The role of government in influencing the macroeconomic sphere of the economy is one that cannot be understated. Fiscal policy denotes the concept of government putting in place measures for stimulating the economy. This is, for example, through more public spending and the reduction of the government lending rates. The article by Krugman (2014), talks about the need for more stringent fiscal policies to combat the lingering effects of the economic crisis.
In the view of Krugman, the current policies and measures in place by the state that are geared towards positively influencing the micro-economy are not sufficient in this respect. The writer identifies the cause of timidity on the part of the state. According to his view, this resulted from the fact that the requisite fiscal policies that are required to combat runaway unemployment would cause high levels of inflation. These inflation levels would be difficult to combat (Krugman, 2014).
For the above reason, therefore, the Obama administration has set in place fiscal policies to combat the worrying state of the economy, and in particular the state of unemployment. However, these measures have been half-hearted arising from the timidity that has been described above.
As already stated above, the government has a mandate to ensure and to intervene in the performance of the macro-economy, for purposes of ensuring that it remains stable and on track. This mandate is increasingly required during times of economic distress.
One such example is the one the world, including the United States, is currently coming out of. For this mandate to be effective, the requisite action should be one that properly and effectively tackles effects of the economic crisis that are negative (Brahmbhatt & Canuto, 2012). A half-hearted response would only bring about half-hearted gains.
One measure by the government to ensure that equilibrium in the macro-economy is achieved is through increased government spending within the economy. The reduction of government interest rates, as well as the provision of the stimulus to private companies, is also utilized. The outcome and effect of this particular intervention are the stimulations of economic activity that would then offset the detrimental effects such as unemployment.
However, there may also accrue negative effects on the economy that arises from such governmental action. One of the foremost negative effects of such fiscal policy is that the influx of government-induced money leads to increase in inflation. It is these competing positive and negative effects of fiscal policy that the article by Krugman alludes to (Brahmbhatt & Canuto, 2012).
In the view of this paper, fiscal policy put in place by government, especially during economic crises, is an important aspect for purposes of the survival of the economy. While a laissez-faire view of an economy is fundamental and prominent in an economy such as the American economy and market, there are instances when government intervention is required.
This particular instance, in my view, should be taken as one of those instances. While I agree with the opponents of more government intervention, with respect to the effect of increased inflation arising from such intervention, this fear must be tampered with the positive results of such intervention.
My view is that the government intervention in the economy should be stepped up in the short term, for purposes of reducing the appalling levels of unemployment currently witnessed across the country. This, in my view, is a more pressing need. This notion that the economy runs its own course has proven over the years to be ineffective.
Therefore increased government intervention is imperative, at least in the short-term, to improve the levels of employment. Once the levels of employment have improved, the government can then cut back on intervention and put in place, through requisite fiscal policies, anti-inflation measures.
References
Brahmbhatt, M. & Canuto, O. (2012). Fiscal Policy for Growth and Development. Web.
Krugman, P. (2014). The Timidity Trap. New York Times. Web.