Employment rates in the United States
The 2008 global economic crisis resulted in loss of many jobs not just in the United States of America, but all over the world. After the end of the President’s Bush’s term, President Obama took over and most Americans felt that there would be an increase in the number of jobs for Americans. Individuals felt that the Democratic Party policies that would be implemented would contribute to creation of new jobs accompanied by lower cost of living. Six years on, there is still a high number of Americans that are dissatisfied with the level of employment in the country. However, the Federal government reported that the number of jobs have risen in a consistent manner by over 200,000 new jobs. There has been a positive cyclical momentum with an average of 55,000 jobs being created every month. Unemployment rates have reduced by low figures from 5.8 % to 5.9 %. The government has taken the necessary measures to increase the level of employment in the country, and they can even support that with figures. Although the employment figures are impressive, most individuals have not experienced the difference (Ip 1).
The cost of living is still high and getting more than two jobs is difficult so as to try and increase the amount of savings made. Some economist analysts feel that there is no need to celebrate the supposed increase in the number of jobs. The positive growth in the number of jobs available has been tied to the increase in the number of retiring baby boomers. There is also a high number of individuals who have given up on finding full time jobs and have settled in the available part time jobs. The rate of pay for such jobs is low which lowers the standards of living for many individuals in the economy (Ip 1).
It is only after the rate of wages being paid rises above 3.5 % that the country’s employment rate would be considered to be really successful. Until then, the government and private sector should work together to increase jobs and contribute to global processes that reduce the cost of production for the country’s traders and manufacturers. There had been excitement that the rate of employment was growing at a high rate, and an economic policy would have to be drafted so as to slow down economic growth and avoid inflation in the near future. However, an increase in the number of available jobs will not be sufficient (Ip 1).
The rate of employment has to be coupled with an increase in the amount offered to the employees, if the rate of spending is to increase. If the economy is to experience a dramatic growth, the people would have to higher spending power which would in turn result in increased liquidity. Most of the new jobs that have contributed to a higher level of employment are in the health, manufacturing and hospitality: restaurants sectors. The low rates of wage that employees are paid could be a reason that there are low motivation levels among employees. Low morale among workers results in lower productivity which might continue to stifle wage rates. It is expected that the positive growth of the rate of employment will result in the reduction of interest rates by the Federal Reserve which will in turn result in more banks and other financial institutions offering loans at friendlier interest rates.
Ip, Greg. America’s Jobs report: deceptively dull. 2014. Washington: The Economist. Accessed
November 12, 2014 from
The Keynesian Theory
The Keynesian theory is mostly known for being the first economic theory to challenge the traditional economic ways of operation and win. The theory was coined at a time when the ideas of neoclassical economics were the most valued by both scholars and business people around the world. Keynesian theory brought about the idea of public involvement in market control, something that did not exist within the economic filed at the time. People upheld the notion that the economic world would achieve natural equilibrium through natural forces, thus eliminating the need for public involvement in dealing with matters that affect the economies of the world like employment, demand, and supply. Keynesian theory brought a new dimension of economic understanding where the public had a role to play in influencing demand and supply in the market. The idea was received with a lot of criticism, especially from neoclassical economists who saw the suggestions of Keynesian theory as quick fixes that could not sustain the economy long enough (Evans, T. 2009, 2). In this connection, this paper aims at presenting a contrast between Keynesian and neoclassical economic theories in relation to human behavior, theories of money and unemployment.
The Keynesian theory appreciates the normal functioning of humanity in the social context while the neoclassical theory presents the economic man quite different from the normal human being. According to neoclassical theory, people make decision independently based on the information they have while based on Keynesian theory this is not the case. Before Keynesian revolution, employers were using this approach to influence employee decisions on wage and other work related issues. Employers and business people advocated for the abolishment of groups and government agencies that advocated for employee rights arguing that these forces would bring about imbalances between demand and supply within the market (Evans, T. 2009, 13). By letting people operate individually, the employers could cut down wages without getting a lot of fight from employees thus raising the demand levels.
The Keynesian theory suggests that the public has the right to represent the interests of the people to avoid mistreatment of the masses by the wealthy. The Keynesian theorists saw this approach as a mechanism for the rich to continue reaping the benefits of the economy at the expense of the poor rather than an economic solution to demand and supply. The Keynesian theorists did not believe in the natural equilibrium between demand and supply, therefore, cutting down wages based on the neoclassical assumption of human behavior was misguided. This is because people would still refuse the low pay even without having a group or public influence.
In relation to money, the Keynesian theory suggest the involvement of the government in interest reduction while neoclassical economics argues that it is the duty of firms to maximize profits while the individual maximizes utility. Based on neoclassical theory, the private sector does not need much help from the government to ensure economic circulation in both financial and production areas. Keynesian theorists argued that in reducing interest rates for the banks, the government would be giving the banking sector the mandate to extend the same courtesy to the public hence dealing with money issues. The monetary policies of neoclassical theory are based on an assumption of exaggerated demand for goods by the theory (OECD 2009, 115). Neoclassical theorists believed that as long as supply was maintained at a limited level, demand would always be there hence achieving a laissez faire situation in the market. However, the early days of the twentieth century was characterized by tremendous population growth and technological developments that affected the economic equilibrium hence the evolution of Keynesian theory.
The two theories differed greatly on their ideas of solving unemployment or creating employment opportunities for that matter at a time that the Britain economy was badly affected. The ideas of neoclassical theories did not appear to provide immediate solution to a problem that needed immediate response. This is because the major differences between these two theories is their approach in solving economic issues where the Keynesian theory provides short time solutions while the neoclassical theory focuses on long term solutions. Neoclassical theory argues that as prices go down so do the wage demands. According to this economic view, it is the duty of the business people to manage the situation of unemployment by reducing the prices of goods and services. Low produce prices will mean low expenses on employees’ part thus leading to reduced wage demands (Froyen, R. 2009, 56). However, the prices would need to remain low for this principle to work without which companies would have to lay off some of their employees leading to unemployment. The Keynesian economists saw the public involvement in economic affairs and market regulation as the solution to such predicaments of unemployment.
Keynesian theory argues that demand does not always result in equal product capacity. As such, too low or unmet demands can lead to adverse effects on inflation, employment, and organizational productivity. Proponents of Keynesian theory argue that demand is influenced by the private and public sector rather than the private sector alone as neoclassical economists argue. Additionally, deficiency of demand can arise from unemployment and increased prices something that can cripple an economy. Therefore, the Keynesian theory sees the public sector as having the potential to deal with unemployment issues through the government. The government can offer public related jobs to the public to help jump start a dying economy rather than waiting on the economic and consumer forces. Both theories admit that a nation’s economy is made up of business investment, consumer spending and government spending. However, they differ in the levels at which the government should be involved in regulating and managing the economy (Froyen, T. 2009, 127). The neoclassical see government involvement as an economy-crippling agent while the Keynesian theorists see the government as the viable solution in times of economic recession.
The neoclassical economists can criticize the Keynesian theory on many bases. First, the suggestions and the ideas of the theory only provide short-term solutions to economic issues in a foolish way. The stability of an economy depends on its ability to come up with long lasting solutions to its problems. Additionally, the mixed economy strategy where the government has the mandate to offer economic solutions deprives the monetary policy the ability to stabilize output. Issues such as current profit to investments and taxes and budgets to consumption would be irrelevant in an economic state as suggested by Keynesian. Some of the opponents of the Keynesian theory view it as a political appeal rather than an economic appeal (Berry, S. et al. 2007, 379). In other words, the Keynesian theory ignored all the economic principles of the time especially those that ensured that the economy sustained itself without external help.
However, regardless of the many criticisms of the Keynesian theory, it led to a great revolution in the economic world. First, the revolution gave governments a policy basis in economic affairs something that the neoclassical economists and other schools of economics did not allow. Additionally, raising the government’s involvement capacity in economic affairs helped deal with cases of extremists that had began happening in some parts of Europe. As a result, the theory became the basis of solution to major economic issues, for instance, the financial crises of 2007-2010. The monetarism theory was also born out of Keynesian theory. Generally, one can confidently say that the theory has had a significant impact on the global economy in many ways (Berry, S. et al. 2007, 386). In the end, the ideas of Keynesian theory together with some ideas of neoclassical theories were used to form the neoclassical synthesis.
In conclusion, the Keynesian revolution was a notable period in the economic world as it brought about the economic changes that have gained roots in the current world and have helped stabilize the economy. It took time for the rest of the economists to agree with Keynes ideas simply because change is always hard in every situation. However, the amalgamation of the ideas from both Keynesian theory and neoclassical theory has provided the best economic solutions to the current world. The idea of government involvement in economic affairs is ideal because it ensures equal distribution of wealth. In the other hand, allowing the market to balance its input and output prevents government borrowings that can cripple an economy if not wisely carried out.
Berry, S., Harrison, R., Thomas, R., and Weymarn, L., 2007. Interpreting movements in broad money. [Online] Available at: http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/qb070302.pdf [Accessed on 13 Nov. 2014].
Evans, T. 2009. Money and finance today. In: J. Grahl (Ed). Global finance and social Europe. Cheltenham: Edward Edgar publishing. 1-28.
Froyen, R., 2009. Macroeconomics: theories and policies. Upper Saddle River, N.J: Pearson Prentice Hall.
OECD., 2009. The effectiveness and scope of fiscal stimulus. [Online] Available at: http://www.oecd.org/eco/outlook/42421337.pdf. [Accessed at 13 Nov. 2014].
Economic Manuscript of Karl Marx
The economic manuscript of Karl Marx was written in 1847. In this manifesto, Marx, a diehard philosopher takes a different turn and focuses on the ideologies of work and the working conditions. He together with Friedrich Engels starts out a campaign to end such an alienation of workers. Marx points out that the era has a character of being in two distinct classes that is the bourgeoisie and the proletariats. The bourgeoisie are the rich private property owners who use laborers to make wealth for their own good. The proletariats are the workers who have to give up their working powers and a sense of self worth in working hard to earn a decent living. Unfortunately, they end up in the hands of capitalists who make them do hard labor but pay them poorly.
This type of hard work and less pay makes the worker to feel alienated and discriminated. He then starts relating to his produce as an object. This alienation also makes the laborer hostile towards himself and toward the capitalist. The eventually looses self-identity and worth. The era also moves from socialist to communist. Socialism is the era when the state took full control of the distribution of good to the members of the society. Communism on the other hand is the epoch in which the state has actually faded way and everyone has the right to own property. Marx joins a group called the international Association for workers, which aimed at fighting socialism. They wanted a class – less society. They fight for a society where workers are paid rightly for the work they do. Marx wants to ensure that there is equality in property allocation. He want to see a world in which even laborers are able to be property owners and those who cannot own property are paid well for their labor.
The Life and Times of the Author
Karl Marx is widely known as a German social philosopher and the originator of modern socialism and communism. From birth, he was known as Karl Heinrich Marx, and was born in Trier Germany on the fifth of May in 1818 to a normal middle class Jewish family (Burt, 2001). His father was an advocate who overwhelmingly supports the philosophy of enlightenment. Marx’s parents converted to Lutheranism when he was a little boy to save the family from the discrimination that Prussian Jews faced at that time. Marx’s father took him through a rich secular form of education from where he came across Freiher Ludwig von Westphalen, a Prussian wise man who later became his mentor. He talked about many topics with Ludwig including famous philosophical and literary people of their time.
Marx continued with his education and proceeded to take a course in law and Bonn and Berlin universities respectively. While at these institutions, he developed great influenced by the Hegelian philosophies and admired the Hegelian philosophers as well. However, he was more interested in the study of philosophy and therefore, he later on changed to the study of philosophy at Jena and graduated with a PHD in 1841 (Gradesaver, 2014). He wanted a profession in education but his ardent political support did not allow him to secure a position as a lecturer in any of the universities. He instead turned to journalism and became a radical politician, attracting many Prussians.
Initially as a supporter of materialism and demanded crucial changes in the way things were done when he was editing the Reinische Zeitung magazine the magazine was burned later in 1843, due to its politically incorrect reports (Burt, 2001). This closure infuriated Marx and he decided to move to Paris with his wife. At this time, Paris was known internationally to be an active center for politics, art, and a social meeting place for activists and revolutionaries from various parts of Europe. While here Marx become an active socialist and met Friedrich Engels who turn to socialism after he observed the pathetic and poor conditions of his father’s laborers, who worked in the textile industry (Tester, 2002).
Together they decided to come up with ideas that lead to the evolution of proletarian socialism better known as communism. He promoted communism with the aim of addressing the injustices and appalling working situations found in the labor force. Marx was not happy with the way factory owners and other people treated their workers (Gradesaver, 2014). He observed that the laborers worked so hard but earned so little under deplorable conditions, while the employers gained so much and cared less about the safety and well – being of the works.
Citing antiroyalist writing, the Prussian government exiled Marx from France in 1845. He then went to Berlin in Germany where he continues to promote the philosophies of communism by joining a group of artist known by the name Communist League. These group accepted Marx and Engel and asked them in 1847 to write down a statement detailing their beliefs and aims for communism (Gradesaver, 2014). This manuscript was later referred to as the communist manifesto. Marx had written this manifesto in anticipation of the 1848 communist revolution. The revolution finally came and Marx did his best to encourage its progress in Germany but to no avail.
After the failure of the long awaited communist revolution, Marx moved to London where he lives with his wife (Gradesaver, 2014). He then got a break through in his wait when French came to Europe to spread socialism to most countries of the continent. He joined the group called the international working person’s association and delivered his first speech at the inaugural ceremony and made clear his intentions to become the leader of the group. They fought for a free working environment in which workers would take charge of their pay. This turned into a massive bloodshed and the group was dissolved. Marx also became known for his publication known as Das Kapital (Burt, 2001). His main aim as stated earlier was to ensure that the common worker got what they rightfully deserved; that is better pay and better working conditions. When all this failed, Marx moved to London, where he stayed until his death in 1883 still awaiting the much anticipated rise of the revolution.
The economic and philosophical manuscript of Karl Marx talks about socialism and communism. The work entailed in the manuscript mainly seeks to address the labor force and the nature of labor during these times. Karl Marx was known to be an activist who fought against poor working conditions and unfair treatment of workers. In this piece work, the term socialism refers to a point in the Marxism theory that lies between capitalism and communism (Beuzekom, 2012). This era is marked by inequalities in allocation of goods and labor pay based on the amount of work done. In socialism, the allocation of good and labor pay is controlled by the state. Communism on the other hand is the last stage in the Marxism theory. According to this period, the rule of the states has waned away and goods are equally distributed among laborers and factory owners.
In this manuscript, Marx widely expresses his interest in the state of economy concerning labor and wealth distribution. He intends to fight the classification of people based on class. It is apparent that during this time, the state was composed of two classes. Those who owned proper and the property less works (Sparknotes, 2014). In this division, the workers suffer impoverishment and are alienated from the rest of the world in with the property owners exist. The alienation occurs because the worker becomes hostile to himself or herself because he relates to his own produce as an object. These situations make the worker to put himself and his life in the object and the rest of his hard work in devoted to the object (Tester, 2002). However, because the worker does not enjoy the fruits of his labour, which according to capitalism should actually belong to him, the more he produces the more he becomes alienated.
This worker becomes more estranged because everything he produces s used by an outside that he does not belong to. Thus, the produce goes to the property owner while the property –less works remains with absolutely nothing after sweating to make the produce. He learns to retreat to a world of objects, which he creates but does not possess in anyway. The workers class and the property owners’ class do not meet and live a distance and very separate lives with the property owners becoming rich while the workers become poorer (Sparknotes, 2014). This is the socialism era that Marx abhorred so much and he wanted such categorization of society and state based on class to end. Marx did not like the way the state alienated workers and distributes factory and farm produces. This is because they were not economical but instead were so biased towards the worker who did much of the job.
The alienation of the worker came in four categories. The first type was the discrimination or alienation from the product that came as a result of their hard work. Thus, the worker was exempted from enjoying the fruits of his labour. This type of estrangement ensured that the worker did not benefit from his produce. In fact, the more he worked, the less he gained from the produce. The second type of discrimination saw the workers being alienated from the production activities (Sparknotes, 2014).
This means that no matter how hard they worked, the workers did not take part in the production process. In this type of alienation, the work that the laborer undertakes does not belong to him. Instead, it is a mean of survival that the worker is coerced to carry out for another person. Thus, the working activity of the worker do not originate from within him spontaneously a natural action of being creative but instead occurs outside of him thereby indicating self loss. This means that the worker does not find or feel any sense of self worth in the production activities and this is why the workers feels like an object in the production process.
The third type of alienation refers to the discrimination from human identity also called discrimination of species being. In everything the worker does, the activity should not be an end to itself but the activities in his life should be a meant to physical existence. Marx believes that work creates a life process for human beings. He believes that the procedure of transforming organic matter or raw materials into finished products (goods) forms the core identity of humankind. This manifesto seeks to clarify the human beings are what they do, their act of changing nature into object through practical activity. Unfortunately, in the modern method of private ownership and division of labor, the worker is denied privilege of enjoying source of identity and human species.
The fourth type of discrimination is the type in which workers are alienated from other workers. This is also called man-to-man discrimination. The worker regards the capitalists or the person who owns the workers production as alien and hostile (Engels & Marx, 2008). He therefore feels discriminated and detached from the entire world. The worker feels separated from and opposed toward the whole classification of private property through which the capitalist utilizes both the objects of production for his own satisfaction. The capitalists do this at the expense of the worker and the worker’s sense of recognition and wholeness as a human being. According to Marx, the capitalist misused the workers abilities and efforts by making them do hard labor with poor or no pay (Engels & Marx, 2008). The capitals had but little or no respect for workers the denying them the right to many opportunities and alienated them based on their classifications.
Marx and Engels (2008) state in the manuscript called the communist manifesto that the 1840 had the societies grouped into two distinct classless the bourgeoisie and the proletariats. Marx says that these two strata of the society sat opposite each other in great differences. The bourgeoisie were the property and industry owners who used the laborers for their own gain. They owned both the laborer and the products from the industries. They lived better lie and controlled the distribution of goods within the society. The proletariats on the other hand were a class of the workers who did not own any property or factory. They worked hard to enrich the bourgeoisie but did not earn anything (Engels & Marx, 2008). They were alienated from their hard labor and were used to the maximum without any better pay. They also lived in deplorable conditions in utter poverty.
Since the proletariats had, no means and ways of producing their own goods turned to selling their labor power in order to earn a living. The most unfortunate occurrence was that their labor power was poorly rewarded and the industry owners to make gains for them used them. Marx believed that if such working conditions for laborers continued to exist, the alienation of the worker from his work would make a person be uncoordinated with his normal world in which he believes (Engels & Marx, 2008). He further explains his ideology that alienation results from the way human beings value their own labor.
Marx has revealed himself in this manuscript as a great philosopher of work, who fights against mal treatment of laborers. He sees work as an avenue that is used for converting raw materials into objects of quality that can be used by many. Marx points out that the process of production (work) is very vital in a human beings life (Sparknotes, 2014). This is because work gives a person an identity and self worth within the world in which he lives. He follows up by criticizing capitalism, which he says undermines labour as a source of identity and allocation. This is because in capitalism is hall marked by the act of private property ownership which is only guaranteed to the factory owners.
Capitalism also ensures that workers without property surrender their labour in exchange of earning a life. That is, they have to work for factory owners so that they can earn a livelihood. The workers also end up handing over their identity as human beings, their self worth, and productive abilities to the factory owners, who are the wealthy capitalists (Engels & Marx, 1888). The era of capitalism really undermined and mistreated the worker to a greater degree. The capitalist used their wealth to the disadvantage of the workers. This kind of discrimination is not just overwhelmingly frustrating and unsatisfying to the worker but it also turns him against the capitalists and the method of private property ownership that is the origin of their aggravation.
Within the capitalist society, human necessities were characterized by the system of private ownership. Instead of common need of food, clothing, and shelter, human beings required money (Engels & Marx, 1888). Furthermore, capitalism ensures that there are differences in the needs for the different social classes that exist within the capitalist community.
Importance and Legacy
Karl Marx is seen to have put a fierce fight against the segregation of societies based on class. The importance of this manuscript is clear in the way it describes the poor working conditions of the worker in the 1800s. This is a few of the works of philosopher that attempts to bring an end to the alienation of the worker. In this piece of work, Marx aims at influencing the workers in the society to stand up for their right and fight for better rewards of their labor. Marx brings out the fact that capitalist are using and alienating workers for their own enrichment (Engels & Marx, 1888). He brings out the point that capitalists do not care about their work and make them lose their human identity and self-worthwhile working for them.
The manuscript is important in that it was written at a congregation attended by the then day’s human activists. Even though it was not a total success in 1847, the ideologies of Marxism are clear in this era. Most organizations have a better pay scale for their employees. Most people in the era of today do not have to work hard for meager salaries. As time went by, some laborers were able to become property owners. Industries are now owned and controlled by the government and some are still privately controlled. There is no distribution of goods and services unfairly by the state. Things have greatly changed in the history of economy despite the fact that some private and public employers still pay meager salaries and wages to their employers.
Beuzekom, L. (2012). Life and times of Karl Max. Retrieved from http://prezi.com/8ldjeifrjtyf/life-and-times-of-karl-marx/
Burt, D. (2001), the biography book: a readers guide to nonfictional, fictional and film. New York, NY: greenwood Publishers.
Engels, F. & Marx, K. (1888). The communist manifesto: (Manifesto of the Communist Party; German: Manifest Der Kommunistischen Partei). New York, NY: SAGE
Gradesaver. (2014). The biography of Karl Marx. Retrieved from http://www.gradesaver.com/author/karl-marx/
Marx, K & Engels F. (2008). The communist manifesto. New York, NY. Mobile references
Sparknotes (2014). Karl Marx (1818 – 1883): the economic and philosophic manuscript 1844: retrieved from http://www.sparknotes.com/philosophy/marx/section1.rhtml
Sparknotes (2014). The estranged labor. Retrieved from http://www.sparknotes.com/philosophy/marx/section1.rhtml
Tester, K. (2002). The life and times of post-modernity. Belmont, CA: Routlegde
 Marx, K & Engels F. (2008). The communist manifesto
 Gradesaver, 2014.Socialism lead to discrimination of workers.
 Gradesaver. (2014). The biography of Karl Marx
 Marx, K & Engels F. (2008). The communist manifesto.
 Sparknotes (2014). Karl Marx (1818 – 1883): the economic and philosophic manuscript 1844
What are the approaches to interpreting the establishment and free exercise clauses, and how should the Constitution work to protect religious liberty?
The First Amendment protects Americans religious liberties through two clauses that reinforce each other and work in tandem to help in the guaranteeing, protection and safeguarding of the rights and liberties of the citizens of the United States. These are the exercise clause, which work in tandem with the establishment clause. Based on the Free Exercise clause, both the federal and state government cannot impose sanctions on freedom of religion.
This clause was introduced with the intent of securing the individual’s religious liberty by prohibiting any form of civil invasion and denial of individual right and liberty to profess, ascribe to or associate with any religious grouping or faith. The clause protects against any form of federal or state regulation of religious beliefs. As a result, the government cannot rely on secular programs as a means of restricting freedom of religion, or even to discriminate between religions. The Free Exercise clause hinges on the freedom of conscience. It affirms that there are no legal grounds upon which the government can discriminate or penalize again a person or group of persons based on their religious inclination, and neither does the government has a legal right to force an individual to subscribe to certain beliefs.
The interpretation of this clause is however complicated when we consider that exercising religious freedom does not take the form of mere beliefs rather it involves rituals and practices that constitute conduct. This has led to several inconsistencies in the protection of conduct as free exercise by the courts. Majority of the courts are of the view that the Free Exercise Clause does not have a legal basis that enables it to restrict the government from compelling certain acts or forbidding individuals from doing others acts merely because the act is motivated by religious belief. The courts have only consented that there are some religiously motivated conduct that enjoy protection from generally applicable prohibitions. Scholars and the courts alike have been trying to understand the level to which which the Free Exercise Clause affords protection to religious beliefs and practices.
The relationship between the Free Exercise Clause and the Establishment Clause depends on how expansively the two clauses are interpreted. According to Schultz, although the Establishment Clause is one of the clauses meant to address the role that religion plays in the US society, there has been a raging controversy over its interpretation (241). The difficulty in the interpretation has stemmed both from failure to reach consensus about the Establishment Clause itself and from inherent tensions between the Establishment Clause and the Free Exercise Clause. A general agreement has been that the establishment clause hinders the federal government from establishing an official Church. However, there has been conflicts regarding the level of government involvement in religious matters, the meaning of the establishment of religion, and the word respecting.
From a general perspective, the two clauses prescribe the level to which the government is involvement in or tend to interfere with religion. There is a however a tension between the requirement that the government be neutral as far as religion is concerned as put in the Establishment Clause and the requirement by the Free Exercise Clause that the government should be accommodative to some religious practices. The courts have been working to harmonize the interpretations by ensuring free-exercise mandated accommodations do not amount to the creation of establishment violations. The court has also upheld a decision to the effect that certain legislative accommodations that are not even mandated by the requirements of free exercise. For example, in Hobbie v. Unemployment Appeals Comm’n (1987), the Supreme Court considered the constitutionality of Florida’s denial of employment compensation to Paula Hobbie, a Seventh Day Adventist who lost her job because she was no longer able to work on Saturday (Djupe 202). It was the position of the Court that the state cannot deny employment to Seventh Day Adventists who failed to report to work on Saturday. Moreover, the Court accused the government of attempting to restrict the creation of the Seventh Day Adventist religion. The court defended itself by arguing that the government was mandated to accommodate various religious practices in a manner that is in keeping with the contents of the Establishment Clause.
What are the rationales for safeguarding freedom of speech and why are some forms of speech accorded First Amendment protection and others are not?
Based on the First Amendment to the US constitution, Congress should not be seen to make a law that contravenes either freedom of press, or freedom of speech. With this language, the government has no ability to constrain the speech of citizens. This prohibition on abridgement of the freedom of speech, at the very least, not absolute. There is no outright prohibition of certain types of speech.
The Supreme Court has further acknowledged certain classes of speech that do not enjoy any protection by the First Amendment, and that are likely to be completely prohibited. Examples of classes of speech that do not enjoy protection by the First Amendment include child pornography, obscenity, and speech that constitute what are known as fighting words or true threats.
According to Smith, the framers of the First Amendment were guided by a strong feeling that America’s survival was dependent on the ability of its people to learn and abide by the truth (16). The various contents of freedom of speech are the rights to freedom of press, assembly, speech, the right to petition the government to redress certain grievances, as well as the implied rights of belief and association.
In U.S. v. Stevens, 559 U.S. 460 (2010) the Supreme Court made it clear that it would be unlikely to name new categories to the list of the types of speech that fall outside the First Amendmentpurview, though the Court did not entirely rule out the possibility that such unprotected speech exist. Perhaps there could be certain classes of speech that have remained unprotected historically, but are yet to be specified or deliberated in case law. However, even if this was the case, we do not have any evidence that “depictions of animal cruelty” constitutes these classes of speech. There is a dire need to ensure that in future, such extra categories of speech are duly recognized as a means of opposing the highly manipulable balancing act that the government has embraced, in an attempt to identify these.
The rationale behind the First Amendment on freedom of speech has been subject of debate among advocates and scholars for many years. Some of the prevailing questions are whether free speech is so favored in the United States because of its necessity to the functioning of democracy, or whether it is for instrumental purposes. Many scholars argue that the First Amendment jurisprudence is still a relatively new doctrine which sprang from court quarters in the 1900s. . The Justification of the First Amendment initially took a moral approach based on the notion that there is an intrinsic value to speech that has implication of a proper moral conception of persons. Those who disagree with the moral justification to free speech argue that the First Amendment jurisprudence is instrumental and that free speech is only valued to the extent that it promotes specific goals such as political stability , economic stability, and personal happiness.
Practical: First Amendment and Worship in Schools
The First Amendment contains two clauses that guarantee freedom of religion. The Establishment Clause bans the government from enacting any legislation whose goal is to either create an official religion or favor a certain religion and not another. Accordingly, this particular clause seeks to enforce the separate of Church and the State.
Public schools are less likely to hinder or inculcate religion. They must however be seen to hold religious convictions and religion with respect and fairness. The reasons why public schools endevor to uphold the First Amendment is with a view to try and protect the religious liberty rights of students from all faiths, as well as those who belong to none. Schools demonstrate fairness by ensuring that the curriculum includes study about religion as far as is appropriate and as an integral part of whole education.
There have been questions asked in trying to arrive at a consensus on how schools should treat religion. One crucial question has been around the idea of neutrality in the study of religion. The First Amendment has drawn a sharp distinction between the teaching of religion on one hand and the indoctrination on the other hand. In keeping with the current law, the various common documents stress that teaching about religion must be grounded on sound scholarship.
There has been a belief among some school officials and parents that the constitution prohibits any form of religious expression in public schools. That is however a wrong concept. Students have the right to pray, even in isolation, any time they want. They can gather and say grace among them and be allowed to gather out of free will. In addition, student religious clubs should be treated like any other extracurricular club in schools and they should be allowed to publicize their meetings and hold their meeting on school grounds, utilize school facilities just like other clubs in the schools. They also have the right to gather and read any religious book of their wish (Jones and Eric 112).
On their part, teachers can and should give teachings on religion and the role it has played in shaping the history of America and how it has contributed to values, knowledge, music, and art. The students should also feel free to express their religious beliefs through art, school work, and presentations. All these forms of religious expression and worship are permitted and enjoy protection by the First Amendment. Where there are misunderstandings about the First Amendment and the role it plays in protecting freedom of religion in schools, efforts should be made to create awareness and enlighten students, teachers, and school authorities. All parties should be brought to the understanding that the First Amendment protects freedom of religion by allowing students to pray. It also protects freedom of religion by prohibiting schools from preferring any form of religion and compelling students to express or subscribe to any form of religious beliefs (Mountjoy 98). The amendment also protects the individual’s including student’s right to associate with any religious group within the confines of the law.
The Supreme Court upheld such an interpretation in Good News Club v. Milford Central School when it ruled that the refusal of a school to allow a group to use school facilities for worship services violated the First Amendment. Milford Central School refused a request by the Good News Club, a nondenominational religious club to meet once a week at an elementary school to have some fun time of singing songs, listen to Bible lessons and memorizing scripture.
Djupe, Paul A, and Laura R. Olson. Encyclopedia of American Religion and Politics. New York, NY: Facts On File, 2003. Internet resource
Jones, Steven P, and Eric C. Sheffield. The Role of Religion in 21st-Century Public Schools. New York: Peter Lang, 2009. Print.
Mountjoy, Shane. Engel V. Vitale: School Prayer and the Establishment Clause. New York: Chelsea House, 2007.
Schultz, David A. Encyclopedia of the United States Constitution. New York: Facts On File, 2009.
Smith, Rich. First Amendment: The Right of Expression. Edina, MN: ABDO Pub. Co, 2008.
Government intervention in controlling prices of drugs in the United States
Price control in the pharmaceutical industry in the United States has in the recent past become a pressing issue. The pharmaceutical industry remains the only one in the whole world where the prices of drugs are unregulated (Temin 24). Governments in other markets regulate the prices of drugs either indirectly or directly. In Japan and Germany for instance, the government puts the limit on reimbursement from social insurance scheme. United Kingdom on the other hand regulates prices of drugs directly through profit control. Price regulation has become a contentious public issue leading to the question of whether US should join other countries in regulating prices of drugs. This paper seeks to establish the impacts of government intervention to control prices of drugs in the United States and implications to the cost of healthcare for the Americans.
Currently, the pharmaceutical sector is faced faces numerous market inefficiencies including unfair prices and issues with t quality and safety of drugs. Government intervention in controlling the prices of drugs is inevitable to eliminate the market inefficiencies as well as reducing the risks to the end users of drugs (Angell 135). Supporters of price control policy argue that the price of drugs is excessively high in the US, and attempts by the government to regulate prices would increase affordability of healthcare for all citizens. Opponents of price control policy on the other hand argue that controlling prices would diminish the incentive to invest in research and development based for drugs.
Although the private sector has in the past executed policies geared towards reducing the price paid by consumers of drugs, it has not adequately been able to internalize the problem due to political influence among other factors (Temin 32). The government can adopt similar policies that have been used by the private sector to significantly bring down the prices of prescription drugs without necessarily disrupting competitiveness of the industry.
Angell, Marcia. The Truth About the Drug Companies: How They Deceive Us and What to Do About It. New York: Random House, 2004. Print.
Temin, Peter. Taking Your Medicine: Drug Regulation in the United States. Cambridge, Mass: Harvard University Press, 1980. Print.
The DD-AA Model
The DD-AA model is an interpretation of three market models, that is, the Foreign exchange, the money, and the product markets. This model consists of two curves, each representing particular market variables, and conditions. The AA curve runs from top-left side of the graph to bottom-right representing an asset market balancing trend. The DD curve runs from top-right to bottom-left to represent the equilibrium effect on household products. Therefore, the DD curve describes the equilibrium level achieved due to changes in the gross national product (GNP), taking into account exchange rate variations at any given time. The assumption that firms react to excess demand by supplying more products lead to shifts in GNP, which rather cause economic equilibrium on product demand. The AA curve signifies an equilibrium exchange rate attained for every existent GNP level. The AA curve equilibrium is influenced by the forex return rate, which influence investors’ decision on either buying or selling the foreign currency based on economic conditions.
The DD curve explains the correlation between the exchange rates and the gross national product taking into account the fixed nature of other factors. As such, the DD curve is a derivative of the product simulation consisting of various elements, including investment and government demand as well as resulting price levels. As a result, an upward shift would be caused by an increase in demand, more state expenditures, higher foreign prices or otherwise a reduction in taxes. The AA curve tends to shift upwards each time money supply increases, and again when the market experience a rise in foreign rate of interest or expected exchange rate. The intersecting AA-DD curves draws an economic equilibrium between asset and product markets.
It is apparent that the AA curve slopes downward because the expected short run future exchange rate is fixed, besides the market experiencing constant domestic and foreign interest rates. As such, if the exchange rate rises, there would be a reduction in the gross domestic product. The DD curve slopes upwards on account that a rise in the exchange rate would lead to more exports, which amounts to increased total demand. This leads to a significant shift from imports to enhanced domestic production that give rise to a positive correlation coefficient. The slope of the curve represents how speedy adjustments occur in goods and asset markets.
The main factors shifting the curves include monetary resource, which when reduced induces the AA curve shift to the left. Other factors include the American price level, tax revenues, the expected rate of exchange, government transfer payments, as well as the British rate of interest. The intersecting of AA-DD curves develops a super-equilibrium position that shows the existence of simultaneous equilibrium amidst the product, the exchange, as well as the domestic money markets. At this point, households, investors, as well as firms exhibit several behavioral changes adjusting to the status.
Monetary and fiscal policies greatly influence economic variables that determine the structure of the AA-DD account, and affected by changes in global transactions and financial flows. For instance, if there were an increase in money supply, there would be a resultant interest rate drop. As such, the domestic currency depreciates, which leads to local products being cheaper and as a result increasing aggregate demand. A decrease in taxes would amount to increased product demand due to better business conditions, thus shifting DD downwards.
Oligopoly in the Beer Industry
Oligopoly is a market structure in which a few but large sellers dominate the market. Owing to their favorable position, these sellers can greatly influence the price of a product among other market forces. For instance, the US beer industry is dominated by Anheuser Busch and MillerCoors. These two account for close to 80% of the total beer sales. In many instances, large businesses will strive to maintain their dominance
Advantages of larger brewers over small competitors
Large brewers have enough capital to invest in an extensive and nationwide supply chain. In the United States, this has meant that most beer distributors now align themselves to one of the two brewers. For example, one can be a blue distributor (for MillerCoors brands) or red distributor (for Anheuser Busch brands). Consequently, these distributors will favor brands from these two companies. Since they can afford large expenses, large brewers use large trucks or trains to transport their products to local markets. This ensures that they can compete in every market. Small competitors that have to be wary of expenses cannot afford such an extensive distribution channel (Guo 2006).
Another advantage of large brewers is that they can afford the latest technology, thereby increasing their efficiencies even as they cut on production costs. For example, their acquisition of modern canning and bottling technology has enabled them to fill around 2000 cans per line every minute. In essence, they produce many beers in a single day. This makes sure that their products will never run out in any given market. Their use of automated procedures has also saved labor costs associated with brewing and warehousing. Other technological factors have also acted in their favor. For instance, the cost of constructing a 4.5 million barrel plant is one third less than the cost of constructing a 1.5 million barrel plant. This means that small beer companies incur more costs when constructing their significantly smaller plants. This is a key impediment to their expansion efforts.
Unlike small competitors, large brewers can advertise nationally. This has two key advantages. First, advertising nationally means that their beer brands are recognizable throughout the country, including localized markets. Second, advertising nationally is cheaper. This saves on costs. By virtue of their position, large brewers can partner with sponsors of events such as sporting competitions, music concerts and other public events. Furthermore, they usually have advertising contracts with sports venues. This implies that they can establish beer taps and other related placements all over these venues. A person looking for a brand from a smaller competitor will spend a considerable amount looking for it. In some cases, these smaller brands may be prohibited in such events or venues. The ease with which beer brands of large brewers can be found at such events gives them a massive advantage over smaller brands.
The Australian beer market
The Australian beer market is largely dominated by two companies: SABMiller and Lion Nathan. Thus, this market is an oligopoly just like the US beer market. SABMiller’s market share is estimated to be 48% while Lion Nathan’s share is about 41%. This implies that, together, these two companies control 89% of Australia’s beer market. After these two, the next biggest company is Coopers. However, this accounts for only 3.6% of the total market share. SABMiller and Lion Nathan are foreign-owned, an indication that Australia’s own beer production is just a minor fraction of national consumption. The dominance of these two was rubberstamped in 2011 when the Australian Competition and Consumer Commission allowed SABMiller to acquire Foster’s, a company that was threatening to take away a portion of the market from the big two. Its actions neutralized the competition (Richardson 2012).
Comparing the US and Australia beer market
From the case study, it is clear that the two dominant beer companies in the US are Anheuser Busch and MillerCoors, with these two accounting for 76% of the total beer market share. Similarly, the Australian beer market is oligopolistic with the dominant companies being SABMiller and Lion Nathan. Thus, in many senses, the case study reflects the situation in Australia.
One clear comparison between the two markets is the ownership of the four companies. Anheuser Busch is fully owned by Belgium beer firm InBev. This means that even though it dominates the US, it is actually foreign owned. On its part, MillerCoors is a joint venture by Molson Coors (itself a joint venture between Molson of Canada and Coors of the US) and SABMiller (headquartered in the UK). This means that by and large, these two companies are foreign owned. As for the Australian companies, Japan firm Kirin Holdings owns Lion Nathan while SABMiller is fully owned by its parent company (Hasegawa 2010). This also implies that SABMiller dominates the beer markets in both the US and Australian despite the fact that it is based in the United Kingdom. In terms of revenues, InBev and SABMiller are the two biggest beer companies in the world.
Another comparable feature between these two markets is the way the dominant companies achieved their leading positions. In both countries, SABMiller bought off a third competitor, thereby neutralizing competition. In 2007, the three leading beer firms in the US were Anheuser Busch, SABMiller and Molson Coors. However, SABMiller bought the US operations of Molson Coors, thereby forming MillerCoors later that year. This move reduced competition significantly. This ensured that only two big firms remained to compete in the market. Similarly, before 2011, Foster’s, Lion Nathan and SABMiller were dominating the Australian beer market. In fact, before its purchase, Foster’s was the producer of Australia’s number one beer Victoria Bitter. In 2008, this beer had a market share of 22% (Smith 2011). Just like it had done in the US in 2007, SABMiller purchased Foster’s in 2011. This move also watered down the competition and ensured that only it and Lion Nathan control the market.
Before SABMiller took over Foster’s, it used to run a joint venture called Pacific Beverages with Coca Cola Amatil. This allowed it to distribute many of its beer brands throughout Australia. Before the takeover, Pacific Beverages had 2% of the market share. The two companies had also discussed plans of building another brewery. If this had gone ahead, Pacific Beverages would have posed a major threat to the dominance of SABMiller, Foster’s and Lion Nathan. To prevent this threat, SABMiller decided to cancel the venture with Coca Cola Amatil (Christopher 2012). As a result, it was able to cancel out all competition apart from Lion Nathan.
Large brewers always use their position to control beer distribution channels to make certain that their products are available in local markets. Just like in the United States, the two dominant firms in Australia dominate the distribution channels. In addition, they compete in distributing popular foreign produced beers. For example, Lion Nathan is the official distributor of Stella Artois in the country. Stella, a Belgian production, is the fourth most popular imported premium beer in Australia. Lion Nathan also distributes Budweiser and Beck’s. Similarly, SABMiller has been the long running distributor of Corona, a Mexican beer production and is the most popular imported premium beer in Australia. Its market share in that category is 34% (Ramirez 2011). The dominance of the distribution channel has meant that these two boast the ten highest selling beer brands in the country.
Impact of factors on Australia beer market competition
Geography and Size
Australia is the largest sixth largest country in the world. For its size, its corresponding population of around 21 million is low. However, this has vital implications to the beer industry. Due to its large size, Australia has a number of islands (seven) and territories (ten) in addition to the mainland. The mainland has been divided into six states (Banting 2003). The dominance of two companies has meant that most brewers produce craft beer brands that will compete with other regional brands. Each state, island and territory boasts its own local beer. Thus, the main objective of many beer manufacturers is to compete regionally.
Unlike the beer industry, there is a lot of competition in the wine and spirits industries. For instance, the biggest five wine companies control only 43% of the wines market. In addition, the major spirits manufacturers control 82% of the market (Richardson 2012). These statistics show that the wines and spirits are markets are more feasible than the beer market. This suggests that many alcohol companies would rather venture into the wines and spirits business than the beer business.
The big beer companies have ease of access to the latest manufacturing technologies, especially considering that their parent companies are based in technologically advanced countries. Moreover, their huge revenues mean that they can obtain the latest technological advances. This means that while these companies can benefit from the manufacturing and distribution efficiencies that come with the latest technologies, other smaller companies cannot due to cost constraints. Consequently, technological advances have only enhanced the dominant positions of SABMiller and Lion Nathan.
Contestability of the market
In this country, the contest is between Lion Nathan and SABMiller. At present, the third biggest beer company in Australia has a market share of only 3.6%. Other companies have to compete for the remaining 6.4%. These figures indicate that the Australian market is largely oligopolistic and uncontestable to many companies. The smaller companies have been forced to contest in the craft beer segment. These brewers contest with other regional brewers. Nationally, however, the real contest is between the big two, who boast the top ten highest selling beer brands. The situation would have been different had the Australian Competition and Consumer Commission opted not to allow the purchase of Foster’s by SABMiller.
This has probably been the most dominant factor that has shaped the competitive nature of Australia’s beer industry. Presently, international companies control the market such that the biggest local manufacturer has a 3.6% share. Meanwhile, foreign beers such as Corona, Stella Artois and Budweiser are popular among the public. Australia opening up itself for international trade and foreign direct investment has played a major role in defining the competitive nature of the beer industry. In the past, local companies have been competing to distribute popular foreign beers. The foreign dominance has limited the popularity of local beers.
Banting, E. (2003). Australia. New York, Crabtree.
Christopher, E. (2012). International management: explorations across cultures. London, Kogan Page.
Guo, Y. 2006. Global Big Business and the Chinese Brewing Industry. London, Routledge.
Hasegawa, Y. 2010. Rediscovering Japanese business leadership 15 Japanese managers and the companies they’re leading to new growth. Hoboken, N.J., Wiley.
Ramirez, D. 2011. Brew masters battle for Australian beer market. Retrieved 8 March 2014 from http://bizmology.hoovers.com/2011/12/20/brew-masters-battle-for-australian-beer-market/
Richardson, D. 2012. ‘The liquor industry’. Technical Brief, no. 14, pp. 1-30.
Smith, H. 2010. Melbourne, Victoria & Tasmania. Madison, Hunter Publishing Inc.
Understanding our Economy through Investment
The present value is that sum of money that would be needed today, and by using certain reigning interest rate would give rise to a given future amount of money (Mankiw, 2014). Every investor has to gestate this concept in mind if s/he wants to obtain a higher return for the future. The formula can be expressed as;
PV = K
Where; K – represents the discounted future amount, i – the interest rate (represented as a percentage and but expressed as decimal in the formula) to be compounded either annually, semiannually, quarterly, monthly or yearly basis and t – is the number of period between the current date and the date where the present amount will worth the future forecast, e.g. a lecturer who has a high school daughter would want to save sum of money in his account today for his child’s future education in the next 2 years. The total sum he expects in the next 2 years is $500, 000 and he’s certain of getting a 25% interest per annum for his savings account. How much should he start depositing to his account? This is calculated as below;
PV = K
PV = 500, 000 = $320, 000
For him to be in a position to get $500, 000 in the future, the present value that he’ll have to deposit in his account at the moment will be $320, 000.
With regards to the above illustration, as the interest rate increases, high chances of opportunity cost for the future amount also increases thus the present value of the amount to be obtained in the future decreases. On the other hand, when there’s a decrease of the interest rate, the opportunity cost of the future fund also decreases hence the present value for the above payment will raise. Before an investor consider either of the options, s(he) has to evaluate investment real rate that will be determined through getting the difference of inflation rate from the market rate. This will help in choosing one of the best investment options to garner a good return in the future. Both the corporate bonds and long term investments are considered to be more risky to short term investments and government bonds thus interest rates are usually higher.
The Federal Reserve being described as independent within the government has a mandate to ascertain that the regulation of the circulation of money is isolated from the political pressure that may arise in U.S. Fed has two parts structure: Board of Governor which is the central authority situated in Washington, D.C, 12 Federal Reserve Banks who are appointed across the country in a decentralized network, and Federal Open Market Committee (FOMC) that is responsible for formulating monetary policy.
The Board of Governor – also known as Federal Reserve Board, is appointed by the president and consists of 7 Board of Governors members who are later confirmed by the senate before resuming their role. To shield the state from political crisis that may arise, they serve a 14 year term. The chairman and his deputy are approved by the senate to serve a 4 year term which can be renewed after their appointment by the president.
Federal Reserve Banks – includes 12 Federal Reserve Banks. These are nongovernmental organizations that are set up in the same manner as the private corporations, to operate in the interest of the public. The reserve Banks have their own board of directors that comprises of commercial banks representatives who are also members of Federal Reserve System. Their presidents are appointed by the board of directors and approved by Board of Governors.
Federal Open Market Committee – this in the body that is responsible for the monetary policy making and constitutes of 12 voting members. Seven of them are members of the Board of Governors and five members are Reserve Bank presidents who usually circumvolve. Even though the Federal Open Market Committee is entitled to make its own decisions and pass them to the Congress, the head of Federal Reserve System is expected to report to the Congress on a regular basis.
Money market is that place at which the amount demanded and supplied meet to determine the nominal interest rate. The demand curve represents the quantity of money that is in demand for a certain interest rate. People would rather hold less money and have higher interest rates on bonds and other investments therefore the demand curve will have a downward sloping. On the other hand, the supply curve represents the quantity of money that can be supplied at a given interest rate. The curve for money is vertical because it does not depend on interest rates but rather the ultimate decision made by the central bank. The point at which money demanded equals the quantity supplied is referred to as equilibrium point (Boyes & Melvin, 2012). The factors that would influence the demand for a product are categorized into two; first, household determinants such as income, the price of other goods, ones taste and the necessity for the product and secondly the market demand. This is influenced by the price of the product. An increase in the price will lead to the decrease in the product demanded and vice versa. Though there could be exception to this where there are inferior goods, at times of conspicuous consumption and when there is speculative demand within the market. An increase in price of the complement products will lead to a decrease in the demand, and an increase in price of one substitute good would lead to a fall of its demand thus the demand of the other substitute.
Mankiw, N. (2014). Brief Principles of Macroeconomics: Present Value: Measuring the Time Value of Money. P. 178-184
William, B., & Michael, M. (2012). Macroeconomics: Foreign Exchange Market Intervention. P. 303-306
- Explain how economists calculate whether a country’s economy is in a recession.
What is recession?
Recession refers to the period between a peak and a depression which in more detailed terms refers to reduction of economic activity across an economy in duration of more than few months (Kluza 2014). It can also be referred to a period during which an economy experiences negative growth economically for more than two consecutive quarters. It is normally visible in production, real income, employment and other economic indicators like reduction in corporate profits or declining wholesale and retail sales; it consists of two or more quarters of a decline in real Gross Domestic product (GDP) (Schick 2013). GPD is the total output of goods and services that are produced by an economy in a given year.
Why recession is an economic problem?
Recession results to negative consequences in the economy both in the short term and long term, high unemployment rates, reducing incomes, declining economic activity results to economic problems such as reducing production outputs, increased government borrowings, falling of asset prices, declining share prices, economic social problems and currency exchange rate devaluation (Coenen, Straub and Trabandt 2012).
Recession reduces production capacity, which may go on for years due to less private investments or reduced entrepreneurial activity and business formation. Falling of production outputs leads to a lower real GDP and lower average incomes since wages tend to rise at a slower rate or fail to rise at all. In times of recession, there is deterioration of government finances since people contribute fewer taxes because of the existing high rates of unemployment. This deterioration in the finances of the government can lead to increased interest rate costs because the markets become worried about the government levels of borrowing. This makes recession worse and more difficult to get out of as was observed in many Euro Zone economies in 2009 recession aftermath. The exchange rate of currencies tends to be devalued in a recession. This is because there is less demand of the currency due to people’s expectations of lower interest rates in a recession (Coenen, Straub and Trabandt 2012).
There is a fall in the prices of assets during recession due to reduced demand for purchasing fixed assets such as housing or real estate properties. The reduction in real estate process can aggravate the decline of consumer spending and also increase the losses on the banking industry. The falling asset prices can particularly be reflected in the balance sheet recession just like in the year 2009 to 2010 recession. The other problem is reduction of share prices of the existing corporations. This reduction will be caused by the lower profits obtained from the operations of the businesses. Economic social problems also arise from recession, issues like rise of unemployment rate that aggravates inequality in incomes and relative poverty. This reducing the purchasing power of individuals and affects their standards of living due to poor economic well being. Finally, recession leads to rise in protectionism whereby countries may be encouraged to respond to it by coming up with protectionists measures such as increasing import duties. This may result to retaliation from other countries and a general decline in trade that has adverse effects (Coenen, Straub and Trabandt 2012).
How the depth and strength of recession be measured
To measure the depth and strength of recession, economists can use changes certain metrics in an economy that gauge how far an economy has to go to regain the right performance. These metrics include the rate of unemployment, the level of incomes, Gross Domestic product Gap as well as Consumer Price Index (Chadha and Warren 2013).
Economists can use the difference in the number of people unemployed in the current period of recession compared to the number before recession began to find out the strength of the recession. This implies that the wider the difference between the two the stronger the recession or the lesser the difference the weaker the recession. The other option for measuring unemployment rate available to economists is looking at a nations labor statistics to retrieve the employment population ratio data. It will then be possible to retrieve from this data the percentage of people employed from the start of the recession period and compare it to the percentage before the beginning of recession. This will show the trend in of employment such that if there is a huge percentage decrease in the population employed then recession is deeper and weaker if there is a lesser percentage decrease in population employed (Chadha and Warren 2013).
Economists use income levels to determine the depth of a recession by looking at the median wages of individuals or a GDP that is broken down per person to achieve a more accurate picture of the fiscal health of an economy. This will indicate how much an individual contributes to the economy on average. This metric is used to determine the rate of increase or decrease in the medium household incomes from the start of recession compared to the rate before the start of recession. The GPD per capital is also measured to find out its magnitude of change from the start of recession. The strength or depth of the recession will then be higher if any of these metrics has reduced rapidly after recession has began compared to the measurements before recession and if there is no significant reduction, then recession is not strong (Chadha and Warren 2013).
Rather than economists focusing on reported absolute GPD number of a quarter, they focus on the GDP gap, which is a more complex and ultimately a more informative statistic. They use data based on national budget office which calculates economic level of production in a country if it was running at full employment and full level of output which is then compared to the prevailing actual output. GDP gap or output gap is the difference obtained which indicates the deficiency in the economy. If there is a trending increase in this gap from the start of recession period then the economy is in strong recession period and if the gap increases at a lower rate, then the recession is not so strong (Chadha and Warren 2013).
The consumer price index (CPI) measure the rate at which there are price changes in consumer goods such as food, housing, clothing, appliances, medical care, automobiles among others change. Economists use CPI to determine the strength of recession by finding out the degree of prices changes of these consumer goods on the negative side. The higher the rate of price increases during the recession period, the stronger the recession and if the rate of increase is not high it means the recession is weaker (Chadha and Warren 2013).
- Discuss how the Government can use various policy tools to either avoid or limit the negative effects of a recession.
There are several economic policy tools that the government can make use of to avoid or limit recessions and reduce its negative effects. These policies help in promoting economic growth or increase the real GDP hence avoiding or limiting recession. Demand side policies are the most appropriate during recession or economic stagnation periods (Atesoglu 2013). In recession there is negative output gap in the economy and these policies help in increasing the rate of economic growth. It is however not a guarantee that these policy tools provide a solution since it may depend with the causes of recession. For instance, if high interest rates is the cause of recession, then cutting the rates may help to avoid a recession but if a reduction in asset prices which causes balance sheet recession it will not be easy to cut the interest rates because the banks may still not lend (Heise 2012). These demand side policies that can be classified as fiscal policy, monetary policy and other monetary stimulus policies besides having some shortcomings in their application, provide certain solutions that increases aggregate demand as well as spending and investment thereby reducing or avoiding recession (Atesoglu 2013).
Fiscal policy depends on the power of the government to spend and taxation. They are both used to reduce or increase the total money supply the economy. During recession, the appropriate policy by the government is to increase its spending, reduce taxation or both. Reduced taxes increase the disposable incomes of consumers, which in turn enhances consumption leading to higher demand and an increase in economic growth. It will also create jobs and improve businesses due to higher consumer confidence. A fiscal policy that is expansionary involves a higher budget deficit where the government spends more on capital investments, which ensures money is directly injected in to the economy (Atesoglu 2013). The government can also ensure that it increases spending through domestic debt rather than public debt obtained from outside economies. This reduces the possibility of a public debt crisis that can be derived from increased government spending.
The government may also come up with a plan that will deal with long term spending commitments. It should make decisions that reduce long term entitlement spending by rising the age of retirement, evaluating the spending in health care and increase taxes after the recession period is over. The short term fiscal stimulus will assist the government in reassuring markets that it is committed to a rising GDP. The long structural changes help in reassuring markets about debt (Atesoglu 2013).
There are certain issues that affect the effectiveness of this fiscal policy that can be evaluated as follows. Reduction of some taxes will not have an effect on spending as their increase. For instance, tax reduction for the rich will only have a small effect since they have a high marginal propensity to safe. The tax cuts may also depend on the prevailing confidence levels such that if individuals are pessimistic about the future, they may safe instead of spending (Heise 2012). The national debt is also a determinant whereby the scope of expansionary fiscal policy is reduces since if the government borrows more there will be an upward pressure on interest rates, which in turn increases future payments of interest. There is the possibility of crowding out due to higher spending by the government, which reduces the investments from the private sector. This because the government borrows money from the private sector by selling bonds to them which reduces the private sectors funds which they can use for investments (Heise 2012).
In case of expansionary monetary policy, the government reduces interest rates, borrowing will be much cheaper and hence consumption and investments are encouraged. Besides boosting aggregate demand, lower interest rates it also reduces the interest payments for mortgages thereby ensuring consumers disposable income is increased. The lowered interest rates encourage both firms and individuals to spend instead of saving. The government can also decide to reduce other interest rates in the economy besides the base rates, for instance, the government can sell to the Central Bank government bonds, which lower the bonds interest rates and in turn assist in boosting spending in the economy (Atesoglu 2013).
However if people are less pessimistic the lower interest rates may fail to work. They may not want to borrow even if the borrowing is cheaper. The banks may also fail to pass on the cut of the base rates to their customers, which will not encourage them to borrow. Cutting the interest rates very low can also affect the future economic activity, for instance following the United States terrorist attack in 9/11; the U.S government cut the interest rates due to the economic uncertainty at the time. The low interest rates encouraged people to get ambitious loans and mortgages and this was the factor that contributed to decline in demand for housing in the U.S. Cutting the interest rates at the wrong time can therefore contribute to worse economic conditions, it is only appropriate when the depth of the economic crisis does not pose any danger to reduction of demand in housing (Kluza 2014).
Preventing repossession of homes
High interest payments by homeowners in times of recession could result to a risk of defaulting by majority of them, which leads to home repossessions. These would have serious economic consequences such as a decline in consumer spending since homeowners spend less due to condition of meeting high mortgage payments. This will affect economic growth negatively (Horwitz 2012). Mortgage companies will also experience losses even if they repossess the houses due to the defaults on mortgages. Banks affected by these financial losses will also tighten their credit term, which affects the average consumers negatively. The government can try to freeze mortgage rates so as to prevent repossessing of homes. This will ensure that banks do not experience losses, which will in turn affect consumer spending (Horwitz 2012).
Devaluation of currency exchange rate
Aggregate demand can be boosted by a devaluation of the exchange rate. This is because exports will become cheaper while imports become expensive thereby increasing the demand for exports and reducing demand for imports. This then leads to an increase in domestic demand, which causes a higher economic growth (Schick 2013). However, if there in recession in the global economy devaluation may fail to boost the demand of exports and other countries may begin competitive devaluation. This is whereby a number of countries try to achieve competitive advantage by devaluing their currency against others. Devaluation may also lead to economic pain in the short term. The increase of import prices pushes inflation upwards and deteriorates the standards of living. It can also be taken as a sigh of a nation’s economic or political weakness. Although devaluation may be needed in Euro Zone countries, it will not be easy to devalue the currency and fail to affect the exchange rate due to the likelihood of capital flight (Schick 2013).
The government can to pursue unconventional monetary policies if the interest rates are already zero. In this case, money is created electronically by the Central Bank, which involves issuing Central Bank Reserves. It then undertakes to purchase various assets such as government and commercial bonds from banks. The bank reserves increases and it should then assist in encouraging more lending from the bank. It also reduces bonds interest rates since their prices have risen which should assist in encouraging spending and investment (Heise 2012).
Higher inflation Target
The government should focus more on making decisions that target growth rather than inflation. The presence of higher inflation rates gives more options for the Central bank. For instance, a reduction of inflation rate below the set targets reduces interest rates which are ineffective in boosting demand. A higher inflation rate than the targeted rate ensures higher nominal rates, which allows central banks to have more options and reduces reliance on huge budget deficits. This means that although the government should ensure a low inflation rate to promote the stability of the economy and growth in the long term, what that low inflation rate is should also be carefully examined and a degree of flexibility allowed to it (Atesoglu 2013).
Lending for Banks
During recession, the government can provide lines of credit to lending institutions like banks. These cash injection provide funds to consumers to take loans and encourage consequent consumer spending and investing. It can also lend money to falling institutions affected by recession so that they can be able to carry on their operations and contribute to economic growth. The government can also lend money to some central banks in foreign countries, which is then provided to those countries local banks with liquidity problems for purposes of lending to consumers and business. These loans to foreign countries central banks assist in protecting the markets that are relied on which are is in these foreign economies (Heise 2012).
Introducing rules for economic governance
Governments can come up with stronger rules on economic governance to ensure there is a tight check on public debt and deficits such that a nation does not end up spending beyond its means. An economy that is debt fuelled may not be sustainable and a government should ensure there are limits applied to both debt and deficits to ensure the national budget does not hurt the economy.
A government ought to step up supervision on financial institutions like banks to make sure that they have enough capital, are responsible in all their dealings and have the capability to lend funds to households and businesses. This ensures that people’s deposits are also well protected and the government does not have to use taxpayer’s money to redeem falling institutions. This eliminates the possibility of a declining economy and recession.
Implementing structural reforms that create employment
This can be possible by targeted investments utilizing the available government funds to come up with research and development initiatives, spread innovation and newest technologies that improves transportation, and brings high speed internets. This enables improvement of job potential among citizens’ thereby boosting productivity and competitiveness, which promotes economic growth.
Centralized derivative markets
A centralized system will allow the government to easily access information on the risk of exposures experienced by different individual institutions. This would help to reduce uncertainties that may happen in case some of the institutions collapse and ensure investors understand better the derivative markets evolution. This make sure that investor’s confidence remains such that they can increase their investments and promote the growth of the economy.
In conclusion, to limit recession a government should limit an antecedent boom and after the start of recession the government can use various policy tools to mitigate it effects and bring it to an end as soon as possible. The main objective should be to encourage the restoration of economic confidence climate in which business can thrive and carry out profitable activities. The government should not only concentrate on building short term economic confidence but also long term confidence (Salin 2013). For instance, the inevitable increase of the net government spending in a recession should not be seen to be financed by significant increase in future taxation or high future rates of taxation since present and future business investments will be discouraged due to the high taxes that will be paid to the government. It is possible to avoid the scenario of funding current government expenditures though higher future rates of taxation by doing away with unnecessary government expenditure in the future. To restore long term confidence in businesses as well as in individual savers and investors, the government should come up with appropriate policies that provide direction and adhere to them in their efforts to limit and avoid recession (Salin 2013). The government policy tools despite some of their shortcoming in their application provide solutions that can assist in eliminating recession.
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Poverty and economic development in the US
Description of issue
Poverty is a lack of necessities (Bradshaw, 2006). Based on human dignity values, food, medical care, shelter and safety are necessary for decent human life. However, the want for needs is relative and may vary from one person to another. Needs are relative to what is possible, and experience and social definitions influence perceptions about needs. Poverty is a mark of inequality, caused by relative deprivation. The definition of poverty can be social or objective. Social definitions are relative and allow for flexibility in communities addressing local concerns. Objective definition is a statistical measure established federally by the government and allows for tracking of progress and comparison between different areas. Economic development is a process that is multi-dimensional involving social structure changes, attitudinal changes, national institutional changes, accelerated economic growth and inequality reduction (Todaro and Smith, 2012).
Why the issue of poverty was selected
The issue of poverty is becoming an increasingly serious problem for Americans. The latest data from the US bureau of statistics show that there is no year-on-year reduction in poverty levels (Strachan, 2013). The levels remain unchanged with suggestions that the poverty rate might be increasing. Even though the economic recession has eased and there is a stock market boom, the benefits are yet to trickle down to the ordinary person. Although the national poverty level remains unchanged, the number of people leaving in poverty year-on-year increased. This is a worrying trend because many people will be left behind as the economy develops. Economic development should, ideally, lead to jobs and increased income for people, leading to reduced poverty levels. However, indications are that this is not the case despite concerted government interventions (Heavey 2013). This calls for an investigation to determine what is not working.
The poverty levels in the US have not changed substantially despite robust growth in the US economy over the past three decades (Hoynes, Marianne & Stevens, 2006). Poverty levels fell sharply in the 60’s from highs of over 22% at the beginning of the decade to less than 13% by the end of the decade (Haskins 2009). The drastic reduction in poverty in the 1960’s did not happen by coincidence. It was due to concerted government efforts and directed intervention measures. Government enacted a number of programs that contributed a lot to the reduction in poverty. The government’s efforts were possible due to a booming 60’s economy. The government invested heavily in education to give disadvantaged groups a chance to access quality education that could help the children escape the poverty trap. The government not only supported local school districts but also provided grants for students pursuing higher education. The grants, scholarships and work-study programs offered opened higher education to all irrespective of the economic background.
For young children, the government established pre-schools to give children an early feel for education that was invaluable to future success. The government also introduced a bilingual policy, where immigrants could be thought in Spanish as they mastered English. This ensured that immigrants were not left behind in education due to an inability to understand English. In cognizance of the fact that a healthy population is indispensable in the pursuit for economic development and reduction of poverty levels, the government set up Medicare to provide health insurance to the poor. These programs were accompanied by efforts to combat hunger and malnutrition. The introduction of food stamps helped to feed millions of households, immeasurably improving the health of the population. All of these factors in concert helped to improve the demographic structure of America in the 60’s as the life expectancy levels increased.
The healthier population coupled with the increased education opportunities contributed to the growth in the economy. Consequently, there were more job openings available for people. The virtuous cycle of better health, better education and many job opportunities helped to drive the poverty rate downwards drastically in the 60’s. The increase in Social Security disbursements in the 60’s lifted millions of Americans from poverty. The extra cash was very useful to the poor who did not need to worry about healthcare charges or tuition fees for their children. The money helped poor Americans buy homes, hence increasing the prosperity of the nation.
However, since the 1970’s, the poverty level has remained constant, rising on some occasions (Haskins 2009). The poverty level is correlated with the economy. It rises and falls depending on the prevailing economic conditions. The lack of a marked decrease in the poverty level is surprising given the number of government means-tested initiatives and programs implemented in the recent past. This is in addition to the vast amounts of monetary resources invested in those programs (Haskins 2009). This raises the question as to why there are no decreased poverty levels despite the government’s efforts to reduce the poverty levels in the country.
Current anti-poverty policy
The government is implementing policies to mitigate the effects of poverty within the American public. By the mid-1990’s, government policy shifted from the fight against poverty to the reduction of welfare dependence (Blank, 2000). This policy change interestingly led to the revival of the war against poverty. Initially disbursement of cash support occurred through the Aid to Families with Dependent Children (AFDC) program. In 1996, the Temporary Assistance for Needy Families (TANF) replaced AFDC; giving states more leeway to implement local poverty reduction programs in a manner that they felt was appropriate. Some states allowed people to keep a higher level of public support even after going to work, for a smoother transition from joblessness to work. Some states changed the welfare offices into work assistance offices where they give benefit beneficiaries incentives to seek for work. There are penalties imposed to those who do not show effort in seeking for work. These efforts were to help in removing people from the welfare system and help them into the job market so that they can earn to support themselves and their families. Other policies like the upward adjustment of the minimum wage, adjusted to inflation also helped in the fight against poverty.
Suggested policy considerations
Currently, the biggest problem is that it appears as if the multiplicity of support programs might be working against each other to keep people in poverty. Food stamps (SNAP) are the most effective program by government, lifting millions of families with children out of poverty. Beneficiaries seeking and finding work are punished for their success. A slight increase in income leads to precipitous cuts in food stamps, housing subsidies and loss of any cash assistance. This approach is wrong because usually the income earned does not put the welfare beneficiary above the poverty line. For programs to be effective, the beneficiaries should be slowly weaned off government support as their income rises until they are above the poverty line. If the government’s approach remains the same, the incentive for seeking salaried employment for the poor is reduced.
Recommendations for the future
The government has done much to reduce poverty in the nation. However, poverty levels remain unacceptably high, and much needs doing if the poverty level is to reduce to single digit levels. The following are some things that can be help to reduce poverty
- Adjust the minimum wage upwards to above $ 10 per hour to mitigate the increased cost of living
- Increase funding to anti-poverty programs, especially to SNAP which has proven efficacy in lifting millions from absolute poverty
- Taking care of the senior and disabled citizens, who are much at risk from poverty by strengthening the social security benefits system
- Help immigrants, who form a disproportionately high percentage of the poor, to settle and get decent jobs
- Enact programs that encourage people to seek work by gradually getting them off the benefits system as their income rises and they move above the poverty line
- Regulate and subsidize student education loans to prevent students from taking unsustainable levels of debt that handicap them after they graduate.
The trickle-down effect assumes that a developing economy leads automatically to a reduction in poverty levels. Although there is a positive correlation between economic development and reduced poverty levels, the government must actively intervene to ensure that some portions of the population do not miss the benefits if a developing economy. Poverty is a serious problem, and it cannot be eliminated by merely developing the economy and hoping for the best. The country requires putting social policies in place, and source adequate funding to ensure that the poor get help to overcome the poverty of their circumstances
Blank, R. (2000). Poverty: lessons from recent U.S. history. Journal of Economic Perspectives 14(2), pp. 3–19
Bradshaw, T. (2006). Theories of Poverty and Anti-Poverty Programs in Community development. RUPRI. Retrieved from http://www.rupri.org/Forms/WP06-05.pdf
Haskins, R. (2009). What works is work: welfare reform and poverty reduction. Northwestern Journal of Law & Social Policy. 4(1), pp. 29-60.
Heavey, S. (6 November 2013). U.S. poverty rate remains high even counting government aid. Reuters. Retrieved from http://www.reuters.com/article/2013/11/06/us-usa-economy-poverty-idUSBRE9A513820131106
Hoynes, W., Marianne, P. & Stevens, A. (2006). Poverty in America: trends and explanations. Journal of Economic Perspectives, 20(1): 47-68.
Stevans, L. (2008). The relationship between poverty and economic growth revisited. Selected Works of Lonnie K. Stevans. Retrieved from http://works.bepress.com/cgi/viewcontent.cgi?article=1003&context=lonniekstevans
Strachan, M. (9 September 2013). America’s poverty rate stuck at 15 percent for second straight year. The Huffington Post. Retrieved from http://www.huffingtonpost.com/2014/03/08/worst-product-flops_n_4926112.html?ref=topbar
Todaro, M & Smith, S. (2012). Economic development 11th ed. Boston: Pearson.