The U.S.:  An Economy in Crisis

 

    The recession started in December 2007.  It started with the reduction of employment.  “The employment slump was a key factor in determining the start of the recession.  The National Bureau of Economic Research, the arbiter of U.S. business cycles, announced this week that contraction began in December 2007, the month payrolls peaked.”[1]  Not long after that the news forecasts were telling of an increase in home foreclosures. From there the economic news was one disaster after another throughout the year 2008.  The U.S. economy is in crisis.  According to Webster a crisis is a “crucial time or state of affairs in which a decisive change is impending, especially one with a highly undesirable outcome.”  In order to improve the U.S. economy the U.S. needs to work toward lowering the unemployment rate.
    The latest figure for nationwide unemployment is 7.2% during the month of December 2008.  The U.S. lost 524,000 jobs during December,[2]  employment fell by 1.9 million over the last 4 months[3] and it  lost “2.6 million jobs in 2008, more than in any year since 1945.”[4]  “Job losses were large and widespread across most major industry sectors.”[5] Additionally, people are involuntarily turning to part time work in order to support themselves. [6]  This is the worst unemployment situation in almost 16 years[7] and rivals the Great Depression.   With so many people on the search for jobs it is understandable that consumers are cutting back on their spending.
    With Wal-Mart the world’s biggest retail chain losing 9.8% and Gap, Inc, the largest U.S. clothing retailer dropping 7.7%, a review of Standard & Poor’s 500 shows that retail companies lost 1.9% of their value. [8]  If people aren’t purchasing products, then the employees are not needed to keep the sales going or to staff the business side of the companies. For example, “Macy’s Inc., one of the nation’s largest department store chains, said it would shutter 11 stores across the country. . .”[9] The unemployment problem isn’t only because of the retail section.  With the numbers of mortgage defaults continuing to go up, investors are also concerned that there are more loan defaults on the way and financial stocks decreased 9.1%.[10]   Banks are failing due to the sub-prime mortgage fiasco of lending below the prime rate and taking unnecessary credit risks.  Failing banks means that the flow of money is stopping.  Without banks to lend money and other banks worried about doing any lending to commercial institutions then there isn’t money to keep people on the job.

    Without even mentioning the trend for companies to send manufacturing jobs out of the country to save labor costs, it is already easy to understand the vicious cycle that is occurring.  The “weakness in the economy feeds on itself—as consumers retrench, companies cut back, further undercutting spending[11] and putting more people out of work which then means less buying power.  If consumers can’t purchase as much then companies cut back again and on this goes.  Add to this the decline of stock prices and the falling home values and this equals a loss of net worth.   So, even for those still hanging on to their jobs, it means they don’t have the wealth they once had to make the purchases they once made.  Again, this adds to unemployment.

    The solution to this problem isn’t easy.  According to a law of physics, an object in motion tends to stay in motion.  In this case the downward slide of the economic health of the U.S. will tend to fall.   It is going to take a thick wall to stop the motion and then a combination of solutions to reverse the momentum.   The U.S. needs to act quickly and boldly with a stimulus program that will stop the downward slide and begin the reverse momentum while at the same time “creating an infrastructure for the future.”[12]  However, it is suggested that this stimulus package unlike the one earlier in 2008 will need to last for one to two years.[13]
    In order to reform the economy the reform must be self sustaining and that means getting people back on the job.  Once people are fully employed with a steady earning power, the economy will naturally expand.  So, that means that the government, the only one with any money, needs to invest in their country.  The most immediate need is to solve the most critical problems for those out of jobs.  This can be done by extending unemployment benefits, increasing food stamps and supporting health care[14] and then putting in place large public works projects that will provide jobs.  For the most part these solutions can be immediate.  It is obvious that the U.S. has an old infrastructure in need of rebuilding and the other efforts only take a vote of congress.
    A solution that may take a little longer to implement is to put money back into the hands of those still working through tax cuts.  This will also help expand the economy by increased buying power.   The need to eventually purchase those things that have worn out or are a planned investment will be necessary and provide a base for a longer lasting economic boost.  This also requires a vote by congress; but the cycle of tax reduction takes a little longer to get the money into the pockets of the tax payer.
    Then comes the longer term investment that will put employees back to work, as well as prepare for the future.  According to Samuelson and referring to the economic stimulus that is being supported by President-Elect Obama:  “We should resist the temptation to see the forthcoming ‘economic stimulus’ package as a panacea.  It won’t be.  At best, it would represent traditional ‘pump priming.’  This familiar metaphor is worth pondering.  To get the pump started, you add water; then the pump operates independently.  Similarly, the stimulus will succeed only if the economy resumes spontaneous expansion and job creation.”[15] 
     Once again there is the need for job creation.  But this kind is based on longer term investment in the ability for the country to grow its own economic wealth.  This means investment in education, in renewable, sustainable energy, in modernizing the nation’s electrical grid, expand broadband internet lines, invest in scientific innovation to create new industries, new jobs and medical breakthroughs.[16]  This idea of renewable energy is also proposed by Lawrence M. Krauss. “The next fifty years will be the period during which the source of the world’s power needs will, of necessity, shift from oil and gas to something else.  I anticipate that technology will meet the challenge for finding new, renewable, energy sources.”[17]
     The solutions center on the idea of getting Americans back to work.  By putting people in jobs it provides them with a sense of security, self respect and the ability to buy the things they need for their families.  This in turn bolsters the economy and drives the need for more jobs and puts more money into the federal treasury which can then be used to provide relief, support education and invest in technology to support a good standard of living.  Will all of this work?  As Obama said in his recent interview on CBS with Katie Couric:  “Failure is never an option.  Not in America.”[18]

 

 

 

 

 
 

 

 

 

 

 

 

Bibliography

 Andrea Chang, “More Store Closings Are Coming”   Los Angeles Times, January 9, 2009 (business section), C1.

 

Barack Obama. “Obama:’Capture Or Kill’ Bin Laden.Interview by Katie Couric. CBS

News. January 14, 2009.http://www.cbsnews.com/stories/2009/01/14/evening
snews/printable4722185.shtml

 

Employment Situation Summary:December 2008 (released 2009): 1& 3.

www.bls.gov/newrelease/empsit.nr0.htm (accessed January 12 2009).

 

Krauss, Lawrence M. Fifty Years from Today “Future World:  The Bad, the Good and

the Ugly.” Nashville, TN: Thomas Nelson, Inc, 2008.

 

Magazine Web site. Edited by James Cooper. www.businessweek.com/magazine

 

Magazine Web site. Edited by Jeannine Aversa. www.time.com/time

 

Magazine Web site. Edited by Robert J. Samuelson. www.newsweek.com/id/177983

 

News Web site. Edited by Glenn Hutchins. http://cnnmoney.printthis.clickability.com

 

News Web site. www.bloomberg.com/apps/news