In the October 10, 2011 issue of Time, there is a feature called “The Great American Divide” that reports on money: who has it, who is spending it on what, and how as a country Americans feel about it. This feature also reports something troubling, how the gap between rich and poor is once again growing wide (Sachs, 2011). Shifts in spending, shifts in money control, and a struggle with how to deal with the great money crisis America and Europe face are all discussed in this feature. This feature pulls together how GDP, unemployment rates, consumer consumption, and pricing affect this era of volatility and the shrinking middle class (Foroohar, 2011). This feature also reflects on inflation, economic growth, political stability in emerging markets and taxes play in as well. The answer to solving this imbalance of wealth and the struggling economy may be found by government action, but will it be too late?
Era of Volatility
This feature begins with a poem by W. B. Yeats entitled, “The Second Coming”. It is a dark poem that aptly applies to the shrinking middle-class, the failing markets, and the increasing arguing of presidential candidates (Foroohar, 2011). Globally, there is a “double-dip” recession occurring (Foroohar, p. 28). Recession is defined as “a period of declining real incomes and rising unemployment” (Mankiw, 2012, p. 423). Certainly this tem applies in the American economy, where jobs are being shipped overseas at an alarming rate. Americans could take comfort in the fact that the economic troubles presently being experienced are also being experienced by other countries worldwide; if that were comforting.
It has been estimated and confirmed that the U.S. GDP will grow by less than 2% this year (Foroohar, 2011). Unfortunately, it is estimated that the economy in Europe will actually contract by .5% (Foroohar). To better understand these facts consider the definition of gross domestic product (GDP), which “is the market value of all final goods and services, produced within a country, in a given period of time” (Mankiw, 2012, p. 200). GDP focuses on spending in four areas: consumption or spending on household goods; investment spending for items such as housing, equipment, and structures (Mankiw). Then there is government spending as well as net exports, or the amount of goods purchased by Americans that are foreign produced (Mankiw). The terms of GDP are expenditure focused, which makes sense that if a country has money to spend they will be better off than a country whose citizens do not (Mankiw). America’s economy is growing only slightly, the fact that progress is still being made is a plus; but without government intervention this growth may cease.
One way that the government has tried to turn the economy around is through the Fed’s money control. Recently the Fed has been treated as a printing press, beginning round after round of monetary stimulus buying up larger bonds in order to try and...