The economy of the United States is getting bigger and not better. The economy is diverging down into two separate tracks during the third quarter. Consumer spending has continued to increase as a result of heavy lifting. Consequently, business investments have weakened as a result of a consistent dispute with imports from China. In August, there have been rising apprehensions of the manufacturing downturn. Similarly, an uncertain global environment market competition with China is expected to counter investment in the short term. Conferring to the US economic outlook, the rate of GDP is expected to remain 2% to 3%. Consequently, the unemployment rate is expected to continue at a natural pace. However, President Trump promised to promote economic growth to 4%, which, according to an economist, is an exaggerated figure. Connectively, this essay will provide the financial state of the US and offer solutions to economic problems affecting America.
The US GDP growth has reduced from 3% in 2018 to 2.1% in 2019. Consequently, GDP growth is predicted to be 2% and 1.8 % in 2020 and 2021, respectively (Lea, 2019). The Federal Open Market Committee predicted these statistics, and their explanation to Slow GDP is trade wars and Trump economic policies. Additionally, the projected unemployment rate in 2019 is 3.7%, which is predicted to rise at a staggering rate of 3.8% in 2020 and 3.9% in 2021 (Lea, 2019). Consequently, the inflation rate is expected to be average in 2019 at 1.5%. However, it is anticipated to rise to 1.9% and 2.0% in 2020 and 2021, respectively.
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After assessing how the economy is proceeding, three significant issues require to be acted upon. One problem is there existing unequal growth due to income variation in America. Also, there is a prolonged state of unemployment and the constant high jobless rate in the US. Additionally, jobs have gone, which made it difficult for citizens to work and achieve economic benefits. To solve the problem of income inequality in the US, it is essential to trace its origin to arrive at a coherent solution.
The shift in the global economy causes income inequality. Policies should be set to address income inequality. One significant aspect of inequality in the US is the stagnation of wages. The policies that should be set include redistributive taxation, direct labor market policies, and minimum payments (Jacquet, Lehmann & Van der Linden, 2012). Consequently, digitization can also help in solving the inequality problem as people can be able to work remotely effectively. Digitization will further create more online jobs, thereby promoting equity across all sectors of the economy. Keeping a minimum wage is critical after analyzing the economic state of all areas in America.
There is a boom of emerging markets such as Brazil, China, and India who are more competitive in the global market. They have a more skilled workforce, and as a result, wealth has shifted from the US and other developed countries. The solution to this problem is setting America first in all the market affairs (Hombert & Matray, 2018). Notably, duties and tariffs for external goods should be incorporated to ensure domestic industries have a competitive advantage. The objective of these tariffs and taxes will be end outsourcing and bring back jobs from foreign countries.
It is pertinent to know that America lost 34% of manufacturing jobs in the period between 1998 to 2010. These jobs employed so many people in the states. Many companies in the US outsourced these occupations to save money. However, an argument arises that the use of artificial intelligence, robotics, and bioengineering has destroyed so many jobs. Therefore, terminating outsourcing may not bring jobs that were lost, and it is the role of the government to create more jobs to attract more workers.
To solve outsourcing, it is essential first to increase US competition with China. The government should use subsidies to reduce the prices of US products. Consequently, if this method fails, then Trump should levy countervailing duties on all imports from China. Additionally, Trump should ensure china hire and train local workers (Hombert & Matray, 2018). This policy will ensure that American citizens also benefit from imported goods. Another solution is the Trans-Pacific Partnership (TPP), in which US workers compete with the low paid workers from Vietnam, thereby sending more jobs overseas. Consequently, it will ensure that the united states strengthen economic ties with Asian nations, which are competing with America. These ties will ensure that Asian countries don't overly in china.
Furthermore, the government should provide adequate access to employment training and education. Notably, to reduce unemployment, it is essential to invest heavily in human capital, which will, in turn, promote the labor force and increase individual wealth. Similarly, equity in education is expected to bring every person to a minimum standard. Also, it will be a better solution than giving a universal basic income and increasing the welfare benefits. Ensuring that the whole population has adequate skills will enable the American corporations to hire more employees, pay more, which will, in turn, give the employees more money to spend.
Another solution is to increase business investment and consumer spending. This two major factor drives economic growth at many times. The government should put tax rebates and tax cuts to ensure more money with the consumer, thereby promoting consumer saving (Bukhtoyarov & Emelichev, 2015). Similarly, consumers spend a portion of this money on businesses, which in turn generates cash flows, revenues, and profits. Consequently, consumers having more cash translates that companies will have enough resources to create capital, grow, improve their technology, and also expand. All these actions are expected to increase the economic productivity of a country.
Increasing investment in the private sectors through the reduction of investment taxes and corporate taxes is pertinent in promoting future economic growth. The Trump tax plan to lower the corporate tax rates from 38% to 15% will ensure the companies don't move their jobs overseas. Consequently, a more active approach will be cutting off business payroll taxes. Payroll tax cuts amounting to one billion is capable of creating 13000 new jobs (Hacker & Pierson, 2016). Also, targeting small businesses will, in turn, produce 65% of all the latest jobs in the market. Even though tax cuts are expected to create jobs, it is not effective in the long run. Therefore, a useful tool to create more jobs will be the expansionary monetary policy, which is capable of increasing the volume of money in the economy. Similarly, more money in the economy translates to more business, more consumerism, more demand, and more employment.
According to the 2015 economic statistics, federal regulations amounted to $2 trillion to the economy. Therefore, dismantling the Dodd-Frank Wall Street Reform Act is vital. The abolishment of this act will ensure small communities back do not operate at the expense of the big banks. Also, in 2017, Trump made a solution to increase economic growth by proposing the Tax Cuts and Jobs Act bill, which was passed by congress. The corporate taxes were lowered to 20%, from 35% stimulated economic growth (Bukhtoyarov & Emelichev, 2015). Another solution to spur economic growth is deregulation. Deregulation will help in relaxing the set rules and regulations imposed on a business or an industry. The existing laws constrain and prevent enterprises from expanding and operating to achieve their full capabilities. These regulations, in turn, limit hiring and production, thereby inhibiting the GDP growth.
Another great solution to spur economic growth is increasing the infrastructure. Construction is a practical approach to use federal money to create more jobs. According to Amherst's study, approximately 1 billion dollars can create 19,795 jobs (Hacker & Pierson, 2016). Therefore, government spending on infrastructure is an effective way of creating more jobs. Improving the existing infrastructure will increase productivity by facilitating businesses to work as efficiently as possible. Consequently, to address the unemployment problem, government spending on infrastructure will create more jobs as workers will be hired by the government to work on green-lighted projects. For instance, creating a new higher will attract people to invest in retails stores and gas stations.
Also, the government should address structural unemployment. The two leading causes of structural unemployment are technological advances and trade agreements. Technological advancement has mainly occurred in the manufacturing sector, where robots have replaced unskilled workers. Also, trade agreements such as the North American Free Trade Agreement have lifted restrictions to leave former employees without jobs (Bukhtoyarov & Emelichev, 2015). One solution to structural unemployment is the provision of quick and practical training. The government must provide training programs to upskill the current labor force. Also, the government should facilitate job placement upon completion of the practice. Additionally, geographical barriers should be broken to allow employees to work remotely with the skills the possess.
Another vital role of the government is to curb inflation while avoiding recession. Federal regulations should tighten money supply to incase there is an excess demand which fosters inflation due to the increase in prices of few goods. Also, the federal government should reduce the liquidity of the circulating cash. The federal has various tools for implementing contractionary monetary policy. First, the federal government can buy and sell treasury notes from the local backs. This statement means that the government buys securities when it wants the banks to have more money to lend and sell securities when while the banks are forced to buy. This process reduces the financial institutions' capital, providing them with less to give.
Also, raising reserve requirements help in controlling inflation since the banks must keep a certain amount of money each day. This process will also help to save money out of circulation in case a rise occurs in the future. Consequently, it is the role of the federal to only moderate inflation of 2% exists in the market (Hacker & Pierson, 2016). This measurement excludes food prices and gas, which are very volatile. Notably, the government should encourage a little bit of inflation, which is expected to promote growth. The small rise can encourage impulse buying from the people to avoid the future increase in the prices. This process generates the demand that is required for a healthy economy. Furthermore, if inflation increases too much above the targeted threshold, it is the role of the federal to implement contractionary money policy to ensure it is under control.
In the final analysis, the US economy has experienced various challenges, and the solutions promise to solve all these problems. The GDP growth expected to reduce from 3 % in 2018 to 2.1% in 2019. Also, unemployment and inflation are expected to rise at an average of 0.1 %. This figure shows that despite America is getting bigger, it is not getting better. There are three major economic problems, which include unemployment, income variation, and competition from oversea countries. Digitization has aided in solving the inequality problem as people can be able to work remotely effectively. Digitization will further create more online jobs, thereby promoting equity across all sectors of the economy. Notably, the imposition of tariffs and heavy duties will protect the local industries from external markets. Additionally, the government should use subsidies to reduce the prices of US products or use the Trans-Pacific Partnership to ensure Americans can access the workforce in Asian countries. Also, the government should promote an increase in business investment and consumer spending. Other economy solutions include cutting off business payroll taxes, deregulation, improving infrastructure, controlling structural unemployment, and curbing inflation will enhance the economic productivity of America in the future.
Reference
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Hacker, J. S., & Pierson, P. (2016). Making America great again: The case for the mixed economy. Foreign Aff. , 95 , 69.
Hombert, J., & Matray, A. (2018). Can innovation help US manufacturing firms escape import competition from China? The Journal of Finance , 73 (5), 2003-2039.
Jacquet, L., Lehmann, E., & Van der Linden, B. (2012). Optimal redistributive taxation with both labor supply and labor demand responses.
Lea, R. (2019). The economy remains resilient, albeit with a modest underlying growth rate. Arbuthnot Banking Group , 13 .
