This article is titled “New Respect is bestowed on Fiscal Policy” and it reveals how the fiscal policies of major economies have featured in the recession era. The article appears in the online publication of “The New York Times” and it is authored by a renowned business reporter. According to the article, the economic outlook of many developed countries is about to enter a period of uncertainty. The author of the article notes that unlike in the past, most countries are not afraid of experimenting with their fiscal policies.
Furthermore, the experimental fiscal policies that have been adopted by the world’s major economies have ushered in a period of unpredictable economic outcomes. The article also explores some of the fiscal policies that have been “used around the world since the 2008 economic crisis” (Kaletsky, 2014). Most of these ‘crunch time’ fiscal policies have revealed that governments’ decisions regarding public spending and tax rates have the biggest impacts on economic revival.
The author of this article also notes that after the 2008 economic crisis, most countries came up with fiscal policies that defied “rhetorical predictions of politicians and central bankers” (Kaletsky, 2014). The article indicates that when formulating fiscal policy, the decision to reduce public spending has always yielded negative results. On the other hand, countries that are going through a financial crisis benefit more if they ignore deficits in their economies.
Increased government borrowing has also emerged as a viable tool for dealing with economic recessions. The article concludes by noting that previously, it was assumed that Keynesian monetary policies were enough when dealing with economic crises. However, fiscal policies have emerged as the tools of choice when balancing global economic anomalies.
This article is closely connected to several economic principles and subjects including taxation, fiscal policy, government spending, and public debt. However, the author of the article explores how government spending is used as a tool of effecting fiscal policy. The article notes that fiscal policy is emerging as the most effective tool of dealing with any economic crisis. Nevertheless, the issue of government spending versus public spending is explored in detail by the author.
For instance, the article cites the examples of countries such as Britain, Japan, and the United States and their attempts to stabilize their economies by reducing public borrowing (Kaletsky, 2014). The article indicates that reducing public spending led these countries into bigger financial problems. Most economic theories present different opinions on the effectiveness of government or public borrowing during recessions.
Nevertheless, since 2008 it has become clear that fiscal policies have become broad enough to encompass various economic theories. Furthermore, modern fiscal policies have to be considerate of the private sector. In times of recession, the private sector does not always conform to the government’s fiscal policy. The effects of import and export markets also feature heavily in fiscal policy formulation. The article explores all possible angles of a government’s fiscal policy.
The issue of interest rates and fiscal policy is also highlighted by the article. According to the author, using interest rates to formulate fiscal policy is no longer viable because the rates are dropping to near zero. Consequently, it would not be possible for the government to adjust these rates further down as part of its fiscal policy.
The article presents an issue that is relatively new to the world of economics. Since the 2008 recession, some economic theories and principles have been greatly challenged. For example, the recession has put the fiscal policy burden on governments whilst other economic players such as central banks have assumed background roles. After 2008, the world witnessed the use of untested fiscal policies.
For example, the Japanese government has responded to the threat of a recession by coming up with a policy that seeks to “increase consumption tax” (Kaletsky, 2014). This radical move defies traditional fiscal policies. Consequently, the role of ‘the economist’ in the current economic climate has been redefined greatly. For example, economists are forced to disregard historical economic solutions and adopt creative solutions.
During the 2008 economic meltdown, countries that used past experiences to solve their current problems mostly failed. On the other hand, countries that embraced new and untested strategies achieved considerable success during the recession. The author of this article is keen to cover all possible angles of global fiscal policies. Nevertheless, the article should have delved into the future and explored the post recession economic climate.
At the beginning of the article, the author notes that it is difficult to predict the future of global economy. However, the article should have provided a glimpse of the future global economy. The reasoning behind this argument is that the article begins by exploring past economic events such as the 2008 economic crisis.
Therefore, it is justifiable to speculate how the post recession world will look like. In my view, the post recession world will not conform to any generic fiscal policies. Instead, fiscal deficits will require both internal and external stimulations.
Reference
Kaletsky, A. (2014). New respect is bestowed on fiscal policy. The New York Times. Web.