The current macroeconomic situation in the United States is both unemployment and inflation. Over the years, the United has sought to protect small businesses against high government taxes. This has been done with the aim of making sure that small business flourish and to allow room for individual innovation and entrepreneurship. In the process of reducing taxes for small businesses the US government has increased taxes for big companies. This means that the cost of production for many large corporations in the United States has increased steadily over the years. In order to remain in business many big corporations have reduced the number of their workers. This means that as a result of a fiscal policy that seeks to protect small businesses, many people in the United States have become unemployed.
The other option that many large corporations have had to do is offshore outsourcing. Many large corporations have taken their businesses overseas where they pay lower taxes and at the same time enjoy cheaper labor. Offshore outsourcing allows many large corporations in the United States to maximize their profits (Hatonen, 2009, p.63). Though this fiscal policy is beneficial to multinational corporations, its effects are dire to people in the United States. Many people in the United States are left unemployed. A large proportion of the corporate jobs that are offshored overseas, are manufacturing jobs.
Manufacturing jobs are in many cases require unskilled labor. This means that the shipping of manufacturing jobs from the United States to overseas countries leaves many unskilled workers unemployed. The jobs that are left in the United States are those that require skilled labor. The reduction of manufacturing jobs in the United States has widened the economic gap between skilled and unskilled workers in the United States. This means that that increased taxes on large corporations has created a situation whereby the skilled workers contribute more to the GDP than unskilled workers.
The off sourcing of manufacturing jobs to overseas countries has led the United States ‘economy to be more reliant of a Keynesian model of economics. The economy of the United States is driven more by the ability of its citizens to consume products (Krugman, 2012, p.1). The more the people of the United States can purchase items the more the US economy grows. This is because the shipping of US overseas has reduced its level of manufacturing. The US government has sought to increase the purchasing power of its citizenry through the provision of various incentives. The United States government has extended lines of credit to its citizenry so that people can be able to continue consuming even though they do not have the money to do so.
The provision of credit to many people has reduced the relative power parity between the working class and the middle class. This fiscal policy has repercussions. It is worth noting that the Keynesian economic model has increase money velocity in the US economy. The increase in the amount of dollars circulating in the US market has caused the value of the dollar to depreciate. This monetary inflation has led the United States to continue borrowing money from other nations such as China. This accounts for the current fiscal cliff that is in the offing in the United States. Politicians are divided across the aisle about whether it is worth for the US government to raise its debt ceiling. Doing so would raise inflation in the United States.
Hatonen, J. (2009). Making the locational choice: A case approach to the development of a theory of offshore outsourcing and internationalization. Journal of International Management, 15(1), 61-76.
Krugman, P. (2012). Reagan Was a Keynesian – NYTimes.com. The New York Times – Breaking News, World News & Multimedia. Retrieved February 18, 2013, from http://www.nytimes.com/2012/06/08/opinion/krugman-reagan-was-a-keynesian.html?_r=0