There is no marginal cost for the first 150 miles, but the subsequent 50 miles have a marginal cost of 15 cents per mile. This works out to $7.50 for 50 miles.
A) While attending college, I am giving up the money that I could have made working. I am also spending much more money in the way of tuition, room, and board, that I could have saved by living with my parents.
B) I could have gotten more sleep by not attending this class, as well as had more time to study for other courses, or perform some other efficient task during the time allotted for this class.
C) I forwent the time that I could have spent doing something else, while I attended yesterday’s lecture.
Individuals would not willingly enter into trade if they did believe that they would benefit in some way. In this case, both parties benefit, for sure, however the man who is allowed to keep his life by gaining a new kidney benefits more. This is for exactly the reason just stated: he is allowed to live. It could be seen that the recipient is hurt financially, but that the donor is hurt because the operation could have a negative outcome in his case, and the fact that he is now without one kidney, should the need ever arise for him to utilize one. These sorts of transactions should be allowed by a society, primarily because both parties enter willingly and each party benefits. Assuming that the transaction always emerges as planned, then there is no need to ban this type of agreement, so long as no laws are broken.
Showing posts with label economics. Show all posts
Showing posts with label economics. Show all posts
Sunday, April 17, 2011
Sunday, November 18, 2007
Reaction Paper: Confessions of an Economic Hit Man
In Confessions of an Economic Hit Man, John Perkins recapitulates the past four decades of his life in which he lived four seemingly different lives. Perkins was a deviant in his early years with his friend Farhad and preferred a life of adventure to one of stricture and repetitiveness, dominated by the wishes of his parents. Perkins interviewed with the National Security Agency and ultimately received a job offer; however, he decided to join the Peace Corps instead. He served for a time in Ecuador, before receiving an offer to join Chas. T. Main, Inc. It was at this point when Perkins assumed the title of Economic Hit Man (EHM). His job soon became to “develop forecasts of what might happen…if vast amounts of money were invested in…[a country’s] infrastructure” (Confessions of an Economic Hit Man, John Perkins, 96).
Perkins’ first job with MAIN was in Indonesia, where he quickly acclimated to a very comfortable and affluent style of living. He ended up working in a handful of countries over the next 16 or so years, including Panama, Saudi Arabia, Iran, and Ecuador. He witnessed the dealings of Osama bin Laden and Saddam Hussein, as well as the assassinations of Ecuador’s President Jaime Roldo, and his friend, Panama’s President Omar Torrijos. During this time, Perkins extorted several countries by convincing them to take out enormous loans that they could never repay, and subsequently invest these funds back into the company that Perkins worked for. Eventually the moral implications of what Perkins had been participating in all these years got to him, and he resigned from MAIN in 1980. He had hoped to retire by age 45 with the title of millionaire, but he realized he was a bit shy, financially, of his goal. He soon received a job offer for the Public Service Company of New Hampshire. His salary became triple the amount it was before, however the horrible moral implications of what he was doing did not go away with his new job. He became an expert testifier, speaking under oath about why New Hampshire should invest in his company’s nuclear energy services. While Perkins’ reputation was renowned for credibility, he knew that the exploits he was making with such a fondness were still morally wrong. He was helping a private company achieve something he knew to be wrong or incorrect. Two years later he could no longer bear the burden of lying, and resigned in order to create his own alternative energy company, titled Independent Power Services, Inc. (IPS).
IPS maintained a mission of “developing environmentally beneficial power plants and establishing models to inspire others to do likewise” (Perkins 192). Perkins friends involved in business transactions in the years prior to his founding IPS helped make his company successful in a business where most rival companies fell to pieces. Perkins sold his highly profitable company in 1990 mostly from exhaustion of maintaining such a busy company, but also partly because he wished to move on to aiding other causes. He joined the ranks of the Stone and Webster Engineering Corporation (SWEC) where he continued to provide consulting services, but was, however, paid off to keep quiet and not talk about his work either at MAIN or SWEC.
Eventually, Perkins moved on to work for a while with Amazonian tribes in helping to preserve the rainforest. Through the many novels and papers that he authored or had a hand in writing, Perkins has exposed many of the vices that have and still continue to grip developing countries, as well as the world superpowers who have had a large hand in committing such crimes of morality. The greed that capitalism has incited within American culture is explored, as well as the US government’s determination to maintain a hand of control over a sizable amount of the world. After leaving MAIN, Perkins, until recently, had been paid very large amounts of money to keep quiet his past and the true dealings between countries through inadvertent tactics. The theme of Confessions of an Economic Hit Man is that the United States maintains an incredibly powerful influence over many other underdeveloped and developing nations. Perkins has confessed that his job was to entice these nations to engage in structural development projects offered by his company, by taking out huge loans from the United States. In this way, the loans, which were much larger than necessary, incurred serious financial debts upon the countries involved, and profited MAIN and other corporations employing EHMs, to an enormous extent. The events of September 11, 2001 eventually convinced Perkins to come out from hiding, to put aside his bribes and vows to secrecy, and to tell his story to the world in his critically acclaimed novel, Confessions of an Economic Hit Man.
Perkins writes about several issues that the texts for this course also elaborate on. Some of the most obvious and notable include the tie between globalization and economics, nationalism, and international conflicts of interest. Scott Sernau’s Global Problems details some of the inner workings of two of the largest international organizations, The International Monetary Fund (IMF) and The World Bank. In reference to the IMF, Sernau laments that in attempting to inspire reform for the better, the IMF’s requirements for funding usually capitulate in ‘the poorest citizens having to bear the brunt of the pain in these policies’ (Global Problems 57). This same concept appears in Perkins’ novel as he asserts that the United States practically dictates almost every action of the IMF and World Bank. While the United States encourages nations to borrow more than they can possibly repay, EHMs make take their commissions, and before not too long, a once potentially successful developing country is ridden with debt that it, in the foreseeable future, will never be able to repay. Perkins examines how the World Bank, in “advocating the deregulation and privatization of water and sewer systems, communications networks, utility grids, and other facilities that up until then had been managed by governments” ultimately expanded the EHM operation by now having a number of new “executives fan out across the planet” performing EHM actions in recruiting and exploiting labor pools and other resources (Perkins 198). Both authors recognize the fallibility of organizations such as the World Bank and IMF in their inability to act independently of the wishes of the world’s most powerful nations, and the incapacity, therefore, for underdeveloped nations to make much real progress in terms of stability.
Sernau comments for a bit on the meaning of nationalism. He cites Saddam Hussein as an excellent example of what it meant to “create a strong…nationalism that was distinct” (Sernau 183). Perkins devotes an entire chapter, titled “An EHM Failure in Iraq,” to lamenting about how Saddam Hussein didn’t take to the EHM scene (Perkins 214). Perkins also details the flipside of these circumstances, writing about how the US invasion of Iraq excited many EHMs because of the instant potential for seemingly endless amounts of work, should the United States defeat Iraq. Ultimately, I believe, it was Iraq’s excess of nationalism that led to Hussein’s decision to invade Kuwait. Why did the US defend Kuwait? It could not let Iraq gain even further control in the region, not just in resources, but in geographic location with regard to politics and the masses of water nearby it. Perkins called Saudi Arabia “a planner’s dream come true;” they considered Iraq the same, and assumed that it would come around after seeing what a dream come true Saudi Arabia really had experienced with the work that US firms had performed there (Perkins 96). The United States and EHMs alike were infuriated with Iraq for not buying into its scheme and befriending each; therefore, it was forced to take defensive action when Iraq threatened to overtake an ally of US.
Jeffrey D. Sachs in “The Development Challenge” produces a wonderful argument as to why the US should increase by a large amount the quantity of funds it contributes each year to foreign aid. Perkins mentions how he believes the correctness of Toinby’s argument that once suppliers—foreign, underdeveloped nations—are exploited long enough, they will rebel. Sachs makes the same argument: “The poorest nations will hold their wealthy counterparts accountable for what they have and have not done to enable the indigent to overcome early death, mass hunger, disease, and extreme poverty” (“The Development Challenge”, Jeffrey D. Sachs, 9). Perkins’ realized early into his career as an EHM, that by inflating his projections for economic growth within countries to values higher than that of his counterparts, he could get ahead in his trade via promotions and, ultimately, larger loans to foreign countries that partake in his company’s business. In order for the world to become a safer, more stable place to live, the exploitation must stop. Erasing, at least partially, the massive debts that countries have incurred against nations like the US, and entities such as the World Bank and IMF, would be a pivotal role in helping to establish the more stable world environment sought by all. Desperation plagues these poor nations who are indebted for what seems like an eternity, and desperate times lead to violence and corruption like never before. Sachs’ outlook and advice, combined with Perkins’ examination of the current state of world affairs and development, have the potential to cure much of the world’s biggest dilemma of unequal distribution of wealth. This brings together the theme that both authors endeavor to convey to their readers—corruption and extortion, whether by the hands of the US government or by EHMs, is wrong and provides the rest of the world no real service.
The author’s psychological point of view of what he was doing seemed to remain consistent throughout the course of the novel. During his first years with MAIN, he laments, “a paroxysm of guilt flashed through me, but I suppressed it” (Perkins 71). It became clear that Perkins did not like the implications of the work he was performing, but felt trapped in a position that he could not easily walk away from. Besides, he reasoned, what he was doing was best for the United States and the nations he worked with, he himself “could become rich, famous, and powerful in one blow” (Perkins 71). I agree that what Perkins did helped certain countries initially, but the eventual debt that he plagued those nations with is a horrible thing. It has helped the United States remain one of the most prosperous nations in the world, but in turn prevented much of the developing world from gaining a foothold on economic stabilization and social development. I also agree with Perkins’ ultimate determination, and the central theme of his novel, that the work of EHMs is wrong and that developing countries are not better off for forever indebting themselves to superpower nations like the US. It was gracious of Perkins to pair with an MIT mathematician in publishing a paper that mathematically proved that what the US was doing to its subsidiary nation-friends was in fact forever indebting them to a point of no return.
I have seen poverty and destruction first hand in places like China, India, and Vietnam, and can honestly say that nothing I have read in Confessions of an Economic Hit Man has surprised me one bit. As is concurrent with the dedication of his novel, I applaud the courage that Perkins’ has displayed in preparing to tell his story. I feel that all EHMs should come out and let their stories be known. Being an EHM is an occupation that I consider to be a crime against humanity, and therefore it should be revealed to the world what these men and the corporations they work for have been doing to the rest of humanity for far too long. The more Americans know about this topic, the easier it will be for them to adopt stances that depose the workings of corporations such as MAIN and SWEC.
Reading this novel has opened my eyes to an entirely new level of corruption that I have never known very much about. Part of me has always wondered what makes the US economy so much more superior to those economies of the rest of the world. Now I understand that by indebting foreign countries who are forced to pay up to 50% of their nominal GDP on repaying debts each year, the US has had a relatively easy time in maintaining its capitalist grip over the countries its plagued. In addition to loans, US companies installed technologies in developing countries that only US firms have the ability to maintain, thereby further indebting these countries by requiring US companies to continue performing work year after year, while still charging ridiculous rates for this work. I think it is imperative that all college students, not just those enrolled in Views From the Third World, read Perkins’ novel, because his work does just what course aims to teach—it offers an insider’s view of what the third world has become plagued with over the years, and allows readers to experience first hand the monopolistic control over these unfortunate foreign economies that the US has come to assume during the last one half century.
Works Cited
Perkins, John. Confessions of an Economic Hit Man. New York: Penguin Group, 2004.
Sachs, Jeffrey D. “The Development Challenge.” Developing World 16th ed. (2006): 5-10.
Sernau, Scott. Global Problems. Boston: Pearson Education, 2006.
The Social Security Debate: Solution or Not?
The United States Social Security Act of 1935 instituted the beginning of a welfare-type system of benefits for retired and disabled persons. When it first began, the Social Security system brought in much more money than it was obligated to pay out. During the 1940s this system was used more as one of revenue for the federal government that anything else. It aided citizens after recovering from a deep recession, and was never meant to continue more than a few decades. Yet, here in 2006, the system has become a large part of American society. In the face of rising healthcare and prescription drug costs, it is one of the few aspects of old age that Americans have come to look forward to.
The majority of skeptics agree that the Social Security system is failing, and if things do not change, then soon enough it will not be able to fulfill its intended purpose. There are a few very viable solutions to fixing the problems that Social Security faces, however no real solution can come without some burden. There is the question of how the Social Security Trust Fund should be warped in order to meet upcoming needs. Taxes could be raised, or benefits for current Social Security recipients could be reduced. The minimum age to receive benefits could even be raised. Others believe that the cure to this economic nightmare lies in privatization. By privatizing Social Security, a more individual-driven, proactive system of self-taxation would be created. I believe that the alleviation of what will become an incredibly burdensome financial obligation for the US government lies in simply demolishing it where it stands today. It is unclear what the “right” answer is to the problem that Social Security will inevitably become, however an analysis of the system and its critics is the best way a logical solution can be manufactured.
The Social Security system was initiated by Franklin D. Roosevelt in 1935 as a means of providing income for workers who had retired and therefore could not provide a sufficient level of income in order to survive. At the same time, money also goes to people who can not or do not work, whether of disabilities or other reasons. The way the system works is that all tax-paying, income earning individuals must pay a Social Security tax, that is then pooled at the Social Security Administration. Then, to those individuals that qualify to receive benefits, payments are made. David C. Colander calls the Social Security system an “unfunded” one; by this he means that individuals that receive benefits are able to receive more per month than they had been putting into the system each month prior (Macroeconomics 393). This, he says, is because of the large ratio of payees to beneficiaries that the system enjoys (393). The surplus that the Social Security Administration registers each year is then used to offset the national deficit. Because the Administration has many more contributors than beneficiaries, the volume of money brought into the organization is far greater than the amount paid out. The real issue that Social Security is going to face, however, is when the amount of money received is less than that which the Administration is obligated to pay out. This will happen as a result of the large influx of retirees that the 2020s will bring. The baby-boom of the mid-20th century is the cause of this influx; however, it is an unavoidable issue that the government is better off facing sooner, than later. There are several “solutions” to this problem, but each has its pros and cons.
Colander tells us that in 1983, the government passed an act that set up, essentially, a trust fund in which all Social Security surpluses could be placed as a reserve (394). This would help offset the large number of beneficiaries that the baby-boom will evoke in the early 21st century. The problem with this method is that when the trust fund eventually does dry up, most likely near the year 2040, the Social Security system will be in crisis again. Trustees of the Old Age, Survivors and Disability Insurance program, another name for Social Security, believe that the only method of remedying such a state would be to act right now, either by increasing the Social Security tax by 2.02% or by decreasing current payout benefits by 13.3% (http://www.ssa.gov/OACT/TR/TR06/II_highlights.html#wp76460).
On the flipside, however, others believe that the privatization of Social Security is a better bet. The privatization of an institution with the magnitude of that of the Social Security system could not happen simply overnight. A gradual shift from Social Security tax payments to privately managed contributions would have to happen over a period of time. This would not, however, erase the obligations that the Administration has already made to millions of people that presently receive benefits. This is where the problem with privatization lies. If individuals stop paying into the system because their retirement contributions are privatized, then the money that the Administration needs in order to meet its obligations in paying benefits is instantly dried up. Regardless of how much money any trust fund may have accumulated over the last two decades, it was not made to support all the beneficiaries of the Social Security system strictly on its own. The principle behind the trust fund is that it would help the smaller influx of Social Security tax payments in financing the retirement pensions of all the baby-boomers. So this is where the most obvious and plausible solutions to the Social Security issue find themselves stuck in a rut.
Critics of the system have varying levels of skepticism for its future. Some believe that the financial problems the future will bring to the institution of Social Security are really not all that severe, and that small adjustments now can easily take care of any foreseen problems. Paul Krugman denotes the entire baby-boomer/Social Security issue as merely “a problem of modest size” (“Inventing a Crisis” 1). He reasons that if the US were to allocate money to a fund dedicated to alleviating any stress the Social Security Administration might face over the next twenty years, that such issues can be avoided altogether. Krugman jokes that the amount of funds necessary for this solution is less than what the US has spent in Iraq in recent years, and about equal to the amount of money that President Bush’s tax cuts have saved the richest people in America since their initiation in 2002 (1). Analysts like Krugman do not believe there is a real major crisis approaching in the realm of Social Security, however many others feel quite a bit stronger about the matter.
Michael Tanner, a chief analyst at the Cato Institute, is one of those skeptics that speak a little more critically of the Social Security “crisis.” There are many analysts that, like Tanner, can already sense the impending crisis that Social Security is going to bring to America. Tanner feels that the financial burden can be solved by benefit cuts and tax raises, as well as large government subsidies. This seems to be the general consensus, as we can see. What, however, Tanner feels is the “larger crisis” is the fact that “workers [are] forced to pay 12.4% of their wages into a system that cannot pay them the promised level of benefits” (“Signs of Crisis are Clear” 1). This touches on an entirely different aspect of the crisis at hand: the psychological one. Individuals will not be happy knowing that they are paying an excessively large amount of tax to support the baby-boomers, when all the money those people put into the system was squandered away by the government each year it was received. The fact that it seems incredibly unfair, I believe, will ultimately cause members of my generation to favor privatization. It appears as though the government is going to have to pay back a large amount of the money that it has used over the years as a result of revenue through the Social Security tax. This will have an enormous effect on our country’s budget, which is why cynics like Tanner are as critical about this crisis as they are. One thing, however, that everyone seems to agree on, is the fact that our government needs to act fast, and it needs to act now. The sooner a remedy to the financial crisis that lay ahead is engineered, the less of an impact it will have on everyone.
Keeping in mind that a solution to the Social Security problem must be enacted much sooner than later, the government and economists must not do a haphazard job of taking such action. Colander points out that the real problem facing our country in the next several decades is not so much the institution of Social Security itself, but the fact that as a large number of individuals head into retirement, they will stop producing real goods. At the same time, they will be consuming many more real goods than before, in the form of utilities, medicines, etc. This will throw off the current equilibrium between the aggregate demand and aggregate supply curves. What should be the government’s real focus in solving the Social Security problem, is trying to enact policies that will ensure that in the future, real aggregate demand will equal real aggregate supply (396).
What I propose to do, in attempting to handle the lopsided age distribution of our country’s population, is to abolish the Social Security system immediately. The government basically should just buy out the Social Security system. It would do this by writing everyone in our country who has contributed to the system in some way, a check. If you are poised on brink of retirement, and have been contributing to the system for 50 years, then you should receive an amount of money equal to the average total payout of social security benefits to individuals after they retire. If you have already received some benefits, or you have not contributed quite so much to the system, then the check you receive shall be based on an established prorated system, thereby ensuring equality for everyone. The scale for payouts would be determined by some type of government committee or panel. At the same time as these prorated payments would begin, the privatization of Social Security would begin, and there would be no more Social Security tax, or benefit payments. The only remaining purpose for the actual Social Security Administration itself would be to oversee the distribution of all the checks that would need to go out to all the working people of America.
Clearly, a massive payment of this type would cause all kinds of problems, including inflation and an immeasurable deficit. This is why such payments cannot be all at once, but instead must be spread out over a certain, extended amount of time, ideally between 10 and 20 years. Additionally, the payments must be set up so that each year the payments increase up through the very last year. For example: Say I am 40 years old, and have earned so much income and have paid so much money into the Social Security system; according to the prorated system of benefits return, I am owed $51,000 by the government, to be paid out over the next 15 years; the first year I would receive a check of say $1300, then each year this payment would increase by $300, so that by the 15th year I would receive a check for $5500; this would complete my payback, which I could have invested privately after receiving each check, in addition to more privatized financing of my retirement as a result of no longer having to pay a Social Security tax. While instituting this policy, the government would also need to raise taxes in order to help finance all of these payouts, which will require much more than what the $1.7 trillion that the OASDI Trustees Report claims the Social Security Trust Fund contains, can provide.
The annual deficit is expected to decrease over the next five years which means that the government will begin spending less money; surpluses beyond that look fairly healthy as well. Because there will be less deficit each year, and ultimately surpluses available to spend, it makes sense that the payments individuals will receive should increase each year to match the changing deficit. At the same time, these payments, once initially established in a finite value, will not be interest bearing and thus as the GDP also increases over time, the actual real value of what the government is spending will become much less. In a nutshell, with the extra money that the government will have to spend, combined with what’s in the Social Security Trust Fund, it will be able to pay individuals, as managed by the Social Security Administration, over long periods of time. This is because as GDP rises and inflation occurs, these payments become worth less over time, therefore the meatiest parts of the Social Security Administration’s “severance packages” will be distributed when they are worth the least. In this way, the government saves money, and most Americans do not know one way or the other what’s going, even though the system makes sense to them and seems fair.
Most analysts of the current Social Security system believe there are myriad logical courses of action that the government can and should take, that will ensure a good chance of solving the system’s problems. None of these “solutions,” however, can be implemented without a great deal of pain, financially and psychologically, to both the government and its citizens. This is why I feel that there is no other truly effective and viable solution than simply to disband the entire institution.
Works Cited
Colander, David. Macroeconomics. 6th. New York: McGraw-Hill/Irwin, 2006.
Krugman, Paul. “Inventing a Crisis (Synopsis).” New York Times 7 Dec 2004.
Social Security Administration, "2006 OASDI Trustees Report." Social Security Online. 30 May 2006. Social Security Administration. 30 Nov 2006 http://www.ssa.gov/ OACT/TR/TR06/trTOC.html.
Tanner, Michael. “Signs of Crisis Are Clear.” USA Today 1 Feb 2005.
The majority of skeptics agree that the Social Security system is failing, and if things do not change, then soon enough it will not be able to fulfill its intended purpose. There are a few very viable solutions to fixing the problems that Social Security faces, however no real solution can come without some burden. There is the question of how the Social Security Trust Fund should be warped in order to meet upcoming needs. Taxes could be raised, or benefits for current Social Security recipients could be reduced. The minimum age to receive benefits could even be raised. Others believe that the cure to this economic nightmare lies in privatization. By privatizing Social Security, a more individual-driven, proactive system of self-taxation would be created. I believe that the alleviation of what will become an incredibly burdensome financial obligation for the US government lies in simply demolishing it where it stands today. It is unclear what the “right” answer is to the problem that Social Security will inevitably become, however an analysis of the system and its critics is the best way a logical solution can be manufactured.
The Social Security system was initiated by Franklin D. Roosevelt in 1935 as a means of providing income for workers who had retired and therefore could not provide a sufficient level of income in order to survive. At the same time, money also goes to people who can not or do not work, whether of disabilities or other reasons. The way the system works is that all tax-paying, income earning individuals must pay a Social Security tax, that is then pooled at the Social Security Administration. Then, to those individuals that qualify to receive benefits, payments are made. David C. Colander calls the Social Security system an “unfunded” one; by this he means that individuals that receive benefits are able to receive more per month than they had been putting into the system each month prior (Macroeconomics 393). This, he says, is because of the large ratio of payees to beneficiaries that the system enjoys (393). The surplus that the Social Security Administration registers each year is then used to offset the national deficit. Because the Administration has many more contributors than beneficiaries, the volume of money brought into the organization is far greater than the amount paid out. The real issue that Social Security is going to face, however, is when the amount of money received is less than that which the Administration is obligated to pay out. This will happen as a result of the large influx of retirees that the 2020s will bring. The baby-boom of the mid-20th century is the cause of this influx; however, it is an unavoidable issue that the government is better off facing sooner, than later. There are several “solutions” to this problem, but each has its pros and cons.
Colander tells us that in 1983, the government passed an act that set up, essentially, a trust fund in which all Social Security surpluses could be placed as a reserve (394). This would help offset the large number of beneficiaries that the baby-boom will evoke in the early 21st century. The problem with this method is that when the trust fund eventually does dry up, most likely near the year 2040, the Social Security system will be in crisis again. Trustees of the Old Age, Survivors and Disability Insurance program, another name for Social Security, believe that the only method of remedying such a state would be to act right now, either by increasing the Social Security tax by 2.02% or by decreasing current payout benefits by 13.3% (http://www.ssa.gov/OACT/TR/TR06/II_highlights.html#wp76460).
On the flipside, however, others believe that the privatization of Social Security is a better bet. The privatization of an institution with the magnitude of that of the Social Security system could not happen simply overnight. A gradual shift from Social Security tax payments to privately managed contributions would have to happen over a period of time. This would not, however, erase the obligations that the Administration has already made to millions of people that presently receive benefits. This is where the problem with privatization lies. If individuals stop paying into the system because their retirement contributions are privatized, then the money that the Administration needs in order to meet its obligations in paying benefits is instantly dried up. Regardless of how much money any trust fund may have accumulated over the last two decades, it was not made to support all the beneficiaries of the Social Security system strictly on its own. The principle behind the trust fund is that it would help the smaller influx of Social Security tax payments in financing the retirement pensions of all the baby-boomers. So this is where the most obvious and plausible solutions to the Social Security issue find themselves stuck in a rut.
Critics of the system have varying levels of skepticism for its future. Some believe that the financial problems the future will bring to the institution of Social Security are really not all that severe, and that small adjustments now can easily take care of any foreseen problems. Paul Krugman denotes the entire baby-boomer/Social Security issue as merely “a problem of modest size” (“Inventing a Crisis” 1). He reasons that if the US were to allocate money to a fund dedicated to alleviating any stress the Social Security Administration might face over the next twenty years, that such issues can be avoided altogether. Krugman jokes that the amount of funds necessary for this solution is less than what the US has spent in Iraq in recent years, and about equal to the amount of money that President Bush’s tax cuts have saved the richest people in America since their initiation in 2002 (1). Analysts like Krugman do not believe there is a real major crisis approaching in the realm of Social Security, however many others feel quite a bit stronger about the matter.
Michael Tanner, a chief analyst at the Cato Institute, is one of those skeptics that speak a little more critically of the Social Security “crisis.” There are many analysts that, like Tanner, can already sense the impending crisis that Social Security is going to bring to America. Tanner feels that the financial burden can be solved by benefit cuts and tax raises, as well as large government subsidies. This seems to be the general consensus, as we can see. What, however, Tanner feels is the “larger crisis” is the fact that “workers [are] forced to pay 12.4% of their wages into a system that cannot pay them the promised level of benefits” (“Signs of Crisis are Clear” 1). This touches on an entirely different aspect of the crisis at hand: the psychological one. Individuals will not be happy knowing that they are paying an excessively large amount of tax to support the baby-boomers, when all the money those people put into the system was squandered away by the government each year it was received. The fact that it seems incredibly unfair, I believe, will ultimately cause members of my generation to favor privatization. It appears as though the government is going to have to pay back a large amount of the money that it has used over the years as a result of revenue through the Social Security tax. This will have an enormous effect on our country’s budget, which is why cynics like Tanner are as critical about this crisis as they are. One thing, however, that everyone seems to agree on, is the fact that our government needs to act fast, and it needs to act now. The sooner a remedy to the financial crisis that lay ahead is engineered, the less of an impact it will have on everyone.
Keeping in mind that a solution to the Social Security problem must be enacted much sooner than later, the government and economists must not do a haphazard job of taking such action. Colander points out that the real problem facing our country in the next several decades is not so much the institution of Social Security itself, but the fact that as a large number of individuals head into retirement, they will stop producing real goods. At the same time, they will be consuming many more real goods than before, in the form of utilities, medicines, etc. This will throw off the current equilibrium between the aggregate demand and aggregate supply curves. What should be the government’s real focus in solving the Social Security problem, is trying to enact policies that will ensure that in the future, real aggregate demand will equal real aggregate supply (396).
What I propose to do, in attempting to handle the lopsided age distribution of our country’s population, is to abolish the Social Security system immediately. The government basically should just buy out the Social Security system. It would do this by writing everyone in our country who has contributed to the system in some way, a check. If you are poised on brink of retirement, and have been contributing to the system for 50 years, then you should receive an amount of money equal to the average total payout of social security benefits to individuals after they retire. If you have already received some benefits, or you have not contributed quite so much to the system, then the check you receive shall be based on an established prorated system, thereby ensuring equality for everyone. The scale for payouts would be determined by some type of government committee or panel. At the same time as these prorated payments would begin, the privatization of Social Security would begin, and there would be no more Social Security tax, or benefit payments. The only remaining purpose for the actual Social Security Administration itself would be to oversee the distribution of all the checks that would need to go out to all the working people of America.
Clearly, a massive payment of this type would cause all kinds of problems, including inflation and an immeasurable deficit. This is why such payments cannot be all at once, but instead must be spread out over a certain, extended amount of time, ideally between 10 and 20 years. Additionally, the payments must be set up so that each year the payments increase up through the very last year. For example: Say I am 40 years old, and have earned so much income and have paid so much money into the Social Security system; according to the prorated system of benefits return, I am owed $51,000 by the government, to be paid out over the next 15 years; the first year I would receive a check of say $1300, then each year this payment would increase by $300, so that by the 15th year I would receive a check for $5500; this would complete my payback, which I could have invested privately after receiving each check, in addition to more privatized financing of my retirement as a result of no longer having to pay a Social Security tax. While instituting this policy, the government would also need to raise taxes in order to help finance all of these payouts, which will require much more than what the $1.7 trillion that the OASDI Trustees Report claims the Social Security Trust Fund contains, can provide.
The annual deficit is expected to decrease over the next five years which means that the government will begin spending less money; surpluses beyond that look fairly healthy as well. Because there will be less deficit each year, and ultimately surpluses available to spend, it makes sense that the payments individuals will receive should increase each year to match the changing deficit. At the same time, these payments, once initially established in a finite value, will not be interest bearing and thus as the GDP also increases over time, the actual real value of what the government is spending will become much less. In a nutshell, with the extra money that the government will have to spend, combined with what’s in the Social Security Trust Fund, it will be able to pay individuals, as managed by the Social Security Administration, over long periods of time. This is because as GDP rises and inflation occurs, these payments become worth less over time, therefore the meatiest parts of the Social Security Administration’s “severance packages” will be distributed when they are worth the least. In this way, the government saves money, and most Americans do not know one way or the other what’s going, even though the system makes sense to them and seems fair.
Most analysts of the current Social Security system believe there are myriad logical courses of action that the government can and should take, that will ensure a good chance of solving the system’s problems. None of these “solutions,” however, can be implemented without a great deal of pain, financially and psychologically, to both the government and its citizens. This is why I feel that there is no other truly effective and viable solution than simply to disband the entire institution.
Works Cited
Colander, David. Macroeconomics. 6th. New York: McGraw-Hill/Irwin, 2006.
Krugman, Paul. “Inventing a Crisis (Synopsis).” New York Times 7 Dec 2004.
Social Security Administration, "2006 OASDI Trustees Report." Social Security Online. 30 May 2006. Social Security Administration. 30 Nov 2006 http://www.ssa.gov/ OACT/TR/TR06/trTOC.html.
Tanner, Michael. “Signs of Crisis Are Clear.” USA Today 1 Feb 2005.
An Analysis of Economic Prosperity from Reagan to Clinton
Economic prosperity can be a difficult thing to measure when it comes to analyzing the mountains of data that economists provide us with. The Economic Report of the President 2006 alone contains over a hundred tables filled with data that at first glance, equate to absolute chaos, but upon closer inspection yield answers. Despite the plethora of data provided us, there are a few tables which hold much more weight in terms of interpreting economic performance, than others. These include, but are not limited to, the tables for consumer price indexes (CPI), real gross domestic product (real GDP), and unemployment. I shall analyze each of these concepts as they pertain to the presidencies of Ronald Reagan, George H.W. Bush, and William Clinton, spanning from 1981 to 2000. The three graphs attached—Graph 1, Graph 2, and Graph 3—outline how CPI, real GDP, and unemployment each fluctuated during each president’s term. CPI and real GDP are denoted in terms of the percent they fluctuated each year, and unemployment is represented as simply the percent unemployment for all civilian workers, for that particular year.
In order to measure the economic prosperity of America during any given presidents’ term, the terms CPI, real GDP, and unemployment must all be defined. What gives each of these measures the potential to be good or bad, therefore, must be outlined. CPI is the consumer price index, and it is by definition the measures of “prices of a fixed basket of consumer goods, weighted according to each component’s share of an average consumer’s expenditures” (David C. Colander, Macroeconomics 159). Inflation is an inevitable part of any market economy, particularly that of the United States. The stability of inflation rates in most cases denotes the solidity of an economy. A consistent and controlled inflation rate means that a market’s inflation rate is steady, and therefore its consumer price index is also steady. The terms inflation and CPI are, for simplicity’s sake, synonymous. A rapidly increasing CPI in turn means that consumers have to pay increasingly more for the same amount of good or service. The United States Department of Labor states, “The purpose of the CPI is… to measure the shifts in the purchasing power of the consumer’s dollar” (The Consumer Price Index: History and Techniques 19). Hence an appeal to logos implies that the smaller percentage inflation a CPI maintains, the better off consumers are because their money retains its value.
Every employee expects, or at least hopes for, a raise to come their way each year. For workers in general, an overall increase in pay implies that inflation must occur. However, how does inflation of salaries occur without the inflation of goods and services—CPI—occurring simultaneously? The answer is that it cannot. In order for companies to still contribute funding to research and development, develop new products, and raise wages, they must earn a profit. The only way this can be done, is to earn more money, usually through the inflation of the prices of their products. What one hopes, however is that the CPI does not inflate as much as the real GDP does. Real gross domestic product is a measure of “the market value of final goods and services produced in an economy, stated in the prices of a given year,” and is generally recognized as “the primary measurement of growth” (Colander 141). Growth is generally beneficial, however instability in the rate of growth has been an historic indicator of instability within an economy. Too much growth leads to rampant inflation, but not enough results in a stagnant economy, and neither is a good thing to have. A steady, consistent rate of real GDP growth is ideal for a market economy such as the United States’, and any growth within 1% under or 2% over the historical average of 3% is most ideal.
A third measure of economic success is a nation’s unemployment rate. Many people are excluded from being considered “unemployed” for myriad reasons, including age and personal preference. The basic principle of the unemployment rate, however, is the measure of the number of people who are willing to work, but do not. Colander asserts that “the unemployment rate is used as a measure of the state of the economy” (154). In general, and in conformity with Okun’s rule of thumb, the productivity, or potential output, of a nation is decreased substantially as its unemployment rate rises. In this way, an economy’s prosperity can be measured in part by its level of unemployment.
John Arthur Garraty laments:
Increases and decreases in unemployment are commonly thought to be connected to changes in the level of prices, the relationship being, according to modern theory, inverse. Inflation is supposed to reduce unemployment, deflation to cause it to go up. The relationship produces considerable social tension… (Unemployment in History 1)
Thus yet another conflict erupts in the motives of society. Is it better to focus on the future and attempt to keep inflation from rising too high by cutting jobs, or should people in societies accept “a gradual erosion of their purchasing power” (Garraty 1)? Good economic conditions allow for unemployment to fall as inflation maintains an acceptable level for an economy to still witness prosperity.
Ideally, consumers would like to have more money in their pockets to invest in goods and services; however, companies wish to profit as well and are forced to raise prices as a result. This is when inflation occurs. All the unemployed want to have a job, however when too many people are working, too much paper money is floating around, thereby increasing inflation yet again. There is obvious conflict between the CPI, real GDP, and unemployment rate. Each wishes to champion over the other but is limited in its success due to the constraints that each other places on it. The epitome of ideality would be ignorance in the way of these conflicts; however despite facing such problems, we must shoot for the stars regardless. The volume of jobs in America needs to increase while the value of the dollar increases as well, and the cost of goods and services remains low and/or steady. Therefore, for a president to preside over the best, most prosperous economic conditions during his tenure, conditions resembling the following must be present and ultimately prevail: a low-inflation, steady consumer price index that starts at a low percent (i.e. 2.5% to 3%), and does not make real significant gains; a real GDP that is also steady, without major quirks or jumps, and that is steadily increasing over time, however to a greater effect than that of the CPI; and an unemployment rate that is steadily falling (beginning no higher than 6.5% after two years of holding office), allowing consumers to take advantage of new jobs and opportunities, thereby enhancing the effect that increased productivity would have on real GDP in the way of increased output.
Ronald Reagan held office from 1981 until 1988. During that time, the US economy performed on a fairly mediocre level in terms of CPI, real GDP, and unemployment. Refer to Graph 1 in reference to President Reagan’s economic tribulations during his tenure. The percent change rate of the CPI during Reagan’s time took some sporadic leaps and falls. The real GDP did the same during this time; both instances however are occurrences not historically characteristic to a stable economy. International, as well as domestic factors may have played a role in shaping the economy during the ‘80s. Such events are negligible, however, to the vast changes that occurred under Reagan’s control. The consumer price index rose 30.4%, or an average of 3.8% per year, and did so in no steady fashion. This is the highest of the three presidents that will be examined. While the value of the dollar decreased as a result of this, real GDP under Reagan rose 27.4% during his tenure, or an average of 3.4% per year. Ideal economic conditions call for real GDP to increase by a greater margin than CPI; this was not the case however, and inflation ultimately took a downturn as the dollar lost value during the 1980s.
While Reagan boasted a significant real GDP climb, such a feat was immediately diminished not just by the even higher CPI gain, but by the horrendous unemployment rates that plagued his office. During one year—1982—unemployment for all civilian workers spiked at 9.7%; this is the highest rate recorded on The Economic Report of the President 2006, during the entire 46 year span it covers. The unemployment rate during Reagan’s two terms averaged a ghastly 7.5%. As Garraty stated previously, the relationship between inflation and unemployment is supposed to be inverse. However during the time in which Reagan held office, inflation became as rampant as unemployment! True, the CPI for goods and, particularly, services made a tremendous leap down in the first few years of Reagan’s tenure, the rate at which they fell too simply was not low enough yet to be considered, by economic standards, an acceptable margin of inflation. A simple moving average of the three economic components being examined herein would illustrate that while, during Reagan’s tenure, the CPI did decrease, the real GDP increased, and unemployment decreased, such feats are not enough to classify Reagan as having resided over America during a time of economic prosperity. This is because the unemployment and CPI rates were ridiculously high to begin with; likewise, the little increase at which real GDP ultimately amounted to over 8 years was achieved in one of the most sporadic and unstable ways possible. Solidarity and stability could be found in neither real GDP nor the CPI during Reagan’s tenure, nor did either even begin with a respectably low enough rate. In general, Reagan was not president during anything close to one of the more prominent time periods that American economics witnessed.
George H.W. Bush did the country no better a service when he served from 1989 until 1992. In reference to Graph 2, it’s clear that real GDP rose very little, actually repeating Reagan’s trend of touching a negative real GDP growth rate during one year. Similarly, there is no consistency in real GDP gain that illustrates a stable economic environment. For such a small rise in real GDP, CPI rose at 2.5 times the rate as real GDP under Bush. Growing at 3.3% per year, increased CPI meant that Americans had to pay more for the same goods and services they had previously gotten for noticeably cheaper. In this way, the value of the American dollar fell even further. While the unemployment rate during Bush’s tenure remained noticeably lower than during Reagan’s, it began to head back toward that direction, increasing every single year that Bush was in office. An unemployment rate that began at 5.3% climbed to 7.5% by 1992. The nation was not only losing the value of its currency ever so slowly, but was also prospering less in the global economy as its citizens began to find themselves in ever increasing numbers, jobless. Unemployment rose to unreasonable heights, real GDP increased only a minuscule amount, and CPI decreased only slightly from an already too high quantity, all during the four years in which George H.W. Bush occupied presidential office. Conditions under Reagan at least improved slightly from their horrid state, however under Bush, the condition of the US economy only worsened with time.
It can be said that William Clinton was forced to do the cleanup work for the two presidents before him: Ronald Reagan and George H.W. Bush. The results that the US economy experienced under the reigns of Bill Clinton are unparalleled throughout history, and can be seen on Graph 3. In every one of the criteria outlined above, the economy excelled under Clinton’s administration. The percent increase in CPI fell to its lowest rates in almost 30 years before the Clinton administration moved in. Concurrently, unemployment fell to an acceptable standard, with an average rate of 5.2% per year, with a consistent, steady decrease every single year. It even fell below the “target rate of unemployment” which Colander states is 5% unemployment (Colander 150). Unemployment did not reach a low that a group of experts appointed by the United Nations defined as, “a situation in which employment cannot be increased by an increase in effective demand” (Paul Hubert Casselman, Economics of Employment and Unemployment, 7). However unemployment did achieve the lowest value it would ever aspire to during the last 65 years, excepting only the years of the Vietnam War. Simultaneously, the unemployment rates for women and minorities also reach their lowest marks ever, with their unemployment rates cut virtually in half while the Clinton administration held office.
Even more excitingly, however, was the real GDP that Clinton’s administration championed. Real GDP increased an average of 3.8% per year for a net of 30.3% over those 8 years that the Democratic Party occupied the White House. The economy under Clinton can be recapped as follows: CPI began at a low percent and fell steadily lower; real GDP began at a fair percent of increase, and rose a solid, steady amount over the duration of Clinton’s two terms in office; and unemployment began low, but ultimately fell to its lowest percentage in over half a century. By all means, President Clinton presided over the United States during a time of economic prosperity far greater than any president before him.
In terms of decreasing CPI, increasing real GDP, and decreasing unemployment, while promoting fairness for all, the administration of William Clinton undoubtedly presided over the best economic conditions. That of George H.W. Bush seemed to preside over the worst conditions, although that of Ronald Reagan is a close second. Bush faced rising unemployment and a very unstable economy, as is clear by a real GDP fluctuation that actually dips into the red at one point. Reagan at least managed to deflate the unemployment rate a bit, as high as it was, and restore the nation, towards the end of his second term, to a fairly steady real GDP fluctuation percentage of about 4%. Clinton, however, managed to bring unemployment to all time lows, as well as increase the value of the American dollar by decreasing the consumer price index while increasing real GDP. Each was done at a steady rate, concurrently highlighting a very stable economy in which the Clinton administration operated. Clinton clearly presided over the best economic conditions, while Reagan had a close second to Bush, who presided over the worst economic conditions of the three presidents while in office.
Works Cited
Casselman, Paul Hubert. Economics of Employment and Unemployment. Washington, D.C.: Public Affairs Press, 1955.
Colander, David. Macroeconomics. 6th. New York: McGraw-Hill/Irwin, 2006.
Garraty, John Arthur. Unemployment in History. New York: Harper & Row, Publishers, 1978.
United States Department of Labor, The Consumer Price Index: History and Techniques. Bulletin No. 1517. Washington, D.C.: US Government Printing Office, n.d.
In order to measure the economic prosperity of America during any given presidents’ term, the terms CPI, real GDP, and unemployment must all be defined. What gives each of these measures the potential to be good or bad, therefore, must be outlined. CPI is the consumer price index, and it is by definition the measures of “prices of a fixed basket of consumer goods, weighted according to each component’s share of an average consumer’s expenditures” (David C. Colander, Macroeconomics 159). Inflation is an inevitable part of any market economy, particularly that of the United States. The stability of inflation rates in most cases denotes the solidity of an economy. A consistent and controlled inflation rate means that a market’s inflation rate is steady, and therefore its consumer price index is also steady. The terms inflation and CPI are, for simplicity’s sake, synonymous. A rapidly increasing CPI in turn means that consumers have to pay increasingly more for the same amount of good or service. The United States Department of Labor states, “The purpose of the CPI is… to measure the shifts in the purchasing power of the consumer’s dollar” (The Consumer Price Index: History and Techniques 19). Hence an appeal to logos implies that the smaller percentage inflation a CPI maintains, the better off consumers are because their money retains its value.
Every employee expects, or at least hopes for, a raise to come their way each year. For workers in general, an overall increase in pay implies that inflation must occur. However, how does inflation of salaries occur without the inflation of goods and services—CPI—occurring simultaneously? The answer is that it cannot. In order for companies to still contribute funding to research and development, develop new products, and raise wages, they must earn a profit. The only way this can be done, is to earn more money, usually through the inflation of the prices of their products. What one hopes, however is that the CPI does not inflate as much as the real GDP does. Real gross domestic product is a measure of “the market value of final goods and services produced in an economy, stated in the prices of a given year,” and is generally recognized as “the primary measurement of growth” (Colander 141). Growth is generally beneficial, however instability in the rate of growth has been an historic indicator of instability within an economy. Too much growth leads to rampant inflation, but not enough results in a stagnant economy, and neither is a good thing to have. A steady, consistent rate of real GDP growth is ideal for a market economy such as the United States’, and any growth within 1% under or 2% over the historical average of 3% is most ideal.
A third measure of economic success is a nation’s unemployment rate. Many people are excluded from being considered “unemployed” for myriad reasons, including age and personal preference. The basic principle of the unemployment rate, however, is the measure of the number of people who are willing to work, but do not. Colander asserts that “the unemployment rate is used as a measure of the state of the economy” (154). In general, and in conformity with Okun’s rule of thumb, the productivity, or potential output, of a nation is decreased substantially as its unemployment rate rises. In this way, an economy’s prosperity can be measured in part by its level of unemployment.
John Arthur Garraty laments:
Increases and decreases in unemployment are commonly thought to be connected to changes in the level of prices, the relationship being, according to modern theory, inverse. Inflation is supposed to reduce unemployment, deflation to cause it to go up. The relationship produces considerable social tension… (Unemployment in History 1)
Thus yet another conflict erupts in the motives of society. Is it better to focus on the future and attempt to keep inflation from rising too high by cutting jobs, or should people in societies accept “a gradual erosion of their purchasing power” (Garraty 1)? Good economic conditions allow for unemployment to fall as inflation maintains an acceptable level for an economy to still witness prosperity.
Ideally, consumers would like to have more money in their pockets to invest in goods and services; however, companies wish to profit as well and are forced to raise prices as a result. This is when inflation occurs. All the unemployed want to have a job, however when too many people are working, too much paper money is floating around, thereby increasing inflation yet again. There is obvious conflict between the CPI, real GDP, and unemployment rate. Each wishes to champion over the other but is limited in its success due to the constraints that each other places on it. The epitome of ideality would be ignorance in the way of these conflicts; however despite facing such problems, we must shoot for the stars regardless. The volume of jobs in America needs to increase while the value of the dollar increases as well, and the cost of goods and services remains low and/or steady. Therefore, for a president to preside over the best, most prosperous economic conditions during his tenure, conditions resembling the following must be present and ultimately prevail: a low-inflation, steady consumer price index that starts at a low percent (i.e. 2.5% to 3%), and does not make real significant gains; a real GDP that is also steady, without major quirks or jumps, and that is steadily increasing over time, however to a greater effect than that of the CPI; and an unemployment rate that is steadily falling (beginning no higher than 6.5% after two years of holding office), allowing consumers to take advantage of new jobs and opportunities, thereby enhancing the effect that increased productivity would have on real GDP in the way of increased output.
Ronald Reagan held office from 1981 until 1988. During that time, the US economy performed on a fairly mediocre level in terms of CPI, real GDP, and unemployment. Refer to Graph 1 in reference to President Reagan’s economic tribulations during his tenure. The percent change rate of the CPI during Reagan’s time took some sporadic leaps and falls. The real GDP did the same during this time; both instances however are occurrences not historically characteristic to a stable economy. International, as well as domestic factors may have played a role in shaping the economy during the ‘80s. Such events are negligible, however, to the vast changes that occurred under Reagan’s control. The consumer price index rose 30.4%, or an average of 3.8% per year, and did so in no steady fashion. This is the highest of the three presidents that will be examined. While the value of the dollar decreased as a result of this, real GDP under Reagan rose 27.4% during his tenure, or an average of 3.4% per year. Ideal economic conditions call for real GDP to increase by a greater margin than CPI; this was not the case however, and inflation ultimately took a downturn as the dollar lost value during the 1980s.
While Reagan boasted a significant real GDP climb, such a feat was immediately diminished not just by the even higher CPI gain, but by the horrendous unemployment rates that plagued his office. During one year—1982—unemployment for all civilian workers spiked at 9.7%; this is the highest rate recorded on The Economic Report of the President 2006, during the entire 46 year span it covers. The unemployment rate during Reagan’s two terms averaged a ghastly 7.5%. As Garraty stated previously, the relationship between inflation and unemployment is supposed to be inverse. However during the time in which Reagan held office, inflation became as rampant as unemployment! True, the CPI for goods and, particularly, services made a tremendous leap down in the first few years of Reagan’s tenure, the rate at which they fell too simply was not low enough yet to be considered, by economic standards, an acceptable margin of inflation. A simple moving average of the three economic components being examined herein would illustrate that while, during Reagan’s tenure, the CPI did decrease, the real GDP increased, and unemployment decreased, such feats are not enough to classify Reagan as having resided over America during a time of economic prosperity. This is because the unemployment and CPI rates were ridiculously high to begin with; likewise, the little increase at which real GDP ultimately amounted to over 8 years was achieved in one of the most sporadic and unstable ways possible. Solidarity and stability could be found in neither real GDP nor the CPI during Reagan’s tenure, nor did either even begin with a respectably low enough rate. In general, Reagan was not president during anything close to one of the more prominent time periods that American economics witnessed.
George H.W. Bush did the country no better a service when he served from 1989 until 1992. In reference to Graph 2, it’s clear that real GDP rose very little, actually repeating Reagan’s trend of touching a negative real GDP growth rate during one year. Similarly, there is no consistency in real GDP gain that illustrates a stable economic environment. For such a small rise in real GDP, CPI rose at 2.5 times the rate as real GDP under Bush. Growing at 3.3% per year, increased CPI meant that Americans had to pay more for the same goods and services they had previously gotten for noticeably cheaper. In this way, the value of the American dollar fell even further. While the unemployment rate during Bush’s tenure remained noticeably lower than during Reagan’s, it began to head back toward that direction, increasing every single year that Bush was in office. An unemployment rate that began at 5.3% climbed to 7.5% by 1992. The nation was not only losing the value of its currency ever so slowly, but was also prospering less in the global economy as its citizens began to find themselves in ever increasing numbers, jobless. Unemployment rose to unreasonable heights, real GDP increased only a minuscule amount, and CPI decreased only slightly from an already too high quantity, all during the four years in which George H.W. Bush occupied presidential office. Conditions under Reagan at least improved slightly from their horrid state, however under Bush, the condition of the US economy only worsened with time.
It can be said that William Clinton was forced to do the cleanup work for the two presidents before him: Ronald Reagan and George H.W. Bush. The results that the US economy experienced under the reigns of Bill Clinton are unparalleled throughout history, and can be seen on Graph 3. In every one of the criteria outlined above, the economy excelled under Clinton’s administration. The percent increase in CPI fell to its lowest rates in almost 30 years before the Clinton administration moved in. Concurrently, unemployment fell to an acceptable standard, with an average rate of 5.2% per year, with a consistent, steady decrease every single year. It even fell below the “target rate of unemployment” which Colander states is 5% unemployment (Colander 150). Unemployment did not reach a low that a group of experts appointed by the United Nations defined as, “a situation in which employment cannot be increased by an increase in effective demand” (Paul Hubert Casselman, Economics of Employment and Unemployment, 7). However unemployment did achieve the lowest value it would ever aspire to during the last 65 years, excepting only the years of the Vietnam War. Simultaneously, the unemployment rates for women and minorities also reach their lowest marks ever, with their unemployment rates cut virtually in half while the Clinton administration held office.
Even more excitingly, however, was the real GDP that Clinton’s administration championed. Real GDP increased an average of 3.8% per year for a net of 30.3% over those 8 years that the Democratic Party occupied the White House. The economy under Clinton can be recapped as follows: CPI began at a low percent and fell steadily lower; real GDP began at a fair percent of increase, and rose a solid, steady amount over the duration of Clinton’s two terms in office; and unemployment began low, but ultimately fell to its lowest percentage in over half a century. By all means, President Clinton presided over the United States during a time of economic prosperity far greater than any president before him.
In terms of decreasing CPI, increasing real GDP, and decreasing unemployment, while promoting fairness for all, the administration of William Clinton undoubtedly presided over the best economic conditions. That of George H.W. Bush seemed to preside over the worst conditions, although that of Ronald Reagan is a close second. Bush faced rising unemployment and a very unstable economy, as is clear by a real GDP fluctuation that actually dips into the red at one point. Reagan at least managed to deflate the unemployment rate a bit, as high as it was, and restore the nation, towards the end of his second term, to a fairly steady real GDP fluctuation percentage of about 4%. Clinton, however, managed to bring unemployment to all time lows, as well as increase the value of the American dollar by decreasing the consumer price index while increasing real GDP. Each was done at a steady rate, concurrently highlighting a very stable economy in which the Clinton administration operated. Clinton clearly presided over the best economic conditions, while Reagan had a close second to Bush, who presided over the worst economic conditions of the three presidents while in office.
Works Cited
Casselman, Paul Hubert. Economics of Employment and Unemployment. Washington, D.C.: Public Affairs Press, 1955.
Colander, David. Macroeconomics. 6th. New York: McGraw-Hill/Irwin, 2006.
Garraty, John Arthur. Unemployment in History. New York: Harper & Row, Publishers, 1978.
United States Department of Labor, The Consumer Price Index: History and Techniques. Bulletin No. 1517. Washington, D.C.: US Government Printing Office, n.d.
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