Assignment:
Nelson LaPlante
Government Can Save the Economy
In 2009, at the center of the largest recession in the twenty-first century, the newly sworn-in president of the United States, Barack Obama stated, "Only government can save the economy" (Montopoli, 2009). Many American believed in him, or most people hoped president Obama could bring change and save the economy. That's why he won the presidential election. However, after Mr. Obama's 8-year-long presidency, Americans find they are still stagnating in the recovery of the 2008 financial crisis. In the new round of presidential election, an economics question has been asking, "Can a government save (stimulate, boost) the economy?" I believe a sophisticated government could save the economy from recession and stimulate it to grow faster, not only because the self-recovery of the economic circle is too slow, but also because the Keynesian economics is reliable and many other countries proved they could save the economy.
A government should intervene and make effort to save the declining economy because the self-recovery of the economic circle is too slow. As a Chinese saying goes, "Not even a prairie fire can destroy the grass; it grows again when the spring breeze blows". None of fire, snow, and flood could destroy the grass completely; no matter what, the grass will grow again in the spring days. Economy is like the grass; no crisis or recession can burn it down. Free-market economists and disapprover of government-intervention are true that in an economy circle, recession is always followed by recovery. However, the self-recovery of an economy is so slow that most families and small business cannot survive the "long winter". Individuals need job positions. Companies need refunding. Who can help? "It is absolutely true that we cannot depend on government alone to create jobs or economic growth," Mr. Obama said, "(but) with the private sector so weakened by this recession, the federal government is the only entity left with the resources to jolt our economy back to life." (Montopoli). In a free market, a fired employee can only wait passively until the economy recover; however, if a government funds projects of infrastructure construction, he can be offer a job immediately.
A government can save the economy in recession because the recession is the malfunction of the invisible hand of free market. Britain economistJohn Maynard Keynes illustrated the Keynesianeconomics in his book The General Theory of Employment, Interest and Money. According to Keynesian economics, in recessions, economic output is strongly influenced by aggregate demand (total spending in the economy)."Aggregate demand does not necessarily equal the productive capacity of the economy; instead, it is influenced by a host of factors and sometimes behaves erratically, affecting production, employment, and inflation"(Jahan, et al, 2014). When the crisis comes, facing the threat of unemployment and lower future income, individuals are reluctant to spend their money and thus aggregate demand decline. Given a lower market demand, companies have to cut out plan. With a lower output task, companies need fewer workers and thus lay off employees. When the unemployment rate increase, aggregate demand further decline. The economy enters into a dead-end circle until the market regains confidence and increases demand. The invisible hand behind the free market is unable or too slow to break the loop. That's why without proper government invention, recessions last very long time in vast scale.
In addition, many other countries made examples of successful government invention. China, a country of more than thirty-year long fast growth, conducted a so-called "Four Trillion yuan Plan" to boost domestic demand in late 2008. Why spending money to boost demand? It is to counter the decline demand caused by the fear of crisis. It's human nature, though erratically, to be conservative and to retreat in front of crisis. Government stimuli plan can give the economy confidence to spend more money and thus increase demand. With its four trillion yuan plan, China maintained an about 7 percent annual growth after the 2008 global recession, outperform most countries in the world.
In conclusion, governments should intervene to save the economy when it is in trouble. A sophisticated government is able to save the economy from recession because it's the only outsider who can break down the business circle. Many other countries proved that government's proper invention could save the economy and stimulate it to grow faster.
Works Cited
Jahan, S., Mahmud, A.S., &Papageorgiou, C. Back to BasicsWhat Is Keynesian Economics?FINANCE & DEVELOPMENT, 2014, 51(3). Retrieved from IMF Web, June 2, 2017.
Keynes,J.M. The General Theory of Employment, Interest and Money. Web. Retrieved June 2, 2017.
Montopoli, B. Obama: Only Government Can Save The Economy. CBS NEWS, February 9, 2009. Web. Retrieved June 2, 2017.
Yao. China's 4 trillion yuan stimulus to boost economy, domestic demand. Chinaview.cn, September, 9, 2008. Web. Retrieved June 2, 2017.