Budget Cuts Seen as Risk to Growth of US Economy

 By Hannah Fahey

Budget Cuts Seen as Risk to Growth of US Economy

            I'm sure all of us have heard recently about the fiscal cliff, and how bad it would be for the US economy to go off of it, but how many of us really know what the fiscal cliff is? I'm sure some of you guys that are hard-core government followers (you know who you are) know every last detail about this recent news, but for the most of us it’s quite confusing. As someone who has a pretty good understanding on what is going on in politics and keeps relatively up to date on current events, I was still confused until just tonight when I was reading this article and finally asked my dad what the heck was going on. So long story short, a year and a half ago, our congress created a bipartisan plan to help them agree on the budget by making it miserable for all members of the house, forcing them to make a decision. This sequestration would cut all government spending to a basic level and increase taxes to ridicules levels, making every person in the Untied States worse off. 

Right now Congress is still arguing about what to do about the federal budget. This is because Obama and the democrats want to increase taxes while the Speaker of the House John Boehner and the Republicans want cut spending in order to raise revenue for the government. Nether of their proposed plans are quite as drastic as what would happen if the United States went off the fiscal cliff. If we went off the fiscal cliff it would definitely lead to another, probably worse depression but the fresh round of federal spending cuts set to take place next week would only cause a deceleration in the economies wavelength. These planned cuts are much lower than the sequestration would be, but it could reduce growth in the US economy by about a half a percentage point. Like we said before in class, although a half a percentage point doesn’t seem like that big of a deal, but when you put it in the big picture about how much growth we have and how much money we spend and have, it is a very large number, and consequently going off the fiscal cliff would stunt economic growth to more than 3 percent.

Although consumer consumption was very strong last year, it has already weakened early this year due to the foreseen effects the fiscal cliff will have on all citizens so people are deciding to save their money. As we learned about in class the multiplier has a ripple effect on the entire economy with increased spending, well a negative multiplier still has a ripple effect on the entire economy, but it has an opposite effect. Although these cuts in government spending will have an effect on the economy as a whole, the negative multiplier that would take place due to America going off its fiscal cliff would be so much worse off. Although congress is starting to take some steps to balance the budget, they need to do something fast to make sure there is no possible way for us to go off the fiscal cliff.

Article: http://www.nytimes.com/2013/02/21/business/budget-cuts-may-stall-economic-growth.html

Glossary

Sequestration: the policy agreed upon in congress, automatic form of spending cuts if congress cannot reach a decision.

See http://www.auburn.edu/~johnspm/gloss/sequestration for more details.

Negative Multiplier Effect: Instead of an increase in spending having a ripple effect on the entire economy, a decrease in spending has a opposite ripple effect on the entire economy.

The Ever Shrinking Euro

The Ever Shrinking Euro 

 By Dan Cieslak

 Hi, my name is Dan and I will be your guide through the mystery that is the European economies.  Let’s get started shall we! First to debrief you on some vocab terms that you might not be aware of that come up often in this blog. 

-GDP: This refers to a nation’s Gross Domestic Product, and is used to gauge a Countries economic health.

-Output: This refers to a country’s goods or services that it produces for consumers.

If there are other words that you see and cannot identify, I highly suggest that you Google define them so that you may fully understand the content in which I speak of. 

Now to the business of this blog, the major economic problems of the Euro using nations! The countries that use the Euro as currency are Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain. So as you may guess, when one of these countries takes a major economic hit, it is felt by all, and that is exactly what is going on right now. According to an article called Euro Watch, “Economic output shrank by .6 percent in euro countries, from October 2012 to December 2012”. This is a startling number because that means that eleven countries right now are currently shrink in GDP. The biggest drop in output occurred in Italy where they dropped .9 percent, in less than half a year! 

I have displayed this graph in hopes that you will better understand the full effect of what the economic drop is in the Euro countries.  The graph below shows similar stats of the Euro countries throughout the year compared to other countries like the US and UK.

 

So What Does This Mean?

The Impact of a decreasing GDP is tremendous because it means that the people in your country are struggling with their jobs. The Euro is decreasing in value every month and this is happening because of the decreasing GDP.  When your countries currency decreases, you will have less spending power in international trade with differing currencies, like America for example. An easy way to put this is an example like, in 2008 Germany could buy a Ford F150 for 40,000 Euros but now they must pay even more of their currency for the same good.  It would not be surprising to see the Euro countries start to drop in purchasing power status worldwide in the coming years.

Another thing that might happen to some of these countries is what is going on in Greece.  The same article from above stated, “It might get to the point where they (Greece) have to leave the European Union”. The debt crisis of the Union countries has hit Greece the hardest where their unemployment rate is now at 27 percent and 2/3 of its young people are jobless. The effects of the declining value of the Euro will be a major subject to watch for in the coming years.

What Caused This?

The main blame for this decline in both GDP and value of the Euro is from the major debt that majority of the Euro Union countries are in. Take Germany for example, they are still in debt from the World War two and a study done in June 26, 2012 their debt was 83.4% of their GDP. While debt isn’t the only reason that their GDP is decreasing it is a big part.  

Final Thoughts

So to wrap things up, we know that the Euro GDP has been decreasing since 2009. We know that countries like France are fighting a huge unemployment rate. Now we know the main reason why the Euro is declining to because of the HUGE chunk of debt that each country is in. Now that you know this I hope you can compare America’s economic status to the rest of the world and see that we are not that bad off.

If you would like some specific questions answered or like to comment on this blog, I highly recommend you do so at the earliest convince! Also you can use the URL below, if you would like to read the article from which I got the statistics from. Thank you all for reading this and considering my thoughts in your day!

http://www.nytimes.com/2013/02/15/business/global/daily-euro-zone-watch.html?ref=business&_r=0

Teen Unemployment

Teen Unemployment in the United States

By Shelby  Cieszki

There are multiple responsibilities teenagers have these days. Cell phones, gasoline and car insurance, and going out with friends all cost money. Not to mention the long lists of wants each of us have. At what point should a teenager become responsible for their own things? Whenever they would stable enough to do so, or when their parents say so? But what are the changes of high-school aged teen to get a job?

  

The outlook for jobs is not as secure for teenagers as they are for unemployed adults. While the nation’s unemployment rate is currently between 7% and 8%, the unemployment rate of teenagers actively looking for a job is at 24.5%. Employers that offer part time jobs are not as actively hiring teenagers in years past because of the opportunity cost that comes with hiring someone under eighteen. When you hire a high-school aged person, the opportunity cost to the company is the restrictions they face due to child labor laws. An employer for a fast food place would much prefer to hire one twenty year old, which can work in all positions and work all day for minimum wage; versus one high schooler, who can only work certain hours in certain positions for the same pay. The human capital that teenagers can provide is not always considered enough.

The scarcities of jobs available to teenagers come into effect as well. Whereas these days more and more students are looking into getting apart time job to support their pseudo economic freedom, less companies are hiring. Companies must try and make it though by trading-off a well staffed company for a short staffed one in order to save money.

 But not only do companies suffer these tradeoffs, but the teens looking for jobs as well. Working a job would meant that they would have less time to spend with friends, playing a sport, or just doing what they want to do. The opportunity cost of not being able to do whatever you want to when you want to, is getting paid to do something (that you may or may not want to do). That money is the incentive for teens to apply for any job, that starts the fire under to actively seek a job. With money, they can get a car, new video games, or clothes. It’s clear that we have a nation full of teenagers that want jobs, because we have a nation full of people that want things. 

But, what can we do when we have a nation full of wants and no way to satisfy those wants? The scarcities, as stated before, come into play. Teenagers, just like adults in the United States, must face tough economic times and an even tougher job market. In order to get a job teens will have to face many tradeoffs, and with that they have to analyze the opportunity costs, just as any adult would in seeking a job. 

Gralla, Joan. "Teen Unemployment Persists In Summer 2012, As Teens Compete With Adults For Low-Wage Jobs." Breaking News and Opinion on The Huffington Post. N.p., n.d. Web. 18 Feb. 2013. http://www.huffingtonpost.com/2012/06/16/teen-unemployment-summer-2012_n_1602254.html.

"High Teen Unemployment Could Hurt Future Job Growth - US News and World Report." US News & World Report | News & Rankings | Best Colleges, Best Hospitals, and more. N.p., n.d. Web. 18 Feb. 2013. http://www.usnews.com/news/articles/2012/03/15/high-teen-unemployment-could-hurt-future-job-growth.

"Unemployment rate: Recovery leaves teens behind - CSMonitor.com." The Christian Science Monitor - CSMonitor.com. N.p., n.d. Web. 18 Feb. 2013. <http://www.csmonitor.com/Business/new-economy/2012/0406/Unemployment-rate-Recovery-leaves-teens-behind>.