Politics, Philosophy and Economics Surplus,

Politics, Philosophy and Economics Surplus, Trade and Unregulated Market

Politics, philosophy and economics

The purpose of this essay is to bring moral, economic and political theory to bear on the analysis, justification and criticism of political and economic institutions and public policies on surplus, trade and unregulated market.

A budget surplus refers the amount by which a government, company, or individual exceeds its spending over a particular period of time. Generally, a government does not need to maintain a budget surplus. However, a government has to be careful about running a budget deficit to make sure that the means of financing the deficit do not cause too much of an interest burden. In general, economists become worried when government debts, the most common way of financing a government deficit, rises sharply as a proportion of Gross Domestic Product (GDP). This is because interest payments might also rise as a proportion of GDP unless the government manages to sufficiently reduce the average interest rates paid on the debt. An increasing interest burden means that government revenues will be diverted to pay for financial costs, as opposed to being used for more productive purposes (Investor's word.com).

As in the case of the government, individuals and co-corporate do not have to ensure that their budgets are in surplus or balanced, but they have to be mindful of interest costs as a proportion of their income. Some economists believe that manipulation of the government budget surplus is an effective way of stimulating or slowing economic growth. However, other economists say that manipulating the budget deficit will only result in a change in the price level in the economy, since actual production change in an economy is only decided by changes in the labour force, the state of technology, and productivity of the workforce (Investor's word.com).

Politics and Economic Surplus

When money is tight in a nation, there is usually a standoff. This means that neither the government nor its citizens have attained/got the financial targets they have been yarning for, hence resulting into other alternatives because priorities have to be met. According to my judgment, the government has to look for the negative balance so as to meet its financial obligations, either through public borrowing or adjustments of its national monetary policies that favors it in raising tax revenue. For instance, Stevenson (November 19, 2000) claims that when money was tight in Washington in the year 2000, a standoff meant that neither side got what it wanted. Then, the U.S. government and its citizens began to learn that when priorities clash in an era of plenty, Washington's solution was to give both sides some, if not all, of what they wanted.

Therefore, whenever there is a standoff, Stevenson (November 19, 2000) declares that dividing up the surplus can only be made easier by two factors: the near-certainty that the surplus projection can be revised upward again, and the likelihood that the economy has slowed to a point where fiscal stimulus would no longer have to be offset by higher interest rates. Hence, Stevenson (November 19, 2000) claim that should the Fed decide to cut interest rates to pep up a slowing economy, as some economists usually predict, it would also remove the argument that fiscal stimulus is the last thing the economy needs

Lastly, Stevenson (November 19, 2000) declares that there are reasons why saving the surplus and using it to accelerate debt reduction, would be best for the nation because paying off debt puts downward pressure on interest rates and frees capital for more productive uses. Moreover, nation where the population is about to get a lot older like in the U.S., driving up the costs of entitlement programs like Social Security and Medicare means the United States would be in much better condition to weather that demographic shift if federal finances are in order (Stevenson, November 19, 2000). However, Stevenson claim that there are strong arguments for putting the surplus to work immediately, either through spending programs to address poverty, education, health and the environment, or through tax cuts that might promote higher rates of economic growth.

Politics, Trade and Unregulated Markets

According to Frankline (April 15th, 2008), when a nation increases its public consumption, it reduces the amount of money that companies need to invest in production; therefore, in a way, that nation buys it way out of unemployment. Frankline claims that this is based on a formula devised by John Maynard Keynes nearly a century ago. The formula says that if you increase public consumption, you reduce the amount of money that companies need to invest in production. In a way, you buy your way out of unemployment.

The John Maynard Keynes formula seems to have worked pretty well for America's economy for the past 50 years. However, during the past 10 years we have not been able to keep ourselves out of unemployment by spending, but, instead, we started borrowing to keep up with the pace of our spending. As we borrowed money to buy the goods that allowed "entrepreneurs" (the quaint word used by Keynes) to give us a job, our real economic capacity shrank at the pace of our increased debt. This goes beyond the simple fact that we have less Disposable Personal Income to keep us employed (by means of increasing consume expenses) but the reality is that we are fast approaching the eleventh hour (Frankline, April 15th, 2008).

Therefore, in the U.S., the reality is that the most banks do not want, and can not hold any more real estate in their books. The solution they found is not to foreclose on the properties. They have the liability of the unpaid loan, and they are making the big write-offs we are learning about daily in the news, but if they took into their books all the houses whose loans defaulted, they would not be liquid enough to remain in business. This makes a lot of sense, because the savings rate of the American public is close to zero, or perhaps even negative and the goods they own are worth less than the money the owe for them (Frankline, April 15th, 2008).

In regulated markets such as China and Japan, Frankline (April 15th, 2008) claims that they have vested interests in keeping U.S. interest rates low so the U.S.A. can keep buying their goods and keep their economies running. However, as the U.S. borrow more, the Dollars it pays them for their goods lose value, and their prices increase. A quick look at the 2007 CIA fact book gives a clear idea of how America is indebted to China, and the oil exporting countries. The following chart shows the current account balance of all the countries in the world, where China has the biggest surplus and the U.S. The biggest deficit.