Introduction
Socio economic situation in the USA is caused by the range of complex processes that are closely linked with each other. On the one hand, this is the demographic crisis, when the government faces the challenge of qualified workers shortage. On the other hand, it is consumption misbalance, as the country exports and produces less then it imports and consumes. The aim of the paper is to analyze the existing economic, social and demographic situation, and offer reasonable options concerning the opportunities of changing the existing situation, and overcoming the challenges that are faced. In general, the paper will be focused on analyzing the current situation, and applying monetary and fiscal principles that are accepted for the economic system of the State.
Situation Analysis
The problems with fiscal sustainability described by Government Accountability Authority is closely associated with the matters of the increasing costs for healthcare and social expenses. The fiscal debacle, as it is called by Lowenstein (2005), presupposes the fiscal crisis, when government is not able to provide full social care practices for retirees. The fundamental reason for this inability is the demographic misbalance, when baby boomers of 50s and 60s start retiring, and there is no substitute workers for them. Hence, the system is not able to produce enough for caring of retirees.
Another reason is the consumption crisis. The details of this concept are explained in numerous researches, however, Brown and Lundblad (2009) give the most factful and substantial explanation:
Excessive consumption was fueled by a loosening of lending standards prompted by government policy to increase homeownership rates, and accompanied by record low savings rates. Cheap credit from both home and abroad and a substantial increase in financial intermediation including new structured derivative products also contributed. In line with the private sector, the U.S. government also ran sizable budget deficits and a huge current account deficit.
In the light of this statement, it should be emphasized that the actual problem is linked with the consumption GDP. The key problem of the consumption GDP growth is the macroeconomic misbalance. Actually, realizing the origin of the misbalance will promote easier understanding of the crisis and the way of solving the challenges. All the forecasts, based on the aspects of GDP growth reveal the further aggravation of the crisis, as production rates stay at comparatively the same level, while consumption has been growing for the last two decades.
Options
As for the matters of changing the existing situation, it should be emphasized that the actions and decisions need to be implemented rapidly. In fact, this is associated with the statement that delay may cause further aggravation of the crisis. The changes are needed in fiscal policy, social and economic spheres, as the problem itself touches several spheres; hence, the solution will not be single-component.
First, the consumption misbalance should be resolved considering an opportunity of stimulating people not to shorten their consuming requirements. In fact, if people shorten consumption, this will cause deeper effects in fiscal policies and macroeconomic situation in general. However, the production stimulation should be provided. Actually, most manufacturers refuse from using the manufacturing forces located on the territory of the USA, and prefer outsourced production. The key production forces should be concentrated in the USA. Hence, Williford (2010) emphasizes the following aspect:
Since 2005, high oil and gas prices have been a drag on the economy and energy imports currently account for about one-fourth of our trade deficit. While there is no silver bullet to solving our situation, reducing fossil fuel consumption and encouraging alternatives would also help to reduce trade imbalance.
In the light of this statement, it should be stated that the offered solution seems reasonable, however, this will cause essential costs for re-equipment of the cars and machinery, as well as the home heating and kitchen systems. Actually, retirees may be offered some facilities associated with this re-equipment.
Another aspect is the opportunity of improving the health care strategy. On the one hand, medical insurance system is effective enough, nevertheless, the aging population will decrease the efficiency level, as they will have to address to healthcare specialists more frequently. Hence, some insurers will have to leave the market, and the government will have to pay sufficient attention to this aspect.
Considering the fact that some retirees are full of energy and passion for work, they may be offered to stay for some additional period. Actually, they could work half time, and they might have additional day offs, however, if there is an essential shortage in qualified personnel, this could be a reasonable solution. However, the problem itself may be solved by attracting specialists from abroad.
Trade relations need to be regulated strictly, as the actual importance of balanced trade is closely related with the aspects of national debt, GDP growth and consumption principles within the society. Williford (2010) compares the trade relations principles in China and Germany, and states that the US government is not able to copy these principles due to existing import – export balance differences. Nevertheless, the reasonable solution of the problem is providing of energy independence of the state. Implementing of this principle, along with decreasing fossil fuel consumption rates will help to improve the existing misbalance. Considering the trade principles, Williford (2010) emphasizes the following:
Also, it has specific government policy toward managing trade. By limiting foreign investment, only importing necessary raw materials, and exporting high-quality finished goods, Germany has a trade surplus of hundreds of billions of dollars each year. The German manufacturing industry is key to its exports and prosperity.
Considering this statement, the US government will have to stimulate development of manufacturing industry within the USA. Some consider that this solution is not reasonable, as stimulation will require additional expenses, and will cause increased consumption on the State level. (Raum, 2009) Nevertheless, the counterargument for this statement is based on the fact that household debt has been growing constantly for the last decade, and it will continue growing if the situation is left as is. Hence, the increase of manufacturing powers will be capable for creating the basis of decreasing the existing debt level.
Economic Future Protection
The possible ways of economic protection are closely associated with the matters of fiscal policy changes. In fact, the key parameter for defining the economic protection measures is closely linked with the matters of debt held by public values. The existing fiscal policy is not highly effective in controlling the values of this debt; hence, the changes are inevitable. As it is stated in GAO (2010), the first step of controlling these values is closely linked with the matters of providing reforms in the spheres of Social Security, Medicare, and Medicaid. It is not allowed to let the budgetary flexibility to be restricted. Hence, the following statement requires particular attention:
Assuming no changes to projected benefits or revenues, spending on these entitlements will drive increasingly large, persistent, and ultimately unsustainable federal deficits and debt as the baby boom generation retires. The economic recession and the federal government’s unprecedented actions intended to stabilize the financial markets and to promote economic recovery have significantly affected the federal government’s fiscal condition in recent years, but the ultimate cost of these actions and their impact on the budget will be unknown for some time. (GAO, 2010)
Consequently, the actual importance of fiscal policy reformation is closely linked with the opportunity to provide further effective changes in the spheres of budgetary control, medical insurance, retiring programs etc. Actually, the accountability offices had to take care of it earlier, as the demographic crisis was quite evident.
Implementation Plan
For the offered solutions were effective, the implementation plan should be focused on the actual values of the existing and required fiscal policy. Hence, as it has been already stated, the existing situation is closely linked with the evident demographic crisis. Actually, the increase of consumption level is closely linked with the increased rate of retirees, consequently, they may be encouraged to participate in the production process as instructors, for instance, or scientific (research) curators. The fiscal reform would also presuppose changing pension programs, as those who would agree to prolong their contracts might rely on increased pensions and social help programs. Considering the fact that the government needs to overcome, or at least ease the consequences and effects of demographic crisis, this solution may be regarded as the reasonable adding to the long-term fiscal plans of the GAO.
Additionally, the government will have to pay attention to attracting specialists from abroad, as the actual importance of qualified personnel is explained by the necessity of developing manufacturing forces of the state. Baby boomers have been working for decades in various industry, and now, the country faces the challenge of their retirement, while young specialists do not suffice the requirements of the industries.
Considering the necessity to stimulate fossil oil consumption decrease, the government will have to concentrate efforts on developing alternative fuel technologies. Actually, this is the globally accepted priority; moreover, it will have to restrict expenses significantly. The general aim of this step is to improve the balance of consumption and production. Implementation of alternative fuel technologies will help to kill two birds with a single stone.
Conclusion
Economic, social, and demographic situation of the State are regarded as the key reason of the aggravating crisis. On the one hand, the baby boomers are retiring, and the government needs to take care of them. On the other hand, the government may be incapable to do this due to the macroeconomic reasons. The solution of the problem is based on three key steps: increasing the production levels, with slight decrease of consumption (consumption decrease should not be rapid, as it may cause another crisis), attraction of specialists, and offering benefits for retirees who will agree to prolong their working contracts. Fuel consumption level is the stepping stone of the entire system. The government needs to stimulate transition to alternative fuels, and decrease of fossil fuel consumption.
Reference List
Brown, G., Lundblad C. (2009) The U.S. Economic Crisis: Root Causes and the Road to Recovery. Journal of Accountancy. Web.
GAO (2010) The Long-Term Federal Fiscal Outlook. US Government Accountability Office. Web.
Lowenstein, R. (2005) The End of Pensions. The New York Times. Web.
Raum, T. (2009) Beyond Health Care, A Social Security Crisis Looms. Associated Press. Web.
Williford, S. (2010) Recession Caused By Three Decades of Errors. America’s Economic Report – Daily. Web.