Using A RantAWeek to clarify the complexities of news.
Many countries around the world spend more than they receive every year. This is called deficit spending, and countries often have to borrow the money that they spend because of it. Recently, many countries have had trouble repaying the money they have borrowed. In extreme situations like Greece and Ireland, bailouts were needed to give emergency cash and avoid a default. Still, bailouts are only short term solutions. The search for a feasible long term solution to solve debt related problems is a large component of Europe’s attempts to combat its current debt crisis.
People often incorrectly assume that America is a capitalist nation. However, as the government plays some role in the marketplace, America can not be considered a purely capitalist nation. Still, most nations today, including the U.S., have many elements of a capitalist system. In capitalism, private businesses have the power to produce the goods and services they wish and consumers can choose which businesses to patronize, creating a free market. However, the high tax rate in many countries, especially within Europe, shows that socialism still plays a role in many nations. In modern-day socialism, the government has a role in dictating the terms of the marketplace. Communism is still used as a economic system in nations such as North Korea, Laos and Vietnam. While China has a Communist political system, it has made many capitalist reforms.
The cost of money itself is dictated by the rules of supply and demand. Inflation occurs when the value of money decreases. The opposite of inflation is deflation, in which the value of money increases. The effects of inflation are often seen in times of economic growth. This is normal, as economic prosperity increases the supply of money. However, inflation can wreak havoc on an economy in times of slow growth (stagflation) or when inflation runs rampant (hyperinflation).
Keynesian economists believe that a poor economy is best responded to with a considerable increase in government spending. The logic behind this tactic is that it will stimulate the economy and revive it. Conversely, Keynesian economists are fearful of too much growth and feel the government should work to prevent a dangerous bubble through growth-reducing measures. Franklin Roosevelt’s New Deal incorporated Keynesian principles as a response to the Great Depression with mixed results. Critics argue that the deficits caused by a government’s stimulus attempts outweigh any benefits the stimulus creates.
In many ways a refute to Keynesian logic, supply-side economists believe that a strong economy is best maintained by giving suppliers of goods and services incentives to grow and invest. In contrast to the commonplace government interaction that is seen in Keynesian economics, supply side economics argues for a smaller government role. For this reason, many advocates of supply-side economics are also supporters of tax cuts. They also believe that too high of tax rates will discourage production and hamper growth. Critics argue that supply-side economics allows rich suppliers to prosper while consumers have to wait for wealth to trickle down.
Throughout much of human history, most people were self-employed. The Industrial Revolution changed the foundations of employment as large numbers of people began to work for others. This has led to an unemployment issue in the modern world, where many find themselves without a job. The livelihoods of many are now at the mercy of the business cycle, and a poor economy can affect the average worker in a historically unprecedented way. Unemployment rates above 10% in many nations show the widespread issues unemployment presents.