The economic plague that the United States is currently facing, continues, and since 2008 there
has been little done about it. Why do we continue to settle for the lack of action? When will
Americans receive the respect we deserve? Through my research, I sought out the answers to
those questions. In doing so, I was able to find common ground for the problems that have driven
us here, as well as proposed solutions that may spark the beginnings of a turn-around. In order to
properly assess the validity of the arguments, I will also provide opposing perspectives. In doing
so, I hope to open the eyes of our current policy makers, and help shine light on our doomed
economy.
Before we analyze our answers, it is vital for us to understand what brought us to this point of
desperation. Two key similarities that I have found revolved around the issues of government
bailouts, and the United States’ growing unemployment. Srichand Hinduja and James Quinn,
claim that it was completely irresponsible for the United States government to bailout those large
banking firms. Instead of allowing them to take such uncalculated risks, and rewarding them
with a bailout, we should have held them accountable for their poor decisions. By granting the
bailout, it encourages firms to act carelessly. In addition John Judis and Mark Zinski emphasize
the issue of our growing unemployment rate. As a result of this staggering number, the United
States is not generating the revenue it needs to sustain this withering economy, and due to our
addiction to imports, we send out more money than we can bring in. That said, one of our key
focuses needs to be on increasing the job market. Mark Zinski and Professor Rodriques Tremblay
believe that an increase in the job market can help mitigate our economic crisis. Lastly, they also
urge the idea of a reformed repatriation tax. Due to the fact that Americans make a significant
portion of America’s revenue on foreign soil, the tax rate should be decreased when they bring it
back home. Right now, American’s are currently taxed at 35%; however, their total earnings are
not fully taxed if they decide to keep the money abroad, (Zinski 2011). The current tax rate has
created dead capital abroad, because most Americans are reluctant to bring the money home. By
decreasing that amount, Americans are encouraged to bring the money back the US, thusly
generating more tax revenue. Due to government bailouts and growing unemployment, the
United States has been driven into economic turmoil. However, by increasing job opportunities
and a reforming our repatriation tax, America's policy makers can help strengthen the United
States' likelihood in resolving its financial crisis.
In 2008, many large investment banking companies, as well as large insurance companies went
belly up. Many believe that in order to avoid another Great Depression-like catastrophe, it was
the responsibility for the monetary authorities to intervene. In, “Why Bailouts Stink—and Why
We Need Them,” Chris Farrell claims that bailouts were necessary to avoid an economic plunge.
Due to the nature of the United States’ capitalist economy, economy busts will often occur.
However, it was the responsibility of monetary fund officials to create a solution in the form of a
bailout in order to avoid a reenactment of the Great Depression of the 1920s. Those who agree
believe that it is for that particular reason that the economic collapse of 2008 was nowhere near
as detrimental to our economy as the Great Depression, (Farrell, 2008). Had the bailouts not
occured, there is not telling what state our economy would be in today.
In addition a supplemental argument made by Rob Cox and John Foley in, “One Argument for
Bailout”, state, “States where the financial services industry is most significant have paid far more
in federal taxes for years than they have received in government largess, effectively subsidizing
other states. The argument would be that it’s payback time”, (Cox & Foley, 2008). This argument
addresses the issue of principle. Throughout the history of the United States, our government has
been involved in aiding the recovery of many economies. It is only fair that in times of economic
distress among American soil, that the government takes all necessary actions to resolve those
issues. In doing so, the government is obligated support the large investment firms, and
insurance agencies. The lack of action may be perceived as immoral on the government’s behalf.
However, although the above arguments seem rational, government bailouts only create further
distress on our economy. Yes, it crucial for the government to aid those who do right by the
American people, however, the reason why we are in this situation was the result of deception,
lack of ethics, and a disregard for accountability. In Quinn’s, “US Economy: There Are No
Problems, Only Solutions” he criticizes the government's decision on bailing out those
firms. Quinn states, “The Democratic Congressional leaders will say that we need to save these
‘essential’ companies. The truth is that they will bail out these companies as a payoff for Union
votes during the election. As millions of average Americans lose their jobs and see Corporations
and CEOs bailed out, they are angrier than they have been since the 1970’s” (Quinn, 2008). If the
bailout is not enough to anger Americans, the $134 billion is, (Coutts & Kiel, 2009). There
ultimately was no true benefit for the hardworking American. Those of us who work 9 to 5 work
under the standard that if we are unable to produce efficiently, we lose our jobs, and
unfortunately have only the unemployment line to look forward to. Yet, when large corporations
such as AIG go under, they are awarded with hundreds of billions of dollars. Additionally, There
is an apparent inequality with the current system, and in order for the United States to avoid
another traumatic event; it is critical for new policy to be made.
In addition to the government bailouts setting back the recovery of the United States’ economy,
unemployment continues to hinder any possibility of a sustained initiative. According to the
United States Department of Labor statistics, unemployment rates for the end of the year have
risen consistently since December 2007, which at that point was 5% unemployment. That
number then increased to 7.3% in 2008, and takes another tremendous leap to 9.9% in 2009. To
put it into perspective, in 2009, almost 40 million Americans did not have jobs, statistically
speaking, 1 out every 10 Americans did not have a job. Fortunately, since then, unemployment
incurred a slight decrease in 2010 to 9.4% (“Bureau of Labor,” 2011). Through these numbers and
the current state our economy is in, it should be apparent that the government should intervene
and find ways to deflate these numbers. In Zinski’s, “A Pragmatic Solution To The U.S. Economic
Crisis”, he discusses the issue of unemployment, and how it is one of the contributing factors to
our bleeding economy. “Policy solutions have not adequately addressed the core problems of
housing and unemployment. Even the recently proposed $450 billion stimulus package can safely
be classified as more of the same. Why not attempt to surgically repair the damaged artery vs.
trying countless approaches to mitigate the bleeding i.e. stimulus spending?” (Zinski, 2011). This
seems to be the recurring theme in the United States’ attempt to solve our problems. Majority of
the decisions made by policy makers seem to provide a temporary fix. One that is often just
enough to take our minds off the larger issue. When you think of it, more often than not,
economic solutions are a game of slight-of-hand, which is based off of misdirection. For instance,
you are given a red ball and three cups. The objective is to place the ball under one of the cups,
and rearrange the cups in a manor that will confuse the player. When misdirecting is done, the
player must then attempt to locate the cup that bears the ball. The point behind the
demonstration is, that the ball actually never leaves the table, nor does unemployment. Although
policy-makers may shuffle the cups around quick enough to confuse us, the issue remains. In
Judis’ article titled “Doom!”, he talks primarily about three countries and compares the reasons
that led up to their financial crisis. Those countries include Britain, Germany, and primarily, the
United States. In Judis’ article, he mentions that financial crisis is often the product of consumer
and business debt, along with growing unemployment and underemployment. Judis states, “In
each case, the financial crisis generated an overhang of consumer and business debt that–along
with growing unemployment and underemployment, and the failure of real wages to rise–reduced
effective demand to the point where the economy, without extensive government intervention,
spun into a downward spiral of joblessness.” (Judis, 2011). The key here is government
intervention. As mentioned by both Zinski and Judis, government plays a pivotal role in getting
our economy rolling again. If policy makers would simply sit down and mediate, there is without
a doubt a chance for a resolution on unemployment.
What then must we do to aid our unemployment issues? Professor Rodrigues discusses the
causes and possible solutions in “The Decline of the United States of America: The moral,
political, and economic causes”. In his article, Tremblay discusses the factors that influenced the
decline of the United States. As mentioned in the title, he touches base on moral, political, and
economic perspectives. Tremblay credits the moral decline of the United States to corruption
within political and corporate sectors. According to Tremblay, majority of the corporate elite
have given up loyalty to their country, and are too eager to make money abroad, all the while
avoiding paying taxes. Tremblay also believes that United States’ democracy has been more
focused on money, rather than Americans. From an economic sense, he claims that there is no
distinction between what works in and open market, from what works in a closed market. Due to
the industrial nature of the United States’ economy, stagnation has been created by free
trade. Also, with our open economy, deficit spending may result in increased spending abroad,
thusly sealing our place in the recession. But the focus is not on the causes, rather, it is the
solutions. Tremblay believes that policies that encourage domestic production and employment
need to be imposed. Unfortunately, our sense of balance is completely off. America simply
spends more than it can afford. Our addiction to imports can no longer be funded by tax revenue
because we are not generating enough income. Those within the 9.9% unemployment category,
do not have jobs, thusly are not generating any income. The job market needs to expand in order
to do so. One solution provided by Zinski is the “New Homestead Act”. Unlike government
bailouts, “The effects of the ‘New Homestead Act’ would be very quantifiable and measurable vs.
analyzing the murky effects of stimulus spending” (Zinski, 2011). Through the “New Homestead
Act,” thousands of jobs will be created through the construction of new homes. What the act does
is, it subsidizes the cost of the purchase of new homes, and also provides a 10-year tax-free
window on houses purchased for the purpose of renting them out. In doing so, more consumers
are attracted to the low-cost of homes, and it also creates thousands of job opportunities. If
government would just realize the potential and propose a budget for this act to take place,
unemployment rates would significantly decline.
As mentioned above, one clear-cut answer to providing an economic rebound is focused efforts on
a revision of the repatriation tax. However, many firmly believe that prior attempts to solve the
issue, have unfortunately resulted in further frustration and inequality. In 2004, policy makers
enacted a repatriation tax holiday that was set-up to encourage corporations to bring offshore
profits back to the United States at a drastically cut tax rate. However, as Bernie Becker states, in
“Senate Report says Repatriation Tax Holiday failed to create Jobs in the US”, repatriation tax
holidays do the complete opposite. Instead of resolving the unemployment issue, it drives
unemployment further. Reason being is large corporations that take advantage of the
significantly low tax rates, continue to operate offshore, in doing so they minimize jobs once
available to Americans by outsourcing. Their mentality is, if policy makers continue decrease tax
rates for profit made offshore, there is no longer the need to employ Americans, because labor
costs abroad are much more economical, (Becker, 2011). Furthermore, Kristina Peterson states
in, “Report: Repatriation Tax Holiday a ‘Failed’ Policy”, that, “15 companies that benefited the
most from 2004 tax break for the return of their overseas profits cut more than 20,000 net jobs”,
(Peterson, 2011). Skeptics continue to act weary around the idea of this repatriation tax holiday.
On the contrary, the report provided seems a bit one-sided. Unfortunately, whenever there is a
tax break many large corporations will not hesitate to take advantage of certain weakness in the
policy. Yes, there were flaws in the 2004 repatriation tax holiday, but the importance behind it all
is to recognize the potential that the policy possesses. Thusly, the key here is for policy makers to
acknowledge the imperfections scrutinized in the first attempt, and exploit those deficiencies in a
manner that will provide for a stronger policy. Accordingly, both Zinski and Tremblay refute the
negativity revolving around the tax break, and agree that in order for the United States’ economy
to turn around, policy makers must focus their efforts on revising our current repatriation tax. As
mentioned above, the 35% tax rate currently discourages Americans to bring home any revenue
made abroad. According to Tremblay, “many American corporations are hardly taxed at all on
their profits when they operate abroad. Some appropriate taxation of these profits can encourage
repatriation of capital and support additional domestic investments” (Tremblay, 2011). The
current disconnect in tax structure has created dead capital abroad, and should be addressed. At
the rate the structure is set at, Americans will continue to work overseas, and will have no reason
to consider otherwise. However, there is a solution. As Zinski puts it, policy makers should
consider a tax holiday that decreases the tax rate to 3.5%, (Zinski, 2011). The obvious benefit of a
31.5% decrease is that much more Americans will be willing and agree to have revenue, made
abroad, taxable.
Overall, there are many arguments that hover over the issue of our current economic crisis. And
everyone has an opinion. However, the recurring themes as to what has driven the United States
into this financial fiasco are the careless efforts of government bailouts and growing
unemployment. With that, two key solutions that policy makers should consider are the focus on
increasing the job market, as well as a revision of the repatriation tax system. Although no one
has definite answers of whether or not it will work, it is time for policy makers to take
responsibility, and give Americans the opportunity we deserve.