Improving United States Growth

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Since the recession, the best way to boost United States growth has frequently been debated by politicians, economists, and scholars. The issue is also one in which the average American citizen has numerous concerns. Economic growth can have impact on the quality of life of these citizens by providing them with more opportunities for work or improving their financial opportunities. The argument could be made that the most effective way to improve United States growth has to occur through economic policy that is enacted rather than economic mechanisms. The analysis of various forms of economic policy such as trade or fiscal policy can provide insight into the ways in which economic policy can be used to boost economic growth and development specifically in the United States.

Economic policy can improve growth as policy results in actual action taking place to enact change. “Economic development policy refers to those efforts by government to encourage new business investment in particular locales in the hopes of directly creating or retaining jobs, setting into motion the secondary employment multiplier, and enhancing and diversifying the tax base” (Eisinger, 1988). Economic policy can affect multiple areas such as trade, labor, interest rates, global interactions or budgetary needs. These areas affect multiple levels within our own American society from the government to various organizations to individuals and their families. Therefore economic policy can be far-reaching and can be influential. In order to boost economic growth policies would need to enacted in various areas of economics as one area would not solely be able to make vast change permanent. Through proposing changes to these areas and also studying the history of economic policies that have existed in the past a strategy can be developed to boost and maintain the economic growth of the United States.

Economic mechanisms are beneficial however they are not as influential or far-reaching as policy can be. Economic mechanisms can provide valuable information and data on how to best utilize our resources in the most cost-effective ways possible. As in other areas such as mathematics and science the research needs to be conducted to determine what is effective and what is not. Although economic mechanisms are important for understanding economics without implementation in policy form they cannot be beneficial in enacting change and boosting economic growth. Economic mechanisms will be incorporated through the use of models which help to formulate policy and practice. Without the understanding of how these economic systems work they cannot be improved to promote change and growth.

The impact of economic policy on the growth of the United States can be seen through the economic history of the United States. Certain economic policies can lead to periods of economic growth. This could be seen in the period of the roaring twenties during which the government at the time cut taxes, brought down debt and raised the tariff. Due to these economic policies, there was a period of economic prosperity during the 1920s. The period after World War II was also a period of prosperity. While this has largely been attributed to the industry generated by the war the economic policies of the time period also played a part. “Two dominant trends in postwar state and local fiscal policy seem to stand out. One is the rise in real expenditure levels. The other is in the steady increase until the 1970s of the percentage of personal income that went to taxes” (Eisinger 1998). During this time frame labor policies also promoted growth as they built up unions and created more jobs for the middle class. The 1990s was another time period in history in which United States growth occurred as a result of the economic policies of the government. During this time frame low-interest rates, investment in education, fiscal discipline and reducing the deficit led to a period of growth and prosperity for the United States people.

After these periods of prosperity, there have been periods of economic downturn. After the roaring twenties the Great Depression occurred. After the prosperity that was generated by World War II there was a period of inflation. Which resulted in increased prices during the 1970s which resulted in economic hardship for many Americans especially in the form of gas prices.  After the boom of internet companies during the 1990s the recession of the 2000s occurred. Many companies collapsed and the deregulation of banking and financial industries were demonstrated to have had a drastic impact on not just the economy of the United States but of the global economy as well.These periods of downturns could indicate that economic policies only serve as a band-aid rather than creating long term economic growth. However it is more likely that economics occur in a cyclical nature. It could also be attributed to the fact that the right economic policy has not been created or followed which would increase and maintain growth.

The failure of the economic policies to promote sustained growth could be more indicative of the politics surrounding the policies rather than the policy itself. While economic policies are effective in enacting change they do not exist in a vacuum. Economic policies need politics in order to be enacted by the government. "As the future course of economic events is strongly dependent on government action, existing macroeconometric models that regard government as exogenous are of limited use for prediction" (Frey, 1978). As the government is run by politicians who in turn have constituents they are responsible for and who need to vote them into office again. Due to this changing economic policy in the United States can become a very complicated process. Governments also mainly focus on macroeconomic factors such as GDP, interest rates or unemployment rates to determine if growth is actually occurring. Due to this reason these areas are mainly focused upon when economic policy is discussed which means that other areas of economic policy may be left ignored. However macroeconomics can be boosted in a way in which other areas of economic development can also be improved upon.

In order to boost economic growth through macroeconomics, the Mundell-Fleming model could be utilized as a stepping stone in beginning policy implementation. As the model states that an independent monetary policy, free capitalism and fixed exchange rates cannot exist altogether in the economy. This would indicate in order to promote economic growth exchange rates need to be free and open. The monetary supply would need to be changed so that there is more available supply which in turn would reduce interest rates. The rates also need to be connected and determined by global exchange rates. This model, however, would only be a part of the proposed solutions as it is only one aspect of the changes needed to be made. This model would need to be accepted by the political figures in place however not all economists agree that this model or other models similar to this are effective in maintaining growth. 

Microeconomics may not be as indicative of growth however it can provide insight into the economic practices of individuals or organizations. This information could be utilized to create an economic policy which would benefit the country as a whole. Pricing models can be utilized to boost the spending power of individuals and organizations. Pricing models should be enacted which would maintain pricing equilibrium so that individuals can afford to spend money while at the same time ensuring that the prices keep up with supply and demand. If Americans spend money this will boost the growth of business which in turn will boost United States economic growth. However prices need to be reasonable enough so that people can afford the goods. This would also boost the appearance of the United States economy globally which in turn could improve the global economic systems that have recently been impacted by our recession.

Within the micro and macroeconomic systems, there are other forms of economic policy which could impact economic growth within the United States. Fiscal policy could be considered the most influential in determining economic growth. Fiscal policy involves using taxing and spending to boost economic growth. Taxation and spending are utilized to either reduce the deficit or increase the surplus. Both the deficit and surplus determine whether the Government will have funding in order to be able to be functional. Fiscal policy also determines how much discretionary funds individuals have to be able to spend and contribute to the economy. Both these factors together impact the strength and vitality of the United States economic system, Strong fiscal policy can drastically impact United States economic growth.

However political parties will often disagree on what form fiscal policy should take. This could be due to the fact that their reelection depends on these policies. “The analysis shows that the government's  popularity is significantly reduced when the rate of unemployment and inflation rises and that it is significantly increased when the growth rate of private consumption rises.” (Frey, 1978). The fiscal policy chosen can have an impact on unemployment, inflation, and private consumption. Whether taxes should be increased and spending decreased has been argued to death by both political parties. The dominant political party will place its fiscal policy and economic agenda in place. This back and forth between the political parties can be seen to have caused the cyclical economic policies that have occurred in our history. When a new party comes into power they change the economic policies that are in place which in turn affects the economic growth and vitality of the nation. “The origins may be traced mainly to two major elements of the environment: the cultural commitment to an economic order in which market structures and mechanisms and private enterprise are key characteristics, and the federal political arrangement” (Eisinger, 1988). Through coming to a bipartisan consensus regarding economic policy a stable system could be created which would remain constant no matter the political party that is in place. This would result in economic policy which would be progressively expanding rather than the cyclical form we now have. 

In our current economic states in which our debt and spending are steadily increasing the fiscal policy which will promote growth needs to be one which reduces the debt. Increased debt leads to economic uncertainty which in turn cripples growth of jobs and the presence of global business. Through reducing spending and increasing taxation the debt burden of the United States can be decreased. Which will boost confidence from not only Americans but the rest of the world in the economic viability of the United States. The policy to reduce spending and increasing taxation would need to be constant no matter what administration has power as change cannot occur during a few years. Over time policy change will need to occur for the growth to remain rather than be short-lived which is what has been occurring.

However fiscal policy does not exist alone as other factors influence these policies. If people are not working taxation won't be much of a factor which is why labor policy is also an important factor in improving the growth of the United States economy. The economics of labor is important as the unemployment rate factors into whether or not the United States is making growth. While it has largely been assumed that investment in business and capital results in increased jobs. However this is not always the case. “New business investments do not always result in jobs. They may instead be used to upgrade or augment a firm's capital stock in such a way that productivity may either be increased without a concomitant increase in labor or hold constant while the labor force contracts” (Eisinger 1988). In order to boost growth investment in business cannot solely be counted on to boost the labor market. As business, the main concern is with maximizing profit, not job growth. An entity which is focused on job growth and the rights of the workers is needed to boost the labor market. The unions previously held this position however recent policy changes have made it so they can no longer function in the United States job market. 

The recent labor policy changes need to be abolished. New labor policies need to be enacted which would encourage job growth. Right to work laws need to be abolished in many states in which they have been adopted. Right to work laws serve to protect businesses rather than the employees. Right to work laws make it so that employees are unable to unionize which in turn means they do not have job security. The postwar booms seen with the unions demonstrates that unions promote jobs, protect workers and can increase economic growth. Through abolishing the right to work laws and allowing unions to exist in various industries the labor market could be improved. However without trade labor would often not have any jobs so labor is tied to other forms of economic policies as has been discovered with other facets of policy. Trade policy is one which is the most closely tied to labor economics.

Trade policy is another factor of economic policy which can impact the growth of the United States. With globalization, the United States economy does not simply impact itself. The recession of the 2000s began in the United States and created near economic collapse for other nations across the world. As a global superpower the economic policies that are enacted in the United States can have drastic consequences all over the world, which was seen in nations such as Spain or Greece. This is ever more clear in trade policy which controls international trade flows through the use of tariffs and restriction of imports. Within trade policy a balance has to be found between benefiting our nation while at the same time enacting policies which would be beneficial for others. “Multilateral institutions such as the World Bank, the IMF, and the OECD regularly promulgate advice predicated on the belief that openness generates predictable and positive consequences for growth” (Rodriguez, 2001). Through working with these global economic organizations the United States has the responsibility of creating this arena of openness which would promote growth. This openness has to occur in the realm of adjusting trade policy.

Trade policy attempts to restrict imports as the goal of trade policy is to boost our international trade. According to Easterly developing countries rely heavily on the trade policies of other countries for their economic growth while the United States does not have to rely on international trade as much developing countries have to rely on the wealthier countries of the world.  “There is a strong association between the development level and the fiscal structure: poor countries rely heavily on international trade taxes, while income taxes are only important in developed economies” (Easterly). However this does not mean that trade policy needs to be discounted in the United States. As this puts the United States in the position to impact the economic growth of not only its own nation but other developing nations all over the world. 

Trade with other countries can improve our growth especially if the United States is the one exporting our goods. “That is to say first of all that in these decades manufacturing was regarded as the economic backbone of the nation, and the domestic market loomed as the point of reference for both producers and consumers” (Eisinger, 1988) However in recent decades as the United States manufacturing has decreased the nation as a whole has been exporting less and importing more especially from China. The outsourcing of jobs to other nations and the loss of manufacturing demonstrates that economic policy has multiple facets that are all connected with each other. Labor, manufacturing, and trade are strongly connected. In order to boost United States growth the nation would need to invest in new industries within its own nation. As manufacturing is no longer a viable option other areas of growth and development need to be analyzed, researched and provided investment. 

Technology and education need to be focused upon in our new modern era as the form of industry that will expand United States growth all over the world. As we are no longer able to compete with other nations when it comes to manufacturing. The investment in education and technology would need to occur through economic policy which could provide incentives to businesses for investing these areas. However not all policymakers see this investment in technology and education as being crucial. Which is why these industries often do not receive the funding they need to be effective. “The possibilities for effective transportation, human services and education initiative are dependent in this view on the success of economic development policy while tax policy, environmental regulation and labor policy cannot be considered apart from their potential impact on prospects for economic development “ (Eisinger, 1988). An economic paradigm shift would need to occur so the focus could be on these new industries rather than continuing to fund stagnating industries. New industries could also be developed through these investments. The knowledge that is gained is marketable and is able to be shared with other nations. 

Economic policy changes are complicated to research and become even more complicated to implement. Through the implementations of these policies in various areas through the use of political forces to ensure the longevity of the policies could serve to ensure that economic growth is not only created but maintained over a long period of time. As most of these policy changes may be in conflict with another increased research would need to be conducted to determine the best way in which the interactions of labor, trade, manufacturing, and other policies could be best converged to increase growth in the United States. Increased focus on new industries through our policy changes also need to occur to create sustaining changes for the following generations. The recent decline in our economic systems determines that the previous economic policies have not been effective in ensuring change over a long period of time. The recent collapse and changing times demonstrate that economic reforms need to occur. These economic reforms need to occur at many levels. The politicians at the top and those who elect them into office need to understand the reasons for implementing economic changes which they may not initially agree with. However making decisions for the best of the country should be the foremost goal of politicians and citizens alike. The knowledge to enact these changes may not currently exist however it can be formed through economic policy. These changes in economic policy need to occur as our nation will have to be able to globally compete with developing nations who are no longer underdeveloped. As these other nations begin to take place on the global economic sphere the United States role will be diminished if our nation does not adapt to the growing changes. Economic policy is one area which impacts all other areas of American and global life.

Bibliography

Easterly, William, and Sergio Rebelo. "Fiscal policy and economic growth." Journal of monetary economics 32, no. 3 (1993): 417-458.

Eisinger, Peter K. The rise of entrepreneurial state: state and local economic development policy in the United States. Univ of Wisconsin Press, 1988

Frey, Bruno S., and Friedrich Schneider. "An empirical study of politico-economic interaction in the United States." The Review of Economics and Statistics 60, no. 2 (1978): 174-183.

Rodriguez, Francisco, and Dani Rodrik. "Trade policy and economic growth: a skeptic's guide to the cross-national evidence." In NBER Macroeconomics Annual 2000, Volume 15, pp. 261-338. MIT Press, 2001.