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The Economy, Monetary Policy, and Monopolies
The first task of the paper is to analyze the current economic situation in the United States of America. Taking about the current economic situation, it is important to understand that it is about the consequences of the global financial crisis. The crisis, which started in 2008, has affected national economies of the countries from the whole world. In fact, it is not over yet. The reasons for the crisis should be looked in two a. First of all, it sounds appropriate to say that there fundamental errors in the global financial system. Among such errors the following ones may be pointed out: credit character of the world’s economy, surplus of financial freedom and lack of regulations. On the other hand, there were specific institutions that have caused the crisis. Banks and other financial institutions, seeking for the profits, have issued “bad” financial instruments and manipulated financial information. As a result, a lot of investors have bought such financial instruments, which eventually have become “bad” debts. In the end, governments from all over the world were forced to save their economies.
It has been already mentioned that the crisis is not over yet. However, the current state of the U.S. economy can be called as a period of stabilization after the global financial crisis. The crisis has affected the stock market dramatically. Nowadays, the sock market of the United States of America is experiencing a period of growth. For instance, the DJIA index has grown for more than 26% for the year. It means that the trust to national economy and financial system is returning to the previous levels. It is a good sign for a national economy, since it will result in growing of indicators of a real economy, GDP, and employment.
Talking about the unemployment rate in the country, it is important to mention that it is still higher than it was in 2008. It was 5% before the crisis. The current rate is 7.5%. However, the highest unemployment rate was in 2011 – 9%. It only proves the words that a national economy of the country is stabilizing. The same situation is with inflation. Inflation rate was more than 4% in 2008. It has even reached 6% during the crisis. Nowadays it is about 1%. Stabilization of such factors as inflation and unemployment has let U.S. economy begin to growth. The current pace of growth of GDP is more than 2% per quarter. Thus, it is an obvious fact that a national economy is experiencing a period of stabilization after the crisis. It means new tasks and new challenges to the government.
Consumer spending is probably the key driver of growth of the U.S. economy. That is why it is not surprising that the government has tried to boost it. It has been done mainly via infusion of money in a national economy and growing government spending. These two instruments have reached the limit of their usage nowadays. This opinion can be proved by the following words:
“Government spending contracted by 4.9pc over the quarter, compared with an initial estimate of 4.1pc. It was led by a 12.1pc drop in defense spending, following a 22.1pc fall in the previous quarter. Paul Ashworth at Capital Economics said that the decline in government spending over the past two quarters was the biggest six-month contraction since the Korean War ended in 1953” (Chan).
Nowadays the government should look for new strategies to stimulate consumer spending. The first strategy may be associated with decreasing some taxes for some classes of society. As a result, people will have more money to spend. The second strategy is related to social initiatives of the government. It is important to decrease the degree of poverty in the country and bring more sufficient consumers to a national economy. It is believed that combination of these two steps will significantly increase the customer spending.
One of the ways to increase consumer spending and overall efficiency of an economy is to fight monopolies. Their existence is not a supportive factor for a country, since they harm principles of free market economy. That is why the federal government has always tried to limit their existence. It is related to the so-called antitrust law and performance.
Everyone knows such a famous company as Microsoft. In fact, it has been an object of antitrust law. The company was accused of creation a monopoly in 1998. It was claimed that the company abused monopoly on Intel-based computers, web-browsers and operational systems. The result of the trial was an agreement that the company will share its application programming interfaces with other companies. In the opposite case, it would have decreased efficiency of the industry and the whole economy. The biggest harm would have been done for customers, since they did not have a choice between technologies. Generally, it is a bad indicator for competition and technological development.
The following task of the paper is to define two methods, which should help to determine the customers, who receive discount, without altering of other customers. It is believed that the best method is proposing discounts for the constant customers that have proven their loyalty to a company. They deserve some positive bonuses from a company. Also, it is a great message for the other companies. The message is the following: when you stay with us for a long time you may receive a lot of significant discounts and other positive benefits. The second method should be based on consumer spending. Discounts are for those people, who spend a lot. Once again it is a good and interesting message: if you want discount, then you should spend more. These methods are very simple and fair. In fact, they are broadly used by the companies from the whole world and different industries.
Finally, we should get back to monopoly. The last task of the paper is to define three reasons why monopoly may be inefficient for a national economy. These reasons are provided below.
First of all, a monopoly limits the degree of competition in a national economy. It is a well-known fact that competition is the main driver of progress and development in a national economy. Absence of competition will lead to technological crisis.
Second, existence of monopolies is usually associated with growing prices. Inflation can be caused by such situation. The overall costs of the fight against inflation will be higher than benefits of a particular monopoly in such situation. It is called price discrimination.
“With price discrimination, some consumers pay higher prices than they would if there was a single price. However, many in the group paying lower prices will now be getting something they otherwise would not have purchased. Universities are increasing their use of price discrimination” (Inefficiencies of monopolies).
Finally, monopolies decrease stimulus and trust of people to a market. New businesses are not created. A market is ruled by a set of companies. In the end, the overall efficiency of such system will fall significantly. As a result, a monopoly will “eat” itself.