anticipated countercyclical impact can only be achieved if adjustments to taxes and government expenditures are made at the right moment. Generally, there is a lag between when a specific action is required and when the fiscal measure becomes apparent. The duration of this period influences how successful a specific budgetary action is. This has already occurred, for instance, during the Great Depression. Three delays arise during this period: operational, administrative, and recognition.
The practical difficulty of observing potential future instances of economic instability is the other significant restriction on fiscal policy. Before it is possible to plan the amount of money to be received adequately, the number of expenses to be paid, or the kind and scope of the budgetary balance to be formed, they must be carefully monitored. Accurate predictions of numerous aspects of economic activity are essential for the effectiveness of fiscal initiatives. He displays some instability while he is gone. The competence of public authorities to define the proper scale and form of fiscal policy will be the most critical need on which the success of the fiscal policy will depend. On the other hand, this is the capacity to anticipate the appropriate moment for its use. Nevertheless, relying on the government to choose the proper scope, makeup, and timing of fiscal policy is unrealistic.
The Great Recession was particularly hard on the manufacturing and construction industries. However, the researchers found that the leisure and hospitality sector, whose employment fell by over 50%, was disproportionately impacted by the demise of COVID-19. According to the statistics, the number of services provided to private residences, including washing, repair and maintenance, and other services, had decreased by 20% by mid-April 2020 (Bartik et al., 2020). This is distinct from previous crises’ recessions and responses to them. According to the researchers, the increase in unemployment and drop in employment within the first two months of the COVID-19 recession was nearly 50% larger than the total changes over more than two years in the same dataset during the Great Recession (Bartik et al., 2020). Research findings support this assertion and the overall state of affairs.
Any state has limited resources, which sets the framework for developing social, defense, and economic programs. Debt and loans allow states to implement various reforms without limiting current expenses. For the first time, the US national debt was fixed in 1790 since then and was taken for the new government (Mitchell et al. 149). Today, the US is the world’s largest debtor and also the largest economy, market, and investor. Public debt was not the single reason for this achievement, but it became one of the critical engines of the American economy.
The American economy is a unique phenomenon. It has almost unlimited creditor confidence and financial sovereignty, allowing the country to get and print money when needed. However, it is erroneous to think that there are no restrictions. An economy cannot consume and invest more than it produces and imports. Such tools must correct any imbalance between supply and demand as inflation, tax increases, and other processes that reduce purchasing power (Household et al. 100). Household debt can become a severe problem for the economy if exceeds their dead and accumulated wealth. Inflationary pressures and excessive debt are causing households to go bankrupt.
Signs of economic weakness are multiplying: declining personal incomes, falling production index, rising inflation and unemployment, and the rising cost of loans provoked by the Fed. The overall picture resembles the approach of a recession and has standard features with the Great Recession crisis (Agarwal and Varshneya 242). However, now the economy has a more significant margin of safety than in 2007-2008. Households are less indebted, and banks are more stable. Housing is also in better condition than in 2007-2008 when it was flooded with supply due to a speculative building boom.
Works Cited
Mitchell, William, L. Randall Wray, and Martin Watts. Macroeconomics. Bloomsbury Publishing, 2019.
The last great recession which began in 2007 and continued through 2009 was precipitated by limited cash circulation in the United States financial and money lending institutions. In particular, the mainstream banking institutions experienced increased lending and borrowing due to sharp liquidity decline. Many large financial institutions such as Banks and insurance companies collapsed in the west during the crisis. In America where the financial crisis is believed to have its roots, it took the national government “bail out” running into billions of dollars in a recovery package plan aimed at correcting the problem when the crisis impact tolls peaked in 2008. The recession was further marked by a major downturn in world major stock markets since the great depression of 1930s. Dow Jones Industrial Averages, NASDAQ, NYSE and other stocks progressively registered reduction in numbers because bear dominated market at the time. In the west and particularly in U.S.A., the housing market also experienced significant shocks resulting in premature closures and prolonged vacancies in most built up areas. As a matter of fact, the financial crisis impacted on many people’s livelihoods in the West.
In the west where the recession was concentrated, it resulted into slow turnover in business as it brought with it market failure. As people rushed to employ corrective measures, at individual level, the crisis continued to force mare people into unexpected decline in wealth. Consumers adopted more stringent measures by consolidating their wealth while trimming down further purchases in the short run. Through the recovery plan the federal government undertook an extra commitment to restore the economy of the nation by embarking on stimulus programmes meant to bring back key industries in productive sector which were already run down by the financial crisis. For example, the decline in costs of housing in America which hit ceiling in 2006 in the United States led to the significant fall of values of securities associated with real estate valuation soon after. The financial crisis was evident by insolvents banks at the chagrin of the Federal Reserve in Wall Street in the period 2008-2009. Soon after the ripples spread to the global market in Europe while the East markets remained relatively stable. Investor confidence in the western economic core ( the United States) was significantly shaken as critics argued that stock brokerage firms failed to estimate the risks involved in mortgage tied financial products and that there was little adjustments to regulatory practices with regards to prevailing trends (Gitlin 2003, 258).
The lateness in response by international governments and money lending institutions to the meltdown forms the core of discussions in this essay. It might have seemed rather unlikely that the western economic cores would never be trapped in an economic recession like this particular one. The main motivating factors to drive economic powers in the west were concentration of wealth to buffer political influence and acquire dominance in the global market. However, the extent of the financial crisis in the west as shown by its multiplicity of economic effects across sectors has caused commentators to assess the position of economic power of western nation with regards to their market practices and ideas. Why would nations like US and UK pursue liberal democratic capitalism against the back drop of economic recession propagated by their markets? Are liberalized market practices still a viable way of economic development or it is time for investments to be directed to other markets such as China, Singapore, Malaysia or India which practice other market principles, viz nationalist authoritarian capitalism? By examining the pros and cons of each kinds of capitalism the essay discusses the populists view that propose shift of economic interests to the East due to conditions which indicate possible collapse of liberal democratic capitalism in the west.
Capitalism
Capitalism par se is an economic system based on individualistic social culture which demands that factors of production, thus land and capital goods are privately owned, while labour and products are traded for some agreeable fee in the market before taxed profits are to the owners ( capitalists). The capitalists can then decide where to invest the returns be it in new found business such as retail or whole sale market or simply in new technology or expand the existing industry.
Liberal Democratic capitalism
Liberal democratic capitalisms refer to the system of production and economic development where factors of productions are owed by a central government. In this system, the government observes the rules of political liberalism. The government therefore takes the responsibility of protecting every citizen’s rights from the government’s power to exploit its nationals. While liberal democracy is a form of government, capitalism in this respect refers to the government system of production and ways of intervention in the market whether local or international. Because the government provides the regulations of production and a nation’s individual companies’ employees have to follow, in the event of market failure due to any reason, the government has the responsibility of shouldering the corrective measures solely. Always production and local sales together with international sales is guided by the governments ideologies inclined to ‘liberal democracies”. Such has been the trend in the west prior to and during the recession that has had huge impact in western markets (Gambe 1999, 68).
Advantages
Some of the advantages associated with liberal democratic capitalism include citizen’s limited liability to possible risks which may be precipitated or proliferated in its market by trade of non standard goods. Non standard goods are all the goods produced without following the government’s regulations and thus considered illegal for any trade activities in the nation. In this system anybody can get involved in production and trade provided he keeps a significantly large taxable portion of his unit production by the government as a result any capitalist in a liberal democratic structure has to work in conjunction with the government. At high levels the two parties do business as partners 2because the government wants to protect its people against individual interests and the citizenry against any exploitation. The masses enjoy government protection from any malicious goods in its markets while at the same time they are cushioned against poor wages and product pricing because the government issues all the bench marks of production and trade activities (Bello 2005, 162).
Disadvantage
A major setback of this system is the fact that it discourages independence of individual investors who may wish to manipulate available resources to make his desired returns. Most ventures are either owned as state corporations or agencies partly funded by the government. It therefore implies that direct investor or participants are obliged to promote primarily government goals and not necessarily their personal interest. Hence, foreign investments in hindered by the dictates of the state(Prindle 2006, 237).
Nationalist Authoritarian Capitalism
This is a system of production and economic development that is associated with fascism. Factors of production are generally owned by a central government which is authoritarian in nature. The government ideologies impact on its markets through direct influence on production mechanisms used by local and foreign entrepreneurs. As a result of complex interrelationship that exists between economic system practised and political system practiced in the same location, nationalist authoritarian capitalism has had significant influence on markets in the Eastern hemisphere especially the Eastern European nations such as Italy and Russia. This system of capitalism rests supreme authority to the government which in turn takes on the activities of production through communism and socialism. By and large, market economies and systems of governments are structured to act in the interests of the nation. This system is not an exception (Siegel 1998, 54).
They are formed with the development of the nation’s sectors in mind. Consequently, nationalist authoritarian system is generally designed to concentrate wealth in Asia and East Europe where production is driven by subjecting entrepreneurs and their labourers to a “totalitarian” state that exercise direct control to all features of national life. In as much as individuals’ investments are considered important to the nation, the nation’s ideologies which are put to guide its economies are never compromised. It is observed that much of the philosophies promoted by nationalists authoritarian capitalism functions in reactions to western ideologies of liberal market capitalist system (Siegel 1998, 56)
Disadvantages
This system focuses on the development of the state as a whole at the expense of individuals’ interests. It regards the national ideals and philosophies as more important compared to entrepreneurs’ investments in the same state. Nationalist totalitarian capitalism has other setbacks which include its hindrance to individual development and creation of personal large scale enterprises. In its initial stages, this form of capitalism encouraged monopoly as only state run companies benefited from favourable terms of treatment. All financial and social resources were directed to such companies which later expanded due to advantages of large scale production. Because the government control all facets of the citizen’s life it reserves the right to choose which entitlement is relevant for its people. This means that the government can discriminate on investments and investors because it can only choose to allow business with people or companies which offers services and goods which resonates with its people’s basic demand according to their own preferences. Even when the government allows such form of business it tariff regulations is fixed arbitrarily to keep the populace within the government’s control (Gitlin 2003, 262).
Impact of great recession on the West market economies
The great recession leaves a lot of its effects on the western nations particularly the U.S. from increased national debt the Federal Reserve failure to regulate the financial market coupled by global financial crisis has led to increased cost of housing and basic commodities. The recession was preceded by exponential growth of profits and returns of financial institution and microeconomic anomalies associated with extensive borrowing and bubbles in the trade of long term fixed assets. Hence, the average financial sector in the U.S. rose sharply from 22% GDP in the end of 20th century to 117% by September 2008. Similarly, in the UK, the financial sector debt increased almost two-fold to 250% in by the end of 2008. Asset price bubbles are yet another significant effect on the west market especially the U.S. which is opposed to leftism due to market uncertainties created by totalitarian states. The overall ratio of household debt to GDP in the US and UK rose to exceed 100% by the end of 2008, following high inflation that was caused by heavy lending and borrowing by financial institutions (Gitlin 2003, 244).
This was followed by profound declines in workforce output and massive layoffs heightened by an all-time-high overall debt burgeoning to over 300% of GDP. Again, huge lasting fiscal deficit was experienced in western nations with high accrued trade imbalances as the major players tried to adjust demand of local assets. These proponents of advanced Keynesian economics in business management postulated that sophisticated techniques of marketing and modern finance could spread the risk to the ultimate persons who are able to manage it. This was manifested by homelessness and increased unemployment on the part of the average American. In UK and West Europe the case was worsened by the failure of most financial institutions and fall of equity share (Bello 2005, 162).
Impact of great recession on the East
In the Far East and Asia the ripples of the great recession were not that destructive as it was at its core in the US and neighbouring nations. Both intellectual 3and political interests are drawn to China, India and Brazil as some of the nations that come out of the recession with their economic position relatively enhanced. Besides, nations like Taiwan and Singapore adopted economic strategies that attracted more investors through moderating its totalitarian systems. India, Thailand and China maintained a totalitarian capitalist system but were able to move from traditional communism and socialism practice by embracing the fascists’ fashion of capitalism. Through a complete totalitarian government system and state powered capitalism, china was able accumulate a national reserve of more than $2.4 trillion and consolidate its concentration of world trade share such that by the time the situation started to normalize its economic position in the world’s trade was better of than it was before the recession. Conversely, the case of India is best explained in terms of its closed market economy rather than the totalitarianism that is inherent in its system of government (Gitlin 2003, 239).
Through direct control of its workforce, China and India were able to organize its market and means of production to increase production to levels that meet customer demands. Generally, there were little effects of the recession in most developing nations which had embarked on long term development goals with strong bases. Naturally in a totalitarian capitalism system the market is directly controlled by the state and protectionism is basic to this principle. In fact, prior to open system now encouraged by some extreme leftists, closed market system was the order of the day. The fascists totalitarian government subjected its citizen to work in state found industries motivated by communism which demanded that they work for the sake of the nations output intended for meeting local consumption needs and surplus for export and foreign exchanges. In return the government guaranteed the labourers health care, food, shelter, and other basic requirements. It meant that people work for the common good of the state at the demands of a totalitarian authority. In Malaysia for example, prior to the normalizing recession, the government had rolled out a plan to act as a road map towards the nation’s industrialization. Previously, its leadership served as a totalitarian capitalist authority which demanded a comprehensively exclusive closed market system with production mainly circulating within its boundary during trade and the surplus destined for foreign markets are circulated with in its Asian neighbouring states. As measure to protect the effects f recession from penetrating and spreading into their markets ASEAN nations adopted highly protective measures including increased tariffs for foreign goods which could be found or manufactured locally. With proper pricing mechanism the government and its development partners had only international market for its products to worry about (Prindle 2006, 237).
How great recession is changing management practices in the West
In the emergence of rapid industrialization and globalization phenomena stiff completion characterize the struggle for the world’s most viable system of production. The current focus of volatile localized investments is in the developed nations in the West, Europe, Japan and South East Asia with dominant forces in the world market activities is arguably destined to be founded in nations with major influence in its regional market and abroad. Such a nation or group of nations is at the same time expected to set the criteria for economic system which will be vigour enough to take in shocks of economic recession brought by both systematic and non systematic changes in its markets. While still debating on the form of capitalism to follow, investors are keen on governments ideologies practised by the preferred nation and with attention to its stability. In management principles, current world production is driven by massive capital investment in the initial stage followed by extensive and intensive production facilitated by mechanised system and limited use of man power. However, the cost of acquiring and maintaining the capital equipment employed is often higher than expected, especially in the long run (Bello 2005, 68).
Production and marketing managers therefore refocus marginal revenue versus cost of production in order to strike a balance on the most viable investment strategy together with its prime location. In particular government influence in local and foreign business forms the basis of this discussion. Determining the stability of a government in the future may be challenging due to social transformations which exert unpredictable force on most existing authorities. On the other hand, the systems of governance; the political system practised, together with its supporting institutions may form the basis of appraisal for business and investments in supreme present authorities. Therefore, as the debate of which system of capitalism should be followed by most optimistic business leaders is best thought in the line of social structures and government systems that have stood the taste of changing times and tides (Gitlin 2003, 244).
Paradigm Shift, are the leftists taking over?
Like the great depression, which was followed by authoritarianism, the great recession is likely to shift economic power to the East leftwing capitalist due to their fascism which portrays them as more organised though in a more hierarchical system. As liberal democratic capitalist in the west adopt protective mechanisms due to xenophobia, their proposed liberalization principles are accommodated by emerging totalitarian capitalists in Asia who have since abandoned socialism and communism to practice modern capitalism in fascism style. For example the observed move by the US and UK to “bail out” indigenous companies is seen as a move towards xenophobic response while newer markets are open to investors in the east. The timely opportunity by the nationalists’ totalitarian capitalists also referred to as leftists is highly advantageous since the current world market is mainly controlled by large corporations and transnational companies whose motive is to reap high profits and cut costs. General tendency of such large scale producers to invests in Asia and accept the conditions of these nations is an indication of a new paradigm anchored in a totalitarian capitalism. Market research as noted an adjustment of middle class citizens in this nations towards specific development plans of the countries particularly in the East. (Asher& Ramesh 2000, 37).
The transnational companies and multinational corporations which are the major forces of globalization are thought to be the next precursors of economic power. In the east these companies are attracted to cheap labour and ready market predisposed by increasing number of middle class citizens. Arguing from a totalitarian point of view, it can be noted that the amount of compromise taken by these nations’ in the path of civilization and economic development inclines towards a true capitalism. The level of interest of TNCs in MNCs; countries which were previously dominated by extreme leftwing ideologies impacting even in their markets is a may be the first step towards the shift of power to the East. Moderation of its extreme totalitarian policies to govern capitalism is likely to put the west under difficult challenge due to observable market failure of liberalism. Emergences of metro-cities in south East Asia such as shanghai Singapore and Kula Lumpar as world’s major production centre is deliberately strategic to this process. Modern civilization of population in these countries is another motivating factor. With or without the governments consent individuals are taking over ownership of certain sectors of production at the chagrin of the government and major companies dealing in specialised consumer goods are fast taking advantages of the opportunities created by a people which have been under oppression for a long time that they can work at minimum wage. More over, the decline of communism and traditional socialism has paved way for globalization trade which is networked in the region through its regional organization, ASEAN. In Russia just like in most of the totalitarian states, the citizenry are beginning to act in motives that are likely to minimize governments influence in people’s basic rights and increase their freedom. The consumer society is fast gaining ground even in nations which did not allow trade of certain goods in its territory. Thus the drive to rapid industrialization in totalitarian states may cause and sustain capitalism in the East (Prindle 2006, 258)..
Conclusion
It might not be clearly noticeable, but the end to liberal democratic capitalism is real. Liberalized market economic polices have failed the test of time a number of times. Financial liberalization its ideologies and practice aimed at addressing market changes. While an ideal option of capitalism may be lacking at this time, contemporary leftists’ totalitarian capitalism may be the best option for viable business and investments. The general trend in all countries which have liberalized market is the notion that high consumption is correlated to development. Such is sought by the East economic power houses under their own totalitarian regimes. Since consumption can only be sustained by high production especially in built up areas, this changes justify the positions of totalitarian states to encourage nationalists’ capitalism which acts in favour of massive investors destined to put up their operations in their territories.
Reference
Asher, M.G. & Ramesh, M. Welfare capitalism in South East Asia: social security, health and education policies. New York: PILGRAVE. 2000. Web.
Bello, Walden. De-globalization: ideas for a new world economy. UK: Cox & Wyman, Reading.2004.Web.
Gambe, Annabelle. Overseas Chinese entrepreneurship and capitalist development in Southeast Asia. London: LIT VERLAG. 1999. Web.
Gitlin, Todd. The whole world is watching: mass media in the making & unmaking of the New Left. London: University of California Press, Ltd. 2003. Web.
Prindle, David Forrest. The paradox of democratic capitalism: politics and economics in American thought. Baltimore: The John Hopkins University Press. 2006. Web.
Siegel, Achim. The Totalitarian paradigm after the end of communism: towards a theoretical Reassessment. Amsterdam: Rodopi. 1998. Web.
The economic recession that hit the globe in the later half of 2008 has caused its fair share of problems to the United Kingdom as a country and also to its government which has had to contend with a high level of national debt over the last few years. National debt refers to the sum owed by a government to both domestic and international creditors in any given period. According to King, (2010, para. 5) a country’s national debt becomes a problem when the government can no longer be able to pay it.
The United Kingdom National Debt during the Recession
The United Kingdom national debt is not yet at that point but the continued budget deficits are not doing the situation any good as they continue to increase the future cost of repaying the debt. This is because every time the bank rate goes up, the rate of interest on the debt follows suit. The build up in the deficit is caused by the fact that the recession affected the country’s public finances in that the government is not getting as much income as it should be especially from the tax and customs department while at the same time it continues to pay huge sums of money in the form of unemployment benefits (Conway 2009, para. 3). In order to settle these payments the government is forced to borrow further raising the national debt. The level of government borrowing is said to be the highest since World War II and is threatening to tarnish the country’s previously high credit rating. King (2010, para. 3) said the government’s national debt as of February stood at 848.5 Billion Pounds yet its expected income was 498.1 billion Pounds which represents a 170% debt over the expected income. This increase in debt was fuelled by the borrowing in January this year said to be the worst so far especially for a month that the government usually makes its highest collection in terms of income and corporate taxes (Allen & Wintour 2010, para. 1-3). This was blamed on the difference between tax collected and government spending standing at 4.34billion Pounds.
This worsening situation has elicited different reactions from different quarters among them economists who disagree with the way in which the government plans to deal with the situation which is to put off paying off the budget deficit until 2011. They are of the opinion that the government should start paying off the debt immediately after the general elections to be held on later this year so as to avoid the loss in confidence in the government and country at large by lenders as well as threaten the planned economic recovery in the country (Stratton 2010, para. 1-4).
Despite these concerns, Gordon Brown, the country’s prime minister, insisted that the country’s priority was to regain economic growth and not to cut budget deficits (Wearden 2010, para. 1). According to him, cutting down the government’s public spending would prove detrimental to their quest to regain economic stability in the country. In response to the economists’ take, Gordon said that even though the borrowing associated with the stimulus packages his government was offering meant an even higher national debt, it was necessary as it would pave the way for economic recovery (Wearden 2010, para. 5).
Implications of an Already High and Growing National Debt
An over the top national debt has negative implications for a country on different levels. One such level is the fact that a country loses its debt credibility in the eyes of its lenders especially on the international level. To the United Kingdom, this has come in the form of higher lending rates being charged by international investors compared to the interest rates they charge to other countries they consider more creditworthy such as Germany (King, 2010, para. 7-8). As such the country’s government should work at ensuring that its credit ratings stay up by proving that they are in control of the current budget deficit.
The government also has to come up with solutions for the growth in the national budget. Many economists believe that the worst of the economic crisis has passed and as such the government should stop borrowing to keep the debt at manageable levels (Stratton 2010, para. 8).
Conclusion
High national budgets should be avoided at all costs because they have a negative impact not only on a country’s credit worthiness reputation but also on the general economy of a country. Even if high levels of borrowing are necessitated by harsh economic conditions such as the economic recession, they should stop as soon as stability is maintained such as is the case in the United Kingdom.
Reference
Allen, K. & Wintour, P., 2010. Government deficit Blow Adds to Pressure on Darling. The Guardian. Web.
Conway, E, & Blake, H., 2009. National Debt Hits Post-War Peak as Tax Receipts Slide. The Daily Telegraph. Web.
King, I., 2010. Worried about National debt? Things are worse for Mr and Mrs Average. The Times. Web.
Stratton, A., 2010. Top Economists Attack Labour Plan to Tackle Britain’s Budget Deficit. The Guardian. Web.
Wearden, G., 2010. Brown Insists Recovery, Not Cuts, Must be the Priority. The Guardian. Web.
A recession is a period marked by reduced economic activity. In their article “The effectiveness of fiscal and monetary stimulus in depressions” Almunia et al. describe several serious conditions present in a recession. They say that a recession exhibits “an environment of near-zero interest rates, dysfunctional banking systems and heightened risk aversion that had not been fully exploited” (2009).
If the economic activity of a nation were to be plotted in a graph, the trend line would exhibit a pattern of peaks and troughs. The peaks represent increased economic activity known in economics as expansions while the troughs represent reduced economic activity better known in economics as contractions.
Between the years 2008 and 2009, the US economy and the world at large experienced one of the severest recessions in modern history. Important events according to the BBC recession timeline were: “HSBC warning of subprime losses in early 2007, credit market freeze in August 2007, Lehman Brothers going bankrupt in September 2008, Fed cutting key rate to near zero and the US congress passing a $787 billion stimulus in 2009.” (BBC News, 2010)
One of the causes for the great recession was “regulatory failure” (Weisberg 2010). Analysts blame then-Fed chairman Alan Greenspan for “keeping the interest rates too low between 2003 and 2005” (Weisberg 2010). It is during this period when the “real-estate bubble inflated spurring a frenzy of irresponsible borrowing. [When the bubble burst in 2007, it left in its wake a] … high rate of defaults on subprime mortgages” (Weisberg 2010).
There are three approaches that a government can take to get out of a recession: implement monetary policies, tackle the recession using fiscal policies or use both monetary and fiscal policies.
Macro-economic policies experience time lags. For example, according to the article 12.3 Issues in Fiscal Policies (Anonymous, 2010), there was a “recognition lag” concerning the great recession when it informs that “the current recession was not identified until October 2008 when the Business Cycle Dating Committee of the National Bureau of Economic Research announce that it had begun in December 2007” (2010).
The same article also talks about the “implementation lag” (Anonymous, 2010). This can be taken to be the time it took the Obama government to agree on what monetary and fiscal policies to employ. Lastly, the article talks about the “impact lag” (Anonymous, 2010) which is the time the macro-economic policies will take for their full impact to be felt. Already the economy is limping out of recession, but it will take longer than the theoretical projections that policymakers made on paper.
Fiscal policy
McTaggart et al define fiscal policy as “the use of the nation’s budget to achieve full employment, sustained economic growth and price level stability” (2007 p.24). When an economy is in a recession its central bank executes an expansionary fiscal policy that involves an “increase in government expenditures on goods and services and cutting of taxes” (McTaggart, 2007 p.596).
Some of the fiscal policy-related interventions undertaken by the Obama administration included: a temporary tax, an extension of the employment benefits by “providing the unemployed with benefits that could push a laid off person for 99 days” (Burtless 2010), and as Burtless states “subsidies for unemployed persons so that they could pay for health insurance” (2010). “Federal grants were also dished out as fiscal relief to state government. This money ended up paying for law enforcement cost and education” (Burtless 2010).
Monetary policy
The Fed is the sole issuer of money in the economy. It can therefore directly influence the amount of money circulating in the economy. The Fed uses the cash rate as a monetary policy instrument. The cash rate “is the interest rate on interbank loans. In a recession for example the objective of the Federal Reserve Bank would be to increase economic activity. To achieve this it reduces the cash rate. This makes it cheaper for banks to hold large reserves for transactions. This reduced interest rate will be transferred to borrowers. It is the borrowers who use the cash in economic activity that increases the real GDP.
The goal of the US government monetary policy as prescribed in a 1977 amendment to the Federal Reserve Act is “to promote maximum sustainable output and employment and to promote “stable” prices” (Federal Reserve Bank of San Francisco, 2010).
Short-run effects of macroeconomic policy
Quoting a communiqué from the Pittsburg G20 summit Jackson says that the short-run state of affairs after implementation of both monetary and fiscal policies can be summed up as “it worked” (2010).
Jackson recommends that “interest rates should remain low” (2010). Additional effects of the US monetary policy can already be seen. Jackson reports that the “ultra low interest rates and major injections of liquidity into the banking system are already fueling new financial asset price bubbles” (2010).
Koo (2010) mentions a peculiar short-run problem that the US economy is now facing. After an active monetary policy by the Fed to bring the economy out of the great recession: “The US economy is now facing a balance sheet recession a rare disease that strikes only after the bursting of a nationwide debt-financed asset price bubble.” The only way out of this, Koo adds, is for the Fed to “inject capital into banks to end the credit crunch” (2010) this can be done through a fiscal policy.
Long-run effects of macroeconomic policy
Jackson advocates for “the US Fed to run productive fiscal deficits to ensure the impact of low interest rates is felt through higher public investments.” He adds that “Labour intensive public investments like transit and passenger rail are ideal because good public infrastructure and good public services are key drivers of private sector productivity” (2010)
One opponent of fiscal policy asserts as follows: “it is confirmed that in the long run, expansionary fiscal policies are not beneficial to economy generally” (Kukk, 2010). On the contrary, Jack points out that “in the short term, low interest rates make viable a huge raft of potential public and environmental investments which will more than pay for themselves over time” (2010). Taking a firm stand on the supply side of the macro-economic debate Jack reasons that:
“In the longer term, a decade and more of expensive and wasteful tax cuts mainly in favour of corporations and those with high incomes means that there is humble room to increase government fiscal capacity to balance budgets without cutting spending and without undermining living standards of working people” (2010).
Conclusion
Contrary to a pessimistic view held by some about “Obama’s stimulus package,” Burtless feels that though imperfect, it deserves a great deal of credit for bringing [the economy] back to a positive trajectory” (2010). The economy is slowly rising out of recession. It is understandable that getting out of a severe recession especially one of the worst in US history is not an overnight affair.
To close the recessionary gap ambitious monetary and fiscal policy measures had to be implemented. This required the Fed to reduce the cash rates. Ultra-low interest rates were meant to produce a ripple effect that would see other interest rates fall; this would make the exchange rate of the US dollar fall. Due to fallen interest rates “the quantities of money loans and credit would increase consequently consumption, investment and net exports would increase” (McTaggart, 2007). This would increase autonomous income in the hands of firms and Americans.
A fiscal policy related to public investment has the effect of leaving firms and Americans with extra income on their hands which is referred to as autonomous expenditure. Since the taxes imposed on firms and workers have been checked, the firms get an incentive to produce more to replenish their inventories to the levels they had before the recession. Spending this autonomous income triggers off the multiplier and the expected outcome is an amplified change in equilibrium expenditure which serves to increase real GDP to equal potential GDP thus eradicating the recession.
McTaggart gives the assurance that if the two macro-economic policy interventions “are timed correctly, and [are] of the correct magnitude,” (2007, p.596) it is possible to restore the economy to pre-recession level.
Works Cited
Anonymous: 12.3. Issues in Fiscal Policy: 2010.
Almunia, Miguel et al. “The Effectiveness of Fiscal and Monetary Stimulus in Depressions.” VOX: Research-based policy analysis and commentary from leading economists. 2010.
BBC News. “Global Recession Timeline,” 2010.
Burtless, Gary, “The Success of Obama’s Stimulus Program,” Crisis No More. 2010.
Federal Reserve Bank of San Francisco, US Monetary Policy: The Fed’s Goals: 2010.
Jackson, Andrew. “Beyond “Stimulus”: Fiscal Policy After the Great Recession.” Global Research, 2010.
Koo, Richard. “The Fed should ask for fiscal policy support.” The Economist, 2010.
Kukk, Kalle. “Fiscal Policy Effects on Economic Growth: Short Run vs. Long Run,” Published in Working Papers in Economics. School of Economics and Business Administration, Tallinn University of Technology (TUTWPE), Pages 77-96. 2007.
McTaggart, Douglas et al. Economics. French Forest NSW, Australia. Pearson Education. 2007. Print.
Weisberg, Jacob. “What caused the Crash? Let the Bickering Begin.” Newsweek, 2010.
The world of finance, as well as the economic world, is complicated indeed. Almost every event has its goal, ground, and explanation. The only factor that is absent is the possibility to develop a personal opinion regarding a personal experience because there are a number of facts, definitions, and outcomes that cannot be neglected. At the same time, people are free to discover some good aspects in many negative concepts and underline the negative points in the required positive changes. There are many discussions about recessions, their backgrounds, impact, various ways of development in different countries, etc. In this paper, the definition of a recession will be given, and the analysis of this concept will be offered to comprehend how people should understand the worth of recessions. As a rule, people consider the term ‘recession’ as a negative change in a stable economic world; however, research shows that a recession may have several positive characteristics.
Definition
According to the National Bureau of Economic Research (2010), a recession is defined as a “period of falling economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales” (par.2). The fact that a recession is a kind of economic decline makes people think that this concept has the negative outcomes only.
The process of recession is not too complicated and has its reasons and explanations. People get used to spending much money, taking debts, and meeting their demands. The government cannot allow spending such amounts of money because there is a risk of inflation. Therefore, it is necessary to raise prices and make people stop spending their money. The results usually impress because people stop spending their money and take numerous attempts to save incomes and be able to pay debts. In a short period of time (it usually takes from two to five years), the economy of a particular country where the recession takes place is recovered, the government is satisfied with its ability to control people’s financial activities, and people may continue spending money they have until they face another case of recession. It means that any recession has a repetitive nature, and it is hard to guess when it may be expected until some of its signs are discovered.
Causes
The definition and the description of a process called ‘recession’ help to realize that people cannot avoid it even if they take all necessary precautions. Still, there is a possibility to learn the main “symptoms” of a recession and try to be ready for it. In other words, it is possible to predict a soon development of a recession and make the required preparations. Kotila (2010) explains that economic recessions do not come suddenly but develop during a certain period of time. People have to analyze the current economic situation properly to understand when the next recession can take place. One of the frequent causes of a recession is joblessness. It is hard to control the economic situation of the country due to the constant changes in the job market. However, as soon as a sudden and constant rise of jobless people is observed, people should be ready to face a new recession.
At the same time, it is wrong to believe that a recession can come when the number of jobless people is increased. More causes should be identified. Professional analytics of companies may predict the possibility of recessions better than ordinary people, and they suggest their leaders to keep a number of working places open. Therefore, if companies do not want to hire new people and try to promote new retirement programs, it means their leaders want to decrease the expenses to survive a coming recession.
In addition to the job market issues, people should follow the price politics in the country. The possible signs of recessions are poor sales and profits, a fall of GDP, the inabilities to use credit cards, an impressive rise of food and other commodities prices, and significantly low costs on a property (because not many people are eager to buy it). As soon as people start noticing these changes and discuss the economic situation in the country, all these signs may prove the presence or soon coming of a recession.
Examples
One of the latest recessions that are known globally is the Great Recession that takes place after the financial crisis of 2007-2008 in the United States of America. The essence of this economic decline lies in the impossibility to control housing-related assets. At the end of 2007, the housing bubble burst (Canterbey, 2011), and a number of problems took place. Consumer spending was considerably decreased. Business investments were minor. People continued losing their jobs and could not find new opportunities. The level of uncertainty was dramatic. People did not find it necessary to make serious financial decisions, and companies lost their opportunities to earn money. In a short period of time, many companies became bankrupts because of their inabilities to take debts from banks. In their turn, banks underwent considerable changes, and some organizations had to be closed.
People lost their jobs, and the government did not want to cover the losses. Some researchers admit that President Obama tries to take many responsibilities at the same time and fails to meet the expectations (Canterbery, 2011). Fox (2009) and the team of Time underline the mistakes made by George Bush and his failure to solve the recession problems in 2001 and improve a poor financial performance. However, even if the blame of one person or several people is proved, it is incorrect to believe that other people are out of the problem.
When the recession covered the USA, a number of developed and developing countries faced similar economic and financial problems. Such countries like Britain and Germany were challenged by high unemployment rates, and China was able to resist the challenges of recessions and avoid a number of financial problems. The reports also show that Asian countries and Latin America were better prepared for financial challenges in comparison to the world giants like the USA (Canterbery, 2011).
Effects
There are many negative effects of a recession that people have to be ready for. The problems of unemployment have been already discussed and defined as a crucial point for consideration. Still, it is possible to cope with the problem and, instead of searching for a well-paid job with all working privileges, try to find a part-time job just to earn money and survive the crisis.
Despite the fact that a recession is a financial issue, a number of personal outcomes and challenges take place during this process. On the one hand, family relations undergo considerable changes and tests. Family members have to live together and support each other in case the problem of unemployment takes place. People should be ready to change their lifestyles and learn how to save money. Such problem is urgent for families with children when parents cannot explain why a new purchase has to be suspended or even cancelled. On the other hand, certain financial frames should unite a family and provide its members with a time to be together. Family members can think about their mutual interests and try to start their own business regarding their opportunities and materials. Therefore, it is possible to define a recession as a reason to think about the development of personal abilities.
Conclusion
In general, people cannot avoid recessions and have to take a number of actions to decrease the number of negative outcomes of this process. The government is not always able to control all financial and economic operations. The government-bank-customer relations become complicated during recessions. Ordinary people cannot find good jobs. Banks do not offer loans. Governments cannot solve the problems of unemployment and stabilize the economic situation. A number of discontents and high expectations deprive people of the opportunities to believe in their powers and survive the crisis. The economy becomes weak, and the business environment is unstable. People have to use the current technological achievements, exchange the information properly, and plan their activities in regards to their possibilities. Recessions should not be understood as something terrible and hard to overcome. This economic decline is only another challenge that has to be survived.
References
Canterbery, E.R. (2011). The global great recession. Hackensack, NJ: World Scientific.
This is an excellent article, since the author has clearly identified his target audience and tailored his message in line with their areas of expertise. While this article is addressed to managers, the message is relevant to different categories of persons in the society.
Proprietors of small-scale enterprises and other ventures may find this article beneficial in their daily undertakings. Employees perched at different hierarchical levels in the organization may also use it to their benefit. The paper is well written in clear-cut English with coherent ideas, making it easy to understand.
Author’s view point
The author lays emphasis on the importance of retaining employees. He argues that this move provides continuity hence ensures efficiency in the firm. Managers are urged to embrace and deploy strategies that will ensure they retain most of the employees. He contends that managers should be flexible, taking up all possible options which create a favorable environment for their employees. Summarily, managers are challenged to leave their comfort zones and engage with their employees from a different perspective (Ryan).
Impact on management as a profession
Employing principles proposed in this article will create responsive managers. The author quotes a survey, which revealed that a majority of employees are comfortable if the management cares about their affairs (Ryan). This will result in a low-employee turnover, hence relative security and stability. These constitute crucial aspects of company growth, which is necessary after the recent economic downturn.
The move is also beneficial, since companies will minimize the budgetary allocations reserved for the recruitment and selection process. Time spent on orientation and assimilation will also be minimized substantially. It should be noted that retaining the core of a company’s workforce implies familiarity among the workmates. This translates to a commendable team spirit and synergy, which is essential in realizing the established organizational goals.
According to the writer, ignoring these proposals may prove detrimental to the firm, with grave ramifications on the future of the said business venture. This is true, because unresponsive managers ignore the importance of feedback (Ryan).
This implies the existence of severed connections with their workforce, due to the difference in perception; hence methodology of achieving established goals. He also argues that rigid managers are content with the status quo. This may be damaging to company prospects in case managers utilize unsuitable management techniques. I concur with this argument, and the proposal that managers should take up coaching in order to improve on their areas of weakness (Ryan).
Opinion on the contents of the article
Primarily, the article proposes changes in the way managerial responsibilities are discharged. Given his credentials and work experience, the author is better placed to offer advice on this topic. The timing for the release was also blameless, because most firms are recovering from the economic melt down. This was a period characterized by loss of jobs hence reduced spending power.
As a result, management strategies should be altered, due to the changed situation of employees. Most of them are mentally disturbed as a result of the unstable market. I agree with the concepts the author is advancing, since they strive to introduce humanity into management practices. This implies that managers will consider their subordinates before decisions are arrived at. Subsequently, realistic targets will be set for clients and administrators operating at a lower cadre than the policy makers.
Impact on future career
This article has contributed immensely in changing my perspective towards management. Consequently, I have been inspired to adopt a dynamic approach when handling employees and other work related responsibilities. Most importantly, I appreciate the fact that constant evaluation is an integral ingredient in the advancement of organizational ambitions (Ryan). This should be done across the board, beginning with the management before employees are taken through the process.
The article has also enlightened me on the importance of appreciating the efforts displayed by employees. This way team spirit and collective responsibility will be encouraged in the process of realizing organizational goals.
Work Cited
Ryan, John. Keeping Employees Happy in a Post-Recession World. Bloomberg Business week. 2010. Web.
During the recent years, the labour market in Ireland changed significantly. The causes for the fact are the global economic changes and definite transformations in the local social and legal policies. These changes resulted in creating the new situation regarding the position of women in the Irish labour market and migrant workers’ role in this market.
Thus, two main recent changes in the Irish labour market are the increase in recruiting women and migrant workers for different positions.
It is possible to associate the changes in the Irish women’s employment with the social policies and recent tendencies in alternations of the gender roles, and the changes in hiring migrant workers are based on the new rules and laws in the working policies and on opening the borders for the migrant workers from the European Union’s countries which were joined to the union recently.
As a result, the tendencies in hiring more women and migrant workers affected the human resource managers’ approach to the hiring process and influenced the aspects of people resourcing within organisations.
The changes in the Irish labour market are the results of the global economic processes and alternations in definite Irish legal and social policies in relation to the work permits for the migrant workers and in relation to the terms and conditions of the parental leave for women. The increase of the employment numbers is observed in the retail trade, construction, financial services, and health industry.
The change in the perspectives for the female workers is one of the main alternations which influence today the development of the Irish labour market. It is the fact that during the recent years the percentage of those women who are employed and take the positions similar to men’s ones increased greatly. The researchers and economists determine several causes to explain these tendencies.
The first factor is the general changes in the economic sphere of Ireland which can be discussed today as the definite economic stability along with the active economic growth. The economic growth resulted in the expansion of the labour market and creation more work positions.
The work of women is required in more spheres nowadays (Barrett & McGuinness 2012). That is why, women are discussed as equal to men to take the positions which were traditionally considered as men’s ones.
The second factor is the changes in the Irish policies in relation to the maternity leave and the introduction of the parental leave. Several years ago, the main factor which could limit the possibilities of women to take the advantageous positions was the inability of the organisation to hire women because of considering them as dependent on the marital status.
In spite of the fact that the number and age of the women’s children are still significant for the development of the women’s career, the chances to be hired successfully grow. Those women who have children older than 12 years also have more opportunities to take good positions in the Irish companies, and the human resource professionals focus on changing the approach to hiring women (Cassidy 2004).
Today, the problem of the women’s marital status in relation to the Irish labour market is being resolved as in many other European countries. Women became the active participants of the labour market, and their qualifications, education, and professional skills are more important for the contemporary labour market than their status.
The next reason for changing the situation with the women’s employment in Ireland is the new tendencies in the public’s attitude to gender roles. Those jobs which were traditionally discussed as male ones can be successfully done by women who have the appropriate education and qualification (Russell et al. 2009).
The question of the women’s education and competence is more significant today because the rate of low-skilled women remains to be rather high. It is possible to concentrate on the active participation of women in the continuous employment because the attitude of employers to hiring women for the constant positions changed according to the changes in the visions of gender roles and women’s social position in general.
The modern women in Ireland received more economic and social rights to participate in the labour market equally to men. Moreover, if several years ago women have few possibilities to take the positions characterised by high wages and good conditions, today the situation changes, and many women have the access to good working conditions and high-paid positions where the high qualification is required (Vacancy overview 2011 2012).
The women’s access to the employment and the Irish labour market can be discussed with references to the global tendencies to attract more women to be employed because of the definite economic benefits (Russell et al. 2009). Many human resource specialists agree that women are the best workers in offices or in the service industry. However, this statement should be associated with the idea that women as employees are more appropriate for the low-paid professions.
Thus, the problem of the women’s employment discrimination is resolved with references to resolving the questions of the gender equality within the Irish society. It is possible to determine the direct correlation between the increase in rates of the women’s employment and decrease of the professions which were considered as gender oriented (Russell et al. 2009).
It is not popular today to accentuate the differences in gender in relation to the labour because modern women are inclined to take the higher positions, and they are often the main breadwinner within the family. Employers increase the wage for women if they concentrate on the quality of work and the employees’ potential.
Today, it is possible to determine two tendencies in relation to the migrant workers’ participation in the Irish labour market. The first trend is the increase of the number of the migrant workers who are considered as specialists in definite fields. The tendency when high-skilled professionals migrate from the EU countries to work in Ireland is rather new, and it is connected with the fact of increasing the wages and changes in the labour policies for migrants.
The demands for work permits are satisfied more frequently today than it was several years ago. However, the negative aspect of the situation is the growth of the competition between the local and migrant workers who are high-skilled professionals in their spheres (Walsh 2004). This problem is accentuated by many human resource specialists, but it is possible today to respond to the workforce diversity and meet the needs of the organisation according to hiring the specialists.
The most popular vacancies emphasize the demands for the high-skilled professionals in ICT. As a result, many persons from the neighbouring countries and territories are inclined to work in Ireland where the wages are high because of the industry’s quick development.
The next tendency is the growth of the cheap workforce. The low-skilled workers from the EU countries receive more work permits today in comparison with the situation typical for the previous years. There are some changes in the labour policies which influenced the mentioned tendency.
Although the work of migrants is traditionally discussed as the necessary and significant component of the Irish labour market, today the increase of the migrant workers’ flow is more influential, and it is possible to determine the spheres in which there are more low-skilled migrant workers than it was earlier (Quarterly National Household Survey 2012; Walsh 2003).
The human resource specialists work to regulate the situation in the service and building industries because the significant increase of the migrant workers’ flow is observed in these spheres.
The two main changes in the Irish labour market which can be observed recently are the accents on recruiting more women for different positions with references to their education and competence and the high percentage in the employment of migrant workers.
According to the case of women’s employment, such factors as the parental status or age are not influential anymore, and it is possible to speak about overcoming definite social and gender stereotypes under the impact of the global tendencies.
In relation to migrant workers, the open working borders provided more opportunities for hiring more specialists from the EU countries. In spite of the fact the positive results of the situation are obvious for many organisation, the discussion of the competition between local and migrant workers is still urgent.
Reference List
Barrett, A & McGuinness, S 2012, “The Irish labour market and the great recession”, DICE, vol. 10 no. 2, pp. 27-33.
Cassidy, M 2004, “Productivity in Ireland: trends and issues”, Quarterly Bulletin, vol.10 no. 5, pp. 83-106.
Quarterly National Household Survey 2012. Web.
Russell, H, McGinnity, F, Callan, T & Keane, C 2009, A woman’s place: female participation in the Irish labour market. Web.
Vacancy overview 2011 2012. Web.
Walsh, B 2003, “How ‘Live’ is the live register and other puzzles in the Measurement of Unemployment”, Quarterly Economic Commentary, vol. 11 no. 5, pp. 78-86.
Walsh, B 2004, “The transformation of the Irish labour market : 1980-2003”, Journal of the Statistical and Social Inquiry Society of Ireland, vol. 33 no. 2, pp. 83-115.