Term Paper: Fiscal and Monetary Issues

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[. . .] This criticism contradicts some elements of institutionalism, which states that human interactions require rules of cognition and communication, which involve the use of language. According to this approach, language is an institution in itself. This approach can work to solve the current U.S. economic conditions by institutionalizing key sectors of the economy. Institutionalization of economic sectors would work to prevent political interference and monitor their performance effectively. Criticism may arise in relation to this idea that it is impossible to institutionalize all sectors of the economy and government intervention to control key sectors of the economy is important. Government intervention in the form of subsidies and other forms of intervention are important in order to ensure safety in the economy.

Another economic approach is the Austrian economist's approach. According to this economic thinking, social economic goals are met through mutual beneficial interactions. According to studies by Raico (2012) Austrian economists emphasizes on the effects of human actions on economic policies. The approach perceives an individual as a rational being who chooses and acts purposively. A rational individual is alert and resourceful creative in his participation in the market process especially in cases of entrepreneurs and entrepreneurial functions. This approach is useful in the analysis of economic conditions because it focuses on the activities of an individual as the key element to certain prevailing economic condition in America today. Raico (2012) explains that Economic performance highly relies on the actions of individuals. Fiscal or monetary policies are not applicable if individuals do not respond accordingly. Monetary policies such as lowering interests so that banks can release more money to the may not be effective in achieving the target goals if people do not respond accordingly.

The approach may attract criticism on the basis that, there is a great affinity between the macroeconomic approach and the anti-liberal approaches suggested by Austrian economists. Certain macroeconomic aspects of the economy cannot be ignored and focus attention on microeconomic aspects alone. It is also possible for macroeconomic policies to adopt the liberal or Austrian approach. The difference between macro and microeconomics on the choices of individuals is merely nominal. Certain macro or microeconomic phenomena can scarcely be affected by the choices of individuals. Studies by Raico (2012) points out that, the Austrian approach places emphasis on the importance of individual diversity and differences. This approach becomes problematic because government action must always to a certain degree take part in controlling and regulating particular cases of the economy. A fine case of this condition is the existing economic condition in America where the government must take action to repay its debt to avoid disruptions in other sectors of the economy.

The radical economist approach is also useful in analysis and providing a solution to the current economic condition in America. According to radical economists, there should be a substantial equality resulting from institutional changes. The changes in the institutions should take place in order to bring desired changes in the economy. This approach focuses on the equality that exists in modern economic systems. Radical economists see the current poor economic structures result from inequality where few large capitalists and high rank managers benefit at the expense of many people. The majority struggle to make ends meet in conditions of lack of unemployment or underemployment. According to Lee & Bekken (2009), the radical approach places emphasis on the provision of better working conditions for workers. The government must focus on the creation of an equitable society where there is employment and better working condition for everyone. The radical approach can be effective in controlling the current economic condition in America. Building a self-sustaining society where unemployment and inequality are not available can help to build a strong economic ground for the nation. Equitable allocation of income and other resources will nurture a strong economic ground. Lee & Bekken (2009) explain that, in a capitalist economy where inequality is likely to be high, there should be social considerations in order to build an equitable society.

Application of fiscal policies under the radical approach requires the government to regulate economic conditions through tax reductions to low income members of the society. Tax incentives may help to promote social equality through high taxation to high-income earners and low taxation to low income earners. Provision of subsidies on basic commodities may also help to raise the social welfare. A fiscal policy in the form of raising government expenditure on projects and programs that aim to create more jobs is also important in raising equity and promoting economic performance in the nation. The government must be in a position to provide basic societal needs like health at affordable levels. Provision of these services should not be a burden to the society in terms of expanding the budget but rather cut expenditure on other sectors that are not key to economic development at present.

Radical economic approach to current economic problems may face criticism based on the comparison of economic performance in the U.S. To non-capitals nations such as the former Soviet Union. The U.S. capitalistic economy proves to be better than the socialists who promote equality and better working conditions in the labor market. Studies by Moseley (1995) point out the shortcomings of the radical approach on the basis that it borrows many concepts from Marxists views, but it fails to provide clarifications on the borrowed concepts. The approach fails to explain the importance of human capital measures such as educational qualifications in the determination of wages and social classes.

Conclusion

It is necessary for the government and other economic contributors to critically examine the current economic situation in America and come up with viable solutions. Conflicting aspects such politics and certain macroeconomic factors in the nation's budget have to be in line with the public's interest. It is necessary for the country to adopt suitable economic approaches that will incorporate both social welfare and a free market economy. In this regard, it is recommendable to adopt the post-Keynesian's economic approach and incorporating useful ideas from the radical economic approach. Solving the current economic condition requires a consideration of the benefits and loss to the public and not the interests of certain political ideologies. Government intervention in the economy is critical for economic prosperity and equality in the society. In connection with this idea, Eichner & Kregel (1975) suggest the adoption of post-Keynesian economic approach.

References

Eichner, A.S., & Kregel, J.A. (1975). An essay on post-Keynesian theory: a new paradigm in economics. Journal of Economic Literature, 13 (4), 1293-1314.

Moseley, F. (1995). Heterodox Economic Theories: True or False?. Brookfield: Edward Edger

Publishing

Lee, F & Bekken, J. (2009). Radical Economics and Labor. New York: Routledge Publishing.

Raico, R. (2012). Classical Liberalism and the Austrian School. Alabama: LVMI Misses

Institute

Samuels, J.W, Biddle, J.E & Davis, J.B. (2003). A Companion to the History of Economic

Thought. Malden: Blackwell Publishing Ltd.

Emre Alper, C & Lorenzo, F. (2011). Public Debt in Advanced Economies and its Spillover

Effect on Long-Term Yields. Washington D.C: IMF Publications

Burton, M & Brown, B. (2009). The Financial system and the Economy: Principles of Money

and Banking. 5th Ed. New York: M.E. Sharpe Inc.

Person, T & Tarbellini, G.E. (2003). The Economic… [END OF PREVIEW]

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