U.S. economic recovery from the 2008 financial crisis and policy effectiveness

¶ … U.S. Economy

Evaluating the current state of the United States economy

Although many are of the opinion that the recession that the globe was forced into in 2008 is finally uplifting and signs of economic revival can be witnessed. The resulting high levels of debt and unemployment from the recession had dragged many countries, especially the United States in to a state of economic turmoil. In order to reverse the effect of such factors, the United States government has implemented strategic monetary and fiscal policies. These policies attempt to rejuvenate the economic position of the country by not only controlling the supply and demand via tax cuts but also through re-setting the interest rate level in accordance to the low level of disposable income available to the unemployed / lowly employed citizens of the United States can acquire loans to allow easy spending and repayment of the loan as well.

Introduction

During the financial crisis of 2008, the economy of the United States of America witnessed many economic problems. A huge number of people belonging to the national workforce were made redundant, businesses collapsed in the country and high living costs made it difficult for the people of America to be able to sustain on lower incomes. The biggest problem the financial crisis brought for the people was the rise in debt for them during times they found it difficult to pay it off.

Now, the economy of the United States of America has improved comparatively to the pre-2009 period. This has been due to the economic policies, mostly involving the fiscal and monetary policies that the United States government has brought in place and action to act as a remedy for the prevalent economic problem. However, although the economy has improved the financial crisis, it cannot be said that it has made complete recovery and is booming in the current time.

The strategic implementations of the economic policies by the United States government undoubtedly aided in the recovery of the economy, but these cannot be assessed properly unless the results are compared with the pre-financial crisis period. The evidence that these policies have benefitted the country and its population with complete efficiency needs to be analyzed with the help of various economic factors. Using such analysis will aid in developing any suggestions that can be made to further develop more efficient economic policies.

Unemployment

The foremost economic factor that would be taken into consideration to evaluate the current state of the United States economy is the unemployment factor. Unemployment is such an economic factor that is affected by various other factors prevailing in the economy. Technology is one of the factors that have an impact on the unemployment rate. Due to its nature to be able to perform human tasks with more speed, care and precision, technology and machines continue to impact the employment of the working force. The more the technology becomes advanced, the higher the automation of businesses occurs and thus, more people are rendered jobless. Similar has been the case in the United States. The demographic factor also is key contributor to the unemployment rate. As the level of education increases through the country, the labor force decreases and people target jobs according to their qualifications. This increases the number of educated and qualified people after fewer active and available jobs. This has the same impact on the employment rate in the United States.

According to statistics, from 2003 to 2007, the unemployment rate had been decreasing steadily and arrived to its lowest point of 4.4% by the start of 2007. Then eventually the financial crisis began and thus, businesses began to cut costs by eliminating any employment costs that they could decrease. From 2008 to 2010, the unemployment rate shot up dramatically from 4.9% to 9.9% (Labor, 2013). The introduction of the American Recovery and Reinvestment Act by the President Barack Obama led government targeted to fund the economy with an approximate $800 billion in the form of tax cuts and government spending on public benefits (CBO, 2012). The Act proved to be successful for its purpose, as employment rate since then has been steadily decreasing and from the highest point of 10% in 2009, the current rate in May 2013 has fallen to 7.6% (Labor, 2013).

As a person would be unemployed, he or she would have access to a lower disposable income. This will force them to control the spending and thus result in a decrease of their demand. This cumulative decrease in demand affects the economy in such a way that the production of goods other than everyday necessities decreases as demand is not there in the market. Thus, the overall impact on the national aggregate demand decreases. As unemployment falls gradually, the aggregate demand in the United States has began to rise again as more people have jobs now and are earning enough disposable income to spend on the luxury items as well. However, unemployment reduces the supply of labor in the country as well. Same has been the case in the United States. The aggregate supply of labor has reduced and thus, the businesses crippled down since the financial crisis. With the new Recovery Act in place and actively running, the labor supply has increased and has began to benefit the businesses as production levels have been increasing.

Recommendations

Considering the above evaluation of the current situation of United States economy, it would be recommended to the President to employ such policies that have an immediate effect on the employments, i.e. An estimated number of 125,000 jobs must be created every month to bring down the unemployment rate to the set targets. Moreover, the government should cut taxes to significant levels in the following years to promote economic development and increase in wealth of an average American citizen. However, the tax cutting should only target those members of the American public who fall in the middle class or lower level of income earners. In this manner, equality of wealth distribution will increase, allowing the poor members of the public to be able to improve their living standards. Moreover, consideration should be made to apply a super - tax on the rich members of the country so that burden decreases from the average or lower income group of the country. This super - tax model can be based on the example of the French parliament setting up a very high tax on the rich sport personnel (Samuel, 2013). Additionally, the government should increase spending on public welfare programs such as healthcare and unemployed compensation benefits.

Evaluation

The recommendations presented above are aimed to assist the economy of the United States to recover from the affects of the financial crisis of 2008. These recommendations are mostly aimed to achieve results in the short-term and require government intervention and spending to boost up the economy. If each recommendation is analyzed from the perspective of the economic theories of the Classic school of thought and the Keynesian school, it can be clearly seen that the recommendations are more of a Keynesian nature. The recommendations target government spending and intervention to improve the economy, which is a key part of the Keynesian theory. Also, the recommendations are targeting immediate results, which also is a part of the Keynesian theory. Considering this, all recommendations made above for the President of the United States of America are correct and promote economic development.