Economics in the real world

Economics in the Real World - "Buy American" and the P.A.C.E.D. Decision-Making Model

Introduction and the Event

The forces of globalization are affecting all features of the every day life. An event occurring now within one state, especially an economically powerful country such as the United States, has international ramifications. This has been most obvious in terms of the recent economic crisis, which emerged within the U.S., but soon affected the European states as well. Continuing this line of thoughts, one can conclude that the measures the American state will implement in resolving the crisis will also generate implications outside the country.

The effects of addressing the economic crisis in the United States are likely to be felt immediately, even more so when the current president is determined to have the American population focus on purchasing only products branded "Made in America." Such a measure was taken in 1929, the year the Great Economic Depression commenced, and its effects were extremely negative. The U.S. imposed trade barriers for importers, but soon so did the other countries, and the U.S. trade balance suffered deeply as they were no longer able to support their export operations. The current administration is eager to once again stimulate the internal industries, but the critics argue that the international effects would be disastrous for both U.S. As well as its trade partners (the Economist, 2009).

2. The Sources

The first source used in the writing of this paper is the Economist, with one of its articles in the Trade Policy section. This article reveals the problem to be discussed. Then, another source is composed of the Gus a. Stavros Center for Free Enterprise and Economic Education, which offers information on how to use the PACED model of decision making.

3. Key Economic Concepts

The paper will present the problem through various concepts of economics. The most relevant of them include:

international trade balance imports, export entry barriers, protectionism decision making and alternative solutions

4. Analysis with the PACED Decision-Making Model

The PACED decision-making model is a useful tool that allows both managers as well as students to get a better perspective of the problem and analyze it more objectively. The model is composed of five successive steps, each one representing one letter in the acronym:

clearly define the Problem identify the Alternative solutions establish the Criteria / goals

Evaluate the identified alternatives, and make a Decision (the Gus a. Stavros Center for Free Enterprise and Economic Education)

Problem

There are two underlying issues at this point: the economic crisis, and the proposition to stimulate the national industry in the detriment of the foreign manufacturers. The second is generated by the first and it is considered a solution, but in fact, it is a generator of additional problems. Excessive focus on the "Made in America" brand is actually a protectionist measure, which fosters the creation of an enclosed economy. The measure would raise entry barriers for foreign producers, who in turn would no longer purchase from the U.S. Consequently then, the American exports would have to suffer, only to generate more difficulties in resolving the crisis.

Alternative solutions

Stating that the measure proposed does not represent a viable solution is however insufficient to addressing the issue of the economic crisis threatening the American stability. Two alternative solutions are available. The first sees that the U.S. federal authority uses the budget allocated to support the development of the national industries, without raising barriers to imports. The second possible solution is for the United States to strive to increase its exports by focusing more on international operations.

Criteria / goals

The evaluation criteria for the proposed solutions revolve around the benefits they generate, as well as the costs they imply. Otherwise put, the decision will be made in accordance with the arguments in favour and against each of the two alternatives, and by the solution's ability to meet the established goals. These goals include the insurance of economic stability within the United States (for all population, corporations and the entire system), the maintenance or even development of international relations, as well as the sustained development of the domestic industries.

Evaluation of alternatives

Alternative 1:

Pro: does not negatively affect international relations; has the ability to improve them by investing in technology or other industries which have transcended the geographic boundaries; generates stability for the U.S. citizens and entrepreneurs

Con: does not produce immediate effects as it is more of a long-term strategy

Alternative 2:

Pro: potential economic growth through intensified exports

Con: the entire world is affected by the crisis and it is less likely for the U.S. To find new markets at this stage

Decision

Based on the previous stages of the PACED decision-making tool, the final decision revolves around the implementation of the second alternative. Aside the fact that it does not generate immediate results, it presents only benefits. It is also natural for the resolution to an economic crisis to not be achieved over night. In addition, to also help the population and the economic system on the short-term, other strategies could be developed and combined. They could refer to a reduction in the VAT for a limited period and for the subsistence products or the reduction in taxes when purchasing a new American car, also for a limited period of time, say one year.