Government Policies Affecting Economic Growth by dtate360


									Government Policies Affecting Economic Growth

               Dennis A. Tate

                 July 1, 2012

       Government policies have a profound impact on economic growth. The current U.S.

economy has begun to slow down since 2006, has gone into a recession, and the current

growth has not been felt to a majority of Americans. Attempts to steer the economy to a

decent growth rate, through government policies and programs have not yielded overall

satisfactory results in achieving healthy economic growth. Unemployment has remained at

40 percent for forty-one continuous months, foreclosures are still at an all-time high,

spending on both physical and human capital remain low, and the deficit continues to

climb. A brief look at the policies the U.S. Government have put into place recently to

counter the effects of the slow economy, analysis and recommendations will be presented.

2006 through 2009

       Neumark & Troske (2012) stated U.S. economy was beginning its slow growth in

2006. Several expensive programs were implemented to stimulate consumer spending and

saving. Under President Bush, the Economic Stimulus Act of 2008 provided approximately

$100 billion in tax rebates to qualified households and other tax incentives for businesses.

The Emergency Economic Stabilization Act (EESA), also in 2008, authorized the U.S.

Treasury to invest up to $700 billion as part of the Troubled Asset Relief Program (TARP).

“…among the goals of TARP were to “. . . preserve homeownership and promote job and

economic growth” (Emergency Economic Stabilization Act, 2008) (p. 160). This was the

infamous bailout of the big banks and automakers. This was intended to encourage capital

investment by the private sector. Chrysler and General Motors are seeing profits.

Neumark & Troske (2012) made the observation that “the 2008 tax rebate had a small but
significant temporary impact on personal consumption expenditures and GDP ..., suggest

that the program’s effect on the unemployment rate was a short-term, fairly modest decline

(around 0.5 percentage point)” (p.161). There is also some consensus that TARP helped

end the financial crisis. Furthering the government’s efforts of spurring job creation and

investing in human capital suggest that “the costs of creating jobs through direct hiring

credits are likely much lower than through general stimulus” (p. 161).

       Following TARP was the $800 billion American Recovery and Reinvestment Act

(ARRA) in 2009. “Given the current focus on the budget deficit, if there is any appetite for

increased federal spending to spur job growth, it is going to be for something of much

lower cost than ARRA and other components of past federal efforts” (p. 161). ARRA also

provided for indirect job creation policies in the form of infrastructure improvement

spending. This effort has not produced as promised, as the funding was eaten up by the

administrative costs of obtaining contracts from the local and state governments.

Moreover, the remaining funding was allocated by the federal government to the local and

state governments to use as they saw fit.

The Housing Crisis

              The persistently high unemployment rate and the slow rate of job growth are
              the results of continuing problems in the housing market. In response to the
              decline in housing prices by as much of 30 percent, as many as 25 percent of
              mortgage holders underwater, and a record percentage of mortgage holders
              in foreclosure, households have significantly increased their savings rate,
              leading to lower consumption spending. In addition, the decline in home
              prices has limited borrowing by small businesses, because small business
              owners typically use home equity to help finance their borrowing, which in
              turn has limited the ability of small businesses to expand and hire new
              workers (p. 164).
Until the housing market stabilizes, economic growth will be slow.
              Unfortunately, many of the federal government foreclosure mitigation efforts
              appear to be increasing the amount of uncertainty in the housing market, and
              are directed at homeowners who are least likely to benefit from the
              assistance. The government’s constantly changing programs have caused
              lenders to be reluctant to offer help to borrowers, and caused homeowners
              to put off moving and recognizing their losses, in the hope that the
              government will come out with yet another new program that will bail them
              out, prolonging the problems in this market (pp. 164-165).

This should suggest to government administrators of these programs that changing the

rules of the game during play at times when the market itself changes should not be a

strategy. The intent of the government’s programs is to help. The private sector banks

should be the ones calling the shots during this process. Also, a collaborative effort with

local communities helps in this regard. The local community is better informed to the

conditions and resources needed to help with their needs.


       The U.S. healthcare system is rooted in the free market and is the only industrialized

country to have such a system. “Entrepreneurs devise new products and services, investor-

owned insurance companies reimburse for services, and independent practitioners offer

services. With the tremendous growth of the health sector in the United States over the

past several decades and the ever-expanding array of medical advances it offers, it would

be easy to hold out American health care as an example of the fruits of an unfettered

market-based system” (Field, 2011, p. 1671). It is imperative that the U.S. have healthy

workers; healthy workers increase productivity. Most of the medical innovations have

come from the research done by U.S. medical schools, hospitals, and private practitioners.

But, as Field points out, “This assessment would miss a central, indispensable player that

makes the market-based system possible. That player is the government, which funds,
guides, and nurtures American health care on a fundamental level. In fact, the role of the

public sector in American health care is so pervasive and of such longstanding importance

that government can be credited with creating and sustaining health care as it exists today.

… virtually every major aspect of this system grew out of a government initiative. ” (p.


         “Direct government funding of health care totaled almost $1 trillion in 2008 through

programs such as Medicare, Medicaid, and veterans' health. ‘In that year, the overall system

cost was slightly over $2.3 trillion.' However, these government expenditures represent

only direct spending, the appropriations that appear in formal government budgets.

         “The bulk of indirect government funding of health care is accomplished through tax

exemptions that permit large portions of the industry and its customers to avoid

assessments on a range of activities” (p. 1672).

         The majority of direct beneficiaries of the government health care system are

Medicare and Medicaid patients. Unfortunately, the amount budgeted for these programs

are severely underfunded. A program to assist in reining in the costs of healthcare is

needed for both the private and public sectors. The recent enactment of the Patient

Protection and Affordable Care Act (PPACA), and the recent Supreme Court ruling is the

newest set of initiatives intended to do that. The impact is still unknown, as the majority of

this law becomes effective in 2014.

       Government initiatives to foster economic growth are well intended to keep the

economy healthy. If the economy were to collapse in the U.S., it would have far reaching

effects of the economies around the globe. However, if there is too much government

intervention, or if the government is the sole administrator for these initiatives, then a

bureaucratic, inefficient and highly abused system is the result. The U.S. government has a

track record of enacting “band aid” fixes to problems, thereby creating a convoluted set, or

sets, of rules and regulations to aid the economy, only to hamper efforts if the free market

to come up with their own solutions.

       On a personal view, my standard of living is no worse or no better than 10 years ago.

I am a recipient of government money, but not public assistance money. I am retired Navy,

drawing a pension. Also, I am a Disabled Veteran, rated at 70%, receiving tax free

compensation. I am lucky to have fallen under the Concurrent Receipt Act of 2004. I did

not expect any VA compensation, but I have it and it has been increased once. With that

said, my medical care is under the government system already. My wife is also covered

under TRICARE, a government funded, contractor operated HMO style medical system for

active duty and retired service members, and active reserve and guard personnel and their

dependents. I do have a full time job, which I love and have aspirations of moving up into

management. My education is also government funded through the VA. I live a

comfortable life and happy, overall. The only thing is I rent my home.

        CARE: REGULATION,REIMBURSEMENT, AND REFORM. University of Pennsylvania
        Law Review, 159(1169), pp. 1669-1726. Retrieved from

Neumark, D., & Troske, K. (2012). Addressing the Employment Situation in the Aftermath of
     the Great Recession. Journal of Policy Analysis & Management, 131(1), 160-168.

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