Introduction
The movie I.O.U.S.A brought to the attention of America the consequences of their national debt and the need for the government of the US to show some more financial responsibility. Most of the Americans and their elected officials are aware of the financial challenges facing the US it is upon them to act before the situation worsens. I.O.U.S.A was produced to focus on the solutions to the financial crisis that the nation is facing. It has a discussion panel with professionals from a range of view points spanning across different generations.
i. How are consumers' short-term actions creating long-term consequences? What are those consequences?
In the movie, we get two types of deficit spending which are short-term stimulus and long-term structural failures. The short-term stimulus looks good to the consumers once its there and they like it. However, in economic terms, this is disastrous since it reduces the effectiveness of the whole scenario. It also results into the reduction of the elasticity effect. In order to rectify the occurrence of such a situation, it should be a requirement that for any short-term stimulus, there is a counter cyclical action to balance the situation. Some other action that led to the debt crisis was a tax cut without a cut in spending. This resulted into deferred tax which also had adverse effects in the US economy. Some of the consumers’ short term actions include: short-term consumer loans, spending and lending. (Raymond & Howard, 2008)These actions amalgamated together results into the following long-term consequences that the US is facing:
i. Deferred tax
ii. Long-term structural failures
In order to rectify the above mentioned problems, the following proposals are made in part 2 of the movie:
a) grow the work force
b) shrink the retiree population
c) reduce benefits
d) raise taxes
ii. How has globalization contributed to the trade deficit?
Globalization has a direct effect on the trade deficit in different countries across the globe. Concerns on globalization have a taken a positive path in the recent past. Many activists have also realized that it is the world governments that who are the backbone of the big international organizations. The recent global financial crisis pushed for an extraordinary cooperation between the major world economies. The main goal for this cooperation was to standardize and effectively regulate the global financial markets. According to experts, this type of cooperation resulted into even more serious problems. (Stiglitz, 2003)
a) Formation of World Trade Organization – pushing for free trade through reduction of tariff and non-tariff barriers to trade. This has had a negative effect especially due to the opposition received from the less developed countries
b) Formation of World Bank: issuing conditional loans which impact trade negatively as countries is required to value their currencies against the dollar, lift import and export restrictions and remove price controls and state subsidies. This has also impacted trade negatively especially to the countries receiving the funding.
c) Globalization has resulted into different conditions being issued to the less developed countries which has impacted trade in those countries negatively.
iii. How has the fashion industry played a role in furthering this trade deficit?
Globalization has led to trade imbalances, imports, exports and deficits. The current US fashion industry has faced significant challenges as the volume of the imported goods which are entering the domestic market has increased significantly. The US government has negotiated a variety of trade agreements and extended preferential treatment including duty and quota free access to the US market for the products of the fashion industry. This provision for the apparel industry has had a major contribution towards trade deficit.
iv. How will this deficit affect consumer spending in the short term and the long term?
The consumer spending is likely to increase in the first few years and then drop tremendously. This is because as the preferential treatment is being offered to the products of the apparel industry, trade restrictions are removed and thus opening more avenue for the entry of different goods from different parts of the world. This will result into the prices of goods reducing and later on substandard goods will gain an entry into the market. This will eventually affect the consumer spending negatively due to lack of confidence on the products.
v. What can consumers do to help remedy the situation?
The consumers should form a culture of saving and try controlling their spending no matter the market situation. If they have a predictable stable spending, then the market price of the goods will not be affected and hence situations of trade deficits will not occur.
vi. What are some things that we, as members of the fashion business - an industry that relies on credit and consumer spending - can do in response to all of these changes?
Members of the fashion industry should try to control the amount of credit they offer and also oppose the lift on the imports and exports so as to ensure a stable market. Once the market has been stabilized, then such occurrences of trade deficit are not likely to occur.
If the system is made to be fairer to all people then the trade deficit is likely to be reduced. The best way of doing this without a planned economy is through the use of tax reforms. Many rich people prefer the redistribution of wealth through private channels and not through the public channels since the private channels are easier to manipulate. Tax reforms are therefore very essential in building peace since there is no enough redistribution of wealth in America. This shows the reason why graduated tax is very essential and just. The best way to avoid the need for redistribution of wealth is if people are paid according to the value of their labor in relation to the overall contribution to the entire economic system. If proper tax reform is implemented, then there will be a regulation in the amount of imports and exports into and outside America respectively. This will ensure that cases of trade deficits are eliminated and eventually create more employment opportunities to the Americans especially those ones who are involved in trade. If there are no proper tax reforms in place, investors will shy off the trade industry in US and will seek for alternatives elsewhere. The presence of a proper tax reform system in place will increase investor confidence thus boost trade and eventually bring back the employers to the financial sector.
Work Cited List
Joseph E. Stiglitz. Globalization and Its Discontents W. W. Norton & Company; 1 edition 2003
Joseph E. Stiglitz Freefall: America, Free Markets, and the Sinking of the World Economy
Joseph E. Stiglitz (Author)
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W. W. Norton & Company; 2010
Addison Wiggin, Kate Incontrera, David Walker I.O.U.S.A.: One Nation. Under Stress. In Debt.
Wiley; 1 edition 2008
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Addison Wiggin (Author)
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I.O.U.S.A.: One Nation. Under Stress. In
Debt. Wiley Publishers 2008)
Michael R. Solomon Consumer Behavior: Buying, Having, and Being, 6th Edition
Pearson/Prentice Hall Publishers ; 2003Michael R. Solomon (Author)
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Catherine Mann Is the US Trade Deficit Sustainable? Institute for International Economics 1999
Ernest H. Preeg The Trade Deficit, the Dollar, and the U.S. National Interest Hudson Institute
Publishers;2000
Ernest H. Preeg (Author)
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Robert Eisner The Great Deficit Scare: The Federal Budget, Trade, and Social Security
Robert Eisner (Author)
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Twentieth Century Foundation Publishers 1997
Raymond L. Richman, Howard B. Richman, Jesse T. Richman Trading Away Our Future: How
to Fix Our Government-Driven Trade Deficits and Faulty Tax System Before it's Too
Late Raymond L. Richman (Author)
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Ideal Taxes Association; 2008
http://www.iousathemovie.com
