Most important political, economical and social problem facing the U.S.

As September 2008 draws to a close, the most important political, economical and social problem facing the U.S. is the dramatic economic downturn. The economy, when strong, is a massive balancing act, and if any part of it moves off balance other parts react and are affected. Many issues are involved in the economic slide including interest rates, spending on the Iraq War, bankruptcies and unemployment. One of the root problems of this crisis appears to be the collapse of the housing market. The political environment through regulation permitted risky mortgages – and lots of them. When the economy slowed, defaults started, inflated prices dropped, and new housing construction slowed. This has caused the first collapse of U.S. banks in many years, has caused fear in investors and has affected the stock market.
When the economy begins a downward turn as we are seeing, the “invisible hand” theory by Adam Smith is demonstrated. This theory suggests that people are mostly selfish, and when our economy drops off they get nervous and stop spending money – creating a viscous circle.
The White House along with leaders from the Democratic and Republican parties proposed a solution to the financial crisis. With much objection to the multibillion dollar bailout of American industries, an idea has risen to increase the Federal Deposit Insurance Corp. limit. Lawmakers along with chairman of the FDIC think this could help ease the crisis of confidence in the banking system as well as encourage banks to begin more lending. This proposal might attract members of both parties who want to help small business owners and avert runs on banks by customers fearful of losing their savings. I believe that this proposition is a start in the right direction to stabilize our economy.
As I write, Congress is attempting again, after initial failure, to craft a legislation solution. This is a clear example of how the economy and the political sector are intertwined and how a solution must involve both. A hallmark of the U.S. government has been that in a free-market democracy, the government only takes over services that business can’t or won’t do (like defense). If the government bails out the banking industry we will be seeing a historic event that shows how closely politics and the economy are linked – and the social effects of problems in the economy.