The author also calls attention to the large trade deficit that the United States has been experiencing recently. While we are generating domestic income from exporting goods and services, the amount of importing goods and services immediately offsets this gain. The author remains optimistic in saying that eventually these foreign entities that are becoming wealthier with each transaction will most likely invest these dollars back into the United States. He also believes that the trade deficit is a self correcting problem that will eventually straighten itself out.
Monday, September 13, 2010
We Need Demand, Not Protectionism
The author of this article discusses the importance of demand in our economy. Total spending was broken down into four categories: consumption, investment, government and exports. With consumption accounting for roughly 70% of total spending; the fact that consumers are saving more than usual in response to the weakened economy is further slowing any progress of immediate recovery. As a result, businesses are reluctant to invest out of fear that consumer spending is going to continue down this road. The government is not making things any easier for investment to increase because of the strict regulations and high taxes imposed on businesses.
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I fear the possibility that with the economy still in the dumps companies will actually look towards the opportunity to outsource in order to cut costs and survive the remainder of the recession.
ReplyDeleteThe obvious danger that lies in this is that in fact, this would lower US GDP which would essentially cancel out any money that other countries reinvested back into the US economy.
The companies are already looking for opportunities to outsource... Not just to cut costs and to "survive" the recession, they are trying to maximize profits.
ReplyDeleteAccording to the article, "Besides, the government is creating major headwinds to business investment by the reality and promise of higher taxes and harsh regulation." I am concerned about this, I doubt that is true to all businesses because I'm pretty sure our government is trying to give incentives and tax reductions to small businesses to create more jobs. On the other hand, it might be different for corporations, nevertheless, giving tax breaks to businesses would create more jobs meaning more consumption involved in the economy. I'm not sure about the pros and cons about raising or cutting taxes in this state of the economy although I would be very interested to hear about it.
I agree with the author that the trade deficit is a self correcting problem but the last time we actually had a surplus from the balance of trade was over 15 years ago.
Our trade deficit has also never been this high. For the most part, countries are able to manage their deficit when they focus their attention there. At the moment, the recession is a major reason why I feel the trade deficit is not going to dwindle any time soon. I feel in order to diminish our trade deficit, our economy should be flourishing, or at least surviving in a comfortable manner. Right now our attention should be pointed at climbing out of the hole our economy is presently in. Once progress is made in regards to the recession, the trade deficit will follow.
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