The rules are simple for everyone in economics and when one tries to makes things complicated, results are often disastrous. For any economy it is normal and fundamental rule that it must reinvest what it earns from all the economic activities into various types of assets from human to material (physical and virtual) to grow and maintain growth.
And when markets start saturating, reinvestment is the most important function for any economy and there is no other way to escape or ignore it. Reinvestment helps to maintain the growth by keeping the demand and supply in balance.
The same basic rules are haunting the US economy today. The US has been not reinvesting its earnings back into its economy and people since very long. And at the same time have been over spending on domestic front (Leonhardt, 2011) along with wasting huge resources into some adventures in Asia and Africa and in some other military campaigns (Johnson & Sehgal, 2011). It is simple economics but the US (political and administrative classes) is not ready to understand it. Since long the US has been investing billions of dollars in so called strategic future interests and plans for 21th century and so. But it is miserably failing to plan for its present.
It is sending huge money out of the US monetary system to some projects and missions that hardly have any significant returns for the US economy in short and medium term, leave apart long term, by ignoring enough expenditure on some basic social security programs (Caplan, 2011). This is leading to problems like unemployment, insecurity and lack of confidence in its people (Jones, 2011). Also the growth rate in the US economy had been lower than many emerging economies in Asia and Latin America. The scope for expansion in the US markets for private corporations is limited as the market has saturated. This has led to capital and intellectual outflows in huge amounts to these emerging countries for expansion, better returns and opportunities. These factors have resulted into drastic fall in reinvestment in the US economy by both the government as well as private sector. This is hitting hard the economic system in the US.
Besides the lack of reinvestment, there are some policy issues in the economy as well. The innovation that has been USP of the US economy has fallen sharply. There has been fall in entrepreneurship in the US. The immigration and visa policies have made flow of human capital difficult to the US from other parts of world. Over the decades, the ever increasing income gaps between the poor and rich and concentration of wealth in few hands is leading to dissatisfaction in common Americans After 9/11, the image of ‘The Land of Dreams’ has been damaged because of some political decisions and deteriorating social cohesiveness. The falling government expenditure on social services, visa and immigration policy, falling entrepreneurship, saturated markets, lack of innovation, deteriorating social cohesiveness, some popular political decisions and unchecked capitalism are some of the important reasons for the problems in the US economy. So there is need to rethink about the models and modules of free market economy or capitalism (Lindert & Williamson, 2011).
It is very important for any economy that is becoming saturated in terms of domestic demands that it must put efforts to increase the domestic demands for goods and services so that domestic consumption increases over time. For any economy mainly developed economies, it is the 4 R’s that help to revive the economy. Those 4 R’s are repair, re-balance, reform, and rebuild (Lagarde, 2011). The US also to follow these 4 R’s and reinvestment in economy is the first thing that serves this purpose as it tends to increase the per capita income and so demands for the goods and services.
The US, a champion of free market economy, is a different economy altogether. Whatever happens in the US has immediate and significant effects on other economies too.
The US economy is the largest economy in the world and has huge business and economic exposure to a number of economies across the world and vice-versa. The proportion of the exports and imports of goods and services in the GDP of the US economy is very large. So it is important for the US economy to maintain this balance between the exports and the imports as if any of the exports or imports is affected adversely while trying to revive the economy will hurt the interests of the US economy in short, medium and long term. If the import from other countries to the US falls, the per capita income of those related economies will fall and as a result the demands for export from the US in those countries will fall and that will lead to fall in the overall demands for goods and services in the US economy. This overall fall in the demands will lead to increase in unemployment in the US as the private corporations will not reinvest their profits in the US and this reinvestment by the private corporations are very important to increase the employment rate and tackle the current problems of increasing unemployment rates. This will also affect the fiscal positions (Zarroli, 2011).
So it is important for the policy makers in the US (political and administrative classes) to be careful while drafting and implementing any policies and whatever policy decisions are taken must not hurt its associate countries.
"As of now the US does not need some political decisions but a set of balanced fair economic decisions. Else it will be victim it own champion cause of free market economy."
- Caplan, B. (2011, September 15). Universal Social Programs vs. Cost-Benefit Analysis. Retrieved from EconLog: https://www.econlib.org/archives/2011/09/universal_socia.html
- Johnson, R., & Sehgal, U. (2011, October 14). 15 Facts About Military Spending That Will Blow Your Mind. Retrieved from Business Insider: https://www.businessinsider.com/military-spending-budget-defense-cuts-2011-10?IR=T
- Jones, J. M. (2011, September 15). Unemployment Re-Emerges as Most Important Problem in U.S. Retrieved from Gallup: https://news.gallup.com/poll/149453/unemployment-emerges-important-problem.aspx
- Lagarde, C. (2011, September 15). Global Economic Challenges and Global Solutions. Retrieved from International Monetary Fund: https://www.imf.org/en/News/Articles/2015/09/28/04/53/sp091511
- Leonhardt, D. (2011, July 26). Lessons From the Malaise. Retrieved from The New York Times: https://www.nytimes.com/2011/07/27/business/economy/lessons-from-the-us-economys-malaise.html
- Lindert, P., & Williamson, J. (2011, July 15). America’s Revolution: Economic disaster, development, and equality. Retrieved from CEPR: https://voxeu.org/article/america-s-revolution-economic-disaster-development-and-equality
- Zarroli, J. (2011, July 12). The Problem With A Slow-Growth Economy. Retrieved from NPR: https://www.npr.org/2011/07/12/137770847/the-problem-with-a-slow-growth-economy