Challenges Facing the American Economy, Research Paper Example

Even though the United States is considered one of the wealthiest nations in the world, it is clear that the American economy is not as strong as it has been previously. The nations is currently hindered by continued economic recession that is ultimately a consequence of international trade policies and practices, the Federal Reserve, the domestic housing market, the Internet, and tax reform. In an article entitled “Five challenges facing the American economy in 2014”, the authors discuss the relationship between the five previously mentioned factors and their impact on the American economy (Barfield et al., 2014). Ultimately, it is important to implement policy change in order to ensure that these factors do not have a continuous impact on the stability of the nation’s economy.

Currently, the American economy has been negatively impacted by trade because the nation’s corporations conduct a majority of their business outside of the country. Therefore, the federal government is making less tax money on exports to foreign countries. Instead, the United States relies primarily on imports from other nations, which impairs profitability. Furthermore, international affairs that have occurred lately have had a negative impact on the country to do trade. Being involved in foreign wars is currently reducing the likelihood that Americans will receive fair oil prices and this ensures that this product will continue to be taxed at a dangerously high rate. These problems aside, the importance of Asia is increasing dramatically in the global market. Therefore, one step that America can take to bypass these issues is strengthening a trade relationship with this region. According to the authors, President Obama is currently bargaining the Trans-Pacific Partnership Agreement, which is expected to increase trade with 11 Asia Pacific nations. Solidifying this agreement will result in the generation of an ideal opportunity cost for products that are not currently produced in the United States.

In addition, it is essential for the Federal Reserve to create adequacy balance between the country’s inflation levels and unemployment. Currently, the government is aiming to reduce unemployment rates. If inflation rises, it will be difficult to accomplish this aim. If inflation decreases, they will have to buy into more securities, which will weaken the overall growth of the nations. Therefore, this is a pressing concern that is directly tied into policy and the opposing political beliefs of Republicans and Democrats. Ultimately, the degree of control that the government has over the market will impact their ability to control inflation, and it is important to consider which option is more ideal in this case.

The authors claim that the American economy is currently weak because the government has too much control over housing finance. Since interest rates are very low for thee loans, the price of housing is increasing more quickly than the increase of incomes. This makes it more financially feasible to rent, which in turn damages the housing market. Although this results in a lack of price differentiation for similar homes on the market, this is damaging because the lack of variety is ultimately contributing to the fact that houses are becoming less and less affordable. Since the federal government benefits from the down payments, they will continue making less money through this process. Any money that is made will be at the expense of the nation’s citizens.

An additional problem that exists with the American economy is that is currently has the highest corporate tax rates in the world. This discourages local investment, thereby reducing the profitability of companies and therefore the wages that they are able to provide. The authors propose that a potential solution to this problem would be to eliminate corporate tax altogether and to tax the corporate income fully at the stockholder level. Since the United States needs to remain in competition with other countries, this would be beneficial to the nation. It is important to remain competitive on the global market, which the country is currently struggling with.

Lastly, the government market has altered significantly as a consequence of the Internet. This has enhanced the free market because it has experienced minimal government intrusion. Thus, even though physically traded products aren’t made in the United States frequently, the country has an excellent market for Internet properties. A major disadvantage of this is that the United Nations is regulating the Internet in place of the government. This impedes a lot of efforts that technology companies are making, which ultimately impacts their degree of profitability. Therefore, this raises a serious question as to whether or not the government should intervene with Internet practices and if so, to what extent.

In conclusion, in order to ensure that the American economy remains stable, it is essential to increase its extent of trade, strengthen the Federal Reserve and to regulate inflation, decrease government involvement in the housing market, reform the way that we tax corporations, and to determine how to properly regulate the Internet. Although the United States economy has many more concerns than just these, it is important for them to start with these factors, as they have the greatest extent of impact in this matter.

References

Barfield C, Makin JH, Mathur A, Vlard AD, Pinto EJ, Jensen MH, Oliner SD, Eisenach J. (2014). Five challenges facing the American economy in 2014. Newsday. Retrieved from www.aei.org.

Phillips R. (2005). Pricing and Revenue Optimization. Stanford University Press.