Global Economic Imbalances - Literature review Example

Global Economic Imbalances The disparity between rich and poor households has been widening despite massive lobbying and economic efforts being implemented to reduce that gap. Even on the global stage countries that were advanced economically seems to be getting more capital inflows as compared to the least developed countries that operate on limited capital and foreign grants. Global economic imbalance is a phenomenon whereby some countries have more assets and enjoys massive capital inflows while the rest operate in vice versa. Ideally, an economic system is said to be in equilibrium if the capital inflows and the capital outflows cancel each other and remain zero or equal. However, a situation where one of these elements either capital inflows or capital outflows exceeds the other leads to a condition of an economic imbalance (Benczes, 2014). Economic imbalances on the global front are not a new phenomenon since it has been experienced from as early as 1847, and its effects have huge impacts especially when advanced economies undergo economic recessions. For instance, the latest economic recession in the United States of America resulted to huge economic repercussions in the rest of Europe and some Asian countries. However, despite that the third world countries, which were affected showed positive recovery after some time. The issue of global economic imbalances is caused by a number of factors that control how world economic growth and development takes place; a number of these factors are elaborated as follows (Lardy, 2012). The main cause of economic imbalance in the global arena is the bursting debt bubbles for countries that were previously regarded as huge capital importers. Most of the advanced economies which in the past were depended on as capital importers to less developed economies have entered into bursting debts thus inhibiting capital flows o other countries which have less capital reserves (Benczes, 2014). USA, for instance, was one of the countries that were actively involved in capital importations to less advanced economies for years. However in the past 15 years it has been engraved in federal debts amounting to almost ninety percent of its gross domestic products thus a concern on the level of capital outflows to the less developed nation so as to correct the capital flow to ensure economic equilibrium (Dervis & Lombardi, 2011). Advanced economies are often associated with high life expectancy since they have elaborate health care infrastructure and also the living conditions in those nations are ideal hence can boost the life of an average person to live for long before succumbing to terminal illnesses or any other factor that inhibits the prolongation of life. This has led to these countries having a huge population of the ageing people as compared to the young and middle age population. For instance, Germany has a life expectancy of around sixty-five years and thus most of the population is composed of people aged between fifty and eighty years old (Benczes, 2014). The elderly people tend to save more that they spend thus raising the capital reserves of these nations as compared to less developed nations where the life expectancy is between thirty-five and forty years (Lardy, 2012). Given the fact that majority people in less developed countries live below the poverty line then only a few elite people among the population are actively involved in savings a reason to the low capital reserves in those nations. Owing to this analyzing the economics of the world it will be evident that the economic equilibrium cannot be achieved since some nations are saving more capital that others thus the capital inflows and capital outflows will not cancel each other (Benczes, 2014). The effect that is going to impact a large number of civilians is federal employees being furloughed. In the 2013 shutdown it is estimated that 850,000 federal employees were furloughed as their services were deemed non-essential thus translating to 6.6 million days being lost equivalent to $2billion dollars in lost revenues to households (Benczes, 2014). However, approximately 1.3 million workers in essential services were not furloughed but their pay was delayed as they were not paid as scheduled. This will seriously affect many families who entirely depend on their salaries and wages for upkeep as they will not be having any other source of income during the entire period the government is on shutdown. Schools are going to be closed meaning head start programs for kids being run by the government are going to be non-functional thus kids will forego school for the entire period unless philanthropist or well-wishers intervene to save the situation. Utility services being offered by the federal government are going to be shut as a result of the shut down this will include garbage collection and street cleaning. This will pose serious health concerns to citizens as they will be exposed to health hazards and diseases if the situation is not going to be attended with immediate effect (Benczes, 2014). It will, on the other hand, provide an eyesore and environmental pollution as litter will be scattered everywhere. Tourism is to be seriously disrupted as all major national parks; zoos and monuments are to remain closed for the entire period. Revenues are to be lost in the process as visitors are not going to travel and spend as a result of the federal shutdown thus an economic loss for the government (Lardy, 2012). The entire shutdown period will cost the general federal government billions of dollars in terms of lost investments and revenues culminating from halting of government services. The internal revenue service will halt its operations thus leading to lost revenues as the government will pay more interest due to delayed/late payments resulting from the shutdown. Fees are not going to be collected during the period of shutdown thus loss of revenue. Export and import licenses will not be issued hence this will critically affect trade activities that rely on exports and imports (Lardy, 2012). Programs for veterans, the disabled and other vulnerable groups will be disrupted thus jeopardizing the state of living and care of the vulnerable persons. The majority of the population is in a state in which they cannot engage in any vulnerable activity to generate income thus they entirely depend on the benefits from the government for their upkeep and maintenance. The impact on these particular groups may be even fatal if intervention from other humanitarian groups is not accorded (Benczes, 2014). Federal funding for small businesses will be halted as loans to small markets and enterprises will not be approved this will lead to delayed investment and prospective loss of jobs that were to be created as a result of new business enterprises being set up. This will in general draw back the economic growth in that particular quarter. Investor disruption is expected to be experienced as crucial permits to multi-billion investment are going to be delayed as no new mining permits will be issued in the entire shutdown period as the land and environmental department will not issue new permits to gas and oil companies. This will translate to loss of revenue and prospective jobs that were to be created thus impacting negatively on the general economy. Even so, the Bank of the United States is credited for solving a plethora of monetary problems that had marred the United States before its inception. The only drawback was that, being a private institution; foreign buyers dominated the ownership of its shares. Indeed, up to 70 percent of the bank was foreign-owned (Benczes, 2014).When the time for the renewal of the charter came; there was a close vote on the bill to renew it. The bill was ultimately voted against (Dervis & Lombardi, 2011). As much as the Bank of the United States was acted as the central bank, it was a commercial bank as well. Thus, it was actively involved in the issuance of loans. This implies that it was a significant instrument in instituting fiscal operations of the government as well as a private commercial bank. Furthermore, it was a vital component in the economic growth of the United States during that period. By the mid-eighteenth century, the United States treasury was a very small operation and was funded mainly by the small scale operations by the governments such as low tariffs as well as land sales. Despite this, the Treasury Department managed to finance the civil war without causing major strains in the economy. Thus, a series of new taxes were imposed. Also, the government stepped up the payment of supplies in real money encouraging more people to sell to the government. Besides the taxes, the government sourced its revenues from government bonds (Benczes, 2014). Nonetheless, during the civil war, the agriculture sector thrived. This may be attributed to the high prices due to high demand from the British army troops. Also, innovations such as the discovery of horse-drawn machinery, reaper and mower, made farming more efficient and lucrative. Moreover, the 1862 Homestead Act made it easier for the public to access free lands. The government also gave much support for this sector in terms of supporting discovery, promoting scientific methods of farming and adoption of new improved farming techniques. Also, the government established the Department of Agriculture and enacted the Morril Land Grant College Act, which made palpable impacts in the growth of agriculture in the United States (North 35). More often than not, various other government programs and policies aimed at stimulating economic development were instituted. For instance, in 1802, the Patent Office was established. In 1807, the Coast and Geodetic Survey was established (Benczes, 2014). These two were charged with the responsibility if improving shipping industry by improving river and harbour navigation. Also, a series of railroads and canals were constructed. Railroads impact on the U.S economy is self-evident, especially in the 1775 and 1865 period. In this regards, the rails perpetuated the transition of America to an urban industrial nation characterized with high finance and managerial skills of high calibre. Thus, the railway executives of that time adopted modern methods of managing and operating larger business operations. It led to the development of better managerial methods adopted by various other large corporations. Moreover, the extensive railroads opened up the remote areas. It also played a pivotal role in reducing the costs of transporting freight and passengers (Lardy, 2012). The railroads greatly stimulated the growth of new industries including the steel industry, as well as telegraph industry. On the other hand, professions such as civil engineering gained much prominence. The railroads also stirred up the urbanization process. In this regards, most rail hubs developed intro cities. These include cities such as Dallas, Atlanta, Chicago and Billings (Benczes, 2014). Unlike road and canal transportation, the construction of railroads attracted not only domestic investors, but private investors as well. Despite the railroads, other means of transpiration also developed. For instance, the invention of steamboats intensified river transportation (Dervis & Lombardi, 2011). Roads and canals were also established, creating an intricate transportation network. The construction of roads, canals and railways were greatly supported by the government through land grants. Besides, there was rapid demographic growth. This led to the establishment of more and more farmlands (United Nations, 2005). Thus, this led to the expansion of agricultural activities. Benczes asserts that, capital investments coupled with innovation facilitated the creation of new industries. As the transportation developed further, there was the opening up of new markets. This stirred up economic growth to large extents. From the foregoing conclusion, it can be concluded that, there were a myriad of economic developments in USA in the period between the American Revolution and the Civil war. These developments were further stimulated by the newly acquired independence and the newly adopted constitution. Palpable developments were experienced in the major economic sectors such as banking, transport, agriculture, and manufacturing industries among many others (Dervis & Lombardi, 2011). In a nutshell nothing, positive comes along federal government shutdowns as all the impacts associated with the shutdown are negative to the citizens and the economy in general (Benczes, 2014). Thus, it is prudent for the concerned legislative and executive arms of the government to engage themselves in constructive and structured dialogue to amicably solve any emerging issue to avoid occurrence of this ‘shutdowns’ as they cost the nation huge revenue loss and unnecessary associated costs. It is safe to conclude that government shutdowns are not favourable and should be done away with due to the negative effects that are associated with them (Lardy, 2012). Trade liberalization as a result of expanding operations into the global front encourages higher standards and thus local firms like the branch production unit of Underworld plc. In Morocco will be faced with issues concerning its standards as compared to similar products produced in the USA or Britain (Benczes, 2014). Since the are productions that are done in third world basically the firm was trying to leverage from the benefits of cheap labour and flexible environmental regulations hence its competitors in developed world will set higher standard for their products since they have been manufactured under strict regulations hence meeting high market standards (Lardy, 2012).When the products from different firms are brought in the market, the locally produced products will not compete fairly with the products manufactured in developed nations since they have set high standards that are virtually unreachable from the products manufactured in developing countries (Benczes, 2014). References Benczes, I. (2014). Crisis in the West and the East: Economic Governance in Times of Challenge. Bremen: Europäischer Hochschulverlag. Dervis, K., Kawai, M., & Lombardi, D. (2011). Asia and Policymaking for the Global Economy. Washington: Brookings Institution Press and Asian Development Bank. Lardy, N. R. (2012). Sustaining Chinas economic growth after the global financial crisis. Washington, DC: Peterson Institute for International Economics. United Nations. (2005). Financing for development. New York: United Nations. Read More