Government Shutdown in the United States - Term Paper Example

Government Shutdown in the United s This is financial government process that is developed by the congress when theydecide to bring in a funding gap. They do this by stopping funding for some government operations and government related agencies. The Legislature may decide to delay or not to pass legislations that seek to fund these services and agencies. They do this when they think there are some necessary details about the program missing, when they see an economic crisis being created by the program, or when the whole operation seems not significant to the people of the United States. This is a requirement by the constitution of the United States of America to ensure efficiency in all the government operations while being concerned about the economy of the state. As per the Anti-deficiency Act and the constitution, the federal government is permitted to start shutdown of activities related to appropriations that are not yet enacted into legislation. This process of a government shutdown has led to some operations that are usually funded by the annual appropriations being aborted causing loss of casual jobs by some citizens (Cornwell and Lawder). Some operations which receive their funds from the government by law and not annual appropriations may also be disrupted by the funding gap. These are programs that have activities which rely on annually appropriated funds for operations. A good example is the social security which may need funds from time to time to run upcoming operations in this field. When the government shuts down many federal employees lose their jobs as some have their payments delayed. The furlough has an adverse impact on the economy as the government is a major employer in the state, and this would mean increased unemployment rates (Cornwell and Lawder). Since the government shutdowns started in the United States, there have been 18 such funding gaps with President Obama’s government having only one in 2013. This was when the Congress declined to pass crucial funding bills for the ObamaCare program due to disagreement on the funding by the Senate and the White House. A recent threat of the government shutdown has been experienced in late November 2014. Part of the Senate and senior Republican officials are at loggerheads on funding of the Department of Homeland Security. Some of them are asking for a long-term funding of the Homeland Security programs while others are seeking to offer a short-term funding. This follows as President Obama has an immigration order to lift the deportation of illegal immigrants in the United States. The House of Representatives being led by Speaker John Boehner is seeking to pass legislations fully funding almost all government agencies but the Homeland Security. According to some Republicans, this security department is to be given a short-term extension to provide room for adjustments to attack the Obama order on immigration (Cornwell and Lawder). The Republican Party wants to demonstrate to the Americans that it can manage the country well and boost its economy. Even though the President warned of a possible government shutdown in early 2015, the Republicans and other congresses are trying to manage this situation by finding enactments that can be passed to see that most government agencies are financed right through the year 2015 in September. A possibility of government shutdowns in the United States are being fought by all relevant parties, but some lawmakers are still keen on using funding bills to stop Obama’s immigration order. Such are some Republican legislators who are advocating a short-term funding on Homeland security so that the following year they can pass some restrictive acts on government spending on some agencies in the Homeland Security. However, some senior Republicans such as Hal Rogers are pushing for a full-year financing bill for every agency so as to entirely avoid the possibility of government shutdowns (Cornwell and Lawder). All these moves show how the lawmakers and the government are careful not to affect the economy by unemployment created by furloughs during government shutdowns. The Philips Curve The Philips curve is a curve that shows how unemployment rate and inflation relate. The economist who developed the idea behind the curve was called Philips, and he based his conclusion from studying the inflation created by wages and rate of unemployment in the United Kingdom. The relationship that Philips proved was inverse in nature. At the time when unemployment rates are very high, the wages levels increased at a slow rate. On the other hand, low unemployment rates led to rapidly increasing wages. The best explanation for this behavior of the Philips curve is the demand in the labor market. When the unemployment rate is high, we will have many people seeking employment thus higher supply in the labor market. Definitely the price of labor would go down due to the higher supplies thus the slow increasing rate of wages. The reverse also applies when there is little labor in the market due to low unemployment rates. In such cases, the wages would be increasing rapidly as the firms in the economy will be competing for the scarce workforce in the labor market (Andor). The article, Rediscovering the Philips Curve, offers an idea of how the Philips curve can be used to avoid occurrence of job crisis in Europe and also how the European Union can effectively work towards achieving its target of seventy-five percent employment rate in Europe. The article talks of negative real interest rates as an important strategy to be taken by the European Union. This is an approach that seeks to redistribute financial resources from savers to debtors as a way of ensuring the investment demand is strong enough to boost the whole economy. As it is illustrated in the article by the writer, one of the major macroeconomic problems that have led to the job crisis in Europe is the gap between aggregate demand and output of members of the European Union. The gap keeps on increasing over years as the demand for investments and outputs is reducing due to more people moving to savings (Andor). According to the implications that people had about the Philips curve many years back, monetary and fiscal policies available were to be used appropriately to enhance the inflation that would help push for close to 100% employment. In the current Europe, the inverse relationship talked about in the Philips curve appears to be controversial (Andor). The European Union through establishing a monetary union is more concerned about having stable prices rather than seeking full employment. The Philips curve implies that the demand for employees would increase if the aggregate demand is shot up through policies that may lead to higher inflation but reduced unemployment. Economists have since come up with critiques of the idea of Philip on how inflation and unemployment relate. Robert Lucas is one of the economists who argued that only unplanned inflation cases might be responsible for temporary shifts from equilibrium if the affected parties are well informed of existing conditions before setting prices and wages. The idea of Lucas has it that unemployment and output does not depend on inflation. Due to this, expanding policies that are fiscal will not be helpful as the affected parties in the economy would respond by cutting down consumptions as they expect hiked taxes after some period (Andor). Another critique of the principle of Philip is the long-term relationship between the unemployment rate and inflation. From the article it is said that the Philips curve ends up being vertical at a point where unemployment is considered natural only depending on factors that are structural. This drove the attention of concerned legislators to seek reforms that would be used to tackle the structural unemployment. The oil crises of 1970s and 1980s led to an increasing rate of inflation without recording drops in the unemployment levels. The critiques of the principle behind Philips curve are supported by this uniqueness of the oil crisis (Andor). Philips Curve and its outward shift due to the oil price shocks Inflation and Deflation An article by Ian Wishart in the Bloomberg talks about the connection of inflation and deflation in the current European economy. Economic agents in this euro economy consider inflation a tool of enhancing an improved economic level as deflation is regarded as a setback in the economy of the bloc. Whenever there is a reduced rate of inflation in the economy, the relevant bodies in the economy are warned of possible deflation cases. For instance, in the article it is said that the inflation rates in European economies recorded for September this year were at their lowest point considering five years down the line. This poses a threat to the strong European economy by giving leeway for possible deflations in the region which may lead to reduced economic activities (Wishart). The concern for the European economy pushed for meeting of officials from the European Central Bank to highlight the needs for measures to avoid deflation in the region. The records given for increased annual consumer prices rose just a little bit for this period. The European Central Bank through its president, Mario Draghi, is pushing legislators towards an increased inflation rate by remaining active in the economic programs of this body (Wishart). Due to this, the relevant officials have come up with the policies of asset purchase that would boost the balance sheet of the European Central Bank by a positive of over one trillion euros. This European financial body is working towards buying sovereign bonds from the member states and public as a way of releasing more money into the economy, and this would enhance the rate of inflation in the entire European economy. It is evident that this policy works from the recent 0.6% fall of the euro against the dollar after the report issued by European Central Bank (Wishart). To determine the inflation rate of a region or country’s economy, volatile items must be put into consideration. These are items which are very essential to the people of the area, and they include things like foodstuff, energy, and entertainment. Still in the European economy, this article proves the slow inflation rate experienced in the region. Starting with the prices of energy, in September the prices went down by 2.4 % when the initial price was even slightly lower than the previous year’s energy prices. The cost of food and alcohol indeed shot up with a slight percentage of 0.2 during this same period. The inflation rate of this September period which recorded very insignificant changes in the most crucial commodities like food and energy was at a very low level. The inflation rate slowed down further by 0.2 percent to record 0.7 percent (Wishart). A low inflation rate as this one recorded by the European economy is risky for the economy. When the inflation is slow, it is an indication that the economic activities in the region are also slow as per the principles of inflation and deflation. In the article, it is also stated the case of the eurozone might be tough as there are no indicators of even a short-term changes in the inflation rates. The European Central Bank has put down strategies to try curb the problem of slow inflation rates in the zone and to prevent possible impacts of this condition. The European Central Bank has cut down its interest rates to banks in the region, and it is also offering the banks more long-term loans. The policies are set to help increase the money supply in the economy of the member states and thus improve the economy of the economic bloc. Another strategy to enhance the rate of inflation is the selling of bonds and securities by the European Central Bank in a bid to release more cash flows into the economy (Wishart). Inflation caused by increased demand in the economy Works Cited Andor, László. "Re-Discovering the Philips Curve." 1 October 2014. VOX CEPRs Policy Portal . 9 December 2014 . Cornwell, Susan and David Lawder. "Boehner to seek support for plan to avoid government shutdown." 1 December 2014. Reuters. 9 December 2014 . Wishart, Ian. "Inflation at 5-Year Low Primes ECB for Deflation Debate." 30 September 2014. Bloomberg. 9 December 2014 . Read More