Economic Stimulus in a Global Economy

Both the global economy and the American standard of living are based on the availability of credit. We’re in the middle of a serious economic downturn, and at the heart of the problem is the decreasing availability of funds for individuals and business to borrow, creating a “credit crunch.”

In the U.S., business owners borrow in order to grow, providing jobs as a result. The rest of us, who work for them, are able to use credit to own a house or buy a car or go on vacation – to participate in the economy as consumers.

The Current Economic Situation:

Periodically in our history we have had a credit crunch – with loss of job growth. Now we have a loss of growth due to the outsourcing of jobs to other countries, rising prices for basics like oil and food, and the weakening dollar. These factors are interconnected and all are related to our increasingly consumer economy.

The U.S Economy is based on two things: A consumer society and outsourcing manufacturing. 

In our consumer culture, Americans are expected to buy goods and services in order to keep the economic wheel turning. Yet, the U.S. outsources much of its manufacturing to developing nations in order to keep costs and prices low, so that many jobs have gone overseas. At the same time, American’s are increasingly buying cheaper foreign-made goods, making it difficult for U.S. companies to hire and retain workers in the U.S. and compete economically.

Although the most obvious symptom of the current downturn is too little available credit, a more basic cause is the high reliance on credit that a consumer economy demands.

On an individual level, Americans are spending beyond our means and not putting enough into savings - making individuals more vulnerable to job losses and economic downturn.

On a national level, our shift to a consumer economy has created a class of people that can’t get hired here because manufacturing jobs have dried up and U.S. companies can’t compete – especially in markets for housing and cars, linchpins of our economy since WWII. Thus, on a global level, the shift has contributed to a situation in which we buy more imported goods than we sell domestic ones abroad, called a trade deficit.

The Fed & the World Economy

The Fed is facing both short term and long term threats. The short-term is the market panic that has caused banks and investors to tighten credit lines, pressing banks and other institutions that rely on short-term borrowing. The longer-term is a general slowing of the economy, which results in higher unemployment, and budget crunches for localities and states.

To ease the immediate crisis, the Fed has lent money to private banks. Among other things, the Federal Reserve Bank is a bank that lends to other banks in times of crisis.

Being in a global economy makes it difficult for a national government to combat all of the international forces that affect our financial system. Some say we need international standards of lending and borrowing. Still, American voters have made it clear that the economy is a major priority, and Congress is hashing out the details of a stimulus package.

Economic stimulus - then and now:

Typically, an economic stimulus is meant to inject money into the economy by kindling consumer spending, which accounts for two-thirds of the U.S. economy. But this doesn’t work if people simply save money or pay off debt.

The House passed a bill that would give each worker making less than $75,000 a $300 check. Although some lauded the bill as a “bipartisan” effort, critics claimed that too much compromise weakened the bill overall.

In particular, House Democrats faced criticism for not pushing hard enough to expand safety-net programs such as unemployment benefits and food stamps as part of the stimulus. House Speaker Nancy Pelosi defended the House bill as a bargain that forced Republicans and the White House to agree to rebates going to millions of Americans who would not have qualified under the Republican proposal, while cutting off refunds for high earners.

A stimulus plan approved by the Senate Finance Committee would raise the income caps for eligibility to $150,000 for individuals and $300,000 for couples and extend unemployment benefits by 13 weeks. The bill adds substantial tax-credit extensions for wind, solar and other alternative energy sources, including incentives for homeowners to make their homes more energy efficient.

While both versions of the stimulus package include tax incentives for business investment, the Senate version allows businesses more generous tax write-offs for their losses.

Despite who receives the money – a major sticking point in the debate - a stimulus package is not likely to be successful in the current economy unless it addresses more basic issues than dwindling credit.

In the not-so-long-term it will be critical to examine issues like creating new kinds of employment for individuals that have been edged out of formerly well-paying jobs in disappearing sectors of the economy, and how to reduce the national deficit. As the impact of globalization becomes ever more apparent, it will become increasingly important to see our national economy as what it is: a piece of the expanding puzzle.

The States and the National Economy:

As the national economy suffers, so do states, which are bound by their constitutions to run balanced budgets. When their tax revenue decreases, they cut programs that employ citizens and stimulate the local economy, therefore leading to more unemployed citizens and less tax revenue.

When it comes to the national economy, the market value of all American goods and services or, the Gross Domestic Product, is not the full story. Although the GDP is often used as a measuring stick for the economy, employment rates, the trade deficit, the value of the dollar, and the national debt are other important pieces of the puzzle.

Political Compromise & Elections

With elections coming up, neither Democrats nor Republicans could oppose a bill that puts hundreds of dollars in voters’ pockets.

But the parties and houses of Congress have argued about who should get the bulk of the money. The poor, who are likely to spend it and put it back into the economy; businesses, which can hire or keep workers; or middle-income workers, the majority of Americans.

What do you think?

Let your representatives know what you think!

About WomenMatter

WomenMatter is a place to discuss life issues with other women. We don't want to wedge women apart, but rather bring them together to dialogue.

WomenMatter is the place where we can take one issue at a time, match what we do about it every day of our lives to the facts of the bigger system that we all live in and recognize that every idea for making it better has tradeoffs.

WomenMatter is dedicated to engaging women in the political process. To do this we have invested in the most in-depth NONPARTISAN information, because we trust each woman to make up her own mind.

• We track nine issues every week and update this website several times a week.
• We do continuous research to make sure that we are meeting the needs of women across the country of all ages, races, incomes, preferences, and religions.
• To explore our archive of past Jobs, Taxes, and Benefits Issue updates. Click here.

We offer all our services free of charge without memberships or subscriptions. To help us maintain this work - not just in election years but as a continuing part of women's lives - please make a tax deductible donation, click here.