On November 6, 2003 the chairman of the board of governors for the Federal Reserve and the federal open market committee, Alan Greenspan, spoke to the securities industry association about the future of the U.S. economy.
He started off with the positive recent economic activity for the past two years: a vibrant housing market; risk spreads and the price of oil fell sharply; stock prices rose; tax cuts; real GDP increased; possibility of the labor market stabilizing; rise in productivity. However, he said the booming short-term U.S. economy conflicts with the longer-term consequences. .
One concern with the future is the fast-approaching retirement of the baby-boom generation. The social security and Medicare benefits promised them under the current law cannot be financed with existing tax rates without causing a large budget deficit increase and destabilizing effects on the U.S. economy. This has an impact on the people of my generation because we will be the ones working and carrying the burden. On the other hand, where will jobs come from? Even though productivity has been increasing the job market has been weak.
The debate is over whether to cut taxes or increase deficit spending in order to stimulate or sustain the U.S. economy and long-term growth. However, with this tax-cut some would argue that it is one-sided because it tends to favor the rich. Because of the money the rich lost in corporate governance scandals they may take their tax savings and put it back into their 401 K (retirement) or stocks instead of spending it and creating jobs. So would tax cuts really be an efficient way to stimulate the economy and long-term growth? I would argue that spending on infrastructures such as roads and schools would be of long-term benefit to the U.S. economy.
The growth spurt created by Homeland security and the war in Iraq must be replaced. No one knows how long it will last and what might follow peace.
