As the U.S. Economy continues to under-perform and thousands remain unemployed and risk losing their homes, other economies in the world are experiencing growth. In India, they are experienced the fastest growth rate in more than two years during the last quarter with a GDP growth of 8.8% (BBC News Business, 2010). The Russian economy showed a 4% growth in spite of a drought and businesses having to shut down due to wild fires (Google News a, 2010). The unemployment rate in Germany remains stable at 7.6% while the rate in the U.S. hovers around 10% (Google News b, 2010).
These numbers show that the U.S. economy continues to struggle while much of the rest of the world is starting to recover. The question we must ask is what they are doing that we are not.
In India, they credit their growth with strongly rising sales of Goods at home to Indian customers (BBC News Business, 2010). This means that demand for goods in India is increasing which causes us to assume the Indian people must have more income to spend or they are incurring debt. However, India has raised its interest rates four times to curb inflation. This increase in the cost of borrowing makes it more probable that the increase in demand is due to rising incomes in the developing economy of India.
In Russia, the recovery of energy prices has made up for the effects of the drought and wildfires. Russia is also experiencing increased economic activity, which led to a strong performance in the second quarter. We could therefore expect that the growth rate will increase as Russia recovers from the effects of the wildfires and drought (Google News a, 2010).
Germany’s stable employment picture is due to stimulus that subsidized shorter working hours so companies did not have to layoff workers but could keep them on their payroll with the government subsidizing the shortfall of income for these individuals. As the economy recovers, these workers are returning to full-time hours, reducing government subsidies and government deficits (Google News b, 2010). Since these employees were never fully on unemployment, and never experienced a reduction in their incomes, Germany avoided an increase in home foreclosures like those that we have experienced in the U.S.
The U.S. lags behind the rest of the world because threats of higher taxation due to the expiring of the Bush tax cuts, assessment of fees to pay for the new health care program, and higher energy costs because of cap and trade are stifling innovation and consumer demand. Instead of recovering energy prices, the U.S. has placed a moratorium on offshore drilling because of one accident on one oil platform. The BP oil spill was a tragic ecological disaster but it was an isolated incident and does not require the stoppage of all offshore drilling.
We also lag behind because the U.S. idea of a jobs bill is not the creation of more private sector jobs but the extension of unemployment benefits. Instead of following Germany’s lead by encouraging companies to cut hours instead of employees, and subsidizing workers who work less hours so they could remain on company payrolls, we opt to let the companies layoff workers and pay them unemployment benefits in perpetuity.
What our economy needs is a freeing up of capital through lower taxation. Encouragement of innovation through reduced regulation. With these incentives, U.S. companies will have capital for research and development and expansion. This will lead to more jobs, increased consumer demand, and lower unemployment. In November, we have an opportunity to vote for change that results in smaller government that is more responsive. We must vote for government that will begin freeing up capital so America can get back to work doing what made us great.
References
BBC News Business. (2010, August 31). India growth rate rises to 8.8%. Retrieved from http://ww.bbc.co.uk/news/business-11135197
Google News a. (2010, August 31). Russia grows 4% as economy recovers from crisis. Retrieved from http://www.google.com/hostednews/afp/article/ALeqM5iakitYFiqHmNaZPjcLXg29BJ5Kw
Google News b. (2010, august 31). German official unemployment rate stable at 7.6%. Retrieved from http://www.google.com/hostdnews/afp/article/ALeqM5hpC20s4vZTTZQwJRzslwIdKy6Uug
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