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Major Forces in US Economy Report (Assessment)

Impact of the welfare State

One of the questions that dominated American Economic Status within the last twenty years has been based on the size and operations of the Federal government. Research in recent years reveals that one-fourth share of the nation’s Gross Domestic Product went to the Federal government.

There has been tremendous increase in Federal government expenditures since World War II. However, the Federal government has contributed significantly towards enhancing functioning capabilities of U.S. economy.

These include provision of such necessities as common defense, establishment of legal framework used in resolving disputes, construction of infrastructure as well as supervision of minimum safety conditions within the country.

However, such positive contributions have been impacted by some negative aspects such as excessive taxation, over-regulation, over-spending within the some sectors as well as offering special favors (Visco 1-12).

Impact of Inflation

The rate of inflation over the past twenty years have greatly impacted America’s economy since it is directly linked to standards of living within a country. However, economists have proved no accuracy on the exact timing when inflation normally interferes with market signals.

The rate of inflation that has hit American economy over the years was at some point referred to as ‘public enemy number one’. This was because differences in prices over time were seen as reflection on fundamental changes within societal values rather than economic forces.

Besides, inflation has done economic damage within the last twenty years by distorting investment as well as consumption decisions. This is evident from the nature of uncertainty inflation’s impact has created amongst household and businesses on future courses.

There is also inflation’s point of interaction with United State’s tax code which has easily distorted decisions on purchasing power (Samuelson and Solow 177-194).

Impact of Outsourcing

Outsourcing has had both positive and negative impact on the economy of United States over the past couple of years.

In the positive aspect, outsourcing is seen as one avenue which has enabled companies to save money as well as opened up opportunities leading to majority of Americans holding employment at higher positions within the global market.

Such practice has provided significant gains towards United State’s economy owing to its contributions towards cheaper imports and also strengthening of exports. However, on the negative side, outsourcing has contributed towards stripping jobs from thousands of Americans on the skilled and semi-skilled platforms.

Creation of jobless Americans has led towards low purchasing power leaving producers with inability to obtain revenue due to lack of buyers. There has been record loss of income within the local, state and federal governments.

This has led towards fewer contributions towards Social Security as well as Medicare and created damage on the side of sales and tax revenues. The revelation behind this is that outsourcing not only leads to loss of skilled labor but also monetary gains.

There should be understanding on the fact that payment on service jobs is always lower compared to manufacturing jobs and at the same time, service jobs do not contribute towards creation of national wealth (Saleem).

However, manufacturing jobs have had significant contributions towards American economy based on loss of skills and resources used in retraining workforce.

In such cases there has been loss of industrial infrastructure brought about by closing down of U.S. factories and afterwards exporting available capital which is ultimately never available for domestic economic expansion.

Research statistics revealed that more than 400,000 U.S. jobs had been outsourced of which the projection might reach over three million by the year 2015. However, from research, the beneficiaries of outsourcing are considered to be U.S. investors, shareholders as well as American consumers.

At the same time it is believed that outsourcing to less developed countries assist in developing those economies as well as giving them ability to pay back their debts and at the same time increases trade for United States products (Saleem 1).


The rate of unemployment has had tremendous impact on both social and economic sectors. The inability of people to meet their needs owing to unemployment has led towards increase in crime rates, health problems and homelessness amongst other social challenges.

Unemployment has also lowered the ability of government to provide adequate service to its people since there is less payment in income and sales taxes. Greater reliance on government assistance has created economic stress on social programs as well as on taxpayers.

Future Impacts


The nature of political landscape will greatly influence America’s economic stability in future. According to political conservatives there is always too much of government regulations on businesses. In most instances some of the rules required for firms to adhere to are going to be unnecessarily costly.

Such instances will require government to set achievable standards on businesses instead of dictating on detailed operational rules and regulations. For example new laws have been designed to ensure that firms do not harm the environment hence allowing people to enjoy (Ball and Croushore1-55).


Cases of high unemployment rates have led to fall in production of goods and services since there is low purchasing power within the market.

This has created some sense of reluctance on the side of investors owing to the fact that when production and consumption are low, there is no guarantee of getting return on investment.

Welfare State

Other scenarios may arise in the light of government actions, for instance, positive effects of government contributes towards reduction on production of goods and services hence ultimate reduction in prices. This leads towards the rise in consumer and producer surplus within the economy.

In case of negative impact towards the economy, there is always substantial increase in cost of production hence rising in prices. This leads to ‘deadweight’ loss towards the economy of government since total volume on consumer and producer surplus decreases drastically.

From government records, much of the actual government spending has resulted into production of output of which true value is always less than cost of production. Despite these, a portion of such spending is considered as addition on GDP based on cost of production.

Problem arises in the presence of government activities not reflected on government overall spending statistics but have significant impact on production of goods and services (Visco 1-12).

Inflation rates

Very high inflation rates have had adverse effects on economic decisions and at the same time, moderate levels of inflation have the capability of distorting investment as well as consumption decisions (Samuelson and Solow 177-194).

Consequently, adjustment or reducing inflation to zero have impacts in lost output and unemployment. At the same time inflation increases complexities in the evaluation process done on financial assets, insurance policies, stocks and bonds.

This results into shifting of power within financial set-ups towards the knowledgeable hence ignoring inputs of average persons.

Works Cited

Ball, Laurence & Dean, Croushore. “Expectations and the Effects of Monetary Policy.” National Bureau of Economic Research Working Paper, 5344 (1995): 1-55.

Saleem, Hasan 2008, How Outsourcing Affects the U.S. Economy. PDF file. <>

Samuelson, Paul & Robert, Solow. “The Analytics of Anti-Inflationary Policy.” American Economic Review. 5 (1990): 177-194.

Visco, Ignazio. “Global Economic Integration: Opportunities and Challenges.” The Economist. (2000): 1-12.

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