The Economic crisis

The economic crisis is a common and uncertain scenario caused by unfriendly states such as unstable politics, poor corporate partnerships, and poor investment decisions, among other things. This article focuses on the fiscal, monetary, and regulatory strategies used by the United States from WWII to 2008 to regulate and recover the country from major economic crises.

The United States’ economic depression resulted in a decrease in the productivity of numerous industries. Banks, factories, educational institutions, healthcare facilities, and retail establishments are among the most severely impacted. The rate of unemployment rose due to the closure and decline in the operation of the business and non-business institutions. The key players who participated in recovering United States economy include; presidents, economist among other people who had a concern regarding the united states economic status. Due to adverse impact in the political and economic situation of the United States, the various person in private and government arenas setup up fiscal, monetary and regulatory strategies to recover the nation’s economy caused by the World War II destructions and expenditures.

The Dominant Economic Policies in the U.S during World War II Era

Government via the application of the fiscal policies such as spending and taxing attested to be a permanent legacy during the World War II. During the Second World War, capital taxes and labor tax rates rose because of government invested in workforces that were favourable to the citizen and the facilitation of the war (Betts, (Ed.). 2017). Furthermore, the government offered reasonable debts during the war to finance the government high expenditure and consumption. The application of the fiscal policies made the United States superior considering that during the wartime the general output market a great increase particularly between 1941 and 1942.

The government expenditure was regulated during the World War II as a strategy to maintain economic stability. The boost in the total output was achieved by the U.S primarily by the Government’s purchases of the military supplies. During the war, the government purchases were $304 billion which represent an average growth rate of 8.4% considering that the real GDP advanced 40% in between 1941-1945, it means that government expenditure increased significantly and had an impact on the US economy. The essence of the fiscal policies did not end with the expenditure of the government. Thus the government take a great initiative to control the expenditures to avoid prolonged payment of the government expenditure. The key strategy which as used to gad the government expenditure was through a collection of more taxes (Hook, & Spanier, 2015). Taxes were increased during the World War II. Despite the contradictory effect that increases in taxes always cause to the economy, the amount of taxes which was collected by the federal government increased the amount of taxes, but it slowed down the political and economic effect. Also, the purchases enter directly to the aggregate demand thus increased the net tax effect demand aggregate though it was indirect because it only affected the personal taxes and transfers (Tindall, & Shi, 2016). The government initiated a tax collection which made the government collect over 20 times more tax paid by the individuals. Moreover, the government offered a considerable debt at the wartime at a nominal interest between 0.375 and 2.5% and the debt-GNP ratio at the end of WW II the debt to GNP ration was at 1.2.

America’s engaging in Second WW II had a significant consequence on the economy and the overall workforce of the US. During and after World War II, US suffered economically considering that Unemployment rate was around 25%. The involvement in changed the economic stability adversely, however, the United States factories focused on employing more people to work overnight to products more products to support the war effort. Women engaged in jobs that were traditionally considered as men work. The federal government emerged from the war and powerful economic actor; it played a major role in regulating the consumptions and spending in the US. Other nations which participated in the WW II were extremely affected because their governments did not apply proper strategies to control spending and consumption thus leading to a setback in various economic industries. In 1945, the United Sates government had been revitalized by war and most industries had partly or fully focused on defence production; for example, some industries had concentrated on producing electronics and aerospace products (House, 2016).

The government had set policies that strengthen the labor movements to endure war depression by balancing the government and private industry. The United States empowered its citizens through Information Technology innovations; for example, the government had embraced the scientists and engineers who had the capability of bringing innovation focused on heightening United States economy and superiority during the World War II (Cohn, 2015). During the Second World War, participants were using advanced weapons as compared to the types of the weapons which were utilized during the World War I. Therefore, the policies which were used during World War II were economical friendly because the US government directed the industries and the government towards the operations that were generating revenue and creating employment opportunities to both skilled and non-skilled citizens.

The idea about the deficit had been suggested before the Second World War by John Maynard Keynes and some of his peers as a strategy of recovering from the depression. Although the strong resistance from the opposing individuals Keynes and his individuals pushed despite the fear of running a deficit. The arrival of the Second World War got the president, and the Congress choose to try this strategy of simulating the economy. Many were still opposing this policy; for example, Truman demonstrated his suggestion that the United States did not tax adequately and had to seek to borrow a lot, however, the Keynes suggestion led to the economic growth in between 1939 and 1945 thus it demonstrated the Keynesian policies efficacy (SGovernment=T-G-TR).

The monetary policies were developed by the federal government to manage the part of the government expenditure that could not have been covered by the collected taxes. The wartime monetary policy enhanced the government to smooth tax distortions though it resulted in historical unprecedented huge debt. Even though the monetary policies applied during the war caused the increased taxation, the aggregate demand curve remained in the right shift. Thus it means the monetary policy was reasonable and helpful. One of the monetary policy which was used during the WW II was selling of the “war bond.” The United States government sold the war bonds to the individuals during the WW II as a way of giving fund to the government among another purpose.

The Dominant Economic Policies in the U.S (1970-2008)

After the WW II, Economic expansion was experienced by all the war participants. A decade after the Second World War is known as the period of economic, political and cultural growth in the entire world. The hardship which was experienced by the United States during the war was replaced by the rising living standards, improved technologies in various industries and increased opportunities. The politicians get adequate time to present their bills and issues in various houses and political hierarchies as a way of handling the issues to improve America economy.

In 1970s United States was hit by the severe rise in the international food and oil prices. Thus it posts an acute problem for the policy-makers. The traditional anti-inflation approaches were not ideal because it could have contained demand by chopping the spending for the federal government or increasing levies, but the strategy would have income from the economy which was already suffering high oil prices pinch. The effect of the policy would have been a sharp increase in the unemployment rate. Since neither of the policies could lead to rising in the supply of food and oil, though boosting demand minus changing the supply would mean high prices. Therefore, in 1973-1977 president Jimmy Carter tried to come up with the solution regarding the two-prolonged strategy. Carter geared fiscal policy towards fighting the major problem about the unemployment, giving shortfall to widen and establishing fiscal policy setups for the interest of unemployed persons. Carter developed programs such as voluntary wage and price programs controls as a technique to fight inflation. However, neither of the programs worked the nation instead encounter a high inflation and unemployment.

By the late 1990s, the persons in policy-making were a bit likely than those of their forerunners to apply the fiscal policy to attain wide-ranging economic goals. The policy-makers concentrated on narrow policy modifications configured to establish the economy at the limits. During this period president Reagan and his successor, tend to reduce taxes particularly on the capital gains resulting from the appreciating value of assets; for example property or the stocks. The two president argued that such changes would have increased the level of incentives to invest and save (Baylis, Owens, & Smith, (Eds.). 2017). Though the Democrats counter argue that those changes would only advantage the rich people in the United States. In 1993-2001, President Clinton consented, and the maximum capital gains rate was chopped from 28 to 20 percent in 1996. Clinton also applied some other strategies to affect the economy through the promotion of various job-training and education programs setups to develop highly skilled individuals and thus, increase the number of the productive and completive labor force in the United States.

Monetary policies were also applied since, in the United States, budget remained an enormously relevant. The Federal Reserve System (Fed) is an independent Government Agency in the US which plays an important role in monetary planning and regulation to all the chartered banks in the United States. Fed Board of Governance is appointed by the president to administer the Federal Reserve Systems. The Fed discusses the issues in relation to the monetary policy in private and later reveal to the public after the period has ended. Fed raises its expense from the investment that was made for its services in the nation. Fed has three major techniques for keeping control over the supply and credits in the nation. Operation markets or buying and selling of the government securities is one of the tools used by Fed; for example to upsurge the supply of money, the government securities are bought from the banks, businesses and other investors with checks .i.e. the new source of fund that it prints, after the checks from Fed have been deposited, the banks are advised to lend money to the people as a way of creating a room for money circulation in the nation. Contrarily, if Fed wants to reduce the supply or the money in the hands of individuals, it boosts the government securities from the banks, investors and individuals thus reducing the money possessed by few people in the nation. Another option used by Fed to control money is through the setting of minimum reserves that banks should maintain; for example, if it wants the more money to circulate it advises the banks to reduce the reserves and if it wants the money supply to reduce it advises banks to increase the minimum reserves to be kept. The third technique is the discount rates, or the level of interest rate applied by the commercial banks pay to lend funds from the Reserve Banks. Fed can either encourage or discourage by reducing and raising the interest rates of the borrowed funds.

In 2008, the economic recession was experienced where the US GDP declined by 0.3%, and unemployment reached 10%. The depression was due to the decline in the real estate market which led to the over-leverage in banks and financial institutions in the US and Europe. In 2008, the Lehman Brothers (Kimberly, 2017). The nation fourth-largest investment Bank became bankrupt and eventually affect economy adversely. To recover the depression, Fed lowered the interest rates to almost zero as a way of promoting liquidity and alleviating banks from $7.7 trillion emergency loans.

Conclusion

Monetary, fiscal and regulatory policies are the major tools that have been assisting politicians and non-politicians individuals in the United States to control and recover the nation economy whenever it faces an economic crisis. Economists and Politicians in government and private sectors are the key plays whom should always be involved in regulating and protecting the nations against all kinds of economic depressions.

References

Baylis, J., Owens, P., & Smith, S. (Eds.). (2017). The globalization of world politics: An introduction to international relations. Oxford University Press.

Betts, R. K. (Ed.). (2017). Conflict after the Cold War: arguments on causes of war and peace. Taylor & Francis.

Cohn, T. (2015). Global political economy. Routledge.

Hook, S. W., & Spanier, J. (2015). American foreign policy since World War II. Cq Press.

House, F. (2016). Freedom in the World 2016: The Annual Survey of Political Rights and Civil Liberties. Rowman & Littlefield.

Kimberly, A. (2017). US Economy: The 2008 Financial Crisis, https://www.thebalance.com/2008-financial-crisis-3305679. Accessed on November 14, 2017.

Tindall, G. B., & Shi, D. E. (2016). America: A narrative history. WW Norton & Company.