American economic issues - Essay Example

AMERICAN ECONOMIC ISSUES American economic issues The American economy just like other major economies is undergoing a transformation. 20th century economic models seem to be failing as monetary and fiscal policies fail to stimulate growth. Terms like the debt ceiling are becoming common as the government seeks to increase borrowing so as to spend, and grow the economy. However, the impact of such spending is not tangible creating a scenario where the national debt is growing to increasingly unsustainable levels. With this increased debt, comes rising interest rates, which then increases inflation levels. Some of the effects of inflation and declining incomes include an increased cost of higher education, as well as a general disfranchisement amongst the population. This paper will focus on the growing U.S national debt, increasing cost of education and the American dream, all of which are linked to the U.S economy. The Growing National Debt Debt is something typically money, that is owed or due. National debt is the amount of money that a country’s government has borrowed by various means, also known as public debt (Fisanick, 2010). The national debt level is been a significant and controversial subject in U.S. domestic policy. Due to the amount of fiscal stimulus that has been pumped into the U.S economy over the past couple of years, this issue is now becoming sensitive to everyone. Debt has been a part of this country’s operations since its economic founding. However, the level of national debt spiked up significantly during President Ronald Reagan’s tenure and the subsequent presidents have continued this upward trend. Because debt plays such an integral part in the economy, it must be measured appropriately to convey the long-term impacts it brings forth. Currently, the national debt held by the public is over $13 trillion, which is around 74 percent of the country’s economy, as measured by Gross Domestic Product (GDP) (Fisanick, 2010). The gross debt, which includes money owed to other parts of the federal government, is over $18 trillion. The National debt has accumulated to that because, over the last 40 years, the federal government has generally spent more than it collected in revenue. When this occurs, the government must borrow money to cover the difference. The government borrows by selling securities such as treasury bonds, then agreeing to bondholders back with interest. Overtime this borrowing accumulates into the national debt. Presence of a National debt in the economy directly affects the public in the following ways: High cost of living: High debt levels mean higher interest rates on everything from credit cards to mortgage loans (Fisanick, 2010). Since incomes do not rise at the same rate as interest rates, what follows is a pinch in consumer pockets as goods and services become more expensive. Slower wage growth: In times of high debt and high interest rates, every dollar an investor spends buying government debt is a dollar not invested elsewhere in the economy, hence slower economic growth. Reduced fiscal flexibility: The debt levels doubled between 2008 and 2013, as a response to the 2008 financial crisis (Fisanick, 2010). With an already high debt, the government has less room to respond to future crises such as international events or economic downturns. Achieving meaningful debt reduction will require a comprehensive plan that addresses the major drivers of our debt (Fisanick, 2010). Reforming the tax code, slowing growth of entitlement spending, and economic growth are all necessary to put debt on a downward path over the long term. The growing cost of education. College prices in the U.S have increased faster than the rate of inflation, extending a decades-long pattern of higher-education cost (Blumenstyk, 2015). Tuition and fees at private nonprofit colleges climbed 3.7 percent on average this academic year. For in-state residents at four-year public schools, cost rose by 2.9 percent. Inflation measured by personal consumption expenditures index, rose by 1.4 percent in the year through September. Tuition and fees have been outpacing overall inflation for decades. College price increases are not accelerating, but accumulating (Blumenstyk, 2015). The widening gap in pay between college and high school graduates is more about declining wages at the lower end of the distribution, as opposed to increases for those with a college education. Including room and board, costs average $18,943 for in-state students at public schools and $32,762 for out-of state residents (Blumenstyk, 2015). At private schools, the bill is $42,419. Those amounts don’t include items that aren’t directly billed by the school, such as transportation, books and laundry. The total amount borrowed for college by all students, $106 billion, declined 13 percent in 2013-2014 from three years earlier. More than 90 percent of the loans were government backed. Some of the drop in borrowing may reflect the decline in college enrollment, including at for-profit colleges, where students typically borrow more than their nonprofit counterparts. The ability of colleges to raise costs has been facilitated by a sharp increase in federal student aid. Lenders freely dispense credit to students, safe in the knowledge that all loans are guaranteed by the government (Blumenstyk, 2015). Between 1973 and 2012, federal aid (inflation-adjusted) increased more than 500 percent. Looking at a shorter period, between 2002 and 2012, total federal aid to students ballooned an inflation-adjusted 106 percent to $170 billion (Blumenstyk, 2015). Colleges have effectively been guaranteed an income stream and have used that certainty to partake in an arms race against each other by constructing lavish facilities and inflating administrative processes. The pursuit of education has turned into a vicious circle in which, students need bigger loans to pay for higher costs, and colleges charge higher costs because students are getting bigger loans. The growth in college costs has positively affected young people in the U.S in a number of ways. Some of them are as below: For starters, students are shying away from universities in favor of community colleges (Blumenstyk, 2015). Rising college costs haven’t necessarily driven students away from higher education, but many are chasing that goal in new ways. Some have to do business or get a little job so as to make money to cater for school fees later. Secondly, more students are starting businesses. With tuition debt running tens of thousands of dollars and jobs scarce, young people have to make ends meet somehow (Blumenstyk, 2015), which has led to the fact that young adults are starting up business to cover up. Here are a few modes to a reduced cost of college; Consider low-interest federal loans: The federal government offers a number of financial assistance programs to college students through low-interest loans. This can boost a student financially. Take advantage of income tax savings for college. There are a variety of tax-advantaged colleges savings plan to help a student for the inevitable cost of college. Apply for scholarships and grants. There are grants worth billions of dollars up for grabs each year. This free money is available from the federal government, state governments, colleges and private organizations. The American Dream The American dream is a national ethos of the united states, the set of ideals in which freedom includes the opportunity for prosperity and success, and an upward social mobility for the family and children, achieved through hard work in a society with few barriers (Charlton-Jones, 2014). The American dream dates back to the 17th century when it was literally established. But through the years and centuries the dream has proven to turn to a nightmare (Charlton-Jones, 2014). The public has reached to a conclusion that the dream is dead. This is due to a number of reasons, including reducing wages and uncertain retirement benefits. The key elements of the American dream – a living wage, retirement security, the opportunity for one’s children to get ahead in life – are now unreachable for all but the wealthiest (Charlton-Jones,2014). Currently, hopes for the American Dream for the mid and low class families have diminished. References Blumenstyk, G. (2015). American higher education in crisis?: What everyone needs to know. Charlton-Jones, K. (2014). Dismembering the American dream: The life and fiction of Richard Yates. Fisanick, C. (2010). Debt. Detroit: Greenhaven Press. Read More