The new Fiscal Policy? It is now.

I saw this cartoon and just had to use it in this blog. This cartoon of President Obama and his political followers spending what seems to be unlimited amount of money and thinking that it will somehow reduce the about of debt this country has, is a far stretch of the fiscal policy that they are trying to achieve.

            First let’s define what fiscal policy is. Fiscal policy is the plan by which the government adjusts its levels of spending in order to monitor and influence our nation's economy. It can also denote the use of taxes and government expenditures to control the economy as well. There are two types of government expenditures used in fiscal policy. Government purchases, explains itself. It is all of the things the government purchases into order to keep its self-running, from defense spending, construction of interstate highways, and all of the salaries of federal employees. Government transfer payments are the other type of expenditure the government uses in fiscal policy. These payments in include everything from Social Security and Medicare to unemployment benefits. The second tool the government has for deploying fiscal policy is the use of taxes. This includes all the income and goods taxes the government wages on its patrons.
        
           The government can use these two tools to try and control the economy, mainly unemployment and inflation, the twin evils. If inflation is increasing rapidly the government can enact a contracting fiscal policy by decreasing the amount of government expenditures and increasing taxes. This would pull money out of the system, reducing GDP and slowing/stopping inflation.  When a contracting policy is needed most likely unemployment is very low. You can say this because the large amounts of money in the system have to come from individuals working and spending the wages that they are earning and/or government spending.

            The other type of fiscal policy the government can use to control the economy is called the expansionary policy. An expansionary policy is used when GDP is very low and unemployment is high, much like what we have been experiencing over the past 4 years since the financial crisis and the start of the Great Recession. With an expansionary policy, the government increases its expenditures and reducing taxes. By doing this, they are trying to push money into the economy in order to increase GDP and reduce unemployment.

                There is an underlying problem that looms with these two types of fiscal policies. That is the amount of debt the government can create with the use of them. When contracting policy is used, there is no major worry about rising government debt because it reduces government expenditures and increases taxes (government revenue). Now with expansionary policy, that is an entirely different thing. Once that policy is enacted, it is sometimes hard if not impossible to stop or change some of the expenditures put in place. As expenditures increase to help curve with the lower GDP, higher unemployment and reduction in taxes the amount of debt begins to accumulate. This is the problem that the above cartoon shows. The current administration is deeply involved with using government expenditures to try and fix the slow economy. If they continue to use such measures, the amount of debt the country will have will become unbearable for current and future patrons. At some point in the near future, the government needs to find an even ground with expenditure reductions because continuous spending is not the answer to reducing the amount of debt the country has.

Work Cited:

 "Obama Diet." Cartoon. The Economist: KAL's Cartoon. Web. 18 Apr. 2013. http://www.economist.com/node/13185173.