Chapter 8 – Stabilization Policy

http://www.reuters.com/article/idUSTRE65C2JM20100613

SUMMARY

The White House is urging the Congress to pass measures to extend benefits for the jobless and aid states that are facing financial difficulties. Obama’s Democratic allies are facing congressional elections in November so they are cautious about the additional spending. A bill that passed in the House of Representatives last month authorized about $80 billion in new spending and added $31 billion dollars to the deficit. Obama also created a separate bill that would provide cash to states which will prevent teacher layoffs, but a $23 billion version of that legislation recently failed in the Senate. The U.S. deficit, which reached 1.4$ trillion in 2009 is estimated to hit $1.6 trillion in 2010.

CONNECTION

In chapter 8, we learned about stabilization policies. One of these stabilization policies is the fiscal policy. Fiscal policy can be divided into two types: automatic and discretionary. Discretionary fiscal policy is when the government has to make policy decisions to aid economic difficulties. This policy has three stages: recognition lag, decision lag, and outside lag. Currently, the bill proposed by the White Hose to increase spending is in the “decision lag” stage, because Congress has to decide whether or not to pass the bill. The bill that passed in the House of Representatives last month which authorized $80 billion in new spending is in the “outside lag” stage. It will take some time before this additional spending in the economy will take full effect. Another concept that ties in with this chapter is public dept. Since the U.S. is spending all this money into their economy, they have to borrow money from foreign countries such as China. This dept will have negative impacts such as burden on future generations.

REFLECTION

It is not surprising that the U.S. is going into further dept. Before Obama stepped into office, Bush spent billions of dollars on war efforts in the Middle East. No one is certain that the money put into the war against terrorism was effective. If Obama plans to spend more money on the economy, it is a good idea to retrieve troops back from the Middle East and get out of the war. Obama not only made passing the budget a priority, but he has made it a priority to extend amenities to illegal immigrants. Illegal immigrants make up a significant portion of the American population, and they are taking advantage of the additional spending on public services as well. The more money Obama borrows, the more he is making life in the future a longer version of the depression that he is borrowing to avoid.