The Impact Of The Recent Economic Stimulus

The impact of the recent economic stimulus
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The impact of the recent economic stimulus
An article appearing on The Economist on February 8, 2018, titled “What will result from America’s strangely timed fiscal stimulus?” seeks to elaborate on the consequences Trump fiscal stimulus on the growth of the U.S. economy. According to Cohen-Setton, Gornostay, & Lacharrière (2018), President Trump signed the Tax Cuts and Jobs Act on December 2017. On February 9, 2018, he went ahead and signed the Bipartisan Budget Act. Surprising, America is stimulating an economy that is already growing strong. In February 2018, unemployment stood at just 4.1. In December the previous year, 3.3 million Americans left their jobs to look for other opportunities. In the same year, the expected economic growth was about 2%. However, the economy grew by 2.5% (The Economist, 2018). The U.S. economy seems to be at its best: unemployment is low and the number of individuals willingly leaving jobs to locate better ones is high. This is an indicator that people have confidence in the economy. At the same time, the economy expected to grow in 2018. Additionally, inflation is moderate at the moment.
The issue of bailout packages has been a source of debate in the U.S. and other countries. The massive economic stimulus has made America one of the strongest economies in the world today (Maximus, 2013). In the past, American presidents implemented tax cuts when the economy was performing well. For example, in 1966, inflation was low while unemployment fell below 4%. With tax cuts signed into law two years ago by President J.F. Kennedy, his successor Lyndon Johnson increased government spending. As a result, in 1965, the budget deficit increased from 0.2% of the GDP to 2.7% of the GDP in 1968. During this time, inflation to about 5% by the year 1969. At the close of the year, there was a mild recession. Comparing the American economy of 1960 may not give a perfect picture of the issue because the American economy is very different today.
An examination of Trump’s economic stimulus indicates that it was not timely. Ideally, economic stimulus is more appropriate where the rate of unemployment is high. In such times, the increase in demand is adjusted by putting more individuals back to employment. Reforms in taxation which took place in early 2018 stimulated an economy which was almost to full employment (Rajan, 2018). If the demand increases and eventually exceeds the ability of the economy to supply, staggering inflation may occur. However, the U.S. consumers could offset this by acquiring more products from foreign countries. However, the federal government is keen to reduce the number of imports. The administration appears to consider high levels of imports indication of how foreign nations are taking advantage of the U.S., which may lead to more restrictions against imports (Rajan, 2018).
On the other hand, U.S. companies can address the issue by investing in labor-saving machinery in an attempt to increase the throughput of labor. However, despite the tax enticements for investment, growth has decreased in most part of the year. In case productivity fails to increase, the Federal Reserve will have no other option except to keep on raising interest rates. Such a move could stabilize the economy and ensure that inflation remains moderate. The biggest worry remains that in case the Federal Reserve adjusts the interest rates using the current unstable economic conditions, the interest rate may escalate at the end of the fiscal stimulus. High interest rates will have adverse effects on the interest-sensitive sectors like housing due to high borrowing.
In order to have a better picture of federal tax cuts, it is essential to consider how such initiatives have affected the U.S. economy in the past. In 2009, the American Recovery and Re...