The Economy
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  Economy
    Introduction | Economy 101
    Central Issues
    Federal Budget
    Federal Deficit and Debt
    Trade Deficit
    Income Inequality
    Wall Street
    Associated Issues
 




Introduction | Economy 101
Let’s start with a farm, and you’re the owner, the de-facto government. Now let’s add a foreman, Tom, who is the citizen and labor market, and his lovely wife, Rita. Of course, we must have some cows for currency. Some chickens would be nice too, since you would need smaller denominations in your currency system.

In this scenario, your Gross Domestic Product is the sales generated from the total number of cows and chicken your farm trades each year. Tom and Rita’s health expenses are, obviously, your healthcare expenses. The deduction you make from Tom’s salary to pay for their monthly upkeep is the taxes. Your budget will be the forecast of next year’s income and expenditure of the farm as a whole.

However, the death of a pregnant cow last spring is severely taxing your ability to meet your current expenses. So, you offer your neighbor one of next summer’s calves in exchange for some grains to feed your cows now. That’s you issuing a government-backed Treasury Bond, for some immediate capital in exchange for your forecasted future production. It also, sadly, creates a Government Debt.

Tom and Rita meanwhile, were facing problems of their own. Your decision to reduce Tom’s salary and increase his monthly deductions for upkeep couldn’t have come at a worst time. Rita is pregnant, you see, and Tom must now source for external financing to pay for the hospital bills and the new room for the baby. So, he approached his best friend, Humphrey, from the farm next door for a loan. Tom promised Humphrey one of his chickens next year in return for some eggs now. That introduces Private Debt into the mix.

Now that Tom has his own supply of reasonably priced eggs to compete with those that you sell to him, you have no choice other than to reduce the prices of your eggs. That’s market forces and to a lesser extent, capitalism, at work. However, the presence of so many eggs in the community has reduced their value as a commodity, and instead of the normal average of 40 eggs per bushel of wheat, it has now gone up to 45 eggs. That’s inflation making its grand entrance.

The inflation of the wheat started a trickle down effect to other products in the community, including essential items such as livestock feed, iron farming tools and fashionable cowboy hats. It forces you to reevaluate your budget for the following year. Since you have to give one of your calves to your neighbor as your bond matures, you will not have enough money to pay for your expenses, and thus, turning your budget into a deficit budget, forcing you to plan for another Calf-Bond to be issued next summer to offset the projected income shortfall.

And there you have it folks. A basic economic model mimicking the fundamentals of a free market economy. Now that you have a clearer picture of the jargon used in the current national economic debate, let’s delve in a little deeper, shall we?

The United States is the largest economy in the world. At $17.5 trillion, the United States has a 24.5% share of the entire planet’s gross product ($73.2 trillion) in 2015. Although this is significantly lower than its post-World War II share of the global economic output, this level of economic dominance has not been seen in the world since the era of the Mughal Empire, Song Dynasty and Roman Empire.



However, unlike the three empires, the United States does not have a similar ratio of global population, coming in at only 4.5%. If we factor in the young nation’s military and cultural influence, the United States is the richest, most powerful and most influential superpower in the history of the world.

Central Issues

Federal Budget
It’s been 15 years since the federal government last released a balanced budget. In fact, since 1970, the federal government has only passed balanced budgets on four occasions – the four-year stretch between 1998 and 2001. The Congressional Budget Office has estimated that the deficit for the 2016 federal budget will be $534 billion, the first increase since 2009, relative to GDP.

How did the government spend your money in 2015?


There are no easy, one size fits all solution to resolve this complex issue. Otherwise, it would have been done long ago. Drastic reductions in spending will impact the country’s security and its citizen’s well-being, both in the present and future. Unilateral reduction in the defense budget will affect at least 662 American military installations around the world, and its geopolitical influence in the international arena. Slashing down health care spending will endanger the lives of the sick. Cutting down on social security entitlements will deprive financial stability from a generation of Americans. A large decrease in the welfare budget will affect single mothers, the unemployed and their families, and malnourished children.

Raising taxes unilaterally to cover the shortfall, meanwhile, carries its own risk - businesses could flee the country and high net-worth individuals might feel unfairly punished for their economic success.

Clearly a middle ground exists – we have done it before. The key lies in effective and sustainable long-term policies.

It is worth mentioning that deficits are not limited to the federal government – 22 state governments are also running on deficits!

More on the Federal Budget
Candidates' Positions on the Federal Budget

Federal Deficit and Debt
Budget deficits are financed by borrowing money from open and private markets using monetary instruments such as bonds and Treasury Notes. This creates the federal debt, which is growing increasingly and alarmingly larger with each passing fiscal year. As of April 2016, the size of the federal debt has breached the $19 trillion mark, larger than the gross domestic product of the entire country in 2015 ($17.5 trillion). Per capita, this debt works out to more than $59,000 for every American, including children and senior citizens! The interest alone consumes more than 6% of the federal budget. Worryingly, the Congressional Budget Office predicts that by 2026, interests for the estimated $26 trillion debt will account for 13% of the federal budget – higher than the allotment for welfare.

More on the Deficit and Debt
Candidates' Positions on the Deficit and Debt

Trade Deficit
Trade deficits occur when a nation’s imports of goods and services are greater than its exports. They are caused by a variety of macroeconomic factors, including buying power, cost of production, raw materials requirements, and according to some, one-sided free trade agreements. Left unchecked, trade deficits could weaken a country’s economy through large outflows of currency, disincentivization of local manufacturing and agriculture, flow of jobs to foreign countries, and its dampening pressure on local wages.

Some economists, on the hand, argue that trade deficits are simply one facet of international trade, and is a reflection of the buying power of Americans. This also strengthens the position of the dollar as the world’s primary reserve currency. Furthermore, trade surpluses aren’t always a good thing, as they are indicative of weak local consumption of goods and services, undervalued currencies and high unemployment.


Income Inequality
Median middle class income grew roughly double in the thirty year period between the early 1940s and 1970s. However, in the four decades since, the American middle class has been ravaged almost beyond recognition. For starters, the size of the middle-income households has shrunk from 61% in 1971 to 50% in 2015. Lower income households, meanwhile, has grown from 25% to 29% during the corresponding period. There is also the matter of share of the national income. While households in the top 5% have seen their share rising from 16.3% in 1968 to 22.2% in 2013, middle class households on the other hand have seen their share falling from 53.2% to 45.8%. Adjusted for inflation, the median income for American households has only grown by 13.62% between 1975 and 2014. In fact, the Federal Reserve noted that the Great Recession of 2007 caused the median income of American households to drop between 7.7% and 13.6%.

Median Income Growth, 1975-2014 (adjusted for inflation)


Wall Street
The Great Recession of 2007 is the largest global and American economic contraction since World War II. It was caused by a variety of factors that came together to create a perfect economic storm that devastated economies around the world. The single biggest factor though, was the U.S. subprime mortgage crisis, which saw a domino-like crash of bundled mortgages traded between banks and financial institutions in Wall Street.

In the United States, the Great Recession caused the loss of at least 8 million jobs as the national unemployment rate crashed from 4.9% to 10.1%. $15 trillion was wiped off household wealth, and over five million Americans were forced to seek federal assistance. The impact of the 18-month recession even manifested socially, through fewer marriages and birth during and immediately after the period.

The U.S. government eventually had to bail out Wall Street as there were real fears of a systemic failure of the nation’s entire financial system. Former U.S. House Representative from Pennsylvania Paul E. Kanjorski touched on the subject during an interview with C-Span in 2009, and stated that the situation could even lead to a global economic collapse.

The $700 billion Wall Street bailout under the Emergency Economic Stabilization Act of 2008 has been repaid in full, and Wall Street is once again flying high. Nevertheless, there are legitimate concerns that Wall Street has yet to learn its lesson, and current legislative laws and tools are inadequate to prevent something similar from happening in the future. The powerful influence of the purported shadow banking system on American politics is also viewed with great unease by many.

Associated Issues
Jobs
Candidates' Positions on Jobs


Minimum Wage
Candidates' Positions on the Minimum Wage


Taxes
Candidates' Positions on Taxes





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