Recession a Mirror Recession Has Thesis
- Length: 10 pages
- Sources: 3
- Subject: Economics
- Type: Thesis
- Paper: #30393654
Excerpt from Thesis :
"Construction -- which was a substantial component of investment -- fell because the housing stock exceeded the demand after 1925. " (Temin 9) Termin goes on to say that
Consumption fell because wages, other income, and capital gains all fell, with the fall in wages having the largest effect. Business investment fell because profits fell and -- to a lesser extent -- because the yield on equities rose. Residential construction fell because the stock of housing four years previously was high. Inventories fell because sales fell. But wages, profits, and sales all fell because consumption and investment fell." (Temin 49)
All of these cascading events could and to some degree are occurring today and the cascading effect will likely result in economic fears and realities, "…under freely-competitive capitalism, periods of boom and overproduction were followed by downturns which 'corrected' prior imbalances via falling prices" (Burkett 60) All of the economic events that occurred during the Depression are occurring today,
As banks withdraw credit, consumers and businesses hit by a loss of wealth and high debt burdens retrench on spending, precipitating an economic downturn. In the 1930s, worse came to worst, many banks failed, and a decade-long Great Depression ensued." ("Threat of Falling Market" A01)
Evoking Depression-era memories, Wells Fargo & Co. President John Stumpf a few months ago became the latest banker to predict continuing difficulties in the U.S. housing market as risky mortgages made to overextended borrowers disintegrate into large loan losses. ("Wells Fargo CEO: Housing evokes Great Depression…" NP) Stumpf goes on to say that housing and the lending market is worse than he has ever seen it and it mirrors the early stages of the Great Depression, when many circumstances, not the least of which was overextended families with large paper debt, upside down in mortgages are reeling during a decline in housing prices. ("Wells Fargo CEO: Housing evokes Great Depression…" NP) the occurrences are larger than one individual who might be able to save his or her family from utter loss, but there is a coming depression, the extreme of which we have yet to know.
When these issues dominate the minds of individuals and/or when they experience economic strife, such as unemployment, home foreclosure, business failures, reduced home value and even bankruptcy their spending habits become excessively different. Coupled with all these potential and real concerns are concerns about the increased cost of goods and services, which occurs during recession economies there is a potential for extreme economic change. Extreme economic change can then have extreme global impacts, especially in a cobweb of global interdependence.
It is not often common knowledge among everyday individuals how interdependent nations' economies are upon one another. Or even more importantly how much effect they have on the economy. Like I said before consumers are like ants, they are not completely able to see how their small part affects the big picture. Consumers making unwise decisions, supported by bad economic policy (Mcelvaine 265) and unregulated risky lending (Badger 72), are unaware how much they actually control the economy and caused the problem and how if they make better decisions in the future they might change the situation. This is likely a long time coming though and the economy is also likely to get much worse before then.
Most people even in trade businesses do not have a clear broad understanding of the effect that reduced consumer confidence in the U.S. And a resulting recession has on the demand for trade imports and/or exports or other exchange events at all.
Former Clinton Treasury Secretary Lawrence Summers…was & #8230;closer to the mark in a November 25 op-ed for the Financial Times in which he opined that "the odds now favor a U.S. recession that slows growth significantly on a global basis." Moreover, he warned, "there is the risk that the adverse impacts will be felt for the rest of this decade and beyond…(Jasper 10)
Summers and others then contend that a severe reduction in government spending is called for to reverse the effects of an extreme situation. Yet, this answer does not necessarily resolve the reduced consumer confidence or the level of unemployment that has again grown, as is expected in recession years. As with many groups the idea has been set in the consumers mind that the government (exactly like the depression) has the ability and control to reverse the situation. (Badger)
"The New Deal"
People with a historical mind, like those who might be reading some of the history of the Great Depression, might be much more logical about what the government can and cannot do to change the situation. The Great Depression resulted in government program development, the bulk of which was called "New Deal" legislation. Badger in fact describes these programs as ways that "put the government in business," to a level that had never before been seen in the U.S. market economy. (56) to some degree consumers (unaware of their own fault and responsibility and ability to change the situation) are looking to the government to again create "new deal" like programs and regulations that will help the economy recover. Some might even argue that this is why they elected a man for president that they believe would intervene and change the situation to help the economy. This may well be the case, and this will likely come in the form of even greater regulations and public works programs just like those seen during the Great Depression. (Badger 72)
Consumers and politicians are looking for fast solutions to the growing problem of the economy and looking outside of themselves to find them. Just like the period of the Great Depression many people will argue against excessive government spending (such as the huge stimulus packages seen today), huge public works projects (such as those proposed by many) and excessive restructuring and regulation of many institutions (such as those which are beginning to be seen in every area of private industry but especially finance) but again like the Great Depression those voices will likely fade as the situation gets even worse than it is today. (Badger 56-70)
It is not completely clear if government "new deal" programs will be successful in reversing the current economic trends to any great degree. One thing that could be argued to be the case is that anyone being proactive at this point might help consumers to have greater confidence and therefore invest and spend. Yet, this will not help at all if the consumer is not able to spend because they are unemployed and homeless. It is clear that the great depression and the current recession are not an exact mirror of one another as rules, laws and standards exist today that did not exist in the past. Yet, despite any changes associated with development, from a historical standpoint, the great depression and today's recession are very much alike. It is important to see the economy as something that goes up and down on a natural basis, but this can create a situation where, "history repeats itself."
Badger, Anthony J. The New Deal: The Depression Years, 1933-1940 New York: Ivan R. Dee, 2002.
Brummer, Alex. "It's Still the Economy, Stupid: Reckless Lending in America Is Giving the World Markets the Jitters. But in Washington, the Big Worry for Presidential Hopefuls Is Who Benefits Most from an Election-Year Recession." New Statesman 5 Nov. 2007: 20.
Burkett, Paul. "Forgetting the Lessons of the Great Depression." Review of Social Economy 52.1 (1994): 60.
Byrne, J. Peter, and Michael Diamond. "Affordable Housing, Land Tenure, and Urban Policy: The Matrix Revealed." Fordham Urban Law Journal 34.2 (2007): 527.
Egan, Timothy. The Worst Hard Time: The Untold Story of Those Who Survived the Great American Dust Bowl New York: Mariner Books, 2006
"Fears Housing Crisis Could Lead America into Recession; U.S. ECONOMY." The Birmingham Post (England) 25 Aug. 2007: 21.
Jasper, William F. "Reining in Spending: This Nation Is Headed toward Economic Collapse if Washington's Spendathon Continues Unabated. But the Good News Is We Can Do Something about it." The New American 4 Feb. 2008: 10.
Mcelvaine, Robert S. The Great Depression: America 1929-1941 New York: Three Rivers Press, 1993.
Rothermund, Dietmar. The Global Impact of the Great Depression, 1929-1939. London: Routledge, 1996.
Temin, Peter. Did Monetary Forces Cause the Great Depression?. New York W.W. Norton, 1976.
"Threat of Falling…