Kayla Janney - Going over the fiscal cliff - 11/26/12

     

      After reading the article “Going over the fiscal cliff would give US an austerity crisis, not a debt crisis” I was able to apply concepts that have been covered in class.  The article talked about how the country faces more than half a trillion dollars in tax increases and spending cuts next year, starting in January.  With the intent to increase taxes and cut spending, workers would have less money to take home from their pay checks, this would cause GDP to decrease, which would put our economy into this “financial obstacle course” that economist believe our country is facing.  With workers having less money in their pockets to spend and help raise GDP, our country is more than likely going to go back into a recession.  I feel that this is necessary to try to get the country out of the debt that is it currently in though.  Even though families will be paying more in taxes, in the short run it will hurt the economy, but the country always ends up getting out the horrible situation like it has been in before.  Congress says that under the current laws that are in place, there will be massive spending cuts and major tax increase for 2013.  If we consider all the effects of government debt on the economy, a large public debt is likely to reduce long-run economic growth; which we are facing today.  We can see that the long run of high spending and low tax rates have depressed the growth rate of the economy.  As we have had lower tax rate, this has caused a decrease in public saving.  Since there are low savings, this has caused investments to decline as well.  There needs to be a change in fiscal monetary policy in order for aggregate demand to remain constant.  As our economy is fragile at this time we could not handle the large tax increases without falling into a recession.  As the fiscal cliff sounds much more intimidating than an economic obstacle course, if our economy can slide down, our economy will eventually be able to climb back up.  There need to b changes in our economy in order for our economy to ever grow again.  The leaders need to face economic reality and tackle the debt that we are in today.  It is important that they act upon this issue in order to get our country at a growth rate again.  Our economy needs to invest money into our own economy in order for it to continue to grow.  Yes sending jobs, etc to China is cheaper but it’s causing a lot of American’s to be without jobs which is playing a huge hurt role on our economy.  We live in an economy where individuals are scared to invest money because they are not sure from day to day if they will have a job the next day.  Congress needs to get our country back on track, it will take another recession to get our economy back on its feet, but it is a decision that needs to be made before our country continues to grow in more debt. 

Source: Going over the fiscal cliff

Kayla Janney