The Stimulus of the Economy has Failed

Introduction

The US economy has had a major downturn in the last eight year, with economic growth at its lowest level since the Great Depression. The poor performance, according to Young, is attributed to government over involvement and interference in the management of economic activities. Statistical evidence is used to compare three critical periods in the US economy, that is, the Great Depression, the decades between 1970 and 2010, and the current period since 2009.

The Current State of the Economy

The caricature summarizes Young’s assessment of the economy. A lot of money has been pumped into the economy as seen in the folded dollar bills, government has focused its spotlight on fiscal and monetary policy as shown by the spotlight on folded dollar bills, and policy makers are forcing archaic cowboy tactics in the running of the economy. The cowboy is scratching his head to signify government is unsure which direction the economy is headed, but it is on a roller-coaster spin. The main indicators of economic health are GDP, economic growth, and fiscal/monetary policy.

Gross Domestic Product (GDP)

In 2015, GDP grew by only 2.1% and is projected to reach 2.2%, a near-stagnated rate. The majority, 83%, of citizens in a survey were expressed concern that the economy was worse off or stagnated, and most had little optimism of economic recovery the near future. More than half the respondents stated than the economy was poor, stagnated, and a quarter of the respondents expected their economic situation to worsen in the near future.

Economic Growth

Economic growth in the last seven quarters was fair, but dropping, for example, 4.6%, 4.3%, and 3.9% in the third and fourth quarters of 2014, and second quarter of 2015 respectively. Economic growth was 3.2% in the 1970’s, 3.1% in the 1980’s, 3.1% in the 1990’s, 2.6% in the 2000’s, and a mere 1.3% but in the 2010’s. Growth had slowed down in the last eight years from 3.6% to 1.3%. As depicted in the caricature, the government has been working through outdated and forceful (cowboy) fiscal and monetary policies to bring about recovery. The economic recovery has dwelt on injecting trillions of dollars into the national recovery program. Although interest rate has been maintained at zero percent, the budget and taxes have increased, consequently reducing money in the private sector. This has the spinoff of increasing commercial bank rates and prices of goods.

Fiscal and Monetary Policy

The federal budget has grown from $900 billion in 2008 to $4.5 trillion in 2015, in keeping with government expenditure. On fiscal policy in the same period, public debt grew by 121%, from $5.8 trillion to $12.8 trillion, and the ratio of GDP to debt improved from 20% to 35.2%. The impact of the $3.5 trillion growth of federal budget in six years was a mere 1.2% growth in the economy. Taxes divert resources from the private sector that creates wealth, to the government that spends it, thus increasing the cost of living. Unlike during the Great Depression, the federal bank today has failed to inject enough money into the economy, control taxes, and reduce bank interest rates. The budget deficit in 1934 was 10.6% and in 2009 it was 24.4%, while the debt was 5.8% in 1934 and 9.8% in 2014, meaning that overall deficit to GDP ratios were almost equal.

Conclusion

The government has to change tact in order to achieve recovery. The government has to cut down its budget and spending by reducing taxation. More public resources should be diverted to public sector to support failing industries. Maintaining a zero percent interest rate will help keep inflation down.