Naked Economics Chapter 9

John Botterbusch

Anderson

AP Macroeconomics

21 February 2014

Wheelan, C. (2010). Naked economics-undressing the dismal science. W. W. Norton & Company.

Open letter to Congress pertaining to economic climate

To whom it may concern,

            The health of our national economy is one of the most important concerns in the minds of American citizens and politicians alike. As a citizen of this nation, I believe that a few changes must occur now in order to ensure that the future is not as painful when financial concerns are more severe compared to what we live in now. Although there are so many different aspects of an economy that affect one another that it is almost impossible for one person-let alone simply a junior in high school taking their macroeconomics introduction class-to figure out how to make all the kinks in the economy go away, a few changes to fiscal policy in concern to taxation and government spending, as well changes to regulations of exports and outsourcing can help improve the economic environment in the country before things get worse later on.

            In concern to the nation’s current account, just in 2008, America’s account deficit was around $700 billion. We as a nation were once a creditor to the world, especially several decades ago when we were bailing out nations with major war debts, but now with the rise of government spending and decreases in revenue, the growing deficits continue to grow in alarm. Society often complains about big government, even though our government has been historically low compared to the rest of the developed world. Government spending is an important aspect of GDP growth, because what the government invests in the infrastructure and growth of the nation ultimately adds to the growth of the economy. However, when the economy is grown on a lot of credit from other nations, it can lead to problems. This all comes down to fiscal policy manipulations in order to increase the growth of the economy and decrease the fluctuations in the business cycle from recessions to growths. Our deficit problem is becoming increasingly a huge issues in the lives of Americans since it affects us all. In order to prevent a worse financial disaster in the future, it is important to affect fiscal policy in a way that raises revenues progressively by income from where it is now and while increasing spending on things like education while decreasing spending on things like excessive military spending that we in our current global state do not need compared to our cold war days. The distribution of wealth is growing considerably more and more unequal as the rich are becoming richer, with rates of 90% income growth for the 1% in the last couple of years while the lower classes have had stagnated wages. I will make this clear now that I am in no way a socialist or believe in such lunacy, but it is important that the wealthy be levied a little more tax wise while keeping tax rates the same as they are now for everyone else in order to get closer a balanced budget and a smaller current account. A current account usually runs a deficit when a nation does not export enough goods to make up for what it is taking in, as in the American market. According to the AD-AS model with depiction of real GDP and price levels in the economy, if say the government increases spending in aspects of societal infrastructure, it can help boost GDP growth and potentially get a nation out of recession faster. This may sound like I am advocating for Obama’s 2009 Stimulus package of over $500 billion dollars, but I am not. The reason I believe it was a failure was that there was that there was a lot of wasteful spending and that the spending could have been applied faster and more effectively in areas that needed it most rather than worrying about all industries as a whole, since in an economy like ours, everything affects everything. In order for stimulus from government spending to work, it needs to be an appropriate remedy to the situation, it has to be available in a timely manner, and it needs to get into action fast. For future economic downturns with the possibility of being as bad as the one we just got out of 5 years ago, the government needs to be able to efficiently and quickly come up with a plan to fund certain industries into recovery as fast as possible. That way it can keep unemployment levels lower as well as the rate of unemployment growing down. In essence, it is important for the government to spend in infrastructure, but increasing revenues by taxation when there is a need for spending is necessary in order to keep the system running functionally. It is important to make the sacrifices now in order to prevent a worse situation in the future.

Sincerely,

John