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To start with it is necessary to say, that global economic politics faces two main problems in the recent few years. These challenges are all over unemployment and continuous inflation. But on the whole, the global economy concerns not only unemployment and inflation, but also economic growth and displaced workers, increased government spending, reduced taxes, and a reduced deficit, and the tradeoff between capitalism and socialism. Most scientists also refer to the economic policy problems of land, labor, and capital, but in a lesser measure, they regard space limitations.
The book by Stuart S. Nagel “Handbook of Global Economic Policy” states the following ways of solving the most burning issues of the global economy. These are conservative and liberal alternatives. One of the brightest examples of the conservative solution to such challenges is “Reaganomics”. This approach involves the decrease of taxes in order to stimulate employment and decrease domestic spending to struggle inflation. This strategy opposed the official economic development course of the democratic government. It involved the creation of government jobs to increase employment and controlling the prices to keep the inflation on the proper level.
Liberal alternatives of challenging inflation and unemployment are not so arduous as conservative measures. The rules of the liberal economy approach suppose to increase the money supply, which helps to struggle unemployment, but these measures worsen inflation. As far as lowering the interest rates helps to reduce unemployment, it has little impact upon the occupation sphere, as enterprises are reluctant to borrow money if they lack employees. Lowering taxes and increasing spending to fight unemployment may not be politically feasible when the national debt and deficit are already too high.
The author also presents the third alternative, called “win win”. This strategy is completely different from the mentioned above liberal and conservative measures. It includes the adoption of new technologies and raising the skills of workers. This is claimed to help reducing inflation by increasing the productivity of labor to offset increased wages, raise the quality of goods to offset increased prices, and increasing the domestic income to further offset increased prices. The increase of the new technologies adoption and raising the skills of workers help to lower the unemployment level by making the workers more employable, increasing domestic spending to motivate the creation of more jobs, and increasing the efficiency and wage rates, thereby offsetting a possible reduction in hours (Nagel, 2000).
Global economy challenges are solved not only by state governments but also by international organizations are created. One of these organizations is the Economic and Monetary Union (EMU). EMU never changes the responsibility point for policies except for the policies of monetary and exchange rates. Policies touching upon external trade and the integration of domestic markets are already in the area of EU competence. Fiscal and labor market policies will continue to be decided mostly at the national level. The monetary and exchange rate policies which are controlled at the euro-area level will be of sufficient global importance. The potential euro area competes with the United States in terms of output and trade, and the role of the euro in financial operations ultimately may challenge that of the U.S. dollar. EMU will be significantly important for countries with close trade and financial ties within the euro area; these are countries in Central and Eastern Europe and in the Mediterranean region and many countries in Africa. (Economic Policy Challenges Facing the Euro Area and the External Implications of EMU)
- Nagel, Stuart S., ed. Handbook of Global Economic Policy. New York: Marcel Dekker, 2000.
- “Economic Policy Challenges Facing the Euro Area and the External Implications of EMU.” World Economic Outlook : 123