Running head: FIXING THE MESS

Fixing the Mess; One Step Forward, Two Steps Back Abigale Benninghoff University of Mount Union

Author Note Abigale Benninghoff, History Major, University of Mount Union Correspondence concerning this paper should be addressed to Abigale Benninghoff, History Major, University of Mount Union, Alliance, OH 44601

Running head: FIXING THE MESS Fixing the Mess; One Step Forward, Two Steps Back It is no secret that the United States economy is in a slump. From unemployment reaching high levels and a so called recession taking its toll on families across the map, the economy needs some major boost in the right direction. Whether the actions of our government mean well or not, they are not successfully giving that boost that we, as citizens, are in dire need of. However just the same, as citizens, we must also step up and help. The way our country is being run financially is downright ridiculous and I know that our forefathers would be ashamed of the turmoil surrounding government control as well as the philosophers that birthed the foundations of our political structure. It is time that something is done and done right. If the economy was given an examination it could be concluded that it is not very healthy. By measuring the Gross Domestic Product, inflation, and unemployment one can understand in which direction the economy is headed. The United States GDP is fifteen trillion dollars which is the highest in the world, but has only grown by 0.1 percent in the last quarter whereas ideal growth rate for GDP is three percent or more. This is the first indicator that our economy is ailing. GDP needs to be improved by increasing productivity in our country. First off, the United States has efficient technology to make this possible and by educating more individuals this can be accomplished. Use of resources is a huge factor in productivity and in this department I think our priorities are off just a bit. Operative management practices need to be put into place in our current companies and in future ones to increase the productivity as a whole and lastly productivity depends on the capital available. The table below shows that the United States has improved over the last two years with the low points being in 2008 and 2009 with low percentages of -8.9 percent (Bureau of Economic Analysis, 2013). However, we remain stagnate when it comes to growth.

Running head: FIXING THE MESS

Inflation is also a determinant of health in an economy. According to The Bureau of Labor Statistics (2013), a one hundred dollar bill in 1990 has the same buying power as 176.19 in 2013. That currently makes the inflation rate at 1.6 percent (Bureau of Economic Analysis, 2013). Since ideally, the inflation rate should be at 3 percent, The United States is right on target for this indicator of the economys health. The United States needs to keep inflation down to help the economy and will do this by once again increasing productivity.

Running head: FIXING THE MESS Unemployment rates are the third indicator of the health of the United States economy. The current unemployment rate is 7.9 percent which is relatively high but has gone down from 9.1 percent in late 2011 (Bureau of Economic Analysis, 2013). For a healthy economy, the unemployment rate is ideally around 5 percent. A lot of people blame the terrible economy for unemployment rates being so high and to an extent this is true. However, there are lots of companies are hiring, but peoples egos get in the way. The cultural shift that has occurred in this country is one of greed and entitlement and is chipping away at our financial institutions.

The policy, I think that the United States needs to address is decreasing government spending in the fiscal side of the government. In 2012, the United States government spent nearly 6.2 trillion dollars (usgovernmentspending.com, 2013). This is unnecessary and has put the United States into a vast deficit . By cutting spending it will cause reduction of the deficit.

Running head: FIXING THE MESS

The biggest decision is what government programs should receive cuts. When government spending is broken down into categories, all the programs are seemingly worthwhile. Prioritizing the governments spending is a must and in the past few years it has not been prioritized at all. If the government is going to regulate programs in areas they have no business being in, they at least should bring some good to those programs, which is not a trend we have been seeing. For example, if the United States take half the money out of welfare and utilized half of that sum by putting it into education, considering that the spending on welfare is three times on that of education, we would be able to better educate our youth which in turn would increase productivity in the long run by having a better educated population. This would also give initiative to those on welfare who now have more education to be able to get off of welfare thus being able to spend money on more things that are worthwhile in the economy. Just in that example, we have cut three percent of the spending but also prioritized in a beneficial manner. By reducing the spending and thus reducing the deficit, it gives way for reducing crowding out in the private sector. Because the government finances its spending with taxes and with deficit spending, it leaves businesses with less money and thus crowding the sector and pushing small companies out. However, because government spending entails deficit and it

Running head: FIXING THE MESS needs some way to finance its spending habits, it turns to increasing interest rates. This discourages businesses from borrowing money which inhibits their spending on investment actions. For example, the United States government has increased spending on Medicaid which is linked to decreased availability and obvious higher costs for private health insurance (Investopedia, 2013). With reducing crowding out, the government can cut taxes and lower interest rates because they are not in need of as much financial assistance from the population. This ultimately leads way to the supply side policies. As mentioned before, government spending can be prioritized to increase education and training for the workforce while cutting some spending at the same time. In addition, the incentive for investments increases dramatically. By reducing crowding out in the private sector, it increases and gives way for incentives for investments of companies and individuals. Interest rates are down, taxes are lowered which then increases the money supply to the average citizen. It has been a trend that when people have money, they spend money and by doing so, they are stimulating the economy. This stimulation may just be the boost the United States needs to get back on track and increase their GDP. The increased incentive for investment will push consumers to buy more goods then ideally, calling for an increase in manufacturing hence, providing new jobs, opportunities, and an increase in productivity. This can be seen when the production possibilities curve is shifted giving a giving a greater opportunity for output of goods.

Running head: FIXING THE MESS

The United States has found itself in quite a predicament. From unemployment reaching all-time highs, the deficit exceeding existing numbers, and our economy nose diving, it has some serious work to do. If the government would cut its spending and prioritize the programs in which it puts its money into, it would be beneficial for everyone. By cutting spending, the government would reduce the deficit with less crowding out in the private sector. There would then be more incentive to invest because taxes and interest rates could be lowered. Although it may sound easy, government needs to rearrange some money, make better decisions, and ultimately do their jobs. The United States cannot afford to take any more steps backwards because it is going to end up falling face first.

Running head: FIXING THE MESS REFERENCES An Expanded Production Possibilities Frontier. (2008). The Encyclopedia of Earth. Retrieved from http://www.eoearth.org/article/Production_possibility_frontier Budgeted Federal Spending for FY 2012. (2012). US Government Spending. Retrieved from http://www.usgovernmentspending.com/piechart_2013_US_fed United States GDP Growth Rate. (2013). Bureau of Economic Analysis. Retrieved from http://www.tradingeconomics.com/united-states/gdp-growth United States Inflation Rate. (2013). Bureau of Economic Analysis. Retrieved from http://www.tradingeconomics.com/united-states/inflation-cpi United States Unemployment Rate. (2013). Bureau of Economic Analysis. Retrieved from http://www.tradingeconomics.com/united-states/unemployment-rate